Civil Conspiracy Claims
Can a claim for civil conspiracy may be alleged when the conspirators are officers, shareholders, or members of a defendant company?
Please note that, while this article accurately describes applicable law on the subject covered at the time of its writing, the law continues to develop with the passage of time. Accordingly, before relying upon this article, care should be taken to verify that the law described herein has not changed.
Background of Civil Conspiracy in Arizona
In Arizona, a civil conspiracy occurs when “two or more people agree to accomplish an unlawful purpose, or to accomplish a lawful object by unlawful means, causing damages.” Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 498, 38 P.3d 12, 36 (2002) (en banc) (quoting Baker v. Stewart Title & Trust of Phx., 197 Ariz. 535, 542, 5 P.3d 249, 256 (Ct. App. 2000)).
However, “there is no such thing as a civil action for conspiracy; the action is one for damages arising out of acts committed pursuant to the conspiracy, and damage for which recovery may be had in such civil action is not the conspiracy itself but the injury to plaintiff produced by specific overt acts.” Perry v. Apache Junction Elementary Sch. Dist. No. 43 Bd. of Trs., 20 Ariz. App. 561, 564, 514 P.2d 514, 517 (Ct. App. 1973) (citing Tovrea Land & Cattle Co. v. Linsenmeyer, 100 Ariz. 107, 412 P.2d 47 (1966)); see, e.g.,Baker, 197 Ariz. at 542, 5 P.3d at 256 (“A mere agreement to do a wrong imposes no liability; an agreement plus a wrongful act may result in liability.” (quotations omitted)); Restatement (Second) of Torts § 876(a) (1979) (“For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he . . . does a tortious act in concert with the other or pursuant to a common design with him[.]”); Compton v. Ide, 732 F.2d 1429, 1433 (9th Cir. 1984) (“It is the wrongful act, not the conspiracy, which is actionable in a civil case.”).
Concisely, “liability for civil conspiracy requires that two or more individuals agree and thereupon accomplish ‘an underlying tort which the alleged conspirators agreed to commit.’” Wells Fargo, 201 Ariz. at 498, 38 P.3d at 36 (quoting Baker, 197 Ariz. at 545, 5 P.3d at 259). In other words, “[t]o establish liability on the basis of conspiracy, a plaintiff must show by clear and convincing evidence that the defendant and at least one other person agreed to accomplish an unlawful purpose or a lawful purpose by unlawful means, and accomplish[ed] the underlying tort, which in turn caused damages.” Dawson v. Withycombe, 216 Ariz. 84, 103, 163 P.3d 1034, 1053 (Ct. App. 2007).
As a further deterrent, “a conspirator is liable for any tortious act, even unknown, committed in furtherance of the conspiracy, including acts not personally committed.” Baker, 197 Ariz. at 542, 5 P.3d at 256 (citations omitted). Moreover, Arizona law makes it unnecessary for all members in a conspiracy to be joined as defendants in order for one member to be found liable. citing Rowland v. Union Hills Country Club, 157 Ariz. 301, 306, 757 P.2d 105, 110 (Ct. App. 1988). Thus, not only will a conspirator be liable for his own actions in the commission of a conspiracy, but he will also be held accountable for his co-conspirators’ conduct, even those not joined in the lawsuit.
Notably, civil conspiracy is a “derivative tort for which a plaintiff may recover only if it has adequately pled an independent primary tort.” AGA S’holders, LLC v. CSK Auto, Inc., 589 F. Supp. 2d 1175, 1192 (D. Ariz. 2008) (citing Rowland, 157 Ariz. at 306, 757 P.2d at 110); see also Baker, 5 P.3d at 259. As a result, a plaintiff in a civil conspiracy lawsuit must allege the conspirators agreed to commit a tort, not simply a crime. See, e.g., R. Prasad Indus. v. Flat Irons Envtl. Solutions Corp., 2013 WL 2217831, *14 (D. Ariz. May 20, 2013) (holding that plaintiff successfully alleged a claim for civil conspiracy based on the underlying torts of fraud, conversion, and tortious interference with contractual relations); Estate of Hernandez v. Flavio,
187 Ariz. 506, 511, 930 P.2d 1309, 1314 (1997) (en banc) (holding that the mere act of drinking alcohol by underage pledges of a fraternity was not tortious and therefore could not subject defendants to liability for civil conspiracy as a matter of law); Hunley v. Orbital Scis. Corp.,
2006 WL 2460631, *5–*6 (D. Ariz. Aug. 22, 2006) (“Because Plaintiff has not pled an underlying tort, his derivative civil conspiracy claim fails as a matter of law.”); Allen v. Quest Online, LLC, 2011 WL 4403674, *8 (D. Ariz. Sept. 22, 2011) (“[T]o the extent Plaintiff is alleging that the purported conspiracy was to disregard the obligations defined in the Agreement, the claim fails as a matter of law because conspiracy requires an agreement to commit a tort, and a breach of contract is not a tort.”). But see Ibarra v. Kennedy Funding, Inc., 2014 WL 1878750, *6 (D. Ariz. May 12, 2014) (claiming that Arizona courts have not answered definitively whether the underlying wrong of a civil conspiracy claim must be a tort).
Finally, as a matter of proof, “a claim for civil conspiracy must include an actual agreement, proven by clear and convincing evidence.” Wells Fargo, 201 Ariz.at 499, 38 P.3d at 37. Appropriately, mere allegations of “suspicious conduct” will not rise to the clear and convincing level. Id.
; see, e.g.,Gariby v. Evenflo Co., Inc.,
2012 WL 506742, *4 (Ct. App. Feb. 16, 2012) (“[A]n agreement that is merely suspicious does not rise to the level of clear and convincing evidence of a conspiratorial arrangement.”).
To that end, “[t]he existence of a conspiracy may be inferred from the nature of the acts, the relationship of the parties, the interests of the conspirators, or other circumstances, and express agreement or tacit concert will, if proven, suffice to create liability.” Vasquez v. City of Phx., 2006 WL 1147716, *4 (D. Ariz. May 1, 2006) (quoting Mohave Elec. Coop., Inc. v. Byers,
189 Ariz. 292, 306, 942 P.2d 451, 465 (Ct. App. 1997)); see, e.g.,Dawson, 216 Ariz. at 103, 163 P.3d at 1053 (“The conspiratorial agreement need not be express; it may be implied by the tortious conduct itself.” (citing Restatement (Second) of Torts § 876, cmt. a (1979))); S. Union Co. v. Sw. Gas Corp.,
165 F. Supp. 2d 1010, 1021 (D. Ariz. 2001) (“Although an express agreement need not be shown for a plaintiff to prevail on a civil conspiracy claim, there must be at least a tacit understanding. The existence of a conspiracy may sometimes be inferred from the nature of the acts done, the relations of the parties, the interests of the alleged conspirators, and other circumstances. However, a plaintiff must allege specific facts which support the inference of an agreement.” (quotations omitted)).
Civil Conspiracy Between a Company and Its Agents
As a general rule, “agents and employees of a corporation cannot conspire with their corporate principal or employer when acting in their official capacities on behalf of the corporation and not as individuals for their individual advantage.” Perry, 20 Ariz. App. at 564, 514 P.2d at 517 (citation omitted); see Rowland, 157 Ariz. at 306, 757 P.2d at 110 (“A corporation cannot conspire with itself any more than a private individual can, nor with its directors if they are acting in the corporation’s behalf.” (citations omitted)).
As an exception to the general rule, however, “an agent can be liable for conspiracy if the agent acts out of self-interest that goes beyond the agency relationship.” Morrow v. Bos. Mut. Life Ins. Co., 2007 WL 3287585, *9, 2007 U.S. Dist. LEXIS 82157, 23–26 (D. Ariz. Nov. 2, 2007) (citing James L. Buchwalter & Lonnie E. Griffith, Jr., 15A C.J.S. Conspiracy § 19). In other words, “[w]hen officers of a corporation act for their own personal purposes, they become independent actors, who can conspire with the corporation.” Rowland, 157 Ariz. at 306, 757 P.2d at 110 (quoting Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 595, 603 (5th Cir. 1981)).
In Morrow, the defendant urged the Federal District Court of Arizona to hold that principals and agents could not be co-conspirators as a matter of Arizona law. Id.
While the court conceded an “agent is not liable for conspiring with the principal when the agent is acting in an official capacity on behalf of the principle,” it refused to close off the claim entirely. Id.
Indeed, the court noted, “it cannot be said that Arizona law does not recognize conspiracies between principals and their agents.” Id.
(citing Perry, 20 Ariz. App. 571, 514 P.2d 514). In fact, the court claimed, “no Arizona authority has been found to support Defendants’ contention that principals and agents cannot, as a matter of law, be co-conspirators.” Id.
Consequently, because the plaintiff’s complaint alleged the defendants “acted out of self-interest that went beyond the agency relationship,” the court held the complaint properly stated a claim for civil conspiracy and denied the defendant’s motion to dismiss. Id.
; see Perry, 20 Ariz. App. at 564, 514 P.2d at 517 (rejecting a civil conspiracy claim against agents and corporate employer because “no facts [were] alleged indicating that [agents] were acting for their individual advantage”).
Accordingly, if an officer of a corporation or a member of a limited liability company (“LLC”) acts out of self-interest that goes beyond her official capacity when conspiring to commit a tortious act with the company, an injured party will be able to recover under the doctrine of civil conspiracy against the conspirators.
Aiding and Abetting: A Confusing Similar Yet Distinct Claim
“As a general rule, one who counsels, advises, abets, or assists the commission of an actionable wrong by another is responsible to the injured person for the entire loss or damage.” Charles J. Nagy, 86 C.J.S. Torts § 105.
To establish a claim of aiding and abetting tortious conduct, proof of three elements is necessary: “(1) the primary tortfeasor must commit a tort that causes injury to the plaintiff; (2) the defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach.” Wells Fargo, 201 Ariz. at 485, 38 P.2d at 23 (citing Gomez v. Hensley, 145 Ariz. 176, 178, 700 P.2d 874, 876 (Ct. App. 1984)). “Substantial assistance” by a secondary tortfeasor, as required to establish liability as an aider and abettor, means more than “a little aid.” Id.
at 488, 38 P.3d at 26. In determining whether the defendant’s assistance in aiding and abetting a tort was “substantial,” the test is whether the assistance made it “easier” for the violation to occur, not whether the assistance was necessary. Id.
at 489, 38 P.3d at 27(quotation omitted).
Like civil conspiracy, “aiding and abetting [is a] derivative tort for which a plaintiff may recover only if it has adequately pled an independent primary tort.” AGA S’holders, 589 F. Supp. 2d at 1192; see Vicente v. City of Prescott, 2012 WL 1438695, *6 (D. Ariz. Apr. 26, 2012) (“Both civil conspiracy and aiding and abetting are derivative torts.” (citingWells Fargo, 201 Ariz. at 485, 38 P.3d at 23; Rowland, 157 Ariz. at 306, 757 P.2d at 110). Thus, neither “civil conspiracy” or “aiding and abetting” are “standalone” claims under Arizona law. Id.
Theoretically, a claim for “aiding and abetting” is similar to a claim for “conspiracy”; however, the two claims are legally exclusive. See e.g., Smith v. Country Mut. Ins. Co., 2013 U.S. Dist. LEXIS 86499, 6–7 (D. Ariz. Jan. 9, 2013)(“[T]here is a difference between proving an agreement to participate in a tortious line of conduct (civil conspiracy) and proving knowing action that substantially aids tortious conduct (aiding and abetting).” (quoting Wells Fargo, 201 Ariz. at 490 n. 16, 38 P.3d at 29 n.16)).
Significantly, “an aiding and abetting claim is not barred simply because a person worked for the alleged primary tortfeasor and was acting within the scope of her employment.” Inman v. Wesco Ins. Co., 2013 WL 2635603, *4, 2013 U.S. Dist. LEXIS 82558, 10 (D. Ariz. June 12, 2013) (citing Smith, 2013 U.S. Dist. LEXIS 86499; Morrow, 2007 WL 3287585, 2007 U.S. Dist. LEXIS 82157); see Miller v. York Risk Servs. Grp., 2013 WL 6442764, *5, 2013 U.S. Dist. LEXIS 173354, 14–16 (D. Ariz. Dec. 9, 2013) (rejecting argument that agent cannot, as a matter of Arizona law, aid and abet their principal’s tortuous conduct when acting on behalf of the principal).
At bottom, an officer of a corporation may be held liable for aiding and abetting her corporate employer in the commission of a tortious act. This claim may be proper when no proof of an actual conspiracy agreement between the conspirators exists, but one party substantially assisted the other in the performance of the tort. Moreover, unlike a claim for civil conspiracy, a claim for aiding and abetting will not be barred simply because an officer was acting within the scope of her corporate employment.
In summary, while Arizona law does not recognize a cause of action for “civil conspiracy,” per se, it does authorize recovery for damages arising from the conspiracy. Thus, an officer of a corporation or a member of an LLC may be liable for damages if she acts in self-interest and outside of her official duties while conspiring to commit a tortious act with her company. Moreover, depending on the factual circumstances, the officer could be liable for a claim of aiding and abetting if, rather than actively participating in the tort, the officer substantially aids the company in committing the tortious act. The distinction between these two claims is critical to the outcome of a case — if one is mistakenly plead instead of the other, the claim will be dismissed.
If you have questions concerning a possible civil conspiracy or aiding and abetting claim, we would be happy to discuss your potential case with you. To arrange a consultation concerning your legal matter, please contact Robert Mitchell at email@example.com
or at (602) 452-2730.