Those who have accepted, or intend to accept, the role of a fiduciary should ensure that they are aware of all the varying obligations to which they are committing. Conversely, those who are already in a relationship with a fiduciary should know exactly what they are owed by the person they have entrusted, and what they must prove in a lawsuit against a negligent fiduciary.
To prove breach of fiduciary duty, we must show that a fiduciary relationship existed between the plaintiff and the defendant, that the defendant intentionally or negligently violated their duties, and that the plaintiff incurred damages for which they are seeking compensation in a lawsuit.
To schedule a confidential consultation with a tactical and aggressive lawyer, call the Heyman Law Firm at (410) 305-9287 today.
What Are the Legal Duties of a Fiduciary in Maryland?
Fiduciaries in Maryland are under an obligation to act in the best interest of, and for the benefit of, another. A fiduciary duty is the highest legal duty that one person can owe to another.
One’s role as a fiduciary also requires the individual to act honestly and straightforward in all dealings on behalf of the individual to whom the duty is owed.
The specific set of duties required of these individuals depends on the entity or individual they are serving. Rather, one must first evaluate the type of fiduciary involved and what type of claim their actions fall into (breach of contract, fraud, tort, legal malpractice, etc.). From that point, the individual elements of the claim may be assessed.
What Are the Elements of Different Breach of Fiduciary Duty Claims in Maryland?
In the absence of an independent claim for breach of fiduciary duty, a plaintiff can assert a cause of action for negligence, fraud, legal malpractice, or breach of contract, all of which require plaintiffs to prove certain elements.
Elements of a Claim for Negligence in Maryland
To prove negligence in Maryland, a plaintiff must show: 1) the fiduciary was under a duty; 2) the fiduciary breached that duty; 3) the plaintiff suffered actual injury or loss; and 4) the loss or injury proximately resulted from the fiduciary’s breach of the duty.
A fiduciary’s duty is to act in the best interest of the beneficiary, so if the fiduciary’s failure to complete his duties causes the beneficiary harm, the beneficiary will be able to assert a claim for negligence.
Elements of a Claim for Fraud in Maryland
To sustain a claim of fraud, a plaintiff must essentially prove that their fiduciary knowingly represented something in a false or misleading manner with the intent that the beneficiary would rely on the misrepresentation. Fraud can occur both by act and omission.
Elements of a Claim for Legal Malpractice in Maryland
To prove legal malpractice in Maryland, a plaintiff must show: 1) the attorney’s employment, 2) the failure of the attorney to meet the applicable standard of care for the services provided, and 3) loss suffered by the client as a direct result of the attorney’s failure to meet the standard of care.
Defrauding a client for personal gain is a clear example of an attorney failing to meet the standard of care and causing their client to suffer a direct loss. When lawyers breach their fiduciary duties, it can serve as the basis for a legal malpractice lawsuit.
What Are a Fiduciary’s Duties Regarding Wills, Trusts & Estates in Maryland?
Fiduciary duties often arise when an individual serves as the trustee under a deed, will, declaration of trust, or other similar instrument.
A trust is a fiduciary relationship with respect to property, obligating the trustee (fiduciary) to deal with the property and act for the sole benefit of the person(s) for whom the trust was created (beneficiaries).
The fiduciary can be held liable for most mistakes they made in pursuing the beneficiary’s interests. A fiduciary can be held liable for intentional acts of dishonesty or outright fraud.
Duties of Fiduciaries Serving Corporations in Maryland
The duties owed by those in a fiduciary relationship with a business entity vary depending on the entity’s classification. With regard to corporations, officers and directors have two main duties: the duty of care and the duty of loyalty. In Maryland, the standard of care requires these fiduciaries to perform their duties:
- in good faith;
- in a manner reasonably believed by the director to be in the best interest of the corporation; and
- with the care that an ordinarily prudent person in a similar situation would use under similar circumstances.
Partners in a partnership and members of Limited Liability Companies also owe certain duties to one another, codified in Maryland’s Uniform Partnership Act.
What Are the Penalties for Fiduciary Negligence in Maryland?
Tell us your desired outcome of a lawsuit against a negligent fiduciary, and we can explain the possible penalties they could face.
Compensatory Damages
You might incur damages due to a fiduciary’s breach of duty, which our lawyers can calculate and seek relief for in a lawsuit. We can identify trust or estate profit losses, lost financial opportunities, and any out-of-pocket expenses you incurred because of a fiduciary’s negligence or intentional misconduct.
Punitive Damages
Judges award punitive damages to punish defendants for egregious violations of fiduciary duty. Plaintiffs can get punitive damages after proving through clear and convincing evidence that the defendant acted with actual malice when self-dealing or otherwise breaching their duty. Maryland doesn’t cap punitive damages, so they may comprise a large portion of your award if we go to trial.
Disgorgement
Our lawyers can also seek “disgorgement” from the fiduciary who breached their duty, requiring them to give up all profits from unethical conduct, such as putting assets in their name, making bad stock purchases or sales, and misappropriating funds.
Restoration of Losses
When fiduciary negligence or intentional misconduct negatively affects an estate or trust’s value, the judge in the case may require them to restore any losses, including returning property or assets wrongly transferred out of the trust or estate’s ownership.
Removal of Fiduciary
Estate and trust beneficiaries who lose trust in fiduciaries can request their removal. Our lawyers can seek fiduciary removal during your lawsuit, providing correspondence, accounting reports, and other evidence that reveals their misconduct. Estate planning often advises testators to choose replacement fiduciaries in case their first choice is unavailable or removed. If the trust documents or a will do not name a subsequent fiduciary, the court will appoint one.
Professional Disciplinary Actions
Attorneys who act as fiduciaries and abuse their position of power may also face professional disciplinary actions and possible disbarment after lawsuits.
How Can the Duty of Care and the Duty of Loyalty Be Breached?
Loyalty to the beneficiary is one of the prime duties of any fiduciary, and is generally breached by a conflict of interest between the fiduciary and the corporation.
Usurping a Corporate Opportunity
When an officer or director pursues a business opportunity for their own benefit, without first presenting it to the corporation, they violate the duty of loyalty.
Self-Dealing
Making a self-interested transaction where a key player and the corporation are on opposite sides of the transaction, or the key player has helped influence the corporation’s decisions to enter the transaction.
Insider Trading
Insider trading occurs when an officer or director has access to confidential information and illegally uses it to their own advantage when trading on the stock exchange.
How Can Fiduciaries to Property Breach Their Duties?
The following are duties of trustees and will administrators that, when breached, could give rise to a claim of fraud, negligence, or breach of contract:
- To properly handle debts owed to creditors by the estate or entity,
- To make prudent investments, considering both present and future beneficiaries,
- To avoid misappropriation of estate, trust, or entity assets,
- To account for assets regularly,
- To avoid commingling personal or business funds with the assets of the estate or entity,
- To carry out the trust or will according to its terms.
Excessive spending, waste of assets, and the failure to disclose possible conflicts of interest among beneficiaries would also likely constitute a breach of trustee duties. A fiduciary serving as a personal representative is also prohibited from being named in a will.
What Are the Fiduciary’s Duties in Attorneys/Client Relationships in Maryland?
Lawyers owe fiduciary duties to their clients. Despite lawyers’ ethical obligation to represent their clients’ best interests, many lawyers breach their fiduciary duties to their clients frequently. When lawyers breach their fiduciary duties, it can serve as the basis for a legal malpractice lawsuit.
Lawyers have an important duty to keep their clients’ property safe and to maintain complete and accurate records of their clients’ funds. They are also required to segregate clients’ funds from their own property, to provide the client with an accounting when requested, and to preserve the integrity of clients’ funds.
How Can Attorneys Breach Their Fiduciary Duties to Clients?
The following actions violate an attorney’s fiduciary duties of care to their clients:
- Combining a client’s funds with their own,
- Stealing, misappropriating, or “borrowing” funds from a client’s account,
- Using a client’s funds for a purpose other than what the client intended,
- Acting carelessly with a client’s funds,
- Failing to maintain accurate and complete records,
- Failing to disclose potential conflicts of interest when multiple parties are involved.
When a lawyer is careless or deliberately misuses or mishandles your funds or property, you should speak with an experienced fiduciary litigation attorney as soon as possible.
There are still more fiduciary capacities an individual can occupy that will subject them to legal liability. Someone serving as a personal guardian, as well as an agent, can be held to these standards. Insurance agents and others who work on commission should keep in mind the recently enacted DOL Fiduciary Rule, which has significantly increased their responsibilities to clients.
What to Know About Suing a Fiduciary for Breach of Contract?
Filing a claim for breach of contract is actually an important and frequently used method for obtaining recovery from a fiduciary who has breached their duties, and our experienced attorney can help you decide on the best way to frame your lawsuit.
Valid Contract
First, there must be a valid contract in existence. Without a valid and legally enforceable contract, there can be no claim for breach. A valid contract will contain an offer, acceptance, and a bargained-for legal exchange, and will typically be in writing. Generally, a breach occurs when a contractual promise is broken.
If a fiduciary has failed to perform their written obligations under a contract, a claim for breach of contract will likely be a successful way to hold the fiduciary accountable.
Available Damages
The damages for breach of contract can vary depending on the severity of the breach and the terms of the contract. Some breaches are considered fundamental, warranting compensation for the money and time lost because of the breach. In rarer cases, punitive (punishing) damages can be awarded, and the breaching party may even be ordered to complete the terms of the contract. For minor breaches, a court will usually find that money damages are sufficient to make the other party whole again.
FAQS About the Elements of Breach of Fiduciary Duty
Who Has to Prove the Elements of Breach of Fiduciary Duty?
The burden falls on the plaintiff filing the lawsuit to prove all mandatory elements of breach of fiduciary duty in Maryland. If the defendant launches an affirmative defense, the burden of proving that defense falls on them.
How Can I Identify Breach of Fiduciary Duty?
Telltale signs of a breach of fiduciary duty include delayed responses, inaccurate accounting reports, improper distributions, refusal to provide accounting reports, and undisclosed conflicts of interest. You can describe the fiduciary’s conduct to our lawyers, and we can assess its appropriateness.
How Long Do You Have to Prove Breach of Fiduciary Duty?
The statute of limitations for filing a lawsuit for breach of fiduciary duty is 3 years in Maryland. There isn’t a time limit on how long a lawsuit can take once the plaintiff files it, so don’t think you have to rush settlement discussions to get compensation.
What Evidence Proves the Elements of Breach of Fiduciary Duty?
Our lawyers often use the following evidence to prove breach of fiduciary duty:
- Written correspondence
- Accounting reports
- Financial records
- Contracts
Contact a Baltimore Fiduciary Litigation Attorney Today
To schedule a confidential consultation with a Baltimore fiduciary litigation attorney, call the Heyman Law Firm at (410) 305-9287 today.