Maryland’s highest court, the Court of Appeals, recently settled a longstanding question regarding whether Maryland law recognized an independent cause of action for breach of fiduciary duty. With its opinion in Plank v. Cherneski, the Court resolved an area of confusion that has troubled Maryland courts for more than 23 years since the Court’s 1997 opinion in the seminal case of Kann v. Kann.
In 1997, the Kann court held:
There is no universal or omnibus tort for the redress of a 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.
Following the opinion, Maryland courts struggled to interpret and apply Kann’s holding. Illustrating this confusion was a 2002 opinion in which the Maryland Court of Appeals noted in footnote that “Maryland does not recognize a separate tort action for breach of fiduciary duty.” Several other state and federal courts echoed similar sentiments holding that a claim for breach of fiduciary duty could only be maintained when tied to other viable alternative theories of liability, such as negligence or breach of contract. The Plank court signaled its intent to put the confusion to bed once and for all in the opinion’s first line which succinctly stated the question presented: “Does Maryland recognize an independent cause of action for breach of fiduciary duty?” Later in the opinion, the Court acknowledged the confusion following Kann writing that “the muddled state of our jurisprudence has created inconsistent and irreconcilable conclusions by the Court of Special Appeals, federal courts, and state circuit courts.”
Plank started as a relatively unremarkable 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 appointment of a receiver. The trial court initially voiced skepticism regarding whether Maryland law recognized a tort of breach of fiduciary duty but ultimately dismissed the claim on directed verdict without squarely addressing the question. On appeal, the Court of Special Appeals certified the question to Maryland’s high court.
In its 79-page opinion, the Plank court catalogued numerous statements by state and federal courts applying Kann that led to contradictory conclusions concerning the existence of an independent tort for breach of fiduciary duty under Maryland law:
- “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;”
- “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”;
- “We assume, without deciding it is so solely for purposes of this appeal, that breach of fiduciary duties is a cognizable tort in Maryland”; and
- “[T]he Court of Appeals [has] recognized breach of fiduciary duty as a viable cause of action” but “the analysis must be done on a case-by-case basis.”
The confusion, the Court concluded, resulted from the fact that “Our sentence in Kann—‘we hold that there is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries’—has been over-simplified into an oft-repeated blanket assertion that ‘Maryland does not recognize a separate tort for breach of fiduciary duty.’” The Court acknowledged its own participation in such over-simplification. After its extensive survey of cases considering the existence of a cause of action for breach of fiduciary duty, the Plank Court held that there is an independent cause of action for breach of fiduciary duty under Maryland and laid out the elements of such a claim.
The Court’s full opinion is available here.
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