What Is a Breach of Fiduciary Duty?

Oct 29, 2020 | Uncategorized

A fiduciary is an individual or an organization who represents the interests of another person or group of people. Fiduciaries have the duty to protect their clients’ best interests and preserve good faith and trust when acting on their behalf. As a result, these individuals and entities must undertake a legally binding agreement to uphold these responsibilities—and if their client accuses them of breaching their fiduciary duties, they can face serious consequences.

What Duties Do Fiduciaries Hold?

Fiduciaries hold both ethical and legal responsibilities to their clients. First, they must act in their clients’ best interests by upholding a certain standard of care; specifically, the fiduciary must act in a way that a reasonable and prudent professional in the same position would act. The fiduciary must ensure that no conflicts of interest arise when managing a client’s finances, and if one does, the fiduciary must disclose this information as soon as possible.

Although there are many duties a fiduciary must undertake, most manage other people’s money. Common entities who have fiduciary responsibility include the following:

  • Insurance companies and agents
  • Board members and corporate officers
  • Bankers
  • Accountants
  • Financial advisors
  • Money managers
  • Estate executors

Elements of a Breach of Fiduciary Duty Claim

If a client believes that his or her fiduciary did not act in his or her best interest, the client has the right to take legal action against the fiduciary. In many cases, the client will simply leave the relationship because he or she does not trust the fiduciary’s ability to uphold their duties. In others, however, the client may choose to file a lawsuit for the damages he or she incurred as a result of the breach.

For a court to order a fiduciary to pay these damages, the client and his or her attorney will need to establish four important elements:

  • Duty: The client must establish that a fiduciary relationship existed at the time of the breach. The client cannot hold the fiduciary responsible for a breach the professional had a legal obligation to uphold a certain standard of care.
  • Breach: The client must prove that the fiduciary breached the duty of care in some way. This could be failing to disclose conflict of interest, unlawful use of funds, or using a fiduciary position for personal gain.
  • Damages: The client must establish that he or she sustained damages as a result of the breach of duty. This may include lost profits and missing funds, legal fees, and pain and suffering damages.
  • Causation: Finally, the client must show that the damages he or she sustained are the direct result of the breach of fiduciary duty.

There are a variety of outcomes that can occur in breach of fiduciary duty lawsuits. The defendant may need to pay a settlement to the client and may suffer damage to his or her professional reputation. The fiduciary may also lose his or her license or be removed from his or her position.

Get Help from a Texas Commercial Litigation Lawyer

Whether you are filing a lawsuit against a fiduciary or you are facing accusations of a breach of fiduciary duty, you need an attorney on your side. A Texas commercial litigation lawyer can help you collect necessary evidence, build your case or your defense, and handle negotiations on your behalf to reach a conclusion before going to trial. As soon as you realize a breach occurred or that you may face legal consequences, contact Marrs Ellis & Hodge LLP immediately to discuss your next steps.