Conduct by a fiduciary may be deemed constructive fraud when it is based on acts, omissions or concealments considered fraudulent and that gives one an advantage against the other because such conduct--though not actually fraudulent, dishonest or deceitful--demands redress for reasons of public policy. Breach of fiduciary duty may occur in insider trading, when an insider or a related party makes trades in a corporation's securities based on material non-public information obtained during the performance of the insider's duties at the corporation. Breach of fiduciary duty by a lawyer with regard to a client, if negligent, may be a form of legal malpractice; if intentional, it may be remedied in equity says California Business Lawyer Steven C. Peck.
Where a principal can establish both a fiduciary duty and a breach of that duty, through violation of the above rules, the court will find that the benefit gained by the fiduciary should be returned to the principal because it would be unconscionable to allow the fiduciary to retain the benefit by employing his strict common law legal rights. This will be the case, unless the fiduciary can show there was full disclosure of the conflict of interest or profit and that the principal fully accepted and freely consented to the fiduciary's course of action.
Remedies will differ according to the type of damage or benefit. They are usually distinguished between proprietary remedies, dealing with property, and personal remedies, dealing with pecuniary (monetary) compensation.
Constructive trusts
Where the unconscionable gain by the fiduciary is in an easily identifiable form, such as the recording contract discussed above, the usual remedy will be the already discussed constructive trust.
Constructive trusts pop up in many aspects of equity, not just in a remedial sense, but, in this sense, what is meant by a constructive trust is that the court has created and imposed a duty on the fiduciary to hold the money in safekeeping until it can be rightfully transferred to the principal.
Account of profits
An account of profits is another potential remedy.It is usually used where the breach of duty was ongoing or when the gain is hard to identify. The idea of an account of profits is that the fiduciary profited unconscionably by virtue of the fiduciary position, so any profit made should be transferred to the principal. It may sound like a constructive trust at first, but it is not.
An account for profits is the appropriate remedy when, for example, a senior employee has taken advantage of his fiduciary position by conducting his own company on the side and has run up quite a lot of profits over a period of time, profits which he wouldn't have been able to make without his fiduciary position in the original company. The calculation of profits in this sense can be extremely difficult, because profit due to fiduciary position must be separated from profit due to the fiduciary's own effort and ingenuity.
Compensatory damages
Compensatory damages are also available. Accounts of profits can be hard remedies to establish, therefore, a plaintiff will often seek compensation (damages) instead. Courts of equity initially had no power to award compensatory damages, which traditionally were a remedy at common law, but legislation and case law has changed the situation so compensatory damages may now be awarded for a purely equitable action.
Contact Steven Peck's Premier Legal toll free at 1.866.999.9085 to talk to an experienced California Business Attorney and visit us on-line at www.premierlegal.org.
