Founding Partner
A breach of fiduciary duty is a severe legal issue that can undermine the foundation of your business. Failures like mismanagement of company funds, disclosure of sensitive information, or a conflict of interest with a competitor can have devastating effects on your company, and you have a right to hold the responsible party accountable for what they’ve done.
What Is a “Fiduciary Duty?”
Before we can explain how it can be breached, we must first understand what it means when someone has a fiduciary duty. A fiduciary duty is a commitment to act in the best interest of another person or a group, such as a business. It’s a promise that a person in a position of trust, such as a business manager or a board member, will make decisions that are good for the company or the people they represent, not for themselves. This means they should be honest and put the interests of the company or people they serve above their own.
Business professionals who have a fiduciary duty to their company or clients include:
- Company Directors and Officers
- Corporate Board Members
- Financial Advisors
- Lawyers
- Accountants
Examples of Breaches of Fiduciary Duty
A fiduciary breaches their fiduciary duty when they fail to act in the best interests of the person or organization to whom they owe the duty, such as by:
- Self-Dealing: This occurs when a fiduciary acts in their interest instead of the company’s. For example, a company director might approve a contract with another business they own, benefiting personally at the company’s expense.
- Misusing Company Assets: This involves a fiduciary misusing company resources for personal gain, like using company funds to pay for personal expenses.
- Neglecting Company Interests: Fiduciaries fail their duty if they neglect the company’s strategic goals or operational needs. Ignoring crucial decisions or not performing due diligence during critical processes are examples of this kind of neglect.
- Conflicts of Interest: A breach can also occur when a fiduciary has competing interests that could interfere with their loyalty to the company. For instance, making decisions that might benefit another company where the fiduciary also has interests is an example of this type of breach.
Penalties for Breach of Fiduciary Duty
When someone breaches their fiduciary duty, the consequences for the person or business that person represents can be severe. As such, they may face certain penalties for these breaches with the goal of undoing their harmful actions and deterring future misconduct. These penalties fall into two categories: civil and criminal.
Civil Penalties:
- Financial Damages: The most common penalty for a breach of fiduciary duty involves paying damages to compensate the company or other institution for the losses they incurred due to the breach.
- Restitution: The breaching party may be ordered to return any assets lost or misused during the breach or compensate a company if those assets cannot be returned.
- Rescission of Contracts: Contracts or agreements made during the breach may be canceled or reversed if they were influenced by the breach.
- Injunctive Relief: Courts may issue orders preventing the fiduciary from continuing harmful activities or enforcing certain actions to correct the breach.
Criminal Penalties:
- Fines: Fiduciaries may face substantial fines if their breach involves criminal acts such as fraud or theft.
- Imprisonment: In severe cases, breaches involving deliberate fraud or theft could lead to imprisonment.
- Loss of Professional Licenses: Professionals like lawyers, accountants, or financial advisors could lose their professional licenses due to a breach of fiduciary duty.
Contact Our New Jersey Breach of Fiduciary Duty Lawyers Now
If someone you work with breaks their fiduciary duty to you or your company, Gearhart Law can help you take legal action to address the breach. We can investigate the case, determine the extent of the harm done to you and your business, and help you pursue a civil case to recover fair compensation for your losses. Call us today for a confidential consultation.