Fiduciary Duty Claims in New York Business Disputes

Who Owes Fiduciary Duties

In New York, fiduciary duties arise in several business contexts. General partners owe fiduciary duties to each other and to the partnership. LLC members and managers owe duties as defined by the operating agreement and, to the extent not modified, by statute. Corporate officers and directors owe duties of loyalty and care to the corporation and its shareholders. The scope of these duties depends on the entity type, the governing agreement, and the specific role of the fiduciary.

The Duty of Loyalty

The duty of loyalty requires fiduciaries to act in the interest of the entity rather than their own. This means no self-dealing transactions without full disclosure and approval, no diversion of corporate opportunities, no competition with the entity, and no use of entity resources for personal benefit. Violations of the duty of loyalty are taken seriously by New York courts and can result in significant liability.

The Duty of Care

The duty of care requires fiduciaries to act with the care that a reasonably prudent person would exercise in a similar position. This includes making informed decisions, conducting appropriate due diligence, and exercising independent judgment. The business judgment rule protects decisions made in good faith and on an informed basis, but does not protect decisions tainted by conflicts of interest or gross negligence.

Proving a Breach

Fiduciary duty claims require evidence of the fiduciary relationship, the specific duty breached, and resulting damages. In many cases, the most critical evidence is financial. Bank records, accounting documents, communications, and corporate records can reveal self-dealing, unauthorized transactions, and diversions. Discovery in fiduciary duty litigation is often extensive because the breaching party controls many of the relevant records.