Whether you have an estate plan in place or are starting from scratch, a letter…
If you believe you have been wronged in a business relationship you may have a claim for breach of fiduciary duty. When one party, person, or entity holds a fiduciary duty to another party, person, or entity, that duty is defined as holding something of value in good faith or with trust. When that trust – the expectation that the other party acted in good faith and in your best interest – is broken you have a breach of fiduciary duty. A common type of breach includes the mishandling of money or property by a “fiduciary”, the trusted person who committed the wrongful act against a “principle” who is the person that trusted the fiduciary to act fairly and responsibly.
Common fiduciaries include attorneys who are fiduciaries of their clients, employees who are fiduciaries of their employer, guardians, who have a fiduciary duty to act in the best interest of their charges, as well as real estate brokers and agents. An entity that is included as a fiduciary may differ from state to state. Under Illinois law, unless money is held in trust, insurance companies are not considered fiduciaries. Banks and insurance brokers are also not considered fiduciaries in Illinois.
An example of a fiduciary relationship would include business partners, who have a duty to each other to conduct business in a manner within the bounds of the partnership’s business purpose and mission without negligence, misconduct that would benefit one unfairly over the other, or knowingly breaking the law. If a dispute over breach of this duty is legally enforceable, legal counsel would address three issues that would need to be explored. First, did the fiduciary relationship exist at the time of the dispute? A fiduciary relationship could be established either by a contract or implied through statute. Second, what was the scope of the relationship and the duties of the fiduciary? Lastly one would need to determine if any of these duties were breached within the scope of the relationship.
For a business owner to be found at fault when being sued for breach of fiduciary duty, the plaintiff would need to need to prove the owner had a duty to act in good faith, with the nature of the duty or duties being further clarified based on the facts of the case. The plaintiff would also need to demonstrate the owner did something that rises to the level of a breach, which includes actions such as neglect of responsibility and misrepresenting or failing to disclose certain information. And finally, proof of damages to the plaintiff must be evident that were caused by the breach of fiduciary duty. A lawsuit would not be actionable without damages. If damages were incurred, the plaintiff could recover not only actual damages but punitive damages if it could be proven that the breach was committed out of malice or fraud was intended. Regardless of which side you are on when trust has been betrayed, it is best to engage an attorney as soon as possible as a breach of fiduciary duty can be damaging to your business, your finances, and your reputation. Of note, there is a statute of limitations of five years to litigate for breach of fiduciary duty in Illinois. This is one year less than the Federal ERISA (Employee Retirement Income Security Act of 1974) statute, which is a law that applies to many, but not all private employers.
We hope you found this article helpful. If you have questions or would like to discuss your family situation, please contact our Heber Springs, Arkansas office at 501-365-3934.