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Fiduciary Relationship in California

A fiduciary duty is defined as a legal or ethical relationship based on trust between two or more parties. A fiduciary has the responsibility to take care of funds entrusted to him or her. It is expected that a fiduciary person has to be extremely loyal to whom he owes the duty. In practice, business officers and directors have fiduciary duties to the business and to the persons who are its constituents. Moreover, fiduciary duties might be defined and created by contract between parties.

Unfortunately, the practice is full of cases when an entrusted person violates his or her obligations. Oftentimes, breach of a fiduciary duty is linked to situations when business directors prevail their personal over the business interest of the owner. Mainly, the lawsuits on breach of fiduciary duty involve the following causes of action:

  • breach of contract ( i.e., one of the partners did not act according to the partnership agreement),
  • fraud (i.e., one of partners misrepresented an important fact),
  • breach of fiduciary duty ( i.e., business director betrayed company),
  • and accounting (i.e., a partner misappropriated the income).

Under California law, in order to establish a cause of action for breach of fiduciary duty, it is required to prove the following elements:

  1. existence of a fiduciary duty,
  2. breach of the fiduciary duty,
  3. proximate cause,
  4. causation of harm or damages(Mosier v. Southern California Physicians Insurance Exchange (1998) 63 Cal.App.4th 1022, 1044).

California courts practice distinguishes three categories of breach of fiduciary duties:

1. Breach of reasonable care (negligence),
2. Breach of duty of loyalty,
3. Breach of confidentiality.

Additionally, the acts of intentional wrongs, i.e. fraud, as well as misrepresentation also are considered to be a breach of fiduciary duty.
What do you need to start a breach of fiduciary duties lawsuit?
First of all, the lawsuit is impossible without a person who was imposed by fiduciary duties. Two types of fiduciary duties are distinguished:

  • imposed by law,
  • undertaken by agreement.

There is no special list of relationships which are the matter of fiduciary relationships by law. Nonetheless, the practice allows to identify some of them, such as:

  1. principal and agent,
  2. attorney and client,
  3. partners,
  4. corporate officers and directors,
  5. the corporation and its shareholders,
  6. husband and wife related to the couple’s community property,
  7. controlling shareholders and minority shareholders.

Additionally, in various cases California courts did not accept attempts to extend the term of “fiduciary duties” to other relationships without imposition of an affirmative duty. Nowadays, it is considered that it is not found the existence of fiduciary duties in the following relationships:

  1. unmarried cohabitants,
  2. a trade union and its members,
  3. a bank and its borrowers,
  4. an insurer and its insured.

Do you think that someone has breached his or her fiduciary duities and you are going to start a lawsuit?
Call 818-553-1000 and you will get a free initial consultation from The Margarian Law Firm Lawyers.
The Margarian Law Firm offers a high level of competence in California business law with a focus on the core needs of our clients. Our lawyers are particularly committed to keeping a practice of professional secrecy and ensuring legal security necessary to our clients.
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