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BREACH OF FIDUCIARY DUTY

What is a fiduciary relationship?

“A fiduciary relationship is ‘ “ ‘any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent. …’ ” ’ ” (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29 [130 Cal.Rptr.2d 860], internal citations omitted.)

"[A] fiduciary relationship is a recognized legal relationship such as guardian and ward, trustee and beneficiary, principal and agent, or attorney and client [citation]." (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 271.)

What are a fiduciary’s duties?

“Every agent owes his principal the duty of undivided loyalty. During the course of his agency, he may not undertake or participate in activities adverse to the interests of his principal. In the absence of an agreement to the contrary, an agent is free to engage in competition with his principal after termination of his employment but he may plan and develop his competitive enterprise during the course of his agency only where the particular activity engaged in is not against the best interests of his principal.” (Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 287 [40 Cal.Rptr. 203].)

A fiduciary must give "priority to the best interest of the beneficiary. [Citation.]" (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 222 (Children's Television).)

In addition to this duty of preference toward the beneficiary, the fiduciary also is required to manage the subject matter of the relationship (or res) with due care, must account to the beneficiary, and must keep the beneficiary fully informed as to all matters pertinent to the beneficiary's interest in the res. (See Chodos, The Law of Fiduciary Duties (2000), pp. LIV-LV.)

Is a person a fiduciary?

“[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.”  (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221 (Children’s Television).)

There are two types of fiduciary duties, i.e.:

(1) "those imposed by law and

(2) those undertaken by agreement"

 

GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 416 (GAB Business).

 

What types of persons are fiduciaries imposed by law?

See Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621:

A. Claims Arising out of Fiduciary Relationships, Generally

Fiduciary duties arise as a matter of law "in certain technical, legal relationships." (GAB Business, supra, 83 Cal.App.4th at p. 416.) While this list of special relationships is one that "is not graven in stone" (Chodos, The Law of Fiduciary Duties, supra, p. 1), it is useful to identify many of the relationships that give rise to fiduciary duties. They include relationships between:

(1) principal and agent (Recorded Picture Company [Productions] Ltd. v. Nelson Entertainment, Inc. (1997) 53 Cal.App.4th 350, 369-370 (Recorded Picture)), including real estate broker/agent and client (Smith v. Zak (1971) 20 Cal.App.3d 785, 792-793), and stockbroker and customer (Black v. Shearson, Hammill & Co. (1968) 266 Cal.App.2d 362, 367);

(2) attorney and client (Rader v. Thrasher (1962) 57 Cal.2d 244, 250);

(3) partners (Koyer v. Willmon (1907) 150 Cal. 785, 787-788; Corp. Code, 16404);

(4) joint venturers (Sime v. Malouf (1949) 95 Cal.App.2d 82, 98);

(5) corporate officers and directors, on the one hand, and the corporation and its shareholders, on the other hand (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 345);

(6) husband and wife, with respect to the couple's community property (Vai v. Bank of America (1961) 56 Cal.2d 329, 337; see also Fam. Code, ? 1100, subd. (e));

(7) controlling shareholders and minority shareholders (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108-112 (Jones));

(8) trustee and trust beneficiary (Estate of Vokal (1953) 121 Cal.App.2d 252, 257);

(9) guardian and ward (Estate of Kay (1947) 30 Cal.2d 215, 226; Prob. Code, 2101);

(10) pension fund trustee and pensioner beneficiary (Lix v. Edwards (1978) 82 Cal.App.3d 573, 578);

(11) executor and decedent's estate (Estate of Boggs (1942) 19 Cal.2d 324, 333); and

(12) trustee and trust beneficiaries. (Penny v. Wilson (2004) 123 Cal.App.4th 596, 603; Prob. Code, 16004, 16081, subd. (a).)

In numerous cases, however, California courts have rejected attempts to extend fiduciary obligations to relationships where the imposition of such an affirmative duty is unwarranted. For instance, no fiduciary relationship was found to exist as between the following:

(1) an attorney and his cocounsel under the theory that the former's malpractice in handling of a mutual client's case caused damage to cocounsel in the loss of fees (Beck v. Wecht (2002) 28 Cal.4th 289, 292-298);

(2) one shareholder and another by virtue of the fact that they were former partners in an entity that was later incorporated (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1158-1159);

(3) an unmarried cohabitant and his cohabitant concerning the operation of the former's business (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 448);

(4) a movie distributor and movie producers under a distribution contract (Recorded Picture, supra, 53 Cal.App.4th at pp. 369-370);

(5) a homeowner's association and the buyer of an individual unit (with respect to disclosure of known construction defects) (Kovich v. Paseo Del Mar Homeowners' Assn. (1996) 41 Cal.App.4th 863, 869-870);

(6) a trade union and a union member (apart from the union's duty of fair representation) (Hussey v. Operating Engineers Local Union No. 3 (1995) 35 Cal.App.4th 1213, 1221 (Hussey));

(7) a bank and its borrowers (Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974, 979-981);

8) a corporation and its bondholders (Pittelman v. Pearce (1992) 6 Cal.App.4th 1436, 1444-1445);

(9) a clearing broker and an investment broker's customer (Mars v. Wedbush Morgan Securities, Inc. (1991) 231 Cal.App.3d 1608, 1614-1615);

(10) an insurer and its insured (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1148-1149); and

(11) a manufacturer and an authorized dealer (Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 653-655).

Many of the cases rejecting breach of fiduciary duty claims have been based (at least in part) upon the principle, as enunciated in Waverly Productions, Inc. v. RKO General, Inc. (1963) 217 Cal.App.2d 721, 732, that "[a] mere contract or a debt does not constitute a trust or create a fiduciary relationship." (See Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 30-31, 33-34; Recorded Picture, supra, 53 Cal.App.4th 350, 370; Rickel v. Schwinn Bicycle Co., supra, 144 Cal.App.3d at pp. 654-655.) As a general rule, courts finding no fiduciary duty have done so "where other legal relationships clearly existed between the parties which 'covered' the transaction in suit and which were inconsistent with the existence of fiduciary duty." (Chodos, The Law of Fiduciary Duties, supra, p. 61.)

Breach of Fiduciary Duty:

Breach of fiduciary duty commonly falls under the following three categories:

1. Breach of reasonable care (negligence) [CACI 4101];

2. Breach of duty of loyalty [CACI 4102] ; and/or

3. Breach of confidentiality [CACI 4103].

Of course, intentional wrongs such as fraud (fiduciary fraud) as well as negligent misrepresentation also constitute a breach of fiduciary duty.

The elements of a cause of action for breach of fiduciary duty are:

(1) Duty: Existence of a fiduciary duty;

(2) Breach: The breach of that duty; and

(3) Causation of Damages: Damage proximately caused by that breach.

 Mosier v. Southern California Physicians Insurance Exchange (1998) 63 Cal.App.4th 1022, 1044.

Note: In certain cases, punitive damages may be available in specifically defined egregious cases (Hobbs v. Bateman Eichler, Hill Richards, Incorporated (1985) 164 Cal.App.3d 174).  But attorney’s fees are not generally recoverable in breach of fiduciary causes of action (Allstate Insurance Co. v. Superior Court (2007) 151 Cal. App. 4th 1512, 1528).  The measure and types of damage relief available in breach of fiduciary claims depend on the nature of the breach.

Because breach of fiduciary duty is a hybrid of a contract and tort action, courts sometimes modify, and/or vary in their interpretations of issues such as, for example, damages and the statute of limitations.

Disclaimer: The information provided in this article is informational, only. The subject matter and applicable law is evolving and/or constant state of change.  This article is based on California law.  The article merely summarizes legal statutes and case law and makes no guarantee of the accuracy of such summary.  Read the applicable statute (and/or appellate cases construing same) to determine the exact language and meaning of the statutes.  No legal advice is given and no attorney/client or other relationship is established or intended.  The information provided is from general sources, and I cannot represent, guarantee or warrant that the information contained in this website is accurate, current, or is appropriate for the usage of any reader. It is recommend that readers of this information consult with their own counsel prior to relying on any information on this website.

Author: Matthew B. Tozer Esq.



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