In a recent decision, the Seventh Circuit federal court of appeals affirmed the dismissal of an action for breach of fiduciary duty brought against two investment firms by a disgruntled customer. In ruling that the District Court properly dismissed the claims, the Court found that the fiduciary duties the investment firms owed to the plaintiff did not include a duty to stop the plaintiff’s daughter who acted under a power of attorney from making certain withdrawals from the plaintiff’s accounts.
The plaintiff, Joseph Allen, amassed a net worth of nearly $8 million dollars. He enlisted the services of the defendants, Brown Advisory, LLC and Brown Investment Advisory & Trust Company, to help him invest and manage his wealth. When Allen and his wife experienced declining health and he could no longer manage their finances, Allen granted a financial power of attorney to his daughter Elizabeth Key. For several years Key used the power of attorney to make withdrawals from Allen’s investment accounts. Those withdrawals had depleted the value of Allen’s IRA accounts from approximately $2.3 million to less than $600,000.
Five years later, Allen revoked the power of attorney and sued the two investment companies in Indiana state court accusing the defendants of breach of fiduciary duty and breach of contract. 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 moved to dismiss Allen’s complaint.
The District Court judge granted the defendants’ motion, reasoning that the investment firms could not be liable for breach of contract because the challenged withdrawals were directed by Key and authorized by her power of attorney. The trial court also dismissed Allen’s breach of fiduciary duty claim after holding that Maryland law does not recognize a separate cause of action for breach of fiduciary duty arising from a contractual relationship. Allen appealed the dismissal. Continue reading ›