Fiduciary Duty Litigation

FIDUCIARY DUTY LITIGATION: PROTECTING TRUST AND INTEGRITY IN BUSINESS RELATIONSHIPS

At Fox & Moghul, we are leaders in handling complex fiduciary duty litigation in Virginia and Washington, D.C. A fiduciary relationship exists when one party places trust or confidence in another, expecting integrity and loyalty in return. Breaches of this trust can result in significant financial harm, making litigation essential to holding those in positions of power accountable. Whether it’s a corporate officer, director, or business partner, fiduciaries are held to high standards of care and loyalty in their dealings.

What is a Fiduciary Relationship?

“A fiduciary relationship is one founded upon trust or confidence reposed by one person in the integrity and fidelity of another. It exists in all cases in which influence has been acquired and abused, or confidence has been reposed and betrayed” (Hoyle v. Diamond, 947 F.2d 595 (2013)). These relationships are common in both formal and informal business contexts and often include relationships between corporate directors, LLC members, and business partners.

In Virginia, corporate directors and officers owe specific statutory and common law fiduciary duties under the Virginia Stock Corporation Act and Virginia Limited Liability Company Act. However, unlike Delaware law, Virginia law does not impose fiduciary duties between shareholders or between the board and minority shareholders.

Types of Fiduciary Duties

Fiduciary duties can be broadly classified into two primary categories:

1. Duty of Care: Directors and officers must make informed decisions that are in the best interest of the corporation or LLC. This means acting with due diligence and using the necessary information to ensure sound decision-making.
   • Virginia Code § 13.1-690 outlines that directors must exercise their duties in line with good faith business judgment. They are expected to gather relevant information, evaluate risks, and act in the corporation’s best interest.
   • Case law, such as Lanza v. Drexel & Co., emphasizes that directors must remain informed about key corporate developments. In the case Kessler v. Commonwealth Doctor’s Hospital, directors were held liable for failing to exercise adequate care, even without malicious intent.
2. Duty of Loyalty: Fiduciaries must act solely in the best interests of the corporation or LLC and its shareholders, avoiding conflicts of interest or situations where they could personally benefit at the company’s expense.
   • Virginia law is clear that corporate officers cannot make secret profits, usurp business opportunities, or use confidential information for personal gain (Adelman v. Conotti Corporation, 215 Va. 782).
   • A director must ensure that all transactions involving the corporation are fair and free from self-dealing, as established in Rowland v. Kable, where directors were held accountable for gaining an unfair advantage.

Fiduciary Duty Litigation: Success Stories

Success Story 1: Misappropriation of Business Opportunity

In a recent case, Fox & Moghul represented a minority shareholder in a Virginia-based real estate development company. The majority shareholders were accused of usurping corporate opportunities by purchasing prime real estate for their personal gain without informing the company. After intense litigation, we were able to secure a significant financial settlement for our client, along with an injunction preventing the majority shareholders from engaging in future self-dealing.

Success Story 2: Breach of Loyalty in a Technology Company

In another case, our firm represented the CEO of a Northern Virginia technology company in a breach of fiduciary duty case against a former executive. The executive had diverted corporate funds for personal use and failed to disclose key financial information to the board. Fox & Moghul secured a favorable settlement for the company, ensuring the executive was held accountable and the misappropriated funds were recovered.

Fiduciary Duties in LLCs and Partnerships

The obligations of LLC members or managers also include fiduciary duties, especially concerning loyalty and fair dealing. Although Virginia’s LLC laws provide flexibility in structuring relationships, they still require that members and managers avoid conflicts of interest and self-dealing. The absence of specific fiduciary duty laws between LLC members, as is common in some states like Delaware, does not remove these obligations entirely. Fox & Moghul has successfully handled cases involving breaches of fiduciary duty in LLCs, where members failed to disclose material information to other members, leading to financial harm.

Virginia’s Business Judgment Rule

Virginia law protects directors and officers from personal liability for decisions made in good faith under the Business Judgment Rule. However, this protection does not apply in cases where the fiduciary personally benefits from the transaction, engages in fraud, or fails to disclose critical information. In Willard v. Moneta Building Supply, the court emphasized that transactions involving conflicts of interest must meet the fairness test, ensuring that deals are open, honest, and fair to the corporation.

Contact Fox & Moghul for Fiduciary Duty Litigation

If you believe that a fiduciary duty has been breached, whether in a corporate setting or within an LLC, contact Fox & Moghul today at 703-652-5506. Our experienced litigators will evaluate your case and fight to ensure that those who have violated their fiduciary responsibilities are held accountable.