Also known as: fiduciary responsibilities · fiduciary duty · fiduciary duties
Written by attorneys · grounded in primary & secondary sources — see below
A duty of loyalty and care that a person in a position of trust owes to another party or entity. The duty requires the fiduciary to account for any property, profit, or benefit derived in the conduct of the relationship and to avoid improper self-dealing or conflicts without full disclosure and approval.
Felipe Figueroa, a member of a member-managed LLC that develops commercial property, purchased adjacent land in his own name and later sold it to the LLC at a markup. The LLC discovered the markup after closing. Because Figueroa derived the profit while conducting the company's affairs, the LLC may require him to account for and disgorge the benefit as a breach of the duty of loyalty.
Fernando Farrell, the sole general partner of a limited partnership formed to operate a chain of restaurants, used partnership funds to pay personal legal fees without disclosure. The limited partners later audited the books and traced the payments. Farrell must hold the diverted amounts as trustee for the partnership and restore them because the benefit arose during conduct of the partnership's affairs.
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Flora Ford, a partner in a general partnership that acquires and flips residential properties, learned of an off-market listing through partnership contacts and bought the parcel in her individual name. When the other partners discovered the transaction, they demanded an accounting. Ford must surrender the profit because it was obtained in the conduct of the partnership's business.
Fumiko Fujimoto, appointed personal representative of an estate containing valuable artwork, sold a painting to her spouse at below-market value without court approval or notice to the beneficiaries. The beneficiaries later sued for the resulting loss. Fujimoto is liable to the same extent as a trustee of an express trust for breach of fiduciary duty.
Frederick Ferguson, a promoter organizing a new corporation to manufacture textiles, sold his own equipment to the corporation at an inflated price and disclosed the transaction only to two initial subscribers. After the remaining contemplated investors learned of the markup, the corporation sued. The corporation may rescind the sale or recover the secret profit because full disclosure and approval by all original investors were required.
Francisco Frost represented a family and its insurer in an auto-accident suit. After the representation ended, one family member became a defendant in related uninsured-motorist litigation. The former client moved to disqualify the firm. The court disqualified the firm because the prior joint representation created non-consentable conflicts arising from the fiduciary duties and confidential information obtained earlier.
No. A person who ceases to serve as a manager or partner remains liable for debts, obligations, or liabilities incurred while in that role, including breaches of the duty of loyalty.
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A partner may enforce the contract on the same terms as a nonpartner when the transaction is authorized or ratified by the other partners after full disclosure of all material facts.
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Indemnification remains available if the board determines the director acted in good faith and with a reasonable belief that the conduct was not opposed to the corporation's interests.
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Yes. Disclosure and ratification must reach all persons contemplated as part of the original financing scheme who become initial shareholders.
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…is too late." (Putz & Klippen, supra, 21 U.S.F.L.Rev. at pp. 478-479.) The authors assert that " public interest, adhesion and fiduciary responsibility,' are not sufficiently precise to provide a basis for reliable prediction." ( Id., at p. 479, fn. omitted.) Instead, they assert that, "While the special relationship' test purports to be…