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.

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Photo of David Fowler Johnson David Fowler Johnson

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David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

David’s financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law ReviewSt. Mary’s Law JournalSouth Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law