Also known as: fiduciary duty of care · fiduciary duty of loyalty · fiduciary duty of good faith · fiduciary duty · duties of care and loyalty
Written by attorneys — see sources below.
Duties that a fiduciary owes to the beneficiary. The duty of care requires the fiduciary to act with the skill and diligence that a reasonably prudent person would exercise in similar circumstances. The duty of loyalty requires the fiduciary to place the beneficiary's interests above the fiduciary's own and to account for any profits derived from the relationship. The duty of good faith requires the fiduciary to act honestly and without self-dealing.
Fatou Fall, a member of a member-managed LLC, used her position to secure a contract that funneled a side payment to her personal account. The company discovered the payment and demanded an accounting. Fall must turn over the profit because the duty of loyalty requires her to hold as trustee any benefit derived from the conduct of the company's affairs.
Fumiko Fujimoto, a general partner in a limited partnership, arranged financing for the partnership and received an undisclosed commission from the lender. The limited partners sued to recover the commission. Fujimoto must account for the payment because the duty of loyalty requires her to hold as trustee any profit derived from the conduct of the partnership's affairs.
Felicia Fuentes, a partner in a general partnership, learned of a business opportunity through partnership contacts and pursued it personally without disclosure. The partnership sued to recover the resulting profits. Fuentes must surrender the gains because the duty of loyalty requires her to account for any benefit derived from the conduct of the partnership's business.
Francesca Fiore, personal representative of an estate, sold estate property to a corporation in which she held a substantial interest without court approval. The beneficiaries sued for damages. Fiore is liable to the same extent as a trustee of an express trust because the exercise of her power was improper and breached her fiduciary duty.
Frederick Ferguson, a promoter forming a corporation, sold his own land to the new entity at a markup without disclosing the profit to all contemplated initial investors. The corporation sued to rescind the transaction. Ferguson must disgorge the secret profit because promoters owe a fiduciary duty of loyalty that requires full disclosure and approval from all original investors.
Fabian Flynn, a director of a public corporation, circulated a proxy statement containing material misrepresentations to secure shareholder approval of a merger. A shareholder sued to set aside the merger. The directors' fiduciary duties of care, loyalty, and good faith support a private right of action for damages caused by the misleading solicitation.
Respondent owned 2,000 shares of common stock of J. I. Case Company acquired prior to the merger. He brought a civil action based on diversity jurisdiction. Respondent sought to enjoin a proposed merger between Case and the American Tractor Corporation on grounds including breach of the fiduciary duties of the Case directors, self-dealing among the management of Case and ATC, and misrepresentations contained in the material circulated to obtain proxies. The complaint was in two counts. The first count was based on diversity and claimed a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a) of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The injunction was denied and the merger was consummated. Successive amended complaints were filed. The case was heard on the two-count complaint. The allegations included that petitioners solicited proxies for a special stockholders’ meeting at which the merger was to be voted upon. The proxy solicitation material was false and misleading in violation of § 14(a) and Rule 14a-9. The merger was approved by a small margin of votes and would not have been approved but for the false and misleading statements. Case stockholders were damaged thereby. The District Court held that as to the federal count it had no power to redress the alleged violations of the Act but was limited solely to the granting of declaratory relief thereon under § 27 of the Act. The court held the Wisconsin security for expenses statute applicable to both counts except the declaratory portion of Count 2. It ordered respondent to furnish a bond in the amount of $75,000. Upon his failure to do so, the court dismissed the complaint save that part of Count 2 seeking a declaratory judgment. On interlocutory appeal the Court of Appeals reversed on both counts. It held that the District Court had the power to grant remedial relief and that the Wisconsin statute was not applicable. The Supreme Court granted certiorari limited to the question of whether § 27 of the Act authorizes a federal cause of action for rescission or damages to a corporate stockholder with respect to a consummated merger authorized pursuant to a proxy statement alleged to contain false and misleading statements violative of § 14(a) of the Act.
Yes. The duty of loyalty requires full disclosure of any conflict so that the beneficiary can decide whether to consent or take other protective action. Failure to disclose prevents informed ratification and exposes the fiduciary to liability for resulting profits or losses.
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…“corporate democracy,” presumably the Court means the rights of shareholders to vote and to bring derivative suits for breach of fiduciary duty. In practice, however, many corporate lawyers will tell you that “these rights are so limited as to be almost nonexistent,” given the internal authority wielded by boards and managers and…
…there was a market shortage. The Second Circuit turned aside an effort by small shareholders to bring this claim of breach of fiduciary duty under Rule 10b-5 by concluding that the Rule and § 10 (b) protected only those who had bought or had sold securities. Many cases applying the Birnbaum doctrine and continuing critical…
…case involving "the reach and coverage of § 10(b)," 430 U. S., at 464, we considered whether § 10(b) "reached breaches of fiduciary duty
…term 'material' is used in this context to mean relevant and of a magnitude to be important to directors in carrying out their fiduciary duty of care in decisionmaking.”). : See Cinerama, Inc. v. Technicolor, Inc. , 663 A.2d 1156 (Del.1995) (adopting a subjective standard for determining an individual director's financial…
No. Liability for breach of the duty of loyalty turns on the fiduciary's improper conduct and the resulting benefit to the fiduciary, not on proof of loss to the beneficiary. The fiduciary must account for any secret profit even if the beneficiary is unharmed.
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The duty of care imposes an objective standard of ordinary experience and intelligence. A fiduciary is also held to any higher standard she purports to possess, so both the objective and subjective components must be satisfied.
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No. The duty of loyalty prohibits competition concerning the subject matter of the agency even when the agent works only evenings and weekends. Secret formation of a competing venture while the relationship continues constitutes a breach regardless of the timing of the work.
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