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Breach of Fiduciary Duty Links and Cites Motherlode file mlcg 5-12-2012

Breach of Fiduciary Duty Links and Cites Motherlode file mlcg 5-12-2012

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Published by Gemini Research
http://cyber.law.harvard.edu/trusting/unit5all.html

Excerpt from:
The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties"
by Tamar Frankel
Vol.2, p.127-128
fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care. These duties vary with different types of relationships between fiduciaries and their counter-parties ('entrustors'). � Recently, courts have imposed fiduciary duties on union officers, physicians and clergymen.

Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g. of corporate directors). However, fiduciary duties and remedies draw on a common source � equity. Thus, in addition to damages � a remedy in common law � fiduciaries must account for ill-gotten profits even if their entrustors suffered no injury � a remedy in equity. The similarities and differences among fiduciary relationships explain why law regulates fiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by which fiduciary relationships can be recognized.

Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, in which fiduciaries provide to entrustors services that public policy encourages. Bailees, escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers, lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners, may be both fiduciaries and entrustors of each other.

(2) To perform their services effectively, fiduciaries must be entrusted with power over the entrustors or their property ('power'). The extent of entrusted power varies with the parties' desires and terms of their arrangements. � Arrangements in which entrustors are precluded from controlling their fiduciaries in the performance of their services, categorized in law as 'trust', vest far more power in the fiduciaries than arrangements, categorized in law as 'agency', in which entrustors control their fiduciaries in the performance of their services. The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property. � The magnitude of the powers entrusted to fiduciaries is also related to the cost of specifying the fiduciaries' future actions. Thus the services of escrowees and bailees, which do not require broad discretion, can be spelled out easily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend on future unknown circumstances.

(3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors. Entrustment enables fiduciaries to use entrusted power for other purposes � for their own use or the use of third parties. Entrustors' losses from abuse of entrusted powers can be higher than their benefits from the fiduciaries' services. therefore, and entrustor will not hand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary's embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g. $5).

(4) Entrustors' costs of monitoring fiduciaries' use of entrusted power are likely to exceed entrustors' benefits from the relationship. For example, if the adviser's interests conflict with those of the entrustors, the value of their advice, even their expert advice, is doubtful. Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationship for clients would be undermined if the clients must watch over their discretionary investment managers to prevent abuse of power.

(5) Entrustors' costs of monitoring the quality of fiduciary services are likely to be very high, because most fu services involve expertise that entrustors do not possess. These monitoring costs may exceed
http://cyber.law.harvard.edu/trusting/unit5all.html

Excerpt from:
The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties"
by Tamar Frankel
Vol.2, p.127-128
fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care. These duties vary with different types of relationships between fiduciaries and their counter-parties ('entrustors'). � Recently, courts have imposed fiduciary duties on union officers, physicians and clergymen.

Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g. of corporate directors). However, fiduciary duties and remedies draw on a common source � equity. Thus, in addition to damages � a remedy in common law � fiduciaries must account for ill-gotten profits even if their entrustors suffered no injury � a remedy in equity. The similarities and differences among fiduciary relationships explain why law regulates fiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by which fiduciary relationships can be recognized.

Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, in which fiduciaries provide to entrustors services that public policy encourages. Bailees, escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers, lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners, may be both fiduciaries and entrustors of each other.

(2) To perform their services effectively, fiduciaries must be entrusted with power over the entrustors or their property ('power'). The extent of entrusted power varies with the parties' desires and terms of their arrangements. � Arrangements in which entrustors are precluded from controlling their fiduciaries in the performance of their services, categorized in law as 'trust', vest far more power in the fiduciaries than arrangements, categorized in law as 'agency', in which entrustors control their fiduciaries in the performance of their services. The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property. � The magnitude of the powers entrusted to fiduciaries is also related to the cost of specifying the fiduciaries' future actions. Thus the services of escrowees and bailees, which do not require broad discretion, can be spelled out easily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend on future unknown circumstances.

(3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors. Entrustment enables fiduciaries to use entrusted power for other purposes � for their own use or the use of third parties. Entrustors' losses from abuse of entrusted powers can be higher than their benefits from the fiduciaries' services. therefore, and entrustor will not hand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary's embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g. $5).

(4) Entrustors' costs of monitoring fiduciaries' use of entrusted power are likely to exceed entrustors' benefits from the relationship. For example, if the adviser's interests conflict with those of the entrustors, the value of their advice, even their expert advice, is doubtful. Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationship for clients would be undermined if the clients must watch over their discretionary investment managers to prevent abuse of power.

(5) Entrustors' costs of monitoring the quality of fiduciary services are likely to be very high, because most fu services involve expertise that entrustors do not possess. These monitoring costs may exceed

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Published by: Gemini Research on Jun 24, 2012
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02/17/2013

 
http://cyber.law.harvard.edu/trusting/unit5all.htmlExcerpt from:The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties" by Tamar FrankelVol.2, p.127-128fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and theduty of care. These duties vary with different types of relationships between fiduciaries andtheir counter-parties ('entrustors').
Recently, courts have imposed fiduciary duties onunion officers, physicians and clergymen.Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections(e.g. of corporate directors). However, fiduciary duties and remedies draw on a commonsource
equity. Thus, in addition to damages
a remedy in common law
fiduciaries mustaccount for ill-gotten profits even if their entrustors suffered no injury
a remedy in equity.The similarities and differences among fiduciary relationships explain why law regulatesfiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by whichfiduciary relationships can be recognized.Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, inwhich fiduciaries provide to entrustors services that public policy encourages. Bailees,escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers,lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners,may be both fiduciaries and entrustors of each other.(2) To perform their services effectively, fiduciaries must be entrusted with power over theentrustors or their property ('power'). The extent of entrusted power varies with the parties'desires and terms of their arrangements.
Arrangements in which entrustors are precludedfrom controlling their fiduciaries in the performance of their services, categorized in law as'trust', vest far more power in the fiduciaries than arrangements, categorized in law as'agency', in which entrustors control their fiduciaries in the performance of their services.The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property.
The magnitude of the powers entrusted tofiduciaries is also related to the cost of specifying the fiduciaries' future actions. Thus theservices of escrowees and bailees, which do not require broad discretion, can be spelled outeasily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend onfuture unknown circumstances.(3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors.Entrustment enables fiduciaries to use entrusted power for other purposes
for their ownuse or the use of third parties. Entrustors' losses from abuse of entrusted powers can behigher than their benefits from the fiduciaries' services. therefore, and entrustor will nothand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary's
 
embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g.$5).(4) Entrustors' costs of monitoring fiduciaries' use of entrusted power are likely to exceedentrustors' benefits from the relationship. For example, if the adviser's interests conflictwith those of the entrustors, the value of their advice, even their expert advice, is doubtful.Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationshipfor clients would be undermined if the clients must watch over their discretionaryinvestment managers to prevent abuse of power.(5) Entrustors' costs of monitoring the quality of fiduciary services are likely to be veryhigh, because most fu services involve expertise that entrustors do not possess. Thesemonitoring costs may exceed the benefits to entrustors from the relationship.
In addition,the quality of some services cannot be determined by their results: a defendant may lose hiscase even if his lawyer has performed brilliantly. The quality of some services cannot beeasily established at the time of performance: it may take years to discover that a will isfaulty.(6) The fiduciaries' costs of reducing the entrustors' monitoring costs may exceed the benefits to fiduciaries from the relationship. Fiduciaries can reduce entrustors' monitoringcosts by 'bonding', insurance and third-party guarantees, provided their costs do not exceedtheir benefits from the relationship. Because of these limits, their efforts may not e enoughto fully cover the entrustors' risk of loss.(7) Alternative external controls that reduce entrustors' risks, such as market controls, either do not exist or are too weak. Courts recognize new fiduciary relations when, in their opinion, the historical protections of entrustors have eroded. For example, physiciansrecently joined the family of fiduciaries as they became involved in conflict of interestsituations
when physicians own pharmacies that supply their patients' medicines, or whenthe interests of the physicians' employers conflict with the patients' optimal medicaltreatment.
The purpose and effect of fiduciary duties. Fiduciary duties are imposed when public policy encourages specialization in particular services, such as money management or lawyering, and when the entrustors' costs of specifying and monitoring the fiduciaries'functions threaten to undermine the utility of the relationship to entrustors. The ultimateeffect of the law is to provide entrustors with incentives to enter into fiduciaryrelationships, by reducing entrustors' risks and costs of preventing abuse of entrusted power, and of ensuring quality fiduciary services. Judicial enforcement of fiduciary dutiesshifts entrustors' costs to taxpayers. The law imposes on fiduciaries duties that limit their freedoms but increases their marketability by endowing them with a reputation for honesty backed by reputation.Excerpt from:Fiduciary Law
 
 by Tamar FrankelCalifornia Law Review, May, 1983, 71 Ca. L. Rev. 795 p.797-802The purpose of this Article is to inquire into the nature of fiduciary relations and the policies, principles, and rules that govern them. Part I discusses status, contract, andfiduciary relations. It shows that fiduciary relations are sufficiently distinct and importantin our society to warrant treating the law applicable to them as a separate area of the law.
ITHE IMPORTANCE OF FIDUCIARY RELATIONS AND FIDUCIARY LAWA. The Rise of the Fiduciary SocietySocieties may be distinguished by the predominant social and legal relations through whichtheir members interact. This is not to suggest that only one kind of relation exists in anygiven society, but merely that in each society one type of relation is paramount, and that, associal trends change, relations tend to shift and merge. Although it is probably incorrect tosay that societies have evolved in a linear manner according to their predominant socialrelation, i.e., from status to contract to fiduciary relations, one can observe changes in asociety's basic relations.Law should reflect the changes in societal structure. Thus, a major reason for recognizingand developing a separate body of fiduciary law is that our society is evolving into one based predominantly on fiduciary relations. The body of law governing fiduciary relationscan affect and be affected by this social trend.Fiduciary relations and the rules that govern them can be better understood when comparedto two other important relations: status and contract relations and the laws that governthem. The comparison involves three features. The first deals with the contribution of eachtype of relation to each party's needs and desires. The comparison deals, second, with theeffect of the relation on the balance of power between the parties. The two are interrelated.While a relation with others is essential to each party's survival, n11 such a relation mayalso create a dependence of one party on another, that can in turn limit the freedom of choice of the person who is dependent. The third feature with which this comparison dealsis the role of law in the relation, and its effect on the provision of each party's needs, oneach party's freedom from coercion by the other, and on the structure and promotion of therelation.1. Primary Social Relationsa. Status

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