Plank v. Cherneski: Court of Appeals Nails Down a Loose Plank in Maryland Tort Law

By Alan Sternstein

The Court of Appeals expressly held in Kann v. Kann, 344 Md. 689, 510, 690 A.2d 509, 510 (1997), that “allegations of breach of fiduciary duty, in and of themselves, do not give rise to an omnibus or generic cause of action at law that is assertable against all fiduciaries.” Ever since, Maryland’s lawyers and courts have labored under the maxim that “Maryland does not recognize a separate tort action for breach of fiduciary duty.” Int’l Brotherhood of Teamsters v. Willis Corroon Corp., 369 Md. 724, 727 n.1, 802 A.2d 1050, 1051 n.1 (2002) (dictum). Yet, since Kann, lawyers have sought and courts have granted and affirmed relief for breaches of required standards of conduct in various fiduciary relationships. See, e.g., Shenker v. Laureate Education, Inc., 411 Md. 317, 983 A.2d 408 (2009) (corporate directors and minority shareholders); Della Ratta v. Larkin, 382 Md. 553 (2004) (general partner and limited partners); Ins. Co. v. Miller, 362 Md. 361, 765 A.2d 587 (2001) (insurance company and agent of company). With its recent decision in Plank v. Cherneski, Misc. No. 3, Sept. Term 2019 (Md., July 14, 2020) (“Slip Op. at ___”), the Court of Appeals, after exhaustively surveying and scrutinizing relevant Maryland state and federal decisions in the 23 years since Kann, has exposed the emptiness of the maxim rejecting a generic cause of action for breach of fiduciary duty. Despite the 23 year wait, however, Judge Booth’s 79-page unanimous opinion for the court leaves no suspense for the end, stating on page 2:

This Court recognizes an independent cause of action for breach of fiduciary duty. 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.

Slip Op. at 2.[1]

If the three elements of the cause of action whose birthright the Court of Appeals has now granted ring familiar, they should. They essentially mirror the elements long recognized in Maryland and other jurisdictions as the requisites for an independent cause of action for negligence. Those elements, generally stated, are (1) the existence of a duty of care owed, pursuant to law, by one person to another; (2) breach of the duty by the person owing it; and (3) injury to the person to whom the duty is owed caused by the person owing the duty.[2] That the tort of fiduciary breach has now been given independent status should, therefore, come as no surprise. Essentially, the elements of the causes of action for negligence and fiduciary breach share common denominators.

Like fiduciary breach, appellate decisions abound addressing the first negligence element, that is, whether a duty of care exists between particular persons and, if so, precisely what conduct that duty entails. Yet, unlike what the Court of Appeals said in Kann about fiduciary breach, negligence has always been “an omnibus or generic cause of action.” The same is now true, as it should be, of the tort of fiduciary breach. Whether a fiduciary relationship and, therefore, fiduciary duties exist between persons and, if so, the specific conduct that those duties require are issues that, as with negligence, will continue to account for diverse factual contexts in fiduciary breach actions. There will be estate cases, corporate minority interest cases, agency cases and so forth, where the central issues will be the existence vel non of fiduciary duties, just as there have been, in negligence, medical malpractice cases, vehicular accident cases, environmental pollution cases and so forth, where the central issues have been whether the relationship presented imports a duty of care and, if so what the specific obligations attendant to each relationship requiring care are.

There has always been with negligence more than one legal source in which duties of care may arise and differences among the type of care required, depending on the factual context to which the source is applied. See Blackburn Ltd. v. Paul, 438 Md. 100, 90 A.3d 464, 466 (2014) (“duty of care in a negligence action may arise from statute or regulation”); Jones v. Hyatt Ins. Agency, Inc., 356 Md. 639, 741 A.2d 1099, 1109 (1999) (duty of care in negligence action by insured against agent arises out of nature of the parties’ relationship); Jacques v. First Nat’l Bank, 307 Md. 527, 534-535, 515 A.2d 756, 759-760 (1986) (“In determining whether a tort duty should be recognized in a particular context, two major considerations are: the nature of the harm likely to result from a failure to exercise due care, and the relationship that exists between the parties.”). The existence, therefore, of more than one source for a legal duty and more than one factual context in which a generic legal duty may arise, a duty of care or a contractual duty, for example, does not mean that there is no generic cause of action for a breach of that duty.

Except, however, for one earlier commentator and now Maryland jurist,[3] this was not clear for fiduciary breach in Maryland, until Plank. Indeed, though finally recognizing breach of fiduciary duty as a unitary tort, in ultimately disposing of the action before it in Plank, the Court of Appeals found it necessary first to decide, and for the first time to consider, whether any fiduciary duties existed in the relationship between the managing member of an LLC and minority members. Slip Op. at 16-18. Plank now recognizes that the fiduciary duty required for a cause action for fiduciary breach may arise in “fiduciary relationships . . . created by common law, by statute, or by contract, and can have different characteristics.” Id. at 46.

Despite the common features in the two torts’ core elements, the more extensive forms of relief that have been required and afforded in fiduciary breach cases has always been a difference between negligence and fiduciary breach cases. Perhaps, therefore, the fact that the remedy for negligence is largely damages also explains why negligence escaped the misperception of multiplicity that fiduciary breach, for which the remedy necessarily and regularly varies, did not, until Plank. At the least, the greater breadth of remedy in fiduciary breach cases contributed to the misimpression that there was no one basic tort of fiduciary breach.

After Plank, however, it should be recognized that though a variety of remedies have been necessary and applied to provide meaningful relief in fiduciary breach cases, the tort of fiduciary breach does have a fundamental core. Indeed, although actions titled causes for injunctive relief, specific performance, constructive trust and the like are, rightly or wrongly, commonplace, remedies are not elements of causes of action, let alone causes of action themselves. Hamlin Machine Co. v. Holtite Mfg. Co., 197 Md. 148, 153, 78 A.2d 450, 452 (1951) (noting “clear distinction between cause of action and remedy”); see McCarty v. E.J. Korvette, Inc., 28 Md. App. 421, 428-31, 347 A.2d 253, 259-61 (1975) (discussing remedies for breach of warranty as distinct from the breach).

As the Court of Appeals has now clarified in Plank,the remedy in an action for fiduciary breach may vary, depending on the type of fiduciary relationship involved and the nature of the injury resulting from breach of the duties that the particular fiduciary relationship imports. Slip Op. at 2 (“remedy will depend upon the specific law applicable to the specific fiduciary relationship at issue”), 20-21, 46 (“The type of relief that is available will be determined by the historical remedies provided by statute, common law, or by contract.”). The remedy, therefore, may be equitable or legal, including, for example, damages, injunctive relief or imposition of a constructive trust, but the tort is unitary.[4]

Despite having lifted the fog of uncertainty that shrouded the tort of fiduciary breach because of some offhand statements in prior opinions, the Court of Appeals, nevertheless, does make two affirmative statements in its Plank opinion that cause some pause. Specifically, citing Kann, the court again says that “there is no ‘one-size fits all’ breach of fiduciary tort that encompasses all types of relationships.” Slip Op. at 47. In the same breath, it also observes that “not every claim for breach of fiduciary duty is a viable action at law for which a jury trial may be prayed.” Id. Given, however, the merger of law and equity introduced with the Federal Rules of Civil Procedures and now mirrored in most state civil rules, including, Maryland’s, as well as the important distinction between cause of action and remedy, the more accurate statement would be that there is a viable action at law for fiduciary breach, although, because the remedies plead or available with respect to such an action may be legal, equitable or both, the trier(s) of fact may vary for the action. Carefully viewed in their immediate context and in the context of the court’s Plank opinion as a whole, it is unlikely these statements will give rise to another era of confusion in Maryland law about the tort of fiduciary breach.


[1] Despite the weight of this shift in the Court of Appeals’ jurisprudence, the shift, arguably, was dictum, for the court only affirmed the trial court’s factual determination that, notwithstanding the existence of a duty of care between plaintiffs and defendant, the defendant had not breached any fiduciary duty owed the plaintiffs. Slip Op. at 3, 51-59. Specifically, the Plank plaintiffs had alleged that the defendant majority owner of an LLC had placed minority members’ investments at risk by engaging in allegedly unlawful actions that exposed the LLC to potential future damages claims for regulatory violations and lawsuits. Plaintiffs’ factual showing, however, amounted to no more than attenuated and indefinite claim of injury. In short, the disposition by the Court of Appeals in Plank rested on the facts, not the law.

[2] Jackson v. Pennsylvania R.R., 176 Md. 1, 5, 3 A.2d 719, 721 (1939) (negligence cause of action requires “a duty which is owed by the defendant to the plaintiff to observe that care which the law prescribes in the given circumstances, a breach by the defendant of that duty, damages and injury suffered by the plaintiff as the demonstrable effect of the breach of duty”). Accord B.N. v. K.K., 312 Md. 135, 141, 538 A.2d 1175, 1178 (1988) (“The traditional elements of a cause of action in negligence may be stated as [a] duty, or obligation, recognized by the law, requiring the person to conform to a certain standard of conduct, for the protection of others[, a] failure on the person’s part to conform to the standard required[, a] reasonably close causal connection between the conduct and the resulting injury[ and a]ctual loss or damage resulting to the interests of another[.]); Read Drug & Chem. Co. v. Colwill Constr. Co., 250 Md. 406, 412, 243 A.2d 548, 553 (1968) (same, quoting Jackson).

[3] As the Court of Appeals acknowledged, Slip Op. at 46, Judge Arthur, of the Court of Special Appeals, wrote in 2013 and before ascending to the bench of what, if not after Judge Arthur’s writing, then, surely after Plank, would now seem to be the triviality of the debate over whether Maryland law recognizes a basic tort for breach of fiduciary duty. See Kevin F. Arthur, Breach of Fiduciary Duty: a Cause of Action in Maryland?, Federal Bar Association Maryland Chapter Newsletter (March 2013).

[4] See also Slip Op. at 45 (To argue “that, in any case alleging a breach of fiduciary duty, regardless of the type of fiduciary relationship, an independent cause of action can only be pursued where the plaintiff is seeking equitable relief, is too constrictive and does not take into account various other types of fiduciary relationships and the relief traditionally associated with claims based on those specific relationships.”) (emphasis in original).

One response to “Plank v. Cherneski: Court of Appeals Nails Down a Loose Plank in Maryland Tort Law”

  1. Michael Wein says :

    Alan,

    So I will start with the brief caveat/disclaimer that I participated with the case, drafting the Amici Brief for the MAJ/Maryland Association for Justice, and successfully advocating a Breach of Fiduciary Duty claim was an Independent Cause of Action. My sense is that’s best to note in Disclaimers in Posts themselves, out of an abundance of caution, rather than rely on the General Disclaimer at the top of the Blog Page. (Perhaps not to the degree that Jeff Bezos is noted to the owner of the Washington Post on every story involving Amazon, but it’s my personal preference,…this could suggest a future discussion on a strengthened disclaimer agreement) Still, I did not know what position you would take on the Plank case itself in your Blog post, until the draft was complete, and respected disagreement is a hallmark of free speech…. and thus here’s my comment in response.

    So I do agree that BoFD is very similar and analogous to the same larger category as negligence overall, which involve a multitude of circumstances. The one typical variation, is that there has to be a “fiduciary-type” relationship to begin with (which doesn’t happen with every day interactions with people), in order to help establish the “duty” that falls under the auspices of the possible “Breach” and then it tends to follow a similar path to negligence, with a violation of the standard of care, and causation. BoFD is also somewhat distinct, because sometimes (and this is a minority of cases), there’s more “equitable” remedies possible, as opposed to merely damages, which is what happens in nearly all negligence cases. (So for example, if the BoFD is discovered early enough, then it may be possible to get the parties to agree to “remedy” the misused and/or unauthorized monies, to be returned, before getting to significant damage remedies.) Additionally, BoFD, in a fraud context, had quite serious ramifications, when properly proved.

    Where I disagree with your Post, is the implication that the Md. COA’s decision in Plank was somewhat very obvious. It was not. There weren’t too many people in Maryland actually making this point. Paul Sandler and James Archibald’s Pleading Causes of Action book, has had a version outlining the Breach of Fiduciary Duty Cause of Action (and how it should be plead) since Day One of the First Edition. That somewhat changed after Kann v. Kann came out, but the book, noted the language’s uncertainty, with little commentary on the author’s positions. Later editions, started pointing out that there were subsequent decisions (esp. one Fed. decision) interpreting Kann, but these decisions and their holdings contradicted each other. So there were certainly judges who felt, strongly, on and off the record that there was no separate cause of action. Chief Judge Fader’s Certification Order from the COSA, is very reminiscent of the Certification Orders I’ve seen in the U.S. Dist. Cts. and 4th Cir., where a case is Certified, when there’s an obvious disagreement amongst authorities, which interpreting Kann, were essentially irreconcilable. But very little judgment was alluded to, as to which interpretation was correct. (It was more in the nature of a “Just the facts” approach, leaving it to the Md. COA to decide) Now-Judge Arthur’s article, was direct in explaining the how and why, which was my conclusion as well. There was citations that incorrectly interpreted Kann v. Kann, that were simply “wrong.” These wrong citations then made it into other cases. That article, was the best article to directly explain the problem. And there are attorneys, even recently, who had “dead bang winner” arguments on Breach of Fiduciary Duty, IMO, but never argued it, because they didn’t read the Pleading Causes of Action Book, and/or either misread Kann v. Kann, and/or correctly read the “incorrect citations” to Kann. But unwinding this, is not a simple thing, and doesn’t happen all that frequently in appellate law.

    I’ll leave with the thought, that there was one other factor involving this case, which is an interesting legal research issue, that I think may have confused or confounded some of the judicial researchers, that lead to the disharmonious positions that mislaid the problems following Kann v. Kann. I may discuss that as a later Post. But I agree that today, Plank has set the case out correctly, and removed the lingering doubts that unfortunately took about 24 years to remedy.

    Mike

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