What Is a Breach of Fiduciary Duty and What Remedies Are Available?

A fiduciary is a person entrusted with the responsibility to act in the best interest of another party. Fiduciaries often include corporate directors, officers, partners, trustees, and managers. These individuals owe heightened duties of loyalty, honesty and care to the entities or individuals they serve.

A fiduciary can be sued for a breach of duty, which can arise if they act in their own self-interest, disregard their duty to act in good faith, misuse assets or fail to exercise the care expected of a reasonably prudent person in their position. The following are examples:

1. Self-dealing — Self-dealing arises when a fiduciary enters into transactions that primarily benefit themselves, potentially to the detriment of the organization or those they represent. For example, a corporate officer might cause the corporation to enter a contract with another entity they own, improperly reaping personal benefit from corporate decisions. Such actions can undermine trust in leadership and harm the organization’s financial interests.
2. Diverting corporate opportunities — This type of breach involves a fiduciary seizing an opportunity rightfully belonging to the corporation. If a director, for instance, learns about a lucrative deal through their position and pursues it for their own benefit rather than presenting it to the company, they violate their duty. The core issue is that fiduciaries must prioritize the best interests of the organization before their own gain, particularly when opportunities arise because of their official role.
3. Misuse of company assets — A breach occurs if a fiduciary improperly utilizes a corporation’s assets for personal advantage. Take an executive who allocates company funds to finance personal endeavors, vacations, or expenses without the appropriate approvals. Misapplication of resources depletes company assets and directly harms the organization and its stakeholders.
4. Failure to exercise due care — Fiduciaries are required to manage the affairs of the organization with reasonable care and skill. If directors fail to diligently supervise operations or overlook significant risks, resulting in avoidable financial loss, they may be liable for negligent mismanagement. This duty ensures that decision-making is both informed and prudent, protecting the organization from preventable harm.

Breach of fiduciary duty can result in substantial damage to corporations or other organizations. The losses might take the form of diminished company value, lost profits or business opportunities, asset depletion, or reputational damage. Primarily, the corporation itself is directly harmed, but shareholders, partners, or beneficiaries may also suffer indirectly through reduced share value or returns. Third parties such as creditors could be indirectly affected if a breach leads to insolvency or similar outcomes.

Victims of breach of fiduciary duty have access to both legal and equitable remedies. Legal remedies include monetary damages to compensate for losses suffered due to the breach. Equitable relief includes injunctions that restrain further misconduct, orders requiring assets or profits improperly gained to be returned (disgorgement) or removal of the fiduciary from their position. A court may also impose a constructive trust over ill-gotten gains to ensure they are returned to the rightful owner. 

At The Law Firm of Richard L. Ellison, P.C. in Kerrville, Texas, I represent individuals and businesses in a full range of legal disputes. To schedule a consultation, call my firm at 830-955-8168 or contact me online.