Plank v. Cherneski: Maryland Opts in to “Opt-Out” in the LLC Fiduciary Duty Debate

Celine Esmeir

In Plank v. Cherneski, the Maryland Court of Appeals considered whether the managing member of a Maryland Limited Liability Company (“LLC”) breached his fiduciary duties to the LLC and its minority members by engaging in unlawful actions that exposed the LLC to potential regulatory violations and lawsuits. As a relatively new business entity, the LLC is surrounded by an underdeveloped legal environment, particularly with regard to fiduciary duties. In Maryland, it remained unclear whether fiduciary duties between LLC managing members and minority members existed as a matter of common law and whether breach of fiduciary duty claims could even be brought as independent causes of action. The Court of Appeals decided the case by answering these two legal questions, holding that the managing members of an LLC owe common law fiduciary duties to the LLC and its minority members and that claims for breach of fiduciary duty may be brought as independent causes of action.

Even though the court recognized that breach of fiduciary duty claims can be actionable alone—generating significant discussion by its resolution of over two decades of conflicting fiduciary duty jurisprudence— the more impactful, albeit brief holding recognized common law fiduciary duties between LLC managing members and minority members. By its recognition of common law fiduciary duties in the LLC context, this landmark case effectively generated an opt-out system in Maryland, where default common law fiduciary duties apply unless the parties opt out of such duties in their operating agreements. The court correctly recognized common law fiduciary duties in the LLC context not only in affirmance of precedent, but also because such duties comport with traditional common law principles of equity, protect unsophisticated parties and parties with unequal bargaining power, and serve broad policy goals for Maryland’s business environment at large.

However, the court’s holding should have gone further by clarifying the extent to which parties may waive these common law fiduciary duties by operating agreement. This Note calls on Maryland, either through legislative action or future judicial decision, to allow parties to waive both the fiduciary duties of care and loyalty, effectively allowing parties to waive all their fiduciary duties. By affording flexibility to LLC parties within an opt-out protectionary system, Maryland would retain its business-friendly environment and protect itself against jurisdictional competition while also ensuring the protection of Maryland LLCs and their minority members.