The fiduciary relationship requires trust, and the law recognizes the unique relationship and aims to protect it. A fiduciary will have a heightened burden of proof if he or she engages in transactions involving the beneficiary or subservient party. If you are a fiduciary, or are the beneficiary of a fiduciary relationship, its important to understand what that means.
A fiduciary duty arises in two situations: (1) by operation of law (e.g., lawyer, business partner, financial advisor, trustee, etc.) or a relationship where you put your trust in someone else (we call this a de facto fiduciary) causing you to depend on them. The fiduciary must prove by clear and convincing evidence that any transaction they enter into with assets of the beneficiary has an interest in was equitable and just. See Labovitz v. Dolan 189 Ill. App. 3d 403, 413 (1 st Dist. 1989).
For example, in Labovitz, a case in which we represented the plaintiff limited partners, the general partner of a cable TV limited partnership withheld cash distributions to the limited partners while they incurred significant tax obligations. The general partner then offered to buy out the limited partners at a bargain price. The trial court dismissed the complaint , which alleged a coerced buyout, by relying on the broad discretion the partnership agreement granted the general partner. The appellate court reversed that decision, holding that the language of the partnership agreement did not trump the general partner’s fiduciary duties. The court cited an opinion by Judge Cardozo and quoted: “copartners, owe to one another …the duty of finest loyalty…..A trustee is held to something stricter that the morals of the market place.” The Court went on to state that in a fiduciary relationship the burden shifts to the fiduciary to show by clear and convincing evidence that the transaction is equitable and just.
This is the high standard that Courts hold fiduciaries. So, after a plaintiff (beneficiary of the fiduciary) establishes that a fiduciary engaged in self-dealing, the burden shifts to the fiduciary. He or she must then prove the transaction's fairness by a heightened burden of proof. If you are a fiduciary or a beneficiary of a fiduciary relationship, you should know these legal standards, they may impact your rights and responsibilities. We have assisted many clients who were either fiduciaries or beneficiaries of such a relationship. The fiduciary standard adds a layer of complexity to any dispute involving a fiduciary.
If you have any questions about the fiduciary duty or are involved in a dispute involving one, call us. We are here to help!