Also known as: fiducial relationships · fiduciary relationship
Written by attorneys · grounded in primary & secondary sources — see below
A relationship in which one person owes duties of loyalty and care to another on matters within the scope of the relationship. The duty requires the fiduciary to act for the beneficiary's benefit, avoid self-dealing, and disclose material conflicts before profiting from transactions involving the beneficiary.
Fatima Flores formed Foxfire Biotech and arranged for the company to buy land she already owned. She disclosed the ownership only to the lead investor and kept the markup profit. The other physicians and patient advocates later became initial shareholders without learning of the conflict. Foxfire Biotech recovered the secret profit because full disclosure and ratification never reached all contemplated original investors.
Fumiko Fujimoto and Frederick Ferguson formed a joint venture to lease and renovate a building. Ferguson later obtained a renewal lease in his own name without telling Fujimoto. The court imposed a constructive trust because the fiduciary relationship arising from the joint venture prevented one party from capturing an opportunity that was an offshoot of the original enterprise.
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Freya Freeman wrote a financial column for Frontier Capital's publication and promised not to reveal pre-publication information. She passed the confidential contents to her co-conspirators so they could trade ahead of the column's market impact. The scheme violated the fiduciary relationship because Freeman misappropriated information entrusted to her by her employer for personal trading profits.
Finn Fletcher worked at a printing firm that handled takeover announcements. He learned the identities of target companies from documents entrusted by acquiring firms and bought their stock before the deals became public. Fletcher owed no fiduciary duty to the acquiring companies' shareholders, so his trading did not violate the classical insider-trading theory grounded in a fiduciary relationship.
Flora Ford served as a director of Frontier Capital while her sons ran a related brokerage that borrowed heavily from the bank. She failed to monitor the loans or stop the excessive borrowing. The court held that her fiduciary relationship as a director required active oversight, making her liable for losses caused by the unchecked self-dealing.
Falcon Dynamics' former officer told an analyst about accounting irregularities at the company. The analyst passed the information to clients who sold their stock before the fraud became public. Because the tipper breached no fiduciary relationship for personal benefit, the tippees incurred no derivative liability under the Dirks framework.
The fiduciary must act for the beneficiary's benefit, avoid undisclosed self-dealing, and disclose material conflicts before retaining profits from transactions involving the beneficiary. Failure to meet these obligations allows the beneficiary to recover secret profits or rescind the transaction.
No. Disclosure and ratification must reach every person contemplated as part of the original financing scheme who becomes an initial shareholder. Partial disclosure to a lead investor alone leaves the promoter liable for any secret profit.
An agent breaches when she uses information furnished within the scope of the agency to benefit a competitor or herself without the principal's informed consent. General disclosure that the agent represents multiple clients does not authorize diversion of client-specific proprietary data.
…as a general proposition, that a person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit that knowledge or information for his own personal benefit but must account to his principal for any profits derived therefrom.” Diamond v. Oreamuno ,…