Kann v. Kann

Decision Date01 September 1996
Docket NumberNo. 22,22
Citation344 Md. 689,690 A.2d 509
PartiesRegina H. KANN v. Donald R. KANN et al. ,
CourtMaryland Court of Appeals

Jeffrey L. Forman (Bruce E. Kauffman, Kauffman and Forman, P.A., on brief), Towson, for Petitioner.

Peter F. Axelrad, argued (Adam S. Caldwell, Jackson & Campbell, P.C., on brief), Baltimore, Andrew Jay Graham, argued (Kevin F. Arthur, Kramon & Graham, P.A., on brief), Baltimore, for Respondents.

Argued before BELL, C.J., ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI and RAKER, JJ., and ROBERT C. MURPHY, Judge (retired) Specially Assigned.


We hold today that allegations of breach of fiduciary duty, in and of themselves, do not give rise to an omnibus or generic cause of action at law that is assertable against all fiduciaries, including trustees of express trusts. Accordingly, here, where the beneficiary of an express trust sues the trustee, the claim is exclusively equitable and not triable of right before a jury.

The litigation arises out of the following facts. In August 1974 Frances O. Kann (Frances) died, testate, leaving a portion of her estate to her then husband, Louis M. Kann, Jr. (Louis), and creating a trust of the residue. Under that trust (the Frances Trust) Louis received the income for his life, and the remainder was divided, free of trust, evenly between the children of Frances and Louis. They had two children, Donald R. Kann (Donald), who is one of the respondents, and Lois K. Fekete (Lois). Frances's will designated Louis as sole trustee.

In 1976 Louis remarried, but that marriage lasted only one year. In 1979 Louis married the petitioner, Regina H. Kann (Regina). The marriage of Louis and Regina lasted fourteen years, until Louis's death, testate, on December 18, 1992.

Louis's will created a trust (the Louis Trust), the income from which is to be paid to Regina for life. That trust also contains a broad, discretionary power of invasion of corpus for the purpose of maintaining Regina's accustomed standard of living. Upon Regina's death the remainder of the Louis Trust, in general, is to be divided one-half to Lois and one-half equally to Donald's two children, Aaron and Burton. Donald was named personal representative of Louis's probate estate and sole trustee of the Louis Trust.

Several days after Louis's death, Donald engaged counsel. They are the attorney respondents, Venable, Baetjer and Howard (Venable), and Alexander I. Lewis, the head of Venable's estates and trusts practice group.

In late 1992 or early 1993 Donald found in Louis's records evidence that Louis may have misappropriated funds from the Frances Trust. 1 Venable advised Donald to continue his review to determine if there was a pattern or whether the apparent diversion was an isolated incident. Over the succeeding ten months Donald and his wife, Joanna B. Kann, discovered further indications of misappropriations from the Frances Trust. For example, Louis had sold stock owned by the Frances Trust and applied over $35,000 of the proceeds toward the purchase of the condominium in which Regina continued to reside.

On March 31, 1993, Donald applied to the Circuit Court for Baltimore City for appointment as successor to Louis as trustee of the Frances Trust, and Donald was so appointed.

By November 1993 Donald concluded that Louis had misappropriated over $118,000 from the Frances Trust. Donald further estimated that the loss from the lack of investment income on the $118,000 increased the total loss suffered by the Frances Trust to approximately $195,300. He reported these findings to the attorney respondents who advised Donald to transfer assets of Louis's estate valued at $195,300 into an account in the name of the Frances Trust, pending a final resolution of the matter (the segregated assets).

In December 1993 Donald filed a "supplemental" inventory in the Orphans' Court of Baltimore City, reporting that certain assets originally inventoried were held by Louis only as trustee of the Frances Trust and were not part of Louis's individual probate estate. The orphans' court, in January 1994, approved the inventory modification and the accompanying First and Final Administration Account. Regina was not advised of this orphans' court proceeding. 2 After the assets in question were segregated from the Louis Trust, Donald sent Regina a memorandum, with attached exhibits, detailing Louis's apparent misappropriations of principal from the Frances Trust.

In April 1994, Donald, in his capacities as personal representative of Louis's estate, trustee of the Louis Trust, and successor trustee of the Frances Trust, together with Lois, Aaron, and Burton, filed a complaint for declaratory judgment in the Circuit Court for Baltimore City. Regina was named as defendant. After reciting the foregoing facts, the complaint sought a declaration of the rights and obligations of the parties with respect to the segregated assets.

In her answer to the complaint Regina prayed a jury trial. She also filed a counterclaim that included a request that "the case" be tried before a jury. The counterclaim was amended twice.

As originally filed and as amended, the counterclaim never flatly alleged that Louis individually and beneficially owned the $118,000 of assets that had been traced to him from the Frances Trust. Instead, Regina initially alleged that Donald violated his fiduciary duty, as a trustee of the Louis Trust and as personal representative of Louis's estate, by:

--aiding the Frances Trust, in which Donald had a beneficial interest, at the expense of the Louis Trust;

--asserting that assets of the Louis Trust were illegally procured;

--sharing information between the two trusts;

-- failing to have informed Regina earlier than he did;

--creating a conflict of interest by petitioning to succeed Louis as trustee of the Frances Trust; and

--failing to raise procedural defenses, including lack of timeliness, and unspecified substantive defenses to the claim against the probate estate of Louis that was made by the Frances Trust.

Regina labeled the allegations of Counts I through III of her counterclaim against Donald, "Breach of Fiduciary Duty of Trustee," "Fraud of the Trustee," and "Malfeasance of Office." 3

The counterclaim also joined the attorney respondents as counterclaim defendants. Counts IV and V alleged that the attorney respondents knowingly participated with Donald in his alleged breaches of trust and that the attorney respondents were negligent. Their malefactions were said to be counseling Donald to perform, or directly performing, the acts previously alleged. Count VI labeled the alleged conduct of all of the respondents as a "Civil Conspiracy."

By her first amendment to the counterclaim, Regina added Count VII, alleging that all respondents "acted in a way to wrongfully exercise dominion and control over the assets of the Louis" Trust. Hereinafter we refer to Count VII as the "conversion claim."

Regina's second amendment to the counterclaim added Counts VIII through XII for the purpose of making plain that Regina sought Donald's personal liability on the allegations of Counts I, II, III, VI, and VII, respectively. Regina did not want to chance limiting her recovery to the segregated assets, or to the assets of the Frances Trust, inasmuch as she sought $15 million in punitive damages from Donald on Counts II, IX, and XII, respectively, and $27 million in punitive damages from Donald, jointly and severally with the attorney respondents, on Counts VI and VII.

The circuit court dismissed Regina's counterclaim against all of the respondents for failure to state claims upon which relief could be granted. The merits of the declaratory judgment claim were then tried at a bench trial. It resulted in the following declaratory judgment, docketed January 20, 1995: "As to initial issues, the trier of fact found that Donald Kann did not breech [sic] his duty as the trustee for the Louis Kann Trust, and he properly moved the money."

Regina appealed to the Court of Special Appeals which affirmed in an unreported opinion. That court analyzed Regina's position in the alternative. The court held that Regina's counterclaim sought to state causes of action at law, but that Regina had failed to allege any exception to the general rule prohibiting a beneficiary from suing a trustee at law for breach of the trust. Alternatively, the court reasoned that, even if Regina could properly sue at law, her allegations were legally insufficient. In the latter connection the intermediate appellate court concluded that breach of fiduciary duty does not exist as a tort in Maryland. With respect to the conversion claim the court determined that Regina had no standing to sue because she was not entitled to possession of the assets. The trial court's findings that, in essence, Donald had acted properly were held not clearly erroneous. As to the attorney respondents, the Court of Special Appeals ruled that they owed no duty to Regina.

Regina petitioned this Court for certiorari, which we issued. Here, Regina does not challenge the factual findings made by the trial court in the declaratory judgment action, and, with one exception, discussed below, Regina does not challenge the legal conclusions of the trial court on the declaratory judgment claim. Her principal argument in this Court is that her counterclaim raised issues cognizable at law on which she was entitled to a jury trial. Consequently, she submits that the jury trial should have proceeded first on common issues, so that the judgments on all of the claims should be vacated and the action remanded for trial before a jury. In this Court Regina focuses on her asserted right to sue Donald for breach of fiduciary duty as a tort, on her asserted standing to sue Donald at law on the conversion claim, and on the asserted legal duty owed to her by the attorney respondents.

Donald has moved to dismiss certiorari review on the ground...

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