Fiduciary Duties

A lawyer has a duty of undivided loyalty to his or her clients.

Supreme Court Justice Benjamin Cardozo offered a famous definition of a fiduciary’s duties to a beneficiary in 1928, when he wrote that a fiduciary owes “something stricter than the morals of the market place,” and that courts must enforce fiduciary obligations “at a level higher than that trodden by the crowd.”

According to Black’s Law Dictionary, a fiduciary is “someone who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, loyalty, due care, and disclosure.” The person to whom the fiduciary owes these duties is called the beneficiary.

There are many different types of fiduciary relationships. Some fiduciary relationships arise directly via contract, such as the duties that exist between an attorney-in-fact and a beneficiary.

Other fiduciary obligations arise via one party’s profession. A lawyer, for example, has certain fiduciary duties to his or her clients that cannot be waived by private agreement.

The Duty of Disclosure

A fiduciary cannot conceal relevant facts from a beneficiary. The fiduciary has a legal duty to disclose to the beneficiary all facts that are relevant to the beneficiary’s interests and that fall within the scope of the fiduciary-beneficiary relationship.

This duty of disclosure is fundamental to the fiduciary relationship. Without all the relevant facts, the beneficiary cannot make an informed decision about his or her own legal interests.

Sometimes, a fiduciary has a conflict of interest which gives him an incentive to withhold relevant information from a beneficiary. In this circumstance, a fiduciary’s failure to disclose relevant information implicates more than the duty of disclosure — it also implicates the duty of undivided loyalty.


The word fiduciary has a long history in law, and it traces its history back to the Latin word fidere, which means “to trust.” The same Latin root appears in many other modern English words that carry the meaning of trust, such as “confidence” and “affidavit.” It also appears in modern English words that indicate a lack of trust, such as “infidelity” and “perfidy.”

Hypothetical Example

A young man is charged with the murder of his girlfriend, and the young man’s wealthy father pays a criminal-defense lawyer an hourly fee of four hundred dollars to represent the young man through trial. For the lawyer, this fee represents an incredible financial opportunity. He knows that the case is likely to go to trial, and he knows that trial will involve somewhere between five hundred and eight hundred hours of legal work. He can realistically expect to earn between $200,000 and $300,000 in attorney fees from the father.

Shortly after the lawyer begins working on the case, his investigator discovers a telephone that belonged to the victim. The investigator searches the telephone and discovers back-and-forth text messages from a man other than the woman’s boyfriend. The text messages suggest that the woman was having an affair with this second man, and that she terminated the affair only days before she was murdered.

The investigator gives the lawyer the telephone number from which the text messages were sent, and he tells the lawyer that he has been unable to learn the man’s identity. The lawyer immediately recognizes the telephone number as belonging to his client’s wealthy father.

The lawyer’s heart sinks as he realizes that he may be accepting payment from the very man who committed the crime that his client stands accused of committing.

A lawyer who encounters facts about a third-party payor that implicates his client’s rights has a fiduciary duty to inform his client of those facts.

The lawyer’s heart sinks even further as he reflects on the likelihood of losing the large fee that he had expected to earn. After all, the wealthy father is unlikely to continue paying the fee if the lawyer uses the money to build a case establishing that the father is guilty of murder.

The lawyer’s duty is nonetheless clear and unequivocal: The lawyer has a duty to disclose the information to his client.

If the lawyer were to withhold the information from his client, he would be placing his own interests and the interests of the wealthy father above the interests of his client. In addition to violating the duty of disclosure, the lawyer would also violate the duty of undivided loyalty.

Breach

A fiduciary who breaches his or her duties to a beneficiary is liable to the beneficiary. If the fiduciary is a licensed attorney, he or she may also face sanctions from the State Bar Association.

At common law, the breach of a fiduciary duty requires the fiduciary to disgorge the entire fee paid for his or her services — regardless of the work performed and regardless of the results obtained. That’s right: The fiduciary is required to disgorge the fee even if his breach didn’t cause harm to the beneficiary.

Quoting from Justice Cardozo, the Washington Supreme Court explained that the law imposes the harsh remedy of disgorgement because the fiduciary has accepted a special role of trust. The law cannot allow the fiduciary to benefit from the breach of that trust, regardless of harm to the beneficiary:

Where an attorney was serving more than one master or was subject to conflicting interests, he should be denied compensation. It is no answer to say that fraud or unfairness were not shown to have resulted. . . . Only strict adherence to these equitable principles can keep the standard for fiduciaries “at a level higher than that trodden by the crowd.”

Eriks v. Denver, 118 Wash.2d 451, 463 (1992) (Justice Utter).
Justice Robert F. Utter of the Washington Supreme Court wrote the majority opinion in Eriks v. Denver. Justice Utter was a man of great principle, who resigned his position as a State Supreme Court justice in 1995, because of his opposition to the death penalty.
Hancock.Law firm founder David Hancock had the honor of meeting Justice Utter in 2009.

Timeshare Exit Team

Timeshare Exit Team asks its customers to sign a power-of-attorney agreement in which the company “assumes the fiduciary and other legal responsibilities of an agent.”

The company says that it accepts “the legal duty to act solely in the interest of the principal and to avoid conflicts of interest,” and “the legal duty to keep the principal’s property separate and distinct from any other property owned or controlled by [the company].”

If you were ever a customer of Timeshare Exit Team, you may have signed an agreement in which the company embraced fiduciary duties.

Value to Clients

At Hancock.Law, we are proud to stand in a fiduciary-beneficiary relationship with our clients. We are determined to provide our clients with a level of loyalty that is “stricter than the morals of the market place,” and “higher than that trodden by the crowd.”

We know the law of fiduciary duties. We have reason to believe that Timeshare Exit Team has breached the duties it embraced in the power-of-attorney form it asks customers to sign. We intend to do everything in our power to hold Timeshare Exit Team accountable for its wrongful behavior.

We are also willing to enforce the law against other bad actors who breach their own fiduciary duties to our clients.

This blog post isn’t legal advice.
To schedule a free consultation with Hancock.Law, call us 24/7 at (206) 785-7019.

Author: David Hancock

consumer lawyer

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