Fiduciary Duty Law
A fiduciary duty is an obligation to act in the best interest of another party. This duty exists in a variety of different settings and relationships, from corporate leaders to trustees of trusts to licensed professionals. While the precise contours of this duty may vary across these different relationships, the duty involves special trust, confidence, and reliance between the fiduciary and beneficiary that the fiduciary will exercise his or her discretion or expertise in acting for and on behalf of the beneficiary.
Corporate leaders and professionals of all stripes have a duty to act in the best interests of those to whom they owe a fiduciary duty, whether its shareholders or clients. Such individuals cannot act against the best interests of the beneficiaries or use their information, knowledge and expertise to the detriment of those that they serve or represent. It is sometimes difficult to determine whether a breach of fiduciary duty has occurred. Our Firm provides experienced and knowledgeable counsel in evaluating the merits and likelihood of success in fiduciary duty litigation.
Corporate Fiduciary Duties
Company directors, managers and managing members have fiduciary duties of care and loyalty to protect shareholder and/or corporate interests. Their duty of care requires their awareness of business affairs and informed decision-making. Their duty of loyalty requires they act in the best interests of the company or corporate entity, not in their own personal interests. The duty of loyalty also implies a duty of good faith in carrying out the affairs of a business entity. The precise nature of scope of these duties, however, will often vary depending on the corporate form and structure of the company in question (e.g., corporation, LLC, etc.) and the terms of any bylaws or operating agreement(s) governing such entities and their operations. They will also vary depending on the specific facts and circumstances in any given case, such as the specific industry and acts at issue and whether such actions comport with best practices in the industry.
Generally, there are three standards of review used by courts in analyzing whether corporate directors or managers have acted in accordance with these fiduciary duties: (1) the business judgment rule; (2) enhanced scrutiny; and (3) entire fairness. A court must first decide which standard of review will apply, which is often critically important to—if not dispositive of—the outcome or conclusion reached by the court. The default standard of review is generally the business judgment rule. It provides strong protection for directors or managers in making decisions, as it presumes they have acted on an informed basis and with an honest belief their decisions serve the best interests of the corporate entity. Under this rule, a court will not question the wisdom of a business decision so long as it had a rational purpose, even where the decision proved to be misguided or adverse to the corporation in hindsight.
However, if a beneficiary can prove a conflict of interest, lack of independence, or gross negligence in the fiduciary’s decision-making, a court will likely review the decision or conduct in question under the other standards of review. And the type of standard review that will apply often depends on the circumstances or stakes at issue. For example, where a fundamental change of corporate control occurs or is planned, courts have applied enhanced scrutiny.
Our Firm understands and counsels clients on these varying duties and rights given the matters at stake in the corporate context, and have litigated such issues when necessary to protect corporate interests against self-interested conduct of its directors or managers, and other unreasonable and unfair harm and/or threats of harm to the ongoing success and best interests of a business.
To set up a consultation to discuss the potential for a breach of fiduciary duty or similar claim, please contact Dolley Law, LLC at (314) 645-4100 or by email at firstname.lastname@example.org. All legal consultations are held strictly confidential.