Chapter 9 - § 9.3 • ELEMENTS DEFINED


§ 9.3.1—Fiduciary Relationship

It is axiomatic that a breach of fiduciary duty claim will not succeed unless the plaintiff can show the defendant was the plaintiff's fiduciary. The nature and scope of the duty is typically determined as a matter of law by the court.9 In engaging in that analysis, the court may consider statutes, regulations, or customs in defining the duty's scope.10 However, in some instances, whether a fiduciary relationship exists at all may be a question of fact for the fact finder.11 A fiduciary duty typically arises in one of two scenarios.

First, a fiduciary relationship arises whenever one person is entrusted to act for the benefit of or in the interests of another and has legal power or authority to do so.12 Certain relationships are fiduciary as a matter of law, including agent and principal,13 partners,14 joint venturers,15 and attorneys and their clients.16 Corporate officers and directors owe fiduciary duties to the corporation and the shareholders,17 and financial planners owe a fiduciary duty to their customers.18 An employee normally owes fiduciary duties to his or her employer, while employers do not generally owe fiduciary duties to employees.19 A homeowners association has a fiduciary duty to the homeowners to enforce restrictive covenants,20 and directors of a community association owe a fiduciary duty to unit owners.21 A statute may also establish a fiduciary duty.22

Some relationships are not fiduciary as a matter of law. The contractual relationship between an insurer and its insured does not give rise to a fiduciary relationship as to a first-party dispute between them, even though the insurer is required to deal with its insured in good faith.23 Similarly, an insurance broker or agent has a duty to act with reasonable care toward insureds, but absent a special relationship between them, the broker or agent has no affirmative duty to advise or warn a customer of provisions contained in an insurance policy and no per se fiduciary duty.24 While tenants in common have an obligation to deal with each other in good faith concerning the jointly owned property, absent a showing that one party reposed special confidence in the other, a fiduciary relationship does not exist between them.25 There is no per se fiduciary relationship between a borrower and lender26 or a customer and stockbroker.27 And a familial relationship between the parties does not establish a per se fiduciary relationship.28

Second, a fiduciary relationship may arise out of a confidential relationship.29 Importantly, for this type of relationship to support a breach of fiduciary duty claim, the relationship must be both fiduciary and confidential.30 It is not enough that the relationship was merely confidential, as there is no cause of action in Colorado for breach of a confidential relationship.31

To establish that a confidential relationship existed, the plaintiff must show that: (1) he or she placed trust or confidence in the defendant;32 (2) he or she acted reasonably or was justified in doing so;33 (3) the trust or confidence was accepted, invited, or acquiesced in by the defendant;34 and (4) the defendant agreed or assumed responsibility to act for the plaintiff's benefit.35 The relationship must have been established before the date of the transaction or actions giving rise to the claim.36

These elements are typically satisfied where one party occupies a superior position over another, whether intellectually, physically, governmentally or morally, with the opportunity to use that superior position to the other party's disadvantage.37 "[A]n unequal relationship does not automatically create a fiduciary duty. To be liable, the superior party must assume a duty to act in the dependent party's best interest."38 Confidential relationships have, for example, been found between family members39 as well as between members of the clergy and parishioners.40

§ 9.3.2—Breach of Fiduciary Duty

The plaintiff must establish the defendant breached the fiduciary duty.41 A breach of fiduciary duty may be based on negligent conduct.42 While the fact finder decides whether a breach has occurred, the nature and scope of the duty is typically determined as a matter of law by the court.43 The court may consider statutes, regulations, or customs in determining the duty's scope.44

A fiduciary may not allow his or her own motives to interfere with the discharge of his or her duties. For example, under a separation agreement, a man was obligated to convey shares in his corporation to his former wife after expiration of a five-year period. During that period, he had discretion to sell those shares at any time.45 The Colorado Court of Appeals affirmed that the man breached a fiduciary duty to his former wife when he disposed of a considerable number of shares held in his own name, profiting significantly, but did not sell the shares he held for his former wife's benefit. The court held that in determining whether a fiduciary duty had been breached, the trial court could consider external standard of reasonableness, the husband's motives, and the existence of his own interest as a shareholder, among other relevant circumstances.46 In another case, the Colorado Court of Appeals ruled that employees' pre-termination solicitation of customers for a new, competing business violated their duty of loyalty (a fiduciary duty) to their employer.47

Breaches of fiduciary duty frequently arise in the trustee context. A trustee owes a duty to beneficiaries to exercise the care and skill a person of ordinary prudence would exercise in safeguarding and preserving his or her own property, and must not allow personal motives to interfere with the discharge of those duties. For example, when a trustee failed to seek the advice of independent mining experts when renegotiating and assigning a mining lease, it breached its fiduciary duty to the beneficiary. Expert testimony showed that the process was very complex and involved technical issues that demanded expert evaluation. In those circumstances, the trustee's failure to seek expert advice was a breach.48

In another case, the plaintiffs claimed a bank breached its duty not to reveal information concerning their financial status when a bank employee informed plaintiffs' employee that plaintiffs' line of credit had been cancelled and told a customer that plaintiffs were having financial difficulty. The court ruled that the bank owed the plaintiffs a fiduciary duty because the bank had an obligation to its customers not to disclose "unnecessarily, promiscuously, or maliciously" plaintiffs' financial condition.49 The appellate court reversed and remanded the case for additional factual proceedings concerning the alleged disclosures and parties' relationship.

Not all breaches of a fiduciary duty may be redressed in tort. A fiduciary duty may result solely from a contractual obligation and thus the economic loss rule will bar the tort claim. For example, in A Good Time Rental, LLC v. First American Title Agency, Inc.,50 the Colorado Court of Appeals held that the economic loss rule barred a claim for breach of fiduciary duty where the harm allegedly suffered was solely to contractual expectations and the duty to perform the contract with reasonable care was not independent of the contract's terms. In so holding, the court observed that "not every fiduciary relationship implicates a risk of damages for which contract law cannot provide a remedy."51 It reasoned that a fiduciary duty created by virtue of a contractual relationship did not "necessarily create[] a special relationship which effectively trumps the economic loss rule."52 This was because the few special relationships recognized under Colorado law that created a fiduciary duty shared "the same characteristic: each implicates a risk of damages to interests that contract law is not well suited to protect."53 Because the fiduciary relationship in A Good Time Rental was purely contractual (arising from a title agency's agreement to provide closing services to purchasers), and not the result of a special relationship between the parties, the rule barred the breach of fiduciary duty tort claim (but permitted the breach of contract claim).54

§ 9.3.3—Damages

"To prove a claim for breach of fiduciary duty a plaintiff must demonstrate, inter alia, that he or she has incurred damages and that the defendant's breach of fiduciary duty was a cause of the damages sustained."55 The specific damages available are discussed in § 9.5.

§ 9.3.4—Causation

To prove a claim for breach of fiduciary duty, a plaintiff must show that the defendant's breach of fiduciary duty was a cause of the damages that the plaintiff sustained.56 Showing the defendant's conduct was a substantial contributing cause of the injury is generally sufficient.57 This is, in effect, nothing more than the standard causation requirement applicable in any tort action.

For example, where an investor's transactions would not have occurred but for the broker's failure to follow its own policies and police the transaction's propriety, causation may be established.58 Similarly, where a trustee in negotiating an assignment and modification of a mining lease failed to seek advice from coal mining experts, and the plaintiffs-beneficiaries' income was reduced under the as-negotiated lease, causation was established.59 In contrast, where the evidence showed that an attorney took a course of action that "any reasonable attorney would also have taken," causation was lacking because the attorney's representation of the plaintiff did not cause "any additional harm, damages, or losses."60



[9] MDM Grp. Assocs., Inc. v. CX Reinsurance Co. Ltd., 165 P.3d 882, 889 (Colo. App. 2007); Command Communs., Inc. v. Fritz Cos., 36 P.3d 182, 186 (Colo. App. 2001). But see Rupert v. Clayton Brokerage Co., 737 P.2d 1106, 1109 (Colo. 1987) (existence and breach of fiduciary duty in...

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