Plank v. Cherneski

William H. Plank, II, et al. v. James P. Cherneski, et al., Misc. No. 3, September Term, 2019, Opinion by Booth, J. FIDUCIARY DUTIES – MANAGING MEMBERS OWED TO LIMITED LIABILITY COMPANY AND MEMBERS – AGENCY. Managing members of an LLC owe common law fiduciary duties to the LLC and to the other members based upon the fiduciary relations governing the principles of agency. BREACH OF FIDUCIARY DUTY AS AN INDEPENDENT CAUSE OF ACTION.

In Kann v. Kann, 344 Md. 689 (1997), and our jurisprudence that followed, this Court recognized a breach of fiduciary duty claim as an independent cause of action. To establish a breach of fiduciary duty, a plaintiff must 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. 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 the specific breach in question, and may arise under a statute, common law, or contract. A breach of fiduciary duty cause of action should be analyzed on a case- by-case basis.

If the plaintiff describes a fiduciary relationship, identifies a breach, and requests a remedy historically recognized by statute, contract, or common law applicable to the particular type of fiduciary relationship, the court should permit the count to proceed. The cause of action may be pleaded without limitation as to whether there is another viable cause of action to address the same conduct. To be clear, this does not mean that every breach will sound in tort, with an attendant right to a jury trial and monetary damages. The remedy will depend upon the specific law applicable to the specific fiduciary relationship at issue.

BREACH OF FIDUCIARY DUTY – SUFFICIENCY OF EVIDENCE. The circuit court did not err in entering judgment in favor of the managing member on the independent breach of fiduciary duty count. The court made a factual determination that there was insufficient evidence of a breach of fiduciary duty. ATTORNEYS’ FEES ARISING UNDER FEE-SHIFTING PROVISION IN OPERATING AGREEMENT.

The circuit court correctly interpreted the fee-shifting provision of the parties’ Operating Agreement and did not err in determining that the managing member and the Company were the “substantially prevailing parties” and in awarding the defendants their attorneys’ fees in their entirety. Considering the overlapping nature of the claims, the circuit court’s approach to awarding attorneys’ fees in this case is consistent with the “common core of facts” doctrine, which was a reasonable method for awarding attorneys’ fees in this case. Circuit Court for Anne Arundel County Case No.: C-02-CV-16-002078 Argued: December 5, 2019 IN THE COURT OF APPEALS OF MARYLAND Misc. No. 3 September Term, 2019 WILLIAM H. PLANK, II, et al. v. JAMES P. CHERNESKI, et al. Barbera, C.J. McDonald Watts Hotten Getty Booth Battaglia, Lynne A.

(Senior Judge, Specially Assigned), JJ. Opinion by Booth, J. Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Suzanne Johnson 2020-08-05 11:55-04:00 Filed: July 14, 2020 Suzanne C. Johnson, Clerk Does Maryland recognize an independent cause of action for breach of fiduciary duty? Courts and commentators have been asking this question for 23 years since this Court articulated its holding in Kann v. Kann, 344 Md. 689 (1997).1 When attempting to answer the question, Maryland appellate courts have not spoken uniformly on this issue.

Indeed, this Court has made seemingly inconsistent pronouncements, at times calling for a case-by-case analysis, see Kann, 344 Md. at 713 , and at other times, making a blanket assertion that “Maryland does not recognize a separate tort action for breach of fiduciary duty.” Int’l Bhd. of Teamsters v. Willis Corroon Corp. of Md., 369 Md. 724 , 727 n.1 (2002). Litigants pick and choose which statement they believe to be controlling, depending on which outcome benefits their position. Understandably, the muddled state of our jurisprudence has created inconsistent and irreconcilable conclusions by the Court of Special Appeals, federal courts, and state circuit courts. For this reason, the Court of Special Appeals filed a Certification pursuant to Maryland Rule 8-304, requesting that this Court provide guidance concerning whether an independent cause of action exists, as well as its scope and parameters. 1 See, e.g., Froelich v. Erickson, 96 F. Supp. 2d 507 , 526 n.22 (D. Md. 2000) (explaining that there appears to be “a split of authority . . . as to whether the Court of Appeals rejected breach of fiduciary duty as an independent tort”); Paul Mark Sandler & James K. Archibald, Pleading Causes of Action in Maryland at 576–79 (6th ed. 2018) (posing, but not purporting to answer the question of whether Maryland recognizes an independent cause of action for breach of fiduciary duty); Kevin Arthur, Breach of Fiduciary Duty: a Cause of Action in Maryland?, Federal Bar Association Maryland Chapter Newsletter (March 2013) (“Does Maryland recognize an independent cause of action for breach of fiduciary duty?

The courts disagree amongst themselves.”). For the reasons more fully outlined below, we answer the certified questions as follows. 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.

Under our Kann analysis, a court should consider the nature of the fiduciary relationship and possible remedies afforded for a breach, on a case-by-case basis. If a plaintiff describes a fiduciary relationship, identifies a breach, and requests a remedy recognized by statute, contract, or common law applicable to the specific type of fiduciary relationship and the specific breach alleged, a court should permit the count to proceed. The cause of action may be pleaded without limitation as to whether there is another viable cause of action to address the same conduct. To be clear, this does not mean that every breach will sound in tort, with an attendant right to a jury trial and monetary damages.

The remedy will depend upon the specific law applicable to the specific fiduciary relationship at issue. We explain our answer to the certified questions within the context of the dispute between the members of Trusox, LLC, a Maryland limited liability company (“Trusox” or the “Company”). William H. Plank, II and Sanford R. Fisher, both minority members of Trusox, filed an action alleging direct and derivative claims against James P. Cherneski, the Company’s President, Chief Executive Officer (“CEO”), and majority member. Among other monetary and injunctive relief, Mr. Plank and Mr. Fisher (“Minority Members”) sought an order dissolving the LLC or appointing a receiver to take over its management. 2 Following a bench trial, the Circuit Court for Anne Arundel County entered judgment: (1) in favor of Mr. Cherneski on most of the Minority Members’ claims, including the claims for dissolution and receivership and, as most relevant to the issue raised in the Court of Special Appeals’ Certification, their claim for breach of fiduciary duty, and (2) in favor of the Minority Members on certain other claims.

Finding Mr. Cherneski and the Company to have prevailed on the most significant claims, the court entered an award of attorneys’ fees in favor of Mr. Cherneski and the Company pursuant to a fee-shifting clause in the Trusox Operating Agreement. The Minority Members assert that the circuit court committed multiple errors in resolving their breach of fiduciary duty claim. They also contend that the circuit court erred in its award of attorneys’ fees by misinterpreting the contractual fee-shifting provision in the Trusox Operating Agreement. For the reasons explained below, we hold that the circuit court did not err in entering judgment in favor of Mr. Cherneski on the breach of fiduciary duty count.

We further hold that the circuit court did not err in interpreting the contractual language of the fee-shifting provision by determining that the operative contractual language applied to all counts between the parties to this action, and by concluding that Mr. Cherneski and Trusox were the substantially prevailing parties. Finally, we hold that the circuit court did not abuse its discretion by awarding Mr. Cherneski and Trusox all of their attorneys’ fees, as the court’s methodology was consistent with the “common core of facts” doctrine. We affirm the circuit court’s judgment in its entirety. 3 I. Factual Background and Procedural History James Cherneski is a former professional soccer player who invented and patented a non-slip athletic sock. Based upon his personal experience, Mr. Cherneski was determined to create an athletic sock that would eliminate movement of a player’s foot in his or her shoe during athletic activity.

Over the course of many years, through trial and error, Mr. Cherneski developed a non-slip sock, and ultimately obtained patents for the athletic sock and its components. As he was developing the product and securing patents, Mr. Cherneski accepted investments by Sanford Fisher and Jeff Ring. In April 2011, Mr. Cherneski formed Trusox, LLC to produce and sell the patented sock. Mr. Cherneski, Mr. Fisher, and Mr. Ring were the original members.

At all times, Mr. Cherneski retained legal control of the Company. By November 2011, the Company had a product that could be sold and marketed. Mr. Cherneski undertook marketing efforts, attempting to convince stores to sell the product. When the product did not sell, Mr. Cherneski determined that the product needed visibility, and he gave the product to professional soccer players in Europe in order to boost exposure and visibility.

Mr. Cherneski traveled to England to work his connections in the professional soccer world, attempting to have the most high-profile players wear Trusox athletic socks. Mr. Cherneski’s strategy worked. With an increase in product visibility, Trusox began receiving more orders for its product. In June 2013, Mr. Cherneski began discussions with William H. Plank, II, about a possible investment.

In October 2013, Mr. Plank invested $1.5 million in Trusox and 4 acquired a 20% membership interest, with Mr. Cherneski owning a 65% membership interest, and Mr. Fisher and Mr. Ring each owning a 7.5% membership interest. The members of Trusox, along with Trusox (by Mr. Cherneski as its CEO and President) entered into an Amended and Restated Operating Agreement (“Operating Agreement”) on October 14, 2013. The Operating Agreement gives Mr. Cherneski, as the majority member, President, and CEO, general authority over most decisions relating to Trusox and its operations, including: (1) the right to make most decisions and take most actions2 on behalf of the company; (2) the power to appoint and remove officers of the company and assign them such powers, authorities, and responsibilities as “he may determine”; and (3) the “authority to manage and operate the Company in the ordinary course of business . . . .” Consistent with the authority granted in the Operating Agreement, Mr. Cherneski’s role in Trusox has always been significant—he not only created the sock; he marketed it. The circuit court summarized Mr. Cherneski’s instrumental and key role, as the President, investor, marketer, and producer as follows: Every bit of evidence shows that it is [Mr.] Cherneski who is focused on the marketing, investment, the development, the maintaining, the establishing the relationship with the athletes, the agents, the distributers.

It is [Mr.] Cherneski who sells the socks. It is [Mr.] Cherneski who is able to relate the slippage issues in terms of the foot–the placement, the striking. It is 2 Given Mr. Cherneski’s 65% ownership interest, only actions that require supermajority consent under the Operating Agreement are outside his authority. These actions include amendments to the Operating Agreement or articles of organization; merger; sale or transfer of all or substantially all of the Company’s assets; sale, transfer, or encumbrance of the Company’s intellectual property; dissolution; certain transactions related to members of Mr. Cherneski’s family; and making a capital call. 5 [Mr.] Cherneski who created the business.

It is [Mr.] Cherneski who knows the business. It is [Mr.] Cherneski who is the business. From the formation of the Company until the lawsuit was filed by the Minority Members, the Company had fits and starts. As the circuit court determined, Trusox was a fledgling business, which faced challenges in its efforts to grow and become a successful and sustainable business.

Although the Company experienced some success, it continued to struggle financially. In January 2015, after receiving two shipments of defective adhesive material that was necessary for production of the sock, Trusox needed to obtain replacement material. Mr. Cherneski testified that a production delay ensued, which interfered with the Company’s cash flow, leading to additional cash and accounts payable issues. At the time of trial in 2017, Trusox had only five employees.

At various times before then, it had employed more than 20 people. In 2015, Trusox averaged manufacturing 910 pairs of socks per day, with a high of 2,100 pairs in a single day. In 2016, the average production was 230 pairs of socks per day, with some months much higher, and other months much lower. Slowdowns in production generally occurred when Trusox ran out of materials and lacked funds to obtain more.

The Company often lacked funds to pay its vendors and consistently owed much more in payables than it had in cash on hand. On several occasions in 2015 and 2016, Trusox had been late in paying its employees, for as many as 14 days. By the time of trial in 2017, however, the Company had received additional funding, was hiring additional personnel, and was ramping up production. In late 2015, the Minority Members were disenchanted with Mr. Cherneski’s leadership of the Company.

In particular, they were concerned about Trusox’s failure to 6 make timely payments to vendors. Mr. Plank was disappointed that Mr. Cherneski had not followed his suggestions concerning the direction and priorities of the Company. All of the members agreed that Trusox needed a cash infusion, but they disagreed on the manner in which it should be raised. Mr. Plank offered to loan Trusox $750,000 on terms that required repayment within two years, and if not repaid, Mr. Cherneski would lose his majority interest in the Company.

Mr. Cherneski was not interested in Mr. Plank’s offer, and instead, sought to raise $3 million through a limited public offering. At the time of trial, Mr. Cherneski had successfully raised $1.8 million in a process that took significantly longer than he had originally anticipated. Mr. Cherneski’s funding efforts became the source of additional disputes, with the Minority Members asserting that Mr. Cherneski distributed inaccurate information to potential investors, and Mr. Cherneski contending that the Minority Members were interfering with his efforts by attempting to dissuade potential investors from investing. We discuss additional facts below as they pertain to the parties’ contentions.

A. The Lawsuit In June 2016, Minority Members, Messrs. Fisher and Plank,3 filed an action against Mr. Cherneski and Trusox,4 alleging, among other things, that Mr. Cherneski was violating the Operating Agreement, had engaged in unlawful conduct related to investors and employees, and had breached contractual and fiduciary duties. In their operative second amended complaint (“Complaint”), the Minority Members alleged nine causes of action, 3 Minority Member Jeff Ring was not a party to this litigation. 4 The Minority Members named Trusox as a nominal defendant. 7 including counts for breach of contract (Counts I, II, III, and IV), invasion of privacy (Counts V and VI), breach of fiduciary duty (Count VII), dissolution (Count VIII), and appointment of a receiver (Count IX). The Minority Members sought injunctive relief, compensatory and punitive damages, and attorneys’ fees and costs.

Only the Minority Members’ cause of action for breach of fiduciary duty (Count VII) and the attorneys’ fees dispute are at issue on appeal. With respect to the breach of fiduciary duty count, the Minority Members alleged that Mr. Cherneski placed the Minority Members’ investments at risk by engaging in unlawful actions that exposed the Company to potential future damages claims for regulatory violations and lawsuits. Specifically, the Minority Members alleged that Mr. Cherneski breached his fiduciary duties by: (1) violating Maryland’s wage laws by paying employees late on multiple occasions; (2) refusing to provide the Minority Members with reasonable access to the Company’s books and records despite their written demand for the same; (3) exposing the Company to liability by selling unregistered securities in violation of securities laws and misleading potential investors by presenting inflated and unrealistic financial projections and failing to disclose the existence of this lawsuit; and (4) violating trademark and right to publicity laws by failing to obtain appropriate permission before using certain images and logos in promotional materials. Although the Complaint sought both monetary and injunctive relief, the Minority Members conceded at trial that they had not incurred any monetary damages as the result of Mr. Cherneski’s alleged breaches and were only seeking equitable relief.

The parties proceeded with an expedited bench trial which took place over the course of six days in February and March 2017. At the close of the Minority Members’ case-in- 8 chief, defense counsel moved for judgment, and the circuit court heard arguments. The circuit court found “very little compelling evidence to support [the Minority Members’] case in the light most favorable to [the Minority Members] as it related to dissolution or receivership, the breach of contract . . . , the invasion of privacy, publicity, and false light.” As part of its ruling from the bench, the circuit court discussed the elements of each count, and the facts pertaining to the count, and granted judgment in favor of Mr. Cherneski and Trusox on Count III (breach of contract); and Counts V and VI (invasion of privacy). The Court denied the Defendants’ motion for judgment on three of the breach of contract counts (Counts I, II, and IV), and Count VII (breach of fiduciary duty).

After requesting trial memoranda from the parties on Count VIII (dissolution) and Count IX (appointment of a receiver), the circuit court granted the Defendants’ motion for judgment on those counts, providing detailed findings of fact and legal conclusions from the bench. After the Defendants presented their case,5 the court entered judgment in favor of the Minority Members on the breach of contract claims alleged in Counts I, II, and part of IV, and awarded injunctive relief on those counts. Specifically, with respect to Count I, the court ordered Mr. Cherneski to make available Trusox’s books and records within ten days of any reasonable request by the Minority Members and to provide them with tax documentation within 75 days of the end of each tax year. As to Count II, the court ordered Mr. Cherneski to execute necessary documentation to assign to Trusox certain intellectual property identified in the Operating Agreement.

As to Count IV, the court precluded Mr. The Defendants’ case consisted of testimony by Mr. Cherneski, after which the 5 Defendants rested. 9 Cherneski’s brother from receiving any benefit from “any oral or written contract relating to any services that [the brother] provided to Trusox, LLC.” Breach of Fiduciary Duty Count At the close of the Minority Members’ case-in-chief, when considering the Defendants’ motion for judgment, the trial court initially reserved judgment on Count VII, for breach of fiduciary duty, stating that the court had read the decision in Kann v. Kann, 344 Md. 689 (1997), and that “there seem[s] to be within that case a clear recognition that there is no stand-alone tort for a breach of fiduciary duty,” but that “the actions may have been a breach of fiduciary duty.” The court concluded, however, that relief under Count VII “would be effectively perhaps of no weight. Because the Court is not sure how if there is a breach of fiduciary duty for failing to inspect the books, records, assign the patents, or the breach of contract regarding [Mr. Cherneski’s brother], what damages may flow.” The court reasoned that such relief “might be more of the injunctive relief or the declaratory relief that the parties are requesting.” When it later entered judgment in favor of Mr. Cherneski on Count VII, however, the court found that there was “insufficient evidence to show that there has been a breach of fiduciary duty.” Attorneys’ Fees Having decided each count in the Complaint, the circuit court considered the provisions of the Operating Agreement which addressed attorneys’ fees. After a three-day evidentiary hearing at which the circuit court considered the appropriateness and fairness of attorneys’ fees, the court determined that under the fee-shifting provisions of Section 14.13 of the Operating Agreement, Mr. Cherneski and Trusox had prevailed on a majority 10 of the claims and were entitled to attorneys’ fees. The circuit court entered judgment in favor of Mr. Cherneski against Mr. Plank and Mr. Fisher, jointly and severally, in the principal amount of $453,806.49, representing attorneys’ fees and expert and deposition costs, and entered judgment in favor of Trusox against Mr. Plank and Mr. Fisher, jointly and severally, in the amount of $189,269.15, representing attorneys’ fees, deposition costs, and expenses incurred in its defense, together with post-judgment interest.

B. Proceedings Before the Court of Special Appeals The Minority Members filed a timely appeal to the Court of Special Appeals. On appeal, they raised the following questions, which we have consolidated and rephrased:6 1. Did the circuit court err in entering judgment in favor of Mr. Cherneski and Trusox on the Minority Members’ breach of fiduciary duty claims? 2. Did the circuit court err in awarding attorneys’ fees to Mr. Cherneski and Trusox under the Operating Agreement’s fee-shifting provisions? 6 The questions presented by the Minority Members in their brief to the Court of Special Appeals are as follows: 1.

Did the Circuit Court err in determining that no independent cause of action for breach of fiduciary duty exists under Maryland law? 2. Did the Circuit Court err in not applying the factors set forth in Kann v. Kann, 344 Md. 689 (1997), to analyze the breach of fiduciary claim? 3. To the extent the Circuit Court ruled in favor of Cherneski based on its finding that there was insufficient evidence to show there [sic] that was a breach of fiduciary duty, did it err as a matter of law in disregarding uncontroverted evidence of Cherneski’s violations of Maryland and Federal law? 4. Did the Circuit Court err in awarding attorneys’ fees to Defendants rather than Plaintiffs under the fee-shifting clause of the Amended and Restated Operating Agreement? 11 The Court of Special Appeals heard oral arguments in March 2019.

Subsequently, the panel determined that the legal questions presented in this matter should be certified to the Court of Appeals. On August 15, 2019, the Court of Special Appeals filed a Certification Pursuant to Maryland Rule 8-304. In the Certification, the Court of Special Appeals posed two questions of law as follows: 1. May minority members of an LLC (a) bring a stand-alone cause of action for breach of fiduciary duty against the managing member of the LLC (b) premised on allegations that the managing member was engaged in unlawful actions that placed at risk the investments of the minority members? 2.

If so, is such a claim (a) limited to allegations that would also support another viable cause of action, (b) limited to allegations that would not also support another viable cause of action, or (c) not limited by whether or not there is another viable cause of action to address the same conduct? This Court granted the Certification, and pursuant to Maryland Rule 8-304(c)(3), issued a writ of certiorari that included the entire action. The Court permitted additional briefing on the certified questions.

II

Discussion A. Standard of Review Pursuant to Maryland Rule 8-131(c), “[w]hen an action has been tried without a jury, the appellate court will review the case on both the law and the evidence.” We will “not set aside the judgment of the trial court on the evidence unless clearly erroneous,” giving “due regard” to the trial court’s opportunity to “judge the credibility of the 12 witnesses.” Id. A trial court’s findings are not clearly erroneous if “any competent material evidence exists in support of the trial court’s factual findings[.]” Webb v. Nowak, 433 Md. 666, 678 (2013). “A trial court’s decision whether to award particular forms of equitable relief based on its fact findings and the applicable legal standards is reviewed for abuse of discretion.” Bontempo v. Lare, 444 Md. 344, 363 (2015) (citing Comm’n on Human Relations v. Talbot Cty. Det. Ctr., 370 Md. 115, 127 (2002)). “When a trial court decides legal questions or makes legal conclusions based on its factual findings, we review these determinations without deference to the trial court.” MAS Assocs., LLC v. Korotki, 465 Md. 457, 475 (2019) (citing Ins.

Co. of N. Am. v. Miller, 362 Md. 361, 372 (2001)). “Where a case involves the application of Maryland statutory and case law, our Court must determine whether the lower court’s conclusions are legally correct under a de novo standard of review.” Spaw, LLC v. City of Annapolis, 452 Md. 314, 338 (2017) (citations and quotations omitted). Similarly, “[t]he interpretation of a written contract is a question of law for the court subject to de novo review.” Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 448 (2008) (citing Diamond Point v. Wells Fargo, 400 Md. 718, 751 (2007)). B. Parties’ Contentions The Minority Members contend that the circuit court committed multiple errors in resolving their breach of fiduciary duty claim, by: (1) concluding that Maryland does not recognize an independent cause of action; (2) failing to consider and apply the factors set forth in Kann v. Kann, 344 Md. 689 (1997); and (3) finding that “there is insufficient evidence to show” that Mr. Cherneski breached his fiduciary duties. They also assert that 13 the circuit court erred in its award of attorneys’ fees by misinterpreting the contractual fee- shifting provision in the Operating Agreement.

Conversely, Mr. Cherneski contends that the case law is clear: Maryland does not recognize an independent breach of fiduciary duty tort. Alternatively, Mr. Cherneski argues that if Maryland does allow an independent cause of action, the circuit court did not enter judgment based upon a legal conclusion that no cause of action existed. Rather, Mr. Cherneski contends that the circuit court considered the independent cause of action and entered judgment after making a factual determination that there was “insufficient evidence to show that there was a breach of fiduciary duty.” Mr. Cherneski asserts that there is ample factual evidence in the record to support the circuit court’s factual finding, which he contends was not clearly erroneous. Concerning the court’s attorneys’ fee award, Mr. Cherneski argues that the circuit court correctly applied the fee-shifting language in the Operating Agreement, in determining that the language applied to all claims brought by the Minority Members within the action, and that the court did not abuse its discretion in awarding Mr. Cherneski and the Company all of their attorneys’ fees without apportionment.

C. Analysis Maryland Limited Liability Companies – Statutory Framework The dispute between the parties in this case arises from their membership in Trusox, LLC, a Maryland limited liability company. It is useful to start our analysis with a brief overview of the Maryland Limited Liability Company Act (“LLC Act”), Maryland Code 14 Corporations and Associations Article (“CA”), Title 4A, because this statute, together with the Operating Agreement, creates the legal obligations and duties discussed herein. The LLC Act provides the statutory genesis for the formation of a Maryland limited liability company. An LLC is an unincorporated business organization.

CA § 4A-101(k). The LLC Act was formed “to give the maximum effect to the principles of freedom of contract and to the enforceability of operating agreements.” CA § 4A-102(a). An LLC is formed by an individual causing articles of organization to be executed and filed with the State Department of Assessments and Taxation. CA § 4A-202.

The owners of the LLC are referred to as “members.” CA § 4A-101(m). The members’ relationship with one another, the affairs of the LLC, and the conduct of the LLC’s business are governed by contract, defined as an “operating agreement.” CA § 4A-101(p). The operating agreement adopted by the members addresses, inter alia, how the LLC “shall be managed, controlled, and operated”; the manner in which members share profits and losses; the manner in which new members may be admitted; procedures for assignment of membership interests; and meeting and voting procedures. CA § 4A-402(a)(1)-(8).

Accordingly, here, the parties’ relationship is governed by the contractual terms of their Operating Agreement. Under the Operating Agreement, the parties designated Mr. Cherneski as the President and CEO. Per the terms of the Operating Agreement, aside from extraordinary actions which required super-majority consent, see footnote 2, supra, as the owner of a 65% membership interest, Mr. Cherneski had broad decision-making authority over most decisions relating to Trusox and its operations. 15 Although the Operating Agreement provides the general terms of Mr. Cherneski’s authority as the President, CEO, and owner of a majority interest in the Company, the Operating Agreement is silent with respect to any fiduciary duties that Mr. Cherneski owes to the Minority Members. So too, is the LLC Act.7 With no statutory or contractual provisions establishing a fiduciary duty between the parties, we look to whether such a fiduciary relationship exists under common law.

Common Law Fiduciary Duty Owed by Managing Members to the LLC and the Minority Members This Court has not previously decided whether a managing member of an LLC owes a common law fiduciary duty to the Minority Members. Many courts have answered that 7 Maryland is not the only state that does not specify by statute the fiduciary duties of members or managers. William Callison & Allan W. Vestal, They’ve Created a Lamb with Mandibles of Death: Secrecy, Disclosure, and Fiduciary Duties in Limited Liability Firms, 76 Ind. L.J. 271 , 281–86 (2001).

In 2001, Professors Callison and Vestal observed that some state LLC statutes, including the Maryland LLC statute, do not address the member or manager fiduciary duties, leaving the matter to be addressed in the operating agreement, or through judicial common-law development. Id. at 281 n.49. Like Maryland, Arizona and New Mexico also remain silent as to any fiduciary duty owed. TM2008 Inv., Inc. v. Procon Capital Corp., 323 P.3d 704, 707 (Ariz.

Ct. App. 2014) (“Unlike other statutorily-blessed business arrangements, the LLC Act does not refer to any baseline fiduciary duties that members of an LLC owe to the LLC or to one another.”) (footnote omitted); In re Deerman, 482 B.R. 344 , 371–73 (Bankr. D.N.M. 2012) (recognizing that the state LLC statute uses trust-type language but does not create a fiduciary relationship between the parties). Other states impliedly recognize the common law fiduciary duty without statutorily governing the fiduciary duty of the members. See Kan.

Stat. Ann. § 17 - 76,134(c) (2014) (“To the extent that, at law or in equity, a member or manager or other person has duties, including fiduciary duties, to a limited liability company or to another member or manager . . . the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the operating agreement[.]”); Tex. Bus. Orgs. Code Ann. § 101.401 (2006) (“The company agreement of a limited liability company may expand or restrict any duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member or manager of the company.”). 16 question in the affirmative, including the Court of Special Appeals in George Wasserman & Janice Wasserman Goldsten Family LLC v. Kay, 197 Md. App. 586 (2011).

For the reasons so aptly explained in Wasserman, we join these courts and hold that managing members of an LLC owe common law fiduciary duties to the LLC and to the other members based on principles of agency. Despite the statutory silence concerning fiduciary duties in the LLC Act, “[m]anaging members are clearly agents for the LLC and each of the members, which is a fiduciary position under common law.” Id. at 616 (emphasis in original) (citations omitted). Accordingly, managing members of an LLC owe fiduciary duties to the LLC and the minority members arising under traditional common law agency principles. As succinctly stated by the Court of Special Appeals in Wasserman: In the partnership and corporate context, fiduciary duties are not born of statutory language-the underlying fiduciary duties pre-exist the statutes, and those duties exist as such unless limited by statute . . . .

The same holds true in the LLC context. Because no Maryland statute precludes, or even limits, managing members’ fiduciary duties under common law, those underlying duties apply. Id. We also agree with the intermediate appellate court that the language of the LLC Act suggests “that provisions within operating agreements could alter existing duties or create other duties that would otherwise not exist.” Id.

(citing CA § 4A-402(a) (“Except for the requirement set forth in § 4A-404 of this subtitle that certain consents be in writing, members may enter into an operating agreement to regulate or establish any aspect of the affairs of the limited liability company or the relations of its members . . . .”)). However, 17 here, there are no limitations in the Operating Agreement that would otherwise displace or alter the fiduciary duties arising from the agency relationship.8 As the President, CEO, and majority interest member in Trusox, Mr. Cherneski owed fiduciary duties to the Minority Members and the LLC arising under common law principles of agency. Breach of Fiduciary Duty Case Law in Maryland Before we consider the circuit court’s disposition of the Minority Members’ breach of fiduciary duty count, it is necessary to consider and answer the certified questions from the Court of Special Appeals involving whether this Court recognizes an independent 8 After Wasserman was decided, in the 2011 Legislative session, the General Assembly considered a bill that addressed, inter alia, the fiduciary duties of an LLC member. House Bill 637, as introduced, would have added a new section 4A-402.1 to the LLC Act, which would have permitted members of an LLC, through their operating agreement, to eliminate a member’s fiduciary duties to other members, other than for acts or omissions that constitute a bad faith violation of the implied contractual covenant of good faith and fair dealing.

House Bill 637 passed the House of Delegates with proposed Section 4A-402.1 intact. The House of Delegates Economic Matters Committee Floor Report for House Bill 637 described the “Current Law and Background” as follows: Unlike the corporate and general partnership context, there is no statute expressly addressing LLC members’ fiduciary duties. However, as recently explained in Wasserman v. Kay, ____ Md. App. ___ (No. 2836, Sept. Term., 2009), managing members of LLCs owe common law fiduciary duties to the LLC and to the other members. The Senate deleted proposed section 4A-402.1 in its entirety.

See Senate Judicial Proceedings Committee Floor Report, Committee Amendments, Amendment No. 2. The House concurred with the Senate Amendments and the bill was enacted without proposed Section 4A-402.1. See 2011 Md. Laws ch. 597. There have been no legislative amendments that alter the holding in Wasserman that managing members owe common law fiduciary duties to the LLC and to the other members, which we adopt. 18 breach of fiduciary duty cause of action, and if so, whether there are any parameters or limitations on such a cause of action.

To answer the certified questions, we start with our review and analysis of the seminal breach of fiduciary duty case in Maryland, Kann v. Kann, 344 Md. 689 (1997). We also review our case law that interpreted or discussed Kann, as well as cases decided by this Court that did not discuss or cite to Kann, but that otherwise considered or discussed breach of fiduciary duty claims. Most of the reported discussion of whether Kann permits an independent cause of action has taken place in the Court of Special Appeals and in the United States District Court for the District of Maryland. 1. Kann v. Kann In Kann, an individual was the trustee of two different trusts. 344 Md. at 694 .

In his capacity as trustee of one of those trusts, he filed a complaint for declaratory judgment, seeking a declaration as to the proper ownership of disputed funds held by the other trust. Id. at 695 . The complaint named a beneficiary of the second trust as a defendant. Id.

The beneficiary filed a counterclaim against the trustee alleging, among other things, breach of fiduciary duty. Id. at 695–96. The beneficiary sought compensatory damages against the trustee individually and asked for a jury trial on that claim. Id.

The trial court dismissed the beneficiary’s counterclaim, thereby denying her a jury trial on the breach of fiduciary duty claim, and issued a declaratory judgment ruling, finding, among other things, that the trustee had not breached any fiduciary duties. Id. at 697 . On appeal, the issue before this Court was whether a beneficiary of a trust could assert a common law claim for breach of fiduciary duty against a trustee, with a right to a 19 jury trial and noneconomic and punitive damages. Id. 697–98.

In concluding that a beneficiary could not assert such a claim, we observed that all of the beneficiary’s claims were brought in her capacity as a beneficiary of the trust, that disputes concerning trusts have traditionally fallen within the court’s equitable jurisdiction, and that jury trials have not been available for such claims. Id. at 702–03. As a result, we concluded that under existing Maryland law, the beneficiary “was not entitled to a jury trial.” Id. at 706 . We then turned to the beneficiary’s argument that the Court should “substantially alter existing Maryland law by declaring that a breach of any fiduciary duty constitutes a tort in the sense that it would be actionable at law, triable to a jury, and, in appropriate cases, capable of supporting punitive damages.” Id.

As part of our analysis, we looked to § 874 of the Restatement (Second) of Torts (1977), titled “Violation of Fiduciary Duty,” which provides “[o]ne standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation.” Kann, 344 Md. at 706 . We concluded that § 874 “does not mean that the American Law Institute recognizes that any breach of fiduciary duty is triable to a jury.” Id. at 707. The Court observed that the comments to § 874 describe that the remedy for a breach is dependent upon the local rules of procedure, the type of relationship between the parties, the nature of the transaction involved, and the remedy traditionally afforded. Id.

We concluded that § 874 “recognizes the universal proposition that a breach of fiduciary duty is a civil wrong, but the remedy is not the same for any breach by every type of fiduciary.” Id. at 710. Thus, remedy for some breaches “may be at law, for others it may be exclusively in equity, and for still others there may be concurrent remedies.” Id. 20 We rejected the beneficiary’s request for the Court to “make a very far reaching change in Maryland law by creating a tort that will apply to all fiduciaries[,]” which would eliminate the distinctions between remedies at law and those remedies traditionally lying exclusively in equity. Id. at 712 (emphasis in original). Rejecting the “wholesale changes in Maryland law” advocated by the beneficiary, we held that “there is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries.” Id. at 713.

We added, however, that “[t]his does not mean that there is no claim or cause of action available for breach of fiduciary duty.” Id. (emphasis added). Writing for the Court, Judge Rodowsky proceeded to instruct the courts and litigants on how to determine whether a party could assert a claim involving a 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. Counsel are required to identify the particular fiduciary relationship involved, identify how it was breached, consider the remedies available, and select those remedies appropriate to the client’s problem.

Whether the cause or causes of action selected carry the right to a jury trial will have to be determined by an historical analysis. Id. at 713. The Court reiterated that attorneys “do not have available for use in any and all cases a unisex action, triable to a jury.” Id. We explained that just as we “would not preside over the death of contract by recognizing as a tort a breach of contract that was found to be in bad faith[,]” we similarly would not “preside over the death of equity” by adopting a universal tort for breach of fiduciary duty.

Id. (citations omitted). 21 2. Our Jurisprudence Involving Breach of Fiduciary Duty Claims Post-Kann Since Kann was decided, it has been cited ten times in our decisions,9 but only two cases provide explanation or discussion concerning whether Maryland recognizes an independent cause of action for breach of fiduciary duty. In Insurance Company of North America v. Miller, an insurance company filed a complaint against one of its insurance agents, alleging several causes of action, including conversion, breach of fiduciary duty, and negligence. 362 Md. 361 , 363–64 (2001).

The agent was involved in a “complex double financing scheme[,]” with a third-party agency, which involved, among other things, collecting premiums from the insurance company’s insureds, diverting the funds and using them to pay premiums due to other companies on completely unrelated transactions, all in violation of Maryland insurance regulations. Id. at 364–66. During the trial, the defendant agent’s counsel had stipulated that the defendant was the company’s agent, and the parties had agreed that the amount of money owed to the company by the third-party agency (which had collapsed and was no longer in business), was close to $600,000. Id. at 372–73.

The agent also admitted: (1) that he had knowledge of the financing scheme; (2) that he did not advise the insurance company or the Maryland Insurance Administration that the collected premiums had been placed in an account that 9 Bontempo v. Lare, 444 Md. 344 (2015); Scarfield v. Muntjan, 444 Md. 264 (2015); Green v. Nassif, 426 Md. 258 (2012); BAA, PLC v. Acacia Mut. Life Ins. Co., 400 Md. 136 (2007); Legum v. Brown, 395 Md. 135 (2006); Ver Brycke v. Ver Brycke, 379 Md. 669 (2004); Int’l Bhd. of Teamsters v. Willis Corroon Corp. of Md., 369 Md. 724 (2002); Beyer v. Morgan State Univ., 369 Md. 335 (2002); Ins. Co. of N. Am. v. Miller, 362 Md. 361 (2001); Hartlove v. Md. School for the Blind, 344 Md. 720 (1997). 22 was held “out-of-trust” in violation of Maryland insurance regulations; and (3) that he participated in the scheme with the third-party agency.

Id. at 372. After a bench trial, the circuit court entered judgment in favor of the agent on all counts. Id. at 363–64. The insurance company appealed the issue of whether the trial court erred in entering judgment in favor of the agent on the breach of fiduciary duty count and the negligence count.

Id. at 364. This Court held that the trial court erred on both counts. Id. With respect to the breach of fiduciary duty count, we considered the evidence presented at trial under our own application of the Kann factors stating: Contrary to the trial court’s ruling, we hold that appellant: (1) identified the particular principal-agent fiduciary relationship created in the case at bar; (2) identified that it was breached by appellee participating in the double financing scheme, not forwarding premiums, and not informing [the insurance company] that premiums were out-of-trust; (3) considered the remedies available; and (4) selected those remedies appropriate to the client’s problem.

Id. at 379. We identified a fiduciary relationship between the insurance company and agent arising under principles of agency. Id. at 379–81. After discussing at length the duties owed by an agent to a principal, including the duty of loyalty and duty to disclose information material to the agency, we pointed out that under our existing case law, damages were available for the breach in the form of lost profits.

Id. at 381 (citations omitted). We described the evidence in the record specifically demonstrating the agent’s knowledge and participation in the scheme, which caused damages to the company. Id. at 383–85. We concluded that the trial court erred entering judgment in favor of the agent on the breach of fiduciary duty count.

Id. at 384–85. 23 After considering the insurance company’s breach of fiduciary duty claim, separately, we also considered the company’s negligence claim based upon the same conduct and held that the agent’s actions could also constitute negligence. Id. at 385–87. We reversed and remanded the case for “further proceedings consistent with this opinion, including the assessment and rendering of judgment as to damages[].” Id. at 388. The Court’s next citation to Kann came 18 months after Miller, in International Brotherhood of Teamsters v. Willis Corroon Corp. of Maryland, 369 Md. 724 (2002).

In that case, a labor organization was required under federal law to bond its officials who handled funds in order to provide protection against loss by reason of fraud or dishonesty. Id. at 726 . The labor organization retained an insurance broker to obtain the federally mandated insurance. Id.

Unbeknownst to the labor organization, the insurance broker procured an insurance policy limiting the insurer’s liability “per loss,” not “per person” as federal law mandated. Id. After two of the labor organization’s officials covered by the policy misappropriated funds, the organization made a claim on its policy “per person,” but when the insurance company resisted, the labor organization settled and reserved “any claim that it might have against any insurance broker involved in the procurement of the policy.” Id. at 727 . Subsequently, the labor organization filed a claim against the insurance broker for negligence and breach of fiduciary duty connected with the broker’s procurement of the insurance policy.

Id. The complaint sought compensatory damages, plus interest, recovery of commissions paid to the broker, and attorneys’ fees. Id. at 727– 28. The insurance broker answered the complaint and moved for summary judgment on the ground that, by not reading the insurance policy and discovering, at the outset, the 24 contractual limitation of liability contained in the policy, the labor organization was contributorily negligent.

Id. at 728 . The circuit court agreed with the insurance broker’s argument that the labor organization was contributorily negligent as a matter of law and granted summary judgment in favor of the insurance broker. Id. Prior to arguments in the Court of Special Appeals, we granted certiorari, on our own initiative, to review that judgment.

Id. The sole focus of our analysis was whether the circuit court erred in entering summary judgment on the issue of contributory negligence under the facts of the case. Id. at 737–41. We determined that the reasonableness of an insured’s conduct “normally will be fact-specific” and therefore, is “for the trier of fact to determine.” Id. at 740 .

Based upon the record, we reversed the judgment of the circuit court on the basis that “a jury could reasonably find that [the labor organization] acted reasonably in relying on [the insurance broker] to procure a proper policy and in not making its own independent investigation.” Id. at 741 . Although the Court mentioned that the labor organization had pleaded a count alleging breach of fiduciary duty in addition to the negligence claim, the breach of fiduciary duty count was not part of this Court’s discussion or analysis, other than a footnote “point[ing] out” that, based on Kann, “Maryland does not recognize a separate tort action for breach of fiduciary duty.” Id. at 727 n.1. The Court continued stating, “[b]ased on the underlying averments, [the labor organization] may have been able to plead an action for breach of contract, in addition to its claim for negligence, but it chose not to do so. We shall treat the complaint as one for negligence.” Id.

Accordingly, the Court reviewed the lower court’s grant of summary judgment on the negligence claim and reversed the circuit 25 court’s erroneous conclusion that the labor organization was contributory negligent. Id. at 741 . Beyond the footnote, the Court did not address the possibility of a fiduciary duty or the alleged breach. Other decisions of this Court have addressed claims for breach of fiduciary duty without noting or discussing Kann.

In Della Ratta v. Larkin, the Court considered a claim by limited partners against the sole general partner seeking dissolution of the partnership and an injunction barring capital calls. 382 Md. 553, 557 (2004). The limited partners alleged that the general partner breached his fiduciary duty and acted in bad faith. Id. The Court affirmed the circuit court’s determination that the general partner had breached his fiduciary duty and acted in bad faith and, therefore, affirmed the circuit court’s injunction against the capital call.

Id. at 580 . Although the Court did not discuss Kann, we upheld the circuit’s court’s injunction based upon a breach of fiduciary claim arising from the partnership relationship. Id. In Storetrax.com, Inc. v. Gurland, the Court considered a breach of fiduciary duty claim filed by a corporation against a former employee and director of the corporation. 397 Md. 37, 42 (2007).

In that case, a director brought a breach of contract action against the employer corporation seeking payment of a severance package. Id. at 45 . He obtained a default judgment against the corporation and enforced the judgment by attaching the corporation’s bank account. Id. at 46 .

After the director refused to voluntarily relinquish the default judgment upon the corporation’s request, the corporation sued, arguing that the director breached his fiduciary duty to the corporation. Id. at 46–47. We held that the director did not breach his fiduciary duty by obtaining a judgment against the corporation 26 and enforcing the writ of garnishment against the corporate bank account. Id. at 67 .

The Court did not address the validity of a cause of action for breach of fiduciary duty. Instead, the Court’s focus was on whether there was a breach of a fiduciary duty. In Clancy v. King, the Court considered a breach of fiduciary duty claim against author Thomas Clancy by Wanda King, his former wife and partner in a partnership of which Mr. Clancy was the managing partner. 405 Md. 541, 546 (2008). Ms. King filed a lawsuit claiming both a breach of fiduciary duty and a breach of the partnership agreement between herself and Mr. Clancy, alleging that Mr. Clancy, as managing partner, breached his fiduciary duty to the limited partnership and to Ms. King by planning to remove his name from a book series, the profits of which were to be split between the limited partnership and an unrelated corporation.

Id. at 550–51. Ms. King sought injunctive relief to prohibit Mr. Clancy from taking actions detrimental to the book series, naming Ms. King as managing partner, and she also sought recovery of attorneys’ fees and expenses. Id. Mr. Clancy filed a counterclaim seeking a declaratory judgment that his fiduciary duties were established by contract, specifically, the partnership agreement, which expressly limited the duty of loyalty ordinarily owed by the managing partner to the partnership and the partners.

Id. at 551 . The trial court found that Mr. Clancy had breached his fiduciary duty and awarded Ms. King damages, which was affirmed by the Court of Special Appeals. Id. at 553 . Concerning the breach of fiduciary duty count, the question presented on certiorari to this Court was “[w]hether the lower courts erred in failing to recognize that principles of contract preempt fiduciary duties where the contract is unambiguous and the parties have 27 made their intentions clear?” Id. at 553 .

This Court answered in the affirmative and reversed the trial court. Id. at 572 . We held that Mr. Clancy’s fiduciary duties were established by the partnership agreement, which expressly limited the duty of loyalty ordinarily owed by the managing partner to the partnership. Id. at 557 .

However, we observed that Mr. Clancy, nonetheless, had a requirement to act in good faith under contract law, as well as partnership law. Id. at 565–71. We reversed the judgment and remanded for the trial court to determine whether Mr. Clancy’s actions were undertaken in good faith. Id. at 571–73.

In other words, although the Court concluded that the circuit court erred in failing to consider Mr. Clancy’s fiduciary duties through the modifications and limitations agreed upon by the parties in the partnership agreement, the Court nonetheless remanded the case on Ms. King’s breach of duty count for further factual proceedings on the issue of whether Mr. Clancy’s actions were undertaken in good faith. Id. In Shenker v. Laureate Education, Inc., this Court addressed the issue of whether shareholders in a corporation could bring a claim for breach of fiduciary duties against some of its directors. 411 Md. 317 , 326–27 (2009). In connection with this issue, the Court considered (1) whether the directors owed common law fiduciary duties to the shareholders of the corporation, or alternatively, whether their fiduciary duties were exclusively provided by statute; and (2) whether the shareholders were permitted to bring breach of fiduciary duty claims individually or only as derivative claims.

Id. at 327 , 347– 51. We held that the statute governing corporate director duties, CA § 2-405.1(a), does not supersede common law duties owed by corporate directors to their shareholders that pre- existed the adoption of the statute. Id. at 341. We explained that, under the common law, 28 in situations where the corporation was undergoing a change of control, “corporate directors owe their shareholders fiduciary duties of candor and maximization of shareholder value.” Id.

Accordingly, we held that, in the context of a cash-out merger transaction where the decision to sell the corporation had already been made, “shareholders may pursue direct claims against directors for breach of their fiduciary duties of candor and maximization of shareholder value.” Id. at 342. In analyzing the shareholders’ right to bring a direct action for breach of fiduciary duty, we also recognized that “the injury alleged, namely, a lesser value that shareholders received for their shares in the cash-out merger, is an injury suffered solely by the shareholders and not by [the corporation] as a corporate entity.” Id. at 346. As part of their case, the shareholders also brought a claim for civil conspiracy against the investors in the corporation who purchased shares as part of the cash-out merger. Id. at 329.

This Court affirmed the circuit court’s dismissal of the shareholder’s conspiracy claim on the ground that the investors “did not owe fiduciary duties to [the shareholders] and were consequently legally incapable of committing the underlying tort.” Id. at 351 (internal citations omitted). In affirming the lower court’s dismissal of the civil conspiracy claim, in a footnote, we stated that we “assume, without deciding that it is so solely for the purposes of this appeal, that breach of fiduciary duties is a cognizable tort in Maryland.” Id. at 351 n.16. The placement of this footnote is significant in that it appears within the context of our discussion of the conspiracy claim against the investors, where there was no underlying fiduciary duty owed to the shareholders. 29 To summarize our jurisprudence involving breach of fiduciary duty claims in the aftermath of Kann, this Court upheld specific claims for specific breaches of fiduciary duties in the following contexts: Miller, 362 Md. at 387–88 (permitting an insurer to assert a breach of fiduciary duty claim for damages against an agent under agency principles); Della Ratta, 382 Md. at 557 (affirming a circuit court’s factual findings that a general partner had “breached his fiduciary duty and acted in bad faith” and upholding the circuit court’s injunctive relief); Clancy, 405 Md. at 565–72 (remanding for determination of whether the managing partner of a limited partnership had breached his fiduciary duty of good faith and fair dealing); and Shenker, 411 Md. at 351 (holding that in a cash-out merger transaction, where the decision to sell the corporation had already been made, that shareholders could pursue direct claims against directors for their breach of common-law fiduciary duties of candor and maximization of shareholder value). These cases demonstrate that we have recognized independent claims for breach of fiduciary duty in various contexts.

In Miller and Shenker, we applied a Kann analysis, describing the fiduciary relationship, and identifying a remedy that provided for damages arising out of the common law in each instance. Additionally, in Miller, we reversed and remanded for a consideration of the plaintiff’s breach of fiduciary duty count notwithstanding the fact that the plaintiff had another cause of action alleging negligence that addressed the same conduct. Despite the above case law to the contrary, our case law became less than clear when we “pointed out” in a footnote that under Kann, “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 30 recognize a separate tort action for breach of fiduciary duty.” Int’l Bhd. of Teamsters, 369 Md. at 727 n.1. Later, in Shenker, we stated that we were “assum[ing] . . . solely for the purposes of this appeal, that breach of fiduciary duties is a cognizable tort in Maryland.” Shenker, 411 Md. at 351 n.16.

These footnotes created problems for courts attempting to understand Kann and to follow the outlined analysis. 3. Kann’s Progeny in the Court of Special Appeals Understandably, the Court of Special Appeals’ cases interpreting Kann have not always been consistent.10 As the Court of Special Appeals noted in its Certification, the intermediate appellate court has “held in some cases that there is no stand-alone claim for breach of fiduciary duty; in others that such a cause of action may exist, but only for equitable relief; and yet in others that such a cause of action may exist, without necessarily restricting the type of relief available.” We examine these cases below. In Moshyedi v. Council of Unit Owners of Annapolis Road Medical Center Condominium, a condominium unit owner sued the unit council, seeking declaratory relief and damages for the unit council’s alleged failure to repair his condominium unit with insurance proceeds that had been paid to the unit council for the purpose of repairing damaged units. 132 Md. App. 184 , 187–88 (2000). The unit owner argued that under the 10 We have not included within our survey all cases that cite to Kann v. Kann, 344 Md. 689 (1997), but only those cases that discuss whether an independent cause of action exists, and the circumstances in which the Court applied the factors or analysis in Kann.

For example, our survey does not include Lyon v. Campbell, 120 Md. App. 412 (1998), where the court held that there was insufficient evidence to support a breach of fiduciary duty claim “even if we assume without holding” that a shareholder owed the corporation a fiduciary duty. Id. at 441 . 31 Maryland Condominium Act, a fiduciary relationship existed between the unit council and him, that the council breached that duty by failing to make repairs, and that he was entitled to damages. Id. at 191. In a separate case, the unit council filed a complaint for past-due condominium fees.

Id. at 188. The cases were consolidated for trial. Id. Although both parties prayed a jury trial, the jury only considered the unit council’s claim against the unit owner for past-due fees.

Id. at 190. The jury returned a verdict in favor of the unit council for the past-due condominium fees. Id. After the jury returned its verdict, the trial court entered judgment in favor of the unit council on the unit owner’s claim for compensatory damages.

Id. On appeal, the issue was whether the jury should have considered the unit owner’s claim for compensatory damages. Id. at 190–91. The Court of Special Appeals rejected the unit council’s argument that Maryland does not recognize a cause of action for breach of fiduciary duty, and explained under Kann, although “there is no universal or omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries[,]” the parties and the court are required to undertake the analysis outlined in Kann to “identify the particular fiduciary relationship involved, identify how it was breached, consider the remedies available, and select those remedies appropriate to the client’s problem.” Id. at 193 (quoting Kann, 344 Md. at 713 ).

The intermediate appellate court analyzed the unit owner’s claim and determined that the circuit court did not err in treating the claim as one in equity rather than at law. Id. at 196. The court further concluded that under the by-laws, the unit council had a duty to make the necessary repairs from the insurance proceeds paid for that purpose, and that the unit owner had expended his own funds to repair the unit. Id. at 206.

The court vacated the judgment 32 and remanded the case to the circuit court for further findings of fact on the issue of the total amount expended by the unit owner on the repairs and the amount of the excess insurance proceeds remaining in the unit council’s trust account dedicated to the repairs on the owner’s unit. Id. at 206–07. In Garcia v. Foulger Pratt Development, Inc., the defendant owners of partnership interests in a limited partnership sought attorneys’ fees and costs under Maryland Rule 1- 341, against the plaintiff general partner, for maintaining a proceeding in “bad faith or without substantial justification.” 155 Md. App. 634, 678 (2003). To support its attorneys’ fees claim, one of the defendants’ arguments was that 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 a contract claim.” Id. at 682 (emphasis in original).

The Court of Special Appeals rejected the defendant’s interpretation of Kann, and instead concluded that “the Court of Appeals held that the analysis must be done on a case-by-case basis[,]” observing that following Kann, “the Court of Appeals recognized breach of fiduciary duty as a viable cause of action in [Miller].” Id. Two years after Garcia, relying on this Court’s footnote in International Brotherhood of Teamsters, 369 Md. at 727 n.1, discussed supra, the Court of Special Appeals changed course, and held that a plaintiff’s separate claims for breach of fiduciary duty and negligence “condense to only one: the claim based on the tort of negligence.” Vinogradova v. SunTrust Bank, Inc., 162 Md. App. 495, 510 (2005). The Court of Special Appeals described the footnote in International Brotherhood of Teamsters as this Court’s “clarification of its Kann holding[.]” Id. 33 In Lasater v. Guttmann, the Court of Special Appeals considered whether there was a breach of fiduciary duty tort claim “for the violation by one spouse of an alleged fiduciary responsibility to the other spouse to properly use and maintain marital funds for the benefit of the marital unit.” 194 Md. App. 431, 454 (2010). After quoting the relevant passage from Kann, the court explained that “the threshold question is whether any fiduciary duty could exist under the facts asserted, when the claimed fiduciary relationship was husband and wife.” Id.

Thus, the court did not reject the existence of an independent cause of action for breach of fiduciary duty outright, but instead analyzed whether the plaintiff had identified a fiduciary relationship that might give rise to such a cause of action, and concluded that under Maryland law, she had not. Id. at 466 . In 2011, the Court of Special Appeals decided two cases in which the court interpreted Kann as permitting independent breach of fiduciary claims, but only those seeking equitable, rather than legal, relief. In George Wasserman & Janice Wasserman Goldsten Family LLC v. Kay, the court considered claims by members of real estate trusts against, among others, the managing member of an LLC real estate trust, over losses of funds that had been invested with entities controlled by Bernie Madoff. 197 Md. App. 586 , 592–93 (2011).

The complaint alleged multiple counts including the breach of fiduciary duties for which the plaintiffs sought monetary damages. Id. at 600 . Although the court concluded that “managing members of LLCs owe common law fiduciary duties to the LLC and to the other members,” id. at 616 , the court cited Kann as precluding claims for monetary damages for breach of those duties: 34 Kann and its progeny do not obliterate the possibility of a separate cause of action for breach of fiduciary duty in an action seeking equitable relief. In a claim for monetary damages at law, however, 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.

Id. at 631 . Thus, although the same factual allegations supporting a claim for breach of fiduciary duty could support other causes of action for money damages, the intermediate appellate court held that “they do not constitute a stand alone nonduplicative cause of action.” Id. at 631–32. In Latty v. St. Joseph’s Society of Sacred Heart, Inc., the court considered claims brought by children of a church organist/Josephite priest against a religious society, alleging, among other things, breach of fiduciary duty, and seeking money damages. 198 Md. App. 254, 260 (2011). The Court of Special Appeals affirmed the circuit court’s dismissal of the plaintiff’s complaint in its entirety.

Id. at 278 . With respect to the breach of fiduciary duty count, the court explained that “[b]ecause the society had no fiduciary duty to appellants, there can be no cause of action for its breach.” Id. at 271 . The court offered an alternative ground for affirming the circuit court’s rejection of a breach of fiduciary duty claim seeking money damages, stating that although “an action seeking equitable relief . . . may give rise to ‘a separate cause of action for breach of fiduciary duty,’ . . . a claim for monetary damages at law . . . does not constitute a separate cause of action.” Id. (quoting Wasserman, 197 Md. App. at 631 ).

Thus, the court held, “[w]hen 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.” Latty, 198 Md. App. 35 at 271 (citing Kann, 344 Md. at 713 ). Given that the appellants sought monetary damages and did not successfully plead another cause of action, the Court of Special Appeals affirmed the circuit court’s dismissal of the claim. Id. In Catler v. Arent Fox, LLP, the Court of Special Appeals followed its decision in Wasserman and held that the plaintiffs could not pursue a claim against their former attorneys for breach of fiduciary duty as an independent cause of action, but that “the remedy for such a breach may be connected to another cause of action,” such as legal malpractice. 212 Md. App. 685, 717 (2013).

The court concluded that Maryland law does not recognize a direct cause of action for breach of fiduciary duty, but it does “allow for recovery from the breach of fiduciary duty, but the breach must be coupled with a proper cause of action.” Id. at 717 n.38 (citing Int’l Bhd. of Teamsters, 369 Md. at 727 n.1). Therefore, although the appellant could not succeed on a breach of fiduciary duty count, the breach could be connected to another cause of action. Id. at 717. The court proceeded to review the alleged breach of fiduciary duty in conjunction with the legal malpractice claim.

Id. 4. Federal Courts’ Discussion of Kann Given the inconsistencies in Maryland’s jurisprudence on this issue, federal judges also have been understandably inconsistent in their efforts to reconcile “a split of authority . . . as to whether the Court of Appeals rejected breach of fiduciary duty as an independent tort.” Froelich v. Erickson, 96 F. Supp. 2d 507 , 526 n.22 (D. Md. 2000). For example, in Kerby v. Mortgage Funding Corp., as part of a 13-count complaint, the federal court considered a breach of fiduciary duty tort in the context of a class action arising out of an 36 alleged fraudulent mortgage refinancing scheme. 992 F. Supp. 787, 790 (D. Md. 1998). The court dismissed the claim because Maryland does not recognize a “‘universal or omnibus tort for the redress of breach of fiduciary duty,’ at least in a situation where other remedies exist[.]” Id. at 803 (quoting Kann, 344 Md. at 713 ).

Another judge of that court concluded that “Maryland law is clear that there is no free-standing, independent tort for breach of fiduciary duty.” Stewart v. Balt. Teachers Union, 243 F. Supp. 2d 377, 379 (D. Md. 2003) (citing Kann, 344 Md. at 713 ); see also Swedish Civil Aviation Admin. v. Project Mgmt. Enters., Inc., 190 F. Supp. 2d 785, 801 (D. Md. 2002) (concluding that “there is no independent tort for breach of fiduciary duty in Maryland, especially in light of the multiple alternative remedies” available to the plaintiff). In re LandAmerica Financial Group, Inc., a bankruptcy trustee alleged a breach of fiduciary duty claim against a real estate underwriter and its Maryland subsidiary. 470 B.R. 759, 777 (Bankr.

E.D. Va. 2012). Applying Maryland law to the subsidiary, the court disagreed with the subsidiary defendant’s arguments that Kann precludes a tort claim for the breach of fiduciary duty. Id. at 794 . Instead, the court summarized its understanding of the holding in Kann: “[W]hile no general ‘omnibus tort for the breach of fiduciary duty’ may exist, Kann contemplates tailored claims for a breach of fiduciary duty that are tied to discrete harms capable of being rectified by an appropriate remedy.” Id. at 795 (cleaned up).

The court explained that the claim was permissible because the fiduciary duty was well-established; the trustee asserted conduct constituting the breach; the breach resulted in actual, quantifiable economic losses; and the monetary damages sought can remedy the loss. Id. 37 In BEP, Inc. v. Atkinson, in considering a complaint filed by a corporation against a high-level management employee alleging breach of fiduciary duty, the court concluded that the plaintiff corporation “has, pursuant to Kann, properly asserted under Maryland law a claim of breach of fiduciary duty.” 174 F. Supp. 2d 400 , 405–06 (D. Md. 2001). In Adobe Systems Inc. v. Gardiner, a federal court held that, although a plaintiff software company could not proceed with a broad claim for breach of fiduciary duty, it would proceed with claims alleging more specific breach of the fiduciary duties of loyalty and confidentiality. 300 F. Supp. 3d 718, 727 (D. Md. 2018). After reviewing what it found to be inconsistent treatment of the issue by Maryland’s appellate courts, the federal district court concluded that, although Kann precludes recognition of an “omnibus” tort applicable to all fiduciaries, it read Kann as holding that such a claim may “be asserted if it involved an identified fiduciary relationship and an identified breach.” Id. at 726 .

The court permitted the specific claims to proceed, finding that they were based on “specific breaches of specific fiduciary duties that have allegedly resulted in economic losses not otherwise redressable through separate causes of action.” Id. at 726–27 (citing Kann, 344 Md. at 713 ). 5. Other Discussion of Inconsistent Approaches to Breach of Fiduciary Duty Claims Discussion on the issue of whether Maryland recognizes an independent cause of action for breach of fiduciary duty, and the inconsistent interpretations of Kann, is not limited to judicial opinions. In Pleading Causes of Action in Maryland, the authors pose, but do not purport to