The unpredictable interpretation of Kann resulted in Maryland courts applying three different theories to determine if a cause of action existed for breach of fiduciary duty.

The Court of Appeals of Maryland recently released its opinion in William H. Plank, II, et al. v. James P. Cherneski, et al.,―A.3d―(2020) unequivocally holding that “[t]his Court recognizes an independent cause of action for breach of fiduciary duty.”[1] This opinion establishes a resolution to an inconsistency that has troubled Maryland courts for more than 23 years.

The issue arose in the appeal of a minority shareholders’ lawsuit against the managing member and LLC for numerous causes of action, including an independent count for breach of fiduciary duty. The appeal, originally before the Court of Special Appeals, was decided by Maryland’s high court as a certified question of law. In issuing its ruling, the Court of Appeals recognized that the question of whether or not Maryland recognizes an independent cause of action is conflicted with contradictory holdings from Maryland’s appellate and federal courts. The source of the confusion was the holding in the seminal case Kann v. Kann,[2] a 1997 Maryland Court of Appeals opinion.

In Kann, the Court held:

There is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries. This does not mean that there is no claim or cause of action available for breach of fiduciary duty. Our holding means that identifying a breach of fiduciary duty will be the beginning of the analysis, and not its conclusion.[3]

Maryland courts struggled to find common ground on Kann’s holding. Most illustrative of the confusion was a separate Maryland Court of Appeals opinion containing a footnote that stated in part: “Maryland does not recognize a separate tort action for breach of fiduciary duty.”[4] Several similar cases resulted in holdings that recognized a claim for breach of fiduciary duty only when tied to other viable alternative theories of liability, such as negligence or breach of contract. On the other hand, the Plank court reviewed numerous cases that interpreted Kann’s holding as allowing an independent cause of action. The unpredictable interpretation of Kann resulted in Maryland courts applying three different theories to determine if a cause of action existed for breach of fiduciary duty.[5]

With clarity from Maryland’s high court, the law is now clear that a plaintiff does not need to raise a separate cause of action in order to bring a claim for breach of fiduciary duty. A plaintiff will only need to show:

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.[6]

In issuing this ruling, the court did clarify that each claim for breach of fiduciary duty will depend on the facts and how the duty arose.[7] Remedies will also require a varied analysis:

The 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.[8]

A fiduciary’s actions must be free of conflicts of interest and self-dealing. A fiduciary may not use their position to promote personal gain or advantage, and must act in the interests of the principal. Those that hold a fiduciary relationship should take note of this holding, as it clarifies that a separate legal theory is available to hold fiduciaries liable. This includes those in professional services such as accounting, insurance, legal or similar fields that under prior case law could arguably only be held liable under negligence (malpractice) or breach of contract theories. Additionally, those who serve at the behest of others, such as corporate appointees or managing members of companies, must also take note. The Plank decision not only held that an independent cause of action for breach of fiduciary duty exists, it affirmed “managing members of an LLC owe common law fiduciary duties to the LLC and to the other members based on principles of agency.”[9]

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