Aiding and abetting breach of fiduciary duty

In Ahmad v. Bank of Whittier, a party sued a bank for aiding and abetting a breach of fiduciary duty by assisting plaintiff’s attorney to improperly deposit settlement funds. No. 05-21-00058-CV, 2022 Tex. App. LEXIS 2987 (Tex. App.—Dallas May 4, 2022, no history). The trial court granted summary judgment for the defendant and the plaintiff appealed. The appeals court initially suggested that there was no aiding and abetting of breach of fiduciary duty under Texas law, citing an earlier opinion: Hill v. Keliher, no. 05-20-00644-CV, 2022 Tex. App. LEXIS 502, 2022 WL 213978, at *10 (Tex. App.—Dallas January 25, 2022, pet. filed). Curiously, the court completely ignored the precedent in Texas that there is knowing participation in the breach of fiduciary duty in Texas. Nevertheless, the court then discussed whether UCC Section 3.307 created a cause of action and correctly concluded that it did not. The court also held that the bank had no knowledge of a breach of fiduciary duty:

“Furthermore, Section 3.307 does not set forth a separate cause of action for aiding in the commission of a fiduciary breach. See Tex. Bus. & Com. Code Ann. § 3.307; In re Conex Holdings, LLC, 514 BR 405, 415 (Bankr. D. Del. 2014) (op. mem.) (Section 3.307 does not appear to provide for breach of fiduciary claim) But see, Quilling v. Compass Bank, No. 3:03- CV-2180-R, 2004 US Dist LEXIS 18811, 2004 WL 2093117, *7-8, *8 n.19 (ND Tex. Sept. 17, 2004) (unpublished op memo and order) (determining whether the bank had received a notice of breach of fiduciary duty) obligation under Section 3.307 to support a claim for aiding and abetting and noting that while the Texas courts have not recognized such a claim, the Texas courts recognized that one who “knowingly aids and assists in the violation” is considered a joint tortfeasor and is liable for Instead, Section 3.307 sets out the requirements for determining qua nd “the lessee” of a fiduciary instrument has knowledge that a breach of fiduciary duty has occurred as a result of the transaction. Texas Bus. & Com. Ann.Code § 3.307 cmt. 1. If the lessee is aware of the breach, he cannot claim to be the bearer in due time in defense against a claim under article 3.306.4Link to the text of the note Id. cmt. 2. For the specific notification rules to be implied in respect of an instrument payable to the represented person (here Amini), three conditions must be met: (1) the instrument must be taken from a trustee for payment, collection or against value ; (2) the lessee must be aware of the trustee’s fiduciary status; and (3) the person represented must claim the instrument or its proceeds on the ground that the fiduciary’s transaction constitutes a breach of fiduciary duty. Texas Bus. & Com. Ann.Code § 3.307(b).

Even assuming Section 3.307 gives rise to a cause of action for aiding another person in breach of fiduciary duty, there is no evidence that the Bank, as payee, had knowledge of Khaleeq’s fiduciary status. . Although Khaleeq was a member of the community and an active client of the Bank and although the Bank knew that Khaleeq was a lawyer and therefore, as the appellants argue, a trustee of someone, there is no evidence that the Bank knew that Amini was Khaleeq’s client. Without knowing that Amini was Khaleeq’s client, the Bank could not have known that Khaleeq owed a fiduciary duty to Amini.

Sworn testimony from the three Bank employees established that the Bank did not know Amini, did not know of Amini’s relationship with Khaleeq or his law firm, and did not know that Khaleeq was committing wrongdoing by depositing the checks. on behalf of his law firm. The appellants’ response that the bank knew Khaleeq was a lawyer, knew the check was for medical benefits for Amini, and knew Khaleeq was depositing the check in his company’s account did not raise a genuine issue of material fact as to whether the bank knew Amini was Khaleeq’s client and that a fiduciary relationship existed. Therefore, the trial court did not err in granting the Bank’s summary judgment on Amini’s claim for substantially assisting Khaleeq in a breach of fiduciary duty.”


Lance B. Holton