Liberty in Loyalty: A Republican Theory of Fiduciary Law
Conventional wisdom holds that the fiduciary duty of loyalty is a prophylactic rule that serves to deter and redress harmful opportunism. This idea can be traced back to the dawn of modern fiduciary law in England and the United States, and it has inspired generations of legal scholars to attempt to explain and justify the duty of loyalty from an economic perspective. Nonetheless, this Article argues that the conventional account of fiduciary loyalty should be abandoned because it does not adequately explain or justify fiduciary law’s core features. The normative foundations of fiduciary loyalty come into sharper focus when viewed through the lens of republican legal theory. Consistent with the republican tradition, the fiduciary duty of loyalty serves primarily to ensure that a fiduciary’s entrusted power does not compromise liberty by exposing her principal and beneficiaries to domination. The republican theory has significant advantages over previous theories of fiduciary law because it better explains and justifies the law’s traditional features, including the uncompromising requirements of fiduciary loyalty and the customary remedies of rescission, constructive trust, and disgorgement. Significantly, the republican theory arrives at a moment when American fiduciary law stands at a crossroads. In recent years, some politicians, judges, and legal scholars have worked to dismantle two central pillars of fiduciary loyalty: the categorical prohibition against unauthorized conflicts of interest and conflicts of duty (the no-conflict rule), and the requirement that fiduciaries relinquish unauthorized profits (the no-profit rule). The republican theory explains why these efforts to scale back the duty of loyalty should be resisted in the interest of safeguarding liberty.