aiding and abetting breach of fiduciary duty pennsylvania child

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Aiding and abetting breach of fiduciary duty pennsylvania child

The trustee also alleged that, after Halder was terminated, it was negligent for the Law Firm not to advise Westech to sue Halder for self-dealing, for advocating for Westech to pay Halder and others commissions and bonuses, and for seeking appointment of a custodian over the company on behalf of Halder and others in a separate pre-bankruptcy lawsuit. By that point, the District Court reasoned, Halder was adverse to Westech because he was both suing Westech and working for a competitor.

Nonetheless, the District Court upheld dismissal of the malpractice claim because the trustee failed to plead a plausible theory of damages caused by those breaches. If Westech was not in breach, it would have owed Halder substantially less money if it had instead simply not renewed that employment agreement, and the Law Firm would then also have known that Westech received nothing in exchange for releasing Halder from the restrictive covenants in his employment agreement.

Finally, the District Court held that the fact that the Law Firm prepared the Cancellation Agreement on its own suggested that the Law Firm knew the purposes behind it at the time. The District Court remanded the case so that the trustee could continue pursuing the claim before the Bankruptcy Court. Building trust and closely working with board members is an essential foundation for an attorney to effectively represent a company. And, the relationships built upon that foundation often evolve into life-long friendships.

However, practitioners must always be mindful of their professional obligations to the company they represent and avoid allowing their relationships with individual board members to cloud their judgment and take actions in dereliction of those obligations. Squire Patton Boggs' global Financial Services Practice provides high quality legal, regulatory and public policy services to a wide range of participants in the financial services sector, including:.

Their team includes several former regulators and former executives and internal legal counsel at financial institutions and other financial Skip to main content. New Articles. Rogoff and Julia D. Console, Jr. Costigan and Joseph J. Cole-Johnson and Rachel V. Oehninger and Geoffrey B. Buckley-Norwood and Sarah R.

Gross and Marc D. Teva Drug Sumner and Jesse A. Collins and Ryan H. Giger and Todd H. Pummill and Daniel R. Gillenwater and Phillip H. Hansen and Alan J. Becker and Claire H. Sachs and Brook J. Harbaugh and Daniel E. Betts and Beth E. In Reynolds v. At this point, the alleged machinations became somewhat convoluted. The complaint alleged that the defendant law firm created the life lease memorandum after entry of judgment in favor of plaintiff the creditor law firm. Two weeks before DeLorean was to be deposed in connection with disposition of his assets, the defendant law firm recorded the purported life lease memorandum with the Somerset County Clerk.

The clerk relied on this deceptive letter and entered on the public record erroneous marginal notations in that regard. After the creditor law firm obtained a writ of execution from the U. DeLorean Cadillac had obtained a writ of execution against DeLorean. The attorney aider-abettor decisions draw a line between the mere rendering of advice to a wrongdoer, on the one hand, and actively misleading or affirmative conduct directed toward a third party on the other.

The attorney, as counselor, almost certainly will receive better protection than the attorney who acts as the public and active agent of a wrongdoer. Financial institutions are among those entities most frequently charged with aiding and abetting fraud. In Chance World Trading E.

To effectuate this misappropriation, the alleged primary actor had opened a second account at Heritage Bank. The fraud actor then transferred funds from the original account into the new account. The bank permitted the withdrawal without requiring the authorization of the other principals.

As a matter of California law, the court held, the violation by the bank of its own internal policies and procedures, without more, is insufficient to show a bank was aware of fiduciary breaches committed by customers. He pled guilty to bank fraud and was sentenced to seven and one-half years in prison, according to the Complaint. The confirmation also excluded transfer activity and profit and loss information.

Further, Bank of America allegedly executed currency trades with Rusnak that were disguised loans. The Court held the complaint properly stated a claim for aiding and abetting fraud. Because, according to Bank of America, Parmalat owed no such duty to its stakeholders, there could have been no breach of fiduciary duty and thus no liability for aiding and abetting. The court disagreed, holding that the complaint adequately had alleged that the bank aided insiders in breaching duties the insiders owed to Parmalat.

According to plaintiffs, that transaction made Parmalat appear healthier and more creditworthy than, as Bank of America allegedly knew, Parmalat really was. These loans were secured by cash deposits made by an Irish Parmalat subsidiary in the entire amounts of their respective loans. The Irish subsidiary obtained the funds through issuance of eight-year notes to institutional investors in the U. The fact that the loans were secured by cash put up by Parmalat was not disclosed publicly.

Thus, the purchasers of the eight-year notes did not know they were contributing collateral for Bank of America loans. In addition, the swap agreements were not actually swaps, according to the complaint: they specified no currency or interest rate exchanges and offered the counter-parties no ability to hedge. The complaint alleged the agreements were nothing more than a device for Parmalat to make illicit payments to Bank of America officials.

Bank of America did not deny that the complaint sufficiently alleged that it aided and abetted actual breaches of fiduciary duty. The court held that this argument was entirely beside the point: the complaint alleged the banks aided insiders in breaching duties the insiders owed to Parmalat. Aiding and abetting charges have been brought by one bank against another. In Rabobank Nederland v. The original lender, however, contended that because it did not owe the same fiduciary duties as the debtors, it could not face liability for aiding and abetting their breach of fiduciary duty.

The appellate court held this theory was erroneous because it essentially treated the cause of action identically to one for conspiracy, where a duty is owed directly by the defendant. In Neilson v. A common fact-pattern involves a bankrupt corporation that formerly operated as a fraudulent enterprise. In bankruptcy, after ringleaders in upper management have been thrown out, the bankruptcy trustee not infrequently discovers that third-parties, such as suppliers, accountants or law firms, appeared to have facilitated the fraud.

However, when the bankrupt corporation joined with a third party in defrauding its creditors, the trustee cannot recover against the third party for the damage to the creditors. The availability of the in pari delicto defense in the case of creditors of a bankrupt estate depends upon the jurisdiction, with the Ninth Circuit, based on equitable considerations, restricting the defense, and the Second and Third Circuits, relying on their interpretation of Section of the Bankruptcy Code, giving the defense broad sway.

Separate corporate entities in the same family of entities under common control or controlling one another may be alleged to be perpetrator and aider-abettor, respectively. However, complexities arise when some affiliates are alleged to be primarily and others secondarily responsible. Philip A. Hunt Chemical Corp. Directors and officers of a company owe a fiduciary duty to the shareholders.

Newmont Mining Corp. That shareholder, if permitted, intended to acquire a sufficient share of the company to prevent the hostile tender offeror from acquiring a controlling share. Such directors and officers have a duty to disregard that personal risk. The entity pursuing the takeover must offer consideration to the company, not to officers at the company.

In seeking to establish liability on the part of the greenmailers, shareholders have alleged that the corporate directors breached their fiduciary duty to shareholders by incurring harmful debt and by paying the price of a targeted stock repurchase.

This repurchase, which the court categorized as greenmail, was financed through increased borrowing. With the new combined borrowing, corporate debt rose to two-thirds of equity. In reviewing a lower court decision to issue an injunction, which, in effect, imposed a constructive trust on the profits of the repurchase, the court of appeals concluded that at the trial on the merits Steinberg could be held liable as an aider and abettor in the breach of fiduciary duty.

These facts suggested that Steinberg knew that the actual harm to shareholders exceeded the benefits. In Gilbert v. El Paso. Surprisingly, to outsiders, the conflict suddenly became amicable. Burlington and El Paso announced they had an agreement. A new tender offer was announced at the same price, but for fewer shares. The agreement allegedly had the effect of reducing the amount of the participation from the first to the second offer, thus denying the shareholders the premium for all shares tendered under the first offer.

The court was able to infer that several conspiracy scenarios were possible. Offering terms that afford special consideration to board members is a clear path to aider-abettor liability. When terms hold value that inures exclusively, or even disproportionately, to officers and directors, courts have not found it difficult to infer the offeror knew it was inducing a breach of fiduciary duty to shareholders.

Based on Central Bank , it has been suggested that civil aiding and abetting liability under RICO appears to be traveling a path toward extinction. The Securities Act of and the Securities Exchange Act of both contain explicit savings clauses that preserve state authority with regard to securities matters.

The Texas Securities Act, for example, establishes both primary and secondary liability for securities violations. Post- Central Bank , much of the law of aider-abettor liability is developing in state courts, including under state securities statutes. This environment likely will produce a rich, and varied, body of decisional law. In Boim v. Quranic Literacy Institute and Holy Land Foundation for Relief and Development , the court found that section can give rise to aiding and abetting liability because it provided for an express right of action for plaintiffs, and it was reasonable to infer that Congress intended to allow for aiding-abetting liability.

In early , the U. District Court for the Southern District of New York ruled on a host of motions filed by defendants in In re Terrorist Attacks on September 11, , a multidistrict proceeding consolidating actions brought by victims and insurance carriers for injuries and losses arising from the September 11, terrorist attack. Also late in , the U. Plaintiffs had alleged the bank had facilitated terrorism chiefly by 1 creating a death and dismemberment plan for the benefit of Palestinian terrorists, and 2 knowingly provided banking services to Hamas a designated terrorist organization and its fronts.

The court did conclude that for purposes of the Anti-Terrorism Act, allegations of recklessness would fall short of the statutory standard. The doctrine of civil liability for aiding and abetting warrants, and promises to receive, expansive treatment in the context of suits for personal injuries resulting from terrorism that has been assisted by its financiers and others facilitators. Tort liability expanded during the twentieth century in large part to provide a measure of civil deterrence for defendants regarded, in isolated instances, as having put the public at risk.

More generally, aiding and abetting liability is in the process of achieving broad acceptance as a doctrine uniquely suited to address wrongdoing that occurs in transactional matrices that as of the year frequently are of breathtaking complexity. As of this writing, the larger scandals temporarily have subsided though this may well be a temporary lull preceding the demise of one or two large hedge funds.

The increase in well-considered decisional law is timely. Based on apparent trends in the number of reported decisions, aiding-abetting cases are increasing in frequency. See Linde v. See generally Central Bank , U. Peoni, F. United States, U. Act of Mar. As such, under the Act, and under the law of most states, an accessory to a crime is subject to criminal liability even if the principal actor is acquitted.

Standefer , U. See generally Bird v. Lynn, 10 B. Perkins, 83 Mass. Halberstam v. Welch, F. Unocal Corp. The three-judge panel opinion shall not be cited as precedent by or to this court or any district court of the Ninth Circuit, except to the extent adopted by the en banc court. Neilson v. Union Bank of Cal. Beck v. Prupis, U. Pittman by Pittman v. Grayson, F. Neilson , F. See Halbertstam , F. Applied Equipment Corp. Litton Saudi Arabia Ltd. See Wells Fargo Bank v. Superior Court, 33 Cal.

Young, P. Burr, No. Chase Manhattan Bank, N. Bechina, N. Bacon, N. Tobacco Co. Cheshire Sanitation, Inc. Hill, N. Carter Lumber Co. March 22, ; Joseph v. Temple-Inland Forest Prods. Life Ins. Steinberg, A. Textile Corp. In re Centennial Textiles, Inc. Mahlum, P. Mahoney, S. Leahey Constr. Harding, P.

Maurice, C. April 7, ; Future Group, II v. Nationsbank, S. United Am. Bank of Memphis, 21 F. LeMaster v. Estate of Hough ex rel. Berkeley County Sheriff, S. Brown, N. Courts in three other states have held that the viability of such claims remains an open question. See Unity House, Inc. Lehman Bros. Allen, S. Central Bank , U. Realty Mgt. Partnership v. Heritage Sav. Fauque, P. See generally Ronald M.

It shall be unlawful for any person, directly or indirectly. See Robert S. C ORP. L AW , See, e. Perfectune, Inc. Cornfeld, F. Dressed Beef Co. Rosenberg, F. American Solar King Corp. Fenex, Inc. Moore v. Frost, U. Seafirst Corp. Diamanthuset, Inc. Wheeler, F. The only court not to have squarely recognized aiding and abetting in private section 10 b actions prior to Central Bank did so in an action brought by the SEC, see Dirks v.

SEC , F. See Zoelsch v. Brennan v. Midwestern United Life Ins. Zatkin v. Primuth, F. Resnick v. Sandusky Land, Ltd. Uniplan Groups, Inc. Ohio Brennan , F. In statutes such as the Commodity Exchange Act, 7 U. In contrast, in connection with Securities Exchange Act violations, it had neither in nor since employed express language to impose such liability. Central Bank, U.

LTV Corp. The Court observed that on the other hand there were policy arguments in favor of aiding and abetting liability. While commentators, supported by abundant evidence, have identified Central Bank as one factor leading to the encouragement, during the s, of misconduct by accountants and other players in the financial industry, e.

P ROBS. Daniel L. See Shapiro v. Cantor, F. Wright v. Shareholders Litig. DeLeon, supra note 30, at citing Knapp v. Ernst Whinney, 90 F. Appel, F. DeLeon, supra note 30, at citing SEC v. Fehn, 97 F. Wright , F. Home-stake Prod. In re Ikon Office Solutions, Inc. Hochfelder, U. Infinity Group Co. In re Software Toolworks, Inc. See Brockett, supra note 51, at Unicredito Italiano SpA v. Morgan Chase Bank, F. West Fin. Fiol v. Doellstedt, 58 Cal.

Superior Ct. See Conley v. Gibson, U. United Parcel Service, F. See generally In re Parmalat Sec. Unocal , F. In re AHT Corp. Woodward v. Metro Bank of Dallas, F. Ronald A. Brown, Jr. See generally Javitch v. First Montauk Financial Corp. Dema, F. Barnett Banks of Ft. Lau- derdale, F.

Rolf v. May 22, , cert. Leahey , F. Dealy, F. Dubai Islamic Bank v. Citibank N. Bank v. Primavera Familienstiftung v. Askin, F. See generally Feela v. Israel, F. Resolution Trust Corp. Farmer, F. See City of Atascadero v. See Tew v.

Diamanthusel, Inc. First Montauk Fin. See In re WorldCom, Inc. Commodity Futures Trading Corp. Sidoti, F. Abbott v. Equity Group, Inc. Accessories, Inc. Fishman, F. Ryan v. There, it was alleged that a reinsurer assisted the perpetrators in deceiving investors by issuing reinsurance subject to a hidden indemnity owed to it by the insured. Diamond State Ins. Unicredito , F. Rolf , F. Crowe v. Henry, 43 F. Cohen, A. Liberty Sav.

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In order for his aiding and abetting claim to be successful, the minority shareholder had to come to the table with actual evidence obtained before or during discovery that showed the purchaser knew about the breach. In other words, as the kids say today, the plaintiff had to show receipts. But the Delaware decision also suggests Pennsylvania requires a higher showing of knowledge than Delaware does.

In Jacobs v. Meghji , WL Del. The company, IEA, a publicly held infrastructure construction company, was facing a severe liquidity crisis and retained an investment bank to find additional investors. According to the court, under Delaware law, a plaintiff alleging a claim of aiding and abetting a breach of fiduciary duty must show that the aider and abettor had actual or constructive knowledge that their conduct was unlawful.

It found none. The court was not persuaded. Potok only spoke of actual knowledge. For this reason, it appears parties in Delaware will have an easier time alleging or proving knowledge because Delaware allows for constructive knowledge.

When shareholders of a Pennsylvania corporation claim a third party has aided and abetted a breach of fiduciary duty, those shareholders must prove that the third party had actual knowledge of the breach. Circumstantial evidence will not cut it. While this requirement is not unusual, it appears that for the time being in Pennsylvania actual knowledge is the only knowledge a court will accept. Attenborough , A. Kaufman v. Cohen , A. The Supreme Court of Delaware rejected this requirement, which it felt inappropriately broadened the claim.

Jervis , A. Final Thoughts Though the aiding and abetting breach of fiduciary duty claim continues to gain traction, the conduct underlying these alleged violations is conduct that could give rise to liability even absent the state common law aiding and abetting breach of fiduciary duty claim. Some scholars have questioned whether the claim is a necessary enforcement mechanism, given its overlap with other claims.

A person who is liable for aiding and abetting a breach of fiduciary duty has often committed fraud or other acts for which he or she could be liable even absent the aiding and abetting claim. Finally, attorneys and many other professionals are already governed by rules of professional conduct.

The aiding and abetting breach of fiduciary duty claim may expose professionals to civil liability, but the actions that are the basis for this claim would likely also be the basis for allegations that a professional had violated professional rules.

All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author s and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer s of the author s.

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Skip to main content. New Articles. Rogoff and Julia D. Console, Jr. Costigan and Joseph J. Cole-Johnson and Rachel V. Oehninger and Geoffrey B. Buckley-Norwood and Sarah R. Gross and Marc D. Teva Drug Sumner and Jesse A. Collins and Ryan H. Giger and Todd H. Pummill and Daniel R. Gillenwater and Phillip H. Hansen and Alan J. Becker and Claire H. Sachs and Brook J. Harbaugh and Daniel E. Betts and Beth E. Stevens and Corey N.

Clark, Jr. Epstein and Angus C. Osborn and Joanne C. O'Brien and Brian M. Deming It's Official! Opper and Ryan J. Conti U. Larvick and Daniel T. Beswick and Jeffrey W. Ellis and Raymond J. See Wells Fargo Bank v. Superior Court, 33 Cal. Young, P. Burr, No. Chase Manhattan Bank, N. Bechina, N. Bacon, N. Tobacco Co. Cheshire Sanitation, Inc. Hill, N. Carter Lumber Co.

March 22, ; Joseph v. Temple-Inland Forest Prods. Life Ins. Steinberg, A. Textile Corp. In re Centennial Textiles, Inc. Mahlum, P. Mahoney, S. Leahey Constr. Harding, P. Maurice, C. April 7, ; Future Group, II v. Nationsbank, S.

United Am. Bank of Memphis, 21 F. LeMaster v. Estate of Hough ex rel. Berkeley County Sheriff, S. Brown, N. Courts in three other states have held that the viability of such claims remains an open question. See Unity House, Inc. Lehman Bros. Allen, S. Central Bank , U. Realty Mgt. Partnership v. Heritage Sav. Fauque, P. See generally Ronald M. It shall be unlawful for any person, directly or indirectly.

See Robert S. C ORP. L AW , See, e. Perfectune, Inc. Cornfeld, F. Dressed Beef Co. Rosenberg, F. American Solar King Corp. Fenex, Inc. Moore v. Frost, U. Seafirst Corp. Diamanthuset, Inc. Wheeler, F. The only court not to have squarely recognized aiding and abetting in private section 10 b actions prior to Central Bank did so in an action brought by the SEC, see Dirks v.

SEC , F. See Zoelsch v. Brennan v. Midwestern United Life Ins. Zatkin v. Primuth, F. Resnick v. Sandusky Land, Ltd. Uniplan Groups, Inc. Ohio Brennan , F. In statutes such as the Commodity Exchange Act, 7 U. In contrast, in connection with Securities Exchange Act violations, it had neither in nor since employed express language to impose such liability. Central Bank, U. LTV Corp.

The Court observed that on the other hand there were policy arguments in favor of aiding and abetting liability. While commentators, supported by abundant evidence, have identified Central Bank as one factor leading to the encouragement, during the s, of misconduct by accountants and other players in the financial industry, e. P ROBS. Daniel L. See Shapiro v. Cantor, F. Wright v. Shareholders Litig. DeLeon, supra note 30, at citing Knapp v. Ernst Whinney, 90 F. Appel, F. DeLeon, supra note 30, at citing SEC v.

Fehn, 97 F. Wright , F. Home-stake Prod. In re Ikon Office Solutions, Inc. Hochfelder, U. Infinity Group Co. In re Software Toolworks, Inc. See Brockett, supra note 51, at Unicredito Italiano SpA v. Morgan Chase Bank, F. West Fin. Fiol v.

Doellstedt, 58 Cal. Superior Ct. See Conley v. Gibson, U. United Parcel Service, F. See generally In re Parmalat Sec. Unocal , F. In re AHT Corp. Woodward v. Metro Bank of Dallas, F. Ronald A. Brown, Jr. See generally Javitch v. First Montauk Financial Corp. Dema, F.

Barnett Banks of Ft. Lau- derdale, F. Rolf v. May 22, , cert. Leahey , F. Dealy, F. Dubai Islamic Bank v. Citibank N. Bank v. Primavera Familienstiftung v. Askin, F. See generally Feela v. Israel, F. Resolution Trust Corp. Farmer, F. See City of Atascadero v. See Tew v. Diamanthusel, Inc. First Montauk Fin. See In re WorldCom, Inc. Commodity Futures Trading Corp.

Sidoti, F. Abbott v. Equity Group, Inc. Accessories, Inc. Fishman, F. Ryan v. There, it was alleged that a reinsurer assisted the perpetrators in deceiving investors by issuing reinsurance subject to a hidden indemnity owed to it by the insured. Diamond State Ins. Unicredito , F. Rolf , F. Crowe v. Henry, 43 F. Cohen, A. Liberty Sav. Bank, FSB v. Webb Crane Serv. July 27, Bonilla v. Trebol Motors Corp. Partners, L. Wedbush Morgan Sec. See S. See Calcutti v. SBU, Inc. Austin v. Kaufman v.

Cohen, N. See McDaniel v. Pepsi-Cola Bottling Co. McDaniel , F. Cromer Finance Ltd. Berger, F. NY LIT Am. Bachler, F. See Primavera Familienstifung v. Supp 2d S. See generally , Bondi v. Citigroup, Inc. Law Div. AmeriFirst Bank v. Bomar, F. Casey v. Bank Assoc. Townson, A. Chappell, Nos. Nellhaus, N. Standard Fed.

Bank, Nos. May 12, ; Witzman v. Lighthouse Fin. July 13, ; Bondi v. Owens, 27 P. Bagley, N. Glover, N. Toles, S. Wachovia Bank, S. Cunnally, N. Georgia does not recognize a claim for aiding and abetting a breach of fiduciary duty. Monroe v. There are conflicting decisions concerning Pennsylvania law. Compare Adena, Inc. Cohn, F. Contini, No. July 6, Invest Almaz v.

Temple Inland Forest Prods. The NYSE reportedly settled with the group, agreeing to undertake a fresh opinion on the deal. Higgins , N. Hashimoto v. Clark, B. Diduck v. Headstart Child Dev. Frank, F. Fraternity Fund Ltd. Beacon Hill Asset Mgt. LLC, F. Tew , F. OSRecovery, Inc. Cable Corp. Highlander, No. Ohio Nov. Sompo Japan Ins. June 10, The court made a fairly obvious error.

Fraud arises from the making of a misrepresentation or the commission of some other deception, whereas aiding-abetting may involve a degree of assistance that in no way by itself deceives anyone. Anstine v. Alexander, P. Cacciola , N. There, however, counsel had an independent duty to the partnership.

Rabobank Nederland v. Westminster Bank, Nos. Schrock, P. Hall, No. Morganroth , F. Bank of America, N. The discussion here relates to the allegations in the complaint. B ANKR. In re M. Silverman Laces, Inc. Sender v. Adelphia Communications Corp. See 11 U. See Alam, supra note , at — Section provides that all legal and equitable causes of action belong to the estate, 11 U.

Alam, supra note , at — See Brown, supra note 80, at Farley v. Henson, 11 F. Bodell v. Monsen, U. Marcia L. Heckman v. Ahmanson, Cal. United Financial Corp. Rolo v. City Investing Co. Liquidating Trust, F.

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In bankruptcy, after ringleaders in upper management have been thrown out, the bankruptcy trustee not infrequently discovers that third-parties, such as suppliers, accountants or law firms, appeared to have facilitated the fraud. However, when the bankrupt corporation joined with a third party in defrauding its creditors, the trustee cannot recover against the third party for the damage to the creditors. The availability of the in pari delicto defense in the case of creditors of a bankrupt estate depends upon the jurisdiction, with the Ninth Circuit, based on equitable considerations, restricting the defense, and the Second and Third Circuits, relying on their interpretation of Section of the Bankruptcy Code, giving the defense broad sway.

Separate corporate entities in the same family of entities under common control or controlling one another may be alleged to be perpetrator and aider-abettor, respectively. However, complexities arise when some affiliates are alleged to be primarily and others secondarily responsible.

Philip A. Hunt Chemical Corp. Directors and officers of a company owe a fiduciary duty to the shareholders. Newmont Mining Corp. That shareholder, if permitted, intended to acquire a sufficient share of the company to prevent the hostile tender offeror from acquiring a controlling share. Such directors and officers have a duty to disregard that personal risk.

The entity pursuing the takeover must offer consideration to the company, not to officers at the company. In seeking to establish liability on the part of the greenmailers, shareholders have alleged that the corporate directors breached their fiduciary duty to shareholders by incurring harmful debt and by paying the price of a targeted stock repurchase. This repurchase, which the court categorized as greenmail, was financed through increased borrowing.

With the new combined borrowing, corporate debt rose to two-thirds of equity. In reviewing a lower court decision to issue an injunction, which, in effect, imposed a constructive trust on the profits of the repurchase, the court of appeals concluded that at the trial on the merits Steinberg could be held liable as an aider and abettor in the breach of fiduciary duty. These facts suggested that Steinberg knew that the actual harm to shareholders exceeded the benefits. In Gilbert v.

El Paso. Surprisingly, to outsiders, the conflict suddenly became amicable. Burlington and El Paso announced they had an agreement. A new tender offer was announced at the same price, but for fewer shares. The agreement allegedly had the effect of reducing the amount of the participation from the first to the second offer, thus denying the shareholders the premium for all shares tendered under the first offer.

The court was able to infer that several conspiracy scenarios were possible. Offering terms that afford special consideration to board members is a clear path to aider-abettor liability. When terms hold value that inures exclusively, or even disproportionately, to officers and directors, courts have not found it difficult to infer the offeror knew it was inducing a breach of fiduciary duty to shareholders.

Based on Central Bank , it has been suggested that civil aiding and abetting liability under RICO appears to be traveling a path toward extinction. The Securities Act of and the Securities Exchange Act of both contain explicit savings clauses that preserve state authority with regard to securities matters. The Texas Securities Act, for example, establishes both primary and secondary liability for securities violations.

Post- Central Bank , much of the law of aider-abettor liability is developing in state courts, including under state securities statutes. This environment likely will produce a rich, and varied, body of decisional law. In Boim v. Quranic Literacy Institute and Holy Land Foundation for Relief and Development , the court found that section can give rise to aiding and abetting liability because it provided for an express right of action for plaintiffs, and it was reasonable to infer that Congress intended to allow for aiding-abetting liability.

In early , the U. District Court for the Southern District of New York ruled on a host of motions filed by defendants in In re Terrorist Attacks on September 11, , a multidistrict proceeding consolidating actions brought by victims and insurance carriers for injuries and losses arising from the September 11, terrorist attack. Also late in , the U. Plaintiffs had alleged the bank had facilitated terrorism chiefly by 1 creating a death and dismemberment plan for the benefit of Palestinian terrorists, and 2 knowingly provided banking services to Hamas a designated terrorist organization and its fronts.

The court did conclude that for purposes of the Anti-Terrorism Act, allegations of recklessness would fall short of the statutory standard. The doctrine of civil liability for aiding and abetting warrants, and promises to receive, expansive treatment in the context of suits for personal injuries resulting from terrorism that has been assisted by its financiers and others facilitators.

Tort liability expanded during the twentieth century in large part to provide a measure of civil deterrence for defendants regarded, in isolated instances, as having put the public at risk. More generally, aiding and abetting liability is in the process of achieving broad acceptance as a doctrine uniquely suited to address wrongdoing that occurs in transactional matrices that as of the year frequently are of breathtaking complexity.

As of this writing, the larger scandals temporarily have subsided though this may well be a temporary lull preceding the demise of one or two large hedge funds. The increase in well-considered decisional law is timely. Based on apparent trends in the number of reported decisions, aiding-abetting cases are increasing in frequency. See Linde v. See generally Central Bank , U. Peoni, F. United States, U. Act of Mar. As such, under the Act, and under the law of most states, an accessory to a crime is subject to criminal liability even if the principal actor is acquitted.

Standefer , U. See generally Bird v. Lynn, 10 B. Perkins, 83 Mass. Halberstam v. Welch, F. Unocal Corp. The three-judge panel opinion shall not be cited as precedent by or to this court or any district court of the Ninth Circuit, except to the extent adopted by the en banc court.

Neilson v. Union Bank of Cal. Beck v. Prupis, U. Pittman by Pittman v. Grayson, F. Neilson , F. See Halbertstam , F. Applied Equipment Corp. Litton Saudi Arabia Ltd. See Wells Fargo Bank v. Superior Court, 33 Cal. Young, P. Burr, No. Chase Manhattan Bank, N. Bechina, N. Bacon, N. Tobacco Co. Cheshire Sanitation, Inc. Hill, N. Carter Lumber Co. March 22, ; Joseph v. Temple-Inland Forest Prods. Life Ins. Steinberg, A. Textile Corp. In re Centennial Textiles, Inc.

Mahlum, P. Mahoney, S. Leahey Constr. Harding, P. Maurice, C. April 7, ; Future Group, II v. Nationsbank, S. United Am. Bank of Memphis, 21 F. LeMaster v. Estate of Hough ex rel. Berkeley County Sheriff, S. Brown, N. Courts in three other states have held that the viability of such claims remains an open question.

See Unity House, Inc. Lehman Bros. Allen, S. Central Bank , U. Realty Mgt. Partnership v. Heritage Sav. Fauque, P. See generally Ronald M. It shall be unlawful for any person, directly or indirectly. See Robert S. C ORP. L AW , See, e. Perfectune, Inc. Cornfeld, F. Dressed Beef Co. Rosenberg, F. American Solar King Corp. Fenex, Inc. Moore v. Frost, U. Seafirst Corp. Diamanthuset, Inc. Wheeler, F. The only court not to have squarely recognized aiding and abetting in private section 10 b actions prior to Central Bank did so in an action brought by the SEC, see Dirks v.

SEC , F. See Zoelsch v. Brennan v. Midwestern United Life Ins. Zatkin v. Primuth, F. Resnick v. Sandusky Land, Ltd. Uniplan Groups, Inc. Ohio Brennan , F. In statutes such as the Commodity Exchange Act, 7 U. In contrast, in connection with Securities Exchange Act violations, it had neither in nor since employed express language to impose such liability. Central Bank, U. LTV Corp. The Court observed that on the other hand there were policy arguments in favor of aiding and abetting liability.

While commentators, supported by abundant evidence, have identified Central Bank as one factor leading to the encouragement, during the s, of misconduct by accountants and other players in the financial industry, e. P ROBS. Daniel L. See Shapiro v. Cantor, F. Wright v. Shareholders Litig. DeLeon, supra note 30, at citing Knapp v. Ernst Whinney, 90 F. Appel, F. DeLeon, supra note 30, at citing SEC v. Fehn, 97 F. Wright , F.

Home-stake Prod. In re Ikon Office Solutions, Inc. Hochfelder, U. Infinity Group Co. In re Software Toolworks, Inc. See Brockett, supra note 51, at Unicredito Italiano SpA v. Morgan Chase Bank, F. West Fin. Fiol v. Doellstedt, 58 Cal. Superior Ct. See Conley v. Gibson, U. United Parcel Service, F. See generally In re Parmalat Sec. Unocal , F. In re AHT Corp. Woodward v. Metro Bank of Dallas, F. Ronald A. Brown, Jr. See generally Javitch v. First Montauk Financial Corp.

Dema, F. Barnett Banks of Ft. Lau- derdale, F. Rolf v. May 22, , cert. Leahey , F. Dealy, F. Dubai Islamic Bank v. Citibank N. Bank v. Primavera Familienstiftung v. Askin, F. See generally Feela v. Israel, F. Resolution Trust Corp. Farmer, F. See City of Atascadero v. See Tew v. Diamanthusel, Inc. First Montauk Fin. See In re WorldCom, Inc. Commodity Futures Trading Corp. Sidoti, F. Abbott v. Equity Group, Inc.

Accessories, Inc. Fishman, F. Ryan v. There, it was alleged that a reinsurer assisted the perpetrators in deceiving investors by issuing reinsurance subject to a hidden indemnity owed to it by the insured. Diamond State Ins. Unicredito , F. Rolf , F. Crowe v. Henry, 43 F. Cohen, A. Liberty Sav. Bank, FSB v. Webb Crane Serv. July 27, Bonilla v. Trebol Motors Corp. Partners, L.

Wedbush Morgan Sec. See S. See Calcutti v. SBU, Inc. Austin v. Kaufman v. Cohen, N. See McDaniel v. Pepsi-Cola Bottling Co. McDaniel , F. Cromer Finance Ltd. Berger, F. NY LIT Am. Bachler, F. See Primavera Familienstifung v. Supp 2d S. See generally , Bondi v. Citigroup, Inc. Law Div. AmeriFirst Bank v. Bomar, F. Casey v. Bank Assoc. Townson, A. Chappell, Nos. Nellhaus, N. Standard Fed. Bank, Nos. May 12, ; Witzman v. When I discussed aiding and abetting breach of fiduciary duty claims in Pennsylvania, I noted that the first time an aiding and abetting claim in this context was recognized in Pennsylvania was by the Pennsylvania Superior Court in Potok v.

Rebh , WL Pa. One of the reasons the claim failed was because the plaintiff did not sufficiently show that the purchaser had actual knowledge of the breach. Given that the case at that point was past the discovery phase, simply claiming that the purchaser knew about the breach was not going to be enough. In order for his aiding and abetting claim to be successful, the minority shareholder had to come to the table with actual evidence obtained before or during discovery that showed the purchaser knew about the breach.

In other words, as the kids say today, the plaintiff had to show receipts. But the Delaware decision also suggests Pennsylvania requires a higher showing of knowledge than Delaware does. In Jacobs v. Meghji , WL Del. The company, IEA, a publicly held infrastructure construction company, was facing a severe liquidity crisis and retained an investment bank to find additional investors. According to the court, under Delaware law, a plaintiff alleging a claim of aiding and abetting a breach of fiduciary duty must show that the aider and abettor had actual or constructive knowledge that their conduct was unlawful.

It found none. The court was not persuaded. Potok only spoke of actual knowledge.