Third Party Liability for Aiding and Abetting Breach of Fiduciary Duty

A recent decision by the California Court of Appeals upheld liability against a third party for aiding and abetting an LLC member’s breach of fiduciary duty. In American Master Lease LLC v. Idanta Partners, Ltd., the defendants entered into an unauthorized competing agreement with non-majority members of AML, knowing that it constituted a breach of loyalty. The defendants unsuccessfully argued that liability required the existence of an independent fiduciary duty with AML. The court stated that was only one of two possible claims for aiding and abetting; the claim is also available where the defendant knows that the member’s conduct constitutes a breach of fiduciary duty and gives substantial assistance or encouragement toward the conduct. No independent fiduciary duty is required. After finding the defendants liable, the court explained the relevant statute of limitations and remedy for the violation. The statute of limitations is that of the underlying tort itself - breach of fiduciary duty - either three or four years, depending on the presence of fraud.  As for the remedy, the court held that disgorgement of profits was an appropriate. The court stated that this furthered public policy, in both preventing an individual from benefiting from his wrongful actions and acting as a deterrent for future actions.