Formidable Counsel in Breach of Fiduciary Duty Litigation Cases
Fiduciary duty cases can be highly contentious, often involving sensitive financial disputes, intricate business valuation matters, and personal conflicts between parties. Our team has extensive experience representing clients in these types of cases, which can arise in a variety of settings - from corporations and partnerships to limited liability companies (LLCs).
If you are a business owner or manager facing allegations of a breach of fiduciary duty, we can help you build a strong defense strategy. Conversely, if you believe that someone with a fiduciary responsibility to your business has violated their obligations, we can advise you on the merits of pursuing legal action and guide you through the litigation process. Our goal is to provide thoughtful, tailored counsel that empowers you to make informed decisions about the path forward.
Fiduciary Responsibilities of Business Owners
In a corporation, fiduciary duties are primarily owed by directors and officers to the corporation and its shareholders. These duties ensure that those in leadership act in the best interests of the business rather than pursuing personal gain. With partnerships, the two owners have a duty to each other, and fiduciary duties in LLCs depend on the structure of the business and the roles of the members.
In member-managed LLCs, all members typically owe fiduciary duties to the LLC and to each other. In manager-managed LLCs, these duties are owed primarily by the managing members. However, the operating agreement often plays a significant role in determining and even limiting these duties.
Key fiduciary duties that business owners involved in corporations, partnerships, and LLCs have include the following:
- Duty of loyalty: Business owners must act in the best interests of the corporation, avoiding conflicts of interest and self-dealing. They cannot take corporate opportunities for themselves or make decisions that benefit their personal interests over those of the corporation. Any benefit derived from partnership business must be accounted for and shared with the partnership. This duty can often be modified or waived by the LLC’s operating agreement.
- Duty of care. Directors, officers, and managers are required to make informed, reasonable decisions on behalf of the corporation. They must exercise the level of care that a reasonably prudent person would in a similar position.
- Duty of good faith and fair dealing. This duty requires business owners, partners, and managers to act with honesty and integrity, ensuring that their actions align with the corporation’s mission and comply with the law.
Further Reading: “Understanding Fiduciary Duties in Business Partnerships: What Every New York Owner Should Know”
Non-Managing Members in LLCs & Breaches
Non-managing members in LLCs typically do not owe fiduciary duties unless the operating agreement specifies otherwise. However, they can still be impacted by breaches committed by managing members, and litigation may be necessary to protect their interests if the business is mismanaged.
What Constitutes a Breach of Fiduciary Duty?
A breach of fiduciary duty occurs when a business owner or partner fails to uphold the duties of loyalty, care, or good faith. This could involve anything from misappropriating business opportunities to engaging in self-dealing or even gross negligence in managing the business’s finances. Breaches can severely damage the business, disrupt operations, and lead to financial losses.
Breach of fiduciary duty examples include the following:
- Parties may violate their duty of loyalty in the following instances:
- If a director learns of a valuable business opportunity that the corporation could pursue but decides to invest in it personally instead, this would be a breach of loyalty. Similarly, engaging in business transactions that personally benefit the director without proper disclosure would also violate this duty.
- A partner who secretly starts a competing business or diverts partnership clients to a side venture without the knowledge or consent of the other partners would be breaching their duty of loyalty. Similarly, a partner who profits from a deal intended for the partnership without disclosing it would also violate this duty.
- If a managing member siphons off LLC funds for personal use or exploits an LLC business opportunity for their own financial benefit without disclosing it to the other members, they would be in breach of their duty of loyalty.
- Parties may violate their duty of care to others involved and invested in the business in the following instances:
- If a corporate officer makes a major business decision—such as entering a risky contract—without proper investigation or due diligence, leading to significant financial loss, this could constitute a breach of the duty of care.
- A partner who makes reckless financial decisions or neglects their responsibilities to the partnership—such as failing to properly manage the partnership’s assets—could be held liable for breaching the duty of care.
- A managing member who makes irresponsible investment decisions or fails to maintain proper financial oversight, leading to substantial losses for the LLC, could be liable for breaching the duty of care.
- Parties may violate their duty of good faith and fair dealing in the following instances:
- An officer knowingly engages in illegal activities on behalf of the corporation or intentionally withholds information from the board to push through a self-serving agenda
- A partner who intentionally misleads others about the partnership’s financial health or hides personal interests in a deal
- A managing member makes irresponsible investment decisions or fails to maintain proper financial oversight, leading to substantial losses for the LLC
- A manager fails to disclose a conflict of interest or conceals important information about the LLC’s financial status
How Do You Prove a Breach of Fiduciary Duty?
If you are suing for breach of fiduciary duty, you will need to prove the following:
- The defendant has fiduciary responsibilities to the plaintiff and was acting in that role.
- The defendant breached that duty.
- The plaintiff suffered because of that failure.
Benefit from Our Rochester Attorneys’ Decades of Experience
At The Glennon Law Firm, P.C., we have experience litigating breaches of fiduciary duties. If you suspect that a co-owner or partner has breached their fiduciary obligations or if you’re concerned that you might be accused of such a breach, we are here to guide you through the litigation process and protect your interests.
We understand how high the stakes are in fiduciary duty disputes. Let us help you resolve these conflicts and safeguard the future of your business.
Reach out to us at (585) 294-0303 today to discuss how we can assist you with your fiduciary duty litigation case.
