While the plaintiff-corporation’s directors were allegedly looting the corporation (Zloop) for personal benefit, their fraud benefitted Zloop by allowing it to temporarily remain in business and to obtain franchises and lines of credit; as such, the directors’ acts are imputed to Zloop as a matter of law (pursuant to the Delaware and New York approach, which the court predicts the North Carolina Supreme Court would adopt). The directors’ alleged intentional and criminal conduct was at least equal to, if not substantially more egregious, than the alleged conduct of the defendant-law firm and the defendant-lawyers, which is based in negligence rather than in knowing and intentional misconduct or fraud. Accordingly, Zloop’s own pleading demonstrates that its legal malpractice and breach of fiduciary duty claims are barred by the doctrine of in pari delicto.
The court grants defendants’ motion for judgment on the pleadings.
North Carolina has not recognized the claim of aiding and abetting breach of fiduciary duty. Were the North Carolina Supreme Court to recognize such a claim, the court predicts that it would adopt the elements set out in the Restatement (Second) of Torts § 876(b). Zloop has failed allege one of those elements: substantial assistance by the aider and abettor in the achievement of the primary violation.
Zloop does not allege or suggest facts that the law firm encouraged, was directly involved in, or otherwise substantially assisted the directors in their breaking escrow leading up to a securities offering, siphoning an investor’s funds for personal use, or filing a fraudulent UCC-1. The lack of allegations regarding defendants’ direct participation in the underlying frauds likely compels a finding that Zloop’s allegations of defendants’ wrongs do not constitute substantial assistance.
Zloop, Inc. v. Parker Poe Adams & Bernstein, LLP (Lawyers Weekly No. 020-017-18, 45 pp.) (James Gale, C.J.) Gavin Reardon, Amiel Rossabi, James Gibson and Charles Kreamer for plaintiff; Robert Fuller and Stuart Pratt for defendants. 2018 NCBC 16