Plank v. Cherneski , 469 Md. 548 ( 2020 )

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.
35at 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 answer, the question of whether Maryland recognizes an independent
38
cause of action for breach of fiduciary duty. Paul Mark Sandler & James K. Archibald,
Pleading Causes of Action in Maryland, at 576–79 (6th Ed. 2018) (“Sandler”). Sandler
comments on the tension between footnote 1 in International Brotherhood of Teamsters,
369 Md. at 727 n.1, and footnote 16 in Shenker, 411 Md. at 351 n. 16. After discussing the
Court’s analysis in Kann, Sandler observes that “Kann may be said to hold merely that not
every claim for breach of fiduciary duty is a viable action at law for which a jury trial may
be prayed.” Sandler, at 578. In attempting to reconcile our jurisprudence, Sandler
postulates that the footnotes in question may be dicta.
Court of Specials Appeals’ Certification to this Court
As the Court of Special Appeals observed in its Certification, the various courts’
interpretations of Kann appear to be grounded in differing interpretations of the passage
that immediately follows the Court’s holding that “there is no universal or omnibus tort for
the redress of breach of fiduciary duty by any and all fiduciaries[,]” which describes the
analysis that litigants and the court should undertake on a case-by-case basis when
considering a breach of fiduciary duty claim. Kann, 344 Md. at 713. In its Certification,
the Court of Special Appeals describes three general interpretations of the passage.
1. Interpretation Number One
According to the Court of Special Appeals, the first interpretation is that a breach
of fiduciary duty is actionable only if it gives rise to liability under a separate, independent
cause of action, such as breach of contract or negligence. The Court of Special Appeals
notes that cases adopting this interpretation have relied upon the footnote in International
39
Brotherhood of Teamsters, 369 Md. at 727 n.1. See also Vinogradova, 162 Md. App. at
510 (describing footnote 1 as this Court’s “clarification of its Kann holding”).
2. Interpretation Number Two
The Court of Special Appeals explains that under a second interpretation, a breach
of fiduciary duty is actionable as an independent cause of action, but only if that is the most
appropriate path after considering all other potential options. Under this interpretation, the
Kann Court’s instruction to counsel should be construed as identifying the factors that must
be considered in determining whether there is another, more appropriate cause of action to
the type of relationship and the breach identified. Stated differently, “whether the
particular allegations of a breach of fiduciary duty are appropriately governed by a different
cause of action is based on how such allegations have been treated historically.” The Court
of Special Appeals explains that “[d]epending on the result of that historical analysis[,] (1)
a stand-alone cause of action for breach of fiduciary duty may be available[,] and (2) the
relief available pursuant to such a cause of action may or may not be limited (i.e., as
between equitable or monetary relief).” The Court of Special Appeals points out that the
cases adopting this interpretation include Miller, 362 Md. 361; Garcia, 155 Md. App. 634;
Lasater, 194 Md. App. 431; In re LandAmerica Financial Group, Inc., 470 B.R. 759; and
Adobe Systems, Inc., 300 F. Supp. 3d 718.
3. Interpretation Number Three
The third interpretation, which the Court of Special Appeals describes in its
Certification as a “tweak on the second, recognizes the possibility of a stand-alone cause
of action for breach of fiduciary duty where there is no more appropriate cause of action
40
applicable to the conduct at issue, but only for equitable relief.” The Court of Special
Appeals observes that this interpretation appears to be “grounded in the Court’s discussion
in Kann of the historical limitation of remedies available for a breach of the duties owed
by a trustee to a trust beneficiary, which is the specific context in which Kann arose.” The
Court of Special Appeals notes that cases adopting this interpretation include their cases—
Wasserman, 197 Md. App. 586; Latty, 198 Md. App. 254; and Moshyedi, 132 Md. App.
184.
We consider each of the three interpretations of Kann below.
The Ripple Effect – How Two Small Footnotes Caused Big Confusion
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.” To be sure, this Court contributed to the over-simplification in
International Brotherhood of Teamsters where, in an attempt at brevity, we “pointed out”
that in Kann, “although the breach of 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.” 369 Md. at 727 n.1. We compounded the confusion in Shenker,
when we stated in a footnote that “we assume, without deciding that . . . breach of fiduciary
duties is a cognizable tort in Maryland.” 411 Md. at 351 n.16. Reading these footnotes in
isolation, one could either conclude that we do not recognize a separate tort for breach of
fiduciary duty, or that it is an open-ended question.
41
Based upon our review of those cases, as well as our jurisprudence in which we
specifically recognized a cause of action for breach of fiduciary duty, we conclude that
these footnotes are dicta. “Admittedly, it is not always easy to distinguish between dicta
and a holding. The distinction between a holding and dicta, while difficult to define, is
also difficult to apply.” State v. Baby, 404 Md. 220, 276 (2008) (Raker, J., concurring and
dissenting) (citations omitted). There is “no real consensus on the correct definition” of
dicta. Ryan S. Killian, Dicta and the Rule of Law, 2013 Pepp. L. Rev. 1, 7–8 (2013).
Black’s Dictionary defines “obiter dictum” (which is commonly shortened to “dictum”) as
“[a] judicial comment made while delivering a judicial opinion, but one that is unnecessary
to the decision in the case and therefore not precedential (although it may be considered
persuasive).” Obiter dictum, Black’s Law Dictionary 569 (11th ed. 2019). The Supreme
Court has described a prior proposition of the Court as being “unquestionably dictum
because it was not essential to our disposition of any of the issues contested” in the case.
Cent. Green Co. v. United States, 531 U.S. 425, 431 (2001). This Court has previously
explained that “[w]hen a question of law is raised properly by the issues in a case and the
Court supplies a deliberate expression of its opinion upon that question, such opinion is not
to be regarded as obiter dictum, although the final judgment in the case may be rooted in
another point also raised by the record.” Schmidt v. Prince George’s Hosp., 366 Md. 535,
551 (2001) (citations omitted). A matter is not dictum if “the question was directly
involved in the issues of law . . . and the mind of the Court was directly drawn to, and
distinctly expressed upon the subject.” Id. at 552 (citations omitted).
42
Applying these definitions and principles to the footnote in question in International
Brotherhood of Teamsters, 369 Md. at 727 n.1, and Shenker, 411 Md. at 351 n.16, leads to
the conclusion that the language in both footnotes is clearly dicta. In International
Brotherhood of Teamsters, the issue of whether Maryland recognized an independent cause
of action for breach of fiduciary duty was not directly involved in the issues of law raised
on appeal, nor did the Court supply a “deliberate expression of opinion” on the issue. We
did not discuss or analyze the breach of fiduciary duty count, and our entire analysis
concerned whether the circuit court erred in granting summary judgment on whether the
insured was contributorily negligent in failing to read the insurance policy. Int’l Bhd. of
Teamsters, 369 Md. at 737–41. In context, we view the footnote as the Court’s attempt to
briefly describe why it was not considering the breach of fiduciary count any further. In
doing so, the Court oversimplified our holding in Kann.
With respect to the footnote in Shenker, as discussed above, we considered two
separate fiduciary claims in that case. 411 Md. at 327, 347. On the shareholder’s breach
of fiduciary duty claim against the directors, the Court undertook a Kann-type analysis and
held that the shareholders were entitled to “pursue direct claims against directors for breach
of fiduciary duties of candor and maximization of shareholder value.” Id. at 336–42.
(emphasis added). We repeated our holding in this opinion several times in several places.
See id. at 351, 354. Footnote 16, which appears to leave open-ended the question of
whether “breach of fiduciary duty is a cognizable tort in Maryland[,]” was placed in the
section of the opinion discussing the shareholders’ civil conspiracy claim against the
investors, where we found no fiduciary relationship. Id. at 351 n.16. We can certainly
43
understand how this footnote, in isolation, could create confusion. But given our holding,
in which we restated three times in the body of the opinion, that the shareholders could
pursue a direct cause of action for breach of fiduciary duty against the directors for damages
under the facts of the case, the language in the footnote is not controlling.
Rejection of Interpretation Numbers 1 and 3
We reject the first interpretation of Kann suggested in the Certification that “a
breach of fiduciary duty is actionable only if it gives rise to liability under a separate,
independent cause of action, such as breach of contract or negligence.” (emphasis in
original). This interpretation arises out of our footnote in International Brotherhood of
Teamsters, which, as noted above, we consider dicta. The footnote has been relied upon
and carried through various opinions in the intermediate appellate court and federal courts
attempting to apply our common law concerning fiduciary duties, causing a ripple effect.
“The most banal use of dicta may also be the most pernicious. In some cases, dicta is cited
as law with no apparent realization by the judge that the adversarial process has played no
significant role in producing a rule based on reason and adequately considered precedent.”
Killian, supra, at 15–16. Such an interpretation is directly at odds with our case law where
we have specifically upheld separate claims for breach of fiduciary duty in specific
situations. See Shenker, 411 Md. at 351; Clancy, 405 Md. at 565–72; Della Ratta, 382 Md.
at 557; Miller, 362 Md. at 387–88.
Taking the interpretations out of order, we also reject the third interpretation of
Kann, which recognizes the possibility of a cause of action for breach of fiduciary duty
where there is no more appropriate cause of action applicable to the conduct at issue, but
44
only for equitable relief. This is the interpretation initially adopted by the Court of Special
Appeals in Wasserman, 197 Md. App. at 631–32, and then restated in Latty, 198 Md. App.
at 271, and Moshyedi, 132 Md. App. at 196. This interpretation is inconsistent with our
cases cited above and interprets Kann too narrowly. When examining the language in
Kann, it is necessary to keep in mind the context and facts. Kann involved the attempt by
a beneficiary of a trust to maintain a common law claim for breach of fiduciary duty, with
a right to a jury trial and noneconomic and punitive damages, against the trustee. 344 Md.
at 696–97. The Court analyzed the beneficiary’s asserted claim within the traditional and
historic context of claims by beneficiaries against trustees, and explained that by statute,
trusts are subject to the “general superintending power” of a “court having equity
jurisdiction.” Id. at 713 (cleaned up and citations omitted). We rejected the beneficiary’s
argument for “wholesale changes in Maryland law” and refused to “preside over the death
of equity” by adopting her contentions. Id. at 713–14. Given the nature of the type of
fiduciary relationship at issue in that case, and our analysis of the remedies traditionally
available in equity as defined by statute, the beneficiary’s remedies were limited to
whatever rights she had in equity.
To interpret Kann in a manner to suggest 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.
45
Breach of Fiduciary Duty Claim as an Independent Cause of Action in Maryland
We hold that under Kann, and our jurisprudence that followed, a breach of fiduciary
duty may be actionable as an independent cause of action. The type of relief that is
available will be determined by the historical remedies provided by statute, common law,
or by contract. We explain.
Prior to his appointment to the bench, Judge Kevin Arthur perhaps best summarized
the confusion arising from Kann in an article published in the Federal Bar Association
Newsletter, explaining that in his view,
the conflict and confusion have come about because courts and
litigants are asking the wrong question. It is incorrect, and
potentially misleading, to ask whether Maryland recognizes
“a” cause of action for breach of fiduciary duty. This is
because Maryland does not have a single, discrete cause of
action for all breaches of fiduciary duties; instead, it has several
(perhaps even many) different causes of action, with different
essential characteristics, depending upon the nature of the
fiduciary relationship in question and the remedies that
historically have been available to address a breach of that
fiduciary relationship.
Kevin F. Arthur, Breach of Fiduciary Duty: a Cause of Action in Maryland?, Federal Bar
Association Maryland Chapter Newsletter (March 2013). We agree with this apt
description of Kann.
As is borne out by our survey of the case law, fiduciary relationships can be created
by common law, by statute, or by contract, and can have different characteristics. “Well-
known examples of habitual or categorical fiduciary relationships include those between
trustees and beneficiaries, agents and principals, directors and corporations, lawyers and
clients, and guardians and wards, as well as the relationship among partners.” Deborah A.
46
DeMott, Relationships of Trust and Confidence in the Workplace, 100 Cornell L. Rev.
1255, 1261 (2015). For this reason, there is no “one-size fits all” breach of fiduciary tort
that encompasses all types of relationships. In other words, “there is no universal or
omnibus tort for the redress of breach of fiduciary duty by any and all fiduciaries.” Kann,
344 Md. at 713.
As Judge Rodowsky correctly observed in Kann, although “a breach of fiduciary
duty is a civil wrong, [] the remedy is not the same for any breach by every type of
fiduciary.” Id. at 710. Or put another way, not every claim for breach of fiduciary duty is
a viable action at law for which a jury trial may be prayed. “For some breaches the remedy
may be at law, for others it may be exclusively in equity, and for still others there may be
concurrent remedies.” Id. A breach of fiduciary duty may be actionable as an independent
cause of action, but not every breach of fiduciary claim will entitle the plaintiff to damages
at law, and the right to a trial by jury.
To establish a breach of fiduciary duty as an independent cause of action, a plaintiff
must show: “(i) the existence of a fiduciary relationship; (ii) breach of the duty owed by
the fiduciary to the beneficiary; and (iii) harm to the beneficiary.” Froelich, 96 F. Supp.
2d at 526 (citing Lyon v. Campbell, 120 Md. App. 412, 439 (1998)) (applying Maryland
law, under the assumption that Maryland recognizes an independent cause of action). The
remedy for a breach is dependent upon the type of fiduciary relationship, and the remedies
provided by law, whether by statute, common law, or contract. 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
47
relationship, identifies a breach, and requests a remedy historically recognized by statute,
contract, or common law applicable to the specific type of fiduciary relationship and the
specific breach is 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. This is consistent with our pleadings practice as established by
the Maryland Rules. See Maryland Rule 2-303(c).11 Of course, 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 be dependent upon the specific law applicable to the specific fiduciary
relationship at issue.
For example, in Kann, although we rejected the beneficiary’s attempt to pursue
remedies at law, with a right to a jury trial and potential punitive damages where proven,
we made clear that the beneficiary nonetheless had equitable remedies. 344 Md. at 711–
12. In other contexts, the Court has analyzed the fiduciary relationship and included that
damages were available under the traditional common law remedies associated with a
breach. See Shenker, 411 Md. at 345; Miller, 362 Md. at 381. As we noted in more detail
above, in some cases, the intermediate appellate court and the federal courts have
11
Maryland Rule 2-303(c) provides that:
A party may set forth two or more statements of a claim or
defense alternatively or hypothetically. When two or more
statements are made in the alternative and one of them if made
independently would be sufficient, the pleading is not made
insufficient by the insufficiency of one or more of the
alternative statements. A party may also state as many separate
claims or defenses as the party has, regardless of consistency
and whether based on legal or equitable grounds.
48
successfully applied our Kann analysis in the same manner. See, e.g., Adobe Sys. Inc., 300
F. Supp. 3d at 727; BEP, Inc., 174 F. Supp. 2d at 405–06; In re LandAmerica Fin. Grp.,
Inc., 470 B.R. at 794; Lasater, 194 Md. App. at 454.
Our Recognition of a Cause of Action for Breach of Fiduciary Duty is Consistent
with the Third Restatement
In Kann, we looked at the Restatement (Second) of Torts § 874 (1979), including
the comments, and concluded that § 874 “recognizes the universal proposition that a breach
of a fiduciary duty is a civil wrong, but the remedy is not the same for any breach by every
type of fiduciary.” Kann, 344 Md. at 710.
In May 2018, the American Law Institute (“ALI”) approved the Restatement of the
Law Third, Torts: Liability for Economic Harm.12 In § 16 of the Third Restatement, titled
“Breach of Fiduciary Duty,” the ALI states that “[a]n actor who breaches a fiduciary duty
is subject to liability to the person to whom the duty was owed.” Restatement (Third) of
Torts: Liab. For Econ. Harm § 16 (Am. Law Inst. 2020) (“Third Restatement”).13 Like the
language in the Second Restatement, the Third Restatement’s articulation of “Breach of
Fiduciary Duty,” consists of one short sentence. The brevity and simplicity of the sentence
belies the complexity of the topic.
12
The American Law Institute (“ALI”) approved Restatement of the Law Third,
Torts: Liability for Economic Harm, on May 21, 2018. Pauline Toboulidis, Restatement
of the Law Third, Torts: Liability for Economic Harm Approved, The ALI Adviser (May
21, 2018), https://perma.cc/QJT2-87LV.
13
Section 16 of the Third Restatement of Torts: Liability for Economic Harm is a
successor to the Restatement (Second) Torts § 874 (1979). Restatement (Third) of Torts:
Liab. for Econ. Harm § 16 note a (Am. Law Inst. 2020).
49
As the comments explain, “[a] fiduciary duty is, in general, a duty to act for the
benefit of another on matters within the scope of the parties’ relationship.” Third
Restatement, § 16 cmt. a. Despite this general duty, the comments to the Third Restatement
recognize that there are different types of fiduciary relationships with different types of
characteristics:
Some fiduciary relationships arise as a matter of law, such as
the relation between attorney and client, between principal and
agent, or between a trustee and the beneficiary of a trust. They
may also arise from the terms of a contract or from less formal
dealings that create the elements of such a relationship.
Id. Accordingly, although a fiduciary relationship will have “general responsibilities that
are common to all settings[,]” such as a duty of loyalty, and an obligation to avoid self-
dealing and conflicts of interest, a fiduciary will also have “specific obligations that vary
from one circumstance to the next . . . .” Id. “The details of these [fiduciary] principles
depend . . . on the precise relationship between the parties and on the surrounding law.”
Id. For example, “[t]he particular obligations of a trustee . . . are defined by the law of
trusts. The obligations of an agent are matters for the law of agency. The obligations of
fiduciaries in many settings are further specified by statute.” Id.
Comment b to § 16 explains that there may be different remedies for a breach of
fiduciary duty arising from the type of fiduciary relationship in question: “The fiduciary
duty may be defined by a body of law that also provides particular and specialized remedies
when the duty is breached. This Section is not intended to displace those rules and
remedies where they exist.” Third Restatement, § 16 cmt. b (emphasis added). The Third
50
Restatement’s articulation of Breach of Fiduciary Duty is consistent with our analysis in
Kann.
The Minority Members’ Breach of Fiduciary Count in this Case
Having answered the certified questions, we turn to whether the trial court correctly
applied Maryland law, and correctly entered judgment in favor of Mr. Cherneski on the
breach of fiduciary duty count. The Minority Members allege that the circuit court erred
by concluding that under Kann, no independent cause of action exists for breach of
fiduciary duty. Second, the Minority Members argue that even if the circuit court
considered the breach of fiduciary duty count as a separate cause of action, the circuit court
erred by finding that “there is insufficient evidence to show that there has been a breach of
fiduciary duty,” and by failing to award separate, preventative equitable relief for breaches
of fiduciary duties, which they contend do not overlap with other causes of action. We
examine the Minority Members’ contentions below.
1. The Trial Court’s Resolution of the Breach of Fiduciary Duty Claim was Based
Upon a Factual Determination that there was No Breach, Not an Erroneous
Legal Conclusion that No Independent Cause of Action Exists
We analyze the circuit court’s discussion of Kann, and its consideration of the
Minority Members’ breach of fiduciary duty count, within the context of the other counts
pleaded, the relief sought, and the presentation of the case. In the nine-count complaint,
the Minority Members alleged several counts which they conceded were overlapping.
Specifically, the Minority Members argued that the breach of fiduciary duty count
overlapped with their breach of contract claims and their claims for dissolution and
appointment of a receiver. At trial, the Minority Members conceded that they had no
51
claims for money damages, and they were only seeking injunctive relief related to their
claims.
After conducting a six-day trial with over 100 exhibits, defense counsel moved for
judgment at the conclusion of the Minority Members’ case-in-chief. As the court ruled
from the bench, in a format akin to an appellate argument, the trial judge permitted counsel
to summarize the facts and the law that supported their position on each count. The court
interjected questions to counsel as they presented their arguments and summarized the
evidence. The court heard arguments of counsel on two separate days and requested
written memoranda on the Minority Members’ request for dissolution and receivership
prior to ruling on those counts.
Ultimately, the court granted Mr. Cherneski’s and the Company’s motion for
judgment on five of the nine claims, “find[ing] very little compelling evidence to support
[the Minority Members’] case in the light most favorable to [the Minority Members] as it
relates to dissolution or receivership, the breach of contract . . ., invasion of privacy,
publicity, and false light.” Upon the conclusion of all the evidence, the circuit court granted
equitable relief on three of the Minority Members’ breach of contract claims. The court
found that “there is insufficient evidence to show there has been a breach of fiduciary duty”
and granted judgment in favor of Mr. Cherneski on that claim.
During these arguments, counsel for the Minority Members argued that the holding
in Kann “doesn’t mean that there is [no] possible claim for breach of fiduciary duty. You
just have to decide what kind of remedy you are looking for . . . and what version of fiduciary
duty you’re talking about.” (emphasis added). When the court asked counsel whether the
52
breach of fiduciary duty count was an independent tort, Plaintiff’s counsel stated that
although she believed that it was, “Honestly, it’s – it’s going to all blend together in this
case.” (emphasis added). When asked again by the Court whether the fiduciary duty count
“just blends into . . . counts eight and nine[,]” counsel for the Minority Members again stated
that although counsel believed that the breach of fiduciary duty count was a separate count
under Wasserman, “I think it does blend in because I think the facts are all the same that
support all these claims in that sense.” (emphasis added). The trial judge concluded that he
was going to “reserve on that” count until after he reread Kann and Wasserman.
In their written memoranda summarizing the facts and law applicable to the
dissolution, receiver, and breach of fiduciary duty counts, the Minority Members once
again stated that “[t]he breach of fiduciary duty claim is supported by the same facts
underlying the claims for dissolution and appointment of a receiver.” The Minority
Members then asserted that “[t]his factual overlap does not give Mr. Cherneski a free pass
to avoid liability on the breach of fiduciary duty claim. He is a fiduciary who has breached
his duty of care to [the Minority Members] and the LLC and should be held accountable.”
The Minority Members argued that “[t]he Court has the authority to find Mr. Cherneski
liable for breaches of these fiduciary duties and to award fitting and equitable relief, such
as specific performance of the Operating Agreement, injunctive relief, dissolution or
appointment of a receiver.”
When the trial next resumed, the court proceeded to discuss the counts for breach
of fiduciary duty, dissolution, and the assignment of a receiver. The court stated that it had
reread Kann and articulated that “there seem[s] to be within that case a clear recognition
53
that there is no stand-alone tort for breach of fiduciary duty. But if a person breaches their
duty there is a tort.” The court explained that “Kann is very clear in terms of its proposition
that the court considers the matters in equity, not the jury.” The court stated that it would
“skip count seven for now” and proceed to the petition for judicial dissolution and the
appointment of a receiver.
After summarizing the applicable law, the court entered judgment in favor of Mr.
Cherneski and the Company on the dissolution and receiver counts. The court explained
that it “is convinced that the record demonstrates that [Mr.] Cherneski and Trusox engage
and continue in a lawful business which involves the development, the production, and the
sale of performance athletic socks and other apparel.” The court discussed the testimony
of various witnesses, crediting the testimony of Mr. Cherneski describing the Company’s
recent production numbers, and the products that are being sold and shipped. The court
rejected the testimony of Mr. Fisher that the company was insolvent, finding it not credible.
The court concluded that “[t]here is so much that is speculative in this case that it is hard
for the [c]ourt, considering it in the light most favorable to the non-moving party, to allow
this case to continue.”
In the context of Mr. Cherneski’s and the Company’s motion for judgment, the court
did not address the breach of fiduciary duty claim. However, the court commented that
“while I’m not addressing it at this point in time, I believe that for all intents and purposes
count seven [for breach of fiduciary duty] would be effectively perhaps of no weight.”
(emphasis added).
54
Given the overlapping nature of the claims in this case, the court’s approach to the
breach of fiduciary duty count was logical and reasonable. By first addressing the
overlapping claims for breach of contract, dissolution, and receiver, the circuit court peeled
back and addressed each separate layer of the onion until the only remaining claim was the
breach of fiduciary duty. The court methodically articulated its ruling on each count,
disposing of all other counts, and did not consider the breach of fiduciary count until the
conclusion of the entire case.
After the defense rested, once again, the court heard additional arguments by
counsel prior to fashioning its equitable relief on the Minority Members’ successful breach
of contract claims, and prior to rendering its decision on the breach of fiduciary duty count,
the only outstanding count. Clearly disappointed with the court’s entry of judgment in
favor of Mr. Cherneski and the Company on the majority of the claims, counsel for the
Minority Members then stated that “I would like to point out to the [c]ourt . . . [that] there
were many, many other items that the [c]ourt did not consider in its opinion that it rendered
from the bench.” The court responded that, “[w]ell, I considered them. But I didn’t find
them compelling.” (emphasis added).
The court proceeded to rule on the equitable relief sought under the breach of contract
claims upon which the Minority Members’ prevailed, ordering Mr. Cherneski: (1) 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; and (2) to transfer any patents in his personal name over to Trusox. The court
further ordered that, pursuant to the terms of the Operating Agreement preventing family
55
members from working at the Company, Mr. Cherneski’s brother could not receive any
benefit in the form of compensation or stock for any work that he may perform.
As the last matter addressed by the court on the Minority Members’ counts, having
disposed of all the other counts, the court denied the count for breach of fiduciary duty
“find[ing] [that] there is insufficient evidence to show that there has been a breach of
fiduciary duty.” Significantly, the trial court did not state that it was entering judgment in
Mr. Cherneski’s favor because it thought that no cause of action existed, or because the
relief sought was duplicative or unavailable.
We determine that the court considered the Minority Members’ breach of fiduciary
duty count on its merits and entered judgment in favor of Mr. Cherneski after making a
factual determination that there had been no breach of the fiduciary duty. Based upon the
record, including the Minority Members’ presentation of overlapping claims and
overlapping remedies, it is clear that the court considered all of the testimony and evidence,
and fashioned specific equitable relief based upon the breach of contract claims. To the
extent that the Minority Members argued that they were entitled to additional,
nonduplicative equitable relief based upon a breach of fiduciary duty, it is also clear that
the court considered those arguments and declined to enter further equitable relief based
upon its assessment of the evidence:
There is testimony that late payments to employees have been
addressed. There is testimony that current employees are being
paid. There is no evidence that there is any type of law suit for
any misappropriation of athletes’ images, et cetera. There is
nothing to indicate there is any demand or threats that any
player’s image or logo has led to this litigation. It’s all
speculative that this could happen.
56
(emphasis added). The court was “not required to set out in detail each and every step of
[its] thought process.” Thomas v. City of Annapolis, 113 Md. App. 440, 450 (1997) (citing
Kirsner v. Edelmann, 65 Md. App. 185 (1985)). Nor is the trial court required to “elaborate
on the reason” for its decision. Attorney Grievance Comm’n v. Jeter, 365 Md. 279, 288
(2001). Rather, this Court “presume[s] that trial judges know the law and correctly apply
it.” Id. We are not persuaded by the Minority Members’ argument that the court did not
consider its count for breach of fiduciary duty. The circuit court plainly stated its reason
for denying the claim—it made a factual determination that there was “insufficient
evidence” of a breach. The Minority Members have failed to persuade us that the circuit
court didn’t mean what it said.
2. The Circuit Court’s Factual Determination that Mr. Cherneski Did Not Breach
his Fiduciary Duty, and the Court’s Decision Not to Award Additional Equitable
Relief on that Claim, were Not Clearly Erroneous
The Minority Members contend that, assuming the circuit court considered its
breach of fiduciary duty claim, the circuit court erred in its factual finding that “there was
insufficient evidence to show that there has been a breach of fiduciary duty[,]” and erred
by failing to award additional injunctive relief for the breaches that were not duplicative of
its request for equitable relief arising from its other claims.
In response, Mr. Cherneski and the Company point out that there was ample
evidence in the record to support the circuit court’s factual determination that there was
“insufficient evidence to show that there has been a breach of fiduciary duty” on any
remaining allegations associated with a separate claim. Mr. Cherneski contends that the
57
circuit court did not err in refusing to exercise its discretion to award additional equitable
relief arising from an alleged breach of fiduciary duty.
As noted above, when an action has been tried without a jury, we review the case
on both the law and the evidence and will not set aside the judgment of the trial court unless
it is clearly erroneous. Md. Rule 8-131(c). “The appellate court must consider evidence
produced at the trial in a light most favorable to the prevailing party and if substantial
evidence was presented to support the trial court’s determination, it is not clearly erroneous
and cannot be disturbed.” Gen. Motors Corp. v. Schmitz, 362 Md. 229, 233–34 (2001)
(citations omitted). “If there is any competent material evidence to support the factual
findings of the trial court, those findings cannot be held to be clearly erroneous.” YIVO
Inst. for Jewish Research v. Zaleski, 386 Md. 654, 663 (2005). Additionally, “an appellate
court may affirm a trial court’s decision on any ground adequately shown by the record
even though the ground was not relied upon by the trial court or the parties.” Id. (citations
omitted). “We review the exercise of the trial court’s discretion to grant or deny a request
for injunctive relief under an ‘abuse of discretion’ standard.” El Bey v. Moorish Sci. Temple
of Am., Inc., 362 Md. 339, 354 (2001) (citations omitted). Furthermore, “[i]njunctive relief
will normally not be granted unless the petitioner demonstrates that it will sustain
substantial and irreparable injury as a result of the alleged wrongful conduct.” Id. at 355(citations omitted).
Based upon our review of the record, there was ample evidence to support the circuit
court judge’s factual finding that there was “insufficient evidence to show that there was a
breach of fiduciary duty.” We also conclude that the circuit court did not abuse its
58
discretion in failing to award the additional equitable relief sought by the Minority
Members related to their separate claim for breach of fiduciary duty. We examine each of
the Minority Members’ factual assertions of wrongful conduct, and the facts upon which
Mr. Cherneski relies, which support the trial court’s factual finding, and its decision not to
enter additional equitable relief, below.
a. Violation of Maryland Wage and Hour Laws
The Minority Members contend that Trusox violated Maryland wage and hour laws
by paying its employees late.14 The Minority Members contend that there was
“uncontested evidence presented at trial that Trusox, at the direction of [Mr.] Cherneski
and with his full knowledge, violated Maryland wage and hour law.”
On this contention, despite the fact that the Company had paid its employees late in
the past, which the circuit court determined was the result of cash flow issues, the court
determined, based upon the testimony at trial, “that the late payments to employees have
been addressed . . . [and] that current employees are being paid.” Those findings are
supported by the testimony of Trusox’s operations manager that all wage amounts were
current as of the beginning of trial. Trusox’s former employee witnesses testified that they
were paid all wages that they earned.
We consider the trial court’s factual findings within the context of the remedy
sought by the Minority Members. Maryland law is clear that an injunction is a
14
Pursuant to Maryland Code Labor and Employment Article (“LE”), § 3-502(a)(1),
an employer is required to set up regular pay periods and “pay each employee at least once
every 2 weeks or twice in each month.”
59
“preventative and protective remedy, aimed at future acts, and it is not intended to redress
past wrongs.” El Bey, 362 Md. at 353 (emphasis in original) (quoting Carroll Cty. Ethics
Comm’n v. Lennon, 119 Md. App. 49, 58 (1998)). To the extent that the Minority Members
sought injunctive relief for past wrongs, such as untimely payments to employees, which
the trial court determined was no longer an issue, entering an injunction based upon past
conduct would not have been appropriate.
b. Mr. Cherneski’s Private Placement Offering to Investors
The Minority Members assert that Mr. Cherneski’s private placement offering
violated the Section 5 of the Federal Securities Act of 1933 (the “Securities Act”), which
makes it unlawful for any person to sell or offer to buy a security unless a registration
statement is in effect for that security. 15 U.S.C. § 77e (2018). Section 4(2) of the
Securities Act exempts from the Section 5 registration requirement “transactions by an
issuer not involving any public offering.” 15 U.S.C. § 77d (2018). To help establish a
clear path to obtaining an exemption under Section 4(2), the Securities and Exchange
Commission (“SEC”) has issued regulations commonly referred to as Regulation D. 17
C.F.R. § 230.500 et seq. (2013).
One exemption afforded in Regulation D is SEC Rule 506(b). Id. at § 230.506.
The Minority Members contend that in undertaking the private placement offering,
Trusox was relying upon the exemption afforded by Rule 506(b). The Minority Members
assert that the evidence presented at trial supports a finding that Trusox “has fallen
outside the ‘safe harbor’ of Rule 506(b) and is selling unregistered securities in violation
of the [] Act.” To support this assertion, the Minority Members point to the Trusox
60
Membership Interest Purchase Agreement (“MIPA”), the document presented to
prospective purchasers of membership interests in the Company. The Minority Members
contend that because Mr. Cherneski testified that he did not ask potential purchasers to
initial and return the portion of the MIPA, Section 3.2, where the document requests that
the purchaser acknowledge that he or she is an “accredited investor” by initialing the
specific category into which they fall, “the Company is unable to determine whether the
investors are accredited.” The Minority Members also point to the testimony of an
investor, who admittedly was not an accredited investor. Accordingly, the Minority
Members asserted that they “proved [Mr.] Cherneski was selling unregistered securities,
thereby exposing the Company to investor suits and government enforcement actions,
jeopardizing [the Minority Members’] interests, and taking advantage of unwary
investors.” Accordingly, they assert that the “circuit court erred in not enjoining this
conduct.”
In response to the Minority Members’ contentions, Mr. Cherneski points to
conflicting evidence in the record to support the propriety of Trusox’s private placement
offering. In a section that stands independent of any exemption for offerings to accredited
investors, Mr. Cherneski notes that Regulation D exempts an offering where “there are no
more than 35 purchasers of securities from the issuer.” Id. at § 230.506(b)(2)(i). Mr.
Cherneski points out that the circuit court had evidence before it that Trusox fell under
such exemption because it had only 18 investors.
Concerning “accredited investors” the federal regulations require that the “issuer”
of the securities—in this case Trusox— “take reasonable steps to verify that purchasers of
61
securities . . . are accredited investors.” Id. at § 230.506(c)(2)(ii). Mr. Cherneski testified
that Trusox received signature pages of the MIPA by its investors, wherein “each investor
agree[d] to be bound by all terms and provisions of [the] Agreement,” including the
representations and warranties concerning their status as an accredited investor.
Mr. Cherneski further testified that he retained securities counsel to advise him
concerning the private placement offering and that he requested, received, and at all times
followed his securities counsel’s advice.
c. Minority Members’ Contention that Mr. Cherneski Misled Potential
Investors
The Minority Members also allege that Mr. Cherneski “blatantly misled potential
investors in violation of . . . the Maryland Securities Act[, CA § 11-302].” To support this
assertion, the Minority Members point to the fact that Trusox “failed to update the MIPA
to inform potential investors of [the Minority Members’] lawsuit.”
Once again, Mr. Cherneski points out that there is evidence in the record to refute
the Minority Members’ allegations. Although this lawsuit may not have been specifically
referenced in the MIPA, Mr. Cherneski testified at trial that “I told everybody about the
pending lawsuit.” Mr. Cherneski also testified that, in consultation with counsel, he
transmitted to prospective investors a packet of information that included a copy of the
Minority Members’ lawsuit.
The Minority Members assert that Mr. Cherneski “sent misleading financial
forecasts to potential investors” with inaccurate income projections that are not consistent
62
with the pairs of socks actually manufactured. They also point to projections associated
with the sale of cleats, “although no cleats had actually been sold.”
In response to these assertions, Mr. Cherneski refers us to a disclosure document
that he attached as an exhibit to the MIPA, explaining that forecasts “are based on
assumptions and estimates and are completely dependent on future events and
transactions” and are also “inherently subject to varying degrees of uncertainty.” The
exhibit further stated that “[a]ccordingly, no assurance is or can be given that any or all
of the forecasts set forth in the Business Plan will or can be realized.” Trusox
accompanied this disclosure with a four-page statement of “risk factors” in investing in
the Company, including the inherently speculative nature of the business. Mr. Cherneski
also testified that he gave any prospective investor who asked “all the financial records
that we had up to [sic] date that we had[,]” and that he never refused any request for
financial information.
The Minority Members also allege that Mr. Cherneski sent emails to potential
investors “saying that he turned down a $40 million offer from Nike. There was no such
offer.” The Minority Members acknowledge that “[t]here was at most a request to
negotiate a non-binding letter of intent from Nike, and even that never occurred.” The
Minority Members assert that they sought an injunction because they “wanted to stop
[Mr.] Cherneski from making material false statements, like these, to potential investors
that could get the Company sued or attract enforcement actions.” Mr. Cherneski counters
this assertion, claiming that the “record supports that there was no misrepresentation of
63
an offer by Nike.” He points to the trial testimony, which establishes that the offer was
verbal.
d. Minority Members’ Contention that Mr. Cherneski Violated Trademark
Laws and Right of Publicity Laws
Finally, the Minority Members contend that Mr. Cherneski “violated the Lanham
Act[15] and sports figures’ rights of publicity[]” by “using images of professional athletes
and trademarks to market Trusox to consumers and to encourage investments in Trusox.”
In response to this allegation, Mr. Cherneski points out that the circuit court found
that the Minority Members’ allegations of misappropriation of athletes’ images was
“speculative.” Mr. Cherneski confirmed in his testimony that Trusox paid for a license
with Getty Images to use the photographs of professionals and further asserts that the trial
record is devoid of any evidence that this is improper. The record also establishes that Mr.
Cherneski relied upon advice of legal counsel as to how and under what conditions athletes’
images could be used. There is no evidence of athletes raising any question about the use
of their images.
e. Sufficiency of the Evidence Generally and Discretion to Decline to
Award Additional Equitable Relief
We hold that there is ample evidence in the record to support the trial court’s factual
determination that there was “insufficient evidence to show there has been a breach of
fiduciary duty.” Accordingly, the court’s decision to enter judgment in favor of Mr.
15
The Lanham Act (also known as the Trademark Act of 1946) is the federal statute
that governs trademarks, service marks, and unfair competition. See 15 U.S.C. ch. 22
(2018). The Minority Members alleged that Mr. Cherneski’s marketing efforts violated 15
U.S.C. § 1114 (2018) and 15 U.S.C. § 1125(a) (2018).
64
Cherneski was not clearly erroneous. As noted above, the circuit court specifically
commented on some of the allegations of “wrongful conduct” that form the basis for the
Minority Members’ request for injunctive relief arising from an alleged breach of duty and
rejected them as either no longer being an issue (commenting that late payments “have
been addressed”) or as being speculative (observing that there were no lawsuits arising
from misappropriation of athletes’ images, and stating, “It’s all speculative that this could
happen”). The circuit court did not abuse its discretion in failing to award equitable relief
in the form of a preventative injunction on the Minority Members’ breach of fiduciary duty
claim.
Appropriateness of the Attorneys’ Fees Award
Next, we turn to the circuit court’s award of attorneys’ fees under the fee-shifting
provision of the Operating Agreement. The attorneys’ fees dispute between the parties
centers on the interpretation of Section 14.13 of the Operating Agreement, which provides
as follows:
Governing Law: Jurisdiction, Enforcement. All questions
concerning the construction, validity and interpretation of this
Agreement and the performance of the obligations imposed
by this Agreement shall be governed by the laws of the State
of Maryland. Any action, suit or proceeding arising out of,
connected with, or pertaining to this Agreement shall be
submitted exclusively to the state or federal courts sitting in
Maryland, and venue for any such action, suit or proceeding
shall be in the state or federal courts sitting in Maryland. All
parties to the Agreement (including any Member who
becomes a party to this Agreement after the Effective Date)
hereby consent to the jurisdiction of such courts and
irrevocably waive any objection as to personal jurisdiction,
venue or inconvenient forum. In the event any legal action is
brought by a party arising hereunder or between the parties,
65
the court shall award to the substantially prevailing party all
costs and expenses, including reasonable attorneys’ fees,
incurred in such action including costs incurred prior to
commencement of any such legal action and all costs and
expenses, including reasonable attorneys’ fees incurred in any
appeal from any action to enforce any of said terms, covenant
and conditions.
The parties offered competing interpretations of the fee-shifting provision set forth
in Section 14.13. Focusing on the phrase “arising hereunder” in that sentence, the Minority
Members contend that the fee-shifting does not apply to all disputes between the parties,
but only to those claims that are based expressly on the Operating Agreement itself. Based
upon that interpretation, the Minority Members contend that they, and not Mr. Cherneski
and Trusox, were the prevailing parties because only the breach of contract counts (Counts
I, II, IV)—the counts on which they prevailed—were based expressly on the Operating
Agreement.
Mr. Cherneski contends that one must read the clause in its entirety, and that the
Minority Members’ construction ignores the additional language that follows the
disjunctive “or”—“arising hereunder or between the parties.” Under this interpretation,
Mr. Cherneski asserts that all of the claims arise out of the same action between the parties,
regardless of whether they are based expressly on the Operating Agreement, and are
covered by the fee-shifting provision. Moreover, Mr. Cherneski also contends that even if
one accepts the Minority Members’ narrow interpretation of the language, Mr. Cherneski
and the Company are still the “prevailing parties” because the Minority Members’ request
for dissolution or the appointment of a receiver both “arise” under the Operating
Agreement and were the more significant claims in the case.
66
After hearing argument and considering additional briefing, and after conducting a
hearing on the appropriateness and reasonableness of the attorneys’ fees over the course of
a three-day evidentiary hearing, the court issued a memorandum opinion, in which it
rejected the narrow interpretation offered by the Minority Members, stating that the
contractual provision “means just what it says” and applied to all claims brought
“hereunder or between the parties.” The court also determined that Mr. Cherneski and
Trusox were the substantially prevailing parties because the claims on which they prevailed
“were of greater significance and more important than the claims” upon which the Minority
Members prevailed. Based on its consideration of all of the allegations, the court found
that “all of the [Minority Members’] claims relate to a dispute between the parties that falls
within the confines of the fee-shifting provision of the Operating Agreement . . . .”
The court also rejected the Minority Members’ argument to apportion the attorneys’
fees based on the counts upon which each party prevailed, noting that the Minority
Members “combined all counts to the action in this case, whether the claims arose in equity
or contract, forcing the Defendants to defend all claims in this action.” The court discussed
each factor enumerated under Maryland Rule 2-703(f)(3), as required by Rule 2-705, and
determined the fees to be fair and reasonable.
Based upon this analysis, the circuit court entered judgment against the Minority
Members in favor of Mr. Cherneski in the amount of $453,806.49, representing his
attorneys’ fees, and entered judgment against the Minority Members in favor of Trusox in
the amount of $189,269.15, for its attorneys’ fees.
67
1. The Circuit Court Correctly Interpreted the Contractual Language of the
Fee-Shifting Provision of the Operating Agreement
The attorneys’ fees provision in this case arises out of a contract between the parties.
We review the circuit court’s interpretation of the contract de novo, while the determination
of reasonableness is a factual determination that will not be overturned unless clearly
erroneous. See Credible Behavioral Health, Inc. v. Johnson, 466 Md. 380, 392 (2019)
(citations and quotations omitted) (“[T]he interpretation of a contract . . . is a question of
law subject to de novo review.”); Myers v. Kayhoe, 391 Md. 188, 207 (2006) (citations
omitted) (“The trial court’s determination of the reasonableness of attorney’s fees is a
factual determination within the sound discretion of the court, and will not be overturned
unless clearly erroneous.”).
Contractual fee-shifting provisions providing for awards of reasonable attorneys’
fees and costs to the prevailing party are generally valid and enforceable. See Myers, 391
Md. at 207. We interpret contracts under the objective theory of contract interpretation,
which provides that “unless a contract’s language is ambiguous, we give effect to that
language as written without concern for the subjective intent of the parties at the time of
formation.” Ocean Petroleum, Co. v. Yanek, 416 Md. 74, 86 (2010) (citing Cochran v.
Norkunas, 398 Md. 1, 16 (2007)). “In interpreting a contract provision, we look to the
entire language of the agreement, not merely a portion thereof.” Nova Research, Inc. v.
Penske Truck Leasing Co., 405 Md. 435, 448 (2008) (citing Jones v. Hubbard, 356 Md.
513, 534–35 (1999)). We consider the language of the contract in its “customary, ordinary,
and accepted meaning[.]” Fister v. Allstate Life Ins. Co., 366 Md. 201, 210 (2001)
68
(citations omitted); see also Nova Research, 405 Md. at 448. The language is ambiguous
if, “when viewed from [a] reasonable person perspective, that language is susceptible to
more than one meaning.” Ocean Petroleum, 416 Md. at 87 (citing United Servs. Auto.
Ass’n v. Riley, 393 Md. 55, 80 (2006)).
The parties make the same contractual analysis arguments on appeal that they made
to the circuit court. Focusing on the language “arising hereunder[,]” the Minority Members
argue that the fee-shifting provision must be read narrowly to apply only to claims brought
to enforce the terms, covenants, and conditions of the Operating Agreement. They claim
that “[of] the six counts on which [Mr.] Cherneski prevailed, none ‘arise under’ the
Operating Agreement.” Accordingly, they argue that because they prevailed on the breach
of contract claims, which they contend “arise under” the Operating Agreement, they are
the substantially prevailing party. They assert that the phrase “or between the parties” must
be interpreted within the context of the Operating Agreement, taking into consideration the
surrounding language of the paragraph. The Minority Members argue that, if the fee-
shifting clause applies to any claim “between the parties,” then the “arising hereunder”
language becomes meaningless. The Minority Members contend that the only reasonable
way to interpret the fee-shifting provision is to limit it to claims that “arise under” the
Operating Agreement. The Minority Members further assert that there is a “recognized
distinction” under Maryland law between claims “arising out of” and claims “arising
hereunder.” Citing to Weichert Co. of Maryland, Inc. v. Faust, 191 Md. App. 1, 10 (2010),
aff’d, 419 Md. 306 (2011), the Minority Members argue that the Maryland appellate courts
69
have distinguished contractual language “arising out of” from “arising hereunder[,]” and
have determined that the latter phrase is narrower than the former.16
Mr. Cherneski and Trusox argue that the Minority Members’ plain language
analysis does not take into account the language that follows “arising hereunder[,]” namely,
the separate phrase “or between the parties.” Mr. Cherneski and Trusox contend that the
Minority Members’ narrow interpretation of the language “arising hereunder” renders the
language “or between the parties” nugatory. We agree with Mr. Cherneski’s interpretation,
and the plain language analysis undertaken by the circuit court.
As we previously noted, a limited liability company is a creature of contract. Under
the LLC Act, the General Assembly described the intent of the Act as giving “the maximum
effect to the principles of freedom of contract and to the enforceability of operating
agreements.” CA § 4A-102(a). The Act therefore permits members of an LLC to “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.” CA § 4A-402(a).
The LLC Act permits a Maryland court to enter a decree of involuntary dissolution
of an LLC only if “it is not reasonably practicable to carry on the business in conformity
with the articles of organization or the operating agreement.” CA § 4A-903. The statutory
16
We disagree with the Minority Members’ contention that Weichert Co. of
Maryland, Inc. v. Faust, 191 Md. App. 1, 10 (2010), aff’d, 419 Md. 306 (2011) supports
their interpretation. In Weichert, the Court of Special Appeals discussed the word
“hereunder” in the context of a fee-shifting provision that only applied to one paragraph of
the contract addressing breach of a duty of loyalty claims and did not apply to any other
claims arising under the contract. Id. at 8. Here, the attorneys’ fees paragraph applies to
any legal action arising under the Operating Agreement.
70
standard makes it clear that dissolution of an LLC is “initially a contract-based analysis.”
In re 1545 Ocean Ave., LLC, 72 A.D.3d 121, 128 (N.Y. App. Div. 2010).
The record demonstrates that the Minority Members relied upon the Operating
Agreement to allege not only their breach of contract claims, but also their dissolution
claim. The Minority Members were cognizant that the LLC statute requires a contract-
based analysis. They asserted that “Trusox is unable to perform its purpose as defined in
the Operating Agreement[]”; and therefore, they met the legal standard for judicial
dissolution. The record also reflects that the Minority Members expressly relied upon the
Operating Agreement when making their claims for breach of fiduciary duty. The Minority
Members argued to the trial court that Mr. Cherneski breached “his duty to act with care,
competence, and reasonable diligence, and his duty to act in accordance with the Operating
Agreement—a contract that he entered into in his role as an agent of Trusox.” (emphasis
added).
According to Black’s Law Dictionary, “hereunder” means “[i]n accordance with
this document.” Hereunder, Black’s Law Dictionary 745 (11th Ed. 2019). A review of the
Complaint and the arguments of counsel reflect that a majority of the claims asserted by
the Minority Members are firmly rooted in the Operating Agreement. In other words, the
unsuccessful claims for dissolution and breach of fiduciary duty “arise under” the
contractual umbrella of the Operating Agreement.
Our plain language analysis does not stop, however, with the phrase “arising
hereunder.” The language in the parties’ contract is broader than that. The fee-shifting
provision states, in pertinent part, that “[i]n the event any legal action is brought by a party
71
arising hereunder or between the parties, the court shall award the substantially prevailing
party all costs and expenses, including reasonable attorneys’ fees, incurred in such action
. . . .” The fee-shifting provision uses the disjunctive word “or” to apply its terms
separately, independently, and alternatively, to (i) any action “arising hereunder” or (ii)
any action “between the parties.” Maryland courts generally interpret “or” in the
disjunctive sense when they construe statutes. SVF Riva Annapolis, LLC v. Gilroy, 459
Md. 632, 642 (2018). “Or” is a conjunction “[u]sed to indicate an alternative, usually only
before the last term of a series . . . .” Id. at 642 (quoting The American Heritage Dictionary
of the English Language 1236 (4th ed. 2006)). “Each item in a string of terms, separated
by the disjunctive ‘or,’ is given independent meaning.” Bainbridge St. Elmo Bethesda
Apartments, LLC v. White Flint Express Realty Grp. Ltd. P’ship, LLLP, 454 Md. 475, 491
(2017). Under the plain language of the Operating Agreement, the fee-shifting provision
applies to both categories—claims “arising hereunder” or claims “between the parties.”
The Minority Members’ narrow interpretation of “arising hereunder” would render the
word “or” meaningless.17
17
The Minority Members argue that Tomran, Inc. v. Passano, 391 Md. 1, 16 (2006)
applies, and to interpret “arising hereunder” and “between the parties” separately, will
render the language “arising hereunder” nugatory. We find the analysis in Tomran to be
inapposite because that case involved a forum selection clause that had an entirely different
application than the fee-shifting provision here. Id. at 16. The forum selection clause in
Tomran applied to a “Deposit Agreement and Receipts and all rights hereunder and
thereunder.” Id. at 13. We determined that “‘hereunder and thereunder’ limit[ed] the scope
of the choice of law clause to those rights specifically stated in the Deposit Agreement and
the Receipts.” Id. at 17. By contrast, here, the language includes two clauses separated by
the disjunctive “or.”
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The Minority Members alleged nine counts consisting of three counts of breach of
contract, invasion of privacy (false light), invasion of privacy (right of publicity),
dissolution, appointment of receiver, and breach of fiduciary duty. All nine either “arise
under” the Operating Agreement “or between the parties . . . in such action”.18 Under the
plain language of the fee-shifting provision of the Operating Agreement, the Court
correctly determined that Trusox and Mr. Cherneski were the “substantially prevailing
parties,” having entered judgment in their favor on six of the nine counts. We will not
rewrite the terms of the contract because the Minority Members are dissatisfied with the
language.19
2. The Circuit Court Did Not Err in Determining that Trusox and Mr. Cherneski
were the Substantially Prevailing Parties, Thereby Entitling Them to Their
Attorneys’ Fees
The Minority Members disagree with the circuit court’s conclusion that Mr.
Cherneski and Trusox were the “substantially prevailing parties.” The circuit court’s
conclusion was not clearly erroneous. It is clear from the record that the Minority
18
The invasion of privacy counts (false light and right of publicity) concerned Mr.
Cherneski’s marketing efforts. As such, they also arose out of his duties as the CEO,
President, and majority member. The circuit court dismissed these claims at the end of the
Minority Members’ case, finding “very little compelling evidence” to support those claims.
19
We also disagree with the Minority Members that an interpretation that gives
independent meaning to the clause: legal action arising . . . “between the parties” could be
construed as applying to any legal action between the parties, including legal action
unrelated to the operations of Trusox. Based on its inclusion and placement in the
Operating Agreement, “or between the parties” remains limited to claims flowing from or
originating from Trusox and the parties’ relationship as members of Trusox. Lawsuits
entirely unrelated to Trusox and its operations do not invoke the fee-shifting provision
simply on the basis of the parties involved.
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Members’ primary objective was to obtain dissolution or a receivership. The court rejected
this extraordinary relief, commenting that “the parties have contracted and bargained – for
lack of a better word – Mr. Cherneski is in charge,” and because “[t]here is so much that is
speculative in this case that it is hard for the Court, considering it in the light most favorable
to [the Minority Members], to allow the case to continue.”
Based upon the record, including the nature of the counts and the remedies sought,
the circuit court did not err in finding that “the claims [the Minority Members] prevailed
upon were minor and insignificant in comparison to the claims [Mr. Cherneski and the
Company] prevailed upon,” or in finding that Mr. Cherneski and the Company were
therefore the “prevailing party.”
3. The Circuit Court Did Not Err in Failing to Apportion the Attorneys’ Fees
Nor did the circuit court abuse its discretion by awarding Mr. Cherneski and Trusox
the entirety of their attorneys’ fees. The circuit court noted that the Minority Members
“combined all counts in the action in this case, whether the claims arose in equity or
contract, forcing [Mr. Cherneski and the Company] to defend all claims in this action.”
The circuit court’s approach to the attorneys’ fees in this case is consistent with the
“common core of facts” doctrine, which the Supreme Court established in Hensley v.
Eckerhart:
It may well be that cases involving such unrelated claims are
unlikely to arise with great frequency . . . . In other cases the
plaintiff’s claims for relief will involve a common core of facts
or will be based on related legal theories. Much of counsel’s
time will be devoted generally to the litigation as a whole,
making it difficult to divide the hours expended on a claim-by-
claim basis. Such a lawsuit cannot be viewed as a series of
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discrete claims. Instead, the district court should focus on the
significance of the overall relief obtained by the plaintiff in
relation to the hours reasonably expended on the litigation.
461 U.S. 424, 435 (1983).
Although we have not specifically used the term “common core of facts,” the Court
of Special Appeals determined that the doctrine comports with Maryland law, and adopted
this approach in Weichert, 191 Md. App. at 15–19.20 In Weichert, the Court of Special
Appeals agreed with the appellee that the doctrine was consistent with ideas generally
espoused by this Court in Diamond Point Plaza L.P. v. Wells Fargo Bank, N.A., 400 Md.
718, 761 (2007). Weichert, 191 Md. App. at 16. As the intermediate appellate court
explained in Weichert, the circuit court may encounter “philosophical problems” when
apportioning fees where an agreement shifts costs to a prevailing party on some claims but
may not apply to other claims. Id. at 16–17. The Court of Special Appeals explained that
a problem may arise “at a fundamental level because certain costs are necessary to litigate
each claim successfully and yet do not change as the number of claims increases.” Id. at
17. The court explained how the “common core of facts” doctrine can be applied to address
attorneys’ fees arising in such circumstances:
In the hypothetical case of a single question relevant to
multiple claims, it is clear that a party prevailing on one but not
all claims should receive some compensation, and it is within
reason to assign the question’s cost to the single claim that
merits a fee award. While this may appear to be a windfall to
the fee recipient, it is only so in hindsight. If the claim had
been brought alone, the prevailing litigant would have incurred
20
In Weichert Co. of Maryland, Inc. v. Faust, we affirmed in its entirety the
judgment of the Court of Special Appeals, with no discussion of the “common core of
facts” doctrine. 419 Md. 306 (2011).
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its necessary costs and the court could do nothing but award
the expense as a whole. We can see no reason why the
prevailing litigant should necessarily be denied this amount
merely because the expense was related to other claims.
We have therefore established that a court could reasonably
assign to a single fee-shifting claim any cost that would have
been necessary to litigate the claim as if it had been brought
alone. However, the “common core of facts” doctrine is
somewhat broader than that. If the court finds that two claims
are factually related, the doctrine not only awards the costs
common to all claims, but also awards costs that arise solely
by virtue of the non-fee-shifting claim.
Id. at 18 (emphasis in original).
We agree with the Court of Special Appeals that the “common core of facts”
doctrine comports with Maryland law and may be a reasonable method for apportioning
attorneys’ fees in certain cases. We agree with Trusox and Mr. Cherneski that this was an
appropriate methodology for determining attorneys’ fees in this case and that the circuit
court did not err in applying a methodology that is consistent with that doctrine. Where,
as here, a plaintiff presents multiple claims “involv[ing] a common core of facts or . . .
based on related legal theories[, m]uch of counsel’s time will be devoted generally to the
litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim
basis. Such a lawsuit cannot be viewed as a series of discrete claims.” Hensley, 461 U.S.
at 435.
As noted in detail above, many of the nine counts alleged in the Complaint contained
“overlapping” facts and relief. The Minority Members conceded as much, describing the
overlapping nature of the breach of fiduciary duty claims with the breach of contract,
dissolution, and receiver claims. Given the Minority Members’ approach to this case, and
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the entirety of the record before it, the circuit court did not err in exercising its discretion
to award Mr. Cherneski and Trusox the entirety of their attorneys’ fees because the
Minority Members “combined all counts to the action in this case, whether the claims arose
in equity or contract, forcing [Mr. Cherneski and Trusox] to defend all claims in the action.”
We reject the Minority Members’ argument that the circuit court erred in not
applying proportionality to reduce the fee award based upon the result obtained. To be
sure, the circuit court’s use of a proportionality theory may be appropriate in certain
circumstances. See Ochse v. Henry, 216 Md. App. 439, 460–69 (2014), cert. denied, 439
Md. 331 (2014) (upholding the circuit court’s use of a proportionality theory to take into
account the results obtained by each side of the litigation). However, it does not follow
that use of a proportionality theory is required of the circuit court when performing its
discretionary analysis in every instance. Id. at 460 (explaining that the application of a
proportionate award, or the application of the “common core of facts” doctrine is “in the
court’s discretion”). “Certain circumstances could make another method more reasonable,
but we leave that to the discretion of the trial court.” Weichert, 191 Md. App. at 19–20.
III.
Conclusion
For the reasons above, we hold that managing members of an LLC owe common
law fiduciary duties to the LLC and to the other members based upon the fiduciary relations
governing principles of agency.
We answer the certified questions as follows. We hold that under Kann and our
jurisprudence that followed, a breach of fiduciary duty may be actionable as an independent
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cause of action. To establish a breach of fiduciary duty, a plaintiff must demonstrate: (1)
the existence of a fiduciary relationship; (2) breach of the duty owed by the fiduciary to the
beneficiary; and (3) harm to the beneficiary. The remedy for the breach is dependent upon
the type of fiduciary relationship, and the historical remedies provided by law for the
specific type of fiduciary relationship and specific breach in question, and may arise under
a statute, common law, or contract. To clarify the Court’s analysis described in Kann, the
court should consider the nature of the fiduciary relationship and possible remedies
afforded for a breach, 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 specific type of fiduciary relationship and the
specific breach alleged, 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. 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 be dependent
upon the specific law applicable to the specific fiduciary relationship at issue.
We hold that in this case, the circuit court did not err in entering judgment in favor
of Mr. Cherneski on the breach of fiduciary duty count. The court made a factual
determination that there was insufficient evidence of a breach of fiduciary duty. The
court’s factual determination was not clearly erroneous. Nor did the court abuse its
discretion in refusing to award equitable relief on the Minority Members’ assertions of
unlawful conduct associated with their breach of fiduciary duty claim.
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We hold that the circuit court correctly interpreted the fee-shifting provision of the
parties’ Operating Agreement and did not err in determining that Mr. Cherneski and the
Company were the “substantially prevailing parties” and in awarding the defendants’ their
attorneys’ fees.
The circuit court did not err in awarding Mr. Cherneski and Trusox the entirety of
their fees. 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 apportioning
attorneys’ fees in this case.
CERTIFIED QUESTIONS ANSWERED.
JUDGMENT OF THE CIRCUIT COURT
FOR ANNE ARUNDEL COUNTY
AFFIRMED. APPELLANTS TO PAY
COSTS.
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The correction notice(s) for this opinion(s) can be found here:
https://mdcourts.gov/sites/default/files/import/appellate/correctionnotices/coa/3a19mcn.pdf