Fiduciary duties may be expressly created by contract, or implied by law based on the facts surrounding a transaction and the relationship of the parties. The question of whether an implied duty exists is a question of fact, and unless there is insufficient evidence to submit the question to a jury. Rhoads v. Harvey Publications, 145 Ariz. 142, 700 P.2d 840, 1984 Ariz. App. LEXIS 632 (Ariz. Ct. App. 1984).
Friendly relations are not sufficient to create a fiduciary duty, and neither is confidence or implicit faith in another’s honesty or integrity. Rather, there must be a relationship where one party is bound to act for the benefit of another an can take no advantage from his acts relating to the other party. It can almost be described as a familial relationship.
While it is generally known that corporate directors and officers owe a fiduciary duty to shareholders, they also owe a duty to creditors once a company becomes insolvent. A.R. Teeters & Assocs. v. Eastman Kodak Co., 172 Ariz. 324, 836 P.2d 1034, 1992 Ariz. App. LEXIS 221, 119 Ariz. Adv. Rep. 16 (Ariz. Ct. App. 1992). This doctrine was judicially created to make sure that creditors’ claims are satisfied before stockholders may claim their rights upon an insolvent corporation’s assets.
In Teeters, the court held that an officer, director, or shareholder who provided a loan to a company breached a fiduciary duty to the company’s other creditors when corporate assets were transferred to Teeters during insolvency that preferred his debt to that of other creditors of the same class.
Arizona’s Limited Liability Act does not refer to fiduciary duties owed by members. In TM2008 Invs., Inc. v. ProCon Capital Corp., 234 Ariz. 421, 323 P.3d 704, 2014 Ariz. App. LEXIS 53, 683 Ariz. Adv. Rep. 26, 2014 WL 1257134 (Ariz. Ct. App. 2014), the Arizona Court of Appeals declined to categorically imposed a fiduciary duty between members of an LLC. Rather, members of an LLC can create one or more fiduciary duties by expressly stating so in their LLC Operating Agreement.
Determining whether a fiduciary relationship exists will help you decide what claims you may have available to you. Consult with a business attorney if you have questions about whether an implied fiduciary duty exists in your case.
Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your real estate matters.