November 30, 2018 Feature

A Primer on Lawyer Liability for Aiding and Abetting Clients’ Misconduct

By Douglas R. Richmond

I. Introduction

While lawyers’ potential liability to clients for professional negligence—generally described as legal malpractice—and breach of fiduciary duty is well known, many severe claims against lawyers are prosecuted by third-parties who allege that they were harmed by the misconduct of the lawyer’s client, and that the lawyer aided and abetted the client’s misconduct. But for compliant lawyers, plaintiffs in these cases claim, the principal wrongdoers’ alleged misconduct—typically some form of fraud or breach of fiduciary duty—could never have been accomplished or would not have persisted long enough to cause material harm. Aiding and abetting liability is well-settled; indeed, secondary liability arising from concerted action traces back for centuries.1 Although recent Supreme Court decisions have effectively eliminated aiding and abetting liability under federal securities laws insofar as private plaintiffs are concerned,2 many states recognize aiding and abetting liability in some form.

In fact, aiding and abetting claims are among the most dangerous claims that a lawyer or law firm can face.3 In an aiding and abetting case that arises out of a lawyer’s representation of a failed company, the alleged damages can be enormous.4 Affirmative defenses that may be available to a lawyer or law firm in connection with other theories of liability are often unavailable where the plaintiff alleges that the firm or lawyer aided and abetted its client’s tortious conduct.5 A lack of privity affords a lawyer or law firm no defense to aiding and abetting allegations. In addition, because aiding and abetting claims tend to be fact-intensive, a lawyer or law firm may not be able to defeat them at the dispositive motion stage of litigation. In such a case, the lawyer or firm then faces the unappealing prospect of prolonged litigation and the expense and uncertainty of a trial.

II. Essential Aspects of Aiding and Abetting Liability

Unlike liability for professional negligence or breach of fiduciary duty—the contours of which are generally understood—fewer lawyers as readily appreciate the scope of the risk that aiding and abetting liability presents. Liability for aiding and abetting a client’s misconduct does not require the lawyer to owe a duty of care to the plaintiff.6 As noted above, the theory does not depend on the existence of an attorney-client relationship between the plaintiff and the lawyer being sued.7 Nor does aiding and abetting liability require that the plaintiff be an intended third-party beneficiary of the lawyer’s services. Rather, as outlined in the Restatement (Second) of Torts, aiding and abetting liability pivots on three elements: (1) the primary tortfeasor must commit a tort that injures the plaintiff; (2) the defendant must know that the primary tortfeasor’s conduct breached a duty owed by the primary tortfeasor to the plaintiff; and (3) the defendant must substantially assist or encourage the primary tortfeasor’s wrongful conduct.8 Courts frequently add damages as a fourth element to the cause of action.9 In any event, the defendant’s conduct need not be fueled by wrongful intent.10 The essence of an aiding and abetting cause of action is the defendant’s conscious participation in the primary violator’s alleged misconduct.11

Aiding and abetting liability raises some difficult issues. On the one hand, permitting these claims risks diminishing the quality of legal services by encouraging “‘self protective reservations in the attorney-client relationship.’”12 Lawyers should not be penalized for providing legitimate advice or services to clients even if in some cases that advice or the client’s activities are at the leading edge of the law.13 Lawyers should be able to advise clients without fear of liability to third persons if their advice proves to be erroneous or a client twists it to promote an unlawful objective.14 Absent contrary information, lawyers are entitled to assume that their clients are acting or operating lawfully.15 On the other hand, courts generally recognize that lawyers should not be able to invoke their professional status to escape liability for knowingly and substantially assisting the tortious conduct of others.16 Courts have tried to reconcile this tension by narrowly and strictly interpreting the elements of aiding and abetting claims, and by requiring plaintiffs to plead with particularity the facts establishing each element of the cause of action.17

Although it is tempting to think of conduct constituting aiding and abetting as a form of civil conspiracy, it is not. Conspiracy and aiding and abetting are similar in that both require concerted action, but the theories are distinct.18 Liability for conspiracy requires an agreement between alleged co-conspirators to commit a tortious act.19 Aiding and abetting liability, on the other hand, requires only that a defendant knowingly and substantially assist the principal wrongdoer.20

While conspiracy theory is premised on the commission of a single tort for which all co-conspirators are liable as joint tortfeasors, such that they all must be legally capable of committing the same wrong, that is not so with aiding and abetting claims.21 Again, a defendant need not owe the plaintiff a duty to be liable for aiding and abetting the misconduct of another. Aiding and abetting liability attaches where the defendant behaves in a way “that enables the primary violator to commit the underlying tort.”22

Aiding and abetting liability is derivative; the alleged primary tortfeasor must, in fact, commit a tort for a defendant to be held liable as an aider and abettor.23 Absent primary liability, there can be no aiding and abetting liability.24

Assuming the existence of tortious conduct by the client, a lawyer charged with aiding and abetting that conduct faces liability only if she knows the client’s conduct is tortious, and she substantially assists or encourages it. The failure of either element is fatal to a plaintiff’s claim.25 Courts typically consider a defendant’s alleged knowledge and substantial assistance together.26 Where there is a minimal showing of assistance, courts generally require a greater showing of knowledge.27

The degree of knowledge or assistance required for liability turns on the facts of the case. Factors such as the relationship between the defendant and the primary tortfeasor, the nature of the primary tortfeasor’s misconduct, the form and nature of the defendant’s assistance, and the defendant’s state of mind are all in play.28 If the primary violator’s conduct is clearly illegal or tortious, a defendant who shares a long-term or in-depth relationship with the primary violator may be charged with constructive knowledge of the misconduct.29 As a rule, however, courts are reluctant to impose aiding and abetting liability based on anything less than actual knowledge that the primary tortfeasor’s conduct was wrongful.30 This is at it should be. Indeed, under the clear majority approach, actual knowledge of the primary tortfeasor’s unlawful conduct is essential for liability.31 This does not mean, however, that a defendant must know all the details of the underlying tort; rather, the knowledge requirement may be satisfied by showing the defendant’s awareness of the primary violator’s misconduct.32 Actual knowledge may be inferred from circumstances.33 At the same time, and while lawyers cannot avoid acquiring knowledge of clients’ tortious conduct through willful blindness,34 lawyers have no duty to search for red flags to avoid aiding and abetting liability.35

Finally, while the knowledge and substantial assistance elements of the offense may be considered together, they are not interchangeable. A lawyer’s mere knowledge of a client’s unlawful conduct will not support aiding and abetting liability.36 Furthermore, “substantial assistance” requires “something more than the provision of routine professional services” where the would-be aider and abettor is a lawyer.37 A lawyer’s simple failure to object to a client’s misconduct generally will not support aiding and abetting liability,38 although mere inaction may qualify as substantial assistance in the rare case where the lawyer owes a fiduciary directly to the plaintiff.39 Furthermore, aiding and abetting liability depends on the defendant rendering “‘substantial assistance’ to the breach of duty, not merely to the person committing the breach.”40 In other words, a lawyer must actively participate in the client’s wrongdoing to incur liability as an aider and abettor.41

Kalan v. Farmers & Merchants Trust Co. of Chambersburg42 demonstrates how easy it can be for a plaintiff to allege that a lawyer or law firm substantially assisted a client’s breach of duty—at least at the pleading stage of litigation. Kalan arose out of Samuels, Yoelin Kantor, LLP’s (“SYK”) representation of John Koresko in an ERISA case known as Bogatay. Koresko was an ERISA fiduciary who defrauded various ERISA plans out of millions of dollars.43 The Kalan plaintiffs sued SYK to force it to disgorge the fees it earned from defending Koresko in Bogatay because Koresko paid the fees with funds from the ERISA plans he was accused of defrauding; that is, Koresko paid the firm with stolen funds. The complaint in Bogatay contained numerous allegations that Koresko was defrauding the ERISA plans, which, the plaintiffs argued, put the firm on notice of his dishonesty.44 Additionally, SYK’s fees for representing Koresko in Bogatay were paid from the subject ERISA plan accounts, which necessarily alerted the firm to the wrongfulness of the payments.45

SYK moved to dismiss the plaintiffs’ complaint. With respect to the plaintiffs’ common law aiding and abetting claim, the court easily found that the plaintiffs had sufficiently alleged Koresko’s breach of fiduciary duty and SYK’s knowledge thereof.46 The court struggled a bit with the substantial assistance element of the plaintiffs’ claim, but soon honed in on SYK’s acceptance of stolen funds in payment of its fees.47 SYK’s acceptance of those funds plus its knowledge of Koresko’s fraud persuaded the court that the plaintiffs had plausibly alleged SYK’s substantial assistance of Koresko’s breach of fiduciary duty.48 The Kalan court therefore denied SYK’s motion to dismiss.

In contrast, Abrams v. McGuireWoods, LLP,49 is a recent aiding and abetting case in which the plaintiff’s allegations of substantial assistance came up short. Abrams was rooted in the gradual failure of Heartland Memorial Hospital, LLC, which operated a hospital in Munster, Indiana. Heartland was a wholly-owned subsidiary of iHealthcare, Inc. From 2004 until 2006, Heartland was run by a management committee that was composed of iHealthcare’s board of directors. Heartland had been in financial distress for a while; by the summer of 2005, it was virtually insolvent. The iHealthcare board thus searched for an outside investor to help salvage Heartland. They found one in Leroy Wright and his firm, Wright Capital, and began negotiating a buyout.50

Wright Capital acquired iHealthcare in March 2006 in a deal akin to a leveraged buyout, or LBO. In an LBO, the buyer borrows money to acquire a company, and then uses the company’s assets as collateral for the loans it took out to finance the purchase.51 Here, Wright Capital bought iHealthcare from its shareholders for around $25 million; then, to finance the purchase, Wright Capital sold some of iHealthcare’s assets.52 Most notably, Wright Capital sold Heartland’s real estate holdings, including its hospital.53 Wright Capital used the real estate sale proceeds to pay iHealthcare’s shareholders. Of course, Heartland still needed a hospital building. As a result, Wright Capital worked out a deal in which Heartland leased the hospital building back from the new owners at an exorbitant rate.54

It was all to no avail. Heartland continued to crater financially, and, less than a year later, iHealthcare and Heartland sought bankruptcy protection in the Northern District of Indiana.55

In November 2008, Heartland emerged from its bankruptcy under a confirmed “Liquidating Plan of Reorganization,” with David Abrams appointed as “Liquidating Trustee.”56 In an attempt to recoup Heartland’s assets for the benefit of creditors, Wright, in his capacity as Heartland’s trustee, sued McGuireWoods, LLP, which had represented iHealthcare in the buyout and performed the legal work necessary to structure the deal between iHealthcare and Wright Capital.57 Heartland alleged that the two aforementioned transactions—Heartland’s sale to Wright Capital and the leaseback of the hospital—amounted to “looting” Heartland’s assets.58 The looting supposedly was accomplished when Heartland’s assets were sold and the sale proceeds were used to pay off iHealthcare’s shareholders.59 Heartland alleged that iHealthcare breached its fiduciary duty to Heartland in the process and that McGuireWoods aided and abetted iHealthcare’s breach.60

The Abrams court concluded that Heartland’s breach of fiduciary duty claim was fatally flawed for reasons not pertinent here, such that Heartland’s aiding and abetting claim against McGuireWoods necessarily failed.61 But, the court continued, there was “another, simpler problem” with Heartland’s aiding and abetting claim: there was “no allegation that McGuireWoods did anything more than provide routine legal services” to iHealthcare.62

To hold McGuire Woods liable as an aider and abettor, Heartland had to show that the firm substantially assisted iHealthcare in its alleged breach of fiduciary duty. Furthermore, the firm’s assistance had to be “active and direct, rather than passive and indirect.”63 As the Abrams court also explained, because McGuireWoods was a law firm, its alleged substantial assistance had to exceed the delivery of routine legal services.64 “If the law were otherwise,” the court reasoned, “it would be nearly impossible for an attorney, no matter how scrupulous, to avoid liability for a client’s misdeeds.”65

Heartland’s aiding and abetting claim against McGuireWoods failed on both counts. As the court explained:

First, several [of Heartland’s] allegations just allege McGuireWoods’s passive assistance. The complaint alleges McGuireWoods substantially assisted Heartland by “failing to take any steps” to ensure Heartland received business advice, “never advis[ing]” Heartland’s selling shareholders “that they were breaching their fiduciary duties” and not “tak[ing] any steps to protect Heartland” against the selling shareholder’s actions. Without more, McGuireWoods’s inaction does not constitute substantial assistance. . . .

[Second], Heartland doesn’t allege that McGuireWoods did anything other than provide ordinary legal services. According to the Complaint, McGuireWoods “performed the legal work necessary to structure and document the Wright Capital merger” and, “provid[ed] the legal services necessary to negotiate and document the Wright Capital merger.” . . . This is just two (slightly) different ways of saying the same thing: McGuireWoods papered the merger deal. They performed the ordinary, run-of-the mill legal grunt-work necessary in any complicated transaction.66

McGuire Woods’s routine representation of iHealthcare was simply no basis for aiding and abetting liability. The court thus granted the firm’s motion to dismiss.67

III. Lawyers’ Qualified Privilege or Immunity in the Practice of Law

As Abrams demonstrates, courts recognize that a lawyer should not be liable for aiding and abetting a client’s misconduct when she in good faith provided routine legal services to the client.68 A lawyer’s legitimate advice to a client does not constitute encouragement or substantial assistance leading to liability.69 Some jurisdictions—most prominently Texas—hold that lawyers enjoy qualified immunity from civil liability to third-parties for actions tied to representing a client in litigation unless their actions do not reflect the kind of conduct in which a lawyer normally engages.70 In other words, to be actionable, a lawyer’s conduct must be “foreign to the duties of a lawyer.”71 The rule that a lawyer should be immune from aiding and abetting liability to a third-party unless it exceeds the scope of regular legal services logically extends to conduct outside of, or apart from, litigation.72 This is true in Texas as elsewhere,73 although Texas courts and federal courts applying Texas law often confine lawyers’ qualified immunity to litigation matters given a lack of clear guidance to the contrary from the Texas Supreme Court.74 And regardless of the nature of the underlying matter, some courts prefer to describe a lawyer’s conduct as being qualifiedly privileged rather than as being protected by qualified immunity. Reynolds v. Schrock75 is the leading case in support of the qualified privilege approach.

Clyde Reynolds and Donna Schrock bought two parcels of land together, one called the “lodge property” and the other referred to as the “timber property.” They ended up in litigation against each other, which they settled. Schrock’s lawyer, Charles Markley, helped negotiate and draft the settlement agreement.76 The agreement provided that Reynolds would transfer his share in the lodge property to Schrock. Reynolds and Schrock would together sell the timber property, and transfer all sale proceeds to Reynolds. If the timber property sale proceeds were less than $500,000, Schrock was to pay Reynolds the difference and grant him a security interest in the lodge property to secure the payment. If the proceeds of the sale equaled or exceeded $500,000, then Schrock would owe Reynolds nothing and Reynolds would receive no security interest.77

After the parties signed the settlement agreement, Reynolds transferred his interest in the lodge property to Schrock. Markley then advised Schrock that nothing in the settlement agreement expressly required her to retain the lodge property in anticipation of creating a security interest in Reynolds’ favor.78 Accordingly, without telling Reynolds, Schrock sold the lodge property to a third party before the parties sold the timber property.79 Markley assisted her in that transaction, including asking the escrow officer handling the sale to keep the transaction confidential.80 Markley also advised Schrock that she could revoke her consent to Reynolds’ plan to sell the timber property based on his view that Reynolds had materially breached the settlement agreement.81 Based on this advice and with Markley’s assistance, Schrock then revoked her consent to the sale of the timber property.82

Reynolds sued Schrock and Markley. He alleged that the settlement agreement made Schrock his joint venturer, and that Schrock consequently owed him fiduciary duties.83 Markley allegedly aided and abetted Schrock’s breach of fiduciary duty.84 Reynolds and Schrock settled for a second time, leaving Markley as the sole defendant. The trial court awarded Markley summary judgment, reasoning that he owed Reynolds no duties and that he merely advised Schrock on what she could permissibly do under the terms of the original settlement agreement in his capacity as her lawyer.85 The Oregon Court of Appeals reversed the trial court and the Oregon Supreme Court then granted Markley’s petition for review.

The critical issue for the Oregon Supreme Court was whether Markley could be said to have acted in concert with Schrock or to have substantially assisted her in breaching the fiduciary duty she owed Reynolds.86 Markley argued that such a finding was impossible because he had simply advised a client in the context of an attorney-client relationship.87 The Reynolds court therefore framed the issue as whether Markley’s conduct was privileged, such that he could not be subjected to liability.88

The Reynolds court reasoned that while not every relationship between a person who breaches a duty and one who substantially assists in that breach necessarily justifies the recognition of a privilege against liability, the attorney-client relationship does.89 As the court explained:

Myriad business transactions, as well as civil, criminal, and administrative proceedings, require that the client have the assistance of a lawyer. And a variety of doctrines, from the rules against conflicts of interest to the confidential nature of lawyer-client communications, demonstrate the ways in which the legal system protects the lawyer-client relationship.

Moreover . . . a third party’s claim against the lawyer that puts the lawyer at odds with the client will compromise the lawyer-client relationship. A lawyer who is sued for substantially assisting a client’s breach of fiduciary duty becomes subject to divided loyalties. . . . [A]llowing a claim against the lawyer may raise issues of lawyer-client privilege, if the preparation of an adequate defense for the lawyer would require the disclosure of privileged communications.90

The court held that a lawyer acting on a client’s behalf and within the scope of the attorney-client relationship is protected by a privilege and cannot be held liable for assisting the client in conduct that breaches the client’s fiduciary duty to a third party.91 For plaintiffs to hold a lawyer liable for aiding and abetting a client’s breach of fiduciary duty, they must prove that the lawyer was acting outside the scope of the attorney-client relationship.92

The Reynolds court was careful to explain that this privilege has limits. It does not shield a lawyer against liability for conduct unrelated to a client’s representation, even if the conduct involves a client.93 Lawyers’ conduct is not privileged where they are acting out of self-interest and contrary to their clients’ interests.94 Similarly, actions by a lawyer that would implicate the crime-fraud exception to the attorney-client privilege would be deemed to be outside the scope of the attorney-client relationship for purposes of this privilege.95 In other words, Reynolds does not shield lawyers from liability for fraud.96

Of course, the Reynolds court could have reached the same result had it held that Markley’s representation of Schrock did not count as substantially assisting her alleged breach of fiduciary duty. The court’s description of the contours of the privilege it recognized is consistent with how courts contrast the delivery of routine legal services with the “something more” required to satisfy the substantial assistance element of the aiding and abetting cause of action and, ultimately, to impose liability.

IV. Conclusion

Aiding and abetting liability is a central aspect of modern litigation against lawyers and law firms. Although a dead letter under federal securities laws insofar as private plaintiffs are concerned, and accordingly discounted by some lawyers as a risk on that basis, the doctrine is a robust component of state professional liability law. Proponents assert that the doctrine is critical to achieving just results in cases in which a primary tortfeasor carried out a dishonest scheme because of its lawyers’ complicity. Some knowledgeable lawyers, on the other hand, view aiding and abetting liability as little more than a map to their perceived deep pockets in cases in which the real wrongdoer is incapable of satisfying a judgment. Whatever one’s perspective, state law aiding and abetting cases against lawyers are a continuing threat.

Endnotes

1. Douglas R. Richmond, Lawyer Liability for Aiding and Abetting Clients’ Misconduct Under State Law, 75 Def. Couns. J. 130, 130 (2008).

2. See, e.g., Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 144–48 (2011); Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 165 (2008); Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 191 (1994).

3. See John K. Villa & John S. Williams, Collective Scienter: An Unrecognized Danger in Legal Malpractice Cases, ALAS Loss Prev. J. (Attorneys’ Liab. Assur. Soc’y, Inc., Chicago, Ill.), Summer 2015, at 11 (calling aiding and abetting claims “by far the most dangerous claims that a law firm can face”); see also Richmond, supra note 1, at 130 (discussing the role of aiding and abetting liability in the largest publicly-reported settlements by, and verdicts against, law firms).

4. Villa & Williams, supra note 3, at 12.

5. Id. (referring to contributory fault or contributory negligence defenses).

6. Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 186 (Minn. 1999).

7. Exposition Partner, L.L.P. v. King, LeBlanc & Bland, L.L.P., 869 So. 2d 934, 942–44 (La. Ct. App. 2004).

8. Restatement (Second) of Torts § 876(b) (1979).

9. See, e.g., In re MeadWestvaco Stockholders Litig., 168 A.3d 675, 688 (Del. Ch. 2017) (discussing liability for aiding and abetting breach of fiduciary duty); Kahn v. Britt, 765 S.E.2d 446, 458 (Ga. Ct. App. 2014) (outlining liability for aiding and abetting a breach of fiduciary duty).

10. Sender v. Mann (In re Sender), 423 F. Supp. 2d 1155, 1176 (D. Colo. 2006).

11. Mason v. Mason, 770 S.E.2d 405, 422 (S.C. Ct. App. 2015) (quoting Gordon v. Busbee, 723 S.E.2d 822, 830 (S.C. Ct. App. 2012)).

12. Chem-Age Indus., Inc. v. Glover, 652 N.W.2d 756, 774 (S.D. 2002) (quoting Goodman v. Kennedy, 556 P.2d 737, 743 (Cal. 1976)).

13. Restatement (Third) of the Law Governing Lawyers § 94 cmt. c (2000).

14. Id.

15. See id. cmt. g (explaining that “in the absence of circumstances indicating otherwise, a lawyer may assume that a client will use the lawyer’s counsel for proper purposes”).

16. Thornwood, Inc. v. Jenner & Block, 799 N.E.2d 756, 768 (Ill. App. Ct. 2003).

17. See, e.g., Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 186 (Minn. 1999).

18. See Morganroth & Morganroth v. Norris, McLaughlin & Marcus, P.C., 331 F.3d 406, 414–15 (3d Cir. 2003) (listing the elements of civil conspiracy and aiding and abetting claims).

19. Navarrete v. Meyer, 188 Cal. Rptr. 3d 623, 637 (Ct. App. 2015); Ezzone v. Ricciardi, 525 N.W.2d 388, 398 (Iowa 1994); see also Cadle Co. v. Woods & Erickson, LLP, 345 P.3d 1049, 1052 (Nev. 2015) (stating that under Nevada law, “civil conspiracy liability may attach where two or more persons undertake some concerted action with the intent to commit an unlawful objective, not necessarily a tort”).

20. Pittman v. Grayson, 149 F.3d 111, 122–23 (2d Cir. 1998) (discussing New York law).

21. Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1135 (C.D. Cal. 2003) (discussing California law).

22. Id. at 1134.

23. In re Mortg. Elec. Registration Sys., Inc., 754 F.3d 772, 786 (9th Cir. 2014) (recognizing this requirement under Arizona, California, and Nevada law); McMullen v. Sevigny (In re McMullen), 386 F.3d 320, 332 (1st Cir. 2004); Caruthers v. Underhill, 287 P.3d 807, 820 (Ariz. Ct. App. 2012); Alleco Inc. v. Harry & Jeanette Weinberg Found., Inc., 665 A.2d 1038, 1050 (Md. 1995).

24. See, e.g., In re Fitness Holdings Int’l, Inc., 660 F. App’x 546, 548 (9th Cir. 2016) (affirming the dismissal of the aiding and abetting claim because the plaintiff did not plausibly allege the underlying breach of fiduciary duty); Mortensen v. Gust Rosenfeld, PLC, No. 1 CA-CV 14-0262, 2015 Ariz. Unpub. LEXIS 1296, at *26–27 (Ariz. Ct. App. Oct. 27, 2015) (rejecting an aiding and abetting claim against a law firm where the underlying fraud claim failed); Alexander v. Anstine, 152 P.3d 497, 503 (Colo. 2007) (concluding that the failure of the plaintiff’s breach of fiduciary duty claim against the lawyer’s client was fatal to the aiding and abetting claim against the lawyer); Gerber v. EPE Holdings, LLC, C.A. No. 3543–VCN, 2013 WL 209658, at *11 (Del. Ch. Jan. 18, 2013) (ruling that because the plaintiff had not stated a claim for breach of fiduciary duty, his claim for aiding and abetting a breach of fiduciary duty also failed); Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 579 (Tex. App. 2007) (explaining that it “is axiomatic that [a lawyer] cannot be secondarily liable [under the Texas Securities Act] for a primary violation which, from an evidentiary standpoint, never occurred”).

25. See, e.g., Fischer v. Estate of Flax, 816 A.2d 1, 5 (D.C. 2003) (rejecting an aiding and abetting claim where there was no evidence that the lawyer knew of or substantially assisted the client’s misconduct); Agostini v. Sobol, 757 N.Y.S.2d 555, 557 (App. Div. 2003) (affirming the dismissal of an aiding and abetting claim where the plaintiff did not show that the lawyer was aware of the fraud and intended to assist in it).

26. Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 188 (Minn. 1999).

27. Id. at 188 (quoting Camp v. Dema, 948 F.2d 455, 459 (8th Cir. 1991)).

28. Id.

29. Id. (citing Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 283–84 (2d Cir. 1992); Chem-Age Indus., Inc. v. Glover, 652 N.W.2d 756, 775 (S.D. 2002)).

30. See, e.g., Spinner v. Nutt, 631 N.E.2d 542, 546 (Mass. 1994) (opining that the allegation that the primary tortfeasors acted “under the legal advice of the defendants” was insufficient to state a claim); Witzman, 601 N.W.2d at 188 (finding no showing of knowledge where the allegedly tortious conduct was not apparent); Future Grp., II v. NationsBank, 478 S.E.2d 45, 50 (S.C. 1996) (declining to find liability for aiding and abetting breach of fiduciary duty where there was no evidence that the defendant knew of key bylaws affecting the challenged transaction).

31. See, e.g., IIG Wireless, Inc. v. Yi, 231 Cal. Rptr. 3d 771, 794 (Ct. App. 2018) (rejecting the plaintiff’s aiding abetting theory where there was no proof that the defendant actually knew about the alleged primary wrong); Gibson v. Ameris Bank, 804 S.E.2d 276, 281 (S.C. Ct. App. 2017) (requiring the defendant’s actual knowledge of the primary tortfeasor’s unlawful conduct for aiding and abetting liability).

32. Dawson v. Withycombe, 163 P.3d 1034, 1052 (Ariz. Ct. App. 2007).

33. Perlman v. Wells Fargo Bank, N.A., 559 F. App’x 988, 993 (11th Cir. 2014) (interpreting Florida law); Szulik v. Tagliaferri, 966 F. Supp. 2d 339, 372 (S.D.N.Y. 2013) (applying New York law); Federico v. Maric, 226 P.3d 403, 405 (Ariz. Ct. App. 2010); Oster v. Kirschner, 905 N.Y.S.2d 69, 72 (App. Div. 2010); Potok v. Rebh, No. 444 EDA 2015, 2017 WL 1372754, at *2 (Pa. Super. Ct. Apr. 13, 2017).

34. See generally Iowa Pub. Emps. Ret. Sys. v. Deloitte & Touche LLP, 919 F. Supp. 2d 321, 345 (S.D.N.Y. 2013) (discussing willful blindness in connection with aiding and abetting liability).

35. See, e.g., Kan. Pub. Emps. Ret. Sys. v. Kutak Rock, 44 P.3d 407, 419 (Kan. 2002) (concluding that there was no authority “which would require Kutak Rock, which had been hired by KPERS’s agent to perform particular duties in furtherance of the overall investment transaction, to develop its understanding of the transaction beyond its own undertaking”).

36. Ellison v. Plumbers & Steam Fitters Union Local 375, 118 P.3d 1070, 1077 (Alaska 2005); Pierce v. Lyman, 3 Cal. Rptr. 2d 236, 242–43 (Ct. App. 1991); Thornwood, Inc. v. Jenner & Block, 799 N.E.2d 756, 768 (Ill. App. Ct. 2003); Concord Gen. Mut. Ins. Co. v. Gritman, 146 A.3d 882, 887–88 (Vt. 2016).

37. Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 188 (Minn. 1999). Similarly, “[c]laims that lawyers have conspired with their clients are insufficient in the absence of allegations that the arrangement involves more than standard legal representation.” Domanus v. Locke Lord LLP, 847 F.3d 469, 482 (7th Cir. 2017).

38. Rosemann v. St. Louis Bank, 858 F.3d 488, 500 (8th Cir. 2017) (applying Missouri law); Witzman, 601 N.W.2d at 188.

39. See Chang v. JP Morgan Chase Bank, N.A., 845 F.3d 1087, 1098 (11th Cir. 2017) (discussing a bank’s alleged liability for aiding and abetting fraud); Betz v. Blatt, 74 N.Y.S.3d 217, 222 (App. Div. 2018) (stating this principle without referring to lawyers).

40. Chem-Age Indus., Inc. v. Glover, 652 N.W.2d 756, 775 (S.D. 2002); see also Zayed v. Associated Bank, N.A., 779 F.3d 727, 735 (8th Cir. 2015) (applying Minnesota law and explaining that any assistance must further the fraud or other misconduct, and not merely constitute general aid to the tortfeasor); Padrick v. Lyons, 372 P.3d 528, 538 (Or. Ct. App. 2016) (stating that a defendant’s “substantial assistance must be directed to the commission of the tort itself” for aiding and abetting liability to lie).

41. Pierce, 3 Cal. Rptr. 2d at 242–43; Chem-Age Indus., Inc., 652 N.W.2d at 775; Cattani v. Drake, 2018 WL 1980478, at *13 (Utah Ct. App. Apr. 26, 2018).

42. Civ. A. No. 15-1435, 2016 WL 2941041 (E.D. Pa. May 20, 2016).

43. See generally Perez v. Koresko, 86 F. Supp. 3d 293 (E.D. Pa. 2015) (describing the allegations against Koresko and the other defendants and holding them liable for breaching their duties of loyalty and prudence, and for violating ERISA’s prohibition against self-dealing).

44. Kalan, 2016 WL 2941041, at *1.

45. Id.

46. Id. at *3.

47. Id.

48. Id.

49. 518 B.R. 491 (N.D. Ind. 2014).

50. Id. at 496.

51. Id.

52. Id.

53. Id.

54. Id.

55. Wright Capital also suffered as a result of the deal’s failure. Leroy Wright apparently took the failure particularly hard; he committed suicide in 2010. Id. at 497 n.1.

56. Id. at 497.

57. Id.

58. Id. McGuireWoods did not represent iHealthcare or Heartland in the leaseback. Id. at 496–97.

59. Id. at 497.

60. Id. at 498.

61. Id. at 503.

62. Id.

63. Id. (citing Premier Capital Mgmt., LLC v. Cohen, No. 02 C 5368, 2008 WL 4378313, at *6 (N.D. Ill. Mar. 24, 2008)).

64. Id. (quoting Meridian Horizon Fund, LP v. KPMG (Cayman), 487 Fed. Appx. 636, 643 (2d Cir. 2012)).

65. Id. at 504.

66. Id. (citations omitted).

67. Id.

68. Art Capital Grp., LLC v. Neuhaus, 896 N.Y.S.2d 35, 37 (App. Div. 2010); Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 482 (Tex. 2015); see, e.g., Mendoza v. Akerman Senterfitt LLP, 10 N.Y.S.3d 18, 21 (App. Div. 2015) (rejecting an aiding and abetting claim where the lawyers conducted an investigation and drafted amendments to a partnership agreement—activities that were plainly within the scope of their duties as lawyers); Magnum Steel & Trading, L.L.C. v. Roderick Linton Belfance, LLP, 41 N.E.3d 204, 208 (Ohio Ct. App. 2015) (finding no liability where the lawyers’ advice regarding the judgment debtor’s options, including the transfer of property and payment of debts, were “within the course and scope of the attorney-client relationship and did not extend beyond the proper bounds of the relationship”).

69. Restatement (Third) of the Law Governing Lawyers § 56 cmt. c (2000).

70. Troice v. Proskauer Rose, L.L.P., 816 F.3d 341, 346–50 (5th Cir. 2016) (applying Texas law); Youngkin v. Hines, 546 S.W.3d 675, 681 (Tex. 2018); Cantey Hanger, LLP, 467 S.W.3d at 481–82; see also Durham v. Guest, 171 P.3d 756, 760–63 (N.M. Ct. App. 2007) (rejecting liability where the lawyer’s conduct in connection with an arbitration was within the scope of employment as an insurer’s representative in arbitration), rev’d on other grounds, 204 P.3d 19 (N.M. 2009).

71. Youngkin, 546 S.W.3d at 681.

72. See, e.g., Tensfeldt v. Haberman, 768 N.W.2d 641, 656–58 (Wis. Ct. App. 2009) (drafting a will for a client that violated a divorce judgment).

73. See, e.g., Lassberg v. Bank of Am., N.A., 660 F. App’x 262, 267 (5th Cir. 2016) (sending a notice of foreclosure was an act entitled to qualified immunity); Dorrell v. Proskauer Rose LLP, Civ. A. No. 3:16-CVV-1152-N, slip op. at 15 (N.D. Tex. Nov. 2, 2017) (“Because the litigation context, crime, and TSA exceptions to attorney immunity do not exist at present under Texas state law and [the lawyer’s] alleged conduct was within the scope of client representation, Proskauer is entitled to attorney immunity.”); Cantey Hanger, LLP, 467 S.W.3d at 485 (agreeing that a law firm’s preparation of a bill of sale to facilitate the transfer of an airplane awarded to its client in an agreed divorce decree was conduct in which an attorney engages to discharge his duties to his client and was not foreign to the duties of an attorney). But see Kelly v. Nichamoff, 868 F.3d 371, 376–77 (5th Cir. 2017) (noting that the Cantey Hanger court expressly declined to consider whether the attorney immunity doctrine applied outside of litigation, declining to extend the doctrine absent clear guidance from the Texas Supreme Court, and rejecting the argument for the doctrine based on the facts).

74. See, e.g., Kelly, 868 F.3d at 377 (declining to extend the Texas qualified immunity doctrine to a case in which “the alleged conduct occurred in a context disconnected from litigation” absent clear guidance from the Texas Supreme Court).

75. 142 P.3d 1062 (Or. 2006).

76. Id. at 1063.

77. Id. at 1063–64.

78. Id. at 1064.

79. Id.

80. Id.

81. Id.

82. Id.

83. Id.

84. Id.

85. Id.

86. Id. at 1066.

87. Id.

88. Id. at 1066–67.

89. Id. at 1068.

90. Id. at 1068–69.

91. Id. at 1069.

92. Id.

93. Id.

94. Id.

95. Id.

96. Rivet v. State Farm Mut. Auto. Ins. Co., 316 F. App’x 440, 446 (6th Cir. 2009).

Entity:
Topic:

By Douglas R. Richmond

Douglas R. Richmond is Managing Director of Aon’s Professional Services Group. Aon’s Professional Services Group is the world’s largest broker of insurance for law firms. Doug consults with Aon’s 295 law firm clients on professional responsibility and liability issues. Before joining Aon, Doug was a partner with Armstrong Teasdale LLP in Kansas City, Missouri (1989–2004). In his time at Armstrong Teasdale, he tried over 40 major cases as “first chair” and was often engaged to handle appeals of cases tried by other lawyers. In 1998, he was named the nation’s top defense lawyer in an insurance industry poll as reported in the publications Inside Litigation and Of Counsel. Doug is a member of the ABA’s Standing Committee on Ethics & Professional Responsibility. He is the lead author of the book Professional Responsibility in Litigation (2d ed. 2016), and has published over 60 articles in university law reviews. Doug teaches Legal Ethics at the Northwestern University School of Law. He earned his J.D. from the University of Kansas.