June 26, 2009
Employer-Supplied Laptops & Attorney-Client Privilege. Stengart v. Loving Care Agency, Inc. (N.J. Super. Ct. App Div. 2009)
Employer lent Employee an employer-owned laptop for use at home. Shortly before Employee resigned, she used the laptop to send and receive emails using her own email account to communicate with an attorney about suing Employer for discrimination. After Employee resigned (and returned the laptop), she sued Employer. Employer made an image of the laptops hard drive, and found the emails. Were the emails protected by the attorney-client privilege? That was the issue before the Court in Stengart v. Loving Care Agency, Inc., No. A-3506-08T1 (N.J. Super. App. Ct. June 26, 2009) (unpublished). The Court held that the emails were protected:
- It was not clear that Employer had adopted and promulgated an electronic communications policy, Slip Op. at 4-8;
- It was not clear that the purported policy applied to emails sent from a personal account, Slip Op. at 8-12;
- As applied,the purported policy to personal email was unenforceable because it did not further any legitimate business of Employer, Slip Op. at 13-23; and
- The policy was unenforceable because it intruded on the attorney-client privilege:
In weighing the attorney-client privilege, which attaches to the emails exchanged by plaintiff and her attorney, against the company's claimed interest in ownership of or access to those communications based on its electronic communications policy, we conclude that the latter must give way. Even when we assume an employer may trespass to some degree into an employee's privacy when buttressed by a legitimate business interest, we find little force in such a company policy when offered as the basis for an intrusion into communications otherwise shielded by the attorney-client privilege.
Slip Op. at 25-26 (emphasis added).
Hat-tip to Mike Frisch, Legal Profession Blog (No Right to Rummage).
posted by Gary Rosin
June 25, 2009
Exhausted Commuters: No Employer Duty to Public. Nabors Drilling USA Inc. v. Escoto (Tex. 2009)
Hornbook law so basic that it has its own name, the coming-and-going rule: employee negligence in coming and going to work are outside the scope of employment, to the employer is not vicariously liable for an employee's negligence while commuting. To be sure, there are scattered cases imposing liability on an employer for its own negligence. In Otis Engineering Corp. v. Clark, 668 S.W.2d 307 (Tex.1983), an employer that had sent an intoxicated worker home early, and had poured the employee into his car, was found negligent, and liable for the inevitable accident on the way home.
Nabors Drilling USA, Inc. v. Escoto,No. 06-0890 (Tex. June 19, 2009), involved yet another accident while commuting from a drilling company job-site. The employee (Ambriz) worked one-week on and one-week off, with 12-hour shifts (alternating a week of days, a week off, and a week of nights. One morning, the employee fell asleep at the wheel. The plaintiff argued that the drilling company was negligent, but the Court declined to extend Otis. First, there was no showing the drilling company knew the employee "was impaired when leaving work on the day of the accident." Slip Op., at 6. Second, the drilling company did not
... affirmatively exercise control over the incapacitated employee. Unlike the employer in Otis, however, Nabors did not exercise any post-incapacity control over its employee. Ambriz completed his shift without incident and was not sent home early because of any impairment. Nabors did not instruct Ambriz to drive home or escort him to his car. * * * We have never extended Otis to create a duty where an employer’s only affirmative act of control preceded the employee’s shift and incapacity and amounted only to establishing work conditions that may have caused or contributed to the accident.
Slip Op. at 7-8 (citations omitted) (emphasis in original).
posted by Gary Rosin
May 29, 2009
The Ubiquity of Agency Law. Conwell v. Gray Loon Outdoor Marketing Group, Inc. (Ind. 2009)
When talking to a former student, perhaps the most frequent observation is that they regularly use agency law in their practices. For example, consider the opinion in Conwell v. Gary Loon Outdoor Marketing Group, Inc., No. 82S04-0806-CV-00309 (Ind. May 19, 2009). Conwellinvolved the ownership of a website designed (and hosted) by Gray Loon for Piece of America (LP) (PoA). When PoA didn't pay Gray Loon, it took the website off its server, and refused to give the website files to PoA. Later the files were destroyed. PoA sued, claiming that Gray Loon had converted its property.
At this point, you may be wondering how agency law applies. Under copyright law, the owner of the copyright in a work is the author of the work, unless the work was a "work for hire." Apparently, in deciding whether there was a work for hire, it makes a difference whether the work was done by an employee or by an independent contractor. If the former, it is presumed to be work for hire, unless otherwise agreed. If the latter, it is presumed not to be a work for hire, unless agreed in writing. Slip Op., at 12-15.
The only other interesting aspect of the case is the way the Court analyzed the status of Gray Loon. The Court quoted the standard used by the U.S. Supreme Court, and then concluded:
Considering these factors, it seems plain enough that Gray Loon was an independent contractor rather than POA's employee. The website was thus not a "work made for hire."
Slip Op., at 15. That's it. Nothing about how the facts fit into the factors. A great example of how not to write an opinion, or an essay on an exam.
Speaking of exams, back to grading.
Hat tip to Ben Barros, PropertyProf blog.
posted by Gary Rosin
February 03, 2009
Officers and Fiduciary Duties. Gantler v. Stephens (Del. 2009)
In Gantler v. Stephens, No. 132, 2008 (Del. Jan. 27, 2009)--an otherwise routine case involving a shareholder derivative suit involving the fiduciary duties of directors of a corporation, the Delaware Supreme Court affirmed that officers
owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors.
Id., Slip Op. at 24. It's hard to imagine that anyone would imagine that they did not owe fiduciary duties; officers, employees and agents of corporate principals all owe the same agency-based fiduciary duties.
One interesting aspect of Gantler is the Court's observation that fiduciary shield provisions in the certificate of incorporation do not apply to officers:
That does not mean, however, that the consequences of a fiduciary breach by directors or officers, respectively, would necessarily be the same. Under 8 Del. C. § 102(b)(7), a corporation may adopt a provision in its certificate of incorporation exculpating its directors from monetary liability for an adjudicated breach of their duty of care. Although legislatively possible, there currently is no statutory provision authorizing comparable exculpation of corporate officers.
Id., Slip Op. at 24 n.37. By way of contrast, Section 18-1102(e) an LLC Agreement may modify or liability for breach of fiduciary duties by "a member, manager or other person".
I suspect that the Delaware legislature is already at work on an amendment to Section 102(b)(7) of the Delaware General Corporation Law. I would not be shocked if they also expanded that section to allow elimination of liability for all fiduciary duties. In a recent article, Professor Ann Conaway (Widener)suggested that they do so. Ann E. Conaway, Lesson To Be Learned: How the Policy of Freedom of Contract in Delaware's Alternative Entity Law Might Inform Delaware's General Corporation Law, 33 DEL J. CORP. LAW 789, 817-18 (2008).
Hat tip to Francis G.X. Pileggi, Delaware Corporate & Commercial Litigation blog.
posted by Gary Rosin
Update: Over at the "Glom", Professor Usha Rodrigues (Georgia) argues that
now is not an opportune time for executives to be seeking exculpation due to the anti-executive social-political climate.
I'm not sure that will deter the strong contractarian push in Delaware for freedom to delete duties of all sorts, including fiduciary duties. That said, even the statute gets amended, it would require an amendment to a corporations certificate of incorporations--and thus shareholder approval--to add exculpation of officers or deletion of duties. Here, Prof. Rodrigues is probably right; shareholders will probably not be inclined to approve. Also, for the large public corporations, the activist institutional investors would oppose it. And if such a request got out into the press, it would draw strong negative reaction from the public.
December 18, 2008
Fitness & Sexual Relationships between Teacher and Minor Fomer Student
As discussed in "Partner Expulsions for Public Conduct: An Agency Perspective," agents can be dismissed for
conduct that is likely to damage the principal's enterprise
Rest. 3rd. Agency, § 8.10 (Duty of Good Conduct). In Lehto v. Board of Education, C.A. No. 07A-08-007 (DE Dec. 2, 2008), the Delaware Supreme Court affirmed the dismissal of a teacher in the public schools on the grounds of immorality. The teacher was found to have engaged in sexual relations with a former student, who was still a minor. In the view of the Court, while dismissal for off-campus conduct required
such immorality as may reasonably be found to impair the teacher’s effectiveness by reason of his unfitness or otherwise[,]
id. at 7 (quotation marks and citations omitted) the sexual relationship with a former student who was still a minor
Here, part of Lehto’s job as a teacher was to serve as a role model for his students. Because a teacher’s interpersonal relationships are observed by and reflected in the conduct of students, teacher-student relationships must be kept within the bounds of acceptable conduct. If proven, Lehto’s sexual contact with a minor directly related to his fitness to teach other minors and impacted the school community. There was a proper nexus between his alleged off-duty conduct and his fitness to teach.
Id. at 11.
Hat tip to Francis G. X. Pileggi, Delaware Corporate & Commerical Litigation blog.
posted by Gary Rosin
August 24, 2008
posted by Gary Rosin
The Legal Profession Blog notes a recent Bar public reprimand of a lawyer who notarized a durable power-of-attorney even though the lawyer did not see the Principal sign the document. Apparently, the lawyer drafted the power for a friend whose mother was hospitalized at the time. The power, of course, appointed the friend as the mother's agent. I'm sure it was a general power-of-attorney. The problem? Ma didn't sign the power, did no even know about it, and had to hire a lawyer to recover the funds "friend" misappropriated.
With luck, the lawyer isn't always that stupid. When I was in practice, I was preparing some sort of document. The client signed, but not before a notary. One of the staff asked if s/he should notarize it. I explained that notaries put their names on the line; in effect, they are swearing that they that they saw the person sign.
The lawyer here will be luck if things stop with a public reprimand. How about losing the notary license? I bet that criminal charges could be brought, as well.
October 13, 2006
Oklahoma Court On Apparent Authority
In Wesley Messenger Service, Inc. v. American Standard, Inc., No. 04-CV-858-CVE-FHM, 2006 WL 2599314 (N.D. Okla. Sept. 11, 2006), plaintiff Wesley Messenger Service, Inc. (“WMS”) entered into a written contract with defendant American Standard, Inc., d/b/a “Trane,” in which WMS agreed to haul freight shipments for Trane. When Trane employees asked where they should send payments when invoices became due, WMS employee and corporate officer John Rhodes told them to send the payments to Eagle Transportation Associates (“Eagle”), which Rhodes described as a “sister company” to WMS. In fact, Eagle was not at all related to WMS and was, instead, a trucking company that Rhodes formed around the same time that he directed Trane to make payments to Eagle. It was undisputed that WMS never gave Rhodes actual authority to instruct Trane to send payments to Eagle. Based on Rhodes’s statement to send payment to Eagle, Trane thereafter sent numerous payments to Eagle for WMS’s performance under the contract. Around this same time, Rhodes also contacted Trane employees and told them that he was having problems with WMS and that he was thinking about starting his own trucking company.
When WMS learned about Rhodes's fraud, it sued Trane for breach of contract, alleging that, by making payments to Eagle, Trane had breached a provision in the WMS/Trane contract that expressly prohibited assignments of the right to payments without written consent. In response, Trane argued that it did not breach the anti-assignment provision in the contract and, furthermore, that its payments to Eagle were warranted because Trane employees were relying on Rhodes’s apparent authority when he told them to send payments to Eagle and that, WMS, was therefore bound by Rhodes’ actions as the principal.
Both parties moved for summary judgment, which the trial court denied as to both parties. The court first found that Trane’s payments to Eagle did not constitute an assignment of the right to payment. The court noted that Rhodes had represented to Trane that the payments were to be made to Eagle on behalf of WMS as WMS’s “sister company.” Thus, there was no purported “assignment” of the right to payment.
The court further concluded that there were genuine issues of disputed fact on the issue of whether Rhodes was cloaked with apparent authority when he instructed Trane to send the payments to Eagle. The court noted that, on the one hand, Rhodes was a corporate officer of WMS and was acting in that capacity when he gave the instruction to Trane. The court noted, on the other hand, that a jury could find that Rhodes’s statement to Trane employees that he was having problems with WMS and that he was thinking about starting his own trucking company should have put Trane on notice that Rhodes was no longer acting in WMS’s best interests when he told Trane to send the payments to Eagle. Specifically, the court stated that “reasonable people could disagree whether WMS evidenced sufficient conduct to cloak Rhodes with the authority to change the payment recipient and whether Trane . . . reasonably relied upon that conduct.” Finally, the court noted that the issue came down to which party should have to bear the burden of the fraud committed by Rhodes and that wholly depended on whether was acting with apparent authority when he committed the fraud.
October 05, 2006
Federal District Court Case On Employer Vicarious Liability In Title VII Sexual Harassment Case
In Smith v. Southern Ind. Mfg. Co., No. 3:04CV725, 2006 WL 2578979 (N.D. Ind. Sept. 5, 2006), plaintiff Angela Smith was the manager at a retail store in Mishawaka, Indiana (the “Mishawaka store”) owned by defendant Southern Indiana Manufacturing Company, Inc. (“SIMCO”). SIMCO was in the business of selling swimming pools and was owned by Gerald Bishop, and Gerald’s wife Carol was in charge of running the store. The Bishops' son, Kevin Bishop, owned his own company called Twin Cities Pleasure Pools, Inc. (“Twin Cities”). The relationship between SIMCO and Twin Cities was interrelated in that, whereas SIMCO would sell the pools, it would have Twin Cities, acting as a subcontractor, conduct the installation and servicing of the pools. Furthermore, Kevin Bishop was frequently in the Mishawaka store assisting his mother, and he also interviewed potential employees for the store.
According to plaintiff Smith, while she was working as the manager in the Mishawaka store, Kevin Bishop sexually harassed her. When Kevin’s mother refused to do anything about Kevin’s behavior, Smith quit, which she contended amounted to a constructive discharge. Smith subsequently filed a lawsuit in federal district court against SIMCO and Kevin Bishop, alleging sexual harassment under Title VII, assault and battery, and intentional infliction of emotional distress. Smith contended that SIMCO was liable for Bishop’s acts under Title VII and the common law doctrine of respondeat superior because Bishop was SIMCO’s employee. SIMCO argued, on the other hand, that it could not be liable for Bishop’s alleged sexual harassment and tortious conduct because Twin Cities was an independent contractor and Bishop was Twin Cities’, not SIMCO’s, employee.
On a motion for joint summary judgment by SIMCO and Kevin Bishop, the federal district court, applying Indiana law, noted that the following ten factors from the Restatement (Second) of Agency § 220(2) are to be considered when addressing whether a person is an employee or an independent contractor for the purpose of imposing vicarious liability on an employer: "(1) the extent of control which, by the agreement, the master may exercise over the details of the work; (2) whether or not the one employed is engaged in a distinct occupation or business; (3) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (4) the skill required in the particular occupation; (5) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (6) the length of time for which the person is employed; (7) the method of payment, whether by the time or by the job; (8) whether or not the work is a part of the regular business of the employer; (9) whether or not the parties believe that they are creating the relation of master and servant; and (10) whether the principal is or is not in business." The court noted that, although not dispositive, the right to control the manner and means by which the work is to be accomplished is the most important factor. The court further noted that the issue of independent contractor versus employee is usually for the jury, but that the court may decide the issue when “the evidence is undisputed and reasonably susceptible to only one conclusion.” The court denied defendants’ motion for summary judgment in part and granted it in part.
The court first observed that “although Bishop owned his own swimming pool business, and may have acted as an independent contractor in conducting SIMCO's in-home sales and maintenance operations, that does not exclude the possibility that Bishop was an employee of SIMCO for other purposes, such as supervising staff." In finding that a defendant could be considered an independent contractor for certain purposes and as an employee for other purposes, the court explicitly recognized that it found no Indiana case recognizing that such a dual role could exist for purposes of respondeat superior. The court reasoned, however, that Indiana recognized such dual-employee status in the context of workers’ compensation cases.
Specifically with regard to SIMCO’s potential vicarious liability under Title VII for Bishop’s sexual harassment of Smith the court noted that Smith claimed sexual harassment based on hostile work environment as well as quid pro quo harassment based on her alleged constructive discharge. As to the hostile work environment claim, the court noted that, to meet her prima facie case, Smith had to show that she was subject to welcome harassment, that the harassment was based on her gender, that the harassment was severe and pervasive, and that there was a basis for employer liability. SIMCO challenged only the last of these factors, and the court denied summary judgment as to that claim based on its finding that there were issues of fact as to whether Bishop was acting as an employee of SIMCO so that SIMCO could be held vicariously liable. The court further noted that the analysis of the Title VII claim also depended on whether Bishop was acting as Smith’s supervisor, also an issue of disputed fact.
As to the quid pro quo claim, the court noted that Smith had to show that Bishop’s harassment of Smith culminated in a tangible employment action, such as firing, a demotion, or an undesirable reassignment. The court found that Defendant SIMCO was entitled to summary judgment on the quid pro quo harassment claim because it was undisputed that Smith alleged at most that she was constructively discharged and the court stated that “even a constructive discharge does not amount to a tangible employment action.” The court, therefore, granted summary judgment as to both defendants on the quid pro quo harassment claim, but denied summary judgment as to the other claims, including (somewhat confusingly) Smith’s separate claim for constructive discharge.
October 01, 2006
Colorado Federal District Court On Employee Versus Independent Contractor Distinction
In Neiberger v. FedEx Ground Package System, Inc., No. 4-WM-230-MEH, 2006 WL 2475286 (D. Colo. Aug, 25, 2006), plaintiffs Penni and John Neiberger were injured when their truck collided with a truck driven by defendant Kevin Killman. Defendant Dennis Conley was the owner of the truck driven by Killman, and the accident occurred while Killman was delivering packages for Defendant FedEx Ground Package System, Inc. (“FedEx”).
The Neibergers sued all three defendants, alleging personal injury negligence claims and loss of consortium. All three defendants moved for summary judgment. The court denied summary judgment as to all three defendants except on John Neiberger’s bodily injury claim, which the Neibergers conceded.
As for the remaining claims, FedEx argued that it could not be held liable for Killman's alleged negligence because Killman was not its employee. FedEx maintained that it merely shared an independent contractor relationship with the truck’s owner Conley, who shared an independent contractor relationship with the driver Killman. On summary judgment, the court first noted that, under Colorado law, the jury usually decides whether an agent is an employee or an independent contractor by considering the following factors from the Restatement (Second) of Agency § 220(2) (1958): "(a) the extent of control which, by the agreement, the master may exercise over the details of the work; (b) whether or not the one employed is engaged in a distinct occupation or business; (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (d) the skill required in the particular occupation; (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (f) the length of time for which the person is employed; (g) the method of payment, whether by the time or by the job (h) whether or not the work is a part of the regular business of the employer; (i) whether or not the parties believe they are creating the relation of master and servant; and (j) whether the principal is or is not in business." The court noted that the right to control the details of performance was the most important factor.
The court went on to find that the following facts could lead a reasonable jury to conclude that Killman was a FedEx employee rather than an independent contractor: Killman wore a FedEx uniform, drove a truck with clear FedEx markings, and delivered only FedEx packages; FedEx loaded the truck and provided Killman with instructions for where to take the packages; and after the accident Killman gave the Neibergers a FedEx “accident packet,” a procedure required by FedEx. The court noted additionally that Killman had told others that he drove for FedEx and that he had never told anyone that he was an independent contractor. The court concluded that although “this evidence may not dictate a finding that Killman is a FedEx employee,  it is certainly sufficient to support such a finding.” The court also denied Conley’s motion for summary judgment, noting that there was alternatively sufficient evidence to support a finding that Killman was Conley’s employee.
The court, therefore, granted defendants’ motion for partial summary judgment as to John Neiberger's bodily injury claim but denied summary judgment as to all other claims against all three defendants. Finally, in a footnote, the court addressed plaintiffs’ alternative argument that the doctrine of apparent agency could render defendants Conley and FedEx liable even if there was no employee/employer relationship. The court rejected this argument, noting that Coloradol aw does not distinguish between apparent agency and agency by estoppel, that agency by estoppel requires a showing of reliance, and that there was no evidence that plaintiffs’ reliance on any apparent agency in any way caused the accident.
September 03, 2006
Fifth Circuit On The “Intentional Torts” Exception To The United States’ Waiver Of Sovereign Immunity Under The Federal Tort Claims Act
Pursuant to the Federal Tort Claims Act, the United States has generally waived sovereign immunity for the tortious acts of its employees when the employees are acting within their scope of employment. The Act further provides, however, that the waiver of immunity does not apply with respect to claims “arising out of” certain intentional torts, including assault and battery. In Bodin v. Vagshenian, No. 05-50707, 2006 WL 2457104 (5th Cir. Aug. 24, 2006), plaintiffs were psychiatric patients at a VA clinic in Austin, Texas. According to plaintiffs, while being treated at the VA clinic, one of the clinic doctors sexually assaulted them. Plaintiffs sued the doctor and the United States. Plaintiffs argued that the United States was liable for the doctor’s assault and malpractice and for failing to prevent the doctor’s actions.
A bench trial was conducted, after which the trial court dismissed plaintiffs’ complaints for lack of subject matter jurisdiction, finding that the United States was not liable for the doctor’s acts. The court held that because the doctor was acting outside the scope of his employment when assaulting plaintiffs, the United States could not be held liable for the doctor’s acts. In finding that the doctor was acting outside the scope of his employment, the trial court relied primarily on the fact that the VA maintains a “zero tolerance policy” concerning patient abuse. The court also noted that the doctor had abused plaintiffs “for his own personal gratification” and not in carrying out the clinic’s treatment of its patients.
Plaintiffs moved for a new trial or to alter or amend the judgment, contending that the court had not addressed their claims that the other workers at the VA clinic negligently failed to prevent the doctor’s abuse. In support of that claim, plaintiffs had presented evidence that other patients had accused the doctor of sexually assaulting them and that the other employees at the clinic allowed the doctor to continue working at the clinic. The trial court denied the motion, finding that because the negligence claim against the other workers—who were undisputedly acting within the scope of their employment in failing to fire the doctor based on the prior accusations of sexual assault—arose out of the doctor's alleged assault and battery, the claim fell under the Act’s intentional torts exception to the waiver of sovereign immunity for claims “arising out of” assault or battery.
On appeal, plaintiffs argued that the trial court should have found that the doctor was acting within the scope of his employment on the basis that the assaults occurred while the doctor was at the VA clinic during scheduled office visits and while the doctor was supposed to be providing treatment to the patients. The Fifth Circuit disagreed, noting first that Texas law applied in determining whether the doctor was acting within the scope of his employment. The court found that, under Texas law, the mere fact that the assaults occurred during scheduled office visits and while the doctor was supposed to be rendering treatment did not dictate a finding that the doctor was acting within his scope of employment. The court held that, to the contrary, “[u]nder Texas law, a finding that [the doctor’s] conduct was solely motivated by his own personal gratification and not even in part by the Clinic’s purpose forecloses the conclusion that he was acting within the scope of his employment."
As for plaintiffs’ claims, however, regarding the other employees’ negligence in failing to prevent the doctor’s assaults, the court found that the trial court had erred in dismissing those claim.s According to the court, the trial court had erred in holding that the negligence claim was barred under the Act’s intentional torts exception to the waiver of sovereign immunity for claims “arising out of” an assault or battery. The court found that the claims were not barred because plaintiffs could show that the clinic owed to its patients a duty that was independent of any duty owed by the clinic’s relationship with the doctor. That is, the court found that the United States “has an antecedent duty to protect patients in VA hospitals from reasonably known dangers.” The court, therefore, reversed and remanded with respect to the trial court’s dismissal of the negligence claim based on the clinic’s other employees’ failure to prevent the assaults.
In a concurring opinion, one judge noted that, in finding that the negligence claims were not barred, the majority had relied heavily on the Supreme Court’s opinion in Sheridan v. United States. The concurrence pointed out, however, that the Sheridan Court had specifically left open the issue of “whether negligent hiring, negligent supervision, or negligent training may ever provide the basis for liability under the [Federal Tort Claims Act] for a foreseeable assault or battery by a Government employee.” According to the concurrence, the majority, therefore, had improperly relied on Sheridan in reaching its conclusion. The concurring judge noted, however, that it concurred in the judgment “because this circuit’s pre-existing precedent leads to the conclusion that a broader duty of care owed to an injured party could be breached by negligently supervising an employee, and the government may be liable for such a breach.”
August 23, 2006
Oklahoma Court On Liability Of General Partner For Wrongful Act Of Employee Of Partnership
In Gonzalez v. Sessom, 137 P.3d 1245, 1246-49 (Okla. Civ. App. Div. 1 2006), plaintiff Janie Gonzalez worked for many years as a dental hygienist for Brett Dieterlen, a dentist who shared a practice with his father Bruce Dieterlen (“the Dieterlen office”). According to plaintiff, she was constructively discharged after an employee at another dental office, run as a partnership by dentists Wade Sessom and Carrie Sessom (“the Sessom office”), told someone at the Dieterlen office that a dental hygienist working for Dieterlen had suggested to one of the Dieterlens' patients that she should sue Bruce Dieterlen for malpractice after some x-rays were lost. Although the Sessom office employee did not specifically name plaintiff as the dental hygienist who made the statement, the Dieterlens understood that the employee was referring to plaintiff. The Dieterlens and other office employees thereafter treated plaintiff so harshly that she was forced to quit her job.
Plaintiff then sued the Sessoms, alleging claims for defamation, tortious interference with contract, and intentional or negligent infliction of emotional distress. The case went to jury trial and, after the close of plaintiff’s evidence, the trial court granted a demurrer and summary judgment in favor of the Sessoms on plaintiff’s claims. The court specifically granted judgment in favor of Wade Sessom on the basis that plaintiff had produced no evidence that he personally communicated with either the patient or the Dieterlen office or that he authorized any such communication.
On appeal to the Oklahoma Court of Appeals, plaintiff argued, first, that the trial court erred in dismissing her defamation claim based upon the lack of evidence that defendants had specifically identified plaintiff as the person at the Dieterlen office who encouraged the patient to sue Bruce Dieterlen. The court of appeals agreed, noting that plaintiff produced enough evidence from which a jury could have found that the Dieterlens reasonably understood that the employee was referring to plaintiff, even though the Sessom employee did not specifically name plaintiff. The court concluded that plaintiff presented evidence from which a jury could find that an employee in the Sessom office made a defamatory statement about plaintiff and, furthermore, that plaintiff was constructively discharged because of the defamatory statement.
Plaintiff also argued on appeal that the trial court erred in dismissing Wade Sessom as a party on the basis that he did not participate in the defamation. The court of appeals agreed. The court first noted that plaintiff alleged that the Sessoms were liable for the wrongful conduct of their employee under a theory of respondeat superior. The court found that plaintiff had produced evidence to show that the Sessoms’ dental practice was a partnership and that the employee was employed by the partnership when she committed the wrongful act. The court further noted that under Oklahoma law in a general partnership “all partners are liable jointly and severally for all obligations of the partnership.” The court found, therefore, that plaintiff could bring her claim against any or all of the partners and the trial court had, therefore, erred in dismissing Wade Sessom as a party. Finally, the court upheld the trial court’s ruling on the claims for intentional infliction of emotional distress and tortious interference with contract.
Even if the general partners are jointly and severally liable for the obligations of the partnership, to assert respondeat superior liability, the plaintiff still had to show that the employee who allegedly made the defamatory statement was acting within the scope of her employment with the partnership. The court does not address scope of employment at all.
August 19, 2006
New Jersey Court of Appeals On Disclosed Principal Doctrine
In Home Buyers Warranty v. Roblyn Dev. Corp., 2006 WL 2190742 (N.J. Super. Aug. 4, 2006) (unpublished), plaintiff Home Buyers Warranty (HBW) was in the business of administering home warranties, and plaintiff National Home Insurance Company (NHIC) was the underwriter for the home buyers warranty program that HBW administered. In 1998, NHIC and HBW entered into a written contract with defendant Roblyn Development Corp., a home builder. Under the terms of the contract, defendant Roblyn Development agreed to, among other things, warrant to buyers certain conditions in the homes built by Roblyn Development. The contract was signed by HBW, NHIC, and Roblyn Development, which the contract identified as “Roblyn Devel. Corp. dba Presidential Hill, LLC.” Merrick Wilson was the owner and president of Roblyn Development. On the last page of the contract, the words “Merrick Wilson/owner” were hand-printed, with Wilson's signature just beneath them. Wilson did not indicate his title or corporate office when he signed the contract, nor did the persons who signed on behalf of HBW and NHIC.
NHIC subsequently sought arbitration, pursuant to an arbitration clause in the contract, against Roblyn Development concerning three homes built by Roblyn. Despite that (1) NHIC had not sought to impose individual liability against Wilson in the arbitration proceeding, (2) the arbitration notices did not suggest that Wilson was subject to being held personally liable, and (3) Wilson did not even participate in the arbitration, an arbitrator subsequently found that Roblyn Development and Merrick Wilson, in his capacity “personally as guarantor,” were collectively liable as to the three homes in the amount of $81,739.47. Plaintiffs subsequently brought a judicial action to confirm the arbitration award. On plaintiffs’ motion for summary judgment, Wilson argued that the act of signing the contract in his own name did not personally obligate him on the contract and, in any event, the arbitrator should not have conducted the arbitration proceedings against Wilson in Wilson's absence. The trial court disagreed and granted plaintiffs’ motion for summary judgment, finding that Wilson was personally liable because “[h]e didn't have anything under [his signature, such as] President or Vice President. He didn't say that he signed it as an officer of the corporation. He signed it as the builder."
On appeal, a New York appeals court reversed and remanded for an entry of judgment in favor of Wilson. According to the court, the issue was “whether a corporate officer, who fails to identify his position with a corporation which contracts with another, invites personal liability for that oversight.” The court first observed that, absent grounds for piercing the corporate veil, an officer is not liable for a corporation’s contractual obligations, unless the officer personally agrees to accept personal liability for the corporation’s duties. The court further noted that because a corporation cannot act without the participation of natural persons, “the mere fact that an individual executed a contract for the purpose of binding a corporation does not also render that individual liable,” and the individual will be deemed to be acting only as the corporation’s agent. The court found that, under the circumstances of the case before it, Wilson could not be deemed to have personally obligated himself by signing the contract. That is, the contract made clear that it was the corporation, and not Wilson, that was contractually bound, and there was nothing in the contract to suggest that the person signing on behalf of the corporation exposed him or herself to liability. Indeed, the court noted that both Wilson and the individuals signing for plaintiffs HBW and NHIC signed without designating their corporate titles, and the court observed that if all of those persons had signed individually, then no one could have signed on behalf of the company, which of course could not be the case. The court ultimately found, therefore, that the fact that Wilson did not identify himself as a corporate officer in the signature was “irrelevant.” The court noted that its decision was based on the disclosed principal doctrine, providing that when an agent acts on behalf of a disclosed principal the agent does not become a party to the contract. Finally, the court noted that this doctrine applies regardless of whether the builder that entered into the contract was a corporation, or an LLC, or both.
August 18, 2006
Does An Assignment Give Rise To An Agency Relationship Between Assignor And Assignee?
In Smith v. Mallick, Civ. No. 96-02211, 2006 WL 2193807 (D.D.C. Aug. 3, 2006), plaintiff Richard Smith and defendant Raj Mallick entered into a settlement agreement under which defendant agreed to pay plaintiff around $200,000, plus interest. Defendant thereafter repaid only part of the amount, and plaintiff obtained a judgment against defendant for around $230,000, plus daily interest of almost $40. Plaintiff subsequently assigned all of the rights in the judgment to eDebt Management Inc. The assignment itself made clear that eDebt received “complete ownership” in the judgment, “with all rights, title and interest” to “compromise, settle and enforce” the judgment. The assignment further provided that eDebt was to retain 40% of any proceeds collected on the judgment and disburse 60% to plaintiff.
eDebt thereafter contacted defendant to collect on the judgment. Defendant offered to convey to eDebt a deed to property worth $60,000, plus $20,000, for a final release of the judgment. On October 15, 2003, however, eDebt reassigned all rights to enforce the judgment back to plaintiff. For reasons that are not clear, no one notified defendant’s counsel or eDebt’s counsel of the reassignment until January 7, 2004. Between October 2003 and January 2004, defendant’s counsel and eDebt’s counsel continued to negotiate defendant’s offer as if eDebt still had rights to the judgment. On November 13, 2003, eDebt’s president, who was aware of the assignment back to plaintiff, executed a Praecipe, stating that the judgment was “paid, satisfied, and released.” On around November 20, 2003, defendant conveyed an executed warranty deed for the real property and also paid eDebt $20,000.00 in cashier’s checks. In early 2004, defendant discovered for the first time that eDebt had reassigned the judgment back to plaintiff.
On December 22, 2005, defendant brought a motion in the United States District Court for the District of Columbia, asking the court to discharge the judgment as paid, satisfied, and settled, and plaintiff opposed the motion. When defendant brought the motion, the deed to the property was still being held in escrow and had not been recorded, and plaintiff had not received the cashier’s checks.
A federal magistrate judge subsequently recommended that the court deny defendant’s motion. In doing so, the magistrate judge first agreed with plaintiff that the contract between eDebt and defendant purporting to release defendant from the judgment was unenforceable because, when it was entered into, eDebt had already reassigned the judgment back to plaintiff and, thus, eDebt did not have the authority to release the judgment. The magistrate judge also rejected defendant’s argument that he could be released from the judgment under an agency theory. Defendant had argued that the original assignment from plaintiff to eDebt gave rise to an agency relationship and that eDebt was acting with either actual or apparent authority as plaintiff’s agent when it purported to release defendant from the judgment. As the court noted, “an assignment of interest in a judgment does not, in and of itself, create a principal/agent relationship between assignor and assignee,” that the critical element in determining agency is control, and that plaintiff did not exercise control over eDebt in the original assignment merely by retaining the right to 60% of any proceeds collected on the judgment. Indeed, the court noted that the assignment itself made clear that eDebt was given “complete ownership” of the judgment, “with all rights, title and interest” to “compromise, settle and enforce” the judgment, thus precluding any finding of either actual or apparent agency.
The court got this case right, focusing on the element of control critical to an agency relationship.
August 17, 2006
Independent Contractor v. Employee. Falconi v. Coombs & Coombs Inc. (Del. 2006)
In these days of outsourcing and cost-cutting to the bone, many businesses are resorting to what might be called "in-house outsourcing." Instead of using employees, they hire "independent contractors" to work in the business. It seems particularly common in Houston petrochemical businesses. Whenever there's a major accident at a plant--generally, an explosion or the release of toxic chemicals, or both--it's usually "independent contractors" who are hurt.
If a business uses an independent contractor (IC) as an integral part of its business operations, is the IC really an employee (servant)? That was the issue in Falconi v. Coombs & Coombs, Inc., C.A. No. 04A-07-007 (Del. July 11, 2006). Falconi involved a Mom & Pop auto repair business with only two full-time employees, Mom & Pop Coombs (surprise!), two part-time employees (a son-in-law and the son of a friend), and Falconi, purportedly an IC. Falconi became involved in the business when he met Mom & Pop Coombs at a restaurant where he worked as a cook.
The two men discussed Falconi’s desire to change jobs and his recent experience in auto repair. Coombs told Falconi he would “bring him into the business to see how he would work out” during a test period, with the possibility of allowing him to take over the business.
Id. at 3. When Falconi was injured on the job, he filed a workers' compensation claim that was denied on the basis that Falconi was not an employee. On appeal, the Delaware Supreme Court reversed.
The Court adopted Section 220 of the Restatement (Second) of Agency as the test to classify workers as ICs or employees for purposes of workers' compensation. Even though Coombs had treated Falconi as an IC for federal income tax purposes, the court found that he was an employee. Early on, the Court noted that
Simply put, Falconi’s only livelihood was his job to fix cars at Certified Auto, as was the principal job of Coombs, another salaried employee of the business.
Id. at 11. The court cited several of the Section 220 factors, but the key factors were Falconi's apparent integration into the business, and the extensive control exercised by Pop over Falconi's work. The court discounted the fact that Falconi brought his own tools, on the grounds that that was a customary practice in the auto repair business. Also, the business furnished the customers, the workplace, the necessary equipment and the supplies. Id. at 11-13.
To me, Falconi seems correctly decided. The case reminds me of the facts in Wilson v. Good Humor, 757 F.2d 1293 (D.C. Cir. 1985), which was the basis for a problem in my mother's favorite A&P casebook (to borrow from Dan Kleinberger). Good Humor restructured its business by firing all the drivers of its ice-cream trucks. It then sold the trucks to the drivers, hired them back as ICs, and put them out on the streets again.
A firm should not be allowed to shirk (externalize) the costs and risks inherent in its business by structuring itself as a true "web of contracts" with ICs who are an integral part of the main business of the firm. In such circumstances, the ICs are really employees. In any event, note the peculiar risk/special precaution rule would impose vicarious liability for torts of an IC--that was the approach taken in by the court in Wilson.
A hat tip to Francis G. X. Pileggi and the Delaware Corporate and Commercial Litigation Blog for bringing Falconi to my attention.
August 07, 2006
Michigan Court of Appeals Finds No Negligent Hiring or Supervision And No Vicarious Liability
The Michigan Court of Appeals recently upheld a trial court’s entry of summary judgment in favor of a hotel where one of the hotel’s guests was sexually assaulted in her room by a hotel employee who turned out to be a registered sex offender. In Kendrick v Ritz-Carlton Hotel Co., LLC, No. 256696, 2006 WL 2084919 (Mich. Ct. App. July 27, 2006) (unpublished), plaintiff and her daughter were staying at a Ritz-Carlton hotel after a fire burned down their home. One afternoon, a hotel employee delivered a basket of fruit and cookies to plaintiff’s hotel room. Shortly after the basket was delivered, another hotel employee Mark Payne called plaintiff's room and asked whether she had received the basket. Payne told plaintiff that the hotel gave her the basket as a condolence for losing her house in the fire. Plaintiff talked to Payne on the phone for a few minutes and then went to take a shower. As plaintiff was getting out of the shower, she heard a knock on the door. She thought that a friend or family member was at the door so she answered the door in her robe, with only her underwear and bra on under the robe. Payne was standing at the door in a hotel uniform. He was carrying massage oils and lotions and told plaintiff that he would give her a massage for $75. Plaintiff initially declined because she had a headache, but Payne talked her into it and began giving plaintiff a massage on plaintiff’s hotel bed. Payne turned down the lights, and plaintiff removed her robe and lay face down on the bed. At some point, she turned over on her back and fell asleep briefly. The telephone then rang, and plaintiff woke up to find Payne performing oral sex on her.
Plaintiff subsequently sued the hotel for negligent hiring, arguing that it knew or should have known that Payne had previously been convicted of a sexual offense and was a registered sex offender in Michigan. The trial court subsequently granted defendant's motion for summary judgment. On appeal to the Michigan Court of Appeals, plaintiff argued that defendant should be held liable for both negligent hiring and negligent supervision and, furthermore, that defendant should be held vicariously liable for Payne's intentional tort of sexual assault because “he was aided in its accomplishment by his agency relationship with defendant.”
First, as to the negligent hiring and supervision claim, the court of appeals noted that under Michigan law, in the absence of a special relationship between defendant and plaintiff, a defendant has no duty to protect plaintiff from a third party’s criminal acts. The court further noted, however, that Michigan law does recognize a “special relationship” between an innkeeper and guest in cases in which the guest can show “actual or constructive knowledge on the part of the defendant of some danger to be protected against . . . .” The court found that the only evidence that plaintiff produced to support her argument that defendant should have foreseen Payne's actions was an affidavit stating that Payne was a registered sex offender in Michigan. The court held, however, that “the mere fact that the sexual offender registry is a public record does not create in defendant a legal duty to keep abreast of such records and to act preventively upon finding . . . transgressions of [its] employee[s].” The court noted, furthermore, that the fact that a person has a criminal record does not alone establish that the person is violent such that an employer will be held liable for hiring the person for a position that deals with the public. The court also noted that plaintiff had not introduced any evidence to show that the “background check” conducted by defendant was unreasonable. Finally, in discussing whether there was a special relationship between the parties, the court noted that courts will only recognize a special relationship where “the party in control is best able to provide a place of safety.” The court concluded that even though Payne had keys to plaintiff’s room, he “simply knocked on the door, which any member of the public could have done” and that “plaintiff, and not defendant, was in the best position to guard against the potential harm.” The court, therefore, upheld the summary judgment ruling on plaintiff’s negligent hiring claim.
Finally, as to the vicarious liability claim, plaintiff conceded that Payne was acting outside the scope of his employment, but contended that defendant could be held vicariously liable under section 219(2)(d) of the Restatement of Agency (Second) which provides that a principal will be held liable if the agent is aided in the accomplishment of a tort by the existence of the agency relationship. The court of appeals noted, however, that the Michigan Supreme Court has “flatly rejected the application of 219(2)(d) as an exception to the rule of respondeat superior employer nonliability."
The court contradicts itself several times in the opinion when discussing the purported facts. In upholding summary judgment for defendant-hotel, the court relied heavily on its conclusion that plaintiff showed no evidence that defendant’s “background check” of Payne was unreasonable. Early in the opinion, the court stated that “[t]he [background] checks that were done by defendant’s staff consisted of calling a few former employers. The former employers gave only job descriptions and the dates that they employed Payne. All former employers that were contacted refused to give useful information to defendant’s employees (emphasis added).” Later in the opinion, however, the court characterized the evidence in a wholly different light, stating that “[h]ere, defendant not only relied on Payne’s application, resume, and testing, but it also did extensive interviewing of Payne’s previous employers before hiring him. Plaintiff has presented no evidence to support her claim that such a background check was unreasonable (emphasis added).” To make matters even more confusing, the court stated, again, later in the opinion, that defendant did not perform a background check and the court added that defendant had no duty to do so under Michigan law. Thus, the court essentially posited this argument: (1) the hotel had no duty to perform a background check; (2) the hotel did not perform a background check; (3) because the hotel did not perform a background check it did not uncover a history of violence by Payne; (4) and because the hotel did not uncover any history of violence by Payne, defendant did not breach a duty to plaintiff “by unreasonably exposing Payne to the public.”
The court also stated that because plaintiff voluntarily let Payne into her room, plaintiff, rather than defendant, “was in the best position to guard against the potential harm,” and, therefore, there was no “special relationship” between the parties such that defendant had a duty to protect plaintiff. The court’s finding of no “special relationship” between the parties is not, however, based on the mere fact that plaintiff let Payne into her room. After all, Payne was dressed in uniform, had called up to the room previously and introduced himself as a hotel employee, and apparently convinced plaintiff that as a hotel employee he provided in-room massages. Rather, the court’s finding that plaintiff was in the best position “to guard against the potential harm” appears solely based on the court’s disapproval of plaintiff’s conduct in allowing a hotel employee to give her a massage on her bed while she was wearing only a bra and panties. Indeed, the court states that “[b]ecause neither the result of defendant’s hiring Payne (that he would gain entry to a guest’s hotel room by offering an in-room massage and then sexually assault the guest) nor the intervening cause (that plaintiff would voluntarily allow a man carrying a basket of oils into her room to give her a massage on her bed while wearing only her bra and panties) was foreseeable, we hold that the trial court did not err in finding that there was no duty in this case.” In other words, the court believes that plaintiff somehow invited Payne’s conduct despite that it is common, in up-scale hotels, for licensed hotel employees to provide professional massages to hotel guests in their rooms, and some guests, during those massages, wear little or nothing at all.
August 03, 2006
Tennessee Federal District Court Finds No Vicarious Liability Because Employee Acted Outside Scope of Employment
In Borg v. J.P. Morgan Chase & Co., 2006 WL 2052856 (W.D. Tenn. July 21, 2006), plaintiff Mary Borg and her son James Borg sued Mary Borg’s former caregiver Felicia Davis after Davis obtained a credit card in Borg’s name and then, to make the credit card payments, forged Borg’s name on checks from a joint checking account shared by Mary and James. Plaintiffs also named as Defendants Davis’s employer Home Instead, and plaintiffs’ bank Union Planters and credit card company J.P. Morgan Chase (Chase). In the lawsuit, plaintiffs alleged, among other things, that defendant Chase was negligent in allowing Davis to open the credit card account in Borg’s name. Plaintiffs also alleged that Chase’s receipt of about $82,000 in payments from Davis constituted “stolen personal property” that Chase “converted . . . to its own use.” Plaintiffs further alleged that Union Planters breached its contract with plaintiff and her son by honoring the checks that were forged by Davis. Finally, Plaintiffs also sued Davis’s employer Home Instead for negligent hiring and supervision of Davis and further alleged that Home Instead was vicariously liable for Davis's actions because Davis was acting within the scope of her employment when she committed the thefts.
A federal district court in Tennessee subsequently granted summary judgment for all three defendants. With regard to the vicarious liability claim against Home Instead, the court noted that under Tennessee law the conduct of an employee is within the scope of her employment if “(1) it is of the kind she is employed to perform; (2) it occurs substantially within the authorized time and space limit; and (3) it is actuated, at least in part, by a purpose to serve the master.” The court held that plaintiffs neither alleged nor presented evidence showing that Davis’s forgery and theft “were actuated by a purpose to serve” Home Instead. The court noted that it was undisputed that Home Instead neither know about nor profited from Davis’s acts. The court held that the fact that Davis "engaged in this tortious conduct during the work day and while she was performing her general duties of assisting Mary Borg” was not sufficient to show that Davis was acting within the scope of her employment under Tennessee law. The court also granted summary judgment to Home Instead on plaintiffs’ negligent hiring claim, finding that the undisputed facts showed that Home Instead took all reasonable precautions to ensure that Davis was an honest employee, including running a criminal background check on her as well as checking personal references, and that no criminal history had come up in the search. The court further found that as to the negligent supervision claim, plaintiffs pointed to “no evidence or authority to show that Davis's actions were foreseeable or that there was a causal connection between Home Instead’s purported failure to more closely monitor either Davis's actions or Plaintiffs’ finances and Davis's allegedly criminal acts.”
July 16, 2006
Indiana Federal District Court On Employee Versus Independent Contractor
In Tokarz v. Ventaire Corp., No. 2:03CV149PRC, 2006 WL 1793602, 5-7 (N.D. Ind. June 26, 2006), plaintiff Joseph Tokarz filed a lawsuit, alleging that the negligent construction, installation, and design of a canopy by Ventaire Corporation, Havens Steel, and Miltona Canopy caused a piece of sheet metal to fall and injure Tokarz while he was working. At issue before the federal district court on summary judgment was whether the person who oversaw the construction of the canopy was an employee of defendant Miltona Canopy—thus, making Miltona Canopy liable—or whether he was merely an independent contractor over whom Miltona Canopy did not exercise enough control to render Miltona Canopy liable.
The record showed that Miltona Canopy, a sole proprietorship owned by Noland Hanson, was in the business of building and erecting canopies. Defendant Ventaire contracted with Miltona Canopy to do a refacing job at a Flying J Truckstop. Hanson, who normally led Miltona Canopy’s work crews, was injured and could not lead the crew, so Miltona Canopy arranged to have Russell Lewis lead the crew. Lewis had never before performed any work for Miltona Canopy, and Miltona Canopy specifically chose Lewis because Lewis owned a business that performed similar work, and he had significant experience with the type of work that needed to be done on the refacing job. To perform the job, Lewis and a few of Miltona Company’s employees drove from Minnesota to Indiana in Miltona Canopy company vehicles with the company’s tools and other equipment. When the crew arrived at the truck stop, it worked without supervision from Miltona Canopy for three days until a problem arose. At that point, Lewis contacted Hanson to ask him how to proceed. Hanson came to the job site for approximately four hours and during that time he explained to Lewis the order in which the components needed to be installed. While he was at the site, Hanson also put up the Flying J emblem and sign box. The facts further showed that Miltona Canopy had not set any work schedule for the project; that Miltona Company paid for hotel accommodations for everyone making the trip, including Lewis; that Lewis, like Miltona Canopy’s regular employees, was paid based on a percentage of the job, and Miltona Canopy withheld taxes from Lewis’ pay; that Lewis was given the title of independent contractor; and Miltona Canopy considered Lewis to be his own boss. Lewis, on other hand, maintained that he considered himself to be a Miltona Canopy employee.
Plaintiff moved for summary judgment, seeking a finding by the court that Lewis was an employee of Miltona Canopy while working on the canopy installation project. In response, Miltona Canopy argued that Lewis was an independent contractor, and that, at a minimum, there was a question of material fact for the jury as to Lewis’s employment status. In determining whether Lewis was an employee or an independent contractor, the Court examined the following ten factors under Indiana law and the Restatement (Second) of Agency § 220(2): (1) the extent of control which, by the agreement, the master may exercise over the details of the work; (2) whether or not the one employed is engaged in a distinct occupation or business; (3) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (4) the skill required in the particular occupation; (5) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (6) the length of time for which the person is employed; (7) the method of payment, whether by the time or by the job; (8) whether or not the work is a part of the regular business of the employer; (9) whether or not the parties believe that they are creating the relation of master and servant; and (10) whether the principal is or is not in business.
The court concluded that there were genuine factual disputes regarding the ten factors and, therefore, summary judgment was not appropriate. The court noted that the most important factor, control, was inconclusive. More specifically, as to the control factor the court noted that Hanson chose Lewis to lead the team for the refacing job because of his experience; Miltona Canopy did not set Lewis’s work schedule on the job; Lewis and his crew worked for three days without direction from Miltona Canopy; and, but for the call to Hanson, Lewis would have completed the project without supervision from Hanson. The court found that all of these facts suggested that Lewis was an independent contractor. The court also observed, however, that as to other details of the job, Miltona Canopy provided the crew and directed Lewis to the work site, and Lewis and his crew used Miltona Canopy trucks and equipment, which would tend to show that Lewis was an employee. The court further found that it was not clear whether Lewis contacted Hanson because Hanson had control over how the project had to be completed or, rather, whether Hanson was contacted for tactical assistance based on his personal experience on jobs of that type, despite that he did not retain control of the details of the work. The court also found that the record was not clear as to whether Hanson gave Lewis instructions at the outset on the best way to finish the project. The court, therefore, gave no weight to the control factor and found that the remaining factors did not unambiguously suggest an employment relationship; thus, the court could not find as a matter of law that Lewis was an employee.
July 11, 2006
Federal Court Distinguishes Between Agency And Trustee With Regard To Duty To Account
A recent federal district court case highlights the difference between the fiduciary roles of agents and trustees, specifically in the context of accounting. Under the Restatement (Second) of Agency § 382 cmt. a, an accountant’s role is that of an agent, and his duty to account ordinarily includes a "duty of keeping an accurate record of the persons involved, of the dates and amounts of things received, and of payments made." Trustees also may owe a duty to account, which includes the heavier obligation of showing that account expenditures were "correct, just, and necessary." The difference between the obligations of an agent and a trustee with regard to accounting duties arises primarily because the principal has the right to inspect the books of account and memoranda belonging to the agent while carrying out the affairs of the principal. An agent is therefore, unlike a trustee, continuously subjected to the control of the principal. Thus, as noted by the Restatement (Third) of Trusts § 2 cmt. b, trustees have a higher fiduciary obligation than agents.
A federal district court in Oregon discussed those distinctions in a recent case brought by NBA player Clifford Robinson against his former accountants. Robinson, who now plays for the New Jersey Nets, entered the NBA in 1989 and that same year began using the accounting services of defendant Dale Glasser. Glasser’s duties as Robinson’s accountant included preparing Robinson’s tax returns, paying Robinson’s bills, as well as other tasks related to Robinson’s finances. Glasser joined defendant Isler & Co., LLC in 1997 and continued providing accounting services to Robinson. From 1997 through October 2004, Robinson entrusted defendants with $20.9 million of his income. At some point, Robinson apparently came to believe that defendants misused and appropriated to themselves some of the money that he had entrusted to them, and he brought a lawsuit against them, alleging claims for breach of contract, breach of fiduciary duty, and fraud, among other claims, and sought an accounting for the entirety of the parties’ relationship.
The parties filed cross motions for summary judgment related to the accounting claim. Specifically, defendants sought summary judgment on the accounting claim for the time period from 1997 through 2004, arguing that plaintiff was provided an adequate accounting for that time period. In response Robinson argued, among other things, that the documents offered by defendants did not constitute an accounting because they did not show that all of defendants’ expenditures were appropriate.
The court disagreed with Robinson’s argument that defendants had a duty to produce evidence showing that Robinson benefited from all of the transactions. The court noted that, as accountants, defendants’ relationship with Robinson was an agency, rather than a trustee, relationship. Therefore, they were required to keep an "accurate record of the persons involved, of the dates and amounts of things received, and of payments made," but they were not required to show that account expenditures were "correct, just, and necessary." The court ultimately found that defendants had fulfilled their duties to provide an accounting to Robinson during the time period from 1997 to 2004.
The case is Robinson v. Isler & Co., LLC, No. CV05-705-MO, 2006 WL 1804562 (D. Or. June 28, 2006).
July 09, 2006
Oklahoma Court Does Not Dismiss Claim Against Employee/Agent Who Created Risk Of Physical Harm To Plaintiffs
In Samara v. Southwestern Bell Yellow Pages, Inc., 2006 WL 1805946 (W.D. Okla. June 29, 2006), plaintiffs Mena Samara and Anthony Lemos owned a bail bonds company called All City Bail Bonds, L.L.C. All City Bail Bonds signed an advertising contract with defendant SBC Advertising, L.P., under which All City Bail Bonds bought advertisements and listings in the Southwestern Bell Yellow Pages directory (“SWBYP”). Jared Norman, an SBC sales representative, sought and solicited the purchase from plaintiffs. According to plaintiffs’ allegations, plaintiff Samara specifically asked defendant Norman for a guarantee from SBC that the directory would not include the individual plaintiffs’ personal information. Norman allegedly assured Samara twice that SBC would not divulge any personal data. Nevertheless, SBC subsequently printed in the SWBYP directory plaintiffs’ unlisted phone number and unlisted home address, as well as the address and phone number for All City Bail Bonds. Plaintiffs subsequently sued Southwestern Bell Yellow Pages, Inc., SBC, and Norman in state court, asserting claims for breach of contract, invasion of privacy, and gross negligence. In the lawsuit, plaintiffs alleged that because of the personal listings in the SWBYP directory dangerous criminal clients called their home and strangers appeared at their front door, thus raising concerns for their personal safety.
Defendants removed to federal court based on diversity jurisdiction. Defendant Norman, a non-diverse defendant, then filed a motion to dismiss, arguing that the complaint failed to state a claim against him and that he had been fraudulently joined. Plaintiffs filed a motion to remand, asserting that was properly joined and that because he, like plaintiffs, was an Oklahoma citizen, removal was improper. On his motion to dismiss, Norman argued that he dealt with plaintiffs solely in his capacity as an agent and employee of SWBYP and that fact, coupled with plaintiffs’ failure to allege that he acted in an individual capacity or outside the scope of his agency authority, or owed them an independent duty, defeated plaintiffs’ claims against him.
In addressing Norman’s motion, the federal district court cited the general rule that an employee is not liable to a third party he or she injures while performing his or her job. The court noted certain recognized exceptions, including where the employee causes physical harm to a third party (physical harm exception). The court observed that while plaintiffs had not alleged that Norman was ultimately responsible for the protection of SWBYP’s customers, plaintiffs had alleged that Norman solicited the sale to plaintiffs, acquired the necessary information, prepared the plaintiffs’ ad, and knew of plaintiffs’ privacy concern. The court noted that plaintiffs had further alleged that Norman was grossly negligent in that although he knew or should have known of the potential grave danger to plaintiffs if their home address and phone number were published, and despite their repeated requests for confidentiality, he failed to ensure that their personal information was not disclosed to the public. The court concluded that those allegations were sufficient to withstand Norman's motion to dismiss because a jury could find Norman liable under the “physical harm” exception.
The court further found that Norman had not shown that he was fraudulently joined, and determined that because the denial of Norman's motion destroyed diversity of citizenship, the case had to be remanded to state court.
It is questionable whether the Oklahoma district court applied the “physical harm” exception correctly. While plaintiffs alleged that Norman created a risk of physical harm to them, they did not allege that they were, in fact, harmed physically (as were the plaintiffs in the cases cited by the court).
July 02, 2006
Client Had No Fiduciary Duty To Former Attorney
In Kuist v. Bedrosian, No. B187848, 2006 WL 1738174 (Cal. App. 2 Dist. June 27, 2006) (unpublished), plaintiff Gary G. Kuist filed a lawsuit against his former law partners Richard E. Hodge and Jefferson W. Gross; a law corporation and a law partnership controlled by Hodge; and a former client, John C. Bedrosian, for whom Hodge obtained a large settlement with a continent fee of $40 million, several years after Kuist was terminated from the partnership. The written partnership agreement allocated profits and losses among Hodge (79%), Kuist (11%) and Jefferson Gross (10%), and in the lawsuit Kuist alleged he was entitled to 11% of the $40 million contingent fee that Hodge had obtained as a result of the Bedrosian settlement. In addition to his claims against Hodge and the other entities, Kuist also alleged that Bedrosian breached a fiduciary duty to Kuist. Specifically, Kuist maintained in an amended complaint that Bedrosian knew that Kuist had a right to the 11% interest in the contingent fee and that Bedrosian had control over the settlement funds and the “right and power to insist . . . that [Kuist’s] claimed share of the contingent fee be paid to him or sequestered” during pendency of the dispute over the funds, but that Bedrosian failed to ensure that those funds were paid to Kuist or sequestered. Kuist also alleged that Bedrosian had “aided, abetted and acted in concert” with the Hodge defendants in the breach of their own fiduciary duties to Kuist.
On a demurrer by defendant Bedrosian, a lower court found that Bedrosian owed no fiduciary duty to Kuist and, furthermore, that Bedrosian was not liable for aiding and abetting the Hodge defendants’ alleged breach of fiduciary duty to Kuist. On appeal, a California appellate court affirmed, observing that there was no support
either in the cases [Kuist] cites or, so far as we are aware, anywhere else [for Kuist’s contention that Bedrosian had become a fiduciary for Kuist with respect to the handling of the fee]. A client has no fiduciary duty to his lawyer or to his former lawyer; the only fiduciary duty is that of the lawyer to the client. Moreover, no other form of confidential relationship exists or existed between Bedrosian and Kuist that could conceivably give rise to a fiduciary duty on Bedrosian’s part.
As to Kuist’s contention that Bedrosian aided and abetted the Hodge defendants in the breach of their own fiduciary duties to Kuist, the court stated that the complaint showed “nothing more than an ordinary settlement transaction, with a third party paying settlement monies to the law firm representing Bedrosian, and that law firm paying the settlement monies, less its fees, to Bedrosian. Bedrosian’s obligation to pay fees ran to the firm which represented him, not to Kuist.” The court further observed that Bedrosian had no way of knowing whether Kuist’s claim of entitlement to a portion of the fees was legitimate, and he was not acting in furtherance of his own financial gain.