by Steve LewickyDue Diligence in the Purchase or Sale of a Maryland Business
The term “Due Diligence” refers to a process by which someone contemplating the purchase of a business investigates that business in connection with the anticipated transaction. The seller in the transaction also may engage in some amount of seller-side due diligence when a sale is contemplated, though the seller’s efforts are typically far more limited than the buyer’s efforts, since the seller already has detailed knowledge about the finances and operations of its own company. The potential buyer’s due diligence efforts often are coordinated by an attorney representing the buyer, but it is common and advisable for the buyer to form a team of accountants, managers, consultants and sometimes outside experts, to participate with the attorney in the due diligence process. The scope of due diligence is dependent on the particular company and situation, but the goal must be to gather enough information about the acquisition target to make informed decisions about the contemplated transaction.
Due diligence is intended to identify problems with an acquisition target and the risks associated with going through with a transaction, but should also involve evaluation of the positive attributes of a contemplated transaction. If the acquiring company is interested in purchasing another company in order to fit a particular need or enter a new business area, then one area of due diligence should be to focus on whether the contemplated addition meets this need, and to what degree the desired outcome will be achieved by the transaction.
Comprehensively discussing all aspects of due diligence would fill an entire book, and this article is not intended to cover all aspects of an adequate due diligence process. Questions of scope and depth of due diligence depend on the particular transaction, on the nature of the seller’s operations and financial condition, and on the contemplated transaction terms. A central consideration in determining the extent of due diligence is thinking through the allocation of risk between buyer and seller. Both sides of a transaction will weigh the amount of risk each is willing to take, and a number of things will go into that assessment, including the sale price and the nature and strength of representations and warranties that will be included in the transaction documents. For example, a buyer might insist on a lower purchase price – all things considered – if its opportunity to conduct thorough due diligence is limited, and may be willing to pay more for a company if it is able to thoroughly conduct extensive due diligence. Likewise, the negotiated sale price may depend, in part, on whether the buyer receives strong and extensive contractual representations and warranties in the purchase contract. The converse also is true, from the seller’s perspective.
The nature of due diligence in a particular transaction is also strongly influenced by whether the deal is structured to be an asset sale, stock sale, merger, or sale of LLC member interests. The scope also depends upon whether the transaction is structured to have all due diligence completed prior to the parties signing the transaction documents with a simultaneous closing of the transaction, or to have the transaction documents signed first, followed by continued due diligence prior to closing to verify the accuracy of representations and the satisfaction of conditions for closing.
In the course of conducting due diligence, the buyer side of the transaction typically will issue an often-lengthy list of documents and data that it wishes to review, and also will seek access to the seller’s management, accountants, and perhaps key third parties. The produced documents and data are reviewed by the buyer’s due diligence team, which under almost all circumstance should contain buyer representatives in the areas of legal, accounting, and business operations. Within the legal area, often a senior attorney in a law firm representing the buyer will organize and coordinate the due diligence efforts, with less-senior attorneys and/or paralegals in the law firm doing much of the legal work. A similar allocation of workload also is often used with outside accounting firms representing the buyer for the accounting aspects of the due diligence review.
Purchasing or selling a business is not a simple process, even when the buyer and seller are relatively small companies. Acquiring a $1 million company is far less complicated than acquiring a $100 million company, of course, but I am sometimes surprised when the contemplated buyer or seller of a small- or mid-size company discusses a potential acquisition with me and has an expectation that its attorney can quickly read through a few documents and thereby adequately cover all the bases. In fact, even the simplest acquisitions of small companies require a significant amount of legal and accounting work. Having said this, there can be wide variations in cost depending on many factors, including the size and complexity of the acquisition target, the transaction terms, and selection of the right law firm to thoroughly perform all legal work necessary in an acquisition while still keeping costs manageable.
If you are contemplating the purchase or sale of a Maryland business, whether through asset sale, stock sale, or transfer of limited liability company member interests, our firm has the background and skills necessary to guide you through this process. Please contact Lewicky, O’Connor, Hunt & Meiser at (410) 489-1996 or [email protected].
by David HisleDriving Under the Influence (DUI) and Driving While Impaired (DWI)
In Maryland, there are two types of drinking and driving offenses — driving under the influence (DUI) and driving while impaired (DWI).
If your blood alcohol concentration (BAC) level is 0.08 (8%) or higher when tested after a traffic stop, you may be charged with a DUI. If your BAC level is 0.07 (7%) or higher, you may be charged with a DWI. It is also a crime to drive while impaired by drugs (illegal or legal) or a combination of drugs and alcohol. In Maryland, DUIs and DWIs are considered misdemeanor crimes.
If you are found guilty of either a DUI or DWI, you may be incarcerated, fined, and/or have your driver’s license suspended. The severity of the penalty will depend on many factors, including whether it is the driver’s first drinking and driving offense, and the driver’s BAC level, driving record, and age at the time of the offense. Another factor is whether the driver was transporting a minor at the time of the offense.
Aside from the potential criminal penalties, there are administrative sanctions that the Maryland Motor Vehicle Administration (MVA) may impose. When you have been charged with a DUI or DWI, your license will automatically be suspended. You will receive a temporary license that allows you to drive for 45 days. While a request for administrative hearing regarding your license suspension must be sent within 30 days, you must send your request for administrative hearing within 10 days of the traffic stop to ensure that your license is not suspended prior to your administrative hearing. If you don’t request an administrative hearing within 30 days, your license will automatically be suspended on the 46th day. An administrative law judge will preside at your hearing and impose any administrative sanctions, such as license suspension. At the administrative law judge’s discretion, and upon good cause shown, a license suspension may be modified to permit temporary driving privileges for things such as work or medical appointments.
In some circumstances, you may be entitled to participate in an ignition interlock system program through the MVA. An ignition interlock device would then be installed in your vehicle and monitor your BAC levels. While an approved third party may install an ignition interlock device, the MVA oversees the program and monitors your participation and progress.
If you have a commercial driver’s license (CDL), you are held to stricter standards regarding DUIs or DWIs. If your BAC level is 0.04 (4%) or higher while driving a commercial vehicle, you may be charged with a DUI or DWI. As a commercial driver, even if you are driving your personal vehicle when charged with a DUI or DWI, these charges and convictions may significantly impact your CDL and commercial driving privileges.
by David HisleReclaiming Your Personal Property Through Replevin and Detinue Lawsuits
If someone has taken personal property that belongs to you, and you want the property to be returned, the legal process in Maryland for gaining return of the property and/or monetary damages for being deprived possession of the property are lawsuits known as replevin or detinue actions.
In a replevin suit, you ask the court to award you immediate (but temporary) possession of the personal property until the court can determine at a later hearing the question of who should get permanent possession. All replevin actions in Maryland must be filed in the District Court of Maryland. After your replevin action is filed with the court, the court will conduct a “show cause” hearing and determine who is entitled to immediate (but temporary) possession of the personal property. Should you prevail at the show cause hearing, the court will issue a writ of replevin entitling you to immediate possession of the personal property until the court can further determine who is entitled to permanent possession. A Sheriff may enforce the writ. Even with a writ of replevin, you may have to post a bond with the court to cover any damage to the personal property should it later be determined that you were not entitled to permanent possession. After the replevin action is resolved, the matter automatically becomes a detinue action, and the court will thereafter hold a hearing to determine who is entitled to permanent possession of the property.
If you are not seeking immediate possession of the personal property, you may instead file a detinue suit (without first filing the replevin action), and ask the Court to award you permanent possession of the personal property. Detinue actions may be filed in either the District Court of Maryland or in the local Maryland Circuit Court, depending on the value of the personal property and money damages claimed. When the value is less than $5,000, the case must be filed in the District Court of Maryland. If the value is between $5,000 and $30,000, the case may be filed in either the District Court of Maryland or the Maryland Circuit Court for the county in which the property is held. If the value is greater than $30,000, the case must be filed in the Maryland Circuit Court for the county in which the property is held. Detinue actions usually take longer to resolve, and you cannot obtain immediate possession of the personal property in a detinue action. Unlike replevin actions, however, determination by the court in a detinue action is permanent and final (subject to any appeal), and you may obtain either the personal property or its monetary value, and compensation for any damage to the personal property or money for its absence.
by David HisleMaryland Laws Concerning Dog Bites
As a dog owner or someone who has been injured by a dog, understanding the law in Maryland concerning dog bites is extremely important. Maryland does not distinguish between or single out different breeds of dogs but some local jurisdictions and municipalities may have distinct ordinances.
If your dog injures someone, it is presumed that you knew or should have known that your dog was dangerous. This presumption may be rebutted and there are a few exceptions to this law, specifically, if the person injured by your dog was (1) trespassing or attempting to trespass on your property or committing a crime or attempting to commit a crime on your property; (2) committing or attempting to commit a criminal offense against someone; or (3) teasing, tormenting, provoking or abusing your dog.
Additionally, there are enhanced penalties for owners of dogs if their dog has already been considered dangerous. A dog is considered dangerous if that dog has already killed or inflicted serious injury on someone without provocation or if it has been deemed and determined dangerous by Animal Control or the local government / municipality unit charged with making those determinations. If you own a dog that has been determined dangerous, there are certain legal requirements that you should understand and must follow.
Landlords may also be held liable for injuries caused by dogs owned by any of their tenants. If the landlord knew that the dog was dangerous and failed to take reasonable steps to protect the tenant, the landlord may be found liable for the tenant’s injuries.
In addition to facing a civil suit, there are also potential criminal penalties facing owners whose dog has attacked a person. So, if you are a dog owner faced with these issues or someone who has been attacked by dog, it is very important that you seek legal counsel to discuss and address these important issues.
If you have been injured by a dog, or own a dog that has injured someone else, Lewicky, O’Connor, Hunt, & Meiser can connect you with an experienced attorney to help navigate the aftermath. Our team is knowledgable on the laws in Maryland concerning dog bites, and will walk you through the legal process. Contact us today at 410-489-1996 or [email protected] for more information!
by David HisleWhat Do You Need to Know About Debt Collection Law?
Debt collection is governed by both federal and state law, specifically the Fair Debt Collection Practices Act and the Maryland Consumer Debt Collection Act.
Maryland law requires collection agencies to obtain a license from the Department of Labor, Licensing and Regulation. A debtor can verify the collector’s license by visiting the Nationwide Multistate Licensing System. If a court judgment was obtained by a collector not licensed at the time of filing the collection lawsuit, then the judgment is void.
Under the Maryland Consumer Debt Collection Act, in order to collect a debt a debt collector or debt collection company may not use or threaten force of violence, threaten criminal prosecution, falsely disclose or threaten to disclose information that may affect your reputation for credit worthiness, engage in harassing, oppressive, or abusive communications, or use communication that gives the appearance of being approved, issued or authorized by a government agency.
If the debt collector violates the Fair Debt Collection Practices Act, you may contact the Consumer Financial Protection Bureau or the Federal Trade Commission, or you may file suit for actual damages, up to $1000 in additional damages, as well as attorney’s fees.
Under the Maryland Consumer Debt Collection Act, you may contact the Maryland Attorney General’s Consumer Protection Division or the Maryland Department of Labor, Licensing and Regulation to report improper debt collection processes. You may also file suit against the debt collector and request damages for emotion distress or mental anguish.
Our law firm has years of experience in debt collection law, as well as business law, estate planning, real estate law, and more. If you have any questions or concerns regarding the specifics of debt collection law, please contact Lewicky, O’Connor, Hunt, & Meiser today at 410-489-1996 or [email protected].
by Steve LewickyProperty Line Disputes, Adverse Possession, and Prescriptive Easements
Adjoining property owners sometimes dispute the location of their property line or property boundary – or discover that a neighboring structure extends across their property line. Neighbors also can find themselves in a dispute over easements, rights-of-way, or claims of trespass or nuisance. These controversies can take many forms, but in the suburban areas that are prevalent in central Maryland they often arise because of the misplacement of a fence, wall, trees, or shrubbery — or occasionally even a building being constructed on the wrong side of a property line. Neighbors also sometimes assert claims of nuisance or trespass when water run-off, or other water sources, are artificially diverted from one property onto another, or when noxious odors or noise from one property disturbs neighboring properties.
Our firm regularly assists clients in property line disputes. We help property owners obtain a survey to establish the exact location of a property line, and when necessary we also bring legal action to establish clear ownership of property, or to eject someone else from a client’s property. We also represent clients in nuisance and trespass disputes.
One interesting aspect of property line disputes – well-known to lawyers but often unknown to property owners – is that a person can obtain legal title to real property simply by occupying that property for long enough – if the circumstances are right. Although relatively rare, this legal concept – called “adverse possession” – can have important ramifications if a fence, wall or building has been in place long enough to bring the doctrine into play.
There are a number of elements that need to be present for adverse possession to apply, and this article is not a comprehensive discussion of the law in this area. In brief summary, to acquire ownership of property through adverse possession the person claiming ownership must be in actual possession of the parcel of property, and this possession has to be “notorious,” “exclusive,” and “hostile” to the record owner on the title of the property. All of these are legal terms of art that have been defined through past judicial decisions. The possession of the property must be under a claim of title or ownership, and in Maryland it must be continuous for at least twenty years. (Other states have different time periods for adverse possession). The party claiming adverse possession must prove all of these elements to a court in order to gain tile of property by adverse possession.
In addition to claiming outright ownership of property through adverse possession, it is also possible to be granted what is called a “prescriptive easement,” if the claimant has exercised transit rights across a property for a sufficiently long period. The elements for establishing a prescriptive easement are very similar to the elements for adverse possession, except the concept of the use being “exclusive” is different when it comes to easements. Easements may exist not only for the physical transit across land by people, animals or vehicles, but also for structures such as wires or pipes, above or below ground.
If you find yourself in a dispute with another property owner about the location of your property line, or regarding claims of easement, trespass or nuisance, I would welcome the opportunity to answer your questions and provide advice in these areas. Please contact me at [email protected] or (410) 489-1996.
by Steve LewickyMechanic’s Liens Help Contractors and Sub-Contractors Get Paid
In Maryland, a mechanic’s lien statute gives contractors and subcontractors a powerful tool to obtain payment for materials and services. A mechanic’s lien is a means by which a person or company that provides labor or materials on a construction project can place a lien against improved real property, for the value of the unpaid labor or materials – but only if the requirements of the mechanic’s lien statute are strictly adhered to.
Maryland’s mechanic’s lien statute is complicated, and there are some important aspects to this legal remedy that contractors and subcontractors should always keep in mind: Any person or company that furnishes work or materials to a construction project under a contract potentially may establish a mechanic’s lien. Contractors, subcontractors and suppliers all can claim such a lien, regardless of whether they have a contract directly with the owner of the property, as long as the particular labor was performed for or about the subject building, and as long as the particular materials were for the subject building project.
A mechanic’s lien is only available for certain types of construction projects, however. Newly constructed buildings are subject to mechanic’s liens, though what exactly constitutes a “building” is sometimes an issue, because not every type of structure on land constitutes a building for these purposes. For construction projects that involve repair or renovation of existing buildings, a mechanic’s lien is only available if the project involves the repair, re-building or improvement of the building to the extent of 15% of its value. Condominium units and the common elements of condominiums are also subject to mechanic’s liens, but special notice requirements apply to condominiums.
A very important aspect of Maryland mechanic’s liens is a requirement to give written notice of an intention to seek a lien, in some circumstances, and strict time limitations apply to giving notice and bringing suit.
Anyone seeking a mechanic’s lien who does not have a direct contractual relationship with the property owner – for example, subcontractors, and in many cases material suppliers – must comply with notice provisions set forth in the mechanic’s lien statute. When this type of notice is required, it must be mailed by the lien claimant to the property owner within 120 days after the claimant performed the work or furnished the materials. There are a lot of nuances regarding when this 120-day period begins to run, and many court cases addressing this issue.
Separate and apart from giving any required notice of an intention to claim a mechanic’s lien, the actual petition seeking to establish the mechanic’s lien must be filed in the appropriate Circuit Court no later than 180 days after the work has been finished or the materials furnished. The correct parties must be named as defendants in the suit, and there are detailed requirements for what must be included in the petition that is filed with the court.
After a petition is filed with the court, there is a two-step process by which the court first reviews the papers that have been filed, and holds an initial show-cause process and proceeding to determine if there is sufficient cause to establish an interim mechanic’s lien. The court typically will set a bond for entry of an interim lien. If an interim lien is established, then in a second stage the court will hold a trial on the merits of whether the mechanic’s lien should continue thereafter, until satisfied. At any time after a petition to establish a mechanics lien is filed, the property owner can file a petition to have the property released from the lien upon the filing of a bond sufficient to protect the lien claimant. Once a lien is established, the lien claimant then has one year to file a petition to enforce the lien.
Mechanic’s liens can be a very powerful means for contractors, subcontractors and suppliers to ensure payment, but they are complicated. The Maryland mechanic’s lien statute differs from those of other states, and very strict time limitations apply to Maryland mechanic’s lien claims.
If you are a contractor, subcontractor or supplier seeking payment for labor or materials provided in Maryland, or if you are a Maryland property owner that has received notice that someone intends to assert a mechanic’s lien against your property, or has already petitioned the court for a mechanic’s lien, our firm can answer your questions and provide legal guidance. We have the depth of experience to provide detailed guidance related to Maryland mechanic’s liens, the Maryland trust fund statute, the Maryland Prompt Payment Act, and the Maryland Little Miller Act. Please contact us at [email protected] or (410) 489-1996.
by Steve LewickyStarting a Business in Maryland
If you are thinking about starting a new business in Maryland…Congratulations! There are many considerations to take into account when starting up a new business, and in this article, I am going to touch on a few of them.
With startup capital limited, you will need to determine what you reasonably can do on your own, and what tasks require the assistance of an attorney. Early on, you will need to determine what type of business entity makes the most sense for your enterprise – whether it will be a limited liability company, a traditional C-corporation, an S-corporation, a limited partnership, or something else. This decision can have tax implications, as well as other practical implications.
There will also be legal questions surrounding the choice of a name for your business – including compliance with trademark law. You don’t want to select a business name and invest a lot of money in branding, only to find out that another company owns the trademark rights to your chosen name, and can legally exclude you from using your desired business name.
Depending on the type of business structure you decide to use, in most cases there will be a formational legal document — such as articles of incorporation for a corporation, or articles of organization for a limited liability company. Typically, you also will wish to go beyond that organizational document to have a governing document for the entity – such as bylaws for a corporation, an operating agreement for a limited liability company, or a partnership agreement for a partnership. Particular types of business activities may need specific provisions to be included in the governing documents. For example, a partnership that is formed specifically to own real property may have different provisions than a partnership formed to operate a different type of business.
It’s also almost always a good idea to have an accountant, bookkeeper, and perhaps other financial advisors, lined up and available to work with you from the early stages of your business entity.
If your entity is going to hire employees, or retain the services of independent contractors, it’s very important that you follow all applicable requirements under state and federal employment laws and understand the circumstances under which independent contractors may be used.
This just scratches the surface of topics to consider in standing up a new business, and I encourage you to consult with an attorney who is knowledgeable about Maryland business law. Our firm has the depth of experience to provide this type of help, and we would welcome the opportunity to assist you. Please contact me with any questions, at [email protected] or (410) 489-1996.
by Steve LewickyAsserting Fraud Claims in Maryland
It’s common for clients to ask me whether they are a victim of fraud – either in a business transaction or in personal or family matters. The law of fraud in Maryland is complicated, with unique rules for pleading and proving a claim, and complex issues related to the measurement of damages. This article does not fully cover all of these issues, but I will discuss here some key points relevant to fraud claims.
Fraud is also sometimes called “intentional misrepresentation” or “deceit.” In this article I am only addressing civil lawsuits that assert claims of fraud, not criminal prosecutions for fraud. There are crimes arising from fraudulent conduct, but that is a separate (and also complicated) area of the law.
A civil lawsuit claiming fraud offers a remedy to someone who has been intentionally deceived by another’s representations about the existence of — or absence of — material facts, when that person relies on the false representations, was justified in doing so, and is actually damaged by doing so. It only constitutes fraud if:
- the person making the representation knew that the representation was false, or
- made the representation with reckless disregard for the truth.
A critical element of a lawsuit for fraud in Maryland is to prove that the defendant intended to deceive the plaintiff. This is referred to the “scienter” requirement for fraud.
The false representation involved in a fraud claim can be:
- an affirmative misrepresentation of fact,
- the concealment of fact,
- a partially misleading disclosure of a fact, or
- even a nondisclosure of fact, if there was an affirmative duty on the person to disclose that fact.
Fraud generally does not encompass statements of mere opinion, or promises that amount only to predictions about future conduct or events. A statement of opinion or prediction might provide the basis for a fraud claim if the defendant possessed special information or qualifications that enhanced the credibility of their statement, however.
When bringing a lawsuit for fraud in Maryland, a plaintiff is required to state in the complaint specific facts supporting each allegation of fraud. This is known as the requirement to “plead fraud with particularity,” and is a higher standard for pleading than in other types of lawsuits.
Another thing that distinguishes fraud from other types of lawsuits is that the plaintiff in a fraud lawsuit must prove each of the elements of fraud by clear and convincing evidence. This is a higher standard of proof than the preponderance-of-the-evidence standard that applies in most civil lawsuits.
In cases where a person discovers that he has been induced into a contract by fraud, that person can choose between two available remedies – to rescind the contract, and have the parties placed back in their positions held before the contract was signed, or to ratify the contract and seek monetary damages for the fraud. To seek rescission, though, the plaintiff is required to promptly ask for recission upon discovering the fraud, and then tender back the benefits received under the contract.
There are several complicated issues relating to the measurement of damages in a fraud case, with courts having flexibility in awarding damages based on the circumstances. The assessment of damages in a fraud case may include measuring how much was lost out-of-pocket due to the fraud, or sometimes by a benefit-of-the-bargain measurement. Damages for fraud can even include compensation for emotional distress, but only if the distress is reflected in some physical manifestation.
Although a claim of fraud may sometimes be based on improper concealment of a fact, when it comes to business relationships courts have struggled to determine what level of concealment constitutes fraud, and under what circumstances. Typically, businesses engaged in an “arm’s length” commercial transaction are not in the type of confidential relationship that can support a claim for fraud based on concealment. There could be exceptions to this general observation, however, if the parties on either side of a transaction also have a separate confidential relationship distinct from their business roles.
Beyond classic fraud, so-called “constructive” fraud can arise when a defendant owes an equitable duty to a plaintiff because they are in a confidential relationship – such as attorney and client, or guardian and ward. As with classic fraud, clear and convincing proof is required to prove constructive fraud.
Even when an intention to deceive is not present, Maryland law also provides a cause of action for negligent misrepresentation, when someone makes a material misrepresentation in a manner that is sufficiently careless, and that misrepresentation results in monetary damages, but the conduct doesn’t rise to the level of being deliberately fraudulent.
Whether a claim for negligent misrepresentation is available can sometimes depend on whether there is a contract between the parties, or at least the risk of economic loss. The measurement of damages also can vary depending on whether the risk of failure to exercise due care gave rise to a threat of serious personal injury.
The broad theme here is that successfully proving fraud can complicated, and the brief discussion in this article does not fully cover all aspects of the subject. If you believe you may have been the victim of fraud, or if you or your company is being accused of committing fraud, I would welcome the opportunity to discuss these matters with you. Please contact me at [email protected] or (410) 489-1996.
by Steve LewickyManagers of LLCs Must Act in the Best Interests of the Company
A limited liability company (or LLC) can be a great way for small- and mid-size companies to structure their business. It provides asset-protection benefits like those of a corporation, but also allows the owners of the company to elect to structure the LLC as a pass-through entity for taxation purposes. Unfortunately, problems can arise when the manager of a limited liability company puts his or her own interests above the interests of the company – or acts in a way inconsistent with obligations owed to other owners of the company.
The Maryland Limited Liability Company Act doesn’t expressly describe the fiduciary duties that are owed by managers to the limited liability company that they manage – or the duties owed by each owner of an LLC to co-owners. Over the years, Maryland appellate court decisions have instead established a body of law on the fiduciary duties owed by members and managers to their companies and to fellow owners. Beyond abiding by these common law fiduciary duties, managers and members of a Maryland limited liability company also must adhere to the terms of the company’s Operating Agreement.
Maryland law recognizes different types of fiduciary duties. For example, there are fiduciary duties between trustees and beneficiaries of a trust, between corporate directors and corporations, between lawyers and clients, between guardians and wards, between agents and principals, and among partners in a partnership or members in a limited liability company. When it comes to business entities such as corporations, partnerships and LLCs, the basic obligations revolve around ensuring that corporate officers, managers of limited liability companies, and partners, act only in ways that advance the interests of the company, and not the individual interests of the corporate officer, LLC manager, or partner. Officers and managers can’t take actions that conflict with, or are adverse to, the best interests of their company.
For many years, there was uncertainty in Maryland law on whether a distinct legal cause of action was available to sue for a breach of fiduciary duty. In 2020, however, the Maryland Court of Appeals clarified the law in this area and expressly held that that a member or a manager of a Maryland LLC can be sued by other members of the company for breach of fiduciary duty, as an independent and free-standing cause of action. To sue for an alleged breach of fiduciary duty in Maryland, the complaining party must be able to demonstrate:
- that there is a fiduciary relationship between the person bringing the claim and the defendant;
- that this fiduciary duty has been breached; and
- that the complaining party was harmed by this breach.
Not every breach of a fiduciary duty is legally actionable, and not every breach of a fiduciary duty gives someone a right to sue for monetary damages. Some breaches of fiduciary duties can only be remedied by using a court’s equitable powers, such as through the issuance of an injunction by the court ordering the offending party to do something, or to cease doing something.
It’s common for clients to come to me describing situations that call into question whether the manager of a limited liability company may be breaching the fiduciary duties that he or she owes to the other owners of the company. From the company’s perspective, it’s important to ensure that decisions by company leaders are directed toward the interests of the company, and not solely to protecting the interests of individual members or officers. From the perspective of members in limited liability companies, I often hear from so-called “minority” members of LLCs – that is, members that do not control the company because they own less than half the ownership interests in the company – that the people controlling the company are acting for their own benefit, and not in the best interests of the company as a whole. The same complaint can arise in business partnerships. If you are facing a situation like this, I encourage you to consult with an attorney who is knowledgeable about the law in this area. There may be time limitations on asserting any claim, and it can be critical in some situations that injunctive relief be sought without delay.
Our firm has the depth of experience to provide detailed guidance in this area. If you have questions or concerns about the fiduciary duties owed by manages or officers of a Maryland limited liability company, I would welcome the opportunity to answer your questions and provide legal advice on these matters. Please contact me at [email protected] or (410) 489-1996.
