Jo Ann Howard and Associates, P.C. et al v. Cassity et al

Filing 1123

MEMORANDUM AND ORDER. IT IS HEREBY ORDERED that the Missouri Trustee Defendants' Motion to Dismiss the Aiding-and-Abetting Counts for Failure to State a Claim [ECF No. 1016 ] is GRANTED. Counts 31, 32, 33, and 34 of Plaintiffs' Third Ame nded Complaint are DISMISSED. IT IS FURTHER ORDERED that Defendant U.S. Bank's Motion to Dismiss Plaintiffs' Third Amended Complaint, or, in the Alternative, for a More Definite Statement [ECF No. 1023 ], is DENIED as moot. IT IS FURTHER ORDERED that Defendant Richard Markow's Motion to Dismiss Counts 36-38 of Plaintiffs' Third Amended Complaint [ECF No. 1082 ] is GRANTED in part, and DENIED in part. Only Count 38 of Plaintiffs' Third Amended Complaint is DISMISSED. Signed by District Judge E. Richard Webber on 09/11/2012. (CBL)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
JO ANN HOWARD &
ASSOCIATES, P.C., et al.,
Plaintiffs,
vs.
J. DOUGLAS CASSITY, et al.,
Defendants.

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Case No. 4:09CV01252 ERW

MEMORANDUM ORDER
This matter comes before the Court on The Missouri Trustee Defendants’1 Motion to
Dismiss the Aiding-and-Abetting Counts for Failure to State a Claim [ECF No. 1016]; Defendant
U.S. Bank, National Association’s (“U.S. Bank”) Motion to Dismiss Plaintiffs’ Third Amended
Complaint or, in the Alternative, for a More Definite Statement [ECF No. 1023]; and Defendant
Richard Markow’s Motion to Dismiss Counts 36-38 of Plaintiffs’ Third Amended Complaint
[ECF No. 1082].
I. FACTUAL AND PROCEDURAL BACKGROUND
This litigation arises out of proceedings instituted by the Texas Department of Insurance
in Travis County, Texas, in which National Prearranged Services, Inc. (“NPS”), Lincoln
Memorial Life Insurance Company (“Lincoln”), and Memorial Service Life Insurance Company
(“Memorial”) were placed in receivership and are currently in the process of being liquidated.
Plaintiffs in this litigation are Jo Ann Howard and Associates, P.C., acting on behalf of NPS,

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The Missouri Trustee Defendants include U.S. Bank, N.A.; National City Bank; PNC
Bank, N.A.; Bremen Bank and Trust Company; Marshall & Ilsley Trust Company, N.A.;
Southwest Bank; and BMO Harris Bank, N.A.

Lincoln, and Memorial, as Special Deputy Receiver (“SDR”) in connection with the Texas
receivership proceedings; the National Organization of Life and Health Guaranty Associations
(“NOLHGA”)2; and the individual state life and health insurance guaranty associations of
Arkansas, Illinois, Kansas, Kentucky, Missouri, Oklahoma, and Texas. These individual
guaranty associations, as well as those represented by NOLHGA, are statutory entities created by
state legislatures to provide protection for resident policyholders in the event that a member
insurance company becomes insolvent. Plaintiffs represent that these state guaranty associations
have been assigned or subrogated to the claims of funeral homes and consumers arising out of
dealings with NPS through (1) each state guaranty association’s enabling act; (2) the NPS /
Lincoln / Memorial Liquidation Plan approved by the Texas Receivership Court on September
22, 2008; or (3) express assignments received from recipients of death benefits paid by a state
guaranty association.
Prior to the institution of the Texas proceedings, NPS was in the business of selling preneed funeral service contracts, which were sold to consumers through funeral homes. Lincoln
and Memorial were issuers of life insurance policies. NPS marketed its pre-need contracts by
assuring consumers that funds paid to NPS would be secured in pre-need trusts and backed by
whole life insurance policies issued by Lincoln or Memorial for the full amount of the contract.
NPS represented to these consumers that the necessary funds would be available when the preneed beneficiary died and the funeral home’s claim became due. In accordance with state law,
this process was accomplished in certain states by requiring the purchaser to simultaneously

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NOLHGA represents the interests of the state life and health insurance guaranty
associations of Arizona, California, Colorado, the District of Columbia, Georgia, Idaho, Indiana,
Iowa, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada,
New Mexico, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Utah,
Washington, West Virginia, Wisconsin, and Wyoming.
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apply for a life insurance policy issued by Lincoln or Memorial in an amount corresponding to
the amount of the pre-need contract. In other states, the pre-need trust itself purchased the life
insurance policies.
On May 3, 20, 2012, Plaintiffs herein filed their Third Amended Complaint, asserting a
wide variety of claims against various defendants, including, but not limited to, claims for
violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. §§
1961-1968, violations of the Lanham Act, 15 U.S.C. §§ 1051-1141n, state law claims concerning
intentional and negligent fraudulent misrepresentations, and violations of the Texas Receivership
Act, Tex. Ins. Code §§ 443.202-443.205 [ECF No. 916]. The Third Amended Complaint alleges
that the fraudulent scheme’s ultimate goal was to siphon funds away from NPS, Lincoln, and
Memorial for the personal use of certain defendants, a scheme that ultimately left more than $600
million in liabilities to be satisfied by the SDR and the state life and health guaranty association
Plaintiffs.
There are over forty defendants named in Plaintiffs’ Third Amended Complaint, with
varying degrees of alleged involvement in what Plaintiffs characterize as a scheme to defraud
individual consumers and funeral homes in the sale of NPS’s pre-need funeral contracts. Six of
the defendants named in this matter are being prosecuted for a variety of fraud-based crimes in a
parallel criminal case, United States v. Sutton, Case No. 4:09CR00509 JCH (E.D. Mo.).
The principal focus of Plaintiffs’ claims is a group of defendants, defined as “the RICO
Defendants,” consisting of (1) Doug Cassity, Tyler Cassity, Rhonda Cassity, and Brent Cassity
(“the Cassity Defendants”), who are the beneficial owners of NPS, Lincoln, Memorial, and a
number of affiliated entities through the RBT Trust II – a family trust of which Doug Cassity is
the settlor and the Cassity Defendants are the sole beneficiaries; (2) certain officers and

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employees of the Cassity-controlled entities; (3) a number of attorneys and law firms engaged by
those entities; and (4) several of those entities themselves. Plaintiffs allege that the RICO
Defendants defrauded and conspired to defraud NPS’s individual and funeral home consumers
by, among other things:
(1) not revealing to NPS employees, funeral homes, or consumers that
Lincoln and Memorial, as issuers of the life insurance policies intended to fund
the pre-need contracts upon the death of the purchaser, were not independent of
NPS, and that Lincoln, Memorial, NPS, and the Cassity Defendants were not
independent of each other;
(2) in states in which the purchaser of the pre-need contract applied for
the life insurance policy directly, altering policy applications to indicate that the
policy was to be paid for in installments, when in fact the purchaser had paid the
full amount of the policy in full, so that NPS would only be required to deposit the
first installment into a pre-need trust, with the remainder of the amount then
ultimately diverted to the RICO or Cassity Defendants through various Cassitycontrolled entities, including NPS, Lincoln, and Memorial;
(3) in states in which the pre-need trusts purchased the life insurance
policies, purchasing installment policies with monthly payments when the
consumer paid for the pre-need contract with a single payment in full, likewise in
order to avoid depositing the entire policy amount into a pre-need trust and to
siphon the remaining funds to the RICO or Cassity Defendants;
(4) altering life insurance policy applications to indicate that NPS was the
owner or beneficiary of the policy, in order to allow NPS to take out loans on the
policies from Lincoln or Memorial, and then denying that NPS had taken out any
such loans in response to inquiries from funeral homes;
(5) directing NPS to stop paying premiums to Lincoln on whole life
policies and surrendering whole life policies for their cash value, with the effect
of reducing NPS’s obligations to Lincoln and allowing NPS to retain a greater
percentage of funds received from consumers in exchange for the pre-need funeral
contracts;
(6) removing funds from the NPS pre-need trusts in exchange for the
issuance of promissory notes or debentures, with repayment only occurring
through book entries unsupported by actual transactions or through the temporary
shifting of funds between various entities controlled by the RICO Defendants; and
(7) engaging in “roll-over” transactions with funeral homes, whereby a
funeral home would agree to transfer its existing pre-need contracts to NPS and
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remit to NPS the balance of its trust funds from those contracts, with NPS then
using the above-described tactics with whole life insurance policies issued by
Lincoln to avoid placing as much as possible of the “roll-over” funds into a preneed trust, and diverting the remainder to the RICO or Cassity Defendants.
Based on these allegedly wrongful actions, Plaintiffs assert additional claims related to
allegedly fraudulent transfers between Cassity-controlled entities against another set of
Defendants that are collectively referred to as “the Fraudulent Transfer Defendants.” Plaintiffs
bring another set of claims arising out of the removal of funds from the pre-need trusts through
the issuance of promissory notes and debentures against yet another group of defendants that are
defined as “the Promissory Note Defendants,” some of whom are likewise RICO or Fraudulent
Transfer Defendants.
The defendants bringing the Motions to Dismiss presently before the Court are members
of the group of defendants defined in the Third Amended Complaint as the “Trustee Defendants,”
and individual defendant Richard Markow (“Defendant Markow”), who was head of Trustee
Defendant Bremen Bank’s trust department, and a Senior Vice President and Trust Officer for
Bremen Bank. The claims stated against Trustee Defendants allege that they breached their
fiduciary duties to NPS, funeral homes, and consumers, by failing to properly manage the NPS
pre-need trust assets, and by failing to ensure that those assets were prudently handled.
Plaintiffs’ claims against Trustee Defendants include Breach of Fiduciary Duty by Trustee
Banks (Count 19); Negligence and Gross Negligence by Trustee Banks (Count 20); Unjust
Enrichment (Count 28); Money Had and Received (Count 29); Aiding and Abetting Fraud (Count
31); Aiding and Abetting Breach of Fiduciary Duty by Investment Advisors (Count 32); Aiding
and Abetting Breach of Fiduciary Duty by Bremen Bank (Counts 33 and 34); Breach of Fiduciary
Duty (against Defendant Markow) (Count 36); Participation in a Breach of Trust Duties and

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Aiding and Abetting Breach of Fiduciary Duties (against Defendant Markow) (Count 37); and
Aiding and Abetting Fraud (against Defendant Markow) (Count 38).
In their Motion, Missouri Trustee Defendants urge the Court to dismiss Counts 31
through 34 of Plaintiff’s Third Amended Complaint. In its pleading, Defendant U.S. Bank
separately moves to dismiss Counts 31 and 32. Defendant Markow’s Motion moves to dismiss
the claims asserted solely against him, Counts 36-38 of the Third Amended Complaint.
II. LEGAL STANDARD
A party may move under Rule 12(b)(6) to dismiss a complaint for “fail[ing] to state a
claim upon which relief may be granted.” Fed. R. Civ. P. 12(b)(6). The purpose of a motion to
dismiss is to test “the sufficiency of a complaint[.]” M.M. Silta, Inc. v. Cleveland Cliffs, Inc., 616
F.3d 872, 876 (8th Cir. 2010). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. at 678 (internal quotations omitted). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id.
When ruling on a motion to dismiss, a court “must liberally construe a complaint in favor
of the plaintiff[.]” Huggins v. FedEx Ground Package Sys., Inc., 592 F.3d 853, 862 (8th Cir.
2010). However, if a claim fails to allege one of the elements necessary to recovery on a legal
theory, that claim must be dismissed for failure to state a claim upon which relief can be granted.
Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 355 (8th Cir. 2011).

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II. DISCUSSION
A. The Missouri Trustee Defendants’ Motion
In their Motion, Missouri Trustee Defendants move to dismiss Counts 31 through 34 of
Plaintiffs’ Third Amended Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6), on
several grounds. Counts 31 through 34 assert that Missouri Trustee Defendants aided and abetted
various alleged acts of fraud and breaches of fiduciary duty by knowingly and recklessly providing
substantial assistance and encouragement to the primary tortfeasors in their commission of the
alleged torts.
1. The Missouri Trustees’ Contention that Plaintiffs’ Allegations Directly Conflict
with the Government’s Theory in the Parallel Criminal Proceeding is not Grounds for
Dismissal under Rule 12(b)(6).
Among other things, Missouri Trustee Defendants aver that Plaintiffs’ allegations directly
conflict with the Government’s theory in the parallel criminal proceeding, which asserts that
Missouri Trustee Defendants were victims of the RICO Defendants’ fraud.
Plaintiffs contend the Missouri Trustees’ claim that their allegations in this civil matter
directly conflict with the Government’s theory in the criminal case is not cognizable under Rule
12(b)(6), and they further assert that there is no conflict between the allegations of their
Complaint and the position advanced by Government’s Indictment. Plaintiffs argue that the banks
can be both criminal victims and civil wrongdoers, contending that insider officer wrongdoing can
render a bank civilly liable to innocent third parties, even if the bank is potentially victimized by
the wrongdoing also.
A court considering a motion to dismiss accepts as true all of the well-pleaded allegations
contained in a complaint, and then determines whether the complaint facially states a plausible
claim for relief. See Iqbal, 556 U.S. at 678-79; Fed. R. Civ. P. 12(b)(6). Given the purpose of a

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motion to dismiss, Plaintiffs’ point is well taken. The Missouri Trustees’ contention that the
Complaint’s allegations directly conflict with the Government’s theory in the parallel criminal
proceeding is an argument requiring factual determinations, and thus is not grounds for dismissal.
All that is required at this point in the proceedings is for Plaintiffs to assert factual allegations,
taken and true and liberally construed in Plaintiffs’ favor, which could entitle them to relief. Id.
Moreover, given that the civil rules of procedure allow parties to bring alternative or inconsistent
theories in their complaints and even require trial courts to examine complaints to determine if the
allegations provide for relief on any possible theory, the Missouri Trustees’ assertion that
Plaintiffs’ claims conflict with the Government’s theory in a related, but separate, case is certainly
not basis for dismissal of Plaintiffs’ action. See Fed. R. Civ. P. 8(d), (e) and 12(b)(6); Thomas W.
Garland, Inc. v. St. Louis, 596 F.2d 784, 787 (8th Cir. 1979).
2. The Missouri Supreme Court has not recognized a cause of action based on §
876(b).
Missouri Trustee Defendants claim that the aiding-and abetting counts fail to state a claim
upon which relief may be granted. They assert that the counts allege claims fashioned after §
876(b) of the Restatement (Second) of Torts, and contend that the Missouri Supreme Court has
never recognized a cause of action based on the theory of secondary liability reflected in
subsection (b). Section 876 of the Restatement (Second) of Torts provides:
For harm resulting to a third person from the tortious conduct of another, one is
subject to liability if he (a) does a tortious act in concert with the other or pursuant
to a common design with him, or (b) knows that the other’s conduct constitutes a
breach of duty and gives substantial assistance or encouragement to the other so to
conduct himself, or (c) gives substantial assistance to the other in accomplishing a
tortious result and his own conduct, separately considered, constitutes a breach of
duty to the third person.
Missouri Trustee Defendants assert that the Missouri Supreme Court discussed secondary
liability under § 876 on only one occasion, in Zaft v. Eli Lilly & Co., 676 S.W.2d 241 (Mo. banc
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1984), and that the court limited the section’s application to the context of concert-of-actions
under subsection (a). Missouri Trustee Defendants argue that, if confronted with the question,
the Missouri Supreme Court would not recognize a cause of action for aiding and abetting fraud
or breach of fiduciary duty. They aver that the great weight of Missouri authority limits secondary
liability to the conspiracy theory reflected in § 876(a), and declines to recognize claims under
subsections (b) or (c). Additionally, Missouri Trustee Defendants claim that substantial policy
concerns support limiting the scope of secondary liability to cases falling under § 876(a), alleging
that applying subsection (b) heightens the risk that the law will improperly impose liability on a
party without fault or a direct connection between a wrongful act and tortious harm.
Missouri Trustee Defendants note that two decisions from the Court of Appeals, Western
District conflict in their stance regarding Missouri’s adoption of § 876 (b). The first of these
decisions, Bradley v. Ray, 904 S.W.2d 302 (Mo. Ct. App. 1995), addressed whether a therapist
could be liable for aiding and abetting the sexual abuse of a child if the therapist knew of the
abuse, but consciously failed to report it to authorities. In Bradley, the court concluded that
Missouri did not recognize such a tort, stating “Plaintiff has not cited any Missouri case which
recognizes a claim for aiding and abetting in the commission of a tort, and none were located
through the Court’s own research.” Id. at 315. In a footnote to this statement, the court added,
“While no Missouri courts have recognized a tort based on Restatement (Second) of Torts §
876(b), Missouri courts have rejected claims fashioned after the Restatement (Second) of Torts §
876 (c).” Id., n. 11 (italics in original).
The second Western District decision, Shelter Mut. Ins. Co. v. White, 930 S.W.2d 1 (Mo.
Ct. App. 1996), concluded that, in the context of a fatal automobile accident, the circuit court
erred in dismissing the plaintiffs’ action, because passengers who encouraged their intoxicated

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driver to drive under the influence, to speed, and to ignore traffic signs, could be liable under §
876(b), should a jury determine their acts constituted a substantial factor in the plaintiffs’ losses.
Missouri Trustee Defendants argue that Shelter Mutual was incorrectly decided, asserting
that the decision’s analysis was flawed, because it ignored the Zafft court’s limitation of its
discussion to § 876(a)’s concert-of-action theory of liability, and failed to address the contrary
conclusion in Bradley reached by the Western District just one year prior.
In their pleading opposing the Motion to Dismiss [ECF No. 1092], Plaintiffs claim that,
because the Missouri Supreme Court often adopts the Second Restatement’s position when
confronted with previously unsettled issues of Missouri tort law, it would almost certainly adopt §
876(b), even if the court had to overrule state law precedent to do so. Plaintiffs further argue that
the Missouri Court of Appeals, as well as the vast majority of courts nationwide, have recognized
aiding-and-abetting claims under the theory of liability described in § 876(b), and assert that the
section is consistent with prior Missouri law accepting aiding and abetting as a “well settled”
cause of action. As well, Plaintiffs state that the Western District’s holding in Shelter Mutual
constituted a rejection of any argument that Missouri courts would not uphold § 876(b) claims.
Plaintiffs additionally assert that they have properly pleaded the requisite elements to establish
liability under § 876(b) and § 876(c).
As previously mentioned, the Missouri Supreme Court has not squarely decided whether
to recognize the tort of aiding and abetting based on subsections (b) or (c) of § 876. When faced
with an issue of state law not yet determined, the task of a federal court sitting in diversity is to
attempt to predict how the state’s highest court would resolve the question. Polk v. Ford Motor
Co., 529 F.2d 259, 264 (8th Cir. 1976); Auto Owners Ins. Co. v. Biegel Refrigeration & Elec.
Co., Inc., 659 F.Supp.2d 1050, 1054 (E.D. Mo. 2009). To accomplish this undertaking, federal

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courts are to consider “any persuasive data that is available, such as compelling inferences or
logical implications form other related adjudications and considered pronouncements.” Polk, 529
F.2d at 264.
Available for this Court’s consideration in this matter is a decision from the United States
District Court, Western District of Missouri, Omaha Indem. Co. v. Royal Am. Managers, Inc., 755
F.Supp. 1451 (W.D. Mo. 1991), in which another federal district court was challenged to predict
whether the Missouri Supreme Court would recognize an aiding-and-abetting tort premised on
§876(b). This Court recognizes that Omaha Indemnity predates the two Western District
decisions cited by the parties. Nevertheless, this Court finds that a review of the Omaha
Indemnity court’s determination provides additional assistance in ascertaining the landscape of
Missouri law addressing the application of the various subsections of § 876.
In Omaha Indemnity, plaintiffs filed a summary judgment motion in a case where the
named defendants, using entities they controlled, perpetuated injustice and fraud by intermingling
corporate and personal finances and participating in the systematic stripping of Royal American
Managers’ corporate assets. Id. at 1458. In their motion, the plaintiffs requested judgment in
their favor on, among others, a cause of action against two defendants for aiding and abetting
breaches of fiduciary duty owed to Omaha Indemnity. Id. at 1454, 1459.
In support of their argument for summary judgment, the plaintiffs cited Terrydale
Liquidating Trust v. Barness, 611 F.Supp. 1006, 1015-16 (S.D.N.Y. 1984), a decision where a
New York district court, while noting that Missouri courts had not adopted the aider and abetter
liability found in § 876, found it appropriate to use subsection b of the statute in a case involving
the application of Missouri substantive law. The Omaha Indemnity court, however, denied the
request for summary judgment on the aiding-and-abetting cause of action, stating that the

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plaintiffs’ “citation of one New York district court opinion does not convince me that Missouri
courts would recognize a cause of action for aiding and abetting a breach of fiduciary duty.”
Omaha Indem., 755 F.Supp. at 1459.
In addition to Zafft, and the two contradictory Western District Missouri Court of Appeals
opinions, Bradley and Shelter Mutual, Missouri case law considering the application of various
subsections of § 876 includes a pre-Omaha Indemnity decision from the Southern District,
Richardson v. F.I.E. Corp., 741 S.W.2d 751 (Mo. Ct. App. 1987) (considering § 876 (c)), and a
post-Omaha Indemnity determination from the Eastern District, Gettings v. Farr, 41 S.W.3d 539
(Mo. Ct. App. 2001) (discussing § 876 (a), (b), and (c)).
Richardson, like Zafft, was available for consideration by the Omaha Indemnity court;
however Richardson involved the application of a different subsection of § 876. Richardson was
an action brought against a gun manufacturer for injuries sustained when the plaintiff was
intentionally shot with a gun considered to be a “Saturday Night Special”(allegedly so named due
to the gun’s principal use for criminal activities and lack of value for legitimate activity).
Richardson, 741 S.W.2d at 752. In his petition, the plaintiff, relying on subsection (c) of § 876,
pleaded that the gun manufacturer was liable because it “gave substantial assistance” to the
shooter, by the manufacture and sale of the gun. Id. at 754.
The Richardson court noted that recovery for an injury must be based on an act by the
defendant that proximately caused the injury. Id. The Southern District dismissed the plaintiff’s
claim, stating that § 876(c) had not been adopted as law in Missouri, and opining that applying
subsection (c) as “construed by the plaintiff would extend liability to any injury caused by the
product of a manufacturer whose product is often used in a manner to cause harm to others.” Id.
The court further stated: “In any event, [§ 876(c)] is authority for the fact that this count does not

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state a cause of action.” Id. (italics in original). The court thus concluded that the pleaded count
failed to state a cause of action, because its allegations did not establish the gun manufacturer’s
act, separately considered, constituted a breach of duty to the plaintiff. Id.
The Eastern District’s decision, Gettings concerned a trial court’s dismissal of a plaintiff’s
civil conspiracy claims, and consequently, involved the application of § 876(a). Gettings, 41
S.W.3d at 541. Gettings’ petition alleged that he was injured when he was struck by an
automobile negligently operated by one of three named defendants. Id. In his civil conspiracy
claim, Plaintiff further alleged that the three defendants conspired to steal an automobile, that the
defendants’ conspiracy involved the use of the stolen automobile, and that the plaintiff was
injured as a result of the use of the automobile pursuant to the conspiracy. Id. at 542-43.
In challenging the sufficiency of the civil conspiracy count’s allegations, one of the
Gettings defendants urged the Eastern District to consider “cases from other states analyzing
attempts to impose liability on third parties for actively encouraging drinking and driving or other
negligent operation of an automobile.” Id. at 543. The appellate court found that the theories
involved in the defendants’ cited cases were not the theory alleged by Gettings. Id. In
distinguishing the cases, the Eastern District stated as follows: “These cases do not involve civil
conspiracy as the doctrine has been recognized in Missouri. Rather, in these cases, the plaintiff
was attempting to establish liability based on substantial assistance and encouragement of the
negligent conduct causing injury as provided in Restatement (Second) of Torts, Sec. 876(b) and
(c).” Id. The Eastern District concluded that the allegations contained in two of the plaintiff’s
counts were sufficient to state of claim for relief against the two non-driving defendants on a
theory of civil conspiracy based on the section Missouri courts had recognized, § 876(a). Id.

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In interpreting state law, federal district courts are bound by the decisions of the state’s
highest court. Minnesota Supply Co. v. Raymond, 472 F.3d 524, 534 (8th Cir. 2006). When an
issue has not been decided by the state’s highest court, the decisions of the intermediate appellate
courts are persuasive authority that may be followed, if they are the best evidence of what state
law is. Id. As discussed, the Omaha Indemnity court was not persuaded that Missouri courts
would recognize a cause of action for aiding and abetting a breach of fiduciary duty when it was
presented with the issue in 1991. Omaha Idem., 755 F. Supp. at 1459. At that time, the Missouri
case law addressing the application of § 876 liability was limited to Zafft and Richardson, neither
of which recognized a cause of action under subsections (b) or (c). Id.; Zafft, 676 S.W.2d 241;
Richardson, 741 S.W.2d 751. In fact, the Southern District expressly stated, in 1987, that
subsection (c) had not been adopted as the law in Missouri. Richardson, 741 S.W.2d at 754.
In the interim since Omaha Indemnity, several intermediate Missouri appellate court
decisions have addressed the application of various subsections of § 876, including Bradley,
Shelter Mutual, and Gettings. In 1996, the Western District not only noted that Missouri courts
had never recognized a claim for aiding and abetting a tort, or any other theory of liability based
on § 876(b); the court also stated that Missouri courts had rejected claims fashioned after § 876
(c). Bradley, 904 S.W.2d at 315. One year later, a different panel of the Western District
reversed a dismissal of a claim brought under § 876 (b), finding that the plaintiffs asseverated a
cause of action by alleging the defendants encouraged tortious conduct that was a substantial
factor of the plaintiffs’ injuries. Shelter Mutual, 930 S.W.2d at 3-4. Although the Shelter Mutual
court addressed the holdings in Zafft and Richardson in reaching its conclusion that Missouri
would recognize a tort based on § 876, it seemingly was unaware of the decision decided by
another panel of its court, as the Shelter Mutual decision made no mention of the holding reaching

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in Bradley. Both decisions, with contradictory, opposing conclusions, apparently remain good
law in Missouri.
The Western District briefly revisited the holding of Shelter Mutual in 1998, when it was
presented with a plaintiff’s contention that a hotel was liable for his harm under section 876(b)
for allegedly suggesting that a city eliminate from its construction plans a stairway where the
plaintiff fell. Joseph v. Marriott Int’l, 967 S.W.2d 624 (Mo. Ct. App. 1998). When presented
with the hotel’s contention that Shelter Mutual was limited to situations involving passenger
encouragement of drunk driving, the appellate panel stated, “Whether section 876 applies outside
the drunk driving context, however, need not be determined because under the facts of this case,
section 876(b) could not apply. Subsection (b) specifically requires that the party ‘know that the
other’s conduct constitutes a breach of duty.’” Id. at 629-30.
Other than the conflicting Western District decisions, the other Missouri intermediate
appellate court decisions providing guidance concerning the current state of Missouri law on the
application of § 876 recognize only the civil conspiracy theory set forth in subsection (a).
Gettings, 41 S.W.3d 539; Lynn-Flex W. v. Dieckhaus, 24 S.W.3d 693, 701 (Mo. Ct. App. 1999).
When the question as to whether an individual could be liable for the action of another
under the collusion standard of §876 was presented to a bankruptcy court in 2006, the court stated,
“Missouri courts have held that a person may only be liable for the action of another under the
collusion standard of Section 876 of the Restatement if there is evidence that the two parties acted
pursuant to an agreement or otherwise in concert with each other.” In re Machinery, Inc., 342
B.R. 790, 799 (E.D. Mo. 2006). The bankruptcy court further noted that Missouri law
additionally requires the individual’s action itself, separately considered, to be wrongful with
respect to the injured third-party. Id.

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In sum, Missouri state courts, including the state’s highest court, have recognized the civil
conspiracy theory of liability set forth in § 876 (a). Zafft, 676 S.W2d at 245; Gettings, 41S.W.2d
at 542-43; Shelter Mutual, 930 S.W.2d at 3-4; Lyn-Flex W., Inc., 24 S.W.3d at 70. Several
Missouri courts have flatly rejected the application of § 876 (c), and others have acknowledged its
rejection. Gettings, 41 S.W.2d at 542-43; Bradley, 904 S.W.2d at 315, n. 11; Richardson, 741
S.W.2d at 754. Missouri intermediate appellate courts have reached opposing holdings on the
application of § 876(b), Shelter Mutual, 930 S.W.2d at 3-4; Bradley, 904 S.W.2d at 315; and the
most recent decision of the state’s intermediate appellate courts has indicated that the only civil
conspiracy doctrine recognized and applied in Missouri is the theory described in § 876(a).
Gettings, 41 S.W.3d at 541-43. Of the Missouri appellate court decisions addressing the issue,
only the Shelter Mutual decision concluded that Missouri’s highest state court would recognize
the secondary liability theories set forth in § 876(b) or (c). In view of the holdings in all these
decisions, this Court predicts that the Missouri Supreme Court would decline to adopt the theory
of liability presented by either § 876(b), or § 876(c).
Missouri Trustee Defendants further contend that, even if the Missouri Supreme Court
would recognize such torts, the aiding-and-abetting counts in Plaintiffs’ Complaint fail to state a
claim because they do not allege facts that show Missouri Trustee Defendants affirmatively acted
to aid the primary tortfeasors with actual knowledge that the purportedly assisted or encouraged
conduct was illegal. Missouri Trustee Defendants assert that the “substantial assistance” they
allegedly provided was “passively failing to stop, warn of, or report the primary torts allegedly
being committed by others.”
Plaintiffs assert that they have properly pleaded the requisite elements to establish liability
under § 876(b) and § 876(c), and allege that the Third Amended Complaint contains allegations

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showing Defendant’s knowledge of the schemes to defraud and the roles they played in the
perpetration of the schemes, as well as extensive allegations of affirmative assistance provided by
Defendants, which constituted an indispensable part of the fraud and breaches. The Court finds
that, even if Missouri state law were to recognize the theories of secondary liability for the acts of
a primary tortfeasor as described in § 876(b) or §876(c), the Third Amended Complaint fails to
plead sufficient facts to support the requisite elements of any cause of action under the section.
See Restatement (Second) of Torts, § 876; Zafft, 676 S.W.2d at 245; Lyn-Flex W. Inc., 24 S.W.3d
at 701; Richardson, 741 S.W.2d at 754.
Accordingly, this Court will grant the Missouri Trustee Defendants’ Motion to Dismiss the
Aiding-and-Abetting Counts for Failure to State a Claim [ECF No. 1016], and will dismiss
Counts 31 through 34 of Plaintiffs’ Third Amended Complaint. In light of this disposition,
Defendant U.S. Banks’ Motion to Dismiss Plaintiffs’ Third Amended Complaint, or, in the
Alternative, for a More Definite Statement [ECF No. 1023], brought separately to challenge the
claims asserted against it in Counts 31 and 32, will be denied as moot.
B. Defendant Markow’s Motion
In his Motion, Defendant Markow moves to dismiss the claims brought against him in
Counts 36 through 38 [ECF No. 1082]. The cause of action stated in Count 38, “Aiding and
Abetting Fraud” is premised on the theory of liability described in § 876 (b), with allegations that
Defendant Markow participated in the schemes to defraud by providing encouragement and
substantial assistance in perpetration of those frauds. Accordingly, for the reasons discussed
above, Count 38 will be dismissed for failure to state a claim upon which relief may be granted.
The other counts challenged by Defendant Markow, however, are not resolved by the
disposition of the aiding-and-abetting claims. Count 36 brings a claim for “Breach of Fiduciary

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Duty.” Count 37 asserts a claim for “Participation in a Breach of Trust Duties and Aiding and
Abetting Breach of Fiduciary Duties.” An examination of the Third Amended Complaint reveals
that Plaintiffs have alleged sufficient factual matter, accepted as true, to state a claim for breach of
fiduciary duty and participation in a breach of trust duties. See Iqbal, 556 U.S. at 678; Emerson
Elec. Co. v. Marsh & McLennan Cos., 362 S.W.3d 713-14, 720 (existence & scope of fiduciary
duties owed depends on extent of parties’ relationship & nature of any agreements between them);
State ex rel. Doe Run Res. Corp. v. Neill, 128 S.W.3d 502, 505 (Mo. banc 2004) (corporate officer
may be held individually liable for tortious corporation if he had actual or constructive knowledge
of & participated in actionable wrong); Shervin v. Huntleigh Sec. Corp., 85 S.W.3d 740-41 (Mo.
Ct. App. 2002) (fiduciary duty may arise as result of special circumstances of parties’ relationship;
question is whether trust is reposed with respect to property or business affairs of another); Koger
v. Hartford Life Ins. Co., 28 S.W.3d 405, 411 (Mo. Ct. App. 2000); Morrison v. Asher, 361
S.W.2d 844, 850 (Mo. Ct. App. 1962) (trustee’s fiduciary duty owed as matter of law). Because
the Third Amended Complaint contains sufficient factual matter to allow the reasonable inference
that Defendant Markow is liable for the misconduct alleged in the causes of actions contained in
Counts 36 and 37, Defendant Markow’s Motion will be denied as to these two claims.
Accordingly,
IT IS HEREBY ORDERED that the Missouri Trustee Defendants’ Motion to Dismiss
the Aiding-and-Abetting Counts for Failure to State a Claim [ECF No. 1016] is GRANTED.
Counts 31, 32, 33, and 34 of Plaintiffs’ Third Amended Complaint are DISMISSED.
IT IS FURTHER ORDERED that Defendant U.S. Bank’s Motion to Dismiss Plaintiffs’
Third Amended Complaint, or, in the Alternative, for a More Definite Statement [ECF No. 1023],
is DENIED as moot.

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IT IS FURTHER ORDERED that Defendant Richard Markow’s Motion to Dismiss
Counts 36-38 of Plaintiffs’ Third Amended Complaint [ECF No. 1082] is GRANTED in part,
and DENIED in part. Only Count 38 of Plaintiffs’ Third Amended Complaint is DISMISSED.
Dated this 11th day of September, 2012.

E. RICHARD WEBBER
SENIOR UNITED STATES DISTRICT JUDGE

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