Under Michigan law, a fiduciary relationship is defined “as a person who has a relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship.” Alternatively, a fiduciary duty is like the “golden rule” and we are required to “treat others how we would like to be treated” within the scope of a professional relationship.
What Is a Fiduciary Relationship?
Fiduciary is a broad term for someone who is acting on behalf of another person under circumstances which create a relationship of trust and confidence. The term includes those holding custody and control of the property of others, such as trustees, administrators, executors, or those acting under powers of attorney. It may also include escrow agents, brokers, corporate directors and officers, partners, or condominium board members. When determining the existence of a fiduciary relation, the courts may consider factors such as the inequality of the parties, age, mental capacity, or other factors making one person dependent upon, or having an advantage over, another.
Fiduciary duties frequently arise in formal, legal relationships, such as attorney-client, business, or trustee relationships. In a business relationship, fiduciary duties include the duty of good faith, the duty of loyalty, and the duty for directors, officers, members and managers to make certain disclosures.
But an informal fiduciary relationship may exist in situations where a particular relationship of trust and confidence exist, whether the relationship is a social, domestic or personal one. But relationships of trust do not always create a fiduciary duty. In a business setting, there are often elements of trust and confidence, or relationships that go back for many years, however, it can be tricky to determine whether such a confidential relationship exists.
What Duties Does a Fiduciary Owe to the Beneficiary?
Fiduciary duties generally fall into two categories: the duty of care and the duty of good faith. Duties within these categories vary depending on the many types of relationships between fiduciaries and beneficiaries. These duties may include:
Acting with strict integrity in all matters relating to the fiduciary relationship
Adhering to any applicable professional standards regarding ethics.
Complete honesty and accountability when handling finances.
Fair and honest dealing. The fiduciary must not take any action that could be seen as contrary to the beneficiary's interest without the full knowledge and consent of the beneficiary.
The fiduciary must always place the welfare of the beneficiary above their own interests.
What Is a Violation of Fiduciary Duty?
There is no easy answer to this question. A breach of fiduciary duty generally occurs when company directors violate their fiduciary duty towards shareholders, or when a person acting as a guardian does not act in the best interests of the individual. For anyone acting in a fiduciary capacity, the standards are high. They require undivided loyalty and the obligation to avoid even the appearance of inappropriate behavior.
The main questions to consider are:
Was there a fiduciary relationship when the misconduct occurred?
If yes, then what was the scope of the relationship?
Was there a violation of the duties within the scope of the relationship?
A violation of fiduciary duty may give rise to a number of legal penalties, including a tort, special damages or, in Michigan, even possible criminal exposure.
If you have questions or are concerned about a matter of fiduciary duty, please contact us.