Plank v. CherneskiPlank v. Cherneski
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.
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.
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.
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
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
[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
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,
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-
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.
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
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?
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
II.
Discussion
A. Standard of Review
Pursuant to
“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
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
The LLC Act provides the statutory genesis for the formation of a Maryland limited liability company. An LLC is an unincorporated business organization.
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.
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
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
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
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
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.
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).
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
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.
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
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
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
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
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,
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.
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
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
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
In Garcia v. Foulger Pratt Development, Inc., the defendant owners of partnership interests in a limited partnership sought attorneys’ fees and costs under
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.
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:
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. at 271 (citing Kann, 344 Md. at 713). Given that the appellants sought monetary damages and did not successfully plead another cause of action, the Court of Special Appeals affirmed the circuit court‘s dismissal of the claim. Id.
In Catler v. Arent Fox, LLP, the Court of Special Appeals followed its decision in Wasserman and held that the plaintiffs could not pursue a claim against their former attorneys for breach of fiduciary duty as an independent cause of action, but that “the remedy for such a breach may be connected to another cause of action,” such as legal malpractice. 212 Md. App. 685, 717 (2013). The court concluded that Maryland law does not recognize a direct cause of action for breach of fiduciary duty, but it does “allow for recovery from the breach of fiduciary duty, but the breach must be coupled with a proper cause of action.” Id. at 717 n.38 (citing Int‘l Bhd. of Teamsters, 369 Md. at 727 n.1). Therefore, although the appellant could not succeed on a breach of fiduciary duty count, the breach could be connected to another cause of action. Id. at 717. The court proceeded to review the alleged breach of fiduciary duty in conjunction with the legal malpractice claim. Id.
4. Federal Courts’ Discussion of Kann
Given the inconsistencies in Maryland‘s jurisprudence on this issue, federal judges also have been understandably inconsistent in their efforts to reconcile “a split of authority . . . as to whether the Court of Appeals rejected breach of fiduciary duty as an independent tort.” Froelich v. Erickson, 96 F. Supp. 2d 507, 526 n.22 (D. Md. 2000). For example, in Kerby v. Mortgage Funding Corp., as part of a 13-count complaint, the federal court considered a breach of fiduciary duty tort in the context of a class action arising out of an
In 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.
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
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
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
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.
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
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
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.
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.
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
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
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.
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
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
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
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
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).
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
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.
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
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.
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
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
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.
One exemption afforded in Regulation D is SEC Rule 506(b).
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.”
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
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
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
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 Act15 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.
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,
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.
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.
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)
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
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.”
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.”
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
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
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
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.
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
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
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
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.
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.
https://mdcourts.gov/sites/default/files/import/appellate/correctionnotices/coa/3a19mcn.pdf
Notes
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?
The Senate deleted proposedUnlike 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.
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.