Keith Law, PLLC

What is Fiduciary Duty?

Podcast Episode 13—What is Fiduciary Duty?

Podcast Episode Timestamps

00:00 — What is fiduciary duty?
00:04 — Intro
00:29 — A listener asked this question and it’s not simple to explain this “legalese” term
01:12 — Outline of the topics that I will cover in this episode
02:24 — Legal duties
03:52 — Terminology
04:26 — Fiduciary relationship explained briefly
04:45 — Fiduciary duties, not duty
05:14 — A nonexclusive list of fiduciary duties
05:55 — Formal fiduciary relationships – a list
07:10 — Informal fiduciary relationships – when they can arise
08:02 — The attorney-client relationship – one category of formal fiduciary relationship
08:21 — The concern of creating an attorney-client relationship by implication
09:00 — Why attorneys conduct conflict checks before being hired
09:30 — Attorney-client relationship – joint representation
10:02 — Breach of fiduciary duty cause of action – elements
11:03 — Participatory liability for breach of fiduciary duty
11:49 — How does it help to know what a fiduciary duty is?
12:23 — Final thoughts and recommendation to review the show notes
13:13 — Outro

Translating from “Legalese”

During a recent podcast episode I mentioned the term fiduciary duty and a listener followed up asking what it is.  It’s a good question and one that takes some thought for a lawyer to translate from “legalese” because we have been so deeply exposed to the concept that it becomes challenging to clearly describe.  But here in this blog post and podcast episode I’ll try.  The best place to start is probably to take a step back to touch on the concept of legal duties. 

Legal Duties

The law looks at our relations to one another through the lens of legal duties.  Legal duties do not necessarily overlap with what an individual person may consider moral duties.  Legal duties are simply duties that can be enforced, or more accurately, compensated for the harm caused by their breach via civil court.  Legal duties exist along a spectrum.  On one extreme end of the spectrum no duty is owed.  In the middle of the spectrum is the common duty to behave reasonably in the particular circumstances to avoid harming one another.  At the other extreme end of the spectrum is fiduciary duty.  Usually, where a specific duty falls along the spectrum in a particular circumstance depends on the relationship between the two people. 

In this post, I refer to the person owing the fiduciary duty as the “fiduciary” and the person owed the duty as the “principal.”  The term principal might sound familiar from an earlier post where I touched on the law of agency.  In the law of agency, the two people are referred to as “agent” and “principal.”  In many situations, the agent is also a fiduciary.

A fiduciary relationship may exist when a person has a duty to act for or give advice for the benefit of another within the scope of the relationship.  In a fiduciary relationship, one person ‘binds himself to subvert his own interest to those of his principal.’

Fiduciary Duties

In common shorthand we often say that the fiduciary owes a fiduciary duty to the principal.  But, in reality, a fiduciary owes a bundle of fiduciary duties to the principal and that bundle of duties can vary based on the type of circumstance/relationship.

Generally, the fiduciary owes its principal the following duties (some of these probably overlap):

  • the duty of loyalty and good faith;
  • the duty of candor;
  • the duty to refrain from self-dealing;
  • the duty of fair and honest dealing;
  • the duty of full disclosure;
  • the duty not to usurp a corporate opportunity;
  • the duty to refrain from competing;
  • duty of competence;
  • duty to act with integrity of the strictest kind; and
  • the duty to exercise reasonable discretion. 

Formal and Informal Fiduciary Relationships

Fiduciary duties can be formal or informal.  The most common types of formal fiduciary duties include the following:

  • Attorneys to their clients;
  • General partners to one another;
  • Agents to their principals;
  • Escrow agents to both parties in a contract;
  • Spouses to one another;
  • Holders of powers of attorney to those for whom they hold the power;
  • Corporate officers to the corporations they serve;
  • Joint venturers to one another within the scope of the venture;
  • Executors and trustees to the beneficiaries of the estate or trust;
  • Securities brokers to their customers within the scope of their agency;
  • Mineral rights-holders of executive rights to holders of non-executive interests in the mineral estate;
  • Condominium board members and officers of condo boards to the unit owners for their acts or omissions; and
  • Employees owe a fiduciary duty to their employers to act in their employers’ interest during employment (sometimes); and
  • Under section 111.016 of the Texas Tax Code taxpayers owe a formal fiduciary duty to the state to hold in trust the money they receive or collect for the benefit of the state.

Informal fiduciary duties can exist too.  Generally, the question will be whether the party alleging breach of fiduciary duty can prove that a special relationship of trust and confidence arose from a moral, social, domestic, or purely personal relationship.  However, to find an informal fiduciary duty has been breached, the plaintiff would need to show that the special relationship of trust and confidence was established prior to the deal or alleged agreement that’s the subject of the specific dispute.  The question is whether influence was acquired and abused and the confidence was betrayed.  A family relationship is a factor but doesn’t by itself establish a fiduciary relationship.


Attorneys owe fiduciary duties to their clients.  The attorney-client relationship can be created expressly through a contract or through implication based on the actions of the parties.  The concern about creating an attorney-client relation through implication is why you’ll regularly hear disclaimers from attorneys that a relationship was not formed and that what they are saying is not legal advice.  They are trying to protect themselves and the folks they encounter from mistakenly forming a fiduciary relationship.  This goal of clarity is why you will usually receive a non-engagement letter from an attorney you spoke to about a matter but did not hire. 

The fiduciary duties of attorney to client is why they need to conduct a “conflicts check” to confirm there are no conflicts of interest in hiring them for a specific matter.  If they have a contract and you hire them, their duty of confidentiality to their existing client and their duty of candor to you could put them in an impossible position of effectively satisfying both duties.  Delving into the nuances of attorney conflicts of interest analysis exceeds the scope of this post.  But, joint representation should be briefly touched on.  In cases where there is no actual conflict of interest between to people, such as two partners, it can be possible for an attorney to permissibly represent both but should first obtain waivers of potential conflicts from both partners explaining that the attorney will not keep any secrets from either of the partners and that if an actual conflict arises, the partners should each hire separate counsel.

The Cause of Action

Recently, I covered what a cause of action is.  So far, in this post I have focused on what a fiduciary duty is.  That is the first element (or necessary ingredient) in a breach of fiduciary duty cause of action.  The elements include (1) the existence of a fiduciary relationship; (2) the defendant fiduciary breached its duty to the plaintiff principal; and (3) the fiduciary’s breach caused either (a) injury to the principal, or (b) benefit to the fiduciary.

Participatory Liability

Not only the fiduciary could end up in the cross-hairs of a breach of fiduciary duty lawsuit.  If someone knowingly induces a fiduciary to breach a duty or participate in the breach of a duty, they can be held jointly liable along with the fiduciary breaching their duty.  This liability would fall under the umbrella of civil participatory and vicarious liability theories that includes “aiding & abetting,” “civil conspiracy,” “principal-agent liability,” “partnership liability,” and “family liability”—all of which exceed the scope of this post.


Having a sense of the concept of fiduciary duty can help you navigate the business world more wisely by giving you a sense of the legal duties you may owe to others and others may owe to you.  This is a sometimes-complex area that, in the face of uncertainty, could benefit from having as part of your business team the guidance of an experienced attorney in your jurisdiction.

Disclaimer: This audio and blog post are for informational purposes only and should not be misinterpreted as legal or other professional advice. If you have a legal question, you should consult with an attorney in your jurisdiction. Thank you for tuning in to Keith Law, PLLC.

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