Fiduciary duty is a legal obligation where one person, called the fiduciary, must act in the best interest of another person, known as the beneficiary. This duty is based on trust and confidence. For example, a trustee managing a trust for beneficiaries must prioritize the beneficiaries’ interests above all else. Fiduciary duties are common in various relationships, such as between business partners, corporate directors and shareholders, and financial advisors and their clients.
Examples of fiduciary duty violations
Professionals can violate their fiduciary duty in several ways. Here are five examples:
- Misappropriation of funds: This occurs when a fiduciary uses the beneficiary’s funds for personal gain. For instance, a financial advisor might invest a client’s money in a personal venture without permission.
- Conflict of interest: A fiduciary must avoid situations where their personal interests conflict with their duty. For example, a corporate director might approve a contract that benefits their own company rather than getting the best deal for the corporation they serve.
- Failure to disclose information: Fiduciaries must provide all relevant information to the beneficiary. If a business partner hides critical financial details from the other partners, it constitutes a breach of fiduciary duty.
- Negligence: This happens when a fiduciary fails to act with the care that a reasonably prudent person would. For example, a trustee might neglect to manage the trust’s assets properly, leading to financial loss.
- Self-dealing: This occurs when a fiduciary acts in their own interest rather than the beneficiary’s. For instance, a real estate agent might sell a property to a relative at a lower price without informing the client.
As illustrated here, violating fiduciary duty can take many forms. One thing they all have in common is that violating the obligation undermines the trust and confidence placed in the fiduciary.
Resolving fiduciary duty disputes in Ohio
Fiduciary duty disputes can be resolved through legal action. The harmed party must prove that a fiduciary relationship existed, the fiduciary breached their duty, and the breach caused harm. Disputes can be settled in court, where a judge will determine if the fiduciary acted improperly and decide on appropriate remedies, such as compensation for damages.
Alternate dispute resolution (ADR) involving mediation or another format is also an option. Typically, ADR involves a neutral third party helping both sides reach a mutually agreeable solution. This can be a faster and less costly alternative to litigation.
The importance of legal guidance
Navigating fiduciary duty disputes can be complex. A business law attorney experienced in litigation and ADR can provide invaluable assistance. They can help you understand your rights, gather evidence, and represent you in court or in alternate dispute resolution. Seeking legal guidance ensures that you handle disputes effectively and protect your interests.