Also known as: fiduciary breaches · breach of fiduciary duty · breaches of fiduciary duty
Written by attorneys · grounded in primary & secondary sources — see below
A violation of the duties of loyalty or care that a fiduciary owes to the beneficiary or principal. The breach occurs when the fiduciary acts in self-interest without full disclosure or fails to exercise reasonable oversight in managing the beneficiary's affairs.
Francois Fortier formed Foxfire Biotech and sold his own land to the new corporation at an inflated price. He disclosed the markup only to two early subscribers but not to other investors contemplated in the original financing plan. The corporation later sued to recover the secret profit because Fortier had not obtained approval from all initial shareholders.
Felicity French served as sole manager of Falcon Dynamics. She steered supply contracts to vendors in which she held undisclosed ownership interests and skipped required site inspections. The company suffered large cost overruns and refused her request for indemnification after a third party obtained a judgment against her personally.
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Indemnification is unavailable when liability arises from a breach of the duties of loyalty or care. Undisclosed self-dealing or prolonged failure to perform oversight duties constitutes such a breach and bars recovery from the entity.
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Yes. A judicial finding of deliberate concealment of a material conflict demonstrates the absence of good faith and prevents the corporation from indemnifying even defense expenses in a derivative proceeding.
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Full disclosure and ratification must reach every person contemplated as part of the original financing scheme who becomes an initial shareholder. Disclosure limited to some subscribers is insufficient.
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…willful misfeasance, bad faith, [and] gross negligence.” Both the individual defendants and Lehman Brothers were accused of breaches of fiduciary duty. It was alleged that the payments to Lehman Brothers constituted waste and spoliation, and that the contract between the corporation and Lehman Brothers had been violated. Petitioners…