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Fiduciary Duty Case Law Update

A fiduciary duty is a legal or ethical relationship of trust between two or more parties. For businesses, a fiduciary often has the responsibility to take care of money or other funds entrusted to it. This is often one of the highest standards of care in equity or law, and a fiduciary is thus expected to be extremely loyal to the person to whom he owes the duty (i.e. the principal). Business directors and officers have fiduciary duties (duty of care, duty of loyalty) to the business and often times its constituents. Mortgage brokers, financial planners, business partners, shareholders, real estate agents, escrow agents, and attorneys, also owe fiduciary duties to their clients as well. 

The recent court decision in Fiduciary Trust International of California v. Klein (2017) 9 Cal. App. 5th 1184, is a cautionary tale that warns trustees against assuming that all communications with an attorney are confidential.  Therein, the Court held as follows:

“[G]enerally speaking, the client is the holder of the privilege and, as such, has the burden of making this prima facie showing. (Evid. Code, § 953, subd. (a).) However, where, as here, a trustee is asserting the privilege, the “client” is the office of trustee rather than the particular trustee. (See Moeller v. Superior Court, supra, 16 Cal.4th 1124, 1129–1130 (Moeller).) This distinction arises from the unique relationship between a trustee and trust beneficiary. Specifically, under the Probate Code, a trustee is deemed to possess all “powers conferred by the trust instrument” (Prob. Code, § 16200, subd. (a)), as well as a number of specific powers and duties. For example, “[t]he trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.”  (Prob. Code, § 16060.) In addition, the trustee has a duty “on reasonable request” to provide the beneficiaries with complete and accurate information regarding that acts of the trustee and the particulars “relating to the administration of the trust relevant to the beneficiary’s interest.” (Prob. Code, § 16061.) Relevant here, trustees are thus required to “keep the trust property separate from other property not subject to the “trust” and to “see that the trust property is designated as property of the trust.” (Prob. Code, § 16009, subds. (a) & (b).)

In sum, fiduciaries should assume that their confidential communications likely will pass to any predecessor trustee and govern themselves accordingly.  As the Fiduciary Trust International court reminds us (quoting from Moeller), “the office of the trustee is thus by nature an onerous one, and the proper discharge of its duties requires great circumspection.”

A breach of fiduciary duty will entitle the client or beneficiary to damages, including, but not limited to, monetary damages, fee forfeiture, profit disgorgement, accountings, and punitive damages.  Accordingly, discharge of one’s fiduciary duties requires great care and attention, given the potential ramifications when there is a breach.

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