Are you facing a dispute or lawsuit for breach of fiduciary duty in California?  Who has a fiduciary duty to a California business, and what happens when a person breaches their fiduciary duty to you or the company?

What is a Fiduciary Duty?

A “Fiduciary Duty” in a business setting is the legal responsibility to act solely in the best interests of a company, entity or person.  In essence, one party is placing their trust in the other party relating to the conduct of business or a business related investment, such as in the case of a shareholder or investor.

Who Has a Fiduciary Duty in Business?

A dispute or lawsuit for breach of fiduciary duty in a business setting is necessary when a person in a position of trust has taken action(s) to harm the interests of the company or the “beneficiary” of the fiduciary relationship.  In the example of a corporate officer, executive or director, their fiduciary duty is to act solely in the interests of the corporation or it’s shareholders.  Executives and officers should exercise their best judgment and take actions which are in “good faith” from the perspective of the company’s interests.  They should not use inside knowledge for their own profit.  They should not guide company decisions for their own personal profit or benefit.

The purpose of legally establishing and enforcing fiduciary responsibilities is not to prevent corporate officers from taking risks or making mistakes, but to ensure that they are upholding and acting in the best interests of the business.  A corporate officer does not fulfill a fiduciary duty when they make “side deals” or set up transactions using corporate assets which benefit themselves or other parties, or to act negligently in a manner that would harm the company.  These are commonly known as the duties of “good faith”, “loyalty” and “care”. If a corporate officer does not fulfill a fiduciary duty they can be held financially liable for resulting losses or other financial damages.

Did You Know an Employee Can Owe You, The Employer, a Fiduciary Duty?

California law establishes that an employee owes “undivided loyalty” to their employer.  When the court agrees that a fiduciary duty has been established between the employee and you, the employer, the employee can be held legally and financially liable for a breach of fiduciary duty.  This applies to many issues such as accepting kickbacks or financial compensation from someone who is not their direct employer. The most common reason for a lawsuit for breach of fiduciary duty involving an employee are the theft of the employer’s trade secrets or using a (former) employer’s trade secrets for their own benefit or the benefit of another company.

When to Consider a Lawsuit for Breach of Fiduciary Duty

Those in business who carry a fiduciary duty are to be loyal to the company they serve, to act in good faith and do their best in the interests of the company.  When should you consider a lawsuit for breach of fiduciary duty in San Diego or Southern California as a business owner, shareholder or investor?

The typical remedy when a corporate officer, majority interest or even an employee does not fulfill a fiduciary duty is to seek financial “damages” to compensate for losses to the corporation or to repay and restore lost profits or misused funds that were deprived of the company.  Compensatory damages provide compensation for actual financial losses resulting from the breach.  Punitive damages can be added as a punishment and to deter the individual or others from acting in the same way in the future.

A dispute or lawsuit for breach of fiduciary duty may also be a path for obtaining “equitable relief.”  Equitable relief is an order from the Court to the employee or source of a breach of fiduciary duty from continuing to do something (like compete against you) or to stop doing something now and in the future.  This may provide an opportunity to make some aspect of the situation “right,” restitution, or some specific performance.

Pro-Tip: “Well, generally, a fiduciary duty is when one party has an advantage of power, knowledge, or resources over another party. And they’re doing business with each other. That’s basically where we get fiduciary duty. And then the laws have been built on that concept for hundreds of years. So you can imagine that today’s fiduciary duty lawsuits are much different than they were 50 years ago. We’ve come a long way. The laws have changed.

A fiduciary is supposed to act openly, honestly, and fairly. They’re supposed to put the beneficiary’s interest above their own, and they’re supposed to never self-deal, they’re supposed to act in good faith. Basically, not take money or take an action that is not in the interests of your fiduciary client that they don’t know you’re taking.

For example, you’re a shareholder and you find out your buddy down the street owns the same amount of shares as you, but he got twice the dividends as you did. Corporations and their board of directors and their officers have an obligation to treat like shareholders in a like, and similar manner.  Unfortunately, quite often that just doesn’t happen. Sometimes other things that happen with corporations, such as insider trading, it happens on the large market, big caps. They go to jail, things like that, but it also happens on the small market.

We see this every year, several times a year, a shareholder client comes in, (they call themselves partners), but it’s a corporation. And they say, ‘my company decided to go bankrupt. Then I found out that the principles opened up a new company over in England and they made $10 million, and we lost everything.’ Basically, these bad actors were hoping that you didn’t find out on those situations. Again, the sooner we find out the quicker we can get what we call temporary protective orders and asset seizures and levies with a judge to stop them from stealing or taking other actions in breach of a fiduciary duty.” – Dan Watkins, Founding Partner

You should consider legal action when a person in whom you have placed your trust (the fiduciary) has violated that trust and/or taken actions to harm your company or interests in a business.  Actions against a corporate officer, executive or director, majority shareholder or even employees can be quite legally complex, and it is important to contact attorneys with decades of experience in these matters.  If you are concerned about the decisions or actions of someone you believe owes a fiduciary duty we invite you to review our podcast Episode 17 – Violation or Breach of a Fiduciary Duty as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.