Imagine you're seeking investment advice from a qualified financial adviser. You've done your research and have identified two different entities that you want to invest in. The financial adviser, after looking over your research, agrees that both entities offer a relatively similar return of investment with only a slight difference in up-front investment fees. Using this info the financial adviser agrees that both options are good investments; however, he is pushing you towards entity one.
A couple of months pass and you, the investor, are generally happy with your decision. The investment has provided a slightly better return than you expected, and you're even thinking about investing additional funds. You read over some of the financial reports for entity one and see a familiar name – it's your financial adviser and he's listed as a board member for entity one.
It's easy to see that the financial adviser was, at the very least, disingenuous with his financial guidance. In steering us to entity one, however, the adviser may have done something even more egregious -- he may have breached his fiduciary duty.
When we enter into a legal agreement with another party, and that party has an obligation, as per the agreement, to act in our best interest, we are creating what the legal world designates a fiduciary duty. In the scenario above, even though the adviser gave us sound and reasonable advice, the act of steering us towards entity one, an entity in which he was a board member, is a clear breach of his obligation to look out for our -- and only our -- best interest.
Proving a Breach of Fiduciary Duty
While breach of duty claims are quite common in the legal world, particularly as they relate to the financial responsibilities of each vested party, proving a breach of fiduciary duty requires the aggrieved to:
- Prove that a fiduciary agreement existed between the accused and the aggrieved at the time of the breach of duty;
- Prove that the accused (the fiduciary) breached the fiduciary duty to the aggrieved;
- Prove an injury to the aggrieved, or benefit to the accused due to the breach of duty.
So then the question becomes, what cause of action exist that helps prove a breach of fiduciary agreement?
Breach of Fiduciary Duty – Cause of Action
In the legal world the "cause of action" has everything to do with facts. In other words, when we say cause of action, we mean what are the facts present that enable an aggrieved party to prove that that the accused breached their fiduciary responsibility.
In Texas we traditionally see 10 different causes of action as related to a breach of fiduciary duty:
- Constructive fraud is present when the aggrieved is able to prove that there is a legally binding relationship between the aggrieved and the accused, of which the accused took advantage for personal benefit, usually through some form of deceit, which ultimately led to an "injury" suffered by the aggrieved.
- A deceptive trade practice is present when the accused party purposely deceived the aggrieved and knowingly oversold the product and/or service offered.
- Negligence is present when the accused party fails to act with a level of care and prudence that is typically expected from someone in that authority.
- Gross negligence, like negligence, is present when the accused party fails to act with the expected level of care of someone typically in that position of authority. However, the distinction between Negligence and Gross Negligence is the conscious disregard to use reasonable care.
- Negligent Misrepresentation is present when the representation provided was knowingly false, or without any knowledge that the representation was true, which was conversely acted upon, as a result of the representation, and the party which acted upon the representation thereby suffered injury.
- Conversion is present when the aggrieved is able to prove that the accused has essentially committed theft. This form of theft can take many forms ranging from the theft of actual physical property to the theft of intellectual property.
- Unjust Enrichment is present when the accused profits at the expense of the aggrieved and fails to provide the proper restitution to the aggrieved party.
- Professional Malpractice aligns closely with negligence. The difference being that professional malpractice exists when the aggrieved is able to prove that a professional person failed to meet standards of care typically associated with the professional and ultimately resulted in injury or damage.
- Breach of contract is present when the aggrieved is able to prove that the accused failed to adhere to the promises made in the legally binding contract. A breach of contracts typically falls under the designation of 'minor' or 'material'. Material, being the more significant of the two breaches, is present when the accused party provides a good or service substantially different than what was agreed upon, as dictated in the legally binding contract.
- Declaratory Judgment occurs when a legally binding agreement is brought before the court and a judgment is made to declare the rights of all involved parties. While legally binding, a declaratory judgment does not provide a method of enforcement. As it relates to the breach of a fiduciary agreement, the aggrieved, or accused, party may present the agreement before the court to determine whether the disputed action is in fact a violation of the agreement or duty.
Next steps in a Breach of Fiduciary Duty
If you believe that you've been taken advantage of by a person, or persons, with fiduciary responsibility, or you have been accused of breaching your fiduciary responsibility, it's prudent that you meet with an experienced business litigator to help you walk through the options available at your disposal. A business litigator can review your claim, investigate your evidence, and help determine whether or not a cause of action exists.
With over 150 years of accumulative experience, the professional team at Hendershot, Cannon & Hisey, P.C., is proud to be an industry leader in family, business, and health law. Founded in 1987, our firm is more than equipped with the resources and talent to handle any complex legal matter. Please don't hesitate and contact us today for a consultation.