Breach of fiduciary duty means a partner has failed to act in the best interests of the partnership and its other members. The law imposes fiduciary duties on partners because they are entrusted with managing shared assets, making key decisions and conducting business in ways that profoundly affect one another. A partner’s fiduciary duties generally include the duty of loyalty, the duty of care, the duty of good faith and fair dealing and the duty to disclose material information.
A breach of fiduciary duty occurs when a partner acts in their own interest to the detriment of the partnership, acts negligently or with gross misconduct, or fails to disclose relevant information. Examples include:
- Self-dealing — Diverting business opportunities or resources for personal gain
- Competing with the partnership — Engaging in business that directly competes with the partnership without proper disclosure or consent
- Misappropriation of partnership assets — Using partnership funds or property for unauthorized personal use
- Failure to disclose material facts — Intentionally withholding information that influences partnership decisions, such as financial issues or external offers
When a breach is discovered, the aggrieved partner(s) may seek several legal remedies, including the following:
- Accounting — The breaching partner may be compelled by court order to disclose and document financial transactions so that a court can determine if improper conduct occurred and make a precise assessment of the damages suffered.
- Damages — If the breach resulted in a financial loss for the partnership or individual partners, the partnership, the non-breaching partners, or both may be awarded damages to compensate for the harm. This remedy aims to put the injured party back in the position they would have been if the breach had not occurred.
- Disgorgement of profits — The breaching partner may be required to surrender any gains from their improper conduct. This is common in cases of self-dealing or diversion of partnership opportunities.
- Injunctions — A court may issue orders preventing the breaching partner from engaging in certain behavior, such as continuing a competing business or further misuse of partnership assets.
- Expulsion or removal — In some cases, the partnership agreement or state law allows the remaining partners to expel the breaching partner from the partnership.
Partnership disputes arising from breaches of fiduciary duty do not always have to result in dissolution of the business. Alternative remedies can allow the entity to continue operating. These can include invoking buyout provisions within the partnership agreement or negotiating new terms for a buyout, by which the aggrieved or breaching partner exits the partnership in exchange for an agreed payment. Also, courts have discretion to issue remedies (such as removal or accounting) that correct misconduct but allow the business to continue under new management or ownership arrangements. An attorney experienced in breach of fiduciary cases can address these situations and effectuate the optimal remedies for the injured parties.
At Schwartz Law Group, LLC, we help members of business partnerships address alleged breaches of fiduciary duty. To learn how we can help you, to contact us online or call 312-755-3164 for a consultation.
