Maryland’s Highest Court Confirms That Breach of Fiduciary Duty Exists As An Independent Cause of Action
Whether Maryland law recognizes an independent cause of action for breach of fiduciary duty has been an unsettled question. As the Maryland Court of Appeals noted in its July 14, 2020 opinion in Plank v. Cherneski, “Maryland appellate courts have not spoken uniformly on this issue” and have “made seemingly inconsistent pronouncements.” Consequently, “Litigants pick and choose which statement they believe to be controlling, depending on which outcome benefits their position.” That will no longer be the case after Plank.
In a 79 page opinion, the Court of Appeals catalogued the statements that have been made by the Maryland Court of Special Appeals, the Maryland Court of Appeals, and federal courts applying Maryland law that led to the “muddled state of our jurisprudence.” Those statements include that:
- “There is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries;”
- “Maryland does not recognize a separate tort action for breach of fiduciary duty;”
- “We assume, without deciding it is so solely for purposes of this appeal, that breach of fiduciary duties is a cognizable tort in Maryland;”
- “Although the breach of a fiduciary duty may give rise to one or more causes of action, in tort or in contract, Maryland does not recognize a separate tort action for breach of fiduciary duty;”
- “The law is clear in Maryland, that an independent cause of action for breach of fiduciary duty is not recognized if the allegations are duplicative of a breach of contract claim;”
- “Separate claims for breach of fiduciary duty and negligence condense to only one claim; the claim based on the tort of negligence”
- “In a claim for monetary damages at law…an alleged breach of fiduciary duty may give rise to a cause of action, but it does not, standing alone, constitute a cause of action;”
- “An action for equitable relief may give rise to a separate cause of action for breach of fiduciary duty” but “when monetary damages are sought, a claim or cause of action for breach of a fiduciary duty may be available, but only if the breach gives rise to another cause of action;”
- “Maryland law does not recognize a direct cause of action for breach of fiduciary duty, but does allow recovery from the breach of fiduciary duty, but the breach must be coupled with a proper cause of action;” and
- “Maryland does not recognize a universal or omnibus for the redress of breach of fiduciary duty, at least in a situation in which other remedies exist.”
The Court of Appeals examined the facts and the procedural posture of the cases in which each of these statements had been made and concluded that many of the statements that parties had chosen as “holdings” that supported their respective positions were not holdings at all, but dicta. The confusion, the Court concluded, resulted from the fact that “fiduciary relationships can be created by common law, statute, or by contract, and can have different characteristics.” The statements in the prior cases resulted, not from the fact that there is no cause of action for breach of fiduciary duty under Maryland law, but from the fact that there was no breach of the particular variation of fiduciary duty at issue or that the remedy sought did not fit that variation. Based on its extensive survey, the Plank Court held that:
- A breach of fiduciary duty may be actionable as an independent cause of action;
- 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 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; and
- The cause of action may be pleaded without limitation as to whether there is another viable cause of action to address the same conduct.
In an equally important discussion of fiduciary duties in the context of a Maryland limited liability company, the Plank court said that managing members of LLC’s “owe common law fiduciary duties to the LLC and to the other members based on agency principles.” The Court said that it agreed with the Court of Special Appeals that, under Maryland law, “provisions within operating agreements could alter existing duties or create other duties that would otherwise not exist.” However, as the operating agreement of the LLC involved in the case contained no provisions that would displace common law duties, the Court did not address the extent to which a managing member’s fiduciary duties may be limited or eliminated in an operating agreement.
Plank v. Cherneski brings clarity to an unsettled issue of Maryland law. Plaintiffs who are able to identify a specific source of a fiduciary duty and seek relief consistent with relief historically available will no longer have to couple a breach of fiduciary duty claim with some other cause of action to be assured of withstanding a motion to dismiss.
