Alleco Inc. v. Harry & Jeanette Weinberg Foundation, Inc.

ELDRIDGE, Judge. This tort ease arises out of a complex series of transactions involving an attorney, his clients and his business associates. From September 1986 to July 1988, Lawrence I. Weisman served as the attorney for the plaintiffs, Alleco Inc. and Morton M. Lapides. During this period of time, Lapides was Chairman of the Board of Alleco.

In their amended complaint, the plaintiffs asserted that the defendants, the Harry and Jeanette Weinberg Foundation, Inc., Bernard Siegel, Nathan Weinberg, William Weinberg, Stanley Marks, and Kalb, Voorhis & Co., aided, abetted and conspired with Weisman to breach his fiduciary duty to the plaintiffs and to defraud the plaintiffs. These contentions were based upon allegations of insider trading in securities and of disclosing confidential information. Weisman died prior to the filing of the complaint, and his estate was not made a party to this litigation. The Circuit Court for Prince George’s County dismissed the amended complaint for failure to state a claim, and the Court of Special Appeals affirmed.

Alleco v. Weinberg Foundation, 99 Md.App. 696 , 639 A.2d 173 (1994). We granted the plaintiffs’ petition for a writ of certiorari in order to consider the holdings of both courts below concerning aider and abettor tort liability and civil conspiracy tort liability. ¹⁸⁰ I. The plaintiffs’ amended complaint first contained forty-three paragraphs of detailed factual allegations and conclusions. The complaint then contained forty-three more paragraphs of additional factual allegations and conclusions divided into four counts. Count one was labeled “aiding and abetting breach of fiduciary duty,” and count two was labeled “civil conspiracy to breach fiduciary duty.” The third count was described as “aiding and abetting fraud,” and count four was “civil conspiracy to commit fraud.” The factual allegations of the amended complaint were as follows.

While serving as attorney for the plaintiffs, Weisman became privy to confidential information concerning Alleco’s and Lapides’s financial and legal affairs, including their plans to sell Service America, a subsidiary of Alleco. Using this “inside information,” Weisman began to make substantial purchases of Alleco common stock and &k% debentures in the month prior to the public announcement of the Service America sale. 1 Some of his purchases during this time were made through defendants Stanley Marks (Weisman’s stockbroker) and Kalb, Voorhis & Co (Marks’s employer). Two days following the announcement that Service America would be sold, Weisman sold some of his Alleco stock at a profit. The purchase and sale of these securities were made without the knowledge of the plaintiffs.

Weisman allegedly shared the confidential and privileged information he gained from the plaintiffs with Harry Weinberg of the Weinberg Foundation. As a result, in November 1986 the Weinberg Foundation purchased approximately $700,000.00 worth of Alleco debentures at the urging of Weisman. Soon thereafter, Harry Weinberg’s two brothers, defen ¹⁸¹ dants Nathan and William Weinberg (directors and officers of the Weinberg Foundation), also made purchases of Alleco securities. Harry Weinberg had shared the confidential information that he received from Weisman with his brothers, and had directed them to purchase the securities.

On October 20 or 21,1987, Lapides discussed with Weisman, inter alia, “a plan for the possible assignment by Alleco of the Q%% Debentures to Service America.” Concerned that Alleco’s assignment would release Alleco from liability to perform the obligations under the debentures, Weisman met with a Weinberg Foundation attorney and with the defendant Bernard Siegel to discuss potential legal action against Alleco, as well as additional purchases of Alleco securities. Moreover, Weisman, Harry Weinberg and representatives from the Weinberg Foundation are alleged to have contacted the largest holder of Alleco 9 ]é% debentures, as well as the indenture trustee, to assist their efforts in preventing the debenture assignment to Service America. Despite Weisman’s concern that Alleco would not “continue to be an obligor under the debentures,” he continued to purchase the 9%% debentures. These purchases were made without the plaintiffs’ knowledge or consent.

Meanwhile, Lapides had discussed with Weisman plans of his company, Lapides Corp., or one of its subsidiaries, to purchase all of Alleco’s common stock in order to merge the two companies. In June or July 1988, Lapides Acquisition Corporation, apparently a subsidiary under the control of Lapides, publicly tendered offers for Alleco common stock at a price higher than the current market value of the stock. 2 ¹⁸² During June and July 1988, Lapides kept Weisman informed of the company’s planned increases in the price it was willing to pay for the common stock. Also during this time, and because Weisman allegedly knew that the price of Alleco’s common stock would increase, Weisman continued to purchase Alleco common stock. Some of these purchases were made through defendant Kalb, Voorhis & Co. By July 27, 1988, Weisman had sold for a profit all of the Alleco common stock which he had purchased.

The plaintiffs were unaware of these purchases and sales “until late July 1988.” During July and August 1988, the defendant Stanley Marks also purchased and sold Alleco common stock through Kalb, Voorhis & Co. In addition to plaintiffs’ assertions that Weisman and the defendants were “obtain[ing] profits fraudulently through the use of inside information,” the plaintiffs allege that, in the summer of 1988, Weisman contacted the Securities and Exchange Commission, which had begun investigating Alleco and Lapides in February 1987. These communications included a letter from Weisman stating that Alleco was violating the Investment Company Act of 1940. In addition, defendant Stanley Marks sent a similar letter to the Commission “drafted by” and “at the direction of Weisman____” As a result of these communications, the Commission allegedly expanded the scope of or prolonged its investigation into Alleco. The investigation was ultimately dropped without any action having been taken against Alleco or Lapides.

The plaintiffs, however, claim that these communications were not authorized, revealed confidential information gained from the attorney-client relationship between Weisman and the plaintiffs, and resulted in significant legal fees for the plaintiffs as a consequence of the Commission’s investigation. During 1987 and 1988, Weisman is also alleged to have revealed confidential information con ¹⁸³ cerning Alleco and Lapides to the Federal Bureau of Investigation and the United States Department of Justice. No action is alleged to have resulted from these communications. On August 15, 1988, Weisman, still troubled about the assignment of the 9]6% debentures to Service America and Alleco’s attempt to shield itself from its obligations under the debentures, filed a “putative class action” on behalf of holders of Alleco securities against Alleco and Lapides in the United States District Court for the District of Maryland.

Gould v. Alleco, Civ. No. S-88-2399 (D.Md.). This action is alleged to have been an attempt to have Alleco redeem the 9%% debentures at par value. Weisman and Marks, Inc., an entity operated by defendant Stanley Marks, were two of the named plaintiffs in the Gould suit.

Weisman offered to settle the litigation if Alleco and Lapides would buy back the Gould plaintiffs’ bonds at par value, thereby giving Weisman several million dollars of profit over his cost of the 916% debentures held by him. Alleco and Lapides rejected this offer. Furthermore, one week after the filing of the Gould suit, Weisman and the Weinberg Foundation purchased additional 9]6% debentures. These purchases, the plaintiffs maintain, were part of a scheme to force Alleco into settlement negotiations by controlling the majority of the debentures.

Harry Weinberg allegedly told Weisman “that it was his intention, on behalf of the Weinberg Foundation, to control over $20 million worth of Alleco bonds and force [Alleco] to pay 100 cents on the face value of the bonds.” 3 ¹⁸⁴ Moreover, in November 1988 the Weinberg Foundation’s attorney allegedly wrote a letter to the plaintiffs “threatening litigation” similar to that already instituted by Weisman. In February 1989, the federal court in the Gould case enjoined Weisman from future litigation against Alleco and Lapides because, as the amended complaint states, ‘Weisman had in fact been the attorney for Alleco and Lapides.” Other activities of the various defendants and Weisman were allegedly performed in furtherance of “their campaign to inflict injury” on Alleco and Lapides; Weisman threatened to file an involuntary bankruptcy petition against the plaintiffs; the Weinberg Foundation made other efforts to interfere with the settlement of litigation involving the debentures; the Weinberg Foundation also allegedly filed a suit against the plaintiffs in violation of a prior federal court order prohibiting such litigation, and finally, the plaintiffs allege that Weisman, speaking for himself and the Weinberg Foundation, threatened to make damaging allegations about the plaintiffs unless they agreed to repurchase the debentures according to Weisman’s terms. In summary, during Weisman’s tenure as the plaintiffs’ attorney, he had allegedly entered into an agreement with his friend Harry Weinberg, 4 founder of the Harry & Jeanette Weinberg Foundation, and his friend and stockbroker, Stanley Marks, who was then working at Kalb, Voorhis & Co. Their alleged agreement was (1) to aid Weisman in breaching his fiduciary duty to the plaintiffs by using confidential information obtained by Weisman in his capacity as the plaintiffs’ ¹⁸⁵ attorney to the plaintiffs’ detriment, and (2) to use “fraudulent” means to further their goal of injuring the plaintiffs financially by forcing them to pay the par value for Alleco debentures which they owned or which they planned to obtain. The other defendants were brought into the agreement later.

Pursuant to the agreement, Weisman shared confidential information gained from the attorney-client relationship with the defendants. The defendants then coordinated a number of purchases and sales of Alleco stocks and debentures. In addition, the defendants allegedly assisted Weisman with “litigation efforts [against the plaintiffs] ... that were improper and aimed at extracting settlement or other payments from Alleco and Lapides; ... [they] provided] information to Government authorities about Alleco and Lapides; and ... communicated] with other persons and business entities ... to induce them to take actions detrimental to Alleco and Lapides.” II. As previously mentioned, the Circuit Court for Prince George’s County held that the allegations did not sufficiently state a cause of action against the defendants and, therefore, dismissed the amended complaint.

In so doing, the circuit court initially noted that there were no allegations as to how the plaintiffs were injured by the alleged disclosure of confidential information gained from the attorney-client relationship. In addition, the court held that the disclosure by Weisman of confidential information was the “only identifiable breach of duty set forth in the amended complaint,” and that there were no allegations that this breach resulted in any action having been taken directly against the plaintiffs. Moreover, with respect to the alleged letter writing and litigation by the defendants, the court held that the amended complaint failed to set forth facts showing that these activities amounted to a tort committed by Weisman or any of the defendants. The circuit court then addressed the specific counts of the amended complaint.

As to Counts I and III, the aiding and abetting counts, the circuit court stated: “The Maryland ¹⁸⁶ courts ... never have recognized a tort of ‘aiding and abetting’ the tortious conduct of another.” Nevertheless, the court noted that aiding and abetting is recognized in other jurisdictions as a basis for tort liability, and that this Court may decide to recognize it. Therefore, the court analyzed the aiding and abetting counts in accordance with the following definition of aider and abettor tort liability which the court derived from cases in other jurisdictions: A defendant is civilly liable as an aider and abettor where “(1) [there is] a violation of the law (tort) by the ‘principal,’ (2) defendant knew about the violation, and (3) defendant gave substantial assistance or encouragement to [the principal] to engage in the tortious conduct.” Turning to count one, aiding and abetting breach of fiduciary duty, the circuit court explained the elements of the asserted tort of breach of fiduciary duty as follows: “A breach of fiduciary duty is shown (1) when an attorney has personal interests adverse to the clients’ interests, (2) where the attorney discloses confidential information to a third party or (3) where the attorney uses confidential information for personal gain. R. Mallen & J. Smith, Legal Malpractice, §§ 11.1,11.5 (1989). In order to recover for a breach of fiduciary duty, plaintiffs must prove they were damaged by the breach.” Moreover, the court explained that “an attorney may not reveal or use confidential information obtained during the representation even after the representation ends.” The circuit court held that a breach of fiduciary duty by Weisman, causing damage to the plaintiffs, had been sufficiently alleged only as to Weisman’s communication of some confidential information to the Securities and Exchange Commission which resulted in an expanded or prolonged investigation by the Commission, thus causing the plaintiffs to incur additional legal fees.

The court, however, held that the plaintiffs had failed to allege substantial assistance by the defendants. The court stated that the only allegations of substantial assistance by the defendants regarding Weisman’s contact ¹⁸⁷ with the Commission was that Marks provided information about the plaintiffs to the Securities and Exchange Commission as well. According to the circuit court, however, this allegation was insufficient because it contained no reference to any use of confidential information obtained as a result of Weisman’s breach of fiduciary duty to the plaintiffs. With respect to Count III, aiding and abetting fraud, the court viewed the allegations as sufficient to charge that Weisman had deceived the plaintiffs into believing that he would maintain the confidentiality of the information gained through his role as their attorney.

The court held, however, that the complaint failed to allege how the defendants aided Weisman in his misrepresentations to the plaintiffs. Moreover, the court held that the plaintiffs had suffered no damage from Weisman’s misrepresentations. Alternatively, the court held that any damage which they may have suffered was not a result of the defendants aiding and abetting Weisman’s misrepresentation. The court explained that the allegations concerning the purchases and sales of Alleco debentures and stocks failed to state that the plaintiffs had owned the debentures or stocks at the time they were bought or sold.

In addition, it was not alleged how the other “misconduct” of the defendants had any connection to the confidential information gained by Weisman. With regard to counts II and IV, the civil conspiracy counts, the circuit court expressed the opinion that a necessary element of civil conspiracy was “that each defendant ... [had] committed an overt act in furtherance of the conspiracy.” This requirement, according to the court, proved fatal for the conspiracy to commit fraud count (count IV). The court held that the plaintiffs had adequately pled an agreement to defraud the plaintiffs by inducing them to enter into an attorney-client relationship with Weisman when Weisman never intended to maintain the confidentiality of the relationship. Nonetheless, the court held that the complaint failed to allege that any of the defendants had committed an overt act in furtherance of Weisman’s misrepresentation to the plaintiffs.

The court rejected the plaintiffs’ contention that the defendants’ ¹⁸⁸ overt acts in furtherance of the fraud consisted of their use of the confidential information, obtained by Weisman, to iiy'ure the plaintiffs. The circuit court, however, stated that the “conspiracy is to accomplish the illegal act, not to create damages from the act. The damages are a separate consideration. Therefore, the act in furtherance of the conspiracy must be an act in furtherance of the illegal act, and not one that simply creates more damages.” Alternatively, the court held that “all the actions of the defendants either (1) caused damages but are not tortious or (2) are tortious as to the same third party but did not cause plaintiffs damage.” Finally, the circuit court analyzed count II, conspiracy to commit a breach of fiduciary duty.

The court explained as follows: “[T]he only actionable breach of fiduciary duty committed by Weisman was Weisman’s sharing of confidential information with the SEC and the FBI during his representation of Alleco and Lapides. Therefore, only a conspiracy to commit this act would be actionable. No defendant can be liable for trading stock, receiving confidential information, or participating in lawsuits under the circumstances alleged in the amended complaint.” The court held that the only action by any of the defendants which could be taken as furthering Weisman’s breach of fiduciary duty was Stanley Marks’s letter to the Securities Exchange Commission charging Alleco with violating securities laws. The court found that this allegation was insufficient, primarily because it failed to say that any confidential information was disclosed in the letter.

The plaintiffs prosecuted an appeal to the Court of Special Appeals which affirmed. Alleco v. Weinberg Foundation, supra, 99 Md.App. 696 , 639 A.2d 173 . The Court of Special Appeals agreed with the circuit court that “no separate tort liability exists in this State for simply aiding and abetting someone else in committing a tort.” 99 Md.App. at 700-701 , 639 A.2d at 175 . The Court of Special Appeals declined to consider the circuit court’s alternative holding that, if Mary ¹⁸⁹ land were to recognize aider and abettor tort liability, the allegations of the complaint were insufficient.

With respect to the civil conspiracy counts, the Court of Special Appeals initially stated that “[t]he Court of Appeals has often used the term ‘civil conspiracy’ and has recognized it as though it were an independent tort.” 99 Md.App. at 704 , 639 A.2d at 177 . The intermediate appellate court then held that the circuit court had erred in requiring the plaintiffs to allege that each member of the conspiracy had committed an overt act in furtherance of the conspiracy. The appellate court stated that it was sufficient to allege “that one or more of them committed such an act and that harm ensued to the plaintiff as a result.” 99 Md.App. at 708 , 639 A.2d at 179 . The Court of Special Appeals went on to hold, however, that the plaintiffs’ allegations were insufficient to show unlawful conduct which resulted in damages to the plaintiffs.

The plaintiffs then filed in this Court a petition for a writ of certiorari, challenging the various rulings by both courts below. In light of the important issues of whether Maryland law recognizes aider and abettor tort liability and of the nature of civil conspiracy tort liability, we granted the petition. We shall first address the matter of civil conspiracy tort liability, asserted in counts two and four of the amended complaint, and thereafter address the matter of aider and abettor tort liability- ill. The statement by the Court of Special Appeals, that civil conspiracy is recognized in Maryland as an independent tort, is simply incorrect.

This Court has consistently held that “ ‘conspiracy’ is not a separate tort capable of independently sustaining an award of damages in the absence of other tortious injury to the plaintiff.” Alexander v. Evander; 336 Md. 635 , 645 n. 8, 650 A.2d 260 , 265 n. 8 (1994). Judge Alvey for this Court first explained civil conspiracy tort liability in Kimball v. Harman and Burch, 34 Md. 407, 409-411 (1871), as follows: ¹⁹⁰ “There is no doubt of the right of a plaintiff to maintain an action on the case against several, for conspiring to do, and actually doing, some unlawful act to his damage. But it is equally well-established, that no such action can be maintained unless the plaintiff can show that he has in fact been aggrieved, or has sustained actual legal damage by some overt act, done in pursuance and execution of the conspiracy. Cartrique vs. Behrens, 30 Law J, (2 B.,) 168.

It is not, therefore, for simply conspiring to do the unlawful act that the action lies. It is for doing the act itself, and the resulting actual damage to the plaintiff, that afford the ground of the action. * :»c He # * * “The fact of conspiracy is matter of aggravation, and, as we have before stated, it only becomes necessary, in order to entitle the plaintiff to recover in one' action against several, that the fact of the combination or conspiracy should be proved.” Chief Judge Ogle Marbury for the Court, in Domchick v. Greenbelt Services, 200 Md. 36, 42 , 87 A.2d 831, 834 (1952), succinctly set forth the nature of civil conspiracy tort liability: “No action in tort lies for conspiracy to do something unless the acts actually done, if done by one person, would constitute a tort. Kimball v. Harman, 34 Md. 407, 409 [ (1871) ]. Miller v. Preston, 174 Md. 302, 312 , 199 A. 471 [ (1938) ].” See also Alexander v. Evander, supra, 336 Md. at 645 n. 8, 650 A.2d at 265 n. 8; Van Royen v. Lacey, 262 Md. 94, 97-98 , 277 A.2d 13, 14 (1971) (“It would appear to be well settled law in this State that a conspiracy, standing alone, is not actionable”); Green v. Wash.

Sub. San. Comm’n, 259 Md. 206, 221 , 269 A.2d 815, 824 (1970); Shamberger v. Dessel, 236 Md. 318, 322 , 204 A.2d 68, 70 (1964); Carr v. Watkins, 227 Md. 578, 588 , 177 A.2d 841, 846 (1962) (“The act done must be one which if done by one alone would be unlawful; the fact of conspiracy is a matter of aggravation”); Bachrach v. United Cooperative, 181 Md. 315, 324-325 , 29 A.2d 822, 827 (1943); Miller v. Preston, ¹⁹¹ 174 Md. 302, 311-313 , 199 A. 471, 475-476 (1938), and cases there cited. Consequently, whether the counts asserting conspiracy to breach a fiduciary duty and conspiracy to commit fraud state causes of action, requires us first to determine whether the plaintiffs have adequately pled that Weisman committed the alleged tort of breach of fiduciary duty and committed fraud.

A. We shall first consider the plaintiffs’ tort claims based on an asserted conspiracy to breach a fiduciary duty. With regard to whether Maryland law even recognizes a tort of “breach of fiduciary duty,” Judge Rodowsky for the Corat in Adams v. Coates, 331 Md. 1, 11-12 , 626 A.2d 36, 41 (1993), explained as follows: “As an alternative analysis, Adams contends that both Counts II and V, and particularly Count V, can be viewed as alleging a tort, which Adams labels as the tort of ‘breach of fiduciary duty.’ Restatement (Second) of Torts § 874, captioned ‘Violation of Fiduciary Duty,’ states the rule that ‘[o]ne standing in fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation.’ Breach of fiduciary duty, as a tort, has been alleged by pleaders whose cases have come to this Court, and our opinions have used the term to describe claims asserted, but we have not opined on the existence of the tort or torts, or on its