The Elements of a Breach of Fiduciary Duty Claim in Maryland

  • September 11, 2017
  • William Heyman

While under Maryland law there generally is not an independent claim for breach of a fiduciary duty, a breach of such duties can certainly be used by an individual in conjunction with other claims to obtain a recovery. Maryland courts have repeatedly upheld certain claims for types of breaches of fiduciary duties in specific contexts. Those who have accepted, or intend to accept, the role of a fiduciary, should ensure that they are aware of all the varying obligations to which they are committing. Conversely, those who are already in a relationship with a fiduciary should know exactly what they are owed by the person they have entrusted.

In the absence of an independent claim, it can be difficult to figure how to seek relief when a fiduciary has breached their duty. The Maryland fiduciary litigation attorneys of the Heyman Law Firm can provide strategic, on-point guidance to those who believe they have been harmed by the actions of a fiduciary and other business litigation matters. To schedule a confidential consultation with a tactical and aggressive lawyer, call the Heyman Law Firm at 443-687-8802 today.

What are the Legal Duties of a Fiduciary in Maryland?

Fiduciaries in Maryland are under an obligation to act in the best interest of, and for the benefit of, another. A fiduciary duty is the highest legal duty that one person can owe to another. One’s role as a fiduciary also requires the individual to act honestly and straightforward in all dealings on behalf of the individual to whom the duty is owed. The specific set of duties required of these individuals depend on the entity or individual they are serving. There is no precise formula (or set of elements) that make up a claim for “breach of fiduciary duty.” Rather, one must first evaluate the type of fiduciary involved and what type of claim their actions fall into (breach of contract, fraud, tort, legal malpractice, etc.). From that point, the individual elements of the claim may be assessed.

Fiduciaries Serving Corporations in Maryland

The duties owed by those standing in a fiduciary relationship with a business entity differ depending on the entity classification. With regard to corporations, those individuals serving as officers and directors have two main duties: the duty of care and the duty of loyalty. Maryland Corporations and Associations Article § 2-405.1 sets out the standard of care for this type of fiduciary. The statute requires directors to perform their duties:

  • in good faith;
  • in a manner reasonably believed by the director to be in the best interest of the corporation; and
  • with the care that an ordinarily prudent person in a similar situation would use under similar circumstances.

Partners in a partnership and members of Limited Liability Companies also owe certain duties to one another, codified in Maryland’s Uniform Partnership Act.

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How Can the Duty of Care and the Duty of Loyalty be Breached?

The duty of care can be breached when an officer or director fails to act prudently. In making investments, a fiduciary other than an executor or administrator is governed by the “prudent investor rule,” which requires a fiduciary to use reasonable care, skill, and caution in managing assets. The duty of loyalty is generally breached by some type of conflict of interest between the fiduciary and the corporation. Common examples include:

  • Usurping a corporate opportunity—Where an officer or director pursues a business opportunity for his or her own benefit, without first presenting it to the corporation,
  • Making a self-interested transaction—(also called self-dealing); where a key player and the corporation are on opposite sides of the transaction; or the key player has helped influence the corporation’s decisions to enter the transaction. (There are circumstances beyond the scope of this article where this does not constitute a breach of duty).
  • Insider Trading—Where an officer or director has access to confidential information and illegally uses it to his or her own advantage trading on the stock exchange.

Fiduciaries re: Wills, Trusts & Estates in Maryland

Fiduciary duties also arise when an individual is serving as a trustee under a deed, will, declaration of trust or another instrument of that nature. A trust is a fiduciary relationship with respect to property, obligating the trustee (fiduciary) to deal with the property and act for the sole benefit of the person(s) for whom the trust was created (beneficiaries). The fiduciary can be held liable for most mistakes he or she makes in pursuit of the interests of the beneficiary. A fiduciary can be held liable for intentional acts of dishonesty or outright fraud.

How Can Fiduciaries to Property Breach Their Duties?

The following are duties of trustees and will administrators that, when breached, could give rise to a claim of fraud, negligence, or breach of contract:

  • To properly handle debts owed to creditors by the estate or entity,
  • To make prudent investments, considering both present and future beneficiaries,
  • To avoid misappropriation of estate, trust, or entity assets,
  • To account for assets regularly,
  • To avoid commingling personal or business funds with the assets of the estate or entity,
  • To carry out the trust or will according to its terms.

Excessive spending, waste of assets, and the failure to disclose possible conflicts of interests among beneficiaries would also likely constitute a breach of trustee duties. A fiduciary serving as a personal representative is also prohibited from being named in a Last Will and Testament.

Fiduciaries re: Attorneys/Client Relationships in Maryland

Lawyers owe fiduciary duties to their clients. Despite lawyers’ ethical obligation to represent the best interests of their clients, many lawyers breach their fiduciary duties to their clients on a frequent basis. When lawyers breach their fiduciary duties, it can serve as the basis for a legal malpractice lawsuit. Lawyers are under an important duty to keep their client’s property safe and to maintain complete and accurate records regarding the client’s funds. They are also required to segregate the client’s funds from their own property, to provide the client with an accounting when requested, and to preserve the integrity of the client’s funds.

How Can Attorneys Breach their Fiduciary Duties to Clients?

The following actions violate an attorney’s fiduciary duties of care to their clients:

  • Combining a client’s funds with their own,
  • Stealing, misappropriating, or “borrowing” funds from a client’s account,
  • Using a client’s funds for a purpose other than what the client intended,
  • Acting carelessly with a client’s funds,
  • Failing to maintain accurate and complete records,
  • Failing to disclose potential conflicts of interest when multiple parties are involved.

When a lawyer is careless or deliberately misuses or mishandles your funds or property, you should speak with an experienced fiduciary litigation attorney as soon as possible.

There are still more fiduciary capacities an individual can occupy that will subject them to legal liability. Someone serving as a personal guardian, as well as an agent can be held to these standards. Insurance agents and others who work on commission should keep in mind the recently enacted DOL Fiduciary Rule, which has significantly increased their responsibilities to clients.

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How Can I Sue for Breach of Fiduciary Duty in Maryland?

As mentioned above, all of these actions by a fiduciary can give rise to a claim, but it is essential to know which type of claim to bring and the necessary elements for each. In the absence of an independent claim for breach of fiduciary duty, a plaintiff can assert a cause of action for negligence, fraud, legal malpractice, or breach of contract.

Elements of a Claim for Negligence in Maryland

To prove negligence in Maryland, a plaintiff must show : 1) the fiduciary was under a duty; 2) the fiduciary breached that duty; 3) the plaintiff suffered actual injury or loss; and 4) the loss or injury proximately resulted from the fiduciary’s breach of the duty.

A fiduciary’s duty is to act in the best interest of the beneficiary, so if the fiduciary’s failure to complete his duties causes the beneficiary harm, the beneficiary will be able to assert a claim for negligence.

Elements of a Claim for Fraud in Maryland

There are many separate elements to the claim of fraud, but they can be boiled down for the purposes of this article. To sustain a claim of fraud, a plaintiff must essentially prove that his fiduciary knowingly represented something in a false or misleading manner with the intent that the beneficiary would rely on the misrepresentation. Fraud can occur both by act and omission.

Elements of a Claim for Legal Malpractice in Maryland

To prove legal malpractice in Maryland, a plaintiff must show: 1) the attorney’s employment, 2) the failure of the attorney to meet the applicable standard of care for the services provided, and 3) loss suffered by the client as a direct result of the attorney’s failure to meet the standard of care.

Defrauding a client for personal gain is a clear example of an attorney failing to meet the standard of care and causing their client to suffer a direct loss. When lawyers breach their fiduciary duties, it can serve as the basis for a legal malpractice lawsuit.

What is the Difference Between Breach of Contract and Breach of Fiduciary Duty in Maryland?

Many people make the mistake of thinking that breach of contract and breach of fiduciary duty are separate claims in Maryland. In fact, a claim for breach of contract is actually an important and frequently used method for obtaining recovery from a fiduciary who has breached his or her duties. An experienced attorney can help you decide on the best way to frame your lawsuit.

Elements of a Claim for Breach of Contract in Maryland

First, there must be a valid contract in existence. Without a valid and legally enforceable contract, there can be no claim for breach. A valid contract will contain an offer, acceptance, a bargained-for legal exchange and typically be in writing. Generally, a breach occurs when a contractual promise is broken.

 

The damages for breach of contract can vary depending on the severity of the breach and the terms of the contract. Some breaches are considered fundamental, warranting compensation for money and time lost because of the breach. In rarer cases, punitive (punishing) damages can be awarded, and the breaching party can even be ordered to complete the terms of the contract. For minor breaches, a court will usually find that money damages are sufficient to make the other party whole again.

If a fiduciary has failed to perform their written obligations under a contract, it is likely that a claim for breach of contract will be a successful way to hold the fiduciary accountable.

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Contact a Baltimore Fiduciary Litigation Attorney Today

The laws surrounding breach of fiduciary duty are numerous and complicated. Those who are facing a lawsuit or believe they have been harmed by the actions of a fiduciary should contact an attorney. Mr. Heyman and the lawyers of the Heyman Law Firm have successfully litigated numerous fiduciary claims involving trusts, guardianships, probate proceedings, corporate officers and directors, and financial advisors. To schedule a confidential consultation with a Baltimore fiduciary litigation attorney, call the Heyman Law Firm at 443-687-8802 today.