The Risks Lawyers Face from Aiding and Abetting and Civil Conspiracy Claims
By Daniel E. Tranen
Lawyers generally think that their only liability risk comes from making mistakes in their representation of clients. They think that so long as their representation of the client is negligence-free, no one is going to sue them based upon the legal work performed for that client. Think again.
More and more often lately, lawyers are being sued along with their clients, and sometimes instead of their clients, for aiding their clients in some venture which a third party believes amounts to a tort or a breach of a fiduciary duty. Two similar common law tort claims are used for this attack: civil aiding and abetting and civil conspiracy. Together these causes of action are commonly referred to as “in-concert liability claims.” There are a variety of ways that lawyers can be exposed to such claims, particularly if they are not thinking of this type of third-party exposure when they provide legal services to their clients.
In this article, I will discuss the nature of in-concert liability claims, how to spot situations that can expose a lawyer to these claims, what defenses are available to lawyers who may by subject to this type of liability, and whether there is insurance coverage for such claims.
I. What are these claims?
Aiding and abetting and conspiracy claims find their roots in criminal law. In the civil context, they lead to liability for those who help other actors or a main actor (usually for lawyers it is the client) to commit some tort against a third party. In practice, this often involves a claim that the lawyer helped the client either commit a fraud on a third party or breach some duty (usually a fiduciary duty) to a third party.
When brought against lawyers, these in-concert liability claims, in most jurisdictions, involve the following elements: (1) a duty owed by the client to a third party; (2) that the lawyer is aware of the duty owed by the client to the third party; (3) that the client breaches that duty and/or commits a tort against that third party; (4) that the lawyer is aware of the breach and/or tort committed by the client; (5) that the lawyer assists the client in committing the tort and/or breach; and (6) that the third party suffers some damage.
This may seem like a difficult set of elements to establish against a lawyer who is simply providing typical legal services to a client. However, as explained below, lawyers who focus only on their client’s needs, desires, and expectations, without looking at the consequences of what is being accomplished, and in particular, how those services or that conduct affects third parties, can step into a mine field of liability from these in-concert liability claims.
II. How are these claims manifested in a lawyer’s representation of a client?
There are two main contexts in which a lawyer can be caught up in an in-concert liability claim based upon legal services provided to a client. The first is the claim that the lawyer aided the client in committing a tort (usually fraud) on the third party. The second is the claim that the lawyer aided the client, or even caused the client, to breach a fiduciary duty to the third party. The former context is the circumstance in which courts, relying on the Restatement (Second) of Torts, have typically envisioned application of in-concert liability for lawyers. The second context is where most lawyers are actually sued for in-concert liability – and it is usually the more difficult circumstance for lawyers to foresee and avoid.
Thornwood v. Jenner & Block, 344 N.E.2d 15 (Ill.App. 2003) provides a classic example of an in-concert liability claim against a lawyer in the context of a fraud claim. In that case, Jenner & Block was alleged to have aided one partner in the purchase a partnership interest from another partner. At that time, unbeknownst to the selling partner, the purchasing partner was negotiating a deal which was about to make the partnership very valuable. Jenner & Block was accused of aiding the purchasing partner in the negotiation while knowing that the selling partner had no knowledge of this impending deal. The lawyer participated in the transaction including counseling the purchasing partner and drafting all of the documents. The Illinois Court of Appeals, in overturning dismissal on a motion to dismiss, held that these alleged acts constituted knowing substantial assistance, which was sufficient to state a claim for aiding and abetting the alleged fraud committed by the purchasing partner.
If the allegations against Jenner & Block were true, the lawyer would be facing liability for performing legal services that lawyers perform for clients every day. The key for the establishment of in-concert liability was the contention that the lawyer understood that the conduct of the client was tortious, but that the lawyer helped the client with her conduct anyway. The takeaway from this case is that lawyers do not provide legal services in a vacuum. Lawyers are responsible for understanding how their clients are using their legal services and whether others might be defrauded or injured in some other way by the client’s use of those legal services. This liability could exist for the lawyer even though the lawyer may never have had any actual direct contact or involvement with the third party.
The more common use of in-concert liability claims against a lawyer is in the context of aiding and abetting a breach of fiduciary duty. To state a claim against a lawyer, the key is for the plaintiff to demonstrate that the lawyer represented a fiduciary to the plaintiff and that the fiduciary/client used those legal services to breach a fiduciary duty owed to the plaintiff. Again, the key element is the lawyer’s knowledge that her legal services are being used in a way that allows the fiduciary to harm the plaintiff.
The Massachusetts case of Kurker v. Hill, 44 Mass.App.Ct 184 (1998) provides a typical example of an aiding and abetting a breach of fiduciary duty claim. In that case, there was a dispute between the shareholders of a closely held company. The majority shareholders were accused of “freezing out” a minority shareholder by selling the company to another company owned by several of the majority shareholders at a price that was below market value. Each event, which allowed the “freeze out” to occur, was allegedly orchestrated by lawyers for the majority shareholders. When the minority shareholder sued, his lawsuit included counts against the lawyers. While the court refused to impute direct liability for breach of fiduciary duty by the attorneys to the minority shareholder, the court did find that a claim could be stated against the lawyers for aiding and abetting and conspiracy based upon the substantial assistance allegedly provided by the lawyers to bring about the transaction. Again, the key alleged element was the lawyer’s alleged knowledge that the majority shareholders were breaching duties owed to the minority shareholder while the lawyer documented the transaction.
Another typical area in which lawyers face exposure from third parties for aiding and abetting a breach of fiduciary duty is in the representation of debtors who owe fiduciary duties to creditors. By helping the debtor prepare a trust or some other vehicle to hide or protect assets from creditors, who are owed a fiduciary duty, a lawyer may be accused of substantially assisting the debtor in breaching fiduciary duties owed to a creditor. Here as well, to the extent that the lawyer understands, or should understand, that her aid to the debtor causes the debtor to breach fiduciary duties to a creditor, the elements for in-concert liability will have been met.
III. How can a lawyer avoid liability for these claims?
A number of jurisdictions have common law protections for attorneys that can shield them from aiding and abetting claims. These cases say, as a general matter, that attorneys are privileged to perform honest legal services for their clients and they are protected as a matter of public policy from liability arising out of the those honest legal services. The theory underlying these cases is the concern that if attorneys are worried about being sued by third parties for representing their clients, then attorneys cannot be effective advisors and advocates for their clients. These cases are typically older than the cases that allow in-concert liability claims against attorneys, and therefore, while they should be used to respond to such claims, these cases may or may not be persuasive to a reviewing court. Of course, the question of whether an attorney who aids a client to commit a tort is performing honest legal services that public policy would wish to protect could be another weakness to this argument.
Another defense, which is particular to claims against attorneys for aiding and abetting a breach of fiduciary duty, looks at the origins of this cause of action in the Restatement (Second) of Torts. The relevant section (section 876) focuses the cause of action only on underlying torts. In other words, to state a claim for in-concert liability, there must be an underlying tort that was aided by the defendant. To the extent that the client is not alleged to have committed a tort, but instead breached a fiduciary duty (which is typically not considered to be a tort claim, but a contract claim) or some other non-tort activity, like aiding a debtor in an asset transfer when insolvent, a lawyer will have the argument that the elements for an in-concert liability claim have not been stated.
The best defense to these types of claims is for lawyers to keep their eyes open. Lawyers should consider the consequences of the legal services they provide and the goals of their clients. If those goals, assisted by the attorney’s legal services, would amount to the commission of a tort or a breach of fiduciary duty to others, the client should be counseled against implementing such a plan. If the client persists, the lawyer should strongly consider withdrawal from representation of the client.
IV. Are these claims covered?
In-concert liability claims are not typical errors and omissions claims and may not fall within the coverage offered by the typical professional liability policy. Moreover, because most in-concert liability claims involve an element of knowledge by the attorney, insurance companies may view these causes of action to be intentional torts. The facts of the claim should be scrutinized carefully, particularly for claims of aiding and abetting torts, like fraud, where intent is a key element. Since most policies contain exclusions for intentional torts, insurers may take the position that not only are such claims not covered for indemnity purposes, but there is no duty to defend as well. In the end, the specific facts alleged and the policy language will determine whether a particular claim against a lawyer for in-concert liability amounts to a covered claim.
Daniel E. Tranen is partner in the Boston office of Hinshaw & Culbertson LLP. His practice focuses on the defense of lawyers, insurance companies and pharmaceutical and medical device manufacturers.
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