Breaches of fiduciary duties are particularly damaging because they stem from those responsible for working toward the best interests of a beneficiary. This could surface in the form of sharing protected trade secrets, supporting a competitor of your business, or failing to support the board in many ways. When you or your company experiences a fiduciary breach, the consequences can be significant. If, for example, you have to deal with someone benefiting financially at your company’s expense, there are direct and quantifiable losses to address. On the other hand, if your organization is publicly outed for participating in illegal activity (stemming from the person who breached their fiduciary duty), you can suffer from the reputational damage that hinders your business’s future.
Regardless of the outcome, the key is holding someone liable for breaching a fiduciary duty. Before we elaborate further, we are explicitly discussing people who have broken the law or taken deliberate action against the interest of the people they had a duty to support. Managers and board members may offer advice that ultimately harms the company. Though the damages are real, this is not likely a breach of fiduciary duty. The business judgment rule protects people from supplying you with poor advice as long it was given in good faith. It does not protect those who gave you information that worked toward their self-interest or was provided to impact the company negatively.
Let’s Look at Liability
The last sentence is critical. Did the fiduciary act against the duty they were obligated to uphold? In terms of holding someone liable, the result is less important than the intention behind it (although the outcome will factor in later). Before you can pursue damages, your attorney will have to prove that a fiduciary duty existed, what their roles and responsibilities were, and that the fiduciary acted in a way that was contrary to both. Here are some examples of evidence that an attorney will use to demonstrate that a breach occurred once the other two prerequisites have been established:
- The fiduciary misused funds
- They used their position to create an outcome that was in their best interest rather than what was in the company’s best interest.
- They deliberately avoided the responsibilities they were supposed to uphold.
Additionally, your attorney will need to show that you or your business suffered damages because of the actions taken by the fiduciary. When these elements are present, your attorney will pursue compensation in various ways in addition to the direct losses you endured. The defendant may be asked for the following:
- Compensation for your attorney’s fees and other related expenses connected to pursuing litigation against the defendant.
- Fines and other punitive damages for their actions
Lastly, although we have looked at this through the lens of litigation, breaching a fiduciary duty could result in criminal charges—especially when fraud and theft are present. Though Elizabeth Holmes’s story is elaborate, she was accused of lying to the board and investors about the effectiveness of their blood testing technology and faking results. The element often overlooked is that Theranos’s Board of Directors was pulled into this fraud case because they failed their fiduciary duties regarding compliance and oversight.
Quantum Lex is a business law firm that works with innovative companies. Though your ideas and mission are unique, you need a reliable business law attorney who can protect you and your interests when you experience challenges such as breaches in fiduciary duties. Contact our office at (952) 746-2400 to schedule a consultation.
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