Understanding fiduciary obligations

book coverWhile all contracts have a legal standard of trust, a fiduciary relationship is a higher legal level of trust because one party is vulnerable financially to the actions of the other party. A fiduciary obligation is not considered an “arms-length” transaction where each party is looking out for their own interests. Instead, a fiduciary is expected to look out for the interests of the other party, putting the other party’s interests above their own. Fiduciary obligations are typically imposed on parties who are managing other people’s money or property. Design firms do not usually have a fiduciary obligation to their client. They can assume a fiduciary obligation by contract if it is expressly stated in the contract. Contractual language that articulates a relationship of “trust and confidence” may create such a legal relationship. It is best to avoid this type of language, and if its inclusion is unavoidable, it is best to make sure that your actions towards the client are conducted at arms length. From a practice management standpoint it is advisable to avoid making decisions for the client; instead, use your knowledge and expertise to provide options with a description of the attendant risks so that it is clear that the client made the ultimate decision.

In 2013, the City of Victorville received a $54 million settlement payment against Carter & Burgess, after winning a lawsuit that alleged breach of fiduciary duty. Learn more about the ramifications of this case in our webinar with construction litigation expert Marion Hack, or by reading her paper on the subject from the 53rd Annual Meeting of Invited Attorneys.



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