How Is Breach of Fiduciary Duty Addressed in Commercial Litigation?

 Posted on April 07, 2023 in Commercial Litigation

In today's competitive business environment, it is essential to have trust and confidence in the people you work with. This is particularly true for business owners, partners, shareholders, and others who rely on executives and employees to act in the best interests of a company. Unfortunately, breaches of fiduciary duty can occur, and they can result in severe financial and reputational damage to companies. In these situations, it is important for a company's stakeholders to understand how breaches of fiduciary duty may be addressed through commercial litigation.

Understanding Fiduciary Duty

It is essential for a business's stakeholders to understand what fiduciary duties are and when these duties apply to different parties. A fiduciary relationship exists when one party (the fiduciary) has a legal obligation to act in the best interests of another party (the beneficiary). In the context of a commercial business, a company's executives, directors, and officers owe multiple types of fiduciary duties to the company and its shareholders, including the duty of loyalty, duty of care, duty of confidentiality, and duty of disclosure. These duties require fiduciaries to act with honesty, integrity, and prudence while making informed decisions, protecting confidential information, and disclosing material facts when required.

If a fiduciary breaches their duties, they may be subject to a lawsuit seeking to address these issues. A breach of fiduciary duty occurs when a fiduciary fails to act in the best interests of their beneficiaries, acts with self-interest or conflicts of interest, deceives or misleads beneficiaries, or breaches a duty of confidentiality or disclosure. Breach of fiduciary duty claims can arise from a variety of situations, such as misappropriation of company assets, self-dealing transactions, insider trading, or disclosure of confidential information.

To address breaches of fiduciary duty, commercial litigation provides several legal remedies. The most common remedy is monetary damages, which will compensate the plaintiff(s) for the harm caused by the fiduciary's breach. Damages may include lost profits, lost opportunities, unjust enrichment, and punitive damages in cases of deliberate misconduct. Additionally, a court may order the fiduciary to account for any profits gained from their breach of duty or to disgorge any ill-gotten gains.

Another remedy is injunctive relief, which is a court order that requires the fiduciary to stop engaging in the behavior that breached their fiduciary duties. Injunctions can be temporary or permanent, and they aim to prevent further harm to the plaintiff. In some cases, a court may also appoint a receiver or a monitor to oversee the company's operations and ensure compliance with fiduciary duties.

Lastly, shareholders may also have equitable remedies available to them, such as a derivative action, in which a shareholder brings a lawsuit on behalf of the company against the fiduciaries, or a shareholder oppression action, in which a shareholder alleges that the fiduciaries have unfairly prejudiced their rights or interests. These remedies aim to protect the shareholders' interests and ensure that the fiduciaries act in the company's best interests.

Contact Our Chicago Commercial Litigation Attorneys

Breach of fiduciary duty is a serious matter that can harm a company's assets, reputation, and shareholder value. For business owners, shareholders, or others with a financial stake in a company, it is crucial to understand their fiduciary relationships and the duties owed. At Teller, Levit & Silvertrust, P.C., our Cook County commercial litigation lawyers can help address these issues, determine whether a breach of fiduciary duty has occurred, and provide guidance on the remedies that may be available. To arrange an appointment with our attorneys, please contact us at 312-922-3030.

Sources:

https://www.investopedia.com/ask/answers/042915/what-are-some-examples-fiduciary-duty.asp