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Eighth Circuit Sheds Light on Difficulty of Proving Aiding and Abetting via Circumstantial Evidence

February 25, 2019
Minnesota Lawyer and Finance & Commerce - Partner Content
Author: Steven M. Phillips

Aiding and abetting occurs when a person or entity helps another person or entity commit a prohibited act. Unlike conspiracy, which requires an agreement, an aider and abettor can be liable for simply providing assistance.

With the proliferation of Ponzi schemes and other financial frauds in the market run up following the recession of 2008, courts in Minnesota and elsewhere have ruled on the issue of when and under what circumstances third parties may be liable for aiding and abetting the fraudsters. Minnesota federal district court rulings and a recent Eighth Circuit decision demonstrate the heavy burden faced by a plaintiff pursuing aiding and abetting claims in the absence of direct evidence of knowing participation in the wrongdoing.

Under Minnesota law, a plaintiff must show three things to hold a defendant liable for aiding and abetting a tort: first “the primary tortfeasor must commit a tort that causes an injury to the plaintiff,” second, “the defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty,” and third “the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach.” Zayed v. Associated Bank, N.A. (“Zayed I”), 779 F.3d 727, 733 (8th Cir. 2015) (quoting Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179, 187 (Minn. 1999)).

A defendant’s “knowledge that the primary tortfeasor’s conduct constitutes a breach of . . . duty is a ‘crucial element’ of a claim for aiding and abetting.” In re Petters Co., Inc., 565 B. R. 154, 167 (Bankr. D. Minn. 2017 (citing Varga v. U.S. Bank Nat’l Ass’n, 764 F.3d 833, 839 (8th. Cir. 2014). In Minnesota, the scienter (i.e., knowledge) requirement for aiding and abetting is “actual knowledge.” Varga v. U.S. Bank Nat. Ass’n, 952 F. Supp.2d 850, 857 (D. Minn. 2013), aff’d, 764 F.3d 833 (8th Cir. 2014) (applying Minnesota law). While knowledge may be shown by circumstantial evidence, Minnesota courts have stressed that the evidence must show that aider and abettor “actually knew” of the “wrongfulness” of the underlying tortious conduct. Id. at 857-858 (quoting Wiand v. Wells Fargo Bank, N.A., 938 F. Supp.2d 1238, 1244 (M.D. Fla. 2013) and citing Camp v. Dema, 948 F.2d 455, 459 (8th Cir. 1991)). Read more.

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