Fiduciary relationships and the duties and liabilities that spring from those relationships arise in all sorts of contexts. The classic examples are “status” based, such as court-appointed personal representatives (PR’s) and trustees appointed to serve as such under written trust agreements.
But limiting your perspective to only self-labled fiduciaries isn’t very useful in inheritance disputes involving multiple transactions covering long periods of time prior to the patriarch or matriarch’s death. In those cases what you’ll probably hear is a client pointing to multiple instances of being treated “unfairly” by someone he or she trusted; what you’re not likely to hear is something that sounds like a traditional breach-of-fiduciary-duty claim (or defense). What to do? Think implied fiduciary relationships; in other words, focus on instances where fiduciary duties are implied as a matter of law based upon the facts and circumstances. This kind of fact-based implied fiduciary relationship is sometimes codified in the context of closely-held businesses, but it also applies generally anytime you have a “confidential” relationship improperly used to another’s detriment, resulting in an implied or “constructive” trust. See, e.g., Mayer v. Cianciolo, 463 So.2d 1219, 1222 (Fla. 3d DCA 1985):
The controlling principle was explained in Craft v. Craft, 74 Fla. 262, 76 So. 772 (1917). There the Florida Supreme Court held that where one conveys real property to another, without consideration, in order to promptly consummate a sale of such property by the grantee and where it is expressly agreed that upon making the sale the grantee will remit the purchase money received therefor to the grantor, a trust in the property is created, and the grantee holds only the bare legal title while the grantor retains the beneficial interest in the property.
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[P]roof of evil design on the part of the trustee is not necessary predicate to imposition of a constructive trust. Where there is “a confidential relation, a transaction induced by the relation, and a breach of the confidence reposed,” a constructive trust may arise even in the absence of fraud. Matter of Topeka Motor Freight, Inc., 553 F.2d 1227, 1231 (10th Cir.1977) (quoting Silvers v. Howard, 106 Kan. 762, 190 P.1 (1920)). Thus, where one person having legal and equitable title in property transfers it to another with whom he has a confidential relationship FN1 to hold for a particular purpose, a constructive trust arises in favor of the promisee which may be enforced where the promisor acts in a fashion so as to harm the beneficiary’s interest. See Craft; Johnson; see also Estate of Sheets v. Sheets, 558 S.W.2d 291 (Mo.Ct.App.1977).
FN1. “Confidential relations,” as a legal concept, is not confined to the strict fiduciary relationship existing between those having definite, well-recognized legal relations of trust and confidence, but extends to every possible case in which a fiduciary relation exists as a fact, though it may be a moral, social, domestic, or merely personal relationship. Robbins v. Law, 48 Cal.App. 555, 192 P. 118 (1920); Hitchcock v. Tackett, 208 Ky. 803, 272 S.W. 52 (1925). But the mere existence of kinship, without more, does not give rise to such a relation. In re Null’s Estate, 302 Pa. 64, 153 A. 137 (1930).
“There is nothing so practical as a good theory.” — Kurt Lewin
A fact-based implied fiduciary relationship doesn’t announce itself (i.e., no one’s walking around calling himself a PR or trustee), and if you asked the offending party if he or she is a “fiduciary,” you’re almost guaranteed to get an adamant NO! (followed by an indignant letter/email from his lawyer). So a big part of your job is going to revolve around explaining why your claims are even viable. To do that you’ll need a solid operative legal theory of the case.
If you’re a practicing trusts and estates litigator you’ll have this kind of theory or “sense” of the case swirling around your brain or “gut” instinctively, but you may have a hard time articulating it to your client (for purposes of developing your initial pleadings), opposing counsel (for motion-practice purposes), or, most importantly, your judge. And simply quoting from a long list of appellate decisions having the words “constructive trust” in them usually isn’t very helpful. Instead, you’ll want to find a thoughtful, well-written academic article (a rare bird indeed) that dose the initial leg work for you. When I run across one of these articles I like to hold on to them for future use, which brings me to Why Fiduciary Law Is Equitable, recently published by Harvard law professor Henry E. Smith. If you do inheritance cases for a living you’re going to run across an implied duties case sooner or later, which makes Prof. Smith’s article worth reading. Here’s the abstract as published on SSRN:
Fiduciary law is both celebrated as unbound by rules and deplored as unprincipled. Moralists see in fiduciary law a fixed and mandatory system, even as legal economists and contractarians have cast fiduciary law as the ultimate set of defaults to fill in incomplete contracts. Like general equity, out of which it grew, modern fiduciary law suffers from the hard times the theory of equity has fallen into, and for the same reasons. This chapter argues that a functional theory of equity – of equity as a safety valve aimed at countering opportunism – captures the character of fiduciary law. Fiduciary relationships, in which someone undertakes to act on another’s behalf by using discretion, carry more than the usual potential for opportunism. In the equitable solutions to opportunism based on proxies and presumptions, fiduciary law gets its main features. Like equity but in a more sweeping and often more categorical way, fiduciary law sets the presumption against the fiduciary when certain proxies are triggered. Thus, in situations of undisclosed conflict of interest the presumption of opportunism arises even without regard to the substance of the deal. For self-dealing likewise the presumption arises in an almost indefeasible way. Like equity generally, fiduciary law features a constrained residuum of open-endedness to deal with new and creative ways of being opportunistic. The theory of equity as targeting potential opportunism unifies the best aspects of traditional and modern theories of fiduciary law, and helps explain why fiduciary law has become so disparate and contested after the fusion of law and equity. Cut off from the special rationales of equity, fiduciary law itself threatens to become too expansive or too narrow and hidebound – like equity generally. Finally, the functional theory of equity as anti-opportunism helps explain the similarity of fiduciary law to another much misunderstood area of private law – unjust enrichment – and the relation between the two. The chapter concludes with some remarks about fiduciary law within the overall architecture of private law.