Breaches of Fiduciary Duty as a Stand-Alone Cause of Action in Maryland

Plaintiffs now seemingly have more options for pleading a breach of fiduciary duty and having such claims proceed beyond motions for dismissal or summary judgment. In an opinion published July 14, 2020, Maryland’s Court of Appeals held that a “breach of fiduciary duty” may be pled as an independent cause of action, regardless of whether alternative claims could be pled alleging the same underlying conduct.

An Overview of the Plank v. Cherneski Case

In 2011 James Cherneski, a former professional soccer player, started his own company, Trusox, LLC, of which Cherneski was President and CEO, to produce and sell non-slip socks to soccer players. Amidst growth struggles and inadequate cash flow, the company’s minority members, chief among them William Plank, lost confidence in Cherneski’s ability to manage the company, and filed suit in Anne Arundel County against Cherniski and Trusox in 2016. They alleged the company and Cherneski, in breach of his fiduciary duties to the company’s other members, were violating state employment law, state corporate law, state and federal securities laws, and trademark law, thereby endangering the minority members’ investments. The trial court held that there was insufficient evidence to establish Cherneski breached his fiduciary duty. On appeal to the Court of Appeals, the plaintiffs-appellants argued the trial court erred by holding, according to them, that no separate cause of action for breach of fiduciary duty exists in Maryland. The Court of Appeals primarily addressed this question in its recent opinion.

Disputes Involving Breach of Fiduciary Duty in Maryland

For decades, Maryland courts have been inconsistent as to whether an independent cause of action exists for a breach of fiduciary duty. Some Maryland cases hold that breach of fiduciary duty is a “cognizable tort” in Maryland. Other cases maintain that a separate cause of action may exist, but only where equitable relief is sought. And, still other cases were adamant that no separate cause of action in tort exists for a breach of fiduciary duty. The federal courts in Maryland also diverged, with recent cases only entertaining a breach of fiduciary duty claim where a particularly identified fiduciary relationship and breach of fiduciary duty were alleged. The Court of Appeals’ opinion resolves the conflicting case law.

In his opinion, Judge Booth analyzed the Court of Appeals’ 1997 decision in Kann v. Kann, a case widely cited for its breach of fiduciary analysis, and by some opinions to state that no independent cause of action existed. In Plank, the court explained that Kann did not categorically deny that a claim or cause of action for breach of fiduciary duty exists in Maryland. For instance, a court could entertain these claims while not automatically entitling them to a jury trial, for some may only be entitled to equitable relief. The court stated that independent claims for breach of fiduciary duty may be heard, but only proceed where the plaintiff can plead a specific fiduciary relationship and demand the historically recognized, applicable relief as to ameliorate the harm caused by the fiduciary’s breach. That is, the plaintiff must identify the appropriate legal theory, whether statutory, common law, or found in contract, entitling them to relief based on the particular fiduciary relationship identified.

The court resolved the dispute before it consistent with its interpretation of Kann. One of the elements required for a breach of fiduciary duty claim to proceed is for the plaintiff to establish a breach of a duty owed by the fiduciary to the beneficiary. The court affirmed the trial court’s ruling on the breach of fiduciary duty claim in Cherneski’s favor, finding insufficient evidence in the trial record to establish a breach. The court also corrected the appellants, stating that the Court of Special Appeals never held that Maryland does not consider breach of fiduciary duty a separate cause of action. And, by holding that plaintiffs can allege the same set of facts to plead a breach of fiduciary duty alongside other viable claims, the court has provided additional avenues for recovery. Plaintiffs with claims for breach of fiduciary duty should be mindful and ensure the relief sought is historically applicable, under statute, common law, or contract, to the particular fiduciary relationship described.

1. https://mdcourts.gov/data/opinions/coa/2020/3a19m.pdf ↑