Breach of fiduciary duty is a cause of action that arises when there is a breach of trust in a fiduciary relationship. A fiduciary is a person or entity that is acting in a position of authority and trust. Fiduciaries may be trusted with funds, information, or fulfilling obligations. For example, a bank is a fiduciary that is entrusted with your funds. Banks are expected not to breach the trust of account holders by disclosing their financial information or mismanaging their assets.
A fiduciary duty may be created by an agreement between the parties (e.g., a contract), or the relationship may be designated as a fiduciary relationship by law. Fiduciaries are entrusted to act in the best interests of the parties they are serving and are therefore expected to avoid any conflicts of interest.
New Jersey Corporate Fiduciaries & Types of Duties
Corporate fiduciaries owe three types of duties to those that entrust them to serve as fiduciaries:
- Duty of care
- Duty of loyalty
- Duty of good faith.
Duty of Care
The duty of care requires fiduciaries to make important decisions after due consideration. The “business judgment rule” presumes that a fiduciary acted properly provided that he or she acted in good faith and believed that his or her actions were taken in the best interests of the company.
For example, if a managing partner in a business makes a poor business decision that causes the business to lose money, the partner has not breached the duty of care simply for making a bad decision if (1) he or she was not acting in bad faith; and (2) there is no evidence that he or she was not acting on an informed basis. If it can be proven that the managing partner was acting with an improper motive or failed to consider important factors appropriately, it may be possible under these circumstances to allege a breach of the duty of care.
Duty of Loyalty
The duty of loyalty requires corporate fiduciaries to act in the best interests of the parties they are serving rather than their own personal interests. Fiduciaries are not supposed to use their position of trust or the knowledge or information they have gained in that position for personal gain.
In some circumstances, a decision that benefits an entity served by a fiduciary may benefit the fiduciary as well. A fiduciary should always make sure that they act with the best interests of the entities they serve and disclose any potential conflicts of interest.
Duty of Good Faith
The duty of good faith requires fiduciaries to use reasonable diligence when making business decisions. Corporate fiduciaries are expected to make decisions that are in the best interests of the company that are not only free from personal conflicts of interest but are also in line with the standard of care expected of a fiduciary based on their skills and expertise.
For instance, an attorney or accountant may be held to a higher standard when making certain decisions because of his or her specialized knowledge.
Examples of Breach of Fiduciary Duty in New Jersey
Some of the most common situations involving a breach of fiduciary duty are the following:
- Self-dealing. This occurs when a fiduciary acts according to his or her own interests rather than to the interests of the parties to whom he or she owes a legal duty. For example, if a trustee is in charge of managing funds for an individual or group of individuals and buys personal items with the trust money, this is an example of self-dealing.
- Material misrepresentation. This involves a failure to disclose facts that are essential to the nature of a transaction or portraying the facts to be different than they truly are. For example, lying about the value of an asset.
- Misuse of superior position. Similar to self-dealing, a fiduciary breaches his or her position of trust when he or she attempts to use the position for personal gain.
- Misuse of confidential information. A fiduciary is not allowed to distribute confidential information without permission.
Conduct by a fiduciary may be deemed constructive fraud when it is based on acts or omissions, like concealment, and gives a fiduciary or other entity an advantage over another person.
Filing a Lawsuit in Bergen County, New Jersey
If you have been affected by a breach of fiduciary duty, you may be able to file a claim for damages. When assessing a claim for a breach of fiduciary duty, a court must consider the following:
- Whether or not a fiduciary relationship existed at the time of the breach;
- The scope of the fiduciary relationship;
- Whether or not the misconduct was done within the scope of the fiduciary relationship; and
- The amount and type of damages suffered by the plaintiff(s) if there was a breach of fiduciary duty.
As the plaintiff, you have the burden of proving the case. Gathering evidence that a breach of fiduciary duty occurred is an ongoing process. An attorney can assist you by obtaining important documents and obtaining testimony by deposing key witnesses.
If a court finds that there has been a breach of fiduciary duty, the court may find that there is a constructive trust and order that the fiduciary hold the property in safekeeping until it can be transferred to its rightful owner. A court may also order an account of profits when it is not clear from the facts what money may be owed to the principal. If the court orders an account of profits, the fiduciary must account for how he or she has spent company funds.
If the defendant is found liable for breach of fiduciary duty, you may be able to recover compensatory damages for economic losses, like lost profits. There may be other legal remedies available under contract law if there is a written or oral agreement between the parties. In some cases, punitive damages, court costs, and attorney's fees may be recoverable. Punitive damages are awarded to discourage other parties from engaging in similar conduct.
Diligent Fraud & Breach of Fiduciary Duty Attorneys in New Jersey
If you have questions about breach of fiduciary duty in New Jersey, contact an experienced business law attorney right away. Contact Najib, Kim & Feliz, LLC by filling out our online form or calling us at (201) 585-2250.