When a business is involved in litigation, the business is generally still running, serving customers and clients, trying to make a profit, and otherwise continuing with its operations. While the officers and managers of the business are certainly paying attention to the lawsuit, they still have certain fiduciary duties they need to fulfill to the business. Even if the litigation is between business owners, all parties are still required to fulfill their obligations to the business and operate appropriately.
Fiduciary duties are obligations to operate in the best interest of another party, in this case, the business. So closing the business during litigation, refusing to operate, not going after contracts, and other actions taken during litigation to hurt the opposing party can be seen as a breach of fiduciary duty.
Duty of Care: This duty focuses on how decisions are made and directors and company owners are required to exercise care when making decisions on behalf of the business. This means considering all options and their consequences, getting advice when needed, and taking the time to gather data.
Duty of Loyalty: When you own or direct a business, you have a duty to be loyal to the interests of that business above your own interest. This duty largely focuses on conflicts of interest when you stand to benefit from a transaction with the business and making sure that the conflict is fully disclosed and appropriately approved. In a litigation setting, these types of conflicted transactions are often the source of the problem, so making sure that you follow corporate formalities and operate loyally on behalf of the business is important.
Duty of Good Faith: The third common fiduciary duty requires you to make decisions on behalf of the business in good faith. This means no moving assets out of the business due to litigation, making business decisions that negatively impact others because of the litigation, and again, operating the business in a way that serves the best interest of the business and all owners.
These duties are particularly important when there are multiple owners of a business or the business has shareholders that are not actively involved in the day to day operations and decision-making process of the business. When facing litigation, your business attorney will explain to you the different ways the litigation process may impact your business. Your attorney will also explain the fiduciary duties and how you can ensure that you continue to operate the business in good faith while still responding to and managing a lawsuit.
An experienced business litigation attorney such as the team from Dunn Law Firm is here to help. To discuss your case, reach out to the Dunn Law Firm by calling (435) 628-5405 and set up a free consultation today.