In First United Pentecostal Church of Beaumont v. Parker, a church hired an attorney to defend it against sexual abuse allegations. 2017 Tex. LEXIS 295 (Tex. March 17, 2017). During the same time, the church also engaged the attorney to assist in a hurricane/insurance claim. When the insurance company offered to pay over $1 million to settle the claim, the attorney generously suggested that the church leave those funds in the attorney’s trust account to assist with creditor protection. The attorney then withdrew those funds in 2008 and used them for his personal expenses and the expenses of his firm. The attorney had a contract attorney working with his firm. The contract attorney did not know about the improper use of the money at the time that it was done. Rather, he learned about it in 2010, but failed to disclose that information to the client. Eventually, the contract attorney did disclose the information and sent a letter wherein he repented and admitted to breaching his fiduciary duty. The original attorney fled to Arkansas, but was later caught. He pled guilty to misappropriation of fiduciary property and received a fifteen-year sentence.
Not in the forgiving mood, the church then filed a lawsuit against the attorney, his firm, and the contract attorney for a number of causes of action, including breach of fiduciary duty, conspiracy to breach fiduciary duty, and aiding and abetting breach of fiduciary duty. The contract attorney filed a no-evidence motion for summary judgment, mainly arguing that there was no evidence that his conduct caused any damages to the client. Basically, he argued that the deed was already done when he learned of the attorney’s theft and his assistance in covering up the theft did not cause any damage. The trial court granted the motion for summary judgment, and the client appealed. The court of appeals affirmed the judgment, though there was a dissenting justice.
The Texas Supreme Court first addressed whether the trial court correctly rendered judgment for the contract attorney on the breach-of-fiduciary-duty claim. The court held that the elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary duty, (2) breach of the duty, (3) causation, and (4) damages. The court agreed in part with the client’s argument that under Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942), that proof of damages was not required when the claim is that an attorney breached his fiduciary duty to a client and that the client need not produce evidence that the breach caused actual damages. The court held that when the client seeks equitable remedies such as fee forfeiture or disgorgement, that the client does not need to prove that the attorney’s breach caused any damages. However, the court held that when the client seeks an award of damages (a legal remedy) that the client does have to prove that the attorney’s breach caused the client injury:
Plainly put, for the church to have defeated a no-evidence motion for summary judgment as to a claim for actual damages, the church must have provided evidence that Parker’s actions were causally related to the loss of its money. It did not do so. On the other hand, the church was not required to show causation and actual damages as to any equitable remedies it sought.
The contract attorney argued that the summary judgment should be affirmed because, although the client did plead equitable remedies in the trial court, that the client waived those claims by failing to raise them in its appellate briefing. The court held that, although the client did not use the terms “equitable,” “forfeiture,” or “disgorgement” in its brief, that the client’s issue statement “fairly” included that argument. The court reversed the trial court’s summary judgment regarding the client’s equitable remedies because there was no causation requirement.
The court then turned to the conspiracy claim. The court held that an action for civil conspiracy has five elements: (1) a combination of two or more persons; (2) the persons seek to accomplish an object or course of action; (3) the persons reach a meeting of the minds on the object or course of action; (4) one or more unlawful, overt acts are taken in pursuance of the object or course of action; and (5) damages occur as a proximate result. The court explained:
An actionable civil conspiracy requires specific intent to agree to accomplish something unlawful or to accomplish something lawful by unlawful means. This inherently requires a meeting of the minds on the object or course of action. Thus, an actionable civil conspiracy exists only as to those parties who are aware of the intended harm or proposed wrongful conduct at the outset of the combination or agreement.
In this case, the client argued that there were two possible conspiracies: an initial conspiracy to steal its money, and a subsequent conspiracy to cover up the theft. Regarding the first theory, the court held that there was no evidence that the contract attorney knew that the original attorney had withdrawn and spent the money at the time that it happened and affirmed the trial court’s summary judgment on that theory. Regarding the second theory, the court held that there was no evidence that the contract attorney’s actions caused any damage. The court held that a conspiracy plaintiff must establish that a conspiracy defendant’s actions caused an amount of harm, and thus prior actions by co-conspirators are not sufficient to prove causation:
The actions of one member in a conspiracy might support a finding of liability as to all of the members. But even where a conspiracy is established, wrongful acts by one member of the conspiracy that occurred before the agreement creating the conspiracy do not simply carry forward, tack on to the conspiracy, and support liability for each member of the conspiracy as to the prior acts. Rather, for conspirators to have individual liability as a result of the conspiracy, the actions agreed to by the conspirators must cause the damages claimed. Here the church does not reference evidence of a conspiracy between Parker and Lamb to take or spend the church’s money. Rather, it points to evidence that once Parker learned that the church’s money was gone, he was concerned—as he well should have been—and he agreed with Lamb to try to replace it. The evidence that Parker conspired with Lamb to cover up the fact that the money was missing and attempt to replace it was evidence that Parker tried to mitigate the church’s loss, not that he conspired to cause it. The damage to the church had already been done when Parker and Lamb agreed to cover up the theft and try to replace the money.
The court affirmed the trial court’s summary judgment on the conspiracy claim.
The court reviewed the aiding and abetting breach of fiduciary duty claim. The court first held that the client did not adequately raise that claim in the summary judgment proceedings and waived it. In any event, assuming such a claim existed and assuming it was adequately raised, the court held that there was not sufficient evidence to support such a claim in this case:
Moreover, as noted above, although we have never expressly recognized a distinct aiding and abetting cause of action, the court of appeals determined that such a claim requires evidence that the defendant, with wrongful intent, substantially assisted and encouraged a tortfeasor in a wrongful act that harmed the plaintiff. Here the church references no evidence that Parker assisted or encouraged Lamb in stealing the church’s money. In his response to the PSI report, Lamb disclaimed Parker’s involvement, and Parker clearly and consistently disclaimed knowing that Lamb was taking the church’s money from the firm’s trust account until the summer of 2010 after the money was gone. While it is true that Parker helped Lamb cover up the theft, this cannot be the basis for a claim against Parker for aiding and abetting Lamb’s prior theft or misapplication of the church’s money when there is no evidence that Parker was aware of Lamb’s plans or actions until after they had taken place. See Juhl, 936 S.W.2d at 644-45 (noting that courts should look to the nature of the wrongful act, kind and amount of assistance, relation to the actor, defendant’s presence while the wrongful act was committed, and defendant’s state of mind (citing RESTATMENT (SECOND) OF TORTS § 876 cmt. d (1977))). As we discussed above, Lamb spent all of the church’s money before Parker became involved, and there is no evidence the church was harmed by the only wrongful act in which Parker assisted or encouraged Lamb—covering up the fact that Lamb had spent the church’s money.
The court finally addressed a joint venture claim by the client. The court held that the elements of a joint venture are (1) an express or implied agreement to engage in a joint venture, (2) a community of interest in the venture, (3) an agreement to share profits and losses from the enterprise, and (4) a mutual right of control or management of the enterprise. “Joint venture liability serves to make each party to the venture an agent of the other venturers and hold each venturer responsible for the wrongful acts of the others in pursuance of the venture.” The court reviewed evidence offered by the client and held that it was taken out of context. The court held that none of the evidence provided support for the client’s claim that there was “an express or implied agreement by Parker to be part of a joint venture with Lamb for the purpose of stealing the church’s money.” Therefore, the court affirmed the summary judgment on the joint venture claim.
Interesting Note: The court held that it had previously expressly stated that Texas had not adopted an aiding and abetting claim at this time. The court cited to its previous opinion of Juhl v. Airington, 936 S.W.2d 640, 643 (Tex. 1996), wherein the court held that there was a question in Texas as to whether there is a concert of action theory. That case dealt with whether a group of parties were responsible for a negligence claim and did not address a breach of fiduciary duty claim.
This case highlights a rather confusing area of law in Texas. The Texas Supreme Court has previously held that there is a claim for knowing participation in a breach of fiduciary duty in Texas. See Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (1942). The general elements for a knowing-participation claim are: 1) the existence of a fiduciary relationship; 2) the third party knew of the fiduciary relationship; and 3) the third party was aware it was participating in the breach of that fiduciary relationship. Meadows v. Harford Life Ins. Co., 492 F.3d 634, 639 (5th Cir. 2007).
Depending on how the Texas Supreme Court rules in the future, there may be a recognized aiding-and-abetting breach-of-fiduciary-duty claim in Texas. The Texas Supreme Court has stated that it has not expressly adopted a claim for aiding and abetting outside the context of a fraud claim. See Ernst & Young v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 583 n. 7 (Tex. 2001); West Fork Advisors v. Sungard Consulting, 437 S.W.3d 917 (Tex. App.—Dallas 2014, no pet.). Notwithstanding, Texas courts have found such an action to exist. See Hendricks v. Thornton, 973 S.W.2d 348 (Tex. App.—Beaumont 1998, pet. denied); Floyd v. Hefner, 556 F.Supp.2d 617 (S.D. Tex. 2008). One court identified the elements for aiding and abetting as the defendant must act with unlawful intent and give substantial assistance and encouragement to a wrongdoer in a tortious act. West Fork Advisors, 437 S.W.3d at 921.
There is not any particularly compelling guidance on whether these claims (knowing participation and aiding and abetting) are the same or different or whether they are recognized in Texas or not. And if they do exist and are different, what differences are there regarding the elements of each claim? The Texas Supreme Court still has much to explain related to this area of law.
The Texas Supreme Court does appear to clear up one important causation issue. There was confusion as to whether a finding of conspiracy or aiding and abetting or knowing participation automatically imposes joint liability on all defendants for all damages. Most of the cases seem to indicate that a separate damage finding is necessary for each defendant because the conspiracy may not proximately cause the same damages as the original bad act. See THPD, Inc. v. Continential Imports, Inc., 260 S.W.3d 593 (Tex. App.—Austin 2008, no pet.); Bunton v. Bentley, 176 SW.3d 1 (Tex. App.—Tyler 1999), aff’d in part, rev’d in part on other grounds, 914 S.W.3d 561 (Tex. 2002); Belz v. Belz, 667 S.W.2d 240 (Tex. App.—Dallas 1984, writ ref’d n.r.e.). The court has now held that the conspiracy defendant’s actions must cause the damages awarded against it, and a plaintiff cannot solely rely on just the original bad actor’s conduct. So, there should be a finding of causation and damages for each conspiracy defendant (unless the evidence proves as a matter of law that all conspiracy defendants were involved from the very beginning). For a great discussion of these forms of joint liability for breach of fiduciary duty, please see E. Link Beck, Joint and Several Liability, State Bar of Texas, 10th Annual Fiduciary Litigation Course (2015).