Also known as: utmost good faith · good faith and loyalty · uberrimae fidei · fiduciary duty of loyalty
Written by attorneys · grounded in primary & secondary sources — see below
An elevated fiduciary standard of conduct requiring partners, general partners, members of member-managed limited liability companies, and shareholders in close corporations to discharge their responsibilities with the finest loyalty and to refrain from self-dealing or appropriating enterprise opportunities without disclosure and consent. The standard forbids conduct that would be permissible at arm's length and demands that fiduciaries hold as trustee for the enterprise any property, profit, or benefit derived from the conduct of its affairs.
Uri Underwood and three fellow scientists formed NovaGen LLC to develop generic drug formulations. After the company's research team produced promising data, Uri told the others the data was too preliminary to license. He then secretly licensed the same data through his separate startup and kept the fees. NovaGen sued Uri for breach of the duty of utmost good faith and loyalty.
Ursula Ureña served as general partner of a limited partnership that held a valuable commercial lease. When the landlord offered a renewal, Ursula acquired the new lease for her own account without informing the limited partners. The limited partnership sued Ursula to recover the lease as a partnership asset.
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Ulysses Usher and Umar Usmani operated a partnership that supplied specialized parts to a major manufacturer. When the manufacturer offered an exclusive renewal, Ulysses negotiated the contract for his separate company and kept the profits. Umar sued Ulysses for failing to account for the benefit obtained in the conduct of the partnership business.
Umeko Uchida and three other shareholders owned a close corporation. The corporation redeemed the founder's shares at a premium price but refused Umeko's request for the same opportunity. Umeko sued the majority shareholders for breach of the duty of utmost good faith and loyalty.
Uma Upadhyay and a colleague formed a joint venture to operate a hotel under a twenty-year lease. When the landlord offered a new lease on the same property, the colleague acquired it for himself. Uma sued to impose a constructive trust on the new lease under the standard of utmost good faith and loyalty.
Unison Media's controlling shareholders proposed charter amendments that restricted minority nomination rights without full disclosure. Minority shareholder Ulysses Usher challenged the amendments as a breach of the duty of utmost good faith and loyalty. The court applied an intrinsic-fairness review to the self-interested changes.
The duty prohibits self-dealing, appropriation of enterprise opportunities, and competition with the enterprise without disclosure and consent. Partners, general partners, LLC members, and close-corporation shareholders must account for any profit derived from the conduct of the entity's affairs.
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Shareholders in close corporations owe one another the same strict fiduciary duty of utmost good faith and loyalty that partners owe each other. Public corporations are governed by a less stringent standard of fiduciary duty.
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Yes. A member who uses formulation data generated by the LLC's research team to obtain a secret license for a personal startup appropriates a company opportunity and breaches the duty of loyalty.
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Yes. When a new lease is a graft upon the original partnership lease, the partner may not acquire its benefits for himself alone under the duty of utmost good faith and loyalty.
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…by less drastic principles. I assume that where parties engage in a joint enterprise each owes to the other the duty of the utmost good faith in all that relates to their common venture. Within its scope they stand in a fiduciary relationship. I assume prima facie that even as between joint adventurers one may not secretly obtain…