§ 6.4.1 IN GENERAL

• Jurisdiction: Arizona

§ 6.4.1 In General

Arizona law imposes heightened duties of honesty, care, fair dealing, and disclosure on persons who occupy a fiduciary²⁰²⁶ or other special relationship with another.²⁰²⁷ In professional relationships, some of these duties may extend not only to clients but to foreseeably injured third parties.²⁰²⁸

The requirements for fraud are reduced in fiduciary relationships. The nine elements of common-law fraud are inapplicable.²⁰²⁹ In the usual case, the plaintiff need show neither intent to defraud, reliance, nor a right to rely.²⁰³⁰ But in a case involving a creditor of an insolvent corporation, the Court of Appeals held that the plaintiff was required to prove justifiable reliance.²⁰³¹ In some instances of fiduciary fraud, damages are also unnecessary.²⁰³²

These relaxed standards for fiduciary fraud govern a sizeable spectrum of business. For example, fiduciary duties are commonly imposed in joint ventures,²⁰³³ partnerships,²⁰³⁴ and closely held corporations.²⁰³⁵ And where the operating agreement provides for duties among an LLC's members,²⁰³⁶ fiduciary or fiduciary-like duties may exist.²⁰³⁷ Fiduciary duties may also be found where the defendant has superior knowledge "of a kind beyond the fair and reasonable reach of the alleged beneficiary and inaccessible to the alleged beneficiary through the exercise of reasonable diligence."²⁰³⁸

Because ownership interests in these business ventures and entities frequently are securities, investors often are protected by both the securities laws and fiduciary law.²⁰³⁹ During the formation stage, the participants in these business associations may be unusually dependent on one another for honest information. To ensure fair dealing, fiduciary duties are sometimes imposed.²⁰⁴⁰ Disclosure duties may thus apply during the incipient stages of business capitalization when investments are commonly solicited.²⁰⁴¹ They may also apply when a member's equity interest is purchased.²⁰⁴²

In addition to the relationships just discussed, heightened duties are imposed in relationships where investors are dependent on the integrity and discretion of others. Securities professionals and corporate officers, directors, and promoters are notable examples. These are discussed below in §§ 6.4.2 and 6.4.3.

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Notes:

^[2026] See Gemstar, Ltd. v. Ernst & Young, 185 Ariz. 493, 504-05, 917 P.2d 222, 233-34 (1996) (affirming directed verdict that accountants were fiduciaries); Shriners Hosps. for Crippled Children v. Gardiner, 152 Ariz. 527, 528-30, 733 P.2d 1110, 1111-13 (1987) (applying fiduciary standards to trustee's conduct in investing trust assets); Stewart v. Phx. Nat'l Bank, 49 Ariz. 34, 44-46, 64 P.2d 101, 106 (1937) (upholding allegations that bank which acted as financial adviser to customer was a fiduciary); Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 23-26, 945 P.2d 317, 334-37 (Ct. App. 1996) (concluding that auditors were not fiduciaries).

^[2027] See Burkons v. Ticor Title Ins. Co. of Cal., 168 Ariz. 345, 355, 813 P.2d 710, 720 (1991) (discussing special relationships); Kesselman v. Nat'l Bank of Ariz., 188 Ariz. 419, 423-24, 937 P.2d 341, 345-46 (Ct. App. 1996) (rejecting claim that a special relationship creating disclosure duties existed between bank and investors).

^[2028] See Paradigm Ins. Co. v. Langerman Law Offices, P.A., 200 Ariz. 146...