Author: Joseph T. Janochoski
Our lives are filled with changing sets of relationships (familial, friendship, communal, romantic, and business) that constantly evolve and mature over time. Many of these relationships carry the potential to become what the law calls “fiduciary” in nature, a special status that requires those in the relationship to—as one oft-cited jurist eloquently noted—maintain “undivided loyalty” to one another, and act with a certain “standard of behavior” that includes “[n]ot honesty alone, but the punctilio of an honor the most sensitive[.]” Meinhard v. Salmon, 164 N.E. 545, 547 (N.Y. 1928) (Cardozo, C.J.). Fiduciary relationships are characterized by a “fiduciary” who enjoys a superior position in terms of knowledge and authority and in whom the other party to the relationship places a high level of trust and confidence. The fiduciary in the relationship must act for the benefit of the other party on all matters within the scope of their relationship. When a fiduciary fails to do so, it often results in hotly-contested litigation involving claims for breach of fiduciary duty, through which a beneficiary may seek a variety of remedies designed to address an unfaithful or disloyal fiduciary’s conduct. These disputes arise in a variety of areas of law, including business arrangements and ownership disputes, disputes regarding trusts and estates, employment disputes, and guardianship issues, to name a few.
Minnesota law recognizes several categories of per se fiduciary relationships, which include attorney/client, partners in a partnership (including both general and limited partnerships), principal/agent, real estate broker/client, insurer/insured, spouses, guardian/ward, and trustee/beneficiary. In the corporate context, Minnesota law also recognizes fiduciary relationships between directors and officers to a corporation’s shareholders, as well as between shareholders, particularly in closely-held corporations.
Outside of the per se categories, the existence of a fiduciary relationship—and accompanying fiduciary duties—is a question of fact in Minnesota. As a result, common-law fiduciary relationships can also arise in other contexts, even if the relationship at issue has not been categorized by Minnesota law as a per se fiduciary relationship. Whether a relationship rises to a fiduciary level depends on whether it exhibits several “special circumstances” under Minnesota law. Using the acronym “TICKED”—and making sure you’ve “TICKED” off all the right boxes—serves as a helpful guide to remembering these “special circumstances” and evaluating whether a particular relationship should be considered fiduciary in nature:
- T – Trust: One party placing their trust in another party is required for a fiduciary relationship to exist. However, the level of trust must be more than what would be found in a normal business relationship; it must rise to a higher degree or level, characterized by good faith and loyalty beyond what might be found in typical relationships.
- I – Influence: Another hallmark of a potential fiduciary relationship exists where one party enjoys superior or excessive levels of influence over the other party. Influence goes hand in hand with trust, knowledge, experience; the more the alleged fiduciary has of each of those characteristics, the more influence they may have over the beneficiary.
- C – Confidence and/or Control: Extensive confidence placed by a beneficiary in a fiduciary—particularly where the fiduciary has invited or requested the confidence—is another trait of a fiduciary relationship. Similarly, an alleged fiduciary’s ability to control the beneficiary (directly or indirectly) bears on whether a fiduciary relationship exists.
- K – Knowledge: Another sign that a relationship may be fiduciary is present when the alleged fiduciary has superior knowledge compared to the alleged beneficiary, particularly where the beneficiary has placed their trust and confidence in the fiduciary to act on their behalf or with their interests in mind.
- E – Experience: Often present in fiduciary relationships (but not necessarily required) is a disparity in experience. Minnesota courts have explicitly recognized—particularly in the business context—that disparity in business experience and invited confidence can be a basis for finding the existence of a fiduciary relationship.
- D – Disparity in bargaining power: Unequal or disparate bargaining power may also be a sign that a relationship is fiduciary in nature, particularly in the insurance context. When paired with other factors, such as a disparity in experience, knowledge, and influence, an inordinate amount of bargaining power can support the presence of a fiduciary relationship.
Besides trust and confidence, not every factor needs to be present for a common-law fiduciary relationship to exist. Varied combinations of the “special circumstances” may be enough. And it is important to remember that there are other caveats that may impact the analysis as well. For example, a long history (such as a decade-long business arrangement) between two parties, while relevant, is usually not enough on its own to establish a fiduciary relationship, but may support a fiduciary relationship when present with other factors. Similarly, if a person claiming that a fiduciary relationship existed knew that the alleged fiduciary had adverse or competing interests, that may undercut the creation or the existence of a fiduciary relationship, unless the person can show that the alleged fiduciary was aware that the person was placing their trust and confidence in them. In essence, because every relationship is different, the application of the “special circumstances” noted above will necessarily vary based on the unique facts of each relationship. There is no magic combination of factors; a case-by-case analysis is required.
Ultimately, in a world built on a wide variety of multifaceted relationships, only some of those relationships will rise to the fiduciary level and carry with them the obligations of “undivided loyalty” and “the punctilio of an honor the most sensitive[.]” Meinhard, 164 N.E. at 547. Every relationship defined by significant and heightened levels of trust and confidence has the potential to become fiduciary in nature. Using the acronym “TICKED”, and making sure you have “TICKED” off all the right boxes, serves as useful framework for evaluating whether a particular relationship may constitute a common-law fiduciary relationship subject to heightened requirements of good faith, honesty, and loyalty, and help in deciding whether pursuing litigation for breach of fiduciary duty is an appropriate path.