In rejecting the maxim that "muddy water, let stand, becomes clear,"[1] the Court of Appeals of Maryland, in Plank v. Cherneski,[2] clearly articulated that Maryland recognizes an independent cause of action for breach of fiduciary duty.
Plank concerned a dispute between members of a limited liability company. Several minority members sued the company's president and majority member, seeking to dissolve the company or appoint a receiver to take over its management. One of the main issues at trial was whether Maryland recognized a stand-alone tort for breach of fiduciary duty. After the trial court eventually entered judgment in favor of the president on the minority members' breach of fiduciary duty claim, the minority members appealed to the Court of Special Appeals and argued that the trial court had erred in determining that no independent cause of action for breach of fiduciary duty exists under Maryland law.
The Court of Special Appeals then certified the question of whether Maryland recognizes a stand-alone tort for breach of fiduciary duty to the Court of Appeals which began its analysis by noting that, "Courts 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)." Id. at 558, 231 A.3d at 441. The Court of Appeals recognized that it had made, over the years, "seemingly inconsistent pronouncements" concerning whether an independent tort for breach of fiduciary duty existed which resulted in "inconsistent and irreconcilable conclusions by the Court of Special Appeals, federal courts, and state circuit courts." Id. at 558, 231 A.3d at 442.
In seeking to clarify the "muddled state of our jurisprudence" concerning breach of fiduciary duty claims, the Court of Appeals, after analyzing a significant number of state and federal cases, held that Maryland does recognize an independent cause of action for breach of fiduciary duty. Id. at 559, 231 A.3d at 442. "To 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." The Court further held that:
Under our Kann analysis, a court should consider the nature of the fiduciary relationship and possible remedies afforded for a breach, on a case-by-case basis. 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 the specific breach alleged, a court should permit the count to proceed. The cause of action may be pleaded without limitation as to whether there is another viable cause of action to address the same conduct … Of course, 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 be dependent upon the specific law applicable to the specific fiduciary relationship at issue.
Id. at 599, 231 A.3d at 466.
If you have concerns about potential breach of fiduciary duty claims, please contact the author, George S. Mahaffey, at gsm@gdldlaw.com.
NOTES
[1] The phrase is attributed to the Chinese philosopher Lao Tzu.
[2] 469 Md. 548, 231 A.3d 436 (2020).
