The opening line of the opinion succinctly stated the question presented: “Does Maryland recognize an independent cause of action for breach of fiduciary duty?” Plank v. Cherneski, (Misc. No. 3, Sept. Term 2019) (July 14, 2020), Slip Op. at 1. That it might be difficult to answer the question was acknowledged in equally plain language: “[T]he muddled state of our jurisprudence has created inconsistent and irreconcilable conclusions by the Court of Special Appeals, federal courts, and state circuit courts.” Id. After wading through a score of state and federal opinions, the Court eventually answered the question in the affirmative, but hastened to add that “this does not mean that that every breach of fiduciary duty will sound in tort,” and the remedies available for such a breach “will depend on the specific law applicable to the specific fiduciary relationship at issue.” Id. at 2.
Plank started as a run-of-the-mill shareholder derivative suit in which minority members of a limited liability company sued its president and CEO for breach of contract, breach of fiduciary duty, dissolution, and the appointment of a receiver. The trial court dismissed most counts at the end of the plaintiff’s case, but reserved on the breach of fiduciary duty claim, skeptical as to whether Maryland recognized such an action. Id. at 10. After the defense rested, the trial judge concluded that there was “insufficient evidence to show that there was a breach of fiduciary duty,” without squarely addressing the underlying legal question. Id.
The Court of Special Appeals sought to tackle the issue head on, but after oral argument opted to certify the question to the Court of Appeals. The high court took the case to address, inter alia, whether minority members of an LLC may “bring a stand-alone cause of action for breach of fiduciary duty against the managing member of the LLC ….” Id. at 12.
The court’s analysis of its prior cases revealed that it never expressly held that such cause of action did (or did not) exist in Maryland, but its opinions contained language that led others to conclude that it had. Its seminal case, Kann v. Kann, 344 Md. 689 (1977), concerned a dispute between a trust beneficiary and the trustee. The issue in Kann was whether the beneficiary could assert a common law claim for breach of fiduciary duty, with a right to trial by jury, and noneconomic and punitive damages. Slip Op. at 19-20. Finding that trust disputes are historically equitable in nature, the Kann court concluded that only equitable remedies were available to the beneficiary. It added that attorneys “do not have available for use in any and all cases a unisex action, triable to a jury” and that the court “would not ‘preside over the death of equity’ by adopting a universal tort for breach of fiduciary duty.” Slip Op. at 21 (citations omitted).
Later opinions were similarly focused on remedies for breaches of specific fiduciary duties, rather than on the question of whether an independent cause of action existed. In one case, the court dropped a footnote to say that based on Kann, “Maryland does not recognize a separate tort action for breach of fiduciary duty.” Slip Op. at 25 (citations omitted). A footnote in another case said that the court assumed, without deciding, “that breach of fiduciary duties is a cognizable tort in Maryland.” Id. at 29 (citations omitted).
After analyzing inconsistent results from other courts interpreting Kann and its progeny, the court turned to secondary sources, including P. Sandler & J. Archibald, Pleading Causes of Action in Maryland (MSBA 6th Ed. 2018), There, the authors concluded that “Kann may be said to hold merely that not every claim for breach of fiduciary duty is a viable action at law for which a jury trial may be prayed.” Id. at 578. The court observed that “[i]n attempting to reconcile our jurisprudence, Sandler postulates that the footnotes in question may be dicta.” Slip Op. at 39.
They were dicta, and the court expressly so stated in a section of the Plank opinion titled The Ripple Effect – How Two Small Footnotes Caused Big Confusion. Slip Op. at 41-42. The court found that its prior cases did, in fact, “demonstrate that we have recognized independent claims for breach of fiduciary duty in various contexts.” Id. at 30. Specifically, it had previously upheld fiduciary duty claims for damages against an insurance agent under agency principles, and against partners and corporate directors who breached other common law fiduciary duties. Kann, therefore, had been misinterpreted: “We hold that under Kann and our jurisprudence that followed, a breach of fiduciary duty may be actionable as an independent cause of action.” Slip Op. at 77-78.
The court said that “[t]o establish a breach of fiduciary duty, a plaintiff must demonstrate: (1) the existence of a fiduciary relationship; (2) breach of the duty owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary.” Id. If those elements are properly pleaded, the breach of fiduciary duty claim may proceed, but “[t]he remedy for the breach is dependent upon the type of fiduciary relationship, and the historical remedies provided by law for the specific type of fiduciary relationship and specific breach in question, and may arise under a statute, common law, or contract.” Id. If the duty is one over which equity had jurisdiction, the count will be heard in equity. If the duty arises from contract, contract remedies will be available, and so on. How this will be applied to an independent tort for intentional interference with an inheritance or gift, recently recognized in Barclay v. Castruccio (No. 30, Sept.Term 2019)(June 30, 2020), remains to be seen.
In Plank, the court agreed with intermediate appellate court precedent that “managing members of an LLC owe common law fiduciary duties to the LLC and other members based on principles of agency.” Id. at 17. Although the complaint properly alleged the existence of the fiduciary relationship, breach, and damage, the court affirmed the trial court’s conclusion that plaintiffs’ claim in this instance failed for lack of proof. Id. at 56. The court thus did not have to reach the question of remedies, but otherwise did manage to “unmuddle” still turbid waters by expressly recognizing an independent cause of action for breach of fiduciary duty. Before filing such a claim, practitioners must still be guided by the court’s admonition in Kann: “Counsel are required to identify the particular fiduciary relationship involved, identify how it was breached, consider the remedies available, and select those remedies appropriate to the client’s problem. Whether the cause or causes of action selected carry the right to a jury trial will have to be determined by an historical analysis.” 344 Md. at 713.