Are You a Fiduciary?

March 22, 2010 W. R. Eilers No Comments

A few weeks ago, I read an article in the Florida Bar Journal regarding fiduciary duties and the pitfalls of being a de facto fiduciary as attorney (at least that’s how I read it.)  Attorneys, may need only to be reminded of this responsibility.  Ethics courses, CLEs, quiet reminder from your state Bar’s ethics committee and pithy discussions at network event are constantly there to remind us of our duties as attorney and the risk and responsibilities attached to our license and profession.  Personally, my motto is, treat everyone as if I have a fiduciary duty owed to them.  That way I can just avoid the gray area swimming all together.  Besides isn’t that basically the golden rule?  But, as always, I digress, because attorney fiduciary duties is not today’s subject.  No today is about you, the layperson, because whether you know it or not, you might be a fiduciary. 

According to Black’s (the standard bearer of American legal dictionaries), a fiduciary relationship is one that is “ . . .founded on trust or confidence reposed by one person in the integrity and fidelity of another.”  Obviously, like all legal definitions, this is plenty vague enough for piles of billable hours.  However, in all its vagueness, it is important to understand that you may be causing a fiduciary duty to be formed without even knowing it, and post suit being filed is never a good time to discover one existed.

Generally, we associate fiduciary duties with persons such as trustees or directors of a corporation.  In fact, these are explicitly stated under legislative acts.  As stated earlier, we also should assume that an attorney has a fiduciary relationship with his or her client.  Stock brokers and managing partners and/or members also have statutory fiduciary duties.  However, as the definition suggests, a fiduciary duty may rise from the more peculiar situations.  Moreover, even if a breach of fiduciary duty is found, the law can be a strange handler of valuing trustworthiness.  A fiduciary duty may be voided if a party cannot show that damages were actual owed (which is to say, you only have a fiduciary duty if you get caught).  Another issue is who is owned the duty.  For example, a trustee owes a fiduciary duty to the beneficiaries, not the person setting up the trust (as in all things law, of course this depends).  

Generally, you should understand that you may creating a relationship that is sufficient to file suit against you based on an issue of trustworthiness.   Borrowing your friend’s car.  Watching a neighbor’s children.  In starting a company, this duty may arise before you take on any official title for the company, or before the company even exists.  These relationships in and of themselves give rise to certain duties of care in tort law.  However, the contractual basis of a relationship may also come into play.  The distinction between the tort and contractual liabilities is a longer discussion. What is important is to understand that a contractual relationship (as a fiduciary) may arise from your actions, and claims can be brought against your contractual breach even when tort law has no remedy.  Although, it is often compiled as a single element in a larger complaint, a fiduciary breach is sufficient t to file suit alone.  

If you are starting your own business, the last thing you want is additional liabilities attached to a start up.  You should tread carefully when building your initial relationships, from your founders to your incorporators to your investors.  Be sure to understand what concepts of trust are being created by your actions.  As your company becomes formalized, you should understand what trusts an duties will be held to you legislatively, as a director or officer.  As always, consult an attorney.

clients, contracts, directors, duties, fiduciary, founders, getting, incorporating, officers, started

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