Fiduciary duties arise from a relationship of special confidence, one that exists “when confidence is reposed on one side and there is resulting superiority and influence on the other.” Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985). If you serve as an officer or director of a Minnesota corporation, you stand in exactly that kind of relationship, and the law holds you to the highest standard of conduct it recognizes. Per the Minnesota Court of Appeals, “[f]iduciary duty is the highest standard of duty implied by law.” D.A.B. v. Brown, 570 N.W.2d 168, 172 (Minn. Ct. App. 1997).

In practice, this duty often turns on disclosure. “In some instances, professional liability attaches when the fiduciary does not disclose all material facts that affect the clients’ interests.” Id. The remedy is distinctive as well: once a breach is shown, injury is presumed “due to the nature of the fiduciary relationship, and a fiduciary could be required to disgorge itself of all profits gained as a result of the breach.” Id. (citing Rice v. Perl, 320 N.W.2d 407, 411 (Minn. 1982)).

Minnesota common law describes when this special confidence exists. A fiduciary relationship arises “when confidence is reposed on one side and there is resulting superiority and influence on the other; and the relation and duties involved in it need not be legal, but may be moral, social, domestic, or merely personal.” Toombs v. Daniels, 361 N.W.2d 801, 809 (Minn. 1985) (quoting Stark v. Equitable Life Assurance Society, 285 N.W. 466, 470 (Minn. 1939)).

Whether a fiduciary relationship exists is a question of fact, decided on the record of each case rather than by a fixed label. Toombs, 361 N.W.2d at 809. One common path to such a relationship in the business setting is an imbalance in experience paired with invited trust: “[d]isparity of business experience and invited confidence could be a legally sufficient basis for finding a fiduciary relationship.” Murphy v. Country House, Inc., 307 Minn. 344, 352, 240 N.W.2d 507, 512 (1976); accord Toombs, 361 N.W.2d at 809. The reverse does not follow automatically. A long acquaintance and the faith you place in someone do not, by themselves, create a fiduciary relationship, at least where you should have known the other side represented an adverse interest. Kennedy v. Flo-Tronics, Inc., 274 Minn. 327, 331, 143 N.W.2d 827, 830 (1966).

Fiduciary duties take on a specific shape inside a corporation. If you are a director or officer, you “stand in a fiduciary relation to the corporation and its stockholders,” because you manage the business and affairs of the enterprise on others’ behalf. Guth v. Loft, Inc., 23 Del. Ch. 255, 270, 5 A.2d 503, 510 (Del. 1939); accord Westgor v. Grimm, 318 N.W.2d 56, 58 (Minn. 1982) (a director “stands in a fiduciary relationship to the corporation”). This holds true under the common law and under statute. Minnesota codifies the standard of conduct for directors at Minn. Stat. § 302A.251 and for officers at Minn. Stat. § 302A.361, each requiring that you discharge your duties “in good faith, in a manner the [director or officer] reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.”

Duty of Care

Your duty of care requires you to act as an ordinarily prudent person in a like position would act under similar circumstances. Minn. Stat. § 302A.251, subd. 1 (directors); Minn. Stat. § 302A.361, subd. 1 (officers). Part of that duty is preparation. Before you make a business decision, you must inform yourself “of all material information reasonably available to [you].” Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985) (quoting Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)). The liability threshold is high: “the concept of gross negligence is . . . the proper standard for determining whether a business judgment reached by a board of directors was an informed one,” so ordinary carelessness in gathering information does not by itself expose you to liability. Id.

The statute also tells you how to meet this standard in practice. You may rely in good faith on information, opinions, reports, or statements prepared or presented by officers or employees you reasonably believe to be reliable and competent; by legal counsel, public accountants, or other persons on matters within their professional competence; or by a committee of the board on which you do not serve. Minn. Stat. § 302A.251, subd. 2.

Minnesota courts are reluctant to impose liability on officers and directors for a mere breach of the duty of care. A director who performs these duties “is not liable by reason of being or having been a director of the corporation.” Minn. Stat. § 302A.251, subd. 1. The common-law roots of this protection run deep. “The law does not justify recovery in representative suits for mere errors of judgment in handling corporate affairs,” and “so long as officers of a corporation act honestly within the powers conferred upon them by the charter a court of equity will not interfere with their actions as such officers.” Warner v. E.C. Warner Co., 226 Minn. 565, 573-74, 33 N.W.2d 721, 726 (1948). Absent fraud, collusion, or like misconduct, the corporation has no cause of action against you for breach of the duty of care. Id.

That protection is difficult to overcome. Even without fraud or collusion, a plaintiff challenging your business judgment must show the action was “so far opposed to the true interests of the corporation as to lead to the clear inference that no officer thus acting could have been influenced by any honest desire to secure such interests,” but instead served an ulterior purpose. Id.

Modern Minnesota law frames this protection as the business judgment rule. As the Minnesota Supreme Court states it, “so long as a disinterested director makes an informed business decision, in good faith, without an abuse of discretion, he or she will not be liable for corporate losses resulting from his or her decision.” In re UnitedHealth Group Inc. Shareholder Derivative Litigation, 754 N.W.2d 544, 551 (Minn. 2008) (quoting Janssen v. Best & Flanagan, 662 N.W.2d 876, 882 (Minn. 2003)). The rule works as a presumption that protects your informed, good-faith decisions rather than a blanket bar on shareholder claims. Janssen, 662 N.W.2d at 882.

Duty of Loyalty

Your duty of loyalty requires you to put the corporation’s interests ahead of your own. You cannot serve your personal interests at the expense of the corporation and its stockholders. As the classic statement of the rule holds, “[t]he rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest.” Guth v. Loft, Inc., 23 Del. Ch. 255, 270, 5 A.2d 503, 510 (Del. 1939).

The loyalty standard is not a rigid checklist. “The occasions for the determination of honesty, good faith and loyal conduct are many and varied, and no hard and fast rule can be formulated. The standard of loyalty is measured by no fixed scale.” Id.

The consequences of disloyalty are severe. “If an officer or director of a corporation, in violation of his duty as such, acquires gain or advantage for himself, the law charges the interest so acquired with a trust for the benefit of the corporation, at its election, while it denies to the betrayer all benefit and profit.” Id. In plain terms, a self-dealing fiduciary can be forced to surrender the gain and hold it in trust for the corporation.

When a director decides what is in the best interest of the corporation, the director has some latitude. The Minnesota Business Corporation Act permits a director, though it does not require the director, to consider:

  1. the interests of the corporation’s employees, customers, suppliers, and creditors;
  2. the economy of the state and nation;
  3. community and societal considerations; and
  4. the long-term as well as short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.

Minn. Stat. § 302A.251, subd. 5. This latitude runs to directors only: the officer standard of conduct contains no equivalent constituency-consideration provision. Minn. Stat. § 302A.361.

Good faith runs through both the duty of care and the duty of loyalty, but it is a distinct requirement, not a subset of loyalty. The statute requires you to act “in good faith, in a manner the [director or officer] reasonably believes to be in the best interests of the corporation.” Minn. Stat. § 302A.251, subd. 1 (directors); Minn. Stat. § 302A.361, subd. 1 (officers). The Act defines the term: “’[g]ood faith’ means honesty in fact in the conduct of the act or transaction concerned.” Minn. Stat. § 302A.011, subd. 13.

The statute treats good faith and the duty of loyalty as two separate obligations, and it makes both non-negotiable. If you are a director, your corporation may limit your personal liability for monetary damages in its articles, but it can never eliminate liability “(a) for any breach of the director’s duty of loyalty to the corporation or its shareholders” or “(b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law.” Minn. Stat. § 302A.251, subd. 4. The same protection for loyalty and good faith applies to officers, but the opening to limit officer liability at all is narrower: the articles may do so only during the time the corporation is a publicly held corporation, so for a privately held company they cannot limit an officer’s personal liability. Minn. Stat. § 302A.361, subd. 2. Loyalty and good faith remain protected beneath any exculpation clause the articles may contain.