California corporate fiduciary-duty disputes usually turn on three questions: what role did the defendant occupy, to whom was the duty owed, and was the alleged injury suffered by the shareholder directly or by the corporation?
Directors owe duties of care and loyalty to the corporation and shareholders
Corporations Code section 309 requires a director to act in good faith, in a manner the director believes to be in the best interests of the corporation and its shareholders, and with the care—including reasonable inquiry—that an ordinarily prudent person in a like position would use under similar circumstances.
The statute also protects reasonable reliance on appropriate officers, employees, experts, and board committees. That framework underlies California’s business-judgment doctrine. But deference to business judgment does not authorize self-dealing, bad faith, or the use of corporate position for personal advantage at the corporation’s expense.
Read California Corporations Code section 309.
Officers are fiduciaries too
Corporate officers likewise occupy positions of trust. In Bancroft-Whitney Co. v. Glen, 64 Cal. 2d 327 (1966), the California Supreme Court held a corporate president and director liable for exploiting confidential corporate information and his position while arranging a competing enterprise.
The case illustrates a broader principle: an officer may prepare to compete in appropriate circumstances, but cannot misuse confidential information, corporate opportunities, personnel relationships, or an existing fiduciary position to injure the corporation.
Read Bancroft-Whitney Co. v. Glen.
Controlling shareholders owe duties that ordinary minority shareholders do not
Ownership alone does not make every shareholder a fiduciary. Control changes the analysis.
In Jones v. H.F. Ahmanson & Co., 1 Cal. 3d 93 (1969), the California Supreme Court held that majority shareholders, individually or acting together, owe fiduciary responsibilities to the minority and the corporation. They may not use control to create a benefit for themselves alone at the expense of minority owners.
The inquiry therefore focuses less on the percentage printed on a stock certificate than on whether the shareholder or group actually possessed and exercised control over corporate action.
Read Jones v. H.F. Ahmanson & Co.
Direct versus derivative injury can determine who owns the claim
Even where a fiduciary breach is adequately alleged, the plaintiff must identify who suffered the primary injury.
If the alleged conduct depleted corporate assets, diverted a corporate opportunity, caused the corporation to overpay, or otherwise injured the entity, the claim ordinarily belongs to the corporation and must be pursued derivatively unless an exception applies. If the defendant violated a duty owed directly to a shareholder and caused an injury that is not merely incidental to corporate harm, an individual claim may exist.
Jones makes clear that a direct injury need not be unique to a single shareholder. Schrage v. Schrage, 69 Cal. App. 5th 126 (2021), further illustrates how closely held-business disputes can present both entity-level and owner-level injuries that must be analyzed separately.
Practical implications
A well-pleaded corporate fiduciary claim should identify the defendant’s capacity, the source and beneficiary of the duty, the challenged transaction, the conflict or misconduct, and the precise injury. It should then address whether the claim is direct or derivative and, if derivative, the procedural requirements that follow.
Those distinctions often matter more than the label “breach of fiduciary duty” itself.
This article is for general informational purposes only and is not legal advice.