July 30, 2008
Doug Moll on Leib's Friends as Fiduciaries
Posted by Christine Hurt

I found Ethan’s article to be very interesting and thought-provoking. My stream-of-consciousness comments are largely addressed to what I consider to be his two principal claims: (1) friends can, from a doctrinal standpoint, fit into the fiduciary rubric; and (2) friends should, from a normative standpoint, fit into the fiduciary rubric.

1. That there are parallels between friends and fiduciaries seems clear. Ethan is clearly right, in my view, that the doctrinal framework of fiduciary duty in most jurisdictions is broad enough to encompass friends. In Texas, for example, there is Supreme Court precedent indicating that informal fiduciary duties may arise "where one person trusts in and relies upon another, whether the relation is a moral, social, domestic or merely personal one." Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992); see also id. ("Because not every relationship involving a high degree of trust and confidence rises to the stature of a formal fiduciary relationship, the law recognizes the existence of confidential relationships in those cases "in which influence has been acquired and abused, in which confidence has been reposed and betrayed").

2. Thus, to me, the claim that friends can be fiduciaries is not that radical. The more interesting question, however, is the question of what kind of "friend" rises to the level of fiduciary. That is, we all recognize that not all friends are created equal – we have casual friends and close friends, and surely not all are entitled to fiduciary treatment. Moreover, there must be something in the intensity of trust and vulnerability that separates the fiduciary friend not just from non-fiduciary friends, but from the ordinary contracting party. When we built our house, for example, I can assure you that there was some serious trust and vulnerability going on between my family and the builder – notwithstanding the existence of a form builder-friendly contract (that no builder would entertain altering - but I digress).

3. It is clear that Ethan recognizes that the reader is going to have these questions. Indeed, I suspect that this reaction has come up on some of his earlier reads, as he repeatedly highlights that, although this article is not wrestling with those questions, his earlier work has. (See note 6, 163, 173, and page 40 for example). Unfortunately, that punt to an earlier work left me unsatisfied, largely because this strikes me as one of the core issues that the paper raises. What kind of friend should count as a fiduciary, in other words, seems to me to be an important contribution. Of course, there is no problem with an author choosing to simply reference ground that has already been covered, and I don’t fault Ethan for doing so. It’s just that these questions seem so fundamental to the paper that something feels "off" when they are left to a reference to another work. (Admittedly, I read the paper on a plane where I couldn’t immediately reference the earlier work - perhaps my reaction would have been different if I was sitting in front of my computer). I wonder if there is a middle ground approach – perhaps key excerpts from the earlier work could be quoted in the paper so that the reader isn’t left feeling unsatisfied?

4. The really interesting question raised by the paper, however, is whether the law should treat friends as fiduciaries, even if we could overcome the various definitional and typology problems with the framework. Here I wonder whether it might be a good idea to wrestle a bit longer and harder. For example, I do not think it is crazy to assume that if friendships are considered a fiduciary relation, with corresponding duties and legal obligations, that some might decline to enter into friendships. If friendship is a good thing, which I take as an operating assumption of Ethan’s paper (see, e.g., n.243), a decrease in aggregate friendships would be unfortunate.

5. Admittedly, as Ethan points out, that is a difficult claim to test. But the analogy to marriage doesn’t sit well with me. First, I do think that the legal rules created by marriage (primarily property distribution rules) do make a not-insubstantial number of people think about foregoing marriage. At the very least, the rules make a not-insubstantial number of people engage in contracting before getting married, and the enforceability of prenuptial agreements make that possible. I’m not sure that the same approach to friendships would work. Even if I could contract to limit or eliminate the fiduciary duty that the law might impose on me and my friendships (a rather gigantic "what if" that I think Ethan rightfully puts aside in this paper), there is a big transaction-cost difference between contracting around marriage rules and contracting around friendship rules. Outside of Elizabeth Taylor, the contracting process with marriage will likely happen only once or twice. With friends, however, this might be a process that needs to be engaged in dozens of times. Admittedly, it is fair to say that most people only have a few "close" friends, and it is only those "close" friends who will rise to the level of fiduciary, but who would risk that second-guessing by a jury? The more likely response would be to enter into friendship contracts with all of one’s friends, casual or not, to limit or disclaim the fiduciary relationship. That involves cost. Or one could decrease the amount of friends which, by assumption, is not a good thing. Is it loony to think that people will behave this rationally when it comes to friendships? People do with prenuptial agreements and marriage, although admittedly I do not know how prevalent such agreements are.

6. And one can imagine practical problems that might develop with the friends as fiduciary concept. For example, many people have more than one "close" friend. One can imagine situations where fiduciary duties to multiple friends conflict – each friend confides in me and their confidences affect the other. How do I manage these conflicting duties? Conflicting duties are not a novel concept – they happen in business organization law all the time where, for example, a person might serve as a director of multiple corporations in similar lines of business. But the solution in the corporate context is to (1) contract around the conflict or (2) resign to eliminate the conflict. As mentioned, contracting around the conflict creates costs that we might not want to impose in the friendship sphere. And resignations, by definition, decrease the amount of friendships in the world – by assumption, a bad thing.

7. All this is to say that maybe there are reasons why courts do not often (if ever in Texas) resort to the fiduciary doctrine in the friendship context, even though Ethan is surely right that the doctrine seems to fit well when we are thinking about "close" friends.

I’ll stop now. All in all, a very interesting piece. Makes one think, which is what good scholarship should do.

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