Beneficiary Litigation or Fiduciary Litigation

A fiduciary duty is the highest duty under the law. A fiduciary relationship exists when one person has the duty to look out for the best interests of another person. It is sometimes said that the other person — the beneficiary — reposes special trust and confidence in the fiduciary. Because of that trust and confidence, the beneficiary is vulnerable to the fiduciary. Thus, when a fiduciary acts wrongfully, the law provides the beneficiary with a cause of action to recover what the fiduciary took from the beneficiary; this action is known as Fiduciary Litigation.

Fiduciary Duties

There are many types of fiduciary relationships and therefore many specific fiduciary duties. For example, the fiduciary duty owed by a lawyer to his client concerns the attorney-client relationship, while a condominium board member’s fiduciary duties regard condominium issues. But all fiduciary duties include three key components governing how fiduciaries must act toward their beneficiaries:

  • A fiduciary must act with the utmost good faith and with scrupulous honesty toward his beneficiary.
  • A fiduciary must place the beneficiary’s interests above his own.
  • A fiduciary’s actions must be fair and equitable to the beneficiary.
Fiduciary Relationships by Law

Some fiduciary relationships are recognized by the law. Other fiduciary relationships can arise from how people actually treat each other, regardless whether the law says there is a fiduciary relationship. Informal fiduciary relationships are a subject for another day. In this section, fiduciary relationships that exist as a matter of law are listed. The following owe fiduciary duties:

  • Agents to their principals.
  • Attorneys to their clients.
  • Brokers to their customers.
  • Class representatives in class-action suits to the other members of the class.
  • Condominium board officers and members to unit owners.
  • Employees to their employers.
  • Executors to the beneficiaries of estates.
  • Holders of executive rights in mineral estates to non-executive interest holders.
  • Holders of powers of attorney to those for whom they act.
  • Officers of a corporation to the corporation.
  • Tax collectors (such as stores) to the State of Texas for taxes they collect.
  • Trustees to the beneficiaries of trusts.
Reciprocal Fiduciary Duties

The fiduciary relationships listed above are one-way relationships: They impose a fiduciary duty on a person with respect to his beneficiary. But some fiduciary relationships are two-way. In other words, the parties owe fiduciary duties to each other. In these relationships, each person is both a fiduciary and a beneficiary:

  • Business partners.
  • Joint ventures.
  • Spouses.
Non-Fiduciary Relationships

Some relationships that one might think would be fiduciary in nature are not, as a matter of law. Absent facts creating an informal fiduciary relationship, there are no fiduciary duties owed by the following:

  • Bailors to bailees.
  • Banks to borrowers.
  • Obligations imposed by a joint operating agreement.
  • Prospective partners who do not become partners.
  • Shareholders to each other in closely held corporations.
Remedies for Breach

As in other civil litigation, a fiduciary can be sued for damages when he breaks the law. But remedies against fiduciaries can be more extensive than mere damages. The principle underlying litigation against a fiduciary is that a fiduciary should not profit by his wrongdoing. Therefore, the courts have sometimes awarded a wronged beneficiary the greater of the value of whatever the fiduciary wrongfully appropriated or the current, appreciated value after the fiduciary successfully invested it.

Under California law, the law imposes special duties on persons serving as executors, administrators, guardians and trustees, known as "fiduciary duties". These fiduciary duties include the duty to account for and to fully and accurately disclose the transactions of the estate or trust, the duty of loyalty to the beneficiaries, the duty not to self-deal with the estate or trust assets, the duty to make the estate or trust assets productive, the duty of impartiality between the beneficiaries, and a multitude of other duties.

 

State law also requires trustees to invest and manage assets as a prudent investor would, to actively review the trust assets and make prudent decisions as to the investments of the trust portfolio, and to appropriately diversify the investments of the trust.

There are a multitude of other statutory duties required of executors, administrators, guardians and trustees, the breach of which creates potential liability for these fiduciaries.

Our litigation team pursues a variety of actions against fiduciaries including:

  • suits for removal of executors, administrators, guardians and trustees
  • suits to force accountings
  • suits for monetary damages
  • suits to pay back fiduciary fees

Applicable laws provide for the possibility of recovery of the attorney's fees incurred in pursuing these breaches of fiduciary duty.

The Steburg Law Firm has substantial experience in vigorously defending executors, administrators, guardians, and trustees from removal actions, in preparing airtight accounting in response to accounting actions, and in suits for damages filed against the fiduciary. We also pursue Declaratory Judgments on behalf of fiduciaries when facing decisions involving risk to the fiduciary in order to cover them with a court order directing what action the fiduciary should take. Applicable California law allows the possibility of the fiduciary recovering their attorney's fees from the estate, guardianship or trust.

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