“Fidelity Fiduciary Bank”© is a song from Walt Disney’s film “Mary Poppins.” The song is sung by the stodgy old bankers at the Dawes, Tomes, Mousely, Grubbs Fidelity Fiduciary Bank, led by the “Elder Mr. Dawes” (Dick Van Dyke), to George Banks’ two children, Jane and Michael, and attempts to get Michael Banks to invest his tuppence in the bank. As the song continues, the pressure is on George, a junior clerk at the bank, to sway Michael. When Michael finally, and ever so slightly, opens his hand that has the tuppence, the elder Mr. Dawes grabs the tuppence from him. Michael protests very loudly, which causes panic and mayhem. A run on the bank ensues.
Ah, the treasure of childhood memories. However, the Breach of Fiduciary Duty, or more aptly, “Duties,” concept naturally may arise in many different situations other than at the Fidelity Fiduciary Bank, but almost always involves three basic questions:
1. Did a fiduciary relationship exist at the time of the alleged misconduct?
2. If so, what was the scope of the relationship?
3. Was there a breach of the duties within the scope of the relationship?
ELEMENTS OF FIDUCIARY DUTY CLAIMS
The statutory and common law tenets of fiduciary duties are stated as the Duties of Loyalty, Care, Disclosure and Accounting. See generally, Chodos, The Law of Fiduciary Duties with Citations to the California Authorities, Chap. 3 pp. 129-235 (Blackthorne Legal Press 2000). Traditional tort principles, e.g., those regarding duty, breach, causation and damages, apply to a breach of fiduciary duty cause of action. Fiduciary duties arise in daily business contexts:
- Duty of Care can be summed up in the requirement that a Fiduciary be present, informed, engaged, use good and independent judgment, utilize expert advice and trusted information, refer to meeting minutes, organizational records, and stay abreast of legal developments, good governance and best practices. Fiduciaries should also schedule and be prepared to discuss and review budget issues, compensation, legal compliance and strategic direction.
- Duty of Loyalty can be summed up as the requirement that a Fiduciary is bound to seek the utmost benefit of the other party, ordinarily when conﬁdence is reposed by one person in the integrity of another, and is in such relation the party in whom the conﬁdence is reposed, if he voluntarily accepts the trust and conﬁdence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent.
Bardis v. Oates (3rd Dist. 2004) 119 Cal.App.4th 1, is particularly noteworthy. The Bardis case details secret side deals and a self-dealing pattern of conduct (referred to as such) that illustrate how what appears plausible and reasonable in an arms’ length deal simply does not fly when fiduciary duties are involved even among sophisticated players. The Bardis court’s compensatory damages/punitive damages analysis literally ices the self-dealing offenders’ cake by imposing severe financial consequences on the breaching fiduciary.
- Duty of Accounting can be summed up as the requirement that a Fiduciary must (i) keep proper accounts of the Principal’s property received in the course of the fiduciary relationship and render such account to the Principal on request, (ii) keep such property separate from his own as would a caretaker of such property tantamount to a trustee, and (iii) even if and after the fiduciary relationship ceases, the Fiduciary’s duty to account may continue, since the Fiduciary is obliged to return all documents and property originally given to the Fiduciary by the Principal and documents prepared by the Fiduciary on the instruction and at the expense of the Principal.
- Duty of Full Disclosure can be summed up as the requirement that the Fiduciary keep the Beneficiary fully informed as to all facts pertinent to the Beneficiary’s interests. The duty to account refers to actual transactions. The broader duty of disclosure refers also to transactions that may occur, and even matters pertaining to actual or prospective deals. The scope of this duty is inherently amorphous, and is still developing and varies depending upon the nature of the fiduciary relationship. The duties of disclosure and accounting are purely prophylactic: the Beneficiary gets no benefit from the information, but the fact that the fiduciary has this informational duty tends to protect the Beneficiary’s interests.
The Duties of Disclosure and Accounting are explained by the court in Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29-30:
The duty to provide an accounting of profits under the profit sharing agreement … is appropriately premised on the principle, also expressed in Nelson, that a party to a profit sharing agreement may have a right to an accounting, even absent a fiduciary relationship, when such a right is inherent in the nature of the contract itself. As the Court in Nelson observed, the right to obtain equitable relief in the form of an accounting is not confined to partnerships but can exist in contractual relationships requiring payment by one party to another of profits received.
That right can be derived not from a fiduciary duty, but simply from the implied covenant of good faith and fair dealing inherent in every contract, because without an accounting, there may be no way ” ‘by which such [a] party [entitled to a share in profits] could determine whether there were any profits….’ ” (Nelson, supra, 29 Cal.2d at p. 751, 177 P.2d 931 [quoting
Kirke La Shelle Co. v. Paul Armstrong Co., supra, 263 N.Y. 79, 188 N.E. 163]; see also Civic Western Corp. v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 14 [action for accounting is equitable in nature and may be brought to compel the defendant to account for money where a fiduciary relationship exists, or ” ‘where … the accounts are so complicated that an ordinary legal action demanding a fixed sum is impracticable'”].) Id. at 34-35.
The fiduciary partner’s duties to disclose and account rest upon both statutory and common law. As explained in Rosenfeld, Meyer & Susman v. Cohen (1987) 191 Cal.App.3d 1035, 1051:
These statutes [Corp. Code§§ 15021 and 15022], and the common law fiduciary obligations of partners, imposed a duty on the RMS partners who received unfinished fee income to accurately account for it. [Mashon v. Haddock (1961) 190 Cal.App.2d 151, 165.] [S]uch fiduciaries have the burden of establishing that data and, upon their failure to do so, a computation may be made on the basis of gross receipts, even though that approach is unfavorable to them. (See Purdy v. Johnson (1917) 174 Cal. 521, 530; Kennard v. Glick (1960) 183 Cal.App.2d 246, 250; Larkin v. Jesberg (1961) 191 Cal.App.2d 272, 277.