Elements of Nevada's Theories of Liability

Breach of Fiduciary Duty

Breach of Fiduciary Duty

Elements

  • Elements
In Nevada, a claim for breach of fiduciary duty has three elements:
  1. existence of a fiduciary duty;
  2. breach of the duty; and
  3. the breach proximately caused the damages.
  • Existence of a fiduciary relationship
A fiduciary relationship is deemed to exist when one party is bound to act for the benefit of the other party. Such a relationship imposes a duty of utmost good faith.
Hoopes v. Hammargren, 725 P. 2d 238 (Nev. 1986).
 
  • A helpful California definition of fiduciary:
  • any relation existing between parties to a transaction
  • wherein the vulnerability of one party to the other
  • results in the empowerment of the stronger party by the weaker
  • which empowerment has been solicited or accepted by the stronger party and
  • prevents the weaker party from effectively protecting itself.”

Example Cases

Proof

  • Must show financial loss to bring breach of fiduciary duty claim under ERISA
McCreary’s contention that he need not show a financial loss to bring an action for breach of a fiduciary duty under ERISA is not well-taken. Although Amalgamated Clothing and Textile Workers Union v. Murdock, 861 F.2d 1406 (9th Cir.1988) and Waller v. Blue Cross of California, 32 F.3d 1337 (9th Cir.1994) may have implied that a plaintiff not need to establish a financial loss to assert a claim for breach of a fiduciary duty under ERISA, the Ninth Circuit explicitly rejected that proposition in Glanton v. AdvancePCS Inc. See 465 F.3d 1123, 1126 n. 4 (9th Cir.2006).
McCreary v. Aetna Life Ins. Co., Case No. 3:08-CV-00654-LRH-RAM, 2009 WL 1940026, fn. 3 (D. Nev. 2009).
 

Damages

Defenses

  • Predicate breach of fiduciary duty (preparation to breach in the future) is not a tort
The Franklin Transaction cannot support a breach of fiduciary duty action under Plaintiffs’ proposed theory of “predicate breach.” Plaintiffs offer and this Court could find no legal support that taking measures that allow for a future breach of fiduciary duty itself constitutes a breach of fiduciary duty. This Court therefore will grant Defendants’ motion for summary judgment as to the breach of fiduciary duty claim premised upon the Franklin Transaction.
  • Majority shareholder’s fiduciary duty regarding tender offers
 
[Predicting Nevada law:] Under established Delaware law, if majority shareholders attempt to acquire the minority shares through a tender offer, the court inquires into the fairness of the transaction only upon a finding that the offer was not voluntary. Solomon v. Pathe Commc’n Corp., 672 A.2d 35, 39 (Del.1996). An offer is not voluntary if it is coercive, or if it contains false or misleading disclosures. Id. If the offer is totally voluntary, majority shareholders are under no obligation to offer a fair price, and the inquiry ends. Id. at 40. If, however, the offer is actionably coercive, the court must evaluate whether the majority shareholders offered fair value. SeeGradient OC Master Ltd. v. NBC Universal, Inc., 930 A.2d 104, 117 (Del.Ch.2007).

Misc

  • Fiduciary duties to partners
Under Nevada law, partners owe their other partners and the partnership the fiduciary duty of loyalty, which is limited to accounting to the partnership, holding partnership assets as trustee, as well as refraining from being an adverse party, acting on behalf of an adverse party, and competing with the partnership. Nev.Rev.Stat. § 87.4336(1)-(2). Partners also owe a duty of care, which prohibits a partner from engaging in grossly negligent, reckless, or intentional conduct, or knowingly violating the law. Id. § 87.4336(3).
Klein v. Freedom Strategic Partners, LLC, 595 F. Supp. 2d 1152 (D.Nev. 2009).
 
  • LLC members owe fiduciary duties to each other, but these may be contractually eliminated
The Court therefore is satisfied that Nevada law does not prohibit members of a limited liability company from eliminating fiduciary duties owed to each other or the limited liability company. Because the plain language of the Operating Agreement eliminates the Members’ fiduciary duties to South Edge and Nevada law does not forbid such a provision, the Court will dismiss count three as to the Members for breaches of fiduciary duties to South Edge.
  • Directors/managers of an insolvent firm owe a fiduciary duty to the firm’s creditors.
The exception therefore “gives creditors of an insolvent firm standing to assert that directors breached their fiduciary duties by improperly harming the economic value of the firm, to the detriment of the creditors *1027 who had legitimate claims on its assets.”
  • Breaching a fiduciary duty and not disclosing the breach is fraud
We have held that when a party who is relied upon in a fiduciary capacity fails to fulfill his obligations thereunder, and does not tell the other party of his failure, his omission constitutes constructive fraud, tolling the statute of limitations until the facts constituting the fraud are discovered, or should have been discovered, by the injured party. Allen v. Webb, 87 Nev. 261, 485 P.2d 677 (1971).
  • Breaching fiduciary duty is not de facto fraud
Defendant asserts, and Plaintiff apparently does not dispute, that “[u]nder Nevada law, breach of fiduciary duty is a specie of fraud.” (D.’s Motion 2(# 14).) In support of this proposition, Defendant cites Golden Nugget, Inc. v. Ham, 95 Nev. 45, 589 P.2d 173, 175 (1979). It does not appear to us, however, that Golden Nugget stands for such a broad statement. Golden Nugget stands for the proposition that when a corporate officer breaches his fiduciary duties by means of fraud, the appropriate statute of limitations under Nevada law is the one governing actions for fraud or mistake. [Golden Nugget, Inc. v. Ham, 95 Nev. 45, 589 P.2d 173, 175 (1979)Id. at 175]. Certainly, a director of a corporation may breach his fiduciary duties by means of fraud, as the defendant in Golden Nugget did. See id. at 174 (defendant director usurped a corporate opportunity to lease property with intent to relet the property to the corporation at a substantial personal profit). It does not follow, however, that all breaches of fiduciary duty must be included under the rubric of fraud and therefore be subject to Rule 9(b)’s heightened pleading standard.
  • Partners have a fiduciary duty
Under Nevada law, partners owe their other partners and the partnership the fiduciary duty of loyalty, which is limited to accounting to the partnership, holding partnership assets as trustee, as well as refraining from being an adverse party, acting on behalf of an adverse party, and competing with the partnership. Nev.Rev.Stat. § 87.4336(1)-(2). Partners also owe a duty of care, which prohibits a partner from engaging in grossly negligent, reckless, or intentional conduct, or knowingly violating the law. Id. § 87.4336(3).
 
  • Fiduciary duty of a majority shareholder
Gowen v. Tiltware LLC, Case No. 2:08-cv-01581-RCJ-RJJ, 2009 WL 1441653, *8 (D. Nev. 2009).
 
  • Minority shareholder must plead what type of fiduciary duty was breached
Gowen does not allege the nature of the fiduciary duty that the individual Defendants owed her or how they breached that duty. The individual Defendants cannot be on notice of the claim against them if they are not even apprised of what duty they owed Gowen. For the foregoing reasons, the Court holds that Gowen has not sufficiently pled a cause of action for breach of fiduciary duty. The Motion to Dismiss Gowen’s breach of fiduciary duty claim is GRANTED without leave to amend as the opposition to this Motion advances no plausible theory of such a duty.
Gowen v. Tiltware LLC, Case No. 2:08-cv-01581-RCJ-RJJ, 2009 WL 1441653, *8 (D. Nev. 2009).
 
  • Lenders are generally not fiduciaries of borrowers
A fiduciary is a “person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidence, and candor.” See Black’s Law Dictionary (8th ed.2004). Courts have repeatedly held that a lender owes no fiduciary duties to a borrower absent exceptional circumstances, such as when a special relationship exists between the two parties. See Yerington Ford, Inc. v. Gen. Motors Acceptance Corp., 359 F.Supp.2d 1075, 1090 (D.Nev.2004) (stating “the Court is satisfied that the Nevada Supreme Court would hold that an arms-length lender-borrower relationship is not fiduciary in nature, absent exceptional circumstances”), aff’d in relevant part by Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865 (9th Cir.2007).FN1 Here, Plaintiffs have not alleged facts that could give rise to a special relationship or exceptional circumstances. Plaintiffs argue that Defendants undertook a fiduciary duty because they were compensated to work on Plaintiffs’ behalf. However, payment for a lender’s services does not amount to an exceptional circumstance between a borrower and a lender that gives rise to a special relationship. Thus, the Court dismisses Plaintiffs’ breach of fiduciary duty claim for failure to state a valid claim.
Larson v. Homecomings Financial, LLC, 680 F.Supp.2d 1230, 1234 (D. Nev. 2009).
  • In some closely-held corporations, a minority shareholder might have a direct [non-derivative] cause of action against majority shareholder [please read the whole case to fully understand]
A corporation is a necessary party to a derivative action. Ross v. Bernhard, 396 U.S. 531, 538, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970). Courts have sometimes recognized exceptions, however, allowing a minority shareholder to file a direct action for relief that would normally be considered derivative. As we explained in a previous case, Simon v. Mann, some courts have adopted an exception allowing a minority shareholder in a closely held corporation to file a direct action for wrongs that would normally have to be brought derivatively. 373 F.Supp.2d 1196, 1198 (D.Nev.2005). In addition, it is well established that an individual cause of action can be asserted when the wrong is both to the stockholder as an individual and to the corporation. Id. at 1199. We noted in Simon that an Oregon court had found that majority shareholders of a closely held corporation owe a fiduciary duty not only to the corporation but to the minority shareholders, and held that the minority shareholders could bring a direct action for breach of that duty. Id. (discussing Noakes v. Schoenborn, 116 Or.App. 464, 841 P.2d 682, 686-687 (1992)). Numerous other courts have also recognized such exceptions. E.g., Sugarman v. Sugarman, 797 F.2d 3, 7-8 (1st Cir.1986) (applying Massachusetts law); Kiriakides v. Atlas Food Sys. & Servs., 343 S.C. 587, 541 S.E.2d 257, 266-68 (2001); Barth v. Barth, 659 N.E.2d 559, 561-63 (Ind.1995); Derouen v. Murray, 604 So.2d 1086, 1091 n. 2 (Miss.1992); Crosby v. Beam, 47 Ohio St.3d 105, 548 N.E.2d 217, 220-21 (1989); Toner v. Baltimore Envelope Co., 304 Md. 256, 498 A.2d 642, 647 (Md.1985); Jones v. H.F. Ahmanson & Co., 1 Cal.3d 93, 81 Cal.Rptr. 592, 460 P.2d 464, 471 (1969); Norman v. Nash Johnson & Sons’ Farms, Inc., 140 N.C.App. 390, 537 S.E.2d 248, 259-60 (2000); Brown v. Brown, 323 N.J.Super. 30, 731 A.2d 1212, 1216-17 (1999); Richards v. Bryan, 19 Kan.App.2d 950, 879 P.2d 638, 648 (1994); Evans v. Blesi, 345 N.W.2d 775, 779-80 (Minn.Ct.App.1984).
Carstarphen v. Milsner, 693 F.Supp.2d 1247, 1249 (D. Nev. 2010).
 
  • Lenders do not owe borrowers fiduciary duties
A fiduciary duty exists in Nevada between doctor and patient, Hoopes v. Hammargren, 102 Nev. 425, 725 P.2d 238, 242 (1986) and between attorney and client, Stalk v. Mushkin, 199 P.3d 838, 843 (Nev.2009), but not between lender and debtor. Indeed, such parties are adversaries, not fiduciaries. See Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 882 (9th Cir.2007) (noting that the district court in that case had held that the Nevada Supreme Court would not recognize a fiduciary relationship as a matter of law between a lender and borrower).
Weingartner v. Chase Home Finance, LLC, 702 F.Supp.2d 1276, 1288 (D. Nev. 2010).
 
  • Trustee of deed of trust is the fiduciary of the beneficiary and trustor
A lender is not a fiduciary of a borrower, but a trustee is a fiduciary of both a trustor and a beneficiary under a deed of trust. It must act fairly with respect to both entities.
Walls v. Recontrust Co., N.A., Case No. 2:10-cv-00291-RCJ-RJJ, 2010 WL 2133757, *3 (D. Nev. 2010).
  • Empoyees owe fiduciary duties to employers
Defendants argue that the Court should dismiss MetLife’s claim for breach of fiduciary duty because an employee does not owe his or her employer a fiduciary duty under Nevada law. MetLife argues in response that Nevada does impose such a duty and that its claim for breach of fiduciary duty has merit.
The Court denies Defendants’ motion because the Nevada Supreme Court has held that employees owe their employers a duty of loyalty and because it has permitted employers to sue former employees for breach of fiduciary duty. See Tousa Homes, Inc. v. Phillips, 363 F.Supp.2d 1274, 1280 (D.Nev.2005). In White Cap Industries v. Ruppert, a construction company brought a claim for breach of fiduciary duty against its former sales manager for not reporting that a fellow employee was about to start a competing company. 67 P .3d 318, 319-20 (Nev.2003). The Supreme Court upheld the district court’s dismissal of the case, holding that employees have no duty to report other employees’ plans to start competing enterprises. The Court stated: “since an employee does not breach his duty of loyalty by making preparations to compete, a fellow employee does not breach his duty of loyalty by failing to disclose his knowledge of this fact.” Id. at 319-20.
But while the Nevada Supreme Court dismissed the case, it did so because the store manager did not breach his duty of loyalty to his employer, not because he did not owe such a duty. Id. Thus, White Cap Industries stands for the proposition that not only do employees in Nevada owe a duty of loyalty to their employers, but also that they can be sued in certain circumstances for breach of fiduciary duty when they violate this duty. Id. For this reason, the Court concludes that the individual Defendants in this case can be liable for breach of fiduciary duty if MetLife proves that they breached their duty of loyalty to the company. Accordingly, the Court denies Defendants’ motion to dismiss.
Metlife Bank, N.A. v. Evergreen Moneysource Mortg., Case No. 2:10-cv-00288-RLH-PAL, 2010 WL 2541729, *2 (D. Nev. 2010).
  • Cemeteries are not fiduciaries of their customers
The threshold inquiry, therefore, is whether a funeral home, cemetery, or mortuary owes a fiduciary duty to its bereaved customers. The Nevada Supreme Court does not appear to have addressed the issue, but the weight of authority is against finding any fiduciary duty. The South Dakota Supreme Court, for example, has ruled that there is no fiduciary relationship between a city cemetery and the parents of a decedent interred there, because although the parents purchased a plot and attendant services, they “did not relinquish control over confidential decision making inherent in fiduciary relationships.” Gakin v. City of Rapid City, 698 N.W.2d 493, 500 (S.D.2005). The Ohio Court of Appeals has specifically held that as a matter of law there is no fiduciary relationship between funeral homes and their customers in wrongful burial cases. See Evans v. Chambers Funeral Homes, No. 89900, 2008 WL 2766173, at *3 (Ohio Ct.App. July 17, 2008). The United States District Court for the Northern District of Georgia recently found that “Georgia law does not recognize a fiduciary duty between funeral homes and persons contracting for the services of funeral homes.” In re Tri-State Crematory Litig., 215 F.R.D. 660, 683 (N.D.Ga.2003). The California Court of Appeals has ruled that there is no fiduciary duty for a mortuary to provide an appropriate and dignified burial service, but noted in dicta that it is not impossible that there may be a fiduciary duty in connection with statutory obligations to prepare and expeditiously dispose of remains. See Wilson v. Houston Funeral Homes, 42 Cal.App.4th 1124, 50 Cal.Rptr.2d 169, 178 (Ct.App.1996). The FAC ultimately alleges a duty to provide an appropriate and dignified burial service, not a duty to properly dispose of the body for public health reasons. See id. (“In our view, this duty cannot properly be described as a fiduciary one. Rather, as we have explained above, it is a duty arising from the mortuary’s ‘special relationship’ with the f amily by virtue of the nature of the services the mortuary agrees to perform beyond mere disposal of the body in conformity with legal requirements.”).
Kennedy v. Carriage Cemetery Services, Inc., — F.Supp.2d —-, 2010 WL 2926083, *2 (D. Nev. 2010).
 
  • Licensee has common law fiduciary duties regardless of NRS 645.251
The statute does not eliminate a breach of fiduciary duty claim against a licensee. Rather, it defines the duties a licensee owes as those set forth in the statute without resort to a common law duty of care. For example, in an unpublished decision, the Nevada Supreme Court rejected the plaintiff’s breach of fiduciary duties claim not because no such claim will lie against a licensee, but because the plaintiff had not established that the licensees violated any of their fiduciary duties to the plaintiff. Chamani v. Mackay, Nos. 47550, 48020, 2008 WL 6101956, *2 (Nev. Sept. 9, 2008) (unpublished). Among the duties a licensee owes are duties of disclosure, to exercise reasonable skill and care, to not disclose confidential information. Nev.Rev.Stat. §§ 645.252-.254. Further, a licensee “shall not deal with any party to a real estate transaction in a manner which is deceitful, fraudulent or dishonest.” Nev.Rev.Stat. § 645.3205.
Tai-Si Kim v. Kearney, Case No. 2:09-CV-02008-PMP-PAL, 2010 WL 3433130, *4 (D. Nev. 2010).
[edit]Long Instructive Quote
The following excerpt from the California case of Richelle L. v. Roman Catholic Archbishop, 106 Cal.App.4th 257, 130 Cal.Rptr.2d 601, 611 (Cal.App. 1 Dist. 2003) is long, but instructive:
It is useful at the outset to clear away some terminological confusion. “`[Fiduciary’ and `confidential’ have been used synonymously to describe `”… any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he [or she] voluntarily accepts or assumes to accept the confidence, can take no advantage from his [or her] acts relating to the interest of the other party without the latter’s knowledge or consent. …”‘ (Herbert v. Lankershim (1937) 9 Cal.2d 409, 483, 71 P.2d 220 …; Bacon v. Soule (1912) 19 Cal.App. 428, 434, 126 P. 384….) Technically, a fiduciary relationship is a recognized legal relationship such as guardian and ward, trustee and beneficiary, principal and agent, or attorney and client (see Frankel, Fiduciary Law (1983) 71 Cal.L.Rev. 795), whereas a `confidential relationship’ may be founded on a moral, social, domestic, or merely personal relationship as well as on a legal relationship. (See Stevens v. Marco (1956) 147 Cal.App.2d 357, 374, 305 P.2d 669 …; Bolander v. Thompson (1943) 57 Cal. App.2d 444, 447, 134 P.2d 924 …; Robbins v. Law (1920) 48 Cal.App. 555, 561, 192 P. 118. …) The essence of a fiduciary or confidential relationship is that the parties do not deal on equal terms, because the person in whom trust and confidence is reposed and who accepts that trust and confidence is in a superior position to exert unique influence over the dependent party.” (Barbara A. v. John G, supra, 145 Cal.App.3d 369, 382, 193 Cal.Rptr. 422.)[4]
 
  • [4] A similar definition, but one which makes clear the nondispositive nature of the particular context in which confidence is reposed and accepted, was provided by United States Supreme Court Justice William J. Brennan, Jr., when he was a member of the Appellate Division of the Superior Court of New Jersey: “A confidential relation is not confined to any specific association of the parties. `Its essentials are a reposed confidence and the dominant and controlling position of the beneficiary of the transaction.’ [Citation.] `It is clear that the dominance must be of the mind, and the dependence must be upon the mind rather than upon the hands and feet of the donee.’ [Citation.] It exists when the circumstances make it certain that the parties do not deal on equal terms, but on the one side there is an overmastering influence, or, on the other, weakness, dependence or trust, justifiably reposed.” (In re Stroming’s Will (1951) 12 N.J.Super 217, 224, 79 A.2d 492, 495.)
The statement in some of the cases that fiduciary and confidential relationships [Page 610] are synonymous[5] obscures some significant differences. As our Supreme Court has stated, “`[a] confidential relation may exist although there is no fiduciary relation….'” (Vai v. Bank of America (1961) 56 Cal.2d 329, 337-338, 15 Cal.Rptr. 71, 364 P.2d 247, quoting Rest., Trusts 2d, § 2, comment b; see also, Robins v. Hope, supra, 57 Cal. 493, 497.) Unlike confidential relations, fiduciary relations arise out of certain canonical relationships that are legally defined and regulated. Thus, to take just one of many possible examples, the Legislature has declared that the “relationship of … conservator and conservatee is a fiduciary relationship that is governed by the law of trusts …” (Prob.Code, § 2101); the law of trusts, a great deal of which is statutory, defines the nature of the fiduciary duties arising out of that particular fiduciary relationship with considerable precision. (See, e.g., Conservatorship of Lefkowitz (1996) 50 Cal.App.4th 1310, 58 Cal.Rptr.2d 299.) Because confidential relations do not fall into well-defined categories of law and depend heavily on the circumstances, they are more difficult to identify than fiduciary relations.
The vagueness of the common law definition of the confidential relation that gives rise to a fiduciary duty, and the range of the relationships that can potentially be characterized as fiduciary,[6] led [Page 611] one court to usefully distill the essential elements as follows: “1) The vulnerability of one party to the other which 2) results in the empowerment of the stronger party by the weaker which 3) empowerment has been solicited or accepted by the stronger party and 4) prevents the weaker party from effectively protecting itself.” (Langford v. Roman Catholic Diocese of Brooklyn (1998) 177 Misc.2d 897, 900, 677 N.Y.S.2d 436, aff’d, 705 N.Y.S.2d 661, 271 A.D.2d 494 (2000), citing Scallen, Promises Broken v. Promises Betrayed: Metaphor, Analogy, and the New Fiduciary Principle, 1993 U.Ill.L.Rev. 897, 922 (1993).)
The vulnerability that is the necessary predicate of a confidential relation, and which the law treats as “absolutely essential” (Bogert, Trusts & Trustees (2d ed.1978) § 482, at pp. 288-289), usually arises from advanced age, youth, lack of education, weakness of mind, grief, sickness, or some other incapacity. For example, in Stenger v. Anderson (1967) 66 Cal.2d 970, 59 Cal.Rptr. 844, 429 P.2d 164, an elderly woman in a weakened mental and physical condition was induced by a friend to make an unfair agreement. The Supreme Court sustained rescission of the agreement, holding that the relationship was “confidential” and the agreement obtained by undue influence. (Id at p. 979, 59 Cal.Rptr. 844, 429 P.2d 164.) Similarly, in O’Neil v. Spillane (1975) 45 Cal.App.3d 147, 119 Cal.Rptr. 245 this court upheld an order directing the reconveyance of real property to the plaintiff, “an aging and lonely woman … increasingly dependent upon a few friends,” who had been subjected to undue influence by a friend and his wife. (Id. at p. 151, 119 Cal.Rptr. 245; see also Kent v. First Trust & Savings Bank of Pasadena (1951) 101 Cal.App.2d 361, 225 P.2d 625.)
Richelle L. v. Roman Catholic Archbishop, 106 Cal.App.4th 257, 130 Cal.Rptr.2d 601, 611 (Cal.App. 1 Dist. 2003).