What is Fiduciary Duty
FIDUCIARY AND OTHER DUTIES – Pertinent caselaw 1,
Breach of Fiduciary Duty.
What is Fiduciary Duty: The expression, fiduciary duty, relates to those obligations that are peculiar to a fiduciary and are based on the conscious undertaking of a special position with regard to another. A consistent facet of a fiduciary duty is the constraint on the fiduciary’s discretion to act in his own self-interest because by accepting the obligation of a fiduciary he consciously sets another’s interests before his own. … This constraint on acting in one’s own self-interest has been described as a fiduciary’s duty of loyalty. Id. However, the duty of loyalty is broader than simply requiring the fiduciary to refrain from acting in his own self-interest.8 For example, it also may require keeping a beneficiary’s information confidential, …. The fiduciary’s duty of loyalty is “to act solely for the benefit of the principal in all matters connected with the agency, even at the expense of the agent’s own interests.”
Zastrow v. Journal Communications, 291 Wis.2d 426, 445-446 (2006) Courts use this language but rarely go beyond the traditionally recognized relationships. Indeed, no fiduciary duty found in Zastrow
Attorney/Client Relationship. Wisconsin Supreme Court’s decision in Groshek v. Trewin 325 Wis.2d 250 (2010) is primary recent decision. Court found fiduciary duty based on admission that attorney client relationship existed up to a certain point in time. More interesting is that the Court upheld liability of attorney to client because of failure of attorney to disclose “what he was fully required to disclose to the Grosheks as his clients.” In that case it was
that attorney was purchasing the clients land for far less than reasonable value.
2.
Using Concept of Duty to protect consumers
Ability to pursue claims does not depend on there being a fiduciary level duty. Plaintiffs/consumers often face contract language that attempts to limit claims based on oral or other statements made by the defendant party. So called integration clauses. Intentional misrepresentation can provide relief in the case of an affirmative falsehood/misrepresentation. Ramsden v. Farm Credit Services of Northern Wisconsin, 223 Wis.2d 704, 719 (1998) (“There is no insulation from liability under the law for making untrue factual statements about the condition of property during the course of a sale.”) Claims can also arise from a failure to disclose facts when there is a duty to disclose: we conclude that a party to a business transaction has a duty to disclose a fact where: (1) the fact is material to the transaction; (2) the party with knowledge of that fact knows that the other party is about to enter into the transaction under a mistake as to the fact; (3) the fact is peculiarly and exclusively within the knowledge of one party, and the mistaken party could not reasonably be expected to discover it; and (4) on account of the objective circumstances, the mistaken party would reasonably expect disclosure of the fact.
Kaloti Enterprises v. Kellogg Sales Co. 283 Wis.2d 555, 573-74 (2005). An older case is consistent allowed a guarantor to pursue a defense of fraud in the inducement in the face of a Bank’s pursuit of her on a guaranty: A material misrepresentation of fact may render a contract void or voidable. Farnsworth, Contracts, sec. 4.10, p. 235 (1982); Corbin, Contracts, sec. 146, p.
635 (1963); Restatement (Second) of Contracts, sec. 7 (1979). The parol evidence rule does not exclude evidence to show misrepresentation as a ground for avoidance of the contract.
Bank of Sun Prairie v. Esser 155 Wis. 2d 724, 731(1990)
3.
Other obstacles Twombly, Iqbal, Data Key Partner.
The Supreme Court embraced the heightened plausibility standard for pleading set forth by the Wisconsin Supreme Court in Twombly and Iqbal. Data Key Partners v. Permira Advisors, 356 Wis.2d 665, 680 (2014). This doctrine ostensibly requires the plaintiff to provide sufficient detail and facts to make their theory of their claim “plausible.” This is a slippery doctrine and seems a bit hostile to plaintiff-based claims. A recent federal case may provide a small “push-back” on the reach of Twombly/DataKey. In Allen v. Fruend, the Eastern District ruled that allegations regarding reliance on an alleged misrepresentation was plausible because alleging that one relied on such things is really the best and often only evidence that exists. An excerpt below provides a sense of the approach of the Court as being appropriately favorable to upholding a claim at the motion to dismiss stage: Those allegations clearly satisfy even the heightened pleading standards of Federal Rule of Civil Procedure 9(b), which requires allegations of fraud to be pled with particularity. See Davis, 638 F.3d at 555 (in reviewing 11 U.S.C. § 523(a)(2) fraud claims, noting that complaint did not “satisfy Rule 8(a), let alone the more stringent Rule 9(b) standard that applies here.”) Allen identifies all of the particulars of the fraud: who (Freund); what (false statements regarding his intention to arrange a short sale); when (in Fall of 2010); where (in Milwaukee, after Freund traveled here); and how (by requesting the contact information for the asset managers and then using that information to purchase Allen’s mortgage). Allen also clearly pled that Freund had an intent to deceive or defraud: “When Mr. Freund made these representations and promises, he knew them to be false,
and had no intention of carrying out his promises and made these representations and promises with the intent to induce Mr. Allen to provide him the contact information for the bank officer ...” (Docket # 1, Ex. 1 ¶ 28). As to justifiable reliance, Allen clearly alleged that he relied on Freund’s representations and provided the contact information for the creditors. (Docket # 1, Ex. 1 ¶¶ 13, 22–24). The fact that he turned over the information, alone (Docket # 1, Ex. 1 ¶ 13), is enough to show reliance when taken in conjunction with Allen statements regarding his understanding of Fruend representations (Docket # 1, Ex. 1 ¶¶ 22–24). It is unclear what else Allen would have to have pled to establish reliance. This is not a “naked assertion[ ] devoid of further factual enhancement,” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); it is an allegation of fact supported by Allen understanding. There was also ample factual matter to plausibly show that Allen reliance was justifiable. This is a doubly low standard, here. To begin, justifiability is a low standard, itself, even lower than reasonableness; it is not satisfied when an individual “blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.
Allen v. Freund, 532 B.R. 734, 740 (E.D. Wis. 2015).
Breach of Fiduciary Duty.
What is Fiduciary Duty: The expression, fiduciary duty, relates to those obligations that are peculiar to a fiduciary and are based on the conscious undertaking of a special position with regard to another. A consistent facet of a fiduciary duty is the constraint on the fiduciary’s discretion to act in his own self-interest because by accepting the obligation of a fiduciary he consciously sets another’s interests before his own. … This constraint on acting in one’s own self-interest has been described as a fiduciary’s duty of loyalty. Id. However, the duty of loyalty is broader than simply requiring the fiduciary to refrain from acting in his own self-interest.8 For example, it also may require keeping a beneficiary’s information confidential, …. The fiduciary’s duty of loyalty is “to act solely for the benefit of the principal in all matters connected with the agency, even at the expense of the agent’s own interests.”
Zastrow v. Journal Communications, 291 Wis.2d 426, 445-446 (2006) Courts use this language but rarely go beyond the traditionally recognized relationships. Indeed, no fiduciary duty found in Zastrow
Attorney/Client Relationship. Wisconsin Supreme Court’s decision in Groshek v. Trewin 325 Wis.2d 250 (2010) is primary recent decision. Court found fiduciary duty based on admission that attorney client relationship existed up to a certain point in time. More interesting is that the Court upheld liability of attorney to client because of failure of attorney to disclose “what he was fully required to disclose to the Grosheks as his clients.” In that case it was
that attorney was purchasing the clients land for far less than reasonable value.
2.
Using Concept of Duty to protect consumers
Ability to pursue claims does not depend on there being a fiduciary level duty. Plaintiffs/consumers often face contract language that attempts to limit claims based on oral or other statements made by the defendant party. So called integration clauses. Intentional misrepresentation can provide relief in the case of an affirmative falsehood/misrepresentation. Ramsden v. Farm Credit Services of Northern Wisconsin, 223 Wis.2d 704, 719 (1998) (“There is no insulation from liability under the law for making untrue factual statements about the condition of property during the course of a sale.”) Claims can also arise from a failure to disclose facts when there is a duty to disclose: we conclude that a party to a business transaction has a duty to disclose a fact where: (1) the fact is material to the transaction; (2) the party with knowledge of that fact knows that the other party is about to enter into the transaction under a mistake as to the fact; (3) the fact is peculiarly and exclusively within the knowledge of one party, and the mistaken party could not reasonably be expected to discover it; and (4) on account of the objective circumstances, the mistaken party would reasonably expect disclosure of the fact.
Kaloti Enterprises v. Kellogg Sales Co. 283 Wis.2d 555, 573-74 (2005). An older case is consistent allowed a guarantor to pursue a defense of fraud in the inducement in the face of a Bank’s pursuit of her on a guaranty: A material misrepresentation of fact may render a contract void or voidable. Farnsworth, Contracts, sec. 4.10, p. 235 (1982); Corbin, Contracts, sec. 146, p.
635 (1963); Restatement (Second) of Contracts, sec. 7 (1979). The parol evidence rule does not exclude evidence to show misrepresentation as a ground for avoidance of the contract.
Bank of Sun Prairie v. Esser 155 Wis. 2d 724, 731(1990)
3.
Other obstacles Twombly, Iqbal, Data Key Partner.
The Supreme Court embraced the heightened plausibility standard for pleading set forth by the Wisconsin Supreme Court in Twombly and Iqbal. Data Key Partners v. Permira Advisors, 356 Wis.2d 665, 680 (2014). This doctrine ostensibly requires the plaintiff to provide sufficient detail and facts to make their theory of their claim “plausible.” This is a slippery doctrine and seems a bit hostile to plaintiff-based claims. A recent federal case may provide a small “push-back” on the reach of Twombly/DataKey. In Allen v. Fruend, the Eastern District ruled that allegations regarding reliance on an alleged misrepresentation was plausible because alleging that one relied on such things is really the best and often only evidence that exists. An excerpt below provides a sense of the approach of the Court as being appropriately favorable to upholding a claim at the motion to dismiss stage: Those allegations clearly satisfy even the heightened pleading standards of Federal Rule of Civil Procedure 9(b), which requires allegations of fraud to be pled with particularity. See Davis, 638 F.3d at 555 (in reviewing 11 U.S.C. § 523(a)(2) fraud claims, noting that complaint did not “satisfy Rule 8(a), let alone the more stringent Rule 9(b) standard that applies here.”) Allen identifies all of the particulars of the fraud: who (Freund); what (false statements regarding his intention to arrange a short sale); when (in Fall of 2010); where (in Milwaukee, after Freund traveled here); and how (by requesting the contact information for the asset managers and then using that information to purchase Allen’s mortgage). Allen also clearly pled that Freund had an intent to deceive or defraud: “When Mr. Freund made these representations and promises, he knew them to be false,
and had no intention of carrying out his promises and made these representations and promises with the intent to induce Mr. Allen to provide him the contact information for the bank officer ...” (Docket # 1, Ex. 1 ¶ 28). As to justifiable reliance, Allen clearly alleged that he relied on Freund’s representations and provided the contact information for the creditors. (Docket # 1, Ex. 1 ¶¶ 13, 22–24). The fact that he turned over the information, alone (Docket # 1, Ex. 1 ¶ 13), is enough to show reliance when taken in conjunction with Allen statements regarding his understanding of Fruend representations (Docket # 1, Ex. 1 ¶¶ 22–24). It is unclear what else Allen would have to have pled to establish reliance. This is not a “naked assertion[ ] devoid of further factual enhancement,” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); it is an allegation of fact supported by Allen understanding. There was also ample factual matter to plausibly show that Allen reliance was justifiable. This is a doubly low standard, here. To begin, justifiability is a low standard, itself, even lower than reasonableness; it is not satisfied when an individual “blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.
Allen v. Freund, 532 B.R. 734, 740 (E.D. Wis. 2015).
