Joint liability for breach of fiduciary duty claims is a rather confusing area of law in Texas. Texas courts have discussed three different theories that allow for joint liability: knowing participation in breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and conspiracy.
There is a claim for knowing participation 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).
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. 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.). The Texas Supreme Court has specifically stated that it has not yet adopted this type of claim. First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214 (Tex. 2017). 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 also a recognized civil conspiracy claim in Texas. 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. First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214 (Tex. 2017).
There is not any particularly compelling guidance on whether these three claims are the same or different. And if they are different, what differences are there regarding the elements of each claim? 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).
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. Continental 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 Texas Supreme Court 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. First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d at 214. 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 as to all underlying torts). Id.
The Texas Supreme Court has now decided that the statute of limitations for a conspiracy claim is the same as the underlying tort. Agar Corp. v. Electro Circuits Int’l, No 17-0630, 2019 Tex. LEXIS 351 (Tex. April 5, 2019). In Agar, the plaintiff asserted claims for tortious interference, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, fraud by non-disclosure, misappropriation of trade secrets, violations of the Texas Theft Liability Act, conversion, and civil conspiracy. Id. The defendant alleges that the conspiracy claim was barred by the two-year statute of limitation, and the court of appeals agreed with that argument.
The Court noted that the statutes of limitations vary from claim to claim as determined by the Legislature. Id. (citing Tex. Civ. Prac. & Rem. Code §§ 16.002-.051). “For example, a two-year limitations period applies to suits for trespass and conversion, whereas a four-year limitations period applies to suits for fraud or breach of fiduciary duty.” Id. (citing Tex. Civ. Prac. & Rem. Code §§ 16.003(a), .004(a)(4), (5). For claims not expressly identified by the Legislature, a residual limitations period of four years is provided. Id. (citing § 16.051). The Court stated that the statutes of limitations do not mention civil conspiracy by name. The court then stated that rather than apply the four-year residual limitations period, “the courts of appeals that have considered the issue have held civil conspiracy falls under the two-year statute of limitations applied to suits for trespass in section 16.003 of the Civil Practices and Remedies Code.” Id.
The Court then addressed whether conspiracy was its own independent tort or whether it was merely a vicarious liability theory:
When used as a theory of vicarious liability, civil conspiracy is part of the factual situation that permits a remedy against co-conspirators. Without it, there would be no grounds for recovery against co-conspirators who did not commit the underlying unlawful act. So it is not inconsistent to say civil conspiracy is a vicarious liability theory while also recognizing that it is a kind of cause of action.
Id. (internal citations omitted). The Court held that civil conspiracy is not an independent tort. It also held that it does not have its own statute of limitations and is tied to the limitations of the tort underlying the conspiracy claim:
In fact, assigning civil conspiracy its own fixed limitations period conflicts with its nature as a derivative tort. Civil conspiracy requires an underlying tort that has caused damages. The cause of action for the underlying tort typically accrues as soon as the tort causes those damages. A fixed limitations period of two years for civil conspiracy that differs from that of its underlying tort can produce bizarre consequences.
Agar’s seventh amended petition alleges Electro engaged in a civil conspiracy to commit several underlying torts including, among others, conversion, misappropriation of trade secrets, and fraud. These underlying claims are governed by separate two-, three- and four-year statutes of limitations respectively. The civil conspiracy claims are likewise governed respectively by those statutes. Agar’s civil conspiracy claims may only proceed if they are based on an underlying tort that is itself not barred by limitations.
Id. (internal citations omitted).
Regarding accrual of the conspiracy theory’s limitations period, the Court held that “most civil conspiracy claims should accrue when the underlying tort causes harm to the plaintiff, that is, at the same time as the tort claim against the primary tortfeasor.” Id. Moreover, “If conspirators conspire about different underlying torts over the course of a conspiracy, then claims based thereon accrue separately according to when each tort and injury occur. A conspiracy claim based on an earlier underlying tort does not re-accrue when the co-conspirators agree to commit a second tort or make another overt act.” Id.
The Court then reversed the summary judgment for the defendant and remanded because some of the plaintiff’s conspiracy claims were derivative of claims that had a four-year limitations period and were not barred.
The Court has moved away from a one-size-fits-all approach to conspiracy. A plaintiff must establish that a conspiracy defendant caused particular damages after it joined the conspiracy. Further, a conspiracy defendant is only liable for damages associated with the underlying tort to which his conduct is tied. In other words, if a defendant conspired to defraud, but not tortiously interfere, then it will only be liable for the fraud damages and not the tortious interference damages. Now the Court holds that a conspiracy theory’s limitations period and accrual is tied to the underlying tort’s or torts’ limitations period. Each underlying tort may have a different limitations period and may accrue at different times, which may require different fact findings as to accrual or discovery if the discovery rule has been asserted.
What is not known is how this recent clarity on conspiracy claims applies to knowing-participation or aiding-and-abetting breach of fiduciary duty claims. Are they separate claims that have their own limitations period? If so, what are the limitations periods? Or, are they derivative claims that rely solely on the four-year limitations period of the underlying breach of fiduciary duty claim?
The end result is that jury instructions in cases involving these types of claims will be very complicated and involved. Causation, damages, and limitations may require multiple questions. A party should consider whether it would be wise to hire an attorney with appellate experience in this area to assist.