July 30, 2008
Eric Goldman on Friends as Fiduciaries
Posted by Christine Hurt

I’m Not Sure I Want to Be Ethan Leib’s Friend Any More

By Eric Goldman

Ethan Leib is a nice guy. I’d be happy to spend some time with him shooting the breeze and downing a few cold ones at the local bar. However, if our chit-chatting over pool and peanuts comes attached with a risk of fiduciary obligations, WHOA! On second thought, I think I’ll take a pass on happy hour—even if Ethan is buying. And Ethan, if I decline your Facebook friend invitation, please don’t take it personally. It’s just that my lawyer advised against it.

* * *

There can be a fine line between genius and insanity, and for some readers, Ethan Leib’s paper Friends as Fiduciaries may be right at that border. The paper argues that friends are being recognized as fiduciaries under existing law, an insightful observation that deserves the careful treatment it gets in the paper. The paper goes on to argue that the law should affirmatively designate some types of friends as fiduciaries because this will improve friendships—a provocative normative conclusion that, I think, some readers will reject no matter how persuasively it’s supported. In this respect, the paper reminded me a little of my conversations with my mom after she reads my papers that try to defend the indefensible (like spam and adware). She says in an affectionate but motherly way that the paper was nicely written but also has to be wrong. I can see some readers reaching the same conclusion here.

Between Equitable Applications and Doctrinal Overlaps, Calling Friends “Fiduciaries” May Not Add Much Ethan’s paper persuasively demonstrates that fiduciary legal doctrines are equitable in nature. However, with these deep roots in equity, changing its doctrinal contours is hard. Instead, if routine application of fiduciary law would lead to an inequitable result, judges can and do exercise their common law discretion to stretch or shrink the formal doctrinal boundaries for edge cases. In this sense, calling someone a “fiduciary” is a conclusion, not the analytical tool to reach the conclusion. As a result, expressly saying that friends can be fiduciaries doesn’t necessarily mean that judges will follow. Instead, the boundaries of “friends as fiduciaries” will reflect the equities of the situation—just, as the paper demonstrates, courts already do today.

Furthermore, fiduciary doctrinal boundaries are set partially in reference to other adjacent and sometimes-overlapping legal doctrines. The doctrinal overlap is especially pronounced in the paper’s introductory hypothetical, which involves a misappropriation of a business opportunity jointly discussed by two friends (and vaguely resembles the heavily litigated alleged Harvard dormroom misappropriations by Facebook’s Mark Zuckerberg of the business venture initiated by ConnectU’s Winklevoss brothers).

For example, the law of “idea submissions” governs disclosures of business opportunities made without express confidentiality restrictions, including such paradigmatic circumstances as the misappropriated elevator pitch to a Hollywood producer or use of a customer’s unsolicited submission of a new product idea or product improvement. There is not a single body of “idea submission misappropriation” law, but courts use numerous legal doctrines to protect some non-confidential disclosures, including implied general partnerships, implied contracts and occasionally intellectual property (although often in bastardized form).

I’m not offering up idea submission law as a model of jurisprudential rigor. It isn’t. However, depending on a judge’s perspective, the body of law might already apply to the paper’s introductory hypothetical, displacing the need for a “friends as fiduciaries” doctrine. Is the overlap nevertheless beneficial? It might be, if (for example) it speeds up adjudication or reduces adjudication errors. However, it’s also possible that the doctrine would add nothing.

Further, in situations where the “friends as fiduciaries” doctrine would find a legal violation not covered by any existing legal doctrine, perhaps there shouldn’t be any recourse. For me, the hypothetical’s facts raise a big yellow flag about this. The facts state that the friends had been “chatting casually” about their idea for years but had never taken any affirmative steps towards launching a business. These facts seemed designed to avoid implying a general partnership (which would make the “friends as fiduciaries” doctrine redundant), but in a situation like this, I think casual chit-chatting without any overt action should be too inchoate to deserve legal recognition at all. By their very nature, friendships involve conversations about possible future activities that friends might jointly pursue, many of which neither party intend as legally binding commitments. Indeed, close friendships invite friends to explore their most half-baked and improbable fantasies about the future. I think those types of wistful “Someday wouldn’t it be great if we…” conversations are simply too ethereal to merit protection under fiduciary doctrines.

I don’t mean to dwell on the paper’s introductory hypothetical. Ethan can easily rework it to avoid these pitfalls, and the paper seeks to address more than just the idea misappropriation scenario. Nevertheless, the paper has to work hard to find a unique problem that hasn’t been already resolved legally, but avoiding overlaps with existing doctrines may limit the paper to addressing a narrow set of problems.

Can the Law Improve the Institution of Friendship? Given my curmudgeonly nature, I feel a little odd leading a defense of the institution of friendship as it currently exists, with relatively little legal regulation. However, not only has the institution of friendship aged very well over the millennia, but I would argue that it’s flourishing today in the digital age. Between communications via the Internet and the cellphone, it’s truly astonishing just how much people are connecting with other people. Thus, despite this paper’s (and Ethan’s preceding work’s) best effort to persuade me otherwise, I’m not convinced that the institution of friendship is defective in some way that needs some correction.

Instead, where the paper sees the extension of fiduciary duties as a way of improving friendships, I just see a paper that plaintiffs’ lawyers will love. On the plus side, the proposed doctrine should help the occasional exclusively friendship-based treachery that reaches court. On the minus side, just like the generic “unfair competition” tort, the “friends as fiduciaries” doctrine will be invoked countless times by plaintiffs desperate for a last-ditch and hard-to-dismiss argument to bolster their otherwise-marginal cases. Adjudicating those arguments will involve messy, expensive, emotional and typically irresolute inquiries into the friendship—who said what to whom, the friendship strength, recounting past episodes of kindness and betrayal between the friends, etc. Accordingly, “friends as fiduciaries” cases will impose substantial costs on defendants and the system, even if judges quickly toss those cases. So if the “friends as fiduciaries” doctrine (as a supplement to existing legal doctrines) will actually make a beneficial difference in only rare cases, the cost-benefit analysis is troubling.

The paper anticipates this concern by reiterating the intangible benefits of strengthened friendships. Because I’m not sold that increased legal regulation can improve friendships, I didn’t see this benefit very clearly—certainly not as clearly as the enormous financial and psychic costs of adjudicating he said/she said disputes.

Despite this, I can think of one aspect of communication between friends that might benefit from a “friends as fiduciaries” doctrine. The paper brought to mind Egbert v. Lippmann, 104 U.S. 333 (1881), which involved a new corset technology that the inventor let his “intimate friend” (and subsequent wife) wear for a number of years before he applied to patent it. His lover was not under any confidentiality restrictions, which isn’t surprising because (1) someone could see the corset technology only when the wearer undressed, which substantially limited the potential viewers of the technology, and (2) even when it would be wise to do so, I believe that it’s fairly rare for lovers to enter into non-disclosure agreements to govern their pillow talk. However, because the inventor and his lover did not have a legally confidential relationship, the Victorian-era court concluded that the inventor “slept on his rights” (the court’s pun, not my own) and missed the statutory deadlines to apply for a patent. Instead, the court could have characterized the inventor and his lover as part of a confidential relationship (and perhaps even a fiduciary relationship) sufficient to defer the statutory deadlines like other confidential disclosures would do. In situations like this, perhaps the “friends as fiduciaries” doctrine might have some limited value as a way to curb unduly harsh divestitures or forfeitures of rights.

Conclusion Ethan’s paper is part of a broader research trend examining the overlay of legal rules onto social networks and relationships. See, e.g., Lior Strahilevitz, A Social Networks Theory of Privacy; Bill McGeveran’s blog posts on Facebook’s Beacon program; and Ethan’s own precedent, Friendship and the Law. Personally, I find this line of research fascinating, and I look forward to more discussion about how the law can improve or hinder the development of social networks. In my research on social networks, I start with the premise that imposing tort obligations into social network interactions should be an extraordinary last resort. As every first year law student learns, not every harm gets a legal remedy, and this seems especially apropos in the context of ubiquitous yet plastic institutions as friendship. In this regard, I’m reminded of a passage from the dissent in the intermediate court’s opinion in Intel v. Hamidi, arguing against an expansive notice-based theory of trespass to chattels:

Under Intel’s theory, even lovers’ quarrels could turn into trespass suits by reason of the receipt of unsolicited letters or calls from the jilted lover. Imagine what happens after the angry lover tells her fiancé not to call again and violently hangs up the phone. Fifteen minutes later the phone rings. Her fiancé wishing to make up? No, trespass to chattel.

Just as this judge feared that trespass to chattels would disrupt normal social interactions to create unnecessary causes of action, I worry that the “friends as fiduciaries” doctrine will do the same. We will never be able to prevent some people from behaving badly towards their friends, and I don’t see how increased legal regulation can change this for the better. If anything, we as lawyers seem to have an impressive knack for driving wedges between friends. The “friends as fiduciaries” doctrine might just become another one of those wedges.

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Comments (5)

1. Posted by David Zaring on July 30, 2008 @ 8:39 | Permalink

I'm right there with you on the "why legalize this?" import of the post. One of the basic aspects of friendship is that it evolves over time - and some friendships end. Fiduciary relationships don't evolve. I guess this could be solved with good evidence: "are these people really still friends?" But I am not sure it would be worth the candle.


2. Posted by Gordon Smith on July 30, 2008 @ 8:51 | Permalink

Eric, The title of your post had me chuckling all the way through. Excellent comments.

I am doing some work on "idea submissions law," and I agree with you that it covers a lot of ground covered by "friends as fiduciaries."

Also, I think it is telling that you have to reach back to the Egbert to find a potential application. Would that case play out the same way today? Of course, the notions of "confidential relationship" and "fiduciary relationship" are malleable enough that it may just be a matter of which court happens to hear the case.


3. Posted by Ethan Leib on July 30, 2008 @ 10:11 | Permalink

All my responses will be at the main post, per Christine's instructions.

http://www.theconglomerate.org/2008/07/fourth-annual-1.html

I didn't have to reach back very far to find applications at all.


4. Posted by Eric Goldman on July 30, 2008 @ 11:38 | Permalink

Gordon, just a response here about Egbert. You're absolutely right that it's a product of the Victorian era. The court was clearly dismayed that the inventor had seen the wearer in her corset (and obviously out of her corset) and they weren't married. Egbert is still good law for the proposition that public use of an invention triggers the statutory deadlines for filing a patent application, and that public use can occur even if the device cannot be seen by ordinary observers. However, I agree with you that modern courts might be more willing to consider the relationship "confidential" for purposes of assessing the rights forfeiture. Eric.


5. Posted by MikeSmithy on October 15, 2012 @ 17:54 | Permalink

My brother had to file chapter 11 bankruptcy in Sunnyvale CA but in the end he was able to work it out even though it was difficult. Thanks for the post, very useful.

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