The term “fiduciary duty” refers to a special legal relationship in which someone has an affirmative obligation to act on behalf—and in the best interest—of another person. The person who owes this duty is called a “fiduciary,” and the person who is the object of the duty is called a “beneficiary.” While fiduciary duty arises from various types of formal relationships, generally, this legal responsibility is the result of a third person’s management of property, money, or other assets on behalf of another person. Fiduciary duties are an essential pillar of the legal framework that helps to protect the interests of parties who rely on the judgment and expertise of fiduciaries.
Types of Relationships that May Create a Fiduciary Duty:
A person becomes a “fiduciary”—thus, owing another person a fiduciary duty—when a special relationship exists between the principal and beneficiary. Importantly, fiduciaries are required to act in the best interests of the person or entity that he or she is representing, rather than their own interests. This duty is legally binding, and if a fiduciary breaches their duty, they can be held responsible in a civil action for damages and any subsequent financial losses that may have occurred. Examples of special relationships that often create a fiduciary duty include, but are not limited to, the following:
- Business partner and business partner (corporation, partnership, and limited liability company);
- Board of directors and a corporation;
- General partner and a limited partner;
- Financial advisor and client;
- Trustee and beneficiary of the trust;
- Employee and employer;
- Lawyer and client;
- Guardian and ward;
- Parent and a child.
Are There Different Types of Fiduciary Duties? What Are the Differences Them?
There are different forms of fiduciary duties that can apply to a fiduciary relationship depending on the nature of the relationship between the parties. The main categories of fiduciary duties include: (i) duty of care; (ii) duty of loyalty; (iii) duty of confidentiality; (iv) duty to act in good faith (sometimes called the “duty of good faith and fair dealing”); and (v) duty to disclose (sometimes called the “duty of candor”).
The different kinds of fiduciary duties have overlapping principles, but each different form has its own subtle, significant differences. For example, a fiduciary duty of care requires the fiduciary to act carefully in the management of another person’s assets, follow certain protective procedures, and maintain proper records.
Fiduciary duties of loyalty, on the other hand, require a fiduciary to act in the bests interests of the beneficiary rather than their own self-interest. The duty of loyalty will require the fiduciary to abstain from acting in their own self-interest that could harm the beneficiary, to disclose conflicts of interest when they arise and to avoid activities that could be harmful to the other party’s interests.
Florida courts have historically been reluctant to limit the definition or applicability of fiduciary duties to a rigid legal interpretation. Rather, the courts apply a broader scope of situations to which the duties may apply. “The relation and duties involved need not be legal; they may be moral, social, domestic, or personal. If a relation of trust and confidence exists between the parties (that is to say, where confidence is reposed by one party and a trust accepted by the other, or where confidence has been acquired and abused), that is sufficient as a predicate for relief.”
Florida statutes, on the other hand, have attempted to create concise definitions and legal standards for certain fiduciary duties. For example, in the context of the relationship between members and managers in limited liability contexts, Chapter 605 of the Florida Statutes includes specific provisions that define the scope, applicability, and waiver of certain fiduciary duties.
Additionally, fiduciary duties cannot be unilaterally imposed by one party. In Florida, an individual or entity cannot create a relationship that imposes fiduciary duty unless the second party agrees, either explicitly or implicitly, to serve in the best interests of the first party.
What Kinds of Fiduciary Duties Do I Owe My Business Partner?
Fiduciary duties may arise explicitly, as in formal agreements like a contract, or implicitly, when one party relies on another to act in their best interests.
As between and among business partners, you might wonder whether (and when) your business partner owes you a fiduciary duty—or, if you might owe a duty yourself. The answer is complicated, and it usually depends on the specific circumstances of your relationship, along with what state you live and transact business in. Each state has its own rules and statutes governing business organizations and thus, may have significant differences in the scope and applicability of fiduciary duties.
Typically, business partners do owe each other a fiduciary duty—they are required to act in good faith, use honesty and integrity in their business practices, and act in the best interests of their partners and their business organization. Business partners are also expected to disclose any conflicts of interest that may arise and take advantage of other business opportunities.
In Florida, however, a business partner may act in their own interest in certain circumstances and still maintain their fiduciary duty so long as their interests are not harmful to the other partner and/or the actions are fully and fairly disclosed to the other partner. If you are in Florida and are unsure of what your fiduciary duties entail, it is a good idea to consult with an experienced business attorney who can answer any questions you have related to you and your business partner’s partnership.
Can Fiduciary Duties Be Waived?
In some situations, it could be possible to modify or perhaps waive a fiduciary duty. However, whether or not someone can do so depends on the laws of the state and the specific nature of the duty. For example, a fiduciary duty owed by a trustee may be waived or modified by the beneficiary of the trust, so as long as the modification or waiver does not violate the terms of the trust agreement and laws within that state. Most states, including Florida, have courts that are reluctant to waive fiduciary duties altogether.
What Constitutes a Breach of a Fiduciary Duty?
A breach of fiduciary duty happens when a fiduciary does not fulfill the obligations that they owe to the beneficiary or the party that they represent. This may occur when the fiduciary acts in the best interests of another third party, or their own self-interest—usually to the detriment of the party to which the fiduciary duty was owed. This is often described as a breach of the fiduciary’s duty of loyalty.
In addition, a fiduciaries may fail to maintain their diligence and keep proper records, which could be a breach of their duty of care. Breaching fiduciary duties may result in the beneficiary taking legal action against the fiduciary. If you believe that your fiduciary breached their duty, you might want to ask these questions:
- Did a fiduciary relationship exist at the time of the suspected violation?
- Were any terms of the relationship violated?
- Was there a motive behind the fiduciary’s misconduct?
Common examples of a breach of fiduciary duty are: acting in one’s self-interest to gain an advantage for oneself; failing to disclose conflicts of interest; failing to exercise duty of care and diligence as a fiduciary; and, making misleading or false statements to gain an advantage over the beneficiary. One example can be illustrated by the following example: If an employee leaves a company to start a new company by using trade secrets of their former employer, the employee may be found to have breached their fiduciary duty if their former employer previously executed a non-compete agreement or confidentiality agreement. This, again, could be an example of a breach of the fiduciary duty of loyalty.
Fiduciary Duties: The Bottom Line
If the fiduciary is found liable for a breach of fiduciary duties in Florida, courts may order that the fiduciary compensate the beneficiary for any and all losses that occurred as a result of the breach. If you are unsure whether you have a fiduciary duty to another person or entity, or whether another party has a fiduciary duty on behalf of you as the beneficiary, it is best to consult an experienced business attorney who can advise you on your rights under Florida law.