In Taylor v. Rothstein Kass & Co., PLLC, a receiver for a failed business sued an accounting firm for various claims arising from the auditor’s issuance of a clean audit report concerning certain financial statements. No. 3:19-CV-1594-D , 2020 U.S. Dist. LEXIS 17435 (N.D. Tex. February 4, 2020). The defendants filed a Federal Rule of Civil Procedure 12(b)(6) motion, challenging the claims.
The court addressed the receiver’s claim for aiding and abetting breach of fiduciary duty and held that such a claim did not exist in Texas:
The Supreme Court of Texas “has not expressly decided whether Texas recognizes a cause of action for aiding and abetting.” First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex. 2017) (citing Juhl v. Airington, 936 S.W.2d 640, 643 (Tex. 1996)). But the Fifth Circuit has held that “no such claim [for aiding and abetting] exists in Texas” and has refused to recognize such a claim because “a federal court exceeds the bounds of its legitimacy in fashioning novel causes of action not yet recognized by state courts.” In re DePuy Orthopaedics, Inc., Pinnacle Hip Implant Prod. Liab. Litig., 888 F.3d 753, 782, 781 (5th Cir. 2018) (citing Johnson v. Sawyer, 47 F.3d 716, 729 (5th Cir. 1995)). Taylor’s contention that DePuy’s holding is limited to “aiding and abetting strict liability” is misplaced. In a case that did not involve strict liability claims, the Fifth Circuit has recently reaffirmed that “aiding and abetting does not exist as a distinct cause of action in Texas.” Midwestern Cattle Mktg., L.L.C. v. Legend Bank, N.A., Fed. Appx. , 2019 U.S. App. LEXIS 36966, 2019 WL 6834031, at *7 (5th Cir. Dec. 13, 2019) (per curiam) (citing DePuy, 888 F.3d at 781-82) (analyzing aiding and abetting claims as applied to checking-kiting scheme). For this reason, the court dismisses Taylor’s aiding and abetting claims. See Garcia v. Vasilia, 2019 U.S. Dist. LEXIS 147243, 2019 WL 4105559, at *11 (S.D. Tex. Aug. 29, 2019) (granting motion for summary judgment on aiding and abetting fraud claim “because no such claim has been expressly recognized by the State of Texas.”).
Id. at *14. The court then held in a footnote, however, that Texas does recognize a knowing participation claim:
Although the Supreme Court of Texas has not explicitly recognized a cause of action for aiding and abetting, it does recognize a cause of action for knowing participation in a breach of a fiduciary duty. “[W]here a third party knowingly participates in the breach of duty of a fiduciary, such third party becomes a joint tortfeasor with the fiduciary and is liable as such.” Meadows v. Hartford Life Ins. Co., 492 F.3d 634, 639 (5th Cir. 2007) (quoting Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (Tex. 1942)); see also Milligan, Tr. for Westech Capital Corp. v. Salamone, 2019 U.S. Dist. LEXIS 143577, 2019 WL 4003093, at *1 (W.D. Tex. Aug. 23, 2019) (collecting cases that explain that “Texas appellate courts have routinely recognized the existence of a cause of action for knowing participation in the breach of fiduciary duty.”). “To establish a claim for knowing participation in breach of fiduciary duty, a plaintiff must assert: (1) the existence of a fiduciary relationship; (2) that the third party knew of the fiduciary relationship; and (3) that the third party was aware that it was participating in the breach of a fiduciary relationship.” D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 216 (5th Cir. 2018) (quoting Meadows, 492 F.3d at 639).
Id. at n. 4.
The court then addressed whether the receiver’s claim for knowing participation in breach of fiduciary duty was really just a malpractice claim and violated the anti-fracturing rule. The court held that the receiver pled more than a simple negligence-type claim and asserted affirmative misconduct that justified a separate claim for participation in breaches of fiduciary duties:
These pleaded facts demonstrate that Taylor has not simply recast, and thereby fractured, a professional negligence claim based on what Rothstein Kass allegedly failed to do. Instead, Taylor’s allegations that Rothstein Kass issued an unqualified opinion despite knowledge of its falsity exceed what is typically characterized as negligence, and, at a minimum, give rise to a separate claim for participation in breaches of fiduciary duties. See, e.g., Bonner v. Henderson, 2001 Tex. App. LEXIS 2024, 2001 WL 301581, at *5 (Tex. App. Mar. 29, 2001, pet. denied) (not designated for publication) (holding that “allegations that [the auditor] prepared annual audit reports that falsely presented . . . the financial condition of [the trust]” and that the auditor “concealed . . . illegal compensation received by [the trustee]” were sufficient to “support a claim that [the auditor] assisted [the trustee] in breaching his fiduciary duties.”). Because Taylor’s allegations based on the issuance of the clean audit present “a viable basis” for “pursuit of a negligence-based malpractice claim” based on what Rothstein Kass allegedly failed to do, and for “a separate breach of fiduciary duty or fraud claim,” the court concludes that Taylor’s claims do not violate the prohibition on fractured claims. Huerta, 498 Fed. Appx. at 427. The court therefore declines to dismiss Taylor’s claims for participation in tortious conduct based on the anti-fracturing rule. See, e.g., Mia Reed & Co. v. United Fire & Cas. Co., 2012 U.S. Dist. LEXIS 89412, 2012 WL 2499932, at *6 (S.D. Tex. June 27, 2012) (declining to apply anti-fracturing rule to grant Rule 12(b)(6)-based motion to dismiss where defendants did not “establish that [plaintiff’s] breach of fiduciary duty claim must, as a matter of law, be brought as a negligence claim.”).
Id. at *18-19.