Recent Maryland Court of Appeals Decisions Create Key Changes in Corporate and Commercial Litigation

• Published date: 27 August 2020
• Author: Joshua Chazen,Martha Effinger
• Law Firm: Miles & Stockbridge P.C.

In July, Maryland’s highest court published two decisions that could impact limited liability companies (“LLC”) and other entities which operate in the State. The first of these decisions, Plank v. Cherneski, provides clear guidance on breach of fiduciary duty claims in Maryland; the second decision, 7222 Ambassador Road, LLC v. National Center on Institutions and Alternatives, Inc., analyzes the ability – or lack thereof – of LLCs to file appeals in Maryland courts when the LLC has forfeited the right to do business in Maryland due to failure to make required filings and payments.

PLANK v. CHERNESKI

On July 14, 2020, the Court of Appeals published its unanimous decision in Plank. There are several key holdings and takeaways from the decision. What follows is a brief summary of the underlying case, followed by a discussion and analysis of the key holdings from Plank.

Case Background

James Cherneski invented and patented a non-slip athletic sock intended for soccer players and other athletes. In April 2011, Cherneski formed Trusox, LLC (“Trusox”) to produce and sell the patented sock. By June 2013, Cherneski owned a 65% membership interest in Trusox, with the remaining interests being owned by William H. Plank, II (20%), Sanford Fisher (7.5%), and Jeff Ring (7.5%), all of whom made financial investments into Trusox. The members of Trusox, along with Trusox, entered into an Operating Agreement, which gave Cherneski, as the majority member, President, and CEO, general authority over most decisions relating to Trusox.

In June 2016, Plank and Fisher sued Cherneski and Trusox, alleging nine causes of action, including one independent count for breach of fiduciary duty. The basis for Plank and Fisher’s breach of fiduciary duty claim was the allegation that Cherneski placed their investments at risk by engaging in unlawful actions that exposed Trusox to potential future damages claims for regulatory violations and lawsuits. After a bench trial, the Circuit Court for Anne Arundel County entered judgment in favor of Cherneski on the breach of fiduciary duty count due to insufficient evidence while noting that there is no stand-alone tort for a breach of fiduciary duty.

Plank and Fisher appealed to the Court of Special Appeals, and oral argument was held in March 2019. A three-judge panel determined that the legal questions presented needed to be certified to the Court of Appeals. The Court of Appeals granted the Rule 8-304 Certification filed by the Court of Special Appeals and issued a writ of certiorari that included the entire action.

Ultimately, the Court of Appeals affirmed the trial court’s decision entering judgment in favor of Cherneski on the breach of fiduciary duty count holding that the trial court had made a factual determination that there was no breach and that determination was not clearly erroneous.

Key Holding #1: Breach of Fiduciary Duty Exists as an Independent Cause of Action in Maryland.

The Plank decision clarifies decades of Maryland jurisprudence by ruling that there is an independent cause of action for breach of fiduciary duty under Maryland law.

To establish a breach of fiduciary duty, a plaintiff must demonstrate:

1. the existence of a fiduciary relationship;
2. breach of the duty owed by the fiduciary to the beneficiary; and
3. harm to the beneficiary.

In squaring prior decisions, such as Kann v. Kann, 344 Md....