In business and professional relationships, a fiduciary duty is established when one party is formally entrusted to act in the best interests of another. The person who owes this duty (the fiduciary) may be a corporate officer, director, attorney, trustee, business partner, or even a lender in certain cases. The person or entity to whom the duty is owed, (the principal), could be a client, shareholder, beneficiary, or contractual counterparty.
This relationship carries heightened legal and ethical responsibilities beyond ordinary business conduct. Fiduciary duties demand loyalty, care, full disclosure, and good faith. So when fiduciaries fail to uphold those, they risk breaching those obligations and facing legal claims.
Breaches may include a director exploiting inside information, a finance officer misusing company funds, or a lender securing unfair loan terms. In one case I had in Michigan, an attorney convinced a client to modify a fee agreement from hourly to a contingency, which resulted in a big windfall for the attorney. This was without advising the client to seek independent counsel – an act deemed a fiduciary breach because it created a clear conflict of interest between the attorney and the client and violated the attorney’s duty of loyalty and full disclosure. Once the attorney was retained by the client hourly, different rules applied because the attorney was not a fiduciary.
Understanding where these duties begin, and how to proactively manage the conduct and decisions that could trigger liability, is essential for minimizing risk of breaches.
Expanded Fiduciary Risk in Michigan Law
A recent Michigan Supreme Court ruling illustrates how the legal landscape is evolving.
In Murphy v. Inman (2022), the Michigan Supreme Court ruled that shareholders can bring direct fiduciary duty claims against directors in certain cases – departing from the traditional requirement that such claims be brought derivatively by the corporation. The case arose after a director approved a substantial bonus for an incoming CEO, despite the company’s financial troubles. A former executive and shareholder alleged that this decision harmed shareholder value.
The ruling broadened potential liability for directors and signaled a shift toward greater judicial openness to fiduciary claims, especially when duties are clearly defined and the alleged harm is specific and measurable.
The Legal Line Between Misconduct and Fiduciary Breach
Unlike Murphy v. Inman, where the fiduciary duty and harm were clearly established, two more cases show how fiduciary claims often fall short when roles are ill-defined or the injury is too generalized, regardless of the misconduct in question:
- In Vining v. Comerica Bank (In re M.T.G., Inc.), 403 F.3d 410 (6th Cir. 2005), a bankruptcy trustee alleged that Comerica manipulated the lending relationship to protect its own interests, acted in bad faith and exerted undue influence over key financial decisions, contributing to the collapse of M.T.G., Inc. While the case raised the possibility of implied fiduciary duties in lender–borrower relationships marked by leverage and dependence, the Sixth Circuit rejected that argument. It reaffirmed that a typical creditor–debtor relationship does not create fiduciary obligations.
- By contrast, in the Broad-Ocean Techs. v. Bo Lei case, the U.S. District Court for the Eastern District of Michigan dismissed a fiduciary duty claim against an engineer accused of stealing trade secrets, ruling that his position didn’t create a fiduciary relationship. This case reinforced that not all trust-based roles qualify, especially in standard employment relationships.
Safeguarding Against Fiduciary Liability
For those in fiduciary roles, preventing a breach means following these best practices:
- Define authority clearly. Corporate bylaws, employment agreements, and board resolutions should be used to specify who can bind the organization and on what terms.
- Avoid conflicts of interest. Disclose potential conflicts early, recuse yourself when needed, and never put personal interests ahead of your fiduciary obligations.
- Keep detailed records. Meeting notes, memos, and communication logs can show that decisions were informed, reasonable, and made in good faith.
- Respect information boundaries. Do not use confidential information for personal gain, even passively. Fiduciary breaches often hinge on what someone knew and when.
- Involve independent counsel when modifying agreements. Especially in legal, financial, or board settings, structural changes (like fees or voting power) must withstand scrutiny and should involve third-party review.
For principals considering legal action, the strongest position often begins before any breach occurs by ensuring roles, responsibilities, and expectations are clearly defined from the outset. When trust starts to break down, watch for signs like unauthorized decisions or abrupt shifts in control. Gather key documents – emails, board minutes, financials – that help demonstrate how expectations were violated. Early legal counsel can also help evaluate the strength of your claim and ensure your position is well-supported.
Protecting Your Interests in Fiduciary Disputes
Fiduciary breach claims can trigger costly, high-stakes litigation. Whether you’re defending against a claim or pursuing one, these cases require a clear strategy, strong documentation, and a deep understanding of fiduciary standards.
August Law has experience guiding clients through fiduciary disputes with discretion, clarity, and a focus on practical outcomes.
Contact us today to learn how our Fiduciary Duty & Business Litigation team can help you.