Trust, Confidence and the Idea of Fiduciary Duty

by Rob L. Wiley

Suppose you have a deceased aunt who left a close friend as the executor of her estate. Maybe it was a sizeable estate involving not only cash in bank accounts, but stocks and bonds and real property. Suppose also, not everything was clear in your aunt’s will about who was to get what. After a time, you suspect the friend appointed as executor of using some of the property for his own benefit or for his friends. You may not know it, but you could be witnessing what the law calls a breach of fiduciary duty.

We regularly see breach of fiduciary duty as an issue in our litigation practice at Stewart & Wiley. Such claims arise in several contexts, but always concern a failure by someone to fulfill obligations the law imposes on them or that they have voluntarily taken on. These situations require thorough knowledge of the law and aggressive action to develop the case factually. At FJSW, we have extensive experience in representing plaintiffs and defendants in such cases. We’re prepared to move quickly to unravel whatever situation our clients confront.

The law does not impose a general duty to assist or protect others. If, however, a relationship of trust and confidence exists between parties, legal obligations follow. If the party owing the duty breaches it, the party who was to benefit may have a right to recover for his or her losses. Fiduciary litigation concerns such claims.

A fiduciary duty has been called “the most exacting civil duty recognized by law.” In practice this means that someone having a fiduciary duty has to act, first and foremost, in the interest of the person to whom they have the duty, even if that means putting the interest of that other party ahead of their own.

The law recognizes two kinds of fiduciary relationships, beginning with those imposed by law. Some of the more common kinds include, as in our example, executors, partners, agents, corporate officers, trustees, and lawyers. This isn’t a comprehensive list, but it broadly describes the legally imposed fiduciary relationships. In essence, the law recognizes that people and organizations performing certain functions always take on the obligation to serve the other party with loyalty, good faith, the strictest integrity, and fair and honest dealing.

The fact the law imposes the relationship has consequences in fiduciary litigation. These cases don’t revolve around proving the existence of the duty. A plaintiff complaining that the executor of a deceased relative’s estate has misused estate property does not have to spend time showing that the defendant executor had a duty of loyalty, good faith, and fair dealing toward the beneficiaries. The law establishes the duty and the case concerns whether the executor breached the duty and the amount of damages. This principle applies in other legally established fiduciary relationships such as attorney-client, principal-agent, and in partnerships.

A second type of fiduciary relationship develops out of dealings between parties and depends on the nature of the interaction. In such informal relationships, one party places trust and confidence in the other and relies on that party to exercise the same degree of loyalty, integrity, and fair and honest dealing required of formal fiduciaries. Courts do not lightly recognize these relationships and, in litigation, the parties may hotly contest whether such a relationship existed at all.

Informal fiduciaries often result from situations in which one party has a disability and puts their affairs into the hands of a person or organization, counting on that party to protect them and/or their property. Aged or infirm persons may find themselves in such circumstances. Indeed, these cases hinge on factors like age, physical and mental condition, and emotional dependence. Every case is different and it is impossible to say whether a court will recognize the existence of a fiduciary relationship without knowing all the facts and circumstances. Sometimes, the litigation turns solely on those facts because no doubt exists about whether the fiduciary duty was violated, only whether it existed in the first place.

We should point out one important caution in informal fiduciary situations. The mere existence of a contract between the parties does not mean the parties have a relationship of trust and confidence. Business people have an obligation to deal with each other fairly, but in a business transaction, a fiduciary relationship must exist apart from the contractual arrangement. The close cases, of course, are the most interesting ones. Frequently, litigation turns on whether the parties had a relationship of trust and confidence before they entered into the business transaction.

We have defended individuals accused of breaching a fiduciary duty and prosecuted cases on behalf of plaintiffs who asserted that another party failed to live up to a fiduciary obligation. In both kinds of cases we seek an understanding of the facts and aggressively pursue the claims or defenses available to our clients, using our years of litigation experience.

If we can help, please call me at 281.367.8007 or e-mail me at [email protected].

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