Washington

Breach of Fiduciary Duty and Compensation of Fiduciary

A fiduciary assumes the highest duty known to the law of Washington State. It follows that a fiduciary must keep records. A fiduciary must be prepared to account upon request for his expenditure of trust funds from the records he has kept. As the Restatement 2d of Trusts, § 172 explains:

The trustee is under a duty to the beneficiary to keep and render clear and accurate accounts with respect to the administration of the trust.

     The comments and illustrations to § 172 make the duty clear:

a. Duty to keep accounts. The trustee is under a duty to keep accounts showing in detail the nature and amount of the trust property and the administration thereof.

b. Effect of failure to keep accounts. If the trustee fails to keep proper accounts, he is liable for any loss or expense resulting from his failure to keep proper accounts. The burden of proof is upon the trustee to show that he is entitled to the credits he claims, and his failure to keep proper accounts and vouchers may result in his failure to establish the credits he claims. 

A.     The court may deny an unfaithful fiduciary any compensation

If the agent obtains secret profits from his trust, he is entitled to no compensation. However in the case of a corporate employee (and perhaps in other mixed duty situations) whether or not to grant compensation is within the discretion of the court after weighing the conduct of the fiduciary. The general rule was explained in Kane v. Lee Klos, 50 Wn.2d 778; 314 P.2d 672 (1957):

The American Law Institute in the Restatement, Agency, § 469, declares that the agent disobedient to his trust, forfeits his right to compensation.

"An agent is entitled to no compensation for conduct which is disobedient or is a breach of his duty of loyalty; such conduct, if constituting a willful and deliberate breach of his contract of service, disentitles him to compensation for even properly performed services for which no compensation is apportioned."  

In the case of an employee, the Washington Supreme Court adopted the Court of Appeals flexible standard in Cogan v. Kidder, Mathews & Segner, Inc., 97 Wn.2d 658, 648 P.2d 875 (1982): 

The Restatement (Second) of Agency § 469 (1958) provides: "An agent is entitled to no compensation for conduct which is disobedient or which is a breach of his duty of loyalty". In Williams v. Queen Fisheries, Inc., 2 Wn. App. 691, 469 P.2d 583 (1970), the Court of Appeals interpreted section 469 as flexible and held the denial of compensation "generally rests with the discretion of the court". Williams, at 698. We adopt this interpretation.