Delaware Business Litigation Report

Chancery Dismisses Claim for Breach of Fiduciary Duty Where Parties’ Commercial Relationship Was One of Ordinary Care

Nieves v. Insight Building Co., LLC, C.A. No. 2019-0464-SG (Del. Ch. Aug. 4, 2020)

The Court of Chancery used an unlikely vehicle — a dispute over stormwater drainage — to further explain the limits of common law fiduciary duties. Plaintiffs/Homeowners experienced drainage issues and brought several claims against their builder, as well as the developer (“Developer”) from which the builder had purchased lots. One such claim was that Developer had breached a fiduciary duty to Homeowners, even though Plaintiffs did not purchase their lots directly from Developer or otherwise have a contractual or commercial relationship with Developer. Plaintiffs/Homeowners alleged Developer “owes a common law fiduciary duty … because Plaintiffs reposed a special trust in and reliance on the judgment of the developer.” (internal citations omitted.)

But the Court explained that, even assuming arguendo some commercial relationship existed between Homeowners and Developer, it was not a relationship with fiduciary duties. Rather, fiduciary duties arise where a special duty exists for one party to protect another’s interests or where one party places special trust in the judgment of a second party who exercises domination and influence over the first. Moreover, because fiduciary relationships evolve from the law of trusts, the relationships involve parties with a common goal -- the good of the protected party. As alleged, Developer sought to sell land for profit, and Homeowners contracted to purchase land. There was no common goal and no special trust, so the transaction involved only ordinary care. Homeowners in fact alleged a breach of that standard, in bringing a common law tort claim for negligence. Broadly imposing fiduciary duties on this sort of routine commercial relationship “would hamstring parties’ ability to self order, with perverse effects on efficiency[,] ... the right to contract[,] ... [and] commercial affairs[.]” The Court, therefore, dismissed Homeowners’ fiduciary duty claim.

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