August 14, 2002

In an opinion filed on August 2, 2002, Division One of the Second Appellate District of the California Court of Appeal held that a non-fiduciary cannot be held liable for conspiring to breach a fiduciary duty owed by a fiduciary. Everest Investors 8, LLC v. Whitehall Real Estate Limited Partnership XI.

FACTS
The plaintiff in Everest was a limited partner in several limited partnerships. Everest alleged that the defendant, Whitehall Real Estate Limited Partnership XI, a non-partner in the partnerships, conspired with the general partners to cause the partnership to sell partnership assets to Whitehall at less than their fair market value. Whitehall’s demurrer to Everest’s complaint was sustained with prejudice, and the action against Whitehall was dismissed, on the basis that Whitehall had no fiduciary relationship with the partnership or limited partners and, therefore, could not be held liable for any breach of fiduciary duty by the general partners, either directly or on a conspiracy theory.

DECISION ON APPEAL
Noting that tort liability for conspiracy presupposes that the alleged conspirator is legally capable of committing the underlying tort, the Court of Appeal affirmed the decision of the trial court.

SIGNIFICANCE OF DECISION
It would be unwise, for several reasons, to place too much reliance on the decision of the Court of Appeal in this case, at least at the present time. First, as the Court acknowledged, there is language in other decisions -- including Pierce v. Lyman (1991) 1 Cal.App.4th 1093; City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445; and Wolf v. Mitchell, Silberberg & Knupp (1999) 76 Cal.App.4th 10310 -- that is inconsistent with the Court’s analysis. Second, the only claims for relief alleged by Everest were claims for breach of fiduciary duty, unfair competition (which the Court found to be predicated on the breach of fiduciary duty claim), and constructive fraud (which also requires proof of the breach of a fiduciary duty); and the Court’s opinion was expressly based on its conclusion that that one cannot be held liable for conspiring to commit a tort with respect to which he or she cannot be held directly liable. It is possible that other theories of liability, such as conversion and fraudulent conveyance, could have been alleged. Finally, the Court acknowledged that an agent can be held liable for conspiring to commit a tort where the agent is acting for his “individual advantage.” The latter principle was, however, of no help to Everest because Whitehall was not an agent of the partnerships.

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Anna Andrews 310.201.8928
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