Breach of Fiduciary Duty in Kentucky Business Relationships
When someone in a position of trust — a business partner, corporate officer, financial advisor, or managing member of an LLC — puts their own interests ahead of yours, that is a breach of fiduciary duty. It is one of the most powerful claims in Kentucky civil litigation because it can unlock remedies that are not available in ordinary breach of contract cases, including disgorgement of profits, punitive damages, and equitable relief.
What Is a Fiduciary Duty?
A fiduciary duty is the highest standard of care recognized in law. A fiduciary must act with undivided loyalty to the beneficiary, exercise reasonable care and skill, deal honestly and in good faith, avoid conflicts of interest, and fully disclose all material information. Not every business relationship creates fiduciary duties. The key question is whether one party has placed special trust and confidence in the other, and whether the other party has accepted that trust. Kentucky courts analyze the specific facts of each relationship to determine whether fiduciary duties exist.
Common Fiduciary Relationships in Business
Partners and LLC members. Under KRS 362.180 (partnerships) and KRS 275.170 (LLCs), partners and managing members owe fiduciary duties to the partnership or LLC and to each other. These duties include the duty of loyalty (not competing with the business, not self-dealing, not usurping business opportunities) and the duty of care (exercising reasonable judgment in business decisions).
Corporate officers and directors. Officers and directors of Kentucky corporations owe fiduciary duties to the corporation and its shareholders under KRS 271B.8-300 and KRS 271B.8-420. The business judgment rule protects good-faith business decisions, but it does not protect self-dealing, fraud, or conscious disregard of the corporation’s interests.
Financial advisors and brokers. Depending on the nature of the relationship, financial advisors, investment managers, and brokers may owe fiduciary duties to their clients. An advisor who recommends investments that generate high commissions for the advisor but are unsuitable for the client may be breaching a fiduciary duty.
Common Breaches
Fiduciary breaches in business contexts typically involve self-dealing (the fiduciary enters into transactions that benefit themselves at the expense of the beneficiary), usurpation of business opportunities (the fiduciary diverts a business opportunity that belongs to the entity for personal gain), competing with the entity (the fiduciary starts or operates a competing business without disclosure and consent), concealment of material information (the fiduciary hides financial data, business developments, or conflicts of interest), and waste or mismanagement (the fiduciary manages the business recklessly or incompetently).
Remedies for Breach of Fiduciary Duty
The remedies available for breach of fiduciary duty are broader than those for breach of contract. In addition to compensatory damages, Kentucky courts can order disgorgement — requiring the breaching fiduciary to surrender any profits they gained from the breach, even if the beneficiary suffered no corresponding loss. Courts can also impose a constructive trust on assets obtained through the breach, grant injunctive relief (such as an order prohibiting the fiduciary from continuing to compete), and award punitive damages where the breach was willful, wanton, or in reckless disregard of the beneficiary’s rights. Attorneys’ fees may also be recoverable in egregious cases.
Statute of Limitations
Breach of fiduciary duty claims in Kentucky are generally subject to a five-year statute of limitations under KRS 413.120. However, the discovery rule may toll the limitations period where the breach was concealed — the clock does not start running until the beneficiary knew or should have known of the breach.
If you believe a business partner, officer, or advisor has breached their fiduciary duty to you, contact Buckles Law Office at (859) 225-9540.
