Fiduciaries with Conflicting Obligations

47 Pages Posted: 1 Aug 2009 Last revised: 28 Dec 2014

Steven L. Schwarcz

Duke University School of Law

Date Written: May 26, 2010

Abstract

This Article examines the dilemma of a fiduciary acting for parties who, as among themselves, have conflicting commercial interests - an inquiry fundamentally different from that of the traditional study of conflicts between fiduciaries and their beneficiaries. Existing legal principles do not fully capture this dilemma because agency law focuses primarily on an agent’s duty to a given principal, not on conflicts among principals; trust law focuses primarily on gratuitous transfers; and commercial law generally addresses arm’s length, not fiduciary, relationships. The dilemma has become critically important, however, as defaults increase in the multitude of conflicting securities (e.g., classes of securities of the same issuer having different priorities or sources of payment) that are typical of modern finance. A fiduciary, such as a trustee, acting for investors in these securities faces the difficult task of trying to understand and balance the respective obligations owed to conflicting classes and the risk of being sued no matter how the balancing is performed.

Keywords: fiduciary conflicts, agency, securities, bankruptcy, CDO, SIV

Suggested Citation

Schwarcz, Steven L., Fiduciaries with Conflicting Obligations (May 26, 2010). Minnesota Law Review, Vol. 94, No. 6, p. 1867, 2010. Available at SSRN: https://ssrn.com/abstract=1441225

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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