Fresno Lawyer – Randolf Krbechek

Legal commentators have differing opinions regarding the origin and background of fiduciary duties.  A recent article by Mary Szto would seem to focus on the business side of things, as her article is entitled “Limited Liability Company Morality: Fiduciary Duties in Historical Context,” 23 Quinnipiac Law Review 61 (2004-2005).

However, the author strikes a deep religious tone to fiduciary relationships.  Says Ms. Szto, “Fiduciary duties are the offspring of ecclesiastical property views and Roman legal forms.  They would then mature into agency and trust law; partnership and corporate law would later wed them to the business association.  They are Christological in origin.  Fiduciary duties acknowledge that property ownership, including the business enterprise, requires stewardship.”

In analyzing the history of fiduciary duties, she argues that, “The origin of fiduciary duties has religious and secular roots.  These roots were wed by canon lawyers in the medieval era . . . Fiduciary duties in the biblical tradition begin in the Genesis creation account.  The human mission on earth is being a fiduciary, being a steward of God’s and other’s property.  Israel is a fiduciary.  So is Jesus Christ.”

Continuing in this vein, she explains that,  “In the biblical account, after creating the world, God appoints man and woman as agents.  They steward the world, exercise dominion, and are fruitful.   God is the world’s eternal owner, and his agents are stewards.  Fiduciary duties thus bond God, his creation, and his creatures.  Adam and Eve failed in the enterprise, however, and the rest of biblical history is the story of redemption.  It is a search for the faithful fiduciary and a permanent inheritance.  God redeems Israel from Egypt and gives Canaan to her as an inheritance.

“Within this creative-redemptive-consumptive framework, business people in the Bible have fiduciary duties to God and others . . . In Christian theology, Christ is the perfect fiduciary.  He is the selfless steward who lays down his life for others.  By dying and rising, he enables those who accept him to have an eternal inheritance.  Christ is the bridge between death and life, time and eternity, temporal and permanent property.”

Next week we’ll continue an analysis of this article.

In a June 2009 decision from New York’s highest court, the Court of Appeals held that attorneys for a hedge fund did not owe fiduciary duties to the investors.  The hedge fund in question was structured as a limited partnership, and the investors were limited partners.

When the investment turned sour, the investors sued, claiming the law firm knew that the hedge fund operators had invested money in violation of the restrictions set forth in the partnership agreement.  The lower court dismissed the action against attorneys, which decision was affirmed on appeal.

As to the claim against the attorneys for breach of fiduciary duty, the court explained that:

“A fiduciary relationship arises between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.  Put differently, a fiduciary relation exists when confidence is reposed on one side and there is resulting superiority and influence on the other.  Ascertaining the existence of such a relationship invariably requires a fact-specific inquiry.”

The court further held that:

“To the extent plaintiffs assert claims for fraud or aiding and abetting predicated on [the attorneys’] silence, they similarly fail for lack of a duty to disclose.  In the absence of a fiduciary relationship, we perceive no legal duty obligating [the law firm] to make affirmative disclosures to plaintiffs under the circumstances of this case.”

While that’s one way of defining the fiduciary relationship, it only leads to more questions.  Fiduciary duties  arise in the context of certain relationships, in which the law imposes heightened duties on one of the parties.  It would have been easier if the court simply stated that the attorneys did not owe a fiduciary duty to the investors because the attorneys represented the hedge fund, not the limited partners.

Eurycleia Partners v. Seward & Kissel, 12 N.Y.3d 553 (June 4, 2009)