Allen v. Brown Advisory, LLC

• Decision Date: 20 July 2022
• Docket Number: 21-1602
• Citation: 41 F.4th 843
• Parties: Joseph P. ALLEN, IV, Plaintiff-Appellant, v. BROWN ADVISORY, LLC, and Brown Investment Advisory & Trust Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

41 F.4th 843

Joseph P. ALLEN, IV, Plaintiff-Appellant,

v.BROWN ADVISORY, LLC, and Brown Investment Advisory & Trust Company, Defendants-Appellees.

No. 21-1602

United States Court of Appeals, Seventh Circuit.

Argued January 6, 2022

Decided July 20, 2022

Amanda Couture, Attorney, Paganelli Law Group, Indianapolis, IN, Todd Joseph Kaiser, Christopher C. Murray, Attorneys, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Indianapolis, IN, for Plaintiff-Appellant.

David B. Hamilton, Hillary Victoria Colonna, Attorneys, Womble Bond Dickinson (US) LLP, Baltimore, MD, John Robert Maley, Attorney, Barnes & Thornburg LLP, Indianapolis, IN, for Defendants-Appellees.

Offer Korin, Attorney, Stoll Keenon Ogden PLLC (SKO), Indianapolis, IN, for Defendant.

Before Sykes, Chief Judge, and Rovner and Scudder, Circuit Judges.

Sykes, Chief Judge.

Joseph Allen granted a financial power of attorney to his daughter Elizabeth Key when he and his wife experienced declining health and he could no longer manage their finances. For several years Key used the power of attorney to make withdrawals from Allen's investment accounts held by Brown Advisory, LLC, and Brown Investment Advisory & Trust Company, two affiliated investment firms headquartered in Maryland. Five years later Allen revoked the power of attorney and sued the two investment companies in Indiana state court raising contract and fiduciary-duty claims under Maryland law. He alleged that Key's withdrawals (or some of them) were not to his benefit and that the investment companies should not have honored them.

The defendants (collectively "Brown Advisory") removed the suit to federal court. After a procedural skirmish over whether Key was a necessary party, Allen amended his complaint to add his daughter as a defendant. Brown Advisory then moved to dismiss the amended complaint. The district judge granted the motion, reasoning that the investment firm could not be liable for breach of contract because the challenged withdrawals were directed by Key and authorized by her power of attorney. Regarding the fiduciary-duty claim, the judge held that Maryland law does not recognize a separate cause of action for breach of fiduciary duty arising from a contractual relationship. Allen moved for leave to amend his complaint again, but the judge denied the motion.

We affirm, though on somewhat different reasoning. The judge correctly concluded that the power of attorney shields Brown Advisory from liability for breach of contract. But he misapprehended Maryland law regarding claims for breach of fiduciary duty. Just before he issued his dismissal order, the Maryland Court of Appeals clarified that a plaintiff may plead a claim for breach of fiduciary duty even when another cause of action (like breach of contract) is available to redress the conduct. Plank v. Cherneski , 469 Md. 548, 231 A.3d 436 (2020). Still, the power of attorney shields Brown Advisory from liability for breach of fiduciary duty just as it does for breach of contract, so this claim too was properly dismissed. Finally, the judge was well within his discretion to deny Allen's motion to file a second amended complaint. The deadline for amending the pleadings had expired, so Allen had to establish good cause for his late motion. See FED. R. CIV. P. 16(b). He did not do so.

I. Background

Joseph Allen is a native of Crawfordsville, Indiana, a small city northwest of Indianapolis. After graduating Phi Beta Kappa from nearby DePauw University in 1959, he earned a Ph.D. in physics from Yale University in 1965 and embarked on a successful career in the aerospace industry, first with NASA's space program and later with several private companies, the last of which was headquartered in Arlington, Virginia. He retired in 2004.

Shortly after retiring, Allen engaged Maryland-based Brown Advisory as an investment advisor, executing two agreements that are relevant here. Under the first, Allen authorized the company to "supervise and direct investments" for the assets in his Brown Advisory investment accounts. In the second, he established a retirement trust account for which Brown Advisory would serve as the trustee. As of November 2013, Allen's IRA accounts with the firm were valued at approximately $2.3 million (part of about $7.9 million in total assets belonging to Allen and his wife as listed in a summary prepared by Brown Advisory).

In December 2014 Allen and his wife moved to the Grand Oaks Assisted Living Community in Washington, D.C. His wife was experiencing rapidly advancing dementia, and Allen—who was suffering from alcoholism and mild cognitive impairment—could no longer care for her at their home in the district.

A year before this move, Allen had granted a durable power of attorney to his daughter Elizabeth Key so she could help manage his finances. The July 2013 instrument authorized Key to act in Allen's name for a broad range of financial transactions, including those involving financial institutions, retirement accounts, trusts, real estate, personal and family maintenance, social security, Medicare, and tax matters. It also provided that "any third party who receives a copy of this document may act under it," and further specified that Allen would indemnify third parties for "any claims that arise ... because of reliance on this power of attorney."

In November 2014, a month before he moved to Grand Oaks, Allen granted a similarly sweeping but much more detailed durable power of attorney to Key, replacing the earlier one. Like the 2013 instrument, the 2014 version specified that "any third party receiving a duly executed copy of this document may rely on and act under it." The 2014 power of attorney also contained a similar indemnification clause in which Allen agreed to "indemnify and hold harmless any third party from any and all claims because of good faith reliance on this instrument."

Allen's condition worsened at Grand Oaks. He attributes his decline to actions by the facility's physicians placing him on powerful psychotropic drugs that are not meant for patients suffering from active alcoholism. His brother—a physician practicing in Louisville—eventually intervened and took steps to assist his brother in making changes to his care. In April 2019 Allen moved from Grand Oaks to Wellbrooke of Crawfordsville, an assisted-living facility in his Indiana hometown. The physicians at the new care center took him off the psychotropic medications, and he committed to maintaining his sobriety. With those changes, his condition rapidly improved. Later that month he retained counsel and granted a new financial power of attorney to his brother, revoking the earlier ones he had granted to Key.

The effectiveness of the revocation was contested, and in August 2019 Brown Advisory filed an interpleader action in federal court in Maryland in an attempt to settle the dispute. We steer clear of that controversy because the events relevant here occurred during Allen's time at Grand Oaks, when Key's power of attorney was unquestionably in effect.

In October 2019 Allen sued Brown Advisory in Indiana state court asserting claims under Maryland law for breach of contract and breach of fiduciary duty. (All agree that Maryland law applies.) Brown Advisory removed the case to federal court based on diversity of citizenship. See 28 U.S.C. § 1332(a). Allen is a citizen of Indiana, the affiliated Brown Advisory companies are citizens of Maryland, and the amount in controversy exceeds $75,000.

Following removal, Brown Advisory moved to dismiss the action for failure to join Key as a necessary party. See FED. R. CIV. P. 12(b)(7). The motion became moot when Allen filed an amended complaint adding Key (a citizen of Washington, D.C.) as a defendant. Allen and Key have since settled, and she is not a party to this appeal.

The chief allegations in the amended complaint concern withdrawals from Allen's accounts at Brown Advisory. He alleges that while he was at Grand Oaks, Key used the power of attorney to direct the withdrawals, many of which were not to his benefit. The challenged transactions include a one-time withdrawal of $125,000 as well as regular withdrawals of $5,000 ostensibly for "incidental expenses" for Allen's wife. Allen further alleges that the withdrawals caused him to incur excess tax penalties of $90,000 per year (for at least two years). By the time Allen left Grand Oaks, his Brown Advisory IRA accounts were valued at less than $600,000.

Allen additionally alleges that his children sold two of his real properties—Key sold one while his son sold the other—and did not fully credit the proceeds to his Brown Advisory accounts. He claims that the sales occurred "with Brown Advisory's participation," although he does not explain what this participation entailed. Finally, Allen alleges that Brown Advisory occasionally declined to take his phone calls, failed to provide him with (unspecified) "specific information" about his accounts "on multiple occasions," and refused to cover unidentified expenses associated with his move to Crawfordsville.

Brown Advisory moved to dismiss for failure to state a claim, see id. R. 12(b)(6), arguing that it cannot be liable for breach of contract because its actions were taken at Key's direction and in reliance on her power of attorney. The power of attorney was attached to the amended complaint, and Allen does not dispute that Brown Advisory carried out the complained-of withdrawals at Key's direction. Brown Advisory also argued that Maryland does not recognize a claim for breach of fiduciary duty as an independent cause of action arising out of a contractual relationship.

Before the judge ruled on the motion, the Maryland Court of Appeals (the state's highest court) issued an important decision clarifying state fiduciary-duty law and recognizing breach of fiduciary duty as a stand-alone cause of action at law. Plank , 231 A.3d at 466. Especially relevant here, the court held that a plaintiff may assert a claim for...