Blockbuster movies follow varied plotlines—some tragic, some heartwarming, some a mix. Often they are based on human dramas. In the real world, fiduciary relationships can set the proverbial stage for unwelcomed high drama, particularly if the fiduciary does not give due consideration to if and how the fiduciary relationship reaches its denouement.
Fiduciary duties can be imposed by statute, contract, or the mere existence of any number of different types of relationships commonly recognized to rely on trust and confidence. Though clear fiduciary duties exist in many categories of relationships, sometimes whether the duty exists at all is murky. In fact, fiduciary duty can often come as a surprise, and it is often only discovered in litigation. Presented with the right circumstances, courts have imposed fiduciary in unexpected areas, such as between business associates who lack any formal partnership arrangement or between romantic partners, where financial, business, or property arrangements suggest an unusual expectation of trust and confidence.
Though the question of whether fiduciary duties exist can be uncertain, it is usually easy to pinpoint exactly when they arise. Traditionally, fiduciary duties begin with the formation of the relationship that imposes the duty: for example, a trustee’s duties arise upon the trustee’s appointment.
But when do fiduciary duties end? Even in relationships where the existence of the duty is easily spotted, it is not always clear when it terminates. The precise point a fiduciary’s obligation to another party ends can bring its own litigation surprise—the type no fiduciary wishes to encounter.
The fiduciary duty of loyalty generally ends with the termination of the relationship that created it. For example, a business partner’s fiduciary obligations to the partnership end with resignation from the partnership. But applying that general rule in practice can be difficult. While most business partners understand they owe the partnership a fiduciary duty while they remain partners, at dissolution, those obligations can be less obvious. Even if the partners have agreed upon a specific end date for their partnership, courts have held that partners still owe one another duties with respect to business opportunities arising after the agreed-upon end date but learned about prior to the partnership’s conclusion. The partner may not be free to set aside the future opportunity for herself: She may be obligated to communicate its existence to her partners so they may equally benefit from it, even if that opportunity will not materialize until after the partnership’s termination.
Similar duties apply to partners planning to depart an otherwise ongoing partnership. The announcement by itself does not terminate the duty of loyalty to the partnership. Rather, the partner owes continuing duties of loyalty until her partners formally withdraw. Until then, they may not compete against the partnership or withhold information about new opportunities, even for prospective opportunities that will only vest after the date set for the formal exit from the partnership.
In addition, certain fiduciary duties never expire, continuing beyond the end of the relationship that created them. The duty of confidentiality is a clear example. Attorneys, trustees, financial advisors, corporate directors and officers, and even real estate professionals have varying duties of confidentiality that persist after the formal relationship terminates. For example, courts have routinely held that former trustees may be held liable for breaching the fiduciary duty of confidentiality for disclosing private trust information after the trustee’s resignation or replacement. Similarly, an attorney’s duty of confidentiality is understood to be a lifetime commitment.
The ongoing duty of confidentiality can also impose itself in other ways. For example, a former corporate officer may not use secrets obtained from his former employer to launch a competing business after his resignation, if doing so would require abuse of confidential information protected by the former officer’s ongoing fiduciary duties. While the officer’s duty of loyalty generally ends with his resignation, courts have consistently held that a director or officer, even after resignation, remains prohibited from exploiting confidential information—such as trade secrets or proprietary business plans—acquired during their official tenure. Breach of this ongoing duty for either personal gain or to benefit a new venture can result in legal liability, including claims for injunctive relief or damages due to unjust enrichment, against both the official and his new venture or employer.
These ongoing duties are intended to ensure candor and trust in existing fiduciary relationships. They serve a critical public policy function. If fiduciaries could freely disclose or misuse confidential information after the end of the relationship, it would erode trust, discourage disclosure, and create incentives for self-dealing, both during the fiduciary relationship and after its run its course. By extending the duty beyond the termination of the relationship, the law ensures fiduciaries remain accountable for how they handle information gained in confidence, which helps preserve the integrity of the relationship that gave them rise.
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