How to Fail Spectacularly in Business Without Really Trying

By May 23, 2017 February 25th, 2020 No Comments

Both Stacey and I have discussed fiduciary duties in blog posts past in the context of estate planning and probate – for example, this post about Washington’s recently-enacted Uniform Fiduciary Access to Digital Assets Act, this post about fiduciary duties under Washington’s Uniform Power of Attorney Act, or this post giving a little tough love for fiduciaries in estate administration. In this post, I will be discussing fiduciary duties imposed on limited liability company managers (or member-managers) and corporate officers toward the companies they serve.

What happens when a corporate officer or LLC manager breaches a fiduciary duty toward the company? The “Terms of Service” episode in the most recent season of the HBO comedy series Silicon Valley, tackles this question. In a hilarious — if cringe-inducing – moment, the character Dinesh (played by the actor/comedian Kumail Nanjiani, who is the subject of this excellent New Yorker profile),  as newly-appointed CEO of the fictional software company Pied Piper, realizes that the company’s failure to comply with the federal Children’s Online Privacy Protection Rule (COPPA) will result in astronomical fines and that the company, which was at long last on an apparent ascent into the successful startup stratosphere, once again looked set to crash and burn.

As a lawyer, there’s a lot to love about this scene. First, it demonstrates the sometimes serious repercussions can result when a company fails to seek legal advice about its practices. Second, because it is the first moment in a television comedy I remember watching where a character utters, “You’ve breached your fiduciary duty.”

What fiduciary duties do officers and managers have toward the companies they serve? Washington law imposes the fiduciary duties of loyalty and care on members of Limited Liability Companies (LLCs) and officers of corporations. Washington’s LLC Act, at RCW 25.15.038, imposes on all LLC members a duty of loyalty and a duty of care toward the company. Washington’s Business Corporations Act, at RCW 23B.08.420, provides for a similar set of fiduciary duties for corporate officers:

(1) An officer with discretionary authority shall discharge the officer’s duties under that authority:

(a) In good faith;

(b) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

(c) In a manner the officer reasonably believes to be in the best interests of the corporation.

Individuals acting on behalf of business entities must, at a bare minimum, meet the fiduciary duties of loyalty and care to the company. What happens when these fiduciary duties are breached? I will be discussing that in my next post.

Photo credit: Highways England on Flickr

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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