July 30, 2008
Curtis Bridgeman on Leib's Friends as Fiduciaries
Posted by Christine Hurt

            The thesis of Ethan Leib’s ambitious new article, “Friends as Fiduciaries,” is that the law should recognize some friendship relations as giving rise to legally recognizable fiduciary duties.  The claim is ambitious, especially because Lieb insists that in some of these cases the duties should arise solely on the basis of the friendship – i.e., courts should sometimes finds friends liable even in the absence of some other cognizable claim, e.g. from contract or corporate/business-entity law.  Establishing the claim is even more of a challenge, because it requires Lieb to consider and review several thorny questions: what constitutes a fiduciary relationship under current law?  What is distinctive of and valuable about those relationships?  What duties do such relationships give rise to?  What remedies are available for the breach of those duties?  What is friendship?  What duties, legal or otherwise, arise from friendship?

            These questions are all notoriously difficult, not the least because they cover so many distinct areas of law.  Leib provides a very useful summary of current law, and his efforts to boil these various areas down to a single core is impressive and bound to be thought-provoking within these subject areas. 

            In the end, however, I remain unpersuaded that the law should recognize friends as fiduciaries.  For all his many caveats that he is not advocating the regulation of all friendships, or all breaches of fiduciary duties even in the closest friendships, the proposal still goes too far.  Grant Gilmore once said of classical contract law that it seemed to be dedicated to the proposition that “no one should be liable to anyone for anything.”  After reading Gilmore praise the “explosion of liability” that the breakdown of classical contract law led to in the 20th century, one might (equally unfairly) wonder if Gilmore was committed to the proposition that everyone should be liable to everyone for everything.  To wonder the same of Leib would be uncharitable, to say the least, but Gilmore’s hyperbole comes to mind for a reason.  We should start with the premise that government intervention, especially into such intensely private matters as friendships, must be justified.  What problem would the expansion of fiduciary law into friendships aim to solve?

           

Leib’s answer to this question is not as clear as one might like.  He begins by arguing that just as current fiduciary law focuses on relationships of trust, so, too, is trust at the core of friendship.  He refers in passing to deontological ethical arguments about the value of trust (by, for example, Scanlon, Kant, and Fried) (24-25).  But in the end it seems his primary concern is with the benefits to society that trust can create (citing well-known work by both Fukayama and Ribstein) and the damage that breaches of trust can inflict upon society, especially given the way one makes oneself vulnerable by trusting another.  It would be better for Leib to be clearer on this point.  Are we to regulate breaches of trust in friendship because it is morally wrong to violate trust in this way?  Or are we to do so for some instrumental reason – say, e.g., because encouraging trust among friends leads to greater wealth in society, or at least leads to more friendships, which are themselves intrinsically valuable?

            The answer to this question is crucial.  For example, it may well be the case that we owe special moral duties to our friends, but regulating those moral duties with law is another thing altogether.  Most of us in Western society have at least some discomfort with regulating morality for its own sake; at the least the burden of proof will be high.  Thankfully, that does not seem to be Leib’s primary argument.

            But if his argument is instrumental then it is problematic for different reasons.  First of all, the actual instrumental effects of any regulation are, of course, an empirical question, and there is good reason to wonder whether increased regulation of friendships might have adverse effects.  Larry Ribstein has argued in other contexts that expanding the scope of fiduciary duties actually undermines the effectiveness of fiduciary law at doing what we want it to do in the first place.  And in the context of contract law Dori Kimel has argued that relying on legal enforcement can actually hamper the building of valuable interpersonal relationships (From Promise to Contract, Oxford 2003).  Perhaps true trust, or the kind on which valuable personal relationships are built, requires trust in the person herself rather than in institutional governance of that person.

          Leib anticipates Ribstein’s objections, but his answers are troubling.  (He does not address Kimel’s work.  Although I do not agree with everything Kimel says, Leib would profit from thinking seriously about it.)  He divides Ribstein’s potential objections into two: that Leib’s proposals would deter the forming of friendships, and that the new legal relationships could “crowd out” the non-legal relationships.  He responds to the first objection, in short, by claiming that the non-legal benefits of friendship are too great for the law ever seriously to deter the forming of friendships (61); the crowding-out worry is dismissed on the grounds that the sanctions from his fiduciary proposals are too “undercompensatory” to have a significant negative effect (63).

            I do not know who is right about the empirical effects of increasing the regulation of friendship, though I must admit my intuitions are with Ribstein that we would be better served by narrow, clearer duties with easier-to-predict outcomes.  But that point aside, Leib’s answer to these objections seems to undermine his friends-as-fiduciaries argument entirely.  If the non-legal benefits to forming trusting friendships are already so great, then why does the government need to get involved at all?  Even if Leib is right that his proposals would not deter the formation of friendships, he needs something more: Are we really to suppose that there are people out there who would be friends, or better friends, if only the law recognized fiduciary duties in friendships?  It seems there is no need to encourage the forming of trusting relationships as they will happen without the law’s encouragement – indeed, Lieb argues they would happen even in spite of the law’s discouragement.  And even if there were such a need for encouragement, Leib’s answer to the second, crowding-out objection – that the legal remedies would be “undercompensatory” or “unavailable” and therefore not make much difference – seems to undermine any hope for fiduciary law serving such a purpose anyway.  Legal recognition of friends as fiduciaries is both unneeded and ineffective – unless, of course, Leib wants to venture into the post hoc righting of moral wrongs after all.

            As Leib notes, we can imagine other benefits that come from fiduciary law.  For example, Blair and Stout have argued that fiduciary law in the corporate context serves to inform managers of their duties.  This “preaching” is said to explain the role of fiduciary duty law in a corporate world where actual enforcement is apparently so lax.  But as persuasive as that story may be in the corporate context it is unsatisfying here.  First of all, it simply seems unlikely that friends would or should look to judges to determine the nature of their obligations to one another as friends, whereas it does not seem so unnatural for corporate directors to do so with respect to their duties to shareholders.  Judges may make good preachers in the corporate or commercial context, but do we want them to preach to us about our moral duties to friends?  And again, one might wonder what friendships would look like in a world where they did so (Kimel’s work in contract law again comes to mind here).  Moreover, to the degree that the law did not match up with our moral or other societal norms of friendship – whether due to error or compromises made necessary by institutional shortcomings – such a body of law might actually eventually be corrosive of our societal norms of friendship (see Seana Shiffrin’s “Divergence of Contract and Promise” – unlike Leib, I am not so sure her arguments about contract support his view even by analogy).

            Perhaps Leib’s argument would be more persuasive if he could provide convincing examples.  He does begin with a thought experiment, but quite frankly I am unpersuaded that “David P.” has even done anything worthy of a harsh word, much less a legal sanction.  And even if he has been a rotten friend it is a long way to a government forcing him to be a good one, especially in the absence of any claim in contract or other law.  When we factor in that Lieb also wants to include a corollary of the business judgment rule (the “friendship judgment rule”) that would create discretion for the fiduciary in close cases, one wonders if there could ever be a non-controversial case of a breach of such a duty that did not already fall under some other area of law.

            In closing, I should say once again that Leib’s paper is, notwithstanding these and other objections, an exceptional piece of work, and a valuable contribution to the various areas of fiduciary law going forward.  Perhaps the best way to proceed from here would be to back away from the fiction of a general law of fiduciaries.  The fiduciary duties associated with corporate law, for example, are quite different from those associated with contract law, as are the remedies, and they should be: the two areas of law address different problems.  To be sure, there are some similarities, and Lieb’s focus on trust is helpful.  Going forward, we should probably focus on whether contract courts should see friends as fiduciaries; whether the law of business entities should be more ready to find a partnership in the case of friends; and so on. And Lieb may eventually convince us that we need a cause of action independent of these others. 

In the meantime, his work will add a valuable piece to the puzzle for those of us struggling within these narrow areas of law.  In contract law, for example (where I am more comfortable), Lieb’s suggestions may help us begin to unpack the distinctions between the duty of good faith and fair dealing on the one hand (which is itself a sticky wicket) and fiduciary duties on the other.  He may also help us to understand whether fiduciary duties in contract law necessarily include some imbalance in power or control (note that even the case he cites as supporting the idea of friends-as-fiduciaries involves the friendship between a couple and an elderly person).  So while I am not sold on his overall thesis just yet, I suspect we will be profiting from this excellent paper for some time to come.

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