What Happens When Business Partners Violate Their Fiduciary Duty in Ohio?

When someone breaches a fiduciary duty in Ohio, it is a serious legal matter that may result in significant financial and legal consequences. The affected partners may pursue legal action to recover damages with the help of a Cleveland business attorney.

A fiduciary duty requires a partner to act with loyalty, honesty, and good faith in the partnership’s best interests.

In Ohio, the Ohio Revised Code (ORC) Chapter 1776 governs a business partner’s fiduciary duties. The ORC outlines two fundamental fiduciary duties: the duties of loyalty and care.

What Are the Duties of Loyalty and Care?

A partner’s duty of loyalty is to the other partners. It requires partners to account for any property, profit, or benefit they derive from the partnership’s business or property.

Partners must also refrain from dealing with the partnership on behalf of a person with an interest adverse to the partnership, and they may not compete with the partnership before its dissolution. This duty is absolute, and a partnership agreement cannot eliminate the duty.

The duty of care requires a partner to refrain from intentional misconduct, negligent or reckless conduct, or a knowing violation of the law. A partner is not liable for an unfavorable outcome if the partner acted in good faith and with reasonable care.

Along with these statutory duties, partners have a contractual obligation to act honestly and in good faith. This obligation requires partners to act with reason and honesty when exercising their rights and fulfilling their duties under the partnership agreement.

Common Fiduciary Duty Breaches

A breach of fiduciary duty is usually a self-serving action that harms the partnership. Some of the most common examples include:

1. Misappropriation of funds: Using partnership funds or assets for personal expenses or to benefit another business without the consent of the other partners. Misappropriation is often a clear and serious violation of the duty of loyalty.
2. Self-dealing: Engaging in transactions where the partner has a personal interest, such as selling property to or buying property from the partnership at an unfair price. Interested transactions require full disclosure and consent from the other partners.
3. Usurping business opportunities: Taking a business opportunity for personal gain that rightfully belongs to the partnership directly violates the duty of loyalty. The partner must first disclose the opportunity to the partnership and give partners the chance to pursue it.
4. Failure to disclose information: Intentionally withholding financial details, business risks, or conflicts of interest. The duty of candor requires partners to be transparent and forthright with one another.
5. Competition: Competing directly with the partnership’s business without the consent of the other partners.

Legal Remedies and Consequences

When a partner breaches a fiduciary duty in Ohio, the injured partners have a right to seek legal remedies, with the help of a Cleveland business lawyer, for harm caused by the breach. The available remedies depend on the details of the breach and the damages incurred:

1. Monetary damages are the most common remedy. A court may order a breaching partner to pay damages to the injured partners to cover their financial losses. When misconduct is intentional, a court may also award punitive damages to punish the breaching partner.
2. Forfeiture of fees or salary: The court can order the breaching partner to forfeit any compensation, fees, or profits they earned due to their wrongful actions. This remedy prevents a partner from profiting from a breach.
3. Accounting: Courts can compel breaching partners to provide a complete and accurate accounting of the partnership’s finances and the personal transactions relevant to the breach. This accounting is often necessary to determine the extent of the damages.
4. Injunctive relief: In some cases, a court may issue an injunction to stop a breaching partner from continuing the wrongful conduct, such as preventing the partner from engaging in a competing business or improperly using partnership property.
5. Dissolution of the partnership: If the breach is severe and has destroyed the trust among the partners, a court may order the dissolution of the partnership. Dissolution is a drastic measure, but it may be the only way to protect the remaining partners and their interests.

If the breaching partner holds a specific role in the partnership, the court may also order the partner’s removal from that position.

Bringing a Lawsuit and Key Considerations

In Ohio, to successfully sue a business partner for a breach of fiduciary duty, you and your attorney must prove:

1. A fiduciary relationship existed: The plaintiff must first prove that a partnership existed and that the defendant owed the partnership a fiduciary duty.
2. A breach occurred: The plaintiff must prove the defendant’s actions or inactions violated the duty of loyalty or care. Proving a breach occurred may require a detailed record of the alleged wrongdoing, including financial documents, emails, and other communications.
3. The breach resulted in damages: A plaintiff must prove that the breach directly caused the partnership to suffer harm, typically financial losses. Forensic accountants or other experts may have to calculate the precise amount of the damages.

Partners must act promptly after a breach, as Ohio has a statute of limitations for these claims. Many partnership agreements require alternative dispute resolution. Such agreements may require partners to resolve disputes through mediation or arbitration rather than in court.

Who Can Help Victims of a Fiduciary Duty Breach in the Cleveland Area?

Pursuing a claim for a breach of fiduciary duty is challenging. Partners who believe a breach has occurred should seek the counsel of a Cleveland business lawyer who can assess the claim, gather evidence, and determine the best way to seek the appropriate remedies.

A Cleveland business attorney at Watson Kuhlman, LLC will bring your breach of fiduciary duty claim to its best possible resolution while protecting your rights at each stage of the legal process.

Now or in the future, if you are the victim of a fiduciary duty breach, call our Cleveland offices at 216-208-7858 to schedule a free consultation to discuss how a business attorney at Watson Kuhlman, LLC can help.