Imagine that your client invested in a foreign partnership, and the “partner” ran off with the funds. Or maybe your client relied on the wrong offshore wealth adviser, or placed funds with the wrong trust company. In any such scenario, the client undoubtedly lost a lot of money at the hands of someone they trusted. This is a terrible situation, but a great case … if you can prove it. So how do you get crucial discovery out of that jurisdiction which isn't a party to the Hague Convention? And how much will it cost to do so? These are daunting questions, but if you can find a jurisdictional hook and establish a right to an accounting, the entire burden might shift to the defendant.

Under Florida law, an accounting is a two-step process. Step one is to establish a right to an accounting, such as through a partnership or another relationship that gives rise to a fiduciary duty. Step two is for the party owing the duty to account. The ultimate purpose of the accounting is to determine whether the fiduciary has performed properly. Thus, a defendant cannot escape liability simply by remaining silent or testifying generally that funds were not misused.

The adequacy of an accounting depends on its ability to illustrate for the court how the fiduciary handled entrusted funds. The accounting must be clear, accurate, and present an itemized statement showing details of expenditures, with receipts and supporting memoranda. The fiduciary does not have to hire an accountant to prepare a formal accounting, but the fiduciary does bear both the burden of production and the burden of persuasion to establish the appropriate use of funds.

Courts analogize the process of preparing an accounting to ordinary discovery in a civil case.  That applies equally to the costs of production. Thus, the fiduciary generally must bear all costs of providing the accounting. Not having to pay such costs can be a huge win for the requesting party, especially if expensive foreign discovery is required.

The real leverage, however, comes not from the cost of making the accounting, but from the penalties associated with the failure to provide a proper accounting. Under Florida law, the failure to provide a proper accounting results in a presumption that funds were mishandled. All obscurities and doubts are taken against the fiduciary. Thus, when a fiduciary refuses or fails to properly account, the plaintiff gets judgment for the gross amount entrusted to the fiduciary.

Let's go back to one of our examples. Imagine that your client invested $1 million in a partnership that was exporting coffee from Brazil. Your client was the financier, and his partner ran the day-to-day activities of the partnership. The partner fell silent for far too long, and you advise your client to file suit. The complaint seeks dissolution of the partnership and includes a claim for conversion of the invested funds.

The defendant appears and alleges that all of the funds at issue were spent on partnership activities, but the business just isn't making any money. Discovery from Brazil is nearly, if not completely, impossible. So how do you prove the defendant actually stole the money?

Luckily, the partnership agreement was entered into in Florida, and the partnership maintained an administrative office in Miami. With jurisdiction and Florida law on your side, demand an accounting, and then attack its sufficiency. This move puts the burden of production and persuasion on the defendant. It also shifts the costs of discovery to the defendant and avoids the long, expensive process of taking foreign discovery. And, if the defendant cannot produce an accounting or you are successful at discrediting the one provided, your client will have a $1 million judgment in hand. Congratulations! Now you just have to collect it …

One final consideration: What does this mean for those of us who commonly find ourselves defending fiduciary duty claims? It means that often the most important fight, if the grounds exist to wage it, is the one over whether a fiduciary duty creating the right to an accounting exists. If it does, then your client needs to understand the burdens and how to respond accordingly. If it does not, then your client has avoided being saddled with a lot of additional burdens.

Jason Domark, Charles C. Kline and Reid Kline are partners in the commercial litigation department at Cozen O'Connor in Miami.