Fiduciary Duties Under Utah Law
This article addresses fiduciary duty law in Utah and the necessary elements for a breach of fiduciary duty cause of action.
Please note that, while this article accurately describes applicable law on the subject covered at the time of its writing, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed.
What Is a Fiduciary Relationship?
A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. First Sec. Bank of Utah N.A. v. Banberry Dev. Corp., 786 P.2d 1326, 1333 (Utah 1990) (citation omitted). A fiduciary is a person with a duty to act primarily for the benefit of another and is in a position to have and exercise and does have and exercise influence over another. Id.
In short, a fiduciary relationship implies a condition of superiority of one of the parties over the other. Id.
Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary. Id.
How Are Fiduciary Relationships Created?
There is no invariable rule which determines the existence of a fiduciary relationship, but it is manifest in all the decisions that there must be not only confidence of the one in the other, but there must exist a certain inequality, dependence, weakness of age, of mental strength, business intelligence, knowledge of the facts involved, or other conditions, giving to one advantage over the other. Id.
Whether or not a confidential or fiduciary relationship exists depends on the facts and circumstances of each individual case. Id.
at 1332 (citation omitted). Courts have generally refrained from definitively listing the instances of fiduciary relationships in such a way as to risk excluding the penumbra of unknown or un-raised relevant cases. Id.
Courts have, however, noted that there are generally two types of fiduciary relationships:
1. [T]hose specifically created by contract such as principal and agent, attorney and client, and trustee and cestui que trust, for example, and those created by formal legal proceedings such as guardian and/or conservator and ward, and executor or administrator of an estate, among others; and
2. [T]hose implied in law due to the factual situation surrounding the involved transactions and the relationship of the parties to each other and to the questioned transactions.
; see, e.g., Hal Taylor Assocs. v. Unionamerica, Inc., 657 P.2d 743, 749 (Utah 1982) (“A fiduciary or confidential relationship may be created by contract or by circumstances where equity will imply a higher duty in a relationship because the trusting party has been induced to relax the care and vigilance he would ordinarily exercise.”); Grantsville v. Redev. Agency of Tooele City, 2010 UT 38, ¶ 42, 233 P.3d 461, 473 (“A fiduciary relationship results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. The manifestation of consent to form [such a] relationship can be established by contract or implied by the factual circumstances.” (quotations omitted)).
Fiduciary Relationships Created By Contract
The first type of fiduciary relationship is relatively straightforward. In these cases, a fiduciary relationship will be imposed due to the contractual nature between the parties. Such positions include attorney/client; real estate broker/client; guardian/ward; physician/patient; executor/heir; agent/principal; trustee/beneficiary; general partner/limited partner; and corporate director/shareholder. See e.g., Jones Mining Co. v. Cardiff Mining & Milling Co., 56 Utah 449, 480, 191 P. 426, 438 (1920) (describing corporate officers as “managing agents of the corporation, [who], as such, sustain a fiduciary relation both to it and to the stockholders collectively”); Nash v. Craigco, Inc., 585 P.2d 775, 776 (Utah 1978) (holding that when an entity controls a majority of shares and the management of the company, it has a fiduciary duty to “deal fairly and openly” with the minority shareholders); Utah Code Ann. § 48–2c–802(2)(a) (West 2010) (describing a limited liability company manager as “an agent of the company”).
Fiduciary Relationships Implied In Law
In cases where a court implies a fiduciary relationship, the evidence must demonstrate the placement of trust and reliance such that the nature of the relationship is clear. Hal Taylor, 657 P.2d at 749 (citation omitted); Stevensen 3rd E., LC v. Watts, 2009 UT App 137, ¶ 32, 210 P.3d 977, 986 (holding that the fiduciary duties of general partners, corporate officers, and limited liability company managers arise from the corporate relationship itself, independent of any contractual duties). Here, whether a fiduciary duty exists “is a purely legal question,” whereby courts analyze “the structure and dynamics of the relationship between the parties,” including their “legal relationships” and “the duties created by [those] relationships.” Gilbert Dev. Corp. v. Wardley Corp., 2010 UT App 361, ¶ 21, 246 P.3d 131, 139 (citation omitted).
In these fact scenarios, a fiduciary relationship will be created where the trusting party has been induced to relax the care and vigilance he would ordinarily exercise. Hal Taylor, 657 P.2d at 749; see Five F, L.L.C. v. Heritage Sav. Bank, 2003 UT App 373, ¶ 17, 81 P.3d 105, 108 (noting that one party will be bound by a fiduciary duty to act in the interest of another “(1) where a trustor reposes its trust or confidence in the trustee and relies on the trustee’s guidance, (2) where the trustee could exercise extraordinary influence over the trustor, and (3) where the trustee stands in a dominant position to the trustor” (quotation omitted)). Thus, “mere confidence in one party by another is not sufficient alone to constitute a fiduciary or confidential relationship.” State Bank of S. Utah v. Troy Hygro Sys., Inc., 894 P.2d 1270, 1275 (Utah Ct. App. 1995); see Semenov v. Hill,
1999 UT 58, ¶ 8, 982 P.2d 578, 580 (“[M]erely depending on another does not create a fiduciary relationship.” (citation omitted)). Consequently, “there is no fiduciary relation in case of a contract duty, since the rights and duties of parties to a contract may generally be freely transferred, parties may act for their own interests during the execution of a contract, and they have no duty of loyal representation of the opposing party.” Semenov, 1999 UT 58, ¶ 8, 982 P.2d at 580 (citation omitted).
Clearly implicit in this test is the understanding that a fiduciary duty arises not from the mere existence of the relationship, but rather from facts evidencing a confidential relationship above and beyond that ordinarily found between trustor and trustee. Russell v. Lundberg, 2005 UT App 315, ¶ 19, 120 P.3d 541, 545 (citations omitted). In other words, this type of fiduciary relationship includes situations where a relationship blossoms into a trusting, reliant relationship whereby one party essentially controls another. See, e.g., Gen. Bus. Machs. v. Nat’l Semiconductor Datachecker/DTS, 664 F. Supp. 1422, 1425 (D. Utah 1987) (holding that a fiduciary relationship could arise between a cash register salesman and a cash register manufacturer because of the “course of dealing between the parties”); Bradford v. Moench, 670 F. Supp. 920, 926 (D. Utah 1987) (holding that a complaint adequately alleged a fiduciary relationship between purchasers of thrift certificates and a thrift and loan business because the complaint alleged the business made representation to secure investments which could “well support an inference of trust and reliance” by the purchasers).
For example, in McLaughlin v. Schenk, the Utah Supreme Court concluded that a closely held corporation may have a fiduciary duty under some circumstances that would prevent the termination of an at-will employee who is also a stockholder. 2009 UT 64, ¶ 27, 220 P.3d 146, 157. The Court reasoned that such a discharge would constitute a breach of fiduciary duty when “a shareholder’s reasonable expectations were thwarted.” Id.
Absent intervening circumstances, Utah courts hold that transactions between borrowers and lenders are business relationships and not fiduciary or confidential relationships. See, e.g., Ramos v. Countrywide Bank, FSB, 2009 U.S. Dist. LEXIS 99909, 14, 2009 WL 3584327, *5 (D. Utah Oct. 26, 2009) (“[I]n Utah, generally no fiduciary relationship exists between a bank and its customer or a lender and a borrower.”); Banberry, 786 P.2d at 1334 (holding that in an “arms length” transaction with “no confidential relations” between the parties, a bank has “no affirmative duty” to the borrower”).
Finally, one fiduciary cannot represent multiple principals with inconsistent interests because such a triangular affiliation contradicts with the very essence of a fiduciary relationship under Utah law. See Olson v. Gaddis Inv. Co., 85 Utah 430, 437–38, 39 P.2d 744, 747 (1935) (stating that a fiduciary cannot serve as the agent of “two masters” where their interests may be inconsistent); see also Banberry, 786 P.2d at 1333 (“A fiduciary is a person with a duty to act primarily for the benefit of another”).
When Is a Fiduciary Duty Breached?
Generally, in order for a plaintiff to successfully allege a claim for breach of fiduciary duty, four elements must be shown: (1) the existence of a fiduciary relationship; (2) the defendant’s breach of its fiduciary duty; (3) causation, both actual and proximate; and (4) the plaintiff’s damages. See, e.g., Christensen & Jensen, P.C. v. Barrett & Daines, 2008 UT 64, ¶ 23, 194 P.3d 931, 938; RAJI (Civil) 5th Commercial Torts 1A–1D; ABA Model Jury Instr. Bus. Torts Lit. 329, § 7.2.0 (4th ed. 2005). As the existence of a fiduciary relationship was discussed supra, the remaining elements will be analyzed in turn.
Breach Of Fiduciary Duty. The type of fiduciary duty the defendant owed to the plaintiff will determine whether the defendant breached that duty, based on the defendant’s actions, failures or omissions. Notably, unlike a fraud claim, a breach of fiduciary duty claim does not require the plaintiff to prove any intent on the defendant’s part in connection with the wrongdoing.
There are a several different ways a fiduciary can breach his or her duties. For example, a fiduciary has the obligation to disclose certain information to his or her beneficiary. If the fiduciary fails to do so, a breach will result. In Gilbert, the Court of Appeals outlined how a plaintiff can successfully sue a fiduciary for failure to disclose material information. 2010 UT App 361, ¶ 20, 246 P.3d at 139. The court required the plaintiff to prove three elements by a preponderance of the evidence: (1) a fiduciary duty to disclose material information, (2) knowledge of the information, and (3) failure to disclose the information.” Id.
Additionally, other ways a fiduciary can breach his or her duties include taking improper advantage of his or her superior knowledge and position; failing to have undivided loyalty to the beneficiary; failing to treat the beneficiary’s matters as confidential; or deceiving the beneficiary. See, e.g., Kilpatrick v. Wiley, Rein & Fielding, 909 P.2d 1283, 1290 (Utah 1996) (“As fiduciaries, attorneys have a legal duty to represent the client with undivided loyalty, to preserve the client’s confidences, and disclose any material matters bearing upon the representation of the client.” (quotation omitted).
Causation. In Utah, “the same standard of causation applies whether the alleged wrong is a negligent act, a fiduciary breach, or even a contractual breach.” Christensen & Jensen, 2008 UT 64, ¶ 25, 194 P.3d at 938.
Therefore, a “breach of fiduciary duty is a cause of damages if it helps produce the damages and if the damages would not have occurred without the breach.” See RAJI (Civil) 5th Commercial Torts 2. For example, when a plaintiff alleges the defendant breached the fiduciary duty of loyalty, the plaintiff must prove “but for” causation. USA Power, LLC v. PacifiCorp, 2010 UT 31, ¶ 68, 235 P.3d 749, 765. This requires the plaintiff to prove that “but for” the defendant’s breach, the plaintiff would have been benefited or not been harmed in some way. Id.
To that end, “[j]urors may not speculate as to possibilities; they may, however, make justifiable inferences from circumstantial evidence to find . . . proximate cause.” Lindsay v. Gibbons & Reed,
27 Utah 2d 419, 423, 497 P.2d 28, 31 (1972). “While it is sometimes subtle, there is in fact a difference between drawing a reasonable inference and merely speculating about possibilities.” State v. Hester, 2000 UT App 159, ¶ 16, 3 P.3d 725, 730, abrogated on other grounds by State v. Clark, 2001 UT 9, ¶ 14, 20 P.3d 300, 305. An inference is a “deduction as to the existence of a fact which human experience teaches us can reasonably and logically be drawn from proof of other facts.” Id.
(quotation omitted). On the other hand, “speculation is defined as the act or practice of theorizing about matters over which there is no certain knowledge.” Id.
The difference lies in the existence of underlying facts supporting the conclusion. Harding v. Atlas Title Ins. Agency, Inc., 2012 UT App 236, ¶ 7, 285 P.3d 1260, 1263. In the case of a reasonable inference, there is at least a foundation in the evidence upon which the ultimate conclusion is based; in the case of speculation, there is no underlying evidence to support the conclusion. Id.
Thus, so long as sufficient evidence exists upon which a reasonable inference regarding proximate cause may be drawn, summary judgment will not be appropriate. Id.
Damages. The fourth element, damages, constitute “the full amount of money that will reasonably and fairly compensate” the plaintiff for any of the following elements of damage proven to have resulted from the defendant’s breach of fiduciary duty: (1) loss of money or other property; (2) profit or proceeds that the plaintiff would have received had the defendant performed its duties; (3) money or property that is unjust for the defendant to keep; (4) bodily harm; and (5) emotional distress. See RAJI (Civil) 5th Commercial Torts 3.
Following the Restatement of Torts, Utah courts vary the exact measure of damages in a breach of fiduciary duty case based on the type of fiduciary relationship involved and the extent to which other areas of substantive law apply to that relationship. Watts, 2009 UT App 137, ¶ 32, 210 P.3d at 987. For example, the Utah Supreme Court determined that damages for the breach of a real estate agent’s fiduciary duty to its principal—the seller of real property—is properly measured by the amount the agent negligently failed to collect in earnest money. See Hopkins v. Wardley Corp., 611 P.2d 1204, 1206–07 (Utah 1980). Additionally, where an insurer breached its fiduciary duty to defend its insured, the insurer was “expose[d] . . . to consequential and punitive damages awards in excess of policy limits.” Black v. Allstate Ins. Co., 2004 UT 66, ¶ 25, 100 P.3d 1163, 1169. Finally, where a common shareholder in a corporation can prove that a merger was a result of a breach of fiduciary duty, the Utah Supreme Court held that “the appropriate measure of damages is the value of the [shareholder]’s shares had the company not merged.” Borghetti v. Sys. & Comp. Tech., 2008 UT 77, ¶ 30, 199 P.3d 907, 916.
At bottom, the precise value of damages in a breach of fiduciary case, like the actual breach itself, will depend on the type of fiduciary relationship involved. In some cases, a court will look to other areas of law to remedy the breach, while in others, fiduciary law will hold the day.
What types of damages will be recoverable? In Utah, a claim for breach of fiduciary duty is an “independent tort” that, on occasion, arises from a contractual duty. Norman v. Arnold, 2002 UT 81, ¶ 35, 57 P.3d 997, 1006; see also Restatement (Second) of Torts § 874, cmt. b (1979) (“A fiduciary who commits a breach of his duty as a fiduciary is guilty of tortious conduct to the person for whom he should act”). Thus, the primary available remedy will be tort damages, while contractual or equitable damages may, on occasion, be recoverable.
Tort Damages. Although the remedy of a beneficiary against a breaching fiduciary can be in contract or equity, “the beneficiary is entitled to tort damages for harm caused by the breach of the fiduciary’s duty.” Watts, 2009 UT App 137, ¶ 32, 210 P.3d at 986–87 (quoting Restatement (Second) of Torts § 874 cmt. b (1979)). In addition to or in substitution for these damages, the beneficiary may be entitled to restitutionary recovery. Id.
This restitutionary measure of recovery is allowed because the beneficiary is “not only entitled to recover for harm done to his legally protected interests by the wrongful conduct of the fiduciary, but ordinarily he is entitled to profits that result to the fiduciary from his breach of duty and to be the beneficiary of a constructive trust in the profits.” Id.
Equity. The right to an equitable remedy is quite rare in Utah. Indeed, the right to an equitable remedy is an “exceptional one, and absent statutory mandate, equitable relief should be granted only when a court determines that damages are inadequate and that equitable relief will result in more perfect and complete justice.” Thurston v. Box Elder Cnty.,892 P.2d 1034, 1040 (Utah 1995); see 27A Am. Jur. 2d Equity § 21 (2008) (“[T]he plaintiff must affirmatively show a lack of an adequate remedy at law on the face of the pleading and from the evidence, and if a complaint on its face shows that adequate legal remedies exist, equitable remedies are not available.”). The general rule regarding equitable jurisdiction is that “equitable jurisdiction is precluded if the plaintiff has an adequate remedy at law and will not suffer substantial irreparable injury.” Ockey v. Lehmer,
2008 UT 37, ¶ 61, 189 P.3d 51, 61.
In summary, fiduciary relationships may be created by contract or by circumstances where equity will imply a higher duty in a relationship because the trusting party has been induced to relax the care and vigilance he would ordinarily exercise. A plaintiff must prove the existence of the fiduciary relationship, its breach, causation, and damages.
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