A breach of fiduciary duty in California happens when an individual or entity is in a position of trust and fails to act in their client’s best interests. In California, the responsibility for proving a breach of fiduciary duty falls on the plaintiff (i.e. beneficiary, ward, advisee, client). There are many different types of fiduciary relationships, and there are exceptions to all. It is vital to work with an attorney experienced in handling fiduciary duty civil claims.
Understanding how fiduciary relationships work, what establishes them, and how they are enforced is important for navigating these murky waters. Reviewing the following information before contacting our experienced litigation attorneys in California will help you know if you may have a breach of fiduciary duty claim and what to expect from the process.
What Constitutes a Breach of Fiduciary Duty in California?
A breach of fiduciary duty can sometimes be difficult to prove. For a breach of duty to have occurred, 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 client, a breach of fiduciary duty exists.
A fiduciary has several duties, including:
- Duty of Care: The duty to take all due diligence in making decisions, providing counsel, or taking action.
- Duty of Loyalty: The duty of loyalty prevents a fiduciary from representing someone with a conflict in interests.
- Duty of Good Faith: Fiduciaries have a duty 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 duty 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 exists.
Types of Fiduciary Relationships
The first step in establishing a breach of fiduciary duty is to prove that a fiduciary duty existed. There are several different types of fiduciary relationships, but there are no absolutes. Certain contract language, such as that which establishes a commission for the agent, can negate the fiduciary nature of the relationship.
On the other hand, failure to address fiduciary duty in a contract usually results in the courts agreeing that a fiduciary relationship exists, such as in these business and legal relationships:
Attorney/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 reason attorneys have an automatic fiduciary duty to act in their client’s best interests and keep all information provided confidential.
There are some financial matters in which the attorney has a particular fiduciary duty. These include:
- Executor of estate/client
- Executor of estate/heir
- Trustee/beneficiary
Agent/Principal
An agent/principal fiduciary relationship exists when an individual or entity is reasonably liable to act in the principal’s financial interests. This includes many types of relationships, such as:
- Executive/Shareholder
- Majority Shareholder/Corporation
- Consultant/Company
- Fund Manager/Personal investor
- Financial advisor/Advisee
- Accountant/Client
- Employer/Employee (or visa versa)
As you can see, fiduciary relationships are frequently a two-way street. The fiduciary duties of the employer/employee relationship and the relationship between shareholders, executives, and companies are typically mutual.
Additional Positions of Trust (Guardian/Ward, etc.)
There are many other relationships in which a person or entity might have a fiduciary duty to their client. The most common is the position of guardianship. When guardianship is granted, 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 affairs for another.
How to Prove Damages: The 4 Elements of Fiduciary Breach Claim
As already mentioned, the first element in a fiduciary breach claim in California is establishing that a fiduciary duty existed in the first place. However, this is just the first initial piece in establishing breach of fiduciary duty. Here are 3 additional elements needed to prove a fiduciary breach claim.
Proving a Breach of Fiduciary Duty Occurred
There are many ways that fiduciary duty could be breached, either intentionally or through carelessness or neglect. However, if the plaintiff contributed to the issue a breach may not have happened. For example, an accountant making a careless mistake on a tax return is a breach of fiduciary duty, but if the client failed to provide organized information they share in the blame for the mistake and no breach has occurred.
Proving Damage Was Sustained
In order to file any civil lawsuit in California, one must prove that damages were sustained. There can be no compensation if it is not determined 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 a financial loss. A loss of reputation leading to future loss of income can also be considered damages.
Proving the Breach of Duty Caused the Damages
It must be proved that the damages or losses resulting from the issue were directly caused by the breach of duty. When there are additional factors that the fiduciary could not have foreseen or controlled, a breach of duty claim may not be established.
Penalties for Breach of Fiduciary Duty
A breach of fiduciary duty is not a criminal offense, although there can be criminal charges pressed in relation to the same incident. The penalties for a breach of fiduciary duty are typically monetary and direct compensation for financial 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 severely harm their reputation, affecting their future ability to succeed in their career. A judge can also revoke a professional’s license to practice in their field if a gross breach of fiduciary duty has occurred.
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 4 years after the cause of action occurred.
This means that a lawsuit must be filed within 4 years of the action that caused the breach of fiduciary duty. For example, 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
f you’re still not sure that you have a breach of fiduciary duty claim in California, here are some of the most common examples of fiduciary duty breaches.
- Breach of duty of care: A consultant that fails to gather information to assess risks before recommending 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 proprietary 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.
Get Legal Help with a Fiduciary Duty Breach Claim
A breach of fiduciary duty can be difficult to establish and protect depending on the circumstances of the case. It is important that you contact an experienced attorney for assistance in filing and following through on your breach of fiduciary duty claim in California. Stone & Sallus attorneys take fiduciary duty breaches seriously, and we are here to help you recover your losses and move forward successfully. Contact us today to schedule your consultation.
