Understanding fiduciary duty is an important part of business law. Shareholders depend of Boards of Directors to run a business, and those boards have legal (if not moral) responsibilities. Fiduciary duties are those responsibilities. As far as the law is concerned, when shareholders are harmed because a board member breached those duties, it is their right to recover damages.
In short, the term refers to an obligation of loyalty and good faith. This is often implied and doesn’t allow for conflict of interest. Full disclosure, complete loyalty and honesty are required from the fiduciary to the person to whom it is owed. The fiduciary must act in the best interests of the beneficiary at all times and must avoid negligently harming the interests of the beneficiary.
When a breach occurs
Firstly, the plaintiff must prove that a fiduciary relationship existed. Then, it must be proven that there were elements of a breach of fiduciary duty. Of note: plaintiffs in breach of fiduciary duty lawsuits need not be shareholders and defendants are not necessarily on the Board of Directors. Consider an example where employers allegedly mishandled employee investments or retirement accounts.
It is incumbent upon the plaintiff to show that the defendant’s breach of his or her duty caused the plaintiff damage and the plaintiff must specify the nature and extent of his or her damages. In the case of a defendant’s actions negatively affecting a stock price, it could prove difficult for the plaintiff to prove his or her damages, because there are many contributing factors to a stock’s price. It’s not an impossibility, though.
A qualified business lawyer with corporate law experience can address your specific legal needs, evaluate your claim, explain the law and represent you in court. Read Part 2 in our next blog post and we’ll address possible remedies for a breach of fiduciary duty.