Boards of Directors have legal, and arguably moral, responsibilities to the shareholders who depend on them to run a business. Those duties are called fiduciary duties and include the duties of care and loyalty. When a Board member breaches those duties and shareholders are harmed as a result the shareholders have the right to recover damages.
When A Breach of Fiduciary Duty Occurs
Before a plaintiff can recover damages for an alleged breach of fiduciary duty, a plaintiff must prove the elements of a breach of fiduciary duty case. Specifically, the plaintiff must prove that a fiduciary relationship existed between the plaintiff and the defendant. If the plaintiff is a shareholder in a company where the defendant is on the Board of Directors then this element of the case has likely been met. Next, the plaintiff must prove that the defendant breached his or her fiduciary duty. If, for example, the defendant acted on his own behalf and not in the best interest of the company or if the defendant failed to give proper consideration to a business decision then the defendant may have breached his or her duty of loyalty or duty of care. If this element of the case has been satisfied then the plaintiff must show that the defendant’s breach of his or her duty caused the plaintiff damage and the plaintiff must specify the nature and extent of his or her damages. So, for example, if the plaintiff is a shareholder in the company and the plaintiff can prove that the defendant’s actions caused the stock price to plummet then the plaintiff may have proven his or her damages. This is often the hardest part of the case for the plaintiff to prove since many factors can be involved in a decrease in stock price.
It is important to note that plaintiffs in breach of fiduciary duty lawsuits need not be shareholders and that defendants are not always on the Board of Directors. For example, employees may have a successful breach of fiduciary duty claim against employers who fraudulently or negligently handled employee retirement accounts or 401(k) investments.
Possible Remedies for a Breach of Fiduciary Duty
The possible remedies for a breach of fiduciary duty lawsuit depend, in part, on state law. A plaintiff may recover for actual damages incurred and, in many states, the plaintiff can also recover for punitive damages, particularly if the plaintiff proves that the defendant’s breach was due to malice or fraud.
For many plaintiffs, and other people who are in a fiduciary relationship, one of the most important benefits of bringing a breach of fiduciary duty lawsuit is the deterrent effect it may have on Boards of Directors at other companies and on future Boards of Directors at the company involved in the lawsuit. With each lawsuit that is brought, other members of Boards of Directors may grow more aware of the possible damages that may be awarded against them and more careful in the exercise of their duties of loyalty and care.
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