41 F.4th 843
7th Cir.2022Background
- Plaintiff Joseph Allen retained Maryland-based Brown Advisory to manage investment and retirement trust accounts holding several million dollars; he executed durable powers of attorney (2013, 2014) appointing his daughter Elizabeth Key and expressly authorizing third-party reliance and indemnifying third parties for reliance.
- While Allen lived at an assisted-living facility (Grand Oaks) Key, acting under the POA, directed withdrawals from Allen’s Brown Advisory accounts (including a $125,000 withdrawal and periodic $5,000 disbursements), after which account values fell markedly and Allen alleges tax penalties and other losses.
- Allen revoked Key’s POA in April 2019, later sued Brown Advisory in Indiana state court (asserting breach of contract and breach of fiduciary duty under Maryland law), Brown removed the case to federal court, and Allen added Key as a defendant (later settled with her).
- Brown Advisory moved to dismiss: (1) it argued the POA authorized and insulated it from liability for honoring Key’s directions; and (2) it argued Maryland law did not permit an independent fiduciary-duty claim arising from contractual relations; the district court dismissed both claims and denied Allen leave to file a second amended complaint as untimely.
- On appeal the Seventh Circuit affirmed: it agreed the POA barred Brown Advisory’s liability for the challenged withdrawals (breach of contract and fiduciary duty), and it upheld denial of leave to amend because Allen failed to show good cause under Rule 16(b) and his proposed amendments would unduly prejudice Brown Advisory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Brown Advisory breached contract by honoring withdrawals directed by Key under Allen’s POA | The company should have refused withdrawals that were not for Allen’s benefit | POA authorized Key to withdraw and expressly allowed third-party reliance and indemnity; no contractual duty to police authorized withdrawals | Dismissed — POA shields Brown Advisory from contract liability |
| Whether Allen can state independent breach of fiduciary duty for same conduct | Fiduciary-duty claim can proceed even if contract remedy exists; Brown Advisory breached fiduciary duties by permitting improper withdrawals | POA bars liability for honoring agent-directed transactions; and (district court thought) Maryland did not permit standalone fiduciary claims in this context | Dismissed — although Plank allows standalone fiduciary claims, POA bars liability here too |
| Whether alleged failures (crediting real-estate sale proceeds, communications, move expenses) support contract/fiduciary claims | These omissions and participation in property sales show breach | Allegations are vague, fail to show contractual or fiduciary duty to refuse third-party transactions or to manage the listed property sales | Dismissed — allegations too conclusory or fail to show duties breached |
| Whether district court abused discretion denying leave to file second amended complaint (timeliness; prejudice) | New documents from his former law firm justified late amendment | Motion was untimely; Allen lacked diligence/good cause under Rule 16(b) and amendment would unduly prejudice Brown Advisory under Rule 15(a) | Affirmed — no good cause for lateness; amendment would be prejudicial or futile |
Key Cases Cited
- Plank v. Cherneski, 231 A.3d 436 (Md. 2020) (recognizes breach of fiduciary duty as standalone cause and permits it even if contract remedy exists)
- Vinogradova v. Suntrust Bank, Inc., 875 A.2d 222 (Md. Ct. Spec. App. 2005) (bank not liable for honoring withdrawals authorized by power of attorney)
- Kann v. Kann, 690 A.2d 509 (Md. 1997) (lead case historically governing fiduciary-duty claims in Maryland)
- RRC Ne., LLC v. BAA Md., Inc., 994 A.2d 430 (Md. 2010) (elements of breach of contract under Maryland law)
- Bank IV, Olathe v. Capitol Fed. Sav. & Loan Ass'n, 828 P.2d 355 (Kan. 1992) (liability may attach where third party knowingly assists an agent in defrauding a principal)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible on its face)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard and pleading principles)
- Foman v. Davis, 371 U.S. 178 (1962) (standards for denying leave to amend)
- Alioto v. Town of Lisbon, 651 F.3d 715 (7th Cir. 2011) (Rule 16(b) good-cause/diligence requirement for post-deadline amendments)
- McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674 (7th Cir. 2014) (late amendments that introduce new theories cause undue prejudice and may be denied)