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4 factors in a breach of fiduciary duty claim

On Behalf of | Aug 10, 2021 | Contract Disputes

Shareholder disputes are common no matter the size of the organization. From minority shareholders feeling underrepresented to disagreements over the future direction of the company, numerous disputes can grow into heated debates. One common source of conflict, however, is the breach of fiduciary duty.

In every business relationship, one entity must place their trust in another to exhibit solid decision-making and thorough research regarding how the organization’s finances are handled. It is not uncommon, however, for shareholders to feel they misplaced this trust when a breach of fiduciary duty occurs. While certain business relationships and various states typically require unique criteria, there are four common elements in a claim of breach of fiduciary duty, including:

  • Was there a clear fiduciary duty? To make an effective claim of breach of fiduciary duty, it is necessary to prove there was a financial obligation. This generally means that a contract existed, or a specific agreement was in place to specify the fiduciary obligations.
  • Did a breach occur? A breach of the terms of an agreement is different than actions that were not in an individual’s best interest. Poor planning and substandard execution could indicate a breach, but individuals must show a direct link.
  • Is there a causal link between the breach and the damages? Similarly, a link of causation must exist between the breach and the financial damages. It is not enough for the events to be correlated as there must be a causal relationship.
  • Did the breach cause fiduciary damages? While the breach might represent a conflict of interest or a failure of trust, the breach of fiduciary duty requires there to be financial damages.

Business relationships of all kinds contain a financial component. From lawyers acting on behalf of their clients to financial advisors acting on behalf of their investors, a breach of fiduciary duty can signal financial peril. When these breaches occur in a business setting, the financial trouble can lead to damaged morale and organizational disruptions.

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