Fiduciary Law's Mixed Messages
Research Handbook on Fiduciary Law (Andrew S. Gold & D. Gordon Smith eds., Edward Elgar Publ., Forthcoming)
23 Pages Posted: 17 Mar 2017
Date Written: March 13, 2017
Nearly a century ago, Judge Benjamin Cardozo famously declared that fiduciaries bear a "duty of the finest loyalty" that is "unbending and inveterate" and "stricter than the morals of the marketplace." Some legal scholars argue today that Cardozo's uncompromising formulation of the duty of loyalty should be consigned to the ashbin of history because it does not accurately capture how courts enforce the duty in practice. Although courts routinely invoke Cardozo's famous dictum, they rarely hold that a fiduciary has violated the duty of loyalty absent an unauthorized conflict of interest or other flagrant abuse of power. To skeptics, these features of judicial practice suggest that Cardozo's moralistic rhetoric is a misleading distraction that should be abandoned in the interests of promoting precision and transparency.
This Chapter draws on republican legal theory to propose a fresh justification for the divergence between fiduciary law's strict requirements for fiduciary conduct and its more deferential standards for judicial review. Fiduciary law's "unbending and inveterate" legal requirements are necessary to affirm that fiduciaries lack authority to dominate their principals and beneficiaries. But courts should defer to fiduciary decisions in contexts where judicial intervention is more susceptible to arbitrariness—and, hence, more dominating—than fiduciary decision-making alone.
In particular, the degree of deference courts accord to fiduciary decisions should turn on two considerations:
(1) whether or not the fiduciary has been entrusted with discretionary power to decide the relevant issue; and
(2) whether the fiduciary or the judiciary is in a better position to resolve the relevant issue in a manner that tracks the principal’s purposes and the beneficiary’s best interests.
Guided by these considerations, the Chapter outlines a general framework for determining when courts should apply strong deference, weak deference, or de novo review to fiduciary decisions.
Keywords: fiduciary, fiduciary duty, loyalty, care, republicanism, domination, acoustic separation, conduct rule, decision rule, mixed messages, standards of review
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