Breach of Fiduciary Duty in Washington, DC

A fiduciary duty is a legal duty to put someone else’s interests first in a particular relationship or transaction. If someone is trusted to handle money, property, business decisions, or legal matters for another person or business, that person may have to act with loyalty, honesty, care, and full disclosure. If the person abuses that trust, the injured person or business may have a claim for breach of fiduciary duty.

Key takeaways

• A fiduciary duty is a legal duty to put someone else’s interests first in a particular relationship or transaction.
• Some fiduciary relationships are created by law, such as attorney and client or trustee and beneficiary. Others come from a contract, a statute, or the way the parties actually dealt with each other.
• A regular contract or business deal is usually not enough by itself to create a fiduciary duty.
• A claim usually requires proof of three things: a fiduciary relationship, a breach, and harm.
• Remedies can include money damages, giving back money made from the breach, an accounting, and court orders to stop or undo the conduct.

How Does a Fiduciary Duty Arise?

A fiduciary relationship is a special relationship of trust. In that relationship, one person is expected to act for another person’s benefit in matters covered by the relationship. 

Some fiduciary relationships are created by law, such as attorney and client, principal and agent, or trustee and beneficiary. Others can come from a contract, a statute, or the way the parties actually dealt with each other.

Not every business relationship creates a fiduciary duty. A regular contract or business deal usually is not enough by itself. When parties have a contract, courts often ask whether the parties’ history and conduct went beyond a normal contract relationship.

Common Examples of Fiduciary Relationships

Fiduciary duties can arise in many business and personal settings, including:

• Trustees and beneficiaries
• Attorneys and clients
• Agents and principals
• Directors/officers and corporations
• Partners and partnerships
• Managers/members in appropriate LLC circumstances
• Executors and estates

How Is a Fiduciary Duty Breached?

A fiduciary duty is breached when the fiduciary puts their own interests first, hides important information, misuses money or property, competes when they should not, or otherwise fails to act with loyalty, care, or honesty. The exact duties depend on the relationship. For example, an agent may have to tell the principal facts that could affect the principal’s decision.

Common examples include:

• Using someone else’s money for the wrong purpose, such as an escrow agent using a buyer’s deposit for another transaction.

• Hiding important information, such as a real estate agent closing a sale without telling the sellers that the buyers might later sue them.

• Acting with a conflict of interest, such as representing both sides of a deal without proper consent.

• Misusing company information, such as an employee taking trade secrets, using confidential customer lists, or soliciting clients before leaving the company.

• Spending an organization’s money without authority.

Some cases involve poor work or careless conduct. Others involve disloyal conduct, such as hiding a conflict, using confidential information, or putting personal interests ahead of the client, company, partner, or beneficiary.  A fiduciary generally cannot avoid responsibility just by saying they acted in good faith.

What Must Be Proven?

A breach of fiduciary duty claim usually requires proof of three things:

1. A fiduciary relationship. The defendant had a duty to act for the plaintiff’s benefit in the matter at issue

2. A breach. The defendant failed to follow that duty.

3. Harm. The plaintiff was harmed by the breach.

Remedies for Breach of Fiduciary Duty

A remedy is what the court can order if the claim succeeds. The right remedy depends on the facts, the relationship, and the law that applies.

Compensatory damages. These are money damages meant to make up for the loss caused by the breach. For example, a fiduciary may have to repay money that was misused or pay for other losses caused by the breach.

Punitive damages. These damages are meant to punish especially bad conduct.

Disgorgement or giving money back. If a fiduciary made money from the breach, the court may order the fiduciary to give that money back.

Accounting. In some partnership or business cases, a court may require the fiduciary to provide financial records and show where money went.

Court orders to stop or undo conduct. Courts may order a fiduciary to stop certain conduct, undo a transaction, return property, or take other steps to protect the injured person or business through injunctions.  In some trust cases, these court-ordered remedies may be the main remedy.

Interest. A court may also award interest to make up for the time the injured person or estate was kept from using the money.

Can Attorney’s Fees Be Recovered?

Usually, each side pays its own attorney’s fees. But there are exceptions.

Washington, D.C. Attorney’s fees usually are not awarded unless a contract or statute allows them. A court may award fees in narrow situations, such as when a party withholds something the other side is clearly entitled to and acts in bad faith or for oppressive reasons. The person asking for fees must show bad faith.

Maryland.  Attorney’s fees may be awarded when the parties’ agreement has a fee-shifting clause, such as an LLC operating agreement. Maryland also allows fees in some cases where a party acts in bad faith or without substantial justification.

Virginia. Attorney’s fees usually are available only if a statute or contract allows them. One important exception applies when the fiduciary’s breach forces the plaintiff to bring or defend a separate lawsuit with someone else; in that situation, the reasonable fees from that other lawsuit may be recoverable as damages.

Differences Among the Law in Washington, D.C., Maryland, and Virginia

The basic idea is similar in all three places: if someone has a fiduciary duty, they must not abuse that role. The details, however, are not exactly the same.

Maryland. Maryland law used to be confusing on this issue. For years, courts did not always agree about whether breach of fiduciary duty could stand on its own as a claim. In 2020, the Maryland Court of Appeals cleared that up in Plank v. Cherneski. The court said a plaintiff can bring the claim if the plaintiff identifies the fiduciary relationship, explains the breach, and asks for a remedy that the law recognizes for that kind of relationship. The remedy still depends on the relationship. For example, some trust cases may be handled through court-ordered remedies rather than a jury award of money damages.

Virginia. Virginia courts focus on where the duty came from. If the duty exists only because of a contract, the claim may be treated as a contract claim, not a separate fiduciary duty tort. But some duties exist apart from a written contract. For example, an employee’s duty of loyalty to the employer exists during employment.

Washington, D.C.  D.C. law recognizes breach of fiduciary duty claims, but courts look closely at the relationship that created the duty. When the dispute is really about a contract, the fiduciary duty claim usually must be based on a duty that exists apart from the contract.  D.C. courts may also dismiss a fiduciary duty claim that simply repeats the same facts and asks for the same relief as another claim, such as a malpractice claim.   

How do D.C., Maryland and Virginia treat a breach of fiduciary duty claim?

All three recognize that a person who owes a fiduciary duty must not abuse that role. They differ in how the claim is framed and in when attorney’s fees can be recovered. Maryland settled the question in 2020, and Virginia looks first at where the duty came from.

Where does Waxman Litigation handle breach of fiduciary duty claims?

Waxman Litigation handles breach of fiduciary duty claims for owners and companies in Washington, DC, Maryland, Virginia, and New York from its office in Chevy Chase, Maryland.