Does Maryland recognize a stand-alone cause of action for breach of fiduciary duty? According to the Maryland Court of Appeals’ recent decision in Plank v. Cherneski, 469 Md. 548, 231 A.3d 436 (2020), “[c]ourts and commentators have been asking this question for 23 years since this Court articulated its holding in Kann v. Kann, 344 Md. 689, 690 A.2d 509 (1997).” In Kann, the issue before the Court was whether a beneficiary of a trust could assert a common law claim for breach of fiduciary duty against a trustee, with a right to a jury trial and noneconomic and punitive damages.
Until recently, courts at both the state and federal levels have offered inconsistent statements in this regard. This tended to leave the law in a “muddled” state of confusion. It also tended to leave professionals such as accountants, title company officers, attorneys, corporate partners, etc., wondering whether a malpractice or negligence claim could be premised upon a breach of fiduciary duty and, perhaps, lead to additional damages exposure.
In Plank, where the question was posed by the Court of Special Appeals in a certified question, the Court of Appeals addressed this issue, confirming that an independent tort for breach of fiduciary duty exists under certain circumstances. In a 79-page Opinion, the Court recounted the extensive history of Maryland law on this issue. The Court noted that part of the confused state of the law was caused by dicta in prior cases. As explained further below, the Court ultimately concluded that in order to state a claim for breach of fiduciary duty, a plaintiff must show: (i) the existence of a fiduciary relationship; (ii) breach of the duty owed by the fiduciary to the beneficiary; and (iii) harm to the beneficiary.
Facts of the Plank Case
Plank involved a dispute between members of a Maryland limited liability company (“LLC”). The two minority members alleged that Cherneski, the majority member and CEO, placed the minority members’ investments at risk by engaging in unlawful actions that exposed the Company to potential regulatory violations and lawsuits. The circuit court judge in Plank questioned whether Kann permitted a stand-alone claim for breach of fiduciary duty. The circuit court held, following a trial, that there was insufficient evidence to show that there had been a breach of fiduciary duty.
Although the Operating Agreement provided the general terms of Cherneski’s authority as President, CEO, and owner of a majority interest in the Company, the Operating Agreement and Maryland statutes were silent with respect to any fiduciary duties that Cherneski owed to the minority members. With no statutory or contractual provisions establishing a fiduciary duty between the parties, the Court looked to whether such a fiduciary relationship existed under the common law.
First, the Court noted that Cherneski owed fiduciary duties to the members and the LLC arising under common law principles of agency. Next, the Court agreed with the analysis set forth in Kann, which required the court to consider the nature of the fiduciary relationship and possible remedies afforded for a breach on a case-by-case basis.
Holding of the Plank Case
The Court held that a breach of fiduciary duty may be actionable as an independent cause of action. If a plaintiff describes a fiduciary relationship, identifies a breach, and requests a remedy recognized by statute, contract, or common law applicable to the specific type of fiduciary relationship and breach alleged, a court should permit the claim to proceed. The Court cautioned, however, that this does not mean that every breach will sound in tort, with an attendant right to a jury trial and monetary damages. The remedy will depend upon the specific law applicable to the fiduciary relationship at issue.
Professions potentially impacted by the Court’s holding in Plank
The Plank opinion references many types of cases and professional relationships where the courts did or could have recognized independent claims for breach of fiduciary duty, such as insurers v. insurance agents (agent/principle relationship); insureds v. insurance brokers; limited partners v. sole general partner; former employee v. director of corporation; partners v. managing partner; corporate shareholders v. corporate directors; condominium unit owners v. condominium unit council (for failure to pay for repairs from insurance proceeds); members of real estate trusts v. managing member of an LLC real estate trust; and client v. attorney for legal malpractice.
As stated in Plank, fiduciary relationships can be created by common law, by statute, or by contract, and can present different characteristics. There are certain well-known examples of fiduciary relationships that include those between trustees and beneficiaries, agents and principals, directors and corporations, lawyers and clients, and guardians and wards, as well as the relationship among partners. Thus, there is no “one-size fits all” breach of fiduciary tort that encompasses all types of relationships. In other words, there is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries.
Correctly interpreting Plank and applying it to your particular situation involves a complex analysis. The highly qualified legal team at Eccleston & Wolf can assist you to navigate those complexities.
Contact the Attorneys at Eccleston & Wolf
At Eccleston & Wolf, our attorneys possess extensive experience representing lawyers sued for legal malpractice, as well as representing entities such as unit councils sued by condominium unit owners, employers sued by employees, title companies sued for negligence, and other professionals and companies potentially impacted by the holding in Plank. Please contact us to see how we can assist you.