Milligan v. Salamone, et al. (March 29, 2018)

The Chapter 7 Trustee of a corporation filed an adversary proceeding against management and the corporation's law firm. The firm filed a motion to dismiss all the causes of action against it, specifically (1) breach of fiduciary duty, (2) conflict of interest or negligent representation, (3) and aiding and abetting breaches of fiduciary duty. As relief for the alleged wrongdoing, the Trustee asked for disgorgement of fees and equitable subordination.

 Breach of Fiduciary Duty. Under Texas and Delaware law, the complaint must allege conduct that goes beyond acts of legal malpractice to support a breach of fiduciary duty claim. Finding none in the third amended complaint, the Court dismissed this cause of action.

Conflict of Interest. The Court analyzed Texas and Delaware law to determine what constituted an improper conflict of interest. The Court held that the Trustee failed to allege any concurrent representation of clients whose interests were not aligned, thus failing to adequately plead a conflict of interest.

 Aiding and Abetting Breach of Fiduciary Duty. The firm only disputed the knowing participation element of this cause of action. The Court, finding that the element was similar under both Delaware and Texas law, explained that to plead the element, the Trustee needed to plead that the firm knew the acts it assisted were breaches of fiduciary duty. Because he did not sufficiently so plead, the Court also dismissed this cause of action.

As the Court found that none of the causes of action were sufficiently alleged, it also denied the Trustee's request for disgorgement and equitable subordination. The firm was thus dismissed as a party to the adversary proceeding.

 WL Cite: 2018 WL 1605171