Opinion ID: 1195176
Heading Depth: 2
Heading Rank: 4

Heading: legal sufficiency of the claim

Text: 14. While we believe New Mexico has implicitly endorsed tort liability for intentionally causing a fiduciary to breach his or her duties, we now explicitly recognize this form of tort liability. We note that in some states, it is still unclear whether there is aiding and abetting tort liability of the kind set forth in [Section] 876(b) of the Restatement [(Second) of Torts (1979) ]. Central Bank v. First Interstate Bank, 511 U.S. 164, 181-82, 114 S.Ct. 1439, 1450, 128 L.Ed.2d 119 (1994) (holding that Section 10(b) of the Securities Exchange Act of 1934 does not provide a private civil action for aiding and abetting, relying on the text of the statute and congressional intent). Nonetheless, New Mexico recognizes tort liability for aiding and abetting another's tortious conduct. 15. This Court has cited with approval the notion that a person is under a duty to refrain from intentionally causing another to violate a duty to a third. Wolf & Klar Cos. v. Garner, 101 N.M. 116, 118, 679 P.2d 258, 260 (1984) (quoting Restatement (Second) of Agency § 312 cmt. a (1958)) (referring to Restatement (Second) of Torts § 871 (1979)). Where one participates with or aids or abets an agent in an act which perpetrates a fraud upon the principal, he is equally liable with the agent to the principal for any damages suffered. Wolf & Klar, 101 N.M. at 118, 679 P.2d at 260 (allowing a claim for constructive fraud). In addition, New Mexico has adopted Restatement (Second) of Torts Section 876, which recognizes the liability of third persons for the tort of another if the person knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself. Rael v. Cadena, 93 N.M. 684, 684-85, 604 P.2d 822, 822-23 (Ct.App.1979) (allowing an action for battery against one who yelled encouragement to the primary tortfeasor); accord Halberstam v. Welch, 705 F.2d 472, 481 (D.C.Cir.1983) (discussing aiding and abetting liability in tort and citing Rael as an example of its application); Alleco v. Harry & Jeanette Weinberg Found., Inc., 340 Md. 176, 665 A.2d 1038, 1049-50 (1995). Thus, it is clear that tort liability for aiding and abetting a tortious action exists in New Mexico. However, New Mexico courts have not directly addressed the question of whether a person can be liable to an injured party for intentionally causing another to breach a fiduciary duty. 16. The Restatement has taken the position that liability should attach for intentionally causing another to breach a fiduciary duty. Restatement (Second) of Torts § 874 cmt. c (referencing Section 876). In addition, courts in other states have allowed such a cause of action. See, e.g., Holmes v. Young, 885 P.2d 305, 308-09 (Colo.Ct.App.1994) (applying aiding and abetting a breach of fiduciary duty to a partnership situation and citing Rael ); Morris v. Consolidation Coal Co., 191 W.Va. 426, 446 S.E.2d 648, 657 (1994) (recognizing the liability of a third party to a patient under Section 874, comment c, for inducing the patient's physician to breach his fiduciary relationship by disclosing confidential information). Finally, this Court has demonstrated a willingness to recognize new causes of action in tort based on intentional wrongful conduct. Coleman v. Eddy Potash, Inc., 1995 NMSC 070, 120 N.M. 645, 649, 905 P.2d 185, 189 (recognizing intentional spoliation of evidence); Schmitz v. Smentowski, 109 N.M. 386, 394, 785 P.2d 726, 734 (1990) (recognizing prima facie tort). Because the duty involved in a fiduciary relationship cannot be distinguished from other tort duties in this context, New Mexico's recognition of aiding and abetting liability logically extends to a breach of fiduciary duty. 17. Therefore, we today hold that New Mexico recognizes tort liability for the aiding and abetting of a breach of fiduciary duty. In order to state such a claim, a plaintiff must allege and prove the following: (1) a fiduciary of the plaintiff breached a duty owed to the plaintiff; (2) the defendant knew of such a duty; (3) the defendant intentionally provided substantial assistance or encouragement to the fiduciary to commit an act which the defendant knew to be a breach of duty; and (4) damages to the plaintiff were caused thereby. Cf. Holmes, 885 P.2d at 309. 18. An injured party need not have a direct relationship with the third party against whom liability is sought as an aider and abettor. See Rael, 93 N.M. at 684, 604 P.2d at 822 (stating that liability extends to any person who by any means aids or encourages the act) (emphasis added); cf. Wilschinsky v. Medina, 108 N.M. 511, 515, 775 P.2d 713, 717 (1989) (recognizing a duty on the part of a physician to an unrelated third party injured by the physician's patient); Holmes, 885 P.2d at 309 (The gravamen of a claim of aiding and abetting a breach of fiduciary duty is the defendant's `knowing participation' in the fiduciary's breach of trust....). Rather, the injured party must have a fiduciary relationship with the principal tortfeasor, and the third party must occupy the role of an accomplice in relation to the principal tortfeasor. Thus, tort liability for aiding and abetting is consistent with one of the principal goals of tort law, the deterrence of wrongful actions that result in harm. See Folz v. State, 110 N.M. 457, 467, 797 P.2d 246, 256 (1990) (Under our fault system, there is a policy of deterrence associated with responsibility for compensatory damages.). We now address whether GCM has alleged sufficient facts to support the first element of aiding and abetting a breach of fiduciary duty.
19. In order to allege sufficient facts to support this cause of action, GCM must demonstrate both the existence of a fiduciary relationship between GCM and Brown and Brown's breach of a fiduciary duty owed to GCM. In New Mexico, a partner cannot assert claims belonging to the partnership. [A] partnership is empowered to sue or to be sued in the name of the partnership, and a cause of action accruing to the partnership, for damages to partnership property or interests, belongs to the partnership rather than to individual partners. First Nat'l Bank v. Sanchez, 112 N.M. 317, 325, 815 P.2d 613, 621 (1991) (citations omitted). While it is clear that Brown owed a fiduciary duty to the Limited Partnership, NMSA 1978, § 54-1-21(A) (1947, effective until July 1, 1997), [1] the only real party in interest to properly assert such a claim would be the partnership entity. Only the injured party may assert a claim for aiding and abetting or intentionally causing another to breach a fiduciary duty. Rule 1-017(A) NMRA 1997 (stating that [e]very action shall be prosecuted in the name of the real party in interest). Thus, under the applicable law, only the Limited Partnership could sue for damages caused by intentionally inducing a breach of a partner's fiduciary duty owed to the partnership. As a result, in order to assert this action in its individual capacity, GCM must demonstrate a fiduciary duty on the part of Brown owed to GCM separately from Brown's duty to the Limited Partnership. 20. An action for breach of fiduciary duty by a partner can be characterized as both an individual and a partnership claim. 4 Alan R. Bromberg & Larry E. Ribstein, Bromberg and Ribstein on Partnership § 15.04(h), at 15:35-36 (1996). The distinction between the two is based on whether the duty is deemed owed to the partners (as individuals) or to the partnership. Id. (footnote omitted). While there is a statutory fiduciary duty imposed on partners with respect to the partnership, Section 54-1-21(A), the legislature has only recently included an explicit concurrent duty with respect to other partners. See NMSA 1978, § 54-1A-404 (effective July 1, 1997) (modifying the earlier law and defining the scope of fiduciary duties a partner owes to the partnership and to the other partners); § 54-1A-405(b)(2)(i) (effective July 1, 1997) (permitting an action by a partner against another partner for breach of fiduciary duty, with or without an accounting and for either legal or equitable relief). However, the controlling statute does not appear to preclude such an obligation if it arises under common law principles. See NMSA 1978, § 54-1-5 (1947) (In any casenot provided for in this act the rules of law and equity, including the law merchant, shall govern.). In fact, the controlling statute implicitly recognizes such a duty by providing to individual partners a right to a formal accounting based on Section 54-1-21 or whenever other circumstances render it just and reasonable. NMSA 1978, § 54-1-22 (1947). 21. In addition, this Court has recognized a fiduciary duty existing between partners in a partnership. It is true that partners occupy a fiduciary duty towards one another. Citizens Bank v. Williams, 96 N.M. 373, 375, 630 P.2d 1228, 1230 (1981); see also Covalt v. High, 100 N.M. 700, 702, 675 P.2d 999, 1001 (Ct.App.1983) (The status resulting from the formation of a partnership creates a fiduciary relationship between partners.). Further, this Court has recognized the availability of damages for fraud by a partner against another partner in an equitable action for an accounting. Levy v. Disharoon, 106 N.M. 699, 703-04, 749 P.2d 84, 88-89 (1988) (distinguishing actions at law from an equitable action for an accounting and stating that [w]hen there is a partnership accounting and defendant is charged with fraud and misconduct, defendant is answerable in that proceeding for all damages sustained by plaintiff on account of defendant's breach of duty to the firm); see also Bassett v. Bassett, 110 N.M. 559, 564-65, 798 P.2d 160, 165-66 (1990) (allowing punitive damages and attorney fees against one partner for the breach of fiduciary duty owed another partner in an action based on constructive fraud); cf. Turpin v. Smedinghoff, 1994 NMSC 052, 117 N.M. 598, 600-01, 874 P.2d 1262, 1264-65 (limiting the holding of Bassett with respect to attorney fees to a breach of fiduciary duty resulting from constructive fraud that causes actual harm or when one partner sues in order to maintain the common fund). It follows from the general requirement of good faith in partnership dealings that a partner is not allowed to gain any advantage over a co-partner by fraud, misrepresentation or concealment, and for any advantage so obtained [the partner] must account to the co-partner. Levy v. Disharoon, 106 N.M. at 704, 749 P.2d at 89. 22. Under the applicable statute, it is unclear whether a partner may obtain redress from a co-partner for a breach of fiduciary duty owed to the partner by the co-partner before dissolution. See generally Nussbaum v. Kennedy, 267 Ill.App.3d 325, 204 Ill.Dec. 689, 693, 642 N.E.2d 151, 155 (1994); Dunn v. Zimmerman, 69 Ohio St.3d 304, 631 N.E.2d 1040, 1043-44 (1994). While the Limited Partnership has not been dissolved, this case does not present a dispute between partners in an existing partnership. Rather, this is an action against a third party non-partner. For purposes of this case, we will assume that an aider and abettor may be liable in tort independent of a judicial proceeding against the principal tortfeasor. Cf. NMSA 1978, § 30-1-13 (1972) (discussing the criminal liability of an accessory despite any failure to prosecute or convict the principal of the crime). 23. The tort of aiding and abetting will apply in a partnership context if: (1) a partner owes a fiduciary duty to the partnership or partner bringing the action; (2) the partner breaches that duty; (3) the third-party defendant intentionally assists or encourages in a substantial manner the partner's acts constituting the breach with knowledge that these acts would be a breach of duty owed to the plaintiff; and (4) damages to the plaintiff result. See Holmes, 885 P.2d at 309 (We perceive no reason why the tort of aiding and abetting a breach of fiduciary duty should not be recognized in a limited partnership situation.). This principle ought to apply equally to joint ventures. Cf. Hansler v. Bass, 106 N.M. 382, 387, 743 P.2d 1031, 1036 (Ct.App.1987) (finding the definition of partnership relevant in determining the existence of a joint venture, and stating that a joint venture is a partnership for a single transaction). However, the scope of a tort duty is a matter of law. Calkins v. Cox Estates, 110 N.M. 59, 62, 792 P.2d 36, 39 (1990) (The court must determine as a matter of law whether a particular defendant owes a duty to a particular plaintiff.). Whether a partner owes a fiduciary duty to another partner or the partnership, the scope of that duty is limited to partnership dealings. Cf. § 54-1-21(A) (limiting the scope of a partner's fiduciary duty to the partnership to any transaction connected with the formation, conduct or liquidation of the partnership or from any use by him of its property); Kueffer v. Kueffer, 110 N.M. 10, 13, 791 P.2d 461, 464 (1990) (A fiduciary is obliged `to act primarily for another's benefit in matters connected with such undertaking. ') (quoting Black's Law Dictionary 563 (5th ed. 1979)) (emphasis added). Finally, in order to constitute an individual claim, as opposed to a partnership claim, the breach must cause an injury separate and distinct from an injury suffered by the partnership. Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15 (Del.Ch.1992). Thus, a partner's individual action for aiding and abetting against a third party must be founded on a co-partner's failure to act primarily for the benefit of the partner bringing the action, arising out of matters connected with the partnership, and causing a direct injury to the partner rather than an indirect injury through the partnership.
24. Our cases suggest that Brown, as the principal of the general partner in the Limited Partnership, owed a fiduciary duty to the Joint Venture, as a limited partner. Additionally, we assume that Brown, as a joint venturer in the Joint Venture, owed a fiduciary duty to GCM, as a co-joint venturer in the Joint Venture. As a result, the aiding and abetting of a breach of fiduciary duty by Brown is potentially a claim upon which relief can be granted both for Brown's conduct on behalf of the Limited Partnership and, independently, for Brown's conduct on behalf of the Joint Venture. Nevertheless, this cause of action must be prosecuted by the real party in interest with respect to the breach of duty. Rule 1-017(A). 25. While Brown owed a duty to GCM as a joint venturer in connection with Joint Venture dealings, he did not owe a duty to GCM in the dealings of the Limited Partnership. Rather, in his dealings on behalf of the Limited Partnership, Brown owed a fiduciary duty to the Limited Partnership and to his other partners, including the Joint Venture. 26. The nature of the relief requested and the breach of duty alleged are important indicators of the specific duty at issue. Cf. Litman, 611 A.2d at 15 (stating that in determining whether a claim is derivative or direct in nature, [one] must look to the nature of the wrongs alleged in the body of plaintiffs' complaint, not plaintiffs' characterization or stated intention). In its complaint, GCM alleged that Brown breached a fiduciary duty when he acquiesced to Kentucky Central's pressure to deed the Real Property to Kentucky Central and to purportedly release lender liability claims against Kentucky Central ... without providing any consideration to GCM. 27. The real property and lender liability claims were owned solely by the Limited Partnership. As a result, with respect to their disposition and the distribution of profits, Brown owed a fiduciary duty to the Limited Partnership and to the Joint Venture, as a limited partner; however, Brown did not owe a fiduciary duty to GCM in its individual capacity as a joint venturer. Brown only owed a fiduciary duty to GCM, as a joint venturer, in the dealings of the entity known as the Joint Venture. GCM did not complain of improper actions taken by Brown in the dealings of the entity known as the Joint Venture. A claim for aiding and abetting a breach of fiduciary duty requires an underlying breach of a fiduciary duty owed to the plaintiff by the principal tortfeasor. GCM failed to allege a breach of fiduciary duty owed to GCM by Brown. Thus, GCM, as a joint venturer, is not the real party in interest to pursue an action for breach of a fiduciary duty by Brown in relation to the dealings of the entity known as the Limited Partnership or, consequently, for aiding and abetting that breach. See Daniels Ins., Inc. v. Daon Corp., 106 N.M. 328, 331, 742 P.2d 540, 543 (Ct.App.1987) (A real party in interest is one who is the owner of the right being enforced and is in a position to discharge defendant from the asserted liability.); Rule 1-017(A) (requiring that the real party in interest initiate the action). Because GCM failed to allege sufficient facts to support the first element of aiding and abetting, we need not address the adequacy of GCM's allegations regarding Kentucky Central's knowledge of duty and substantial encouragement or assistance of a breach of duty. We therefore conclude that summary judgment in favor of Kentucky Central was proper.