Also known as: breach of fiduciary duty · breach of fiduciary duties · breaches of fiduciary duties · fiduciary breach · fiduciary duty breach
Written by attorneys · grounded in primary & secondary sources — see below
Conduct by a person in a fiduciary position that violates the duties of loyalty or care owed to the principal or beneficiary. Such conduct commonly arises through self-dealing, appropriation of opportunities, or retention of secret profits without full disclosure and approval from all contemplated parties.
Brandon Black planned to form Bay Area Systems as a software company. Before incorporation he arranged for the future entity to license a key algorithm from a venture he secretly controlled on favorable terms. He disclosed the conflict only to the lead investor and omitted the details from other physicians and advocates who were expected to take initial equity. After formation the corporation sued to recover the secret profit.
Brendan Burns served as property manager for Benson Motors. He transferred a valuable parcel from the company to Brighton Manufacturing, an entity he controlled, without informing the owners. Bella Barnes later received the parcel from Brighton with notice of the transfer. The owners sued Bella to impose a constructive trust on the property.
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A promoter must make full disclosure of any secret profit and obtain approval from all persons contemplated as part of the original financing scheme. Disclosure to only some initial subscribers is insufficient. The corporation may recover the profit or rescind the transaction if full disclosure and ratification do not occur.
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The recipient holds the property as a constructive trustee. The principal may also elect to recover the value of the property or obtain restitution to the extent of unjust enrichment.
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Yes. The duty of loyalty requires the member to account for any benefit derived from the appropriation of a company opportunity. Using company resources or personnel to develop the opportunity strengthens the claim that the benefit belongs to the LLC.
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