Blow v. Shaughnessy

Annotate this Case

364 S.E.2d 444 (1988)

Elizabeth BLOW, et al., v. Jeffrey John SHAUGHNESSY et al.

No. 8710SC153.

Court of Appeals of North Carolina.

February 2, 1988.

*446 Harrell & Wright by Bernard A. Harrell and I. Clark Wright, Jr., Raleigh, for plaintiffs-appellants.

Hunton & Williams by David Dreifus and James E. Farnham, Raleigh, for defendants-appellees-Wheat *447 First Securities, Inc., W. Larry Ownley and Lee Folger, III.

No brief filed, by defendant Jeffrey John Shaughnessy.


Plaintiffs contend that the trial court erred in giving a supplemental jury instruction on the definition of "substantial assistance." We find plaintiff's contention is without merit.

Plaintiffs object to the following language given by the Court:

Substantial assistance is defined as a large amount or quantity of assistance as distinguished from nominal or routine assistance. Assistance may be said to be substantial when it was a significant factor in bringing about the violation complained of, that is, the false reporting of unit values. In the present case, in order for you to find that Ownley or Folger knowingly rendered substantial assistance to Shaughnessy in his reporting of false unit values to investors, you must find that plaintiffs have proven by the greater weight of the evidence that Ownley and Folger's conduct was a significant factor in causing Shaughnessy to report false unit values to investors. (emphasis added based on plaintiffs' brief)

First, we recognize that a cause of action for aiding and abetting in breach of fiduciary obligations has heretofore never been addressed by this Court. However, a cause of action on this theory has been recognized by federal courts in securities fraud cases based on violations of section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. sec. 78j(b)) and Rule 10b-5 (17 C.F.R. sec. 240.10b-5). See, Metge v. Baehler, 762 F.2d 621 (8th Cir.1985); Gilbert v. Bagley, 492 F. Supp. 714 (M.D.N.C. 1980); Mendelsohn v. Capital Underwriters, Inc., 490 F. Supp. 1069 (N.D.Cal.1979); Landy v. Federal Deposit Insurance Corporation, 486 F.2d 139 (3d Cir.1973), cert. denied, 416 U.S. 960, 94 S. Ct. 1979, 40 L. Ed. 2d 312 (1974); See also, Comment, The Recognition of Aiding and Abetting in the Federal Securities Laws, 23 Hous.L. Rev. 821 (1986).

Although there have been interpretive variations from circuit to circuit, federal courts have recognized three prerequisites necessary to establish aiding and abetting liability. These requirements include:

(1) the existence of a securities law violation by the primary party;

(2) knowledge of the violation on the part of the aider and abettor; and

(3) substantial assistance by the aider and abettor in the achievement of the primary violation. See, Metge, supra; Gilbert, supra. The first two elements of the test are not in dispute. It is the court's supplemental instruction in regard to the third element of this theory that plaintiffs contend is erroneous.

In analyzing this question, it is helpful to examine common law concepts of civil liability for aiding and abetting and the guidance of federal court decisions in reference to an appropriate definition of the term "substantial assistance."

Under subsection (b), section 876, Restatement of Torts 2d, a person is liable for harm resulting to a third person if he:

knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself, ...

The official comment to clause (b) defines "substantial assistance" as follows:

If the encouragement or assistance is a substantial factor in causing the resulting tort, the one giving it is himself a tortfeasor and is responsible for the consequences of the other's act.

A number of federal courts have adopted this Restatement position for guidance of principles of a cause of action under the theory of aiding and abetting breach of fiduciary duty. Furthermore, our Supreme Court, in Boykin v. Bennett, 253 N.C. 725, 118 S.E.2d 12 (1961), approved the Restatement of Torts 2d sec. 876 position involving the negligence of joint tort feasors.

Federal courts have construed the "substantial assistance" requirement of aiding and abetting as a causation requirement. *448 They have recognized that the standard of substantial assistance requires a showing of "substantial causal connection between the culpable conduct of the alleged aider and abettor and the harm to the plaintiff, [citation omitted] or a showing that the encouragement or assistance is a substantial factor in causing the resulting tort." [citation omitted] Metge, 762 F.2d at 624. A body of case law has even developed holding that a party may be liable as an aider and abettor for silence and inaction. See, Woodward v. Metro Bank of Dallas, 522 F.2d 84 (5th Cir.1975).

"[M]ost [courts] seem to agree that, if the aider and abettor owes the plaintiff an independent duty to act or to disclose, inaction can be a proper basis for liability under the substantial assistance test.... [However], in Monsen v. Consolidated Dressed Beef Co., Inc., 579 F.2d 793 (3d Cir.1978), cert. denied, 439 U.S. 930, 99 S. Ct. 318, 58 L. Ed. 2d 323 (1978), the Third Circuit evaluated the substantial assistance requirement in a case of inaction and concluded that inaction `may provide a predicate for liability where the plaintiff demonstrates that the aider-abettor consciously intended to assist in the perpetration of the wrongful act.'" Metge, 762 F.2d at 625.

Bearing these principles in mind, to determine whether the supplemental instruction on substantial assistance was erroneous, the standard of review requires that:

The charge of the trial court will be read contextually, and an excerpt from the charge will not be held prejudicial even though it is erroneous when considered out of context, if the charge when considered as a whole presents the law of the case to the jury in such manner as to leave no reasonable cause to believe that the jury was misled or misinformed.

Strong's N.C. Index 3d, Appeal and Error, sec. 50, citing Gregory v. Lynch, 271 N.C. 198, 155 S.E.2d 488 (1967); In re Will of Jones, 267 N.C. 48, 147 S.E.2d 607 (1966); Stewart v. Gallimore, 265 N.C. 696, 144 S.E.2d 862 (1965).

Plaintiff objects to an excerpt of the supplemental instruction, which taken as a whole covers five transcript pages. The remaining portions of the supplemental charge on substantial assistance quotes almost verbatim the Restatement of Torts 2d section on the definition of substantial assistance and quotes the theory on silence and inaction recognized in securities fraud cases involving substantial assistance. Plaintiffs argue that if the jury determined that defendants Ownley and Folger acquired actual knowledge that defendant Shaughnessy was defrauding plaintiffs, then the continued execution of trades and market information to defendant Shaughnessy by the Wheat defendants would constitute actions rising to the level of substantial assistance necessary to find liability on the Wheat defendants. Plaintiffs contend that the supplemental instruction prevented the jury from considering this theory. We perceive no error in that portion of the charge quoted to which plaintiff excepted when considered as a whole.

Plaintiff's tenth request for special jury instruction which the trial court read as part of the supplemental instruction on substantial assistance gives practically the same legal definition of the issues in the case. A party may not complain of an asserted error in the charge when the [alleged] erroneous instruction is embodied in his own prayer for instructions. King v. Higgins, 272 N.C. 267, 158 S.E.2d 67 (1967). The definition given by the trial court was in accord with the definition of substantial assistance approved in securities fraud cases in federal court.

Furthermore, after the supplemental charge was read to the jury, the foreman asked for clarification on the substantial assistance charge. The following colloquy took place:

THE COURT: Members of the Jury, the Court has explained those two terms ["fiduciary" and "substantial assistance"] to you with some detailed explanation as best it can under the circumstances. You may retire and resume your deliberations. THE FOREPERSON: Before we go in, I know when we go in there there is still going to be the same problem. Can I ask you a direct question which is *449 THE COURT: I may not answer it, but you may certainly ask it. THE FOREPERSON: Okay. On that question, [dealing with substantial assistance] can it be found that one or all of the defendants broke their fiduciary duty without knowing about the fraud. THE COURT: You'd have to know about the fraud. Does that answer your question? THE FOREPERSON: Yes. THE COURT: You have to knowingly do it. All right. Any further questions? THE FOREPERSON: Uh-uh. THE COURT: All right. Resume your deliberating.

Thus, any misconception of the issue by the jury was conceivably cured by the exchange between the foreman and the judge. The inclusion in the instruction of the definition of substantial assistance that was practically identical to the Restatement of Torts 2d sec. 876, the embodiment of the theory on silence and inaction, coupled with the colloquy between the judge and the foreman, appears to us to be sufficient to overcome any conceivable error in the alleged erroneous excerpt plaintiffs complain of on the definition of substantial assistance. The supplemental instruction embodied all the principles necessary to convey an appropriate definition of substantial assistance. Therefore, the supplemental instruction given by the court, taken as a whole, did not mislead or misinform the jury in its understanding of the issues before it. Accordingly, the supplemental instruction was not erroneous and plaintiffs are not entitled to a new trial.

Next, plaintiff assigns as error the trial court's denial of plaintiffs' motion for a new trial, pursuant to G.S. 1A-1, Rule 59, on the issue of damages. Plaintiff contends that the jury award of $124,942.00 for damages against defendant Shaughnessy was grossly inadequate since the evidence tended to show that the loss suffered by the individual plaintiffs was shown to be not less than $442,952.18. We find this contention is without merit.

A motion for a new trial on the grounds of inadequate damages is addressed to the sound discretion of the trial judge. Gwaltney v. Keaton, 29 N.C.App. 91, 223 S.E.2d 506 (1976). The court's decision on a motion for a new trial under G.S. 1A-1, Rule 59, is not reviewable on appeal, absent manifest abuse of discretion. Mumford v. Hutton & Bourbonnais Co., 47 N.C.App. 440, 267 S.E.2d 511 (1980).

Our Supreme Court, in Worthington v. Bynum, 305 N.C. 478, 487, 290 S.E.2d 599, 605 (1982), explained an appellate court's role in reviewing the discretionary power of a trial court to grant a new trial when it held:

an appellate court should not disturb a discretionary Rule 59 order unless it is reasonably convinced by the cold record that the trial judge's ruling probably amounted to a substantial miscarriage of justice.

Furthermore, where there is no stipulation of damages, the testimony of witnesses becomes evidence for the sole province of the jury to consider. Smith v. Beasley, 298 N.C. 798, 259 S.E.2d 907 (1979). Thus, "[i]n weighing the credibility of the testimony, the jury has the right to believe any part or none of it." Id. at 801, 259 S.E.2d at 909.

In the case sub judice, there was no stipulation of damages made by either party. The jury weighed the evidence before it on the issue of damages, and arrived at a figure, in its view, to be appropriate. Consequently, in the trial judge's discretion, such an award of damages by the jury, did not require granting plaintiff's motion for a new trial. Therefore, upon thorough review of the record, we hold that the trial judge's denial of plaintiff's motion for a new trial on the issue of damages did not amount to a substantial miscarriage of justice and was therefore not a manifest abuse of discretion.

For all the foregoing reasons, we find

No error.

BECTON and PARKER, JJ., concur.