In In re Westech Capital Corp., a bankruptcy trustee sued a company’s former attorneys for breaching fiduciary duties and also for aiding and abetting the breach of fiduciary duty. No. 16-10300-TMD, 2018 Bankr. LEXIS 969 (W.D. Tex. Bankr. March 29, 2018). The attorneys filed a motion to dismiss. The court first determined that, under Delaware and Texas law, the attorneys did not breach fiduciary duties by simply committing legal malpractice: “In short, all the actions taken by Greenberg as alleged by the Trustee were actions taken in the context of the attorney-client relationship, and no more, and so the Trustee has not alleged a cognizable claim for breach of fiduciary duty on the part of Greenberg.” Id. The court then addressed the aiding and abetting claim and similarly held that it should be dismissed:
Under Texas law, aiding and abetting a breach of fiduciary duty is more often called knowing participation in a breach of fiduciary duty. But the Texas Supreme Court has not expressly decided that this cause of action exists. In First United Pentecostal Church of Beaumont v. Parker, the Texas Supreme Court stated that if a claim for aiding and abetting a breach of fiduciary duty did exist, the plaintiff would have to prove “that the defendant, with unlawful intent, substantially assisted and encouraged a tortfeasor in a wrongful act that harmed the plaintiff.” In an earlier case, Juhl v. Airington, the Texas Supreme Court explained that whether substantial assistance was provided can be evaluated by considering these factors: a. The nature of the wrongful act; b. The kind and amount of the assistance; c. The relation of the defendant and the actor; d. The presence or absence of the defendant at the occurrence of the wrongful act; and e. The defendant’s state of mind.
The scienter elements are like the requirement in Delaware law in that it requires both knowledge of the fiduciary relationship and knowledge of the breach. Even though Texas law was not discussed by either the Trustee or Greenberg, based on the arguments presented in the pleadings, the only element brought into question by Greenberg is whether Greenberg knew that it was participating in breaches of fiduciary duty. The central question therefore is whether Greenberg knew that the acts it assisted were breaches of fiduciary duty. Courts applying Texas law (and assuming the cause of action does exist) have found the requisite knowledge when the plaintiff alleged that legal counsel had adequate information because of the context in which those actions were taken.
Id. The court then analyzed the pleading and held that the trustee did not adequately plead a claim for aiding and abetting breach of fiduciary duty because the pleading did not state that the attorneys had sufficient knowledge.