Breach of Fiduciary Duty
Handling Self-Dealing Litigation
If you suspect that an agent has engaged in self-dealing with a business you own or assets held for your benefit, The Williams Law Firm can assist you with the necessary litigation to help you recover damages, remove the agent, and correct the wrong.
Generally, an agent with a fiduciary duty must be entirely fair to your interests and put your interests first.
Should you be an agent who is either a defendant in a lawsuit, has received threatening correspondence, or is just looking for guidance, we can help defend and advise you.
In Delaware, an agent entrusted to act on behalf of a principal has a panoply of fiduciary duties. Delaware law governs when the company in question is incorporated in Delaware or a Trust is established under Delaware law. Usually, the agent is given the task of managing the money or assets of a principal directly. A breach of fiduciary duty of loyalty occurs when the agent acts in his or her own interests, rather than in the interest of the principal that owns the asset or money. Agents with fiduciary duties can be executors, trustees, controlling stockholders, managers, agents, and officers and directors in trusts, estates, corporations, and LLCs.
Different duties may apply depending on the context, but usually, the duty of loyalty is the fiduciary duty most often litigated in the Delaware Court of Chancery.
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In a Delaware fiduciary relationship, the agent is required to do his or her best to work in the best interests of the principal. This can include using his or her skill, diligence, and care with full honesty and disclosure to perform the actions asked by the principal. This does not necessarily mean that the agent must be successful in his or her endeavors.
So, when does a breach of fiduciary duty occur? Generally, if the agent acts in the best interests of himself or herself, rather than in the best interests of the principal, and the action is not entirely fair to the principal, then a breach of fiduciary duty has occurred. This can include using the assets to the agent’s own advantage without doing so in an entirely fair arm’s length manner, using a corporate opportunity for personal pursuits, or simply not acting when there was a duty to act.
Breach of fiduciary duty can also occur if the agent does not do his or her due diligence to act on behalf of the principal.
Breach of fiduciary duty does not usually involve fraudulent action or criminal intent. Breaches of fiduciary duty are like proving negligence. It usually requires a duty, a breach, causation, and damages.
A fiduciary obligation does not require a contract. In fact, a duty imposed upon an agent by contract can be another cause of action related to breach of the trust agreement. Other times, such as in the context of an LLC, the fiduciary duty can be reduced or eliminated entirely through the Delaware LLC operating agreement.
In the situation where an LLC waives all fiduciary duties, the implied covenant of good faith and fair dealing remains. For corporations, trusts, and estates, generally, the fiduciary duty cannot be waived or eliminated. Plus, the waiver of duties is often strictly construed against the party asserting the duty has been waived.
The beneficial owner is the principal. The principal relies on the agent to use his or her expertise to perform a particular action, such as investing assets, operating a business, or making distributions. When the agent takes on the responsibilities of the relationship, then he or she automatically accepts the trust and responsibilities of a fiduciary.
Proving this breach requires an understanding of the intricacies of these types of cases.
The Williams Law Firm has experience both suing and defending agents acting as managers, directors, controlling stockholders, officers, executors, and trustees. The firm also has experience guiding agents in the performance of their duties through complex transactions and routine dealings.
For example, one strong defense available to the agent is the business judgment rule, which prevents corporate and LLC agents from being sued for poor management decisions, provided those decisions were made at the time on an informed basis and were not self-interested. In the event an LLC Operating Agreement waives fiduciary duties, that also limits recourse to the contractual duty of good faith and fair dealing. Other equitable defenses may include waiver, estoppel, acquiescence, and laches.
The Williams Law Firm looks forward to seeing how we can put our experience to work for you.
“Injustice anywhere is a threat to justice everywhere.”
– Martin Luther King, Jr.
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Wilmington, Delaware 19801
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Phone: 302-575-0873
Fax: 302-575-1642
