The Enlightened Voter

Page 1

From Conflict
of Interest to
Country First:
The Six Rules of
Relationships of
Trust

by Maureen F. Glasheen Esq.

This talk from 2009 presented in 6 chapters in the
next 6 issues of The Enlightened Voter eloquently
describes what are the Six Rules of Relationships of
Trust and how many of our legislators and business
critters should go to jail for breaking those rules! [ed.]

[Maureen F Glasheen was the former General Counsel to the

New York Department of State for a decade. This discussion
of the six rules of relationships of trust is a general education
program. It is not intended to provide legal services, analyze
particular fact patterns, or serve as a class on Florida law. Ms.
Glasheen is licensed to practice law in New York not Florida. If
you need legal advice, she will refer you to a Florida attorney.]

Part 1 of 6
Recent headlines all have something in common
they are about conflicts of interest.
Illinois governor tries to sell Senate seat,
Madoff investors left Broke, Broken,
Bailed out Bank Officials get 1.6 Billion and
Refuse to Account for Money, and
America Is Outraged over AIG Bonuses.
What is a conflict of interest exactly? It is
primarily disloyalty and how disloyalty is covered up.
Can everyday people protect themselves?
Yes, but we have to get smart.
The best and least expensive
way you can protect yourself is
to prevent problems in the first
place; by becoming far more
discerning about who you employ
in a Relationship of Trust and
becoming aware of your own duties when others ask
you to serve as their agent, trustee or employee.
What are Relationships of Trust? There are
two kinds of relationships in our lives:
Arms-Length Relationships
Relationships of Trust.
Visualize this type of relationship as three people:
one sitting across the negotiation table from the
other two. Visualize the two sitting together on the
same side of the negotiation table: the first person
has his arm around the second person because
the first person is acting as the second persons

protector, advocate, defender and/or adviser. Those

two people on the same side of the negotiation
table are in a Relationship of Trust where
the protector is acting on behalf of and in the best
interest of, the person being protected.
Meanwhile the protector is in an Arms Length
Relationship with the person across from them at
the negotiating table. Our focus is the Six Rules of
Relationships of Trust that govern the relationship
between the protector and the protected.
Common Law The common law of Relationships
of Trust was inspired by everyday situations in
which we ask one another to go out into the world
and transact business with third parties on our
behalf because we may lack the time, capacity, and/
or the interest to conduct this business ourselves.
It probably arose out of
a situation like this. One
fellow (the King) said to
his brother, Im going off
to fight in the Crusades.
Would you look after the
castle, the wife, the kids,
and the kingdom for me while Im gone? And his
brother said, Sure, no problem. The reasonable
expectation was that the King s brother would act as
a Good Steward. And if his brother is a Good Steward
the king will find, when he comes home, that his
family is safe and his holdings and his kingdom have
continued to prosper because his brother served as
a trustworthy and competent trustee or agent. This
type of circumstance was probably the beginning of
trust and agency common law.
The Six Rules When the Kings brother agreed
to look after the Kings family and lands he undertook
to perform all of those tasks:
1. With undivided loyalty or allegiance to his
brothers best interest,
2. With reasonable care, skill and diligence to
protect his brothers family and lands against
foreseeable harm and transact business to his
best advantage,
3. With full disclosure of all important
information, especially about his own adverse
interests, if any, so that his brother can make
wise choices,
4. With obediencethat is staying within the
scope of authority conferred upon him and

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following lawful instructions given by his

brother,
5. With confidentiality, and
6. With willingness to account for all the
property and money that is received and paid
out during his stewardship.
These are essentially the Six Rules of Relationships
of Trust. Centuries ago, the courts concluded that it
was necessary to adopt these high moral standards
as the legal duties in all Relationships of Trust. We
will develop them in more detail later.
End of Part 1
Part 2

Timeless The Six Rules are timeless because

the human need for Relationships of Trust in all
sorts of matters is timeless. A similar scenario is
happening today. One Army reservist says to his
brother or best friend, Hey Buddy would you keep
an eye out for my family and my business affairs
while Im in Afghanistan? Sure, no problem.
On the other hand, if the Kings brother (referred
to on page 3 of The Enlightened Voter, May 2016
issue) is named Prince John, the King has a big
problem.

Step Aside? When another asks you to serve

as public officer, trustee, agent or employee, ask
yourself, What is the state of my mind? Resolve
to, with constant mindfulness, accomplish others
good. However, if you feel you cannot resist the
aggressive temptation to extract illicit gain through
concealment and collusion, do us all a favor and
step aside.
First Realize that you can create a Relationship
of Trust by
Formal or
Informal
agreement, intentionally or unintentionally.
When you sign a revocable living trust you are
creating a formal written Relationship of Trust.
And when you ask your brother to find a good car
for you for not more than $20,000, then you are
really asking him to be your gut. You have asked
him, in effect, to:
1.
Act on your behalf,
2.
Solely in your best
interest,
3.
Subject to your control.

The Poster Child for the Faithless Fiduciary

Prince John is the epitome of disloyalty
motivated by greed for money and power. He is
the poster child for the faithless fiduciary and the
self-serving public servant.

If he accepts, then you two have informally created

what the law recognizes as a Relationship of Trust
or agency relationship without the need for
special words, a writing or compensation! Ditto
on running for office.

Expectations The Six Rules of the

Relationships of Trust articulate the core of all of
our expectations of every person we place into a
position of power or influence over us.

Second understand that the label you put on

it is not important to the court. The court will
not allow you to label a Relationship of Trust as
an Arms Length Relationship in order to avoid
your obligations. It looks at the elements (1, 2, 3
above) of the relationship to determine whether
the relationship is an Arms-Length relationship
or an Agency/Relationship of Trust. If it finds that
it is a Relationship of Trust all of the Six Rules
apply, whether you intended it or not, whether
you understood it or not.

We Need a Relationship of Trust How can

we protect ourselves from all these Prince Johns?
We protect ourselves by becoming mindful when
we are creating a Relationship of Trust and
becoming more discerning about the persons in
whom we repose trust. We must carefully assess
the attitude/values of your prospective employee,
agent, trustee or public officer. Do they have an
appreciation for goodness? Or do they mock the
idea of acting for the benefit of another?

The Enlightened Voter

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Third Ask yourself the same question the

court asks, What kind of relationship do we have
here? Nothing is more dangerous than to assume
you are in a Relationship of Trust when the other
person does not. How many times have you

referred to someone as my broker without a clue

as to whether they were knowingly committed to
acting in your best interest?
Practical Test What is the practical everyday
person test? Does this person have my best
interest at heart?
Do not assume that he does just because you need
to believe that he does.
This, by the way, is pretty good advice for your
teenage daughters and granddaughters when it
comes to friends and, especially, boyfriends.
Fourth Ascertain whether they understand
the significance of their own words. Are they
intending to create a real Relationship of Trust in
which you will have a legal right to expect their
undivided loyalty and they have a legal duty to act
in good faith, solely in your best interest? Or was
their careless use of language designed to create
the appearance of rapport in order to sell you
something in an Arms Length relationship
or worse to use your lack of expertise and desire
for protection to take advantage of you?
Finally, protect yourself by knowing the Rules.
End of Part 2
Part 3

Relationships of Trust

Types of Conflict of Interest It turns out

that the biblical admonition that one cannot
serve two masters has been integrated into the
law. Conflict of interest is first and foremost
disloyalty. There are three types of conflicts of
interest:
1. self-preference
2. self-dealing
3. dual agency.
1. Self-preference
Disloyalty is called self-preference when your
agent (employee) uses his position (which provides
him access to power or money or information) to
advance his own interests at the expense of yours,
his principal/employer)
2. Self-Dealing
Disloyalty is called self-dealing when your agent,
(employee) agrees to transact your business on
your behalf but then he also, directly or indirectly,
becomes the adverse party in the transaction.
Local Politics In local politics, former Palm
Beach County Commissioner Mary McCarty is
the poster child for self-dealing. As a county
commissioner she was obliged to seek lowest
fees, on behalf of the county, when employing
underwriters to help sell municipal bonds.
Instead, she steered the business to her husbands
brokerage firm and he collected about $300,000.
She is now a jail. His fees are forfeitable.
National Politics In national politics, the
classic allegation of self-dealing is that former
Vice President Cheney allegedly directed no-bid
contracts to Halliburton, a corporation of which
he used to be CEO and in which he allegedly holds
stock. If proven, these allegations of self-dealing
could result in forfeiture of literally billions of fees
paid to Halliburton.

Rule One: Loyalty

All federal and state public officer code of ethics

statutes include prohibitions against self-dealing.

Intent When you are in a Relationship of Trust,

your agents/employees owe you their undivided
loyalty. They may not conduct your business with
an intent to benefit themselves or others.

3. Dual agency
Disloyalty is called dual agency when an agent
(employee) purports to represent adverse
interests in the same transaction. It is illegal for
the same person to represent buyer and seller, the
borrower and lender, landlord and tenant, plaintiff

(Duty of Good Faith and Undivided Loyalty)

The Enlightened Voter

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and defendant in the same transaction. The term

double agent captures its wrongfulness.

the total commission. No one gets honest advice

or effective advocacy.

You would never go to law firm that was

willing to represent the plaintiff and the
defendant in the same litigation because the
interests of the plaintive and defendant are
fundamentally adverse.
The double agent must
be necessarily disloyal
one or the other of the
parties. Thats why its
always been illegal.

Without reasonable checks and balances,

concentration of power and wealth driven by
unrestrained greed inevitably leads to social and
economic disasters and the economic enslavement
of ordinary people.

Blind Item Purchases For the average buyer

purchasing a home and obtaining a purchase
money mortgage are major blind item purchases.
They need help of an expert to establish what is
a reasonable price to pay and what type of loan
is within their means and, therefore, in their best
interest.
Disloyalty Expertise is only valuable to you
when it is accompanied by loyalty. Otherwise the
expertise may be used against you, as was (and
still is) routinely done, by real estate brokers and
mortgage brokers.
How Do They Do It? Generally, real estate
and mortgage brokerage industries have made
sure that the buyers, especially first-time buyers,
were left totally ignorant in the largest, riskiest
blind item purchase of their lives.
Consequently, when they most needed it, buyer/
borrowers had virtually:
no access to a genuine buyers agent of their
own, who could provide the expertise of
loyalty to enable buyers to obtain crucial
information especially what the house is
really worth.
Prince John Realty Instead, far too often,
buyer and seller ended up with Prince John Realty where one associate in the firm purports to
represent the buyer and another associate in the
same firm purports to represent, the seller. Of
course, both of those guys work for the same company same boss who wants both sides of

End of Part 3
Part 4

Relationships of Trust

Rule Two: Reasonable Care

(Duty of Reasonable Care, Skill and Diligence)

Your agent (employee) must use care, skill and
diligence to:
1. transact business to your best advantage,
2. protect you against foreseeable harm and
injury, and
3. recommend an outside expert when the
advice or assistance that you require is beyond
the scope of their expertise.
Violation The corporate officers and directors,
with fiduciary duties to their shareholders, who
incompetently lead their financial firms into
bankruptcy by adopting lending practices that
ignored the debtors ability to repay, violated their
Duty of Reasonable Care, Skill and Diligence.
How?
Ignoring Reality They all ignored reality.
Nothing is a more basic violation of the Duty Of
Reasonable Care than that.
Warren Buffett declared collateralized debt
obligations to be financial weapons of mass
destruction several years ago. Nobody listened.

Rule Three: Full Disclosure

Of All Material Information
(Duty to Give Information)

An agent (employee) has an affirmative duty

to disclose all material information he knows or
learns about the transaction and all information
concerning any adverse interests he may have to
those of his employer.

The Enlightened Voter

Breach of Duty An agent or employee of a
lender breaches his duty of full disclosure to the
lender if he does not tell his employer that he has
learned that the buyer has a poor credit rating and
is unlikely to be able to repay the loan.
A stockbroker has a duty to fully disclose any
negative information he subsequently learns
about an investment which he encouraged his
client to purchase. The disclosure must be timely
so the client can take seasonable steps to protect
himself.

Rule Four: Obedience

(Duty to Act Only as Authorized)

Scope An agent (employee) has a duty to stay

within the scope of authority conferred and follow
all lawful Instructions of his Principal (employer).
In other words, your attorneys, brokers, public
officers and other agents work for you not the
other way around. Some have forgotten that.
Instructions Must Be Lawful On the other
hand, you can only give lawful instructions. Your
agents duty of loyalty to you does not extend to
following orders to commit illegal acts.
Clients Right One of the essential elements
of Relationships of Trust is the right of the client to
control the actions of his or her agent or employee.
Trust Document As you may recall, a trustee
looks to the written trust document for direction on
their scope of authority and specific instructions.
For Terry Shiavo had there been a written
living will, who do you think would have been
more likely to carry out her lawful instructions to
not unnecessarily prolong her life her husband
or her parents? Who would have understood their
duty to follow lawful instructions rather than
impose their own will on her? Who would have
put Terrys interest ahead of their own?
Scope of Authority On the other hand, an
agent or employee looks to his/her principal/
employer for specific instructions and the scope
of authority. The main difference between an
employee and an agent is that the employer has
physical control of the actions of the employee.
So even though your attorney is your agent, not
your employee, you still have the right to give
directions as to the result you want and when you
want it achieved.

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A securities broker who places his or her client
into investments that are beyond the clients
stated risk tolerance, is exceeding the scope of his
or her authority. A brokers injured client should
seek forfeiture of all compensation as well as
restitution for all losses.
Protection How do you protect yourself
against agents who dont realize that it is your
right to control their conduct?
When you send someone out into the world to
do your business on your behalf, you will be
vicariously liable for the losses or injuries they
cause while transacting that business. The broader
the scope of authority you confer upon your agent
(employee) the broader your risk of liability for
their bad judgment. Limit your risk of liability
by limiting the scope of authority conferred.
Instructions and limitations upon authority
conferred may be communicated verbally, in
writing, or both.
End of Part 4
Part 5

Rule Five: Confidentiality

(Duty to Maintain Confidential Information)

May Not Disclose Your employees, agents or
trustees may not disclose information about you
or the transaction that you have instructed them
to keep confidential, as well as information that,
by the use of common sense, they would know you
wouldnt want disclosed. That duty to keep things
confidential continues even after the Relationship
of Trust terminates.
Examples of Confidentiality Classic
examples of confidentiality include attorneyclient
confidentiality,
and
doctor-patient
confidentiality. It is the agents duty to neither
disclose nor misuse, for their own purposes,
proprietary information, trade secrets and other
business confidential information.
How do you protect yourself?
Remind Your Agent Remember that
disloyalty may have its origin in ignorance as
well as fraud. Take the precaution of reminding

The Enlightened Voter

your employee or agent about their duty of
confidentiality in order to prevent them from
carelessly revealing to the sellers agent how much
youre really willing to pay for that property.

Rule Six: Accounting

(Duty to Account)
Render Accounting Employees, as well as
agents and trustees, must account for all property
money received and paid out during the course
of the Relationship of Trust. Upon request, they
are obligated to render a formal accounting and
return all property or money received.
This is the legal application of the story of the
Good Steward.
Provisions in Codes of Ethics There are
extensive provisions in professional codes of ethics
for attorneys, brokers, and financial advisers
prohibiting commingling of escrow funds with
office operating funds.
A Duty to Account Its essential for attorneys
and other agents, employees and trustees to
conduct their everyday business constantly
mindful that they have a duty to account. If we
are unprepared to account, we may drift into
conducting our employers business as if we are
spending their own money. Memo to Madoff...
Corporations Have Been Remarkably
Arrogant Look at the remarkable arrogance
of the corporations who just received billions in
bailouts. They ignore lawful instruction, as well
as their Duty to Account. What such corporate
officers and directors have forgotten is that
they owe these Six Fiduciary Duties to their
shareholders, many of whom are now the tax
payers of the United States.
Know the Rules and Asert Yourself In
order to have the protections of the Six Rules
of Relationships of Trust you have to know the
rules. In order to have the protections of the
Relationships of Trust you have to assert yourself!
Finally, you can skillfully complain. Remember
that all contracts are negotiable and you dont get
if you dont ask.

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1. Remember that all contracts are negotiable
and you dont get if you dont ask.
2. Ask if they will be offering their services
as agents or merchants. Say, In other
words, do you see this as Arms-Length
Relationship or a Relationship of Trust
or (Fiduciary Relationship) from your
side of the transaction? Ask them to
describe with particularity precisely what
services and or products or deliverables
they propose to provide in exchange for the
compensation that they want from you.
3. If they select Relationship of Trust (or
Fiduciary Relationship) ask them if it is
their policy that all the tasks of the work to be
performed will be performed in compliance
with their Six Fiduciary Duties to clients.
Ask them to explain their understanding
of their Six Fiduciary Duties to you as a
prospective client, provide a proposed
written description of their fiduciary
duties and to incorporate by reference and
mutually agreeable description of fiduciary
duties into your contract for their services.
4. Do not accept anything less than each
party having an agent of their own in any
transaction where you know you lack the
expertise to protect yourself especially in
real estate transactions.
5. Do not accept anything less than having
mortgage broker function as an agent for
you the client. Most will not know what
youre talking about.
6.

Do not pay a premium price (6%

commission) to have an agent of your own
and later let them talk you into giving up
that right! Tell them, No double agents.
Not now. Not ever! Walk away from the
deal if you have to. Call their bluff.

7.

If anyone is stubborn or arrogant, turn

on your heel and walk out. Loss of
business may be the only lesson they will
understand.

The Enlightened Voter

8.

9.

You can take the initiative to add your

own standard addenda setting forth the
Six Rules of Relationships of Trust! Six
Duties of a Fiduciary. You can use the
one recommended by consumer advocacy
groups or write your own. Have your
attorney review first.
Do what sophisticated clients do: hire
an attorney before making a major blind
item purchase.
End of PART 5

Part 6
[Note: This talk was originally given in 2009 at the height
of the looting of America.]

The Behavior Rampant On Wall

Street And In Washington Has Not
Only Been Immoral, It Has Been
Illegal
Immoral Behavior My real purpose today is
to empower you in a practical way, to affirm that
your instincts about many things have been correct
that the behavior rampant on Wall Street and
in Washington has not only been immoral, it has
been illegal.
Duties of Trust Some know that they are
fiduciaries and perform their duties well. Others
do not have a clue what their duties are. Others
have arrogantly and self-servingly dismantled
sound law to make it easier commit theft by
breach of fiduciary duty.
Wholesale Theft Americas so-called best
and brightest corporate and political leaders
have spent their entire lives occupying multiple
fiduciary roles in numerous personal and business
Relationships of Trust in both government and
business.
Nevertheless, it appears that our best and
brightest have collaborated in the most massive
wholesale theft by breach of fiduciary duty that
this country and the world has ever seen. We are
watching the grand finale unfold before our eyes
sweeping away our savings, our homes, our health
and safety, our hopes for a college education and
the last vestige of our financial security as a

Page 7
consequence of unrestrained I Stole That Candy
from the Baby Fair and Square greed dressed up
as a branch of economic theology.
Breach of Trust It is unconscionable that
those who have looted yet another asset class
(savings and loan banks, junk bonds, Tech
bubble, subprime mortgage bubble) , now cry out
we need new statutes as if the theft du jour by
breach of fiduciary duty had not been illegal since
the 14 century!
Enforcement What we really need is to
employ competent, trustworthy, courageous
public servants to enforce well settled conflict of
interest common law.
If you, as their clients, as their employers, as their
voters know of the Six Rules of Relationships of
Trust, then you will be able to definitively and
confidently hold them accountable and articulate
exactly what you want from them, what you do
not want from them, and why.
Legal Remedies Some of the legal remedies
available for violating the Six Rules include:
Forfeiture of all of the compensation
earned by the disloyal agent or trustee,
Restitution of the losses incurred by the
principal as a result, the agents disloyalty or
and/or incompetence,
Termination of the untrustworthy agent,
even with an employment contract for a
fixed term. No one is forced to remain in a
Relationship of Trust with someone they no
longer trust.
Some of these remedies may enable the Obama
administration to recover the $149 Million in
bonuses without the need for new legislation.
Court Decisions Are Consistent This
accumulation of hundreds of thousands of court
decisions over literally centuries is amazingly
consistent from century to century and jurisdiction
to jurisdiction.

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Now is the Time It is time to reintroduce

these essential legal values: the Six Rules of
Relationships of Trust that affirm
fair play,
altruism,
self-restraint and
honest speech
back into the politics and business of the United
States of America.
If the so-called best and brightest at the top of
our society will not do it; we must do it from the
ground up!
End
2009 Maureen F . Glasheen Esq.