Can I Sue My Bank for Breach of Fiduciary Duty? (2022)

August 19th, 2016

Brian Mahany

“Can I sue my bank for breach of fiduciary duty” is a question we often hear. Many folks are quite surprised when they receive our answer. As a general rule, in most states banks do not owe a fiduciary duty to customers. There are exceptions, however.

There is a popular misconception that lenders owe a fiduciary duty to their customers. Even lawyers often get confused.

The term “fiduciary” comes from the Latin word fiducia. It means “trust”. One dictionary defines the term as meaning a person who has the obligation to act for another under circumstances that require” trust, good faith and honesty”. To most of us, that certainly sounds like what we expect from bankers. After all, we entrust them with our money.

Unfortunately, when it comes to the relationship between banks and borrowers, the general rule is that no fiduciary duty owed.

(Video) How Do You Prove Breach of Fiduciary Duty? | RMO Lawyers

If a bank normally isn’t a fiduciary, who is? Common examples include lawyers, doctors, trustees and investment advisors. Surprisingly, stockbrokers are not fiduciaries, although the administration is trying to change that.

Why does it matter? If a borrower or customer can prove the bank owes a fiduciary duty, it becomes much easier to prove that the bank acted in its own self interest and not the customer’s best interest. In most jurisdictions that also means punitive damages become available.

Exceptions to the Rule

If the general rule is that banks owe no fiduciary duty to customers, what are the exceptions?

First, the general rule is not universal. For example, in 2009 the Utah Supreme Court recognized a new “limited fiduciary duty.” Texas and California also apply a heightened duty of care on banks.

Second, regulators and state legislatures can create laws that impose a fiduciary duty. There is a push right now to create a fiduciary duty in residential and consumer loan transactions, especially when the lender or its agent incorrectly states a borrower’s income and assets or improperly reassures borrowers that they can afford the offered loan.

In the run up to the 2008 financial meltdown, many lenders or loan brokers were pushing people into loans they couldn’t afford or not explaining how adjustable rate mortgages worked. Today we are seeing these predatory tactics being used with low income car buyers and “buy here, pay here” car dealers.

(Video) What Are the Penalties for a Fiduciary's Breach of Fiduciary Duties? | RMO Lawyers

The law in this area is still emerging and has rarely been applied in commercial settings, however.

Another exception is where the lender becomes a financial advisor. Borrowers who are private banking or “wealth management” clients of a bank are generally owed a fiduciary duty. Ditto if the bank provided financial planning, tax planning or trust services to the customer.

Although banks rarely supply these services to commercial borrowers, those borrowers can still benefit from these rules if the principal of the business relied on the bank for advisory services. Most courts won’t let a bank be a fiduciary for some types of transactions but not others.

For example, lets say that I am a private banking client of Wells Fargo. They manage my private investments. In this scenario, they owe me a high duty of care, they are fiduciaries.

Now let’s say that my law firm also has its business account at Wells Fargo and borrows $250,000 on line of credit to finance new computers. Normally that would be a traditional customer – lender relationship. Because I am the principal of the law firm and also a private banking client, the bank probably can’t successfully claim they have a fiduciary relation on one account but not on another account. If the bank owes a fiduciary duty to a customer for any reason, that duty generally then carries across all relationships between that customer and the bank.

Yet another exception to the rule occurs when the bank takes a financial interest in the borrower’s project. Once the bank stops wearing its banking hat and becomes a partner or investor, it becomes easier to show that the bank owes its customer a higher, fiduciary duty. (Recently we wrote about a bank that took a royalty interest in its customer’s oil drilling project. The court found a fiduciary relationship there.)

Years ago banks were content to make their profits from the interest they collected on loans. No more. Now many banks are demanding they get a piece of the action in return for a loan. Today that kind of behavior is legal but it can come with a high price tag for the banks. This exception is often the one we use when trying to collect punitive damages from misbehaving banks.


Finally, when a bank misbehaves, many court will also find a fiduciary relationship. In the typical relationship between a bank and a business customer, the courts assume that both are sophisticated and both have relatively equal borrowing power. If you don’t like the terms being offered to you there are dozens of other banks out there. When a bank overreaches or exerts undue influence on the borrower, however, the bank can suddenly find itself a fiduciary.

Let’s look at common examples.

Fiduciary Duty – Lender Fails to Act in Good Faith

A New Jersey appeals court recently ruled a bank can have a fiduciary duty if it engages in an “egregious breach[] of thelender'sduty of good faith and fair dealing.” We see cases where a bank repeatedly threatens to call a loan and put the borrower out of business for some hyper technical alleged breach. Why? Simply so the lender can extort additional personal guaranties, higher interest and fees or additional collateral. When that happens, courts become more willing to impute a fiduciary duty.

Bank Takes Effective Control of the Borrower

Another scenario arises when banks take so much control of a customer’s business that they effectively call all the shots. Placing a manager in the customer’s business, deciding what bills the borrower can pay or making the business hire a designated management consultant can be enough to make the bank a fiduciary.

Can you sue a bank for breach of fiduciary duty? The answer is often yes but it takes creative lawyering to do so. The pendulum is slowly swinging away from banks and towards borrowers but most of the change has been on the residential / consumer side. A business borrower’s best bet is to demonstrate the bank took control of the borrower’s business or violated a duty of good faith.

(Video) Fiduciary Duty and why it matters to Condo Boards (Condo Insider)

The above list is not exhaustive and we caution that there are often large differences between states. We also remind readers that even if no fiduciary duty exists, it is often possible to get punitive damages and attorney’s fees through use of the federal and certain states’ civil RICO laws (Racketeer Influenced and Corrupt Organizations Act).

[See also our next post dealing with time periods for suing banks for breach of fiduciary duty.]

How Can You Sue Your Bank?

Finding the right lawyer is important if you want to successfully sue your lender or bank. Most lender liability lawyers are expensive anddefendbanks. Not us.

MahanyLaw and Judge, Lang & Katers are two independent, national boutique law firms that join forces to sue lenders, banks, mortgage companies, special servicers, and yes… fiduciaries.

Many businesses think it is impossible to sue their bank. After all, banks are big, have lots of money and are powerful. No matter what their size, however, banks can be beat. In fact, these days most lenders are afraid of going before a jury.

As experienced lender liability lawyers, we already have experience and know how to sue banks. We don’t assign an army of untrained associates to essentially learn the law on your nickel. Because we are based in the Midwest, are rates are reasonable too. Often we can work with your existing lawyer to further reduce costs. That means we charge less than big law firms and often can charge far fewer hours too.

(Video) Getting damages when suing a trustee

Need more information? Contact attorney Chris Katers atckaters@jlk-law.comor by phone at (414) 777-0778. The author of this post, attorney Brian Mahany, can be reached at

MahanyLaw and Judge, Lang & Katers –We Sue Banks


Is breach of fiduciary duty a crime? ›

If a director of a company breaches his or her fiduciary duties, they could face civil action and, in some cases, criminal sanction. Breach of directors' duties and resulting legal action can have significant consequences for the director, company, shareholders and creditors.

How do you establish breach of fiduciary duty? ›

  1. Fiduciary Relationship Must Exist.
  2. Defendant's Conduct Must Violate a Duty Owed to Plaintiff.
  3. Defendant's Breach Must Proximately or Directly Cause Damages to Plaintiff.

Does a bank owe a duty of care? ›

The case law suggests that a bank's duty of care to third parties means that, under certain circumstances, banks will be required to investigate a client's activities to check whether the client is acting in accordance with regulatory legislation. This investigation must be performed with due care.

What is the effect of breaching a fiduciary duty? ›

Failure to comply with these duties could result in you being removed from your role, made subject to an injunction to control your future conduct, or sued in the civil courts for any financial losses you have caused or personal profits you have improperly gained.

How hard is it to prove breach of fiduciary duty? ›

A breach of fiduciary duty happens if a fiduciary behaves in a manner that contradicts their duty, and there are serious legal implications. It is also easier to prove a breach of fiduciary duty as there is no need to prove fraudulent or criminal intent. A breach of fiduciary duty is serious and complex.

What are the 5 fiduciary duties? ›

Specifically, fiduciary duties may include the duties of care, confidentiality, loyalty, obedience, and accounting.

What is an example of a breach of fiduciary duty? ›

The fiduciary must act contrary to your best interests. A breach of fiduciary duty can be shown through deliberate acts, such as making decisions on your behalf without consent. You can also prove a breach through the fiduciary's failure to act—for example, not disclosing a conflict of interest.

What are the four 4 modes of breach of breach of obligation? ›

Generally speaking, there are four types of contract breaches: anticipatory, actual, minor and material.

What are defenses to breach of fiduciary duty? ›

In particular, just some possible defense arguments can include that: The perceived breach of fiduciary duties never, in fact, occurred. The plaintiff relinquished certain rights when entering into the relationship with the fiduciary. The case should be dismissed because the statute of limitations has expired.

What is considered bank negligence? ›

But this professional negligence is also something that pertains to those in the banking and finance industry. Malpractice in banking occurs when a professional within banking, for instance, is negligent in their work, and, in turn, bring some form of harm to their client's assets.

Do banks owe fiduciary duties to customers? ›

banks owe no formal fiduciary duty to their borrowers as a matter of law; and.

What is the concept of negligence in banking? ›

A banker is liable if negligent in dealing with a consumer and causing loss to the consumer by paying on forged cheques or delay in crediting the amount in his account. A wrongful opinion of creditworthiness or failure to give effect to the instructions of the customer also makes the bank liable for negligence.

What are some examples of fiduciary duty? ›

Some examples of fiduciary duties include duties of undivided loyalty, due diligence and reasonable care, full disclosure of any conflicts of interest, and confidentiality. While a fiduciary duty may be violated accidentally, it is still a breach of ethics.

How long do fiduciary duties last? ›

HOW LONG DOES THE FIDUCIARY DUTY LAST? The fiduciary duty applies to the parties until the property (asset or debt) is distributed or divided in a Judgment.

What is fiduciary neglect? ›

Fiduciary negligence is a type of professional malpractice in which a person fails to honor their fiduciary obligations and responsibilities. Fiduciary negligence generally comes in the form of passive behavior, in that it is a failure to take action or take any steps to stop or address the actions of others.

What is the legal test for breach of duty? ›

Breach of Duty of Care

The claimant only needs to prove that on the balance of probabilities the defendant that owed a duty of care failed to exercise reasonable care. The claimant needs to show that the defendant has caused the claimant to suffer loss.

What is the standard for breach of fiduciary duty? ›

Fiduciary duties include duty of care, loyalty, good faith, confidentiality, prudence, and disclosure. It has been successfully argued that an employee may have a fiduciary duty of loyalty to an employer. A breach of fiduciary duty occurs when a fiduciary fails to act responsibly in the best interests of a client.

Can fiduciaries be held personally liable? ›

Under ERISA law, fiduciaries can be held personally liable for a breach of fiduciary duties. As a fiduciary, it is your job to select advisors and investments, minimize expenses and follow plan documents exactly. You have a duty to act solely in the interest of plan participants and beneficiaries - not the company.

What is the most important fiduciary duty? ›

Fiduciaries should act in good faith in the interests of their beneficiaries, should impartially balance the conflicting interests of different beneficiaries, should avoid conflicts of interest and should not act for the benefit of themselves or a third party.

How are fiduciaries held accountable? ›

Fiduciary Relationship Between Attorney and Client

Attorneys are held liable for breaches of their fiduciary duties by the client and are accountable to the court in which that client is represented when a breach occurs.

What powers does a fiduciary have? ›

They are bound by their fiduciary duty to responsibly manage the estate and safeguard its assets.
A Fiduciary's Duty
  • initiate probate proceedings.
  • notify potential heirs and creditors of the estate's impending settlement.
  • inventory the deceased person's holdings.
  • resolve any outstanding debts.
  • distribute inheritances.

How are fiduciary duties enforced? ›

The compliance of lawyers with their fiduciary duties is enforced by the Legal Services Commissioners of the different states and territories. A breach of fiduciary duty is a tort and a beneficiary may be entitled to damages if fiduciary duty has been breached and they have suffered loss or harm as a result.

What is the most common remedy for a breach? ›

An award of compensatory damages is the most common of the legal remedies for breach of contract. The calculation of compensatory damages is based on the actual losses you have sustained as a result of the breach of contract. They typically fall into two categories: expectation damages and consequential damages.

What is tort breach? ›

It is a breach of duty which amounts to a civil wrong. A tort arises when a person's duty towards others is affected, an individual who commits a tort is called a tortfeasor, or a wrongdoer. And where there are multiple individuals involved, then they are called joint tortfeasors.

What constitutes a breach of duty is determined by? ›

Breach of duty occurs when a person's conduct fails to meet an applicable standard of care. It is one of the four elements of negligence. If the defendant's conduct fails to meet the required standard of care, they are said to have breached that duty.

Is breach of fiduciary duty dischargeable? ›

In general, most civil judgments are dischargeable in bankruptcy should the judgment debtor file for bankruptcy. With regard to a breach of fiduciary duty, however, these judgments are often non-dischargeable in bankruptcy.

What might be considered a breach of the fiduciary duty of loyalty? ›

The duty of loyalty requires the directors to place the interests of the company and the shareholders before any of their personal interests. The directors' actions such as diverting corporate assets, opportunities, or information for personal gain can certainly violate their duty of loyalty.

On what grounds can you sue a bank? ›

Banking related negligence can include when a bank refused to refund money to a client following a bank account error, a bank sold you an unsuitable financial product or made mistakes leading to financial loss when you attempted to transfer money.

What are the 4 types of negligence? ›

While seemingly straightforward, the concept of negligence itself can also be broken down into four types of negligence: gross negligence, comparative negligence, contributory negligence, and vicarious negligence or vicarious liability. Gross negligence refers to a more serious form of negligent conduct.

Can I take my bank to court? ›

It is extremely rare for anyone to take a bank or building society to court. If you're thinking about doing this, you should get expert legal advice. If you decide to take the matter to court before complaining to the Ombudsman, you won't be able to complain to the Ombudsman at a later date.

What duties do banks owe customers? ›

In this case, it was established that a Bank owes an implied duty to exercise reasonable care and skill when executing customers' instructions, which includes not executing payment instructions if there are reasonable grounds for believing they are an attempt to misappropriate funds.

Are fiduciary duties legal? ›

A fiduciary duty is a legal obligation for one party to act in the best interests of another (such as a company). In a fiduciary relationship, the person who is legally and ethically bound by this duty is known as the fiduciary.

Which law governs the fiduciary responsibility? ›

To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries).

What are the 3 steps to prove negligence? ›

Proving Negligence. Most civil lawsuits for injuries allege the wrongdoer was negligent. To win in a negligence lawsuit, the victim must establish 4 elements: (1) the wrongdoer owed a duty to the victim, (2) the wrongdoer breached the duty, (3) the breach caused the injury (4) the victim suffered damages.

What are the 4 elements needed to prove negligence? ›

A Guide to the 4 Elements of Negligence
  • A Duty of Care. A duty of care is essentially an obligation that one party has toward another party to exercise a reasonable level of care given the circumstances. ...
  • A Breach of Duty. ...
  • Causation. ...
  • Damages.
12 Nov 2020

What are the 5 elements of a negligence claim? ›

Doing so means you and your lawyer must prove the five elements of negligence: duty, breach of duty, cause, in fact, proximate cause, and harm.

What are the essential elements of a breach of fiduciary duty claim? ›

The four elements are:
  • The defendant was acting as a fiduciary of the plaintiff;
  • The defendant breached a fiduciary duty to the plaintiff;
  • The plaintiff suffered damages as a result of the breach; and.
  • The defendant's breach of fiduciary duty caused the plaintiff's damages.

What is the no conflict rule? ›

1. The 'no conflict rule' – a fiduciary must not place themselves in a position where their own interest conflicts with the beneficiary. 2. The 'no profit rule' – a fiduciary must not profit from their position at the expense of the beneficiary.

What are the rules for fiduciary? ›

Fiduciaries must act prudently and must diversify the plan's investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest.

Can fiduciary lose your money? ›

Fiduciaries who breach their duty may face tough civil and criminal penalties, but it can be difficult to prove in court. Moreover, they can do their duty towards their clients and still lose money for the client.

What fiduciary duties Cannot be waived? ›

Similarly, duties of loyalty, good faith, and disclosure in a general partnership may not be waived. Fiduciary duties imposed by statute on trustees cannot be waived.

What are the two main types of fiduciary duties? ›

Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care.

Is fiduciary the same as crime? ›

In terms of the insurance industry, Crime and Fidelity are interchangeable. Unlike fiduciary liability insurance, crime insurance is a first-party coverage. It protects the assets of your company and the assets of your company's benefit plans from loss.

Is breach of fiduciary duty Common Law? ›

Over the years, the common-law cause of action for breach of fiduciary duty has evolved into a remarkably versatile claim, encompassing a vast — almost limitless — range of conduct that can be characterized as misappropriation, self-dealing, waste, or disloyalty.

What is a fiduciary relationship What crime does it relate to? ›

In order for embezzlement to happen, there has to be a financial relationship between the victim and the embezzler. This relationship is commonly known as a fiduciary relationship.

What power does a fiduciary have? ›

Under a trustee/beneficiary duty, the fiduciary has legal ownership of the property or assets and holds the power necessary to handle assets held in the name of the trust. In estate law, the trustee may also be known as the estate's executor.

What is fiduciary relationship in banking? ›

A fiduciary is an individual (or business) that pledges to prioritize the beneficiary's interest by avoiding any conflicts of interest that arise in the duty of good faith, trust, and loyalty towards the beneficiary.


1. Can You Sue a Trustee for Negligence? | RMO Lawyers
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2. Investors sue banks over fiduciary responsibility
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3. What are the benefits of pleading breach of fiduciary duty claims against professionals
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4. Fraud - Breach of Fiduciary Duty - Embezzlement
5. Equity & Trusts - Breach of Trust
6. How to Hide Assets from Creditors, Divorce, and Lawsuits
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