Culpable Participation in Fiduciary Breach

Authors

Deborah A. DeMott, Duke Law SchoolFollow

Document Type

Chapter of Book

Publication Date

2016

Abstract

This essay makes a case for the salience of tort law to fiduciary law, focusing on actors who culpably participate in a fiduciary's breach of duty, whether by inducing the breach or lending substantial assistance to it. Although the elements of this accessory tort are relatively settled in the United States, how the tort applies to particular categories of actors-most recently investment bankers who serve as M&A advisors-provokes controversy. The paper also explores the less developed terrain of primary actors who breach governance duties that are not fiduciary obligations because the entity's organizational documents eliminate fiduciary duties, as Delaware law permits for LLCs and partnerships. When an accessory actor induces or otherwise assists a primary actor's breach of a non-fiduciary governance obligation, the accessory tort likely to be relevant is wrongful interference with contract.

The essay notes parallels and overlaps that connect wrongful interference to culpable participation in a fiduciary's breach. Both are intentional torts for which liability turns on whether an actor in some fashion chose to participate in another actor's breach of duty, as well as whether the secondary actor acted with knowledge of the primary actor's duty and made a causally significant contribution to the breach. Both torts illustrate the foundational significance of duty within tort law: actors subject to liability on accessory theories do not owe duties that replicate those of the primary wrongdoer, who is linked by contract or a fiduciary relationship to the beneficiary. By committing an intentional tort, accessory actors breach duties they themselves owe.

Framed within the ambit of tort law more generally, the outcomes in controversial M&A cases do not represent departures from well-established doctrine. These cases do help illustrate what's distinctively wrongful about lending substantial (and knowing) assistance to another actor's breach of duty. The accessory tortfeasors in the essay represent inversions of a well-known set of actors in tort doctrine, rescuers. Rescuers intervene as strangers to a situation in which another is in peril with the objective of preventing harm or mitigating its consequences for the person in peril. Like reflected figures in a warped mirror, the essay's accessory wrongdoers choose to intervene in situations in which one actor owes a duty to another but, if the intervention succeeds, the person to whom the primary was duty is left worse off than had the accessory had not caused the breach of the underlying or primary duty.

Citation

Deborah A. DeMott, Culpable Participation in Fiduciary Breach, in Research Handbook on Fiduciary Law (D. Gordon Smith & Andrew S. Gold, eds. (forthcoming))