Breach of Fiduciary Duty: How to Recover Losses and Defend against Claims

Conflicts of interest and self-dealing transactions constitute breach of fiduciary duty when a director, officer, trustee, or business partner uses their position to benefit themselves at the expense of the company or partner they serve, and the most common examples include approving transactions in which the fiduciary has an undisclosed financial interest and diverting corporate opportunities to personally owned businesses. Breach-of-fiduciary-duty and shareholder-disputes counsel can evaluate whether the specific transaction or conduct alleged constitutes a legally actionable conflict of interest or self-dealing violation, assess the strength of the claim under the applicable state's corporate law and common law fiduciary duty standards, and advise the injured party on the legal remedies available to recover the damages caused by the breach.

Misuse of company assets or insider information breaches fiduciary duties when the fiduciary uses corporate funds, property, or confidential business information for personal benefit without authorization, including the diversion of corporate revenue to personal accounts, the use of insider information to trade in the company's securities, and the exploitation of proprietary information for the benefit of a competing enterprise. Corporate-fraud and misappropriation-of-public-funds counsel can evaluate whether the director's, officer's, or business partner's use of company assets, insider information, or business opportunities constitutes a cognizable breach of fiduciary duty, assess the causation and damages elements necessary to sustain the claim, and develop the litigation strategy that most effectively recovers the company's or client's financial losses.

Financial liability and damages exposure for breach of fiduciary duty encompasses the compensatory damages required to restore the injured party to the financial position they would have occupied if the breach had not occurred, the disgorgement of any profits the breaching fiduciary derived from the wrongful conduct, and the attorney's fees and costs that the applicable statute or equitable principles allow the prevailing party to recover. D-and-o-professional-liability and corporate-governance counsel can advise the defendant director, officer, or business partner on the specific fiduciary duties that applied to the conduct in question, evaluate whether the business judgment rule or another available defense insulates the conduct from liability, and develop the defense strategy that most effectively limits the defendant's financial exposure.

Loss of position and corporate governance consequences of breach of fiduciary duty claims include the court-ordered removal of the breaching director or officer, restrictions on the defendant's future participation in corporate governance, the voiding of transactions entered into in violation of fiduciary duties, and in closely held corporations and partnerships the court-ordered buyout or dissolution. Corporate-governance-advisory and breach-of-trust counsel can advise the defendant on the corporate governance consequences of the breach of fiduciary duty claim, including the removal from board positions, the loss of voting rights, and the potential for corporate dissolution in closely held company disputes, and develop the strategy that most effectively limits the defendant's exposure to non-monetary remedies.

Establishing fiduciary relationships and duties requires the plaintiff to demonstrate that the parties occupied a relationship the law recognizes as creating fiduciary obligations, including the relationship between a corporation and its directors and officers, the relationship between partners or LLC members, and the relationship between a trustee and trust beneficiaries, and to identify the specific duty of loyalty or duty of care that applied. Fiduciary-services and business-litigations counsel can advise the plaintiff on the evidence necessary to establish each element of the breach of fiduciary duty claim, including the documentary evidence that demonstrates the existence of the fiduciary relationship, the conduct that constitutes the breach, and the financial records that establish the causal connection between the breach and the plaintiff's damages.

Proving breach, causation, and resulting damages requires the plaintiff to demonstrate that the fiduciary's conduct fell below the standard of care or loyalty that the applicable legal framework imposed, that the breach was a proximate cause of the plaintiff's losses, and that the losses can be quantified with reasonable certainty, and courts consider the totality of the fiduciary's conduct and intent. Awarding-damages and civil-damages-lawsuit counsel can advise the plaintiff on the specific damages theories available in a breach of fiduciary duty case, including compensatory damages for financial losses caused by the breach, disgorgement of profits derived from the wrongful conduct, punitive damages in cases involving egregious misconduct, and the equitable remedies of constructive trust and accounting of profits.

Building claims and recovering financial losses in breach of fiduciary duty litigation requires plaintiff's counsel to conduct a thorough pre-litigation investigation of the fiduciary's conduct and finances, identify all transactions that may reflect the breach, preserve all relevant documents and communications, and retain expert witnesses who can calculate the full measure of the plaintiff's compensatory and equitable damages. Civil-lawsuit and breach-of-contract-suit counsel can advise the plaintiff on the procedural steps required to prosecute a breach of fiduciary duty claim, including the pre-litigation preservation of evidence, the filing of the complaint, the discovery process focused on the defendant's financial records and communications, and the trial strategy that most effectively presents the plaintiff's damages case.

Defending against allegations and limiting liability in breach of fiduciary duty cases requires the defendant to present evidence that the challenged conduct was authorized, disclosed, and approved by the appropriate parties, that the business judgment rule protects the decision from judicial second-guessing, or that the plaintiff's damages were caused by market conditions or other independent factors rather than by the alleged breach. Breach-of-fiduciary-duty and d-and-o-professional-liability counsel can advise the defendant on the affirmative defenses available in a breach of fiduciary duty case, including the business judgment rule, the ratification defense, the statute of limitations defense, and the defense that the plaintiff's damages were caused by factors independent of the alleged breach.