What Constitutes a Breach of Fiduciary Duty in California?

A breach of fiduciary duty can sometimes be difficult to demonstrate. For a breach of duty to have happened, the defendant (i.e. attorney, consultant, investment broker, trustee) must have a fiduciary duty to the plaintiff. When there is a fiduciary duty to the plaintiff and the defendant did not act in the best interests of their potential client, a breach of fiduciary duty comes into effect.

A fiduciary has several responsibilities, including but not limited to:

• Duty of Care: The responsibility to take all due diligence in making decisions, providing counsel, or taking action.
• Duty of Loyalty: The responsibility of loyalty prevents a fiduciary from representing someone with a conflict in interests. 
• Duty of Good Faith: Fiduciaries have a responsibility to obey the law in their dealings on the client’s behalf.
• Duty of Confidentiality: The fiduciary cannot disclose any information without the client’s consent.
• Duty of Prudence: Similar to the responsibility of care, the duty of prudence requires the fiduciary to take all due care in identifying risks and weighing options before taking action.
• Duty to Disclose: Fiduciaries must not withhold information that would affect the well-being of the client.

When there is a fiduciary duty to the plaintiff and the defendant did not act in the best interests of their client, a breach of fiduciary duty has been determined.

What Types of Fiduciary Relationships Are There?

The first step in initiating a breach of fiduciary duty is to demonstrate that a fiduciary duty existed. There are a number of different types of fiduciary relationships, but there are no absolutes. Particular contract language, such as that which establishes a commission for the agent, can nullify the fiduciary nature of the relationship. 

Conversely, when you fail to address a fiduciary duty in a contract it usually results in the courts concurring that a fiduciary relationship exists, such as in these business and legal relationships:

Attorney and Client

The landmark 1981 U.S. Supreme Court case Upjohn Co. v. United States established that the attorney/client privilege, or confidentiality, is a relationship of the utmost trust. For this ground attorneys have an automatic fiduciary duty to take action in their client’s best interests and keep all information provided confidential and private.

There are several financial affairs in which the attorney has a specific fiduciary duties which include the following:

• Executor of estate/client
• Executor of estate/heir
• Trustee/beneficiary

Agent and Principal

An agent and principal fiduciary relationship comes into effect when an individual or entity is reasonably liable to act in the principal’s financial interests. This includes numerous types of relationships, including:

• Executive/Shareholder
• Majority Shareholder/Corporation
• Consultant/Company
• Fund Manager/Personal investor
• Financial advisor/Advisee
• Accountant/Client
• Employer/Employee (or visa versa)

As you can discern, fiduciary relationships are regularly a two-way street. The fiduciary duties of the employer/employee relationship and the relationship between shareholders, executives, and companies are normally mutual.

Extra Positions of Trust

There are plenty of other relationships in which a person or entity might have a fiduciary duty to their potential client. The most normal is the position of guardianship. When guardianship is allowed, whether it be child or adult, for disability or as minors, a fiduciary duty is established in which that guardian must act in the best interests of their ward. This is true for both physical guardians and legal guardians managing financial incidents for another.

How to Demonstrate Damages: The 4 Elements of Fiduciary Breach Claim

As already mentioned, the first element in a fiduciary breach claim in California is derived that a fiduciary duty existed in the first place. Nevertheless, this is just the first commenced piece in establishing breach of fiduciary duty. Which brings us to three (3) additional elements needed to prove a fiduciary breach claim. These three (3) examples are the following:

• Proving a Breach of Fiduciary Duty Occurred. There are plenty of ways that an fiduciary duty could be breached, that could be either intentionally or through carelessness or neglect. Nevertheless, if the plaintiff contributed to the issue a breach may not have happened. For instance, an accountant making an inattentive mistake on a tax return is a breach of fiduciary duty, but if the client forgot to provide organized information they share in the blame for the mistake and no breach has happened.

• Proving Damage Was Sustained: In order to initiate any civil lawsuit in the state of California, it is vital for one to prove that damages were sustained. There can be no compensation if it is not intent on that there was a loss as a result of the breach of fiduciary duty. The first step in this is proving the loss itself. This does not have to be an economical loss, but rather a loss of reputation leading to future loss of income that can also be considered damages.

How to Prove the Breach of Duty Caused the Damages

It must be demonstrated that the damages or losses resulting from the issue were directly caused by the breach of duty. When there are additional reasons that the fiduciary could not have foreseen or controlled, a breach of duty claim may not be accepted.

What Are The Penalties for Breach of Fiduciary Duty

A breach of fiduciary duty is not a criminal offense, in spite of the fact that there can be criminal charges pressed in connection to the same incident. The penalties for a breach of fiduciary duty are normally monetary and direct compensation for economic and other losses. There can also be attorney fees, court costs, and other legal expenses. 

When a professional is found to be guilty of a breach of duty it can gravely harm their reputation, affecting their future ability to succeed in their profession. A judge can also revoke a professional’s license to practice in their field if a gross breach of fiduciary duty has happened.

What is the Statute of Limitations for a Breach of Fiduciary Duty in California?

There is no set statute of limitations for breach of fiduciary duty in California. Instead the general statute of limitations set forth in California State Civil Code section 343 is used. This states that the statute of limitations is four (4) years after the cause of action happened. 

This in effect means that a lawsuit must be filed within four (4) years of the action that caused the breach of fiduciary duty. For instance, a lawsuit claiming losses from a bookkeeping error would need to be filed within 4 years of the date that the error occurred, not from the date of discovery.

Examples of Fiduciary Duty Breaches

If you’re still not sure that you have a breach of fiduciary duty claim in California, here are plenty of the most usual examples of fiduciary duty breaches to understand:

• Breach of duty of care: A consultant that fails to gather information to assess risks before endorsing an action has committed a breach of duty of care when those details are a normal part of the consultancy.
• Breach of duty of loyalty: An employee that takes exclusive information from an employer to use in starting their own business or otherwise profiting financially has committed a breach of duty of loyalty.
• Breach of duty of good faith: An accountant that embezzles from a client has breached the duty of good faith and can also face criminal charges. A real estate agent committing fraud to the detriment of their clients has breached the duty of good faith and can face criminal charges as well.
• Breach of duty to disclose: An attorney that fails to disclose a conflicting relationship has committed a breach of duty to disclose. Consultants can also commit a breach of duty to disclose if they fail to disclose information prudent to making a final decision on the subject of consultancy.

We Are Here For You 24/7

The faster you speak to a Civil Litigation Attorney the better. Waiting too long to file Civil cases can complicate your case. Make it easy on yourself. Call us to talk with an experienced lawyer right away. Your call is confidential, and you’re FREE CONSULTATION with one of our civil litigation attorneys at (310) 894-6440.