Breach of Fiduciary Duty — New York and New Jersey
Breach of Fiduciary Duty — New York and New Jersey Business Lawyer
A fiduciary duty is one of the highest obligations recognized by law — it requires a person entrusted with authority over another’s interests to act with loyalty, care, and good faith. When the owners, officers, directors, managers, or partners of a business fail to meet that standard, they may be liable for breach of fiduciary duty.
Russo Law LLC represents business owners, shareholders, LLC members, and companies in breach of fiduciary duty claims throughout New York and New Jersey — both bringing claims on behalf of parties who have been harmed and defending those who have been accused.
What Is a Fiduciary Duty?
A fiduciary duty arises when one person is entrusted with authority, discretion, or control over another person’s interests. The person holding that trust — the fiduciary — is legally obligated to act in the best interests of the person who placed that trust in them, rather than in their own self-interest.
Under New York and New Jersey law, fiduciary duties typically include:
- Duty of loyalty — the fiduciary must act in the best interests of the company and its owners, not in their own personal interest. This includes the duty to avoid self-dealing, conflicts of interest, and usurping corporate opportunities
- Duty of care — the fiduciary must act with the level of care, diligence, and prudence that a reasonably careful person would exercise under similar circumstances
- Duty of good faith — the fiduciary must act honestly and in genuine pursuit of the company’s best interests, not for improper purposes
- Duty of disclosure — the fiduciary must disclose material information relevant to the interests of the parties to whom the duty is owed
Who Owes Fiduciary Duties in New York and New Jersey Companies?
In closely held businesses — corporations, LLCs, and partnerships with a small number of owners — fiduciary duties are owed by:
- Corporate officers and directors — the officers and directors of a corporation owe fiduciary duties to the corporation and its shareholders under both New York Business Corporation Law and the New Jersey Business Corporation Act
- LLC managers — in a manager-managed LLC, the managers owe fiduciary duties to the LLC and its members. In member-managed LLCs, the members who manage the company’s affairs owe duties to their fellow members
- General partners — general partners of a partnership owe fiduciary duties to each other and to the partnership
- Majority shareholders and controlling members — in closely held companies, courts in both New York and New Jersey have recognized that majority shareholders and controlling members may owe fiduciary duties to minority owners
- Agents and employees with discretionary authority — certain employees and agents who exercise significant discretion over company assets or decisions may also owe fiduciary duties in specific contexts
Common Examples of Breach of Fiduciary Duty in Closely Held Businesses
Breach of fiduciary duty claims in closely held companies most commonly arise in the following situations:
- Self-dealing — an officer, director, or manager enters into a transaction on behalf of the company that benefits themselves personally at the company’s expense, such as causing the company to pay above-market prices to a business they own
- Misappropriation of company assets — a co-owner, officer, or manager diverts company funds, assets, or business opportunities to themselves or a related entity
- Usurping corporate opportunities — an officer, director, or manager takes advantage of a business opportunity that rightfully belonged to the company
- Oppression of minority owners — majority owners freeze out minority shareholders or LLC members by excluding them from management, withholding distributions, or diluting their ownership interest
- Failure to disclose conflicts — a fiduciary fails to disclose a material conflict of interest in connection with a company decision or transaction
- Improper competition — an officer or manager starts a competing business while still serving the company, in breach of their duty of loyalty
These scenarios often arise in the context of business divorce and partner disputes. When a business relationship breaks down, breach of fiduciary duty is frequently one of the claims asserted by the aggrieved party.
How Breach of Fiduciary Duty Differs from Breach of Contract
Both breach of contract and breach of fiduciary duty involve one party failing to meet obligations to another. But there are important differences:
- Source of obligation — breach of contract claims arise from a specific contractual agreement. Breach of fiduciary duty claims arise from a relationship of trust recognized by law — the duty exists even if it is not written into a contract
- Standard of conduct — contract claims require showing the other party failed to perform what they promised. Fiduciary duty claims require showing the fiduciary acted disloyally, in bad faith, or without due care
- Available remedies — breach of fiduciary duty claims can support claims for disgorgement of profits the fiduciary improperly obtained, in addition to compensatory damages. In cases of intentional misconduct, punitive damages may also be available
Fiduciary Duty Claims in LLC and Corporate Disputes
Fiduciary duty claims are a powerful tool for minority owners and shareholders who have been wronged by the people controlling the company. Under New York and New Jersey law:
- Derivative claims — shareholders and LLC members may bring derivative lawsuits on behalf of the company against officers, directors, or managers who have breached their fiduciary duties to the company
- Direct claims — where the breach of fiduciary duty has caused direct harm to a specific owner (rather than to the company as a whole), that owner may bring a direct claim
- Judicial dissolution — in New York and New Jersey, courts can order judicial dissolution of a company where the controlling owners have engaged in oppressive conduct or breach of fiduciary duty toward minority owners
Russo Law LLC represents majority and minority owners in fiduciary duty disputes, including in the context of business divorces, shareholder disputes, and LLC member disputes throughout New York and New Jersey.
Frequently Asked Questions — Breach of Fiduciary Duty in New York and New Jersey
What is the statute of limitations for a breach of fiduciary duty claim in New York?
In New York, the statute of limitations for breach of fiduciary duty depends on the nature of the claim. For claims seeking equitable relief (such as an accounting or disgorgement), the limitations period is generally six years. For claims that are essentially tort-based (seeking compensatory damages), the period may be three years. The limitations period begins to run from the date of the breach or, in cases of fraudulent concealment, from the date the breach was or should have been discovered. Prompt legal advice is essential to preserve your claims.
What is the statute of limitations for a breach of fiduciary duty claim in New Jersey?
In New Jersey, breach of fiduciary duty claims are generally subject to a six-year statute of limitations under the general contract statute, though the court may apply a shorter period depending on the nature of the underlying conduct. New Jersey also recognizes the discovery rule, which can toll the limitations period where the breach was fraudulently concealed. Russo Law LLC advises clients on limitations issues as part of an initial case evaluation.
Can a fiduciary duty claim be brought against a co-owner of an LLC?
Yes. In both New York and New Jersey, LLC members and managers may owe fiduciary duties to each other and to the LLC, depending on how the LLC is governed and whether the operating agreement modifies or eliminates those duties. New York’s LLC Law and New Jersey’s Revised Uniform Limited Liability Company Act both address the scope of fiduciary duties in LLCs, and both permit LLC operating agreements to modify (but not entirely eliminate) fiduciary duties in certain circumstances. Russo Law LLC advises LLC owners on fiduciary duty issues in connection with both business transactions and disputes.
What remedies are available for breach of fiduciary duty?
Remedies for breach of fiduciary duty in New York and New Jersey include compensatory damages for losses caused by the breach, disgorgement of profits improperly obtained by the fiduciary, injunctive relief to stop ongoing misconduct, an accounting of the fiduciary’s dealings with company assets, and — in cases of intentional misconduct — punitive damages. Courts can also order judicial dissolution of a company in extreme cases of fiduciary misconduct. The appropriate remedy depends on the specific facts of the case and the nature of the breach.
Schedule a Free Consultation
If you believe a business partner, officer, director, or manager has breached their fiduciary duty to you or your company in New York or New Jersey, call 929-262-1101 or schedule a free consultation with Russo Law LLC. The sooner you get legal guidance, the more options you have.