MIAMI BUSINESS LITIGATION: CORPORATE LAW FIDUCIARY DUTIES OF CARE AND LOYALTY

Florida courts have recognized that corporate officers and directors owe both a duty of loyalty and a duty of care to the corporation that they serve. Florida courts often look to Delaware courts due to the well developed body of Delaware corporate law. Corporate law recognizes two fundamental fiduciary duties by directors and officers: the duty of care and the duty of loyalty. The Delaware Court of Chancery in In re Walt Disney Co. Derivative Litig., 907 A.2d 793 (Del. Ch. 2005), explained that the duty of care is the requirement to “use that amount of care which ordinarily careful and prudent men would use in similar circumstances, and consider all material information reasonably available in making business decisions,” with alleged breaches giving rise to liability only if the actions are grossly negligent. In Zirn v. VLI Corp., 681 A.2d 1050 (Del. 1996), the Supreme Court of Delaware explained that “[a] good faith erroneous judgment…implicates the duty of care rather than the duty of loyalty.” By contrast, the duty of loyalty “mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders directly.” Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (De. 1993). Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Claims for breach of either the corporate duties of care or loyalty are asserted as claims for breach of fiduciary duty. The Supreme Court of Florida, in Gracey v. Eaker, 837 So.2d 348 (Fla. 2002), explained that “[t]he elements of a claim for breach of fiduciary duty are: the existence of a fiduciary duty, and the breach of that duty such that it is a proximate cause of the plaintiff’s damages.” The Florida Supreme Court further explained, in Flight Equip & Eng’g Corp. v. Shelton, 103 So.2d 615 (Fla. 1958), that “[o]fficers and directors of a corporation are liable for damages to the corporation which result from a breach of their trust, a violation of their authority or neglect of duty.” This liability arises from the common law rule that “every agent is responsible to his principal for such acts which result in damage to the principal.”

In Cohen v. Hattaway, 595 So.2d 105 (Fla. 5th DCA 1992), Florida’s Fifth District Court of Appeal stated that “[c]orporate directors and officers owe a fiduciary obligation to the corporation and its shareholders and must act in good faith and in the best interests of the corporation.” In practice, this means that fiduciary obligors may not “either directly or indirectly, in their dealings on behalf of the fiduciary beneficiary [i.e., the corporation] …, make any profit or acquire any other personal benefit or advantage, not also enjoyed by the fiduciary beneficiary, and if they do, they may be compelled to account to the beneficiary in an appropriate action.” The Hattaway decision added that “‘[i]f a fiduciary obligor acquires ‘in opposition to the corporation, property in which the corporation has an interest or tangible expectancy or which is essential to its existence[,]’ he violates the doctrine of corporate opportunity.” Fundamentally, corporate officers and directors stand in a position of trust, requiring them to subordinate their personal interests in favor of the corporation. Their positions require they act with care in their business decisions and loyalty to the best interests of the corporation.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.