Fiduciary Duty California

A principal who owes a beneficiary a fiduciary duty must use reasonable care, the duty of undivided loyalty, confidentiality, good faith, and the best interest of the beneficiary. A breach of fiduciary duty occurs when the person who owes the fiduciary fails to act in the beneficiary’s best interest, such as not exercising reasonable care.

By Brad Nakase, Attorney

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When one individual has a fiduciary duty to another person, the person with the fiduciary duty must conduct themselves in a manner that is financially beneficial to the other person. We define this vital duty as a responsibility that includes confidence, trust, transparency, and reliability. Those assuming the position of fiduciary owe the principle a true sense of honesty and loyalty that must not be corrupted or wrongfully influenced. Whether the fiduciary is an attorney or a corporate officer, they take on a heavy responsibility and must be up to the challenge.

While many fiduciary relationships proceed without a hitch, some fiduciaries violate their responsibilities. When a fiduciary breaches their duty in California, the beneficiary should contact an experienced fiduciary duty attorney to inquire about legal action.

All business people and professionals across the state must understand the main principles of fiduciary duty and the consequences of breaching these duties. Of course, many of us will act as fiduciaries or beneficiaries at some point, but even those who do not assume these roles should understand these key concepts.

In this article, we will thoroughly outline the duties of fiduciaries and beneficiaries. We will also cover what individuals should do in the event of a violation and what damages parties can expect when a fiduciary violates their trust. Since violations of fiduciary duty often result in lawsuits and other legal actions, it is integral for everyone involved to understand what it means to assume this important responsibility and what to do when a violation occurs.

In this article, our corporate attorney in San Diego discusses fiduciary duty as follows:

1. What Are the Three Main Fiduciary Duties?

2. What is the Meaning of Fiduciary Duty?

What Are the Three Main Fiduciary Duties?

Fiduciary duties exist in various industries and different fields of business. As a result, many individuals and corporations feature fiduciary relationships.

In California, there are three main fiduciary duties. These are:

Duty of loyalty. The duty of loyalty requires corporate officers, directors, and controlling shareholders to always act in the best interest of the company and the shareholders.
Duty of confidentiality. Lawyers, doctors, or agents are prohibited from violating their ethical duty by disclosing their beneficiary’s private or personal information to third parties.
Duty of reasonable care. The duty of reasonable care requires a reasonable person to exercise caution to prevent harm when providing services to another.

In addition to California attorneys and their clients, some of the standard examples of organizations and individuals involved in fiduciary duty relationships are:

Corporations and stockholders
Trade unions to union members
Business partners and those insured
Real estate agents and clients
Stockbrokers and clients
Borrowers and banks
Spouses
Joint venturers
Controlling shareholders and minority shareholders
Trustees and beneficiaries

All individuals and entities are lawfully required to act in the alternate party’s best interest and honor the abovementioned three duties. When fiduciaries do not uphold their duties, a fiduciary breach occurs. In California, the courts dictate that violating fiduciary duties can be grounds for the aggrieved party to collect damages in a court of law. In the next section, we will elaborate on these specific obligations.

What is the Meaning of Fiduciary Duty?

Fiduciary duty implies a meaningful, vital responsibility on behalf of the trustee. In California, for example, corporate executives have a fiduciary responsibility to not only the business itself but also the company’s stockholders.

In short, all of those who assume fiduciary responsibility must act in the company’s best interests, including the shareholders.

Attorneys in California also assume fiduciary duty when they take on clients. In this case, the client is the beneficiary, and the lawyer is the fiduciary.

When individuals are bound by fiduciary duty, their key duties include:

Duty of Care. Duty of Care includes the board’s decisions about the company’s future. Therefore, the board must research all available decisions and decide what is best for the business. For example, if the board votes on a new CEO, the choice should be based on all applicants’ qualifications. Even if the board is familiar with one candidate, and everyone approves, it must fully investigate the pros and cons of all possible new CEOs.
Duty of Loyalty. A company’s board cannot place any other entities above its loyalty to the company and investors. Therefore, board members cannot deal in any way that places their self-interests first. For example, if a board member learns of some market details that will impact the company’s stock, they must disclose these details. When board members violate their fiduciary duty, they can be brought to court by the shareholders or the business itself.
Duty to Act in Good Faith. The board must choose the option that benefits the interests of the company and its shareholders. Then, after investigating all the options, the board must make a clear choice, and their motives must also be honorable.

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