Friday, November 25, 2011

Agent Fraud or Negligent Misrepresentation

Missouri follows the Restatement (Second) of Agency, Sections 257 and 261, imposing liability on a principal for both agent fraud or negligent misrepresentation.

Sections 257 provides:

"A principal is subject to liability for loss caused to another by the other's reliance upon a tortious representation of a servant or other agent, if the representation is:
(a) authorized
(b) apparently authorized; or
(c) within the power of the agent to make for the principal."
"This precept applies not only where the agent has acted with the intent to mislead but where he failed to exercise reasonable care or competence in making the representation. Restatement (Second) of Torts § 257 comment b."

Mark Twain Plaza Bank v. Lowell H. Listrom & Co., 714 S.W.2d 859, 865 (Mo.App.1986).

Addition Missouri cases applying either or both section 257 or 261 include:

Implied Agency Arising From Acceptance of Agent's Past Conduct

The evidence reveals Listrom had, by its conduct, entered into an implied agency relationship.Stram v. Miller, 663 S.W.2d 269, 270 (Mo.App.1983). The key to implied agency is the principal's acceptance of the agent's past conduct. Id., Lowell Listrom admitted Mr. Azar was authorized to provide information concerning customer accounts to third persons such as the bank. Mr. Azar's testimony also substantiates that fact.
Listrom further argues, however, Mr. Azar was only authorized to release the correct information. "[A] power to make representations involves the possibility of making false and fraudulent ones." Mechem, A Treatise of the Law of Agency, § 1987, p. 1554-5; see also Restatement (Second) of Torts § 257, comment a. The Supreme Court in Tietjens v. General Motors Corporation, 418 S.W.2d 75, 84 (Mo. 1967) put it this way:
"`Tested by reference to the intention of the principal, neither negligence or fraud is within the "scope of the agency;".... The proper inquiry is whether the act was done in the course of the agency and by the virtue of the authority as agent. If it was, then the principal is responsible, whether the act was merely negligent or fraudulent.'"
In view of the above stated proposition, Listrom is bound by the acts of its agent, Aza.

Thursday, October 27, 2011

Rajat Gupta: Agent for whom?

The indictment is available here.

MAI 13.01, 13.02, and 13.06 New Agency Law Instructions

Effective July 1, 2011

The Order is here.

UPL: Hargis v. JLB Corporation

Missouri has neglected to develop its law on the unauthorized practice of law.

Hargis v. JLB presents the question whether loan brokers have the duties of attorneys lawyers in that they might be said to be "procuring of or assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular right." RSMo 484.010.2

Arguments were heard on October 5, 2011.

The briefs are here.

Employee Duties to their Employer: Western Blue Print

Missouri's Supreme Court will hear Western Blue Print Co. v. Roberts on November 30, 2011 regarding the duties of a departing employee.

The briefs are here.

Emerson Electric Co. v March & McLennan, November 30, 2011

The court of appeals doesn't believe Emerson had the right to bargain with a fiduciary with the facts before it.  No thought there about whether fiduciary duties should be "a reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of members of society."

Hopefully the Supreme Court will read the abundant literature to the contrary (not cited by Emerson), including Judge Hand's belief that " he has suffered a wrong; he has lost his chance to bargain with the facts before him" United States v. Rowe

Samuel W. Buell also has insights in his essay  Novel Criminal Fraud which ought to guide the Court's thinking.

The court of appeals apparently forgot that fiduciary relationships do not fall from the sky; they are not defined by statute; they arise from facts.   Firms put trust and confidence in their insurance agents, expecting honesty, fair play, and right dealing. Fiduciary duties are implied from facts.  When courts say an insurance agent has a fiduciary duty that is a legal conclusion implied from the factual nature of the agent/insured relationship.

Both the trial court and the court of appeals deprived Emerson of a jury determination whether a fiduciary duty existed.

Marsh & McLennan made much of a red herring argument: that the General Assembly permitted agents to be paid commissions. That is irrelevant.  Under the Restatement of Agency (Third) Section 8.11 (2005) (not cited by Emerson) an agent a very broad duty to assemble information and to provide all information "the agent knows or has reason to know the principal would wish to have."

The briefs are here.

Important Cases: Linam v. Murphy, 232 S.W.2d 937 (Mo. 1950)

Was a simple case of liability but that never stops a Missouri trial judge bent on re-writing the law.

The plaintiff was a student passenger, injured when the flight instructor negligently flew into power lines over a river and plunged into the stream.

"Cooke circled, lost altitude and "buzzed" Rocky Beach, south of Ginger Blue, where people were swimming. The plane was 10 feet above the water. He then gained altitude and flew south of Noel. From the state highway bridge over Elk River he flew downstream, turned below the dam (about one-fourth mile below the bridge), lost altitude, flew upstream, and "buzzed" the dam, the bridge and the town of Noel. Between the dam and the bridge he flew at an altitude only a little higher than the tops of the trees at the ends of the dam. Plaintiff asked Cooke to "get up and fly at a higher altitude before we run into something," and said, "Let's get out of here and fly like we are supposed to." Cooke replied, "Don't worry; you know I am not going to hurt myself. Take it easy." Cooke regained altitude but was up only about 500 feet when "buzzing" the bridge and the town. He then again circled, flew downstream, turned around below the dam and flew upstream at an altitude lower than that of his first upstream trip. When he "buzzed" the dam the second time the plane was not over 40 feet above the structure. This time, before he reached the bridge, the plane struck the wires of a power line over the river."

The trial judge thought there was no liability for the plane owner because they had told the pilot "not to 'buzz' objects when he had the controls of a training plane with a student in the other seat."


First, "Defendants had not turned over the plane to Cooke for his personal use and pleasure. In taking over the controls he was acting within the scope of his employment, no matter what his motive may have been. He was still acting within the scope of his employment thereafter when he continued to operate the plane. Obviously, Cooke's duty to his employers (and his employers' duty to plaintiff) required him to operate the plane after he had exercised his authority in taking over the controls. His operation of the plane was "not clearly foreign to the nature and scope of his employment," as urged by defendants. See 35 Am.Jur. pp. 995, 996. There was no "direct route" from which he could deviate for his own purposes. See Sullivan v. Thurman, Mo.App., 266 S.W. 745."

"It does not suffice to say that Cooke took the controls for the purpose of "going on a frolic of his own" and then "did the buzzing" for his personal enjoyment. His motive is not material if he was still engaged in defendants' business and if his acts in taking the controls and thereafter operating the plane were part of his duties and within the scope of employment. Nor does it suffice to say that after he took the controls the subsequent "buzzing" was done for his own enjoyment. So long as the act or omission is done in the performance of the master's business as well as "for fun," such an act or omission is deemed to be within the scope of employment. 57 C.J.S., Master and Servant, § 574, pp. 328, 329. See Byrnes v. Poplar Bluff Printing Co., Mo.Sup., 74 S.W.2d 20.

Second, "Nor does it suffice to say that Cooke may have been violating defendants' instructions. We will assume that defendants had instructed Cooke not to "buzz" objects when he had the controls of a training plane with a student in the other seat. (We note that there was no evidence that defendants had so instructed Cooke nor any evidence of what instructions, if any, they had given him as to how he was to operate the plane. Plaintiff testified as to the type of instruction he was supposed to receive, and "buzzing" was not included. But there was no evidence that defendants had instructed Cooke not to "buzz" when he was in control and was not engaged in instructing a student.) Violation of the master's instructions does not relieve the master from liability for the negligent acts of the servant done within the scope of the latter's employment. 57 C.J.S., Master and Servant, § 570, pp. 312, 313. See Riggs v. Higgins, 341 Mo. 1, 106 S.W.2d 1; and Liberty Mutual Ins. Co. v. Boggs, Tex.Civ.App., 66 S.W.2d 787."

Cluck v. Union Pacific Railroad, Missouri Supreme Court, Nov. 2, 2011

The assault on respondeat superior continues before the Missouri Supreme Court in early November. 

The briefs are here.

The court of appeals opinion.

Tuesday, August 2, 2011

Know when and how to give MAI 18.01 when authority to make a contract is at issue

Agri Process Innovations, Inc. v. Envirotrol, Inc., 338 S.W.3d 381, 388 (Mo. App. 2011):

Missouri Approved Instruction 18.01 provides that, when agency is in issue, the verdict director shall be modified to submit to the jury the question of whether the agent acted within the "scope and course of his [agency]." Though the example given by MAI 18.01 relates to a negligence case, the instruction also applies to a breach of contract case when agency is in issue. Rice, 116 S.W.3d at 609-10. Further, when agency is at issue, "scope and course of agency" shall be defined. Id.; see also MAI 13.07 (relating to apparent authority). Defining "scope and course of agency" is not all that the trial court must do: it must also actually submit the agency question in a verdict director, Galemore, 513 S.W.2d at 167-68; i.e., it must require the jury to find that the alleged agent acted within the scope and course of his agency. Accordingly, in this case, (1) the verdict director should have been modified to submit the issue of whether Hoover acted within the scope and course of his agency with Envirotrol; and (2) the term "scope and course of agency" should have been specifically defined. See Rice, 116 S.W.3d at 609-10; Galemore,513 S.W.2d at 167-68; MAI 18.01; MAI 13.07(1) & (2).
Here, the jury instructions met one of these requirements but not both. The term "scope and course of agency" was defined in a separate instruction, but the question of whether Hoover acted within the scope and course of his alleged agency with Envirotrol was not actually submitted to the jury in the verdict director. Defining a necessary term does not constitute submission of a necessary issue, Galemore, 513 S.W.2d at 167-68; and, as explained above, Missouri law requires both.

Key Missouri Agency Citations/Top Ten Cases

#1:  Law Reporting Co. v. Elwood Grain Co., 115 S.W. 475, 477 (Mo. 1909):
 [T]he scope of an agency is to be determined not alone from what the principal may have told the agent to do, but from what he knows or ought to know, in the exercise of ordinary care and prudence, the agent is doing in the premises
#2:   Kahn v. Royal Banks of Missouri, 790 S.W.2d 503 (Mo.App.1990) (adopts inherent authority)

#3:  Linam v. Murphy, 360 Mo. 1140, 232 S.W.2d 937, 941 (1950) (even if employee acts contrary to principals instruction, he is still acting within scope of employment).

#4: Gleason v. Seaboard Air Line Ry., 278 U.S. 349, 49 S.Ct. 161, 73 L.Ed. 415 (1929) followed by Marvel Ind. v. Boatmen's Nat'l Bank, 239 S.W.2d 346, 350 (Mo. 1951).

#5: Tietjens v. General Motors Corporation, 418 S.W.2d 75, 84 (Mo.1967) (respondeat superior, distinct from doctrine of Gleason v. Seaboard Air Line, applicable in cases of fraud).

#6:  Premium Fin. Specialists, Inc. v. Hullin, 90 S.W.3d 110, 113 (Mo. App. W.D.2002) (adopts Restatement (Second) Agency Sections 257 and 261 (1958); accord Mark Twain Plaza Bank v. Lowell H. Listrom & Co., Inc., 714 S.W.2d 859, 864 (Mo. App. 1986).

#7: Hamilton Hauling, Inc. v. GAF Corp., 719 S.W.2d 841, 847 (Mo.App.1986).

#8: Dudley v. Dumont, 526 S.W.2d 839, 844 (Mo.App.1975)  (Implied or inferred agency is authority given implicitly by the principal to his agent, circumstantially proved, or evidenced by conduct, or inferred from a course of dealing between the alleged principal and agent.) The key to authority implied from course of conduct is the knowing acquiescence of the principal in the past acts. Id. at 845. See also National Plumbing Supply Co. v. Torretti, 237 Mo.App. 570, 175 S.W.2d 947, 951 (1943). (Conduct with reference to the particular subject matter and a previous course of dealings relevant in determining agency); accord Mark Twain Plaza Bank v. Lowell H. Listrom & Co., Inc., 714 S.W.2d 859, 864 (Mo. App. 1986) ("by its conduct, [principal] entered into an implied agency relationship").

#9: West v. Sharp Bonding Agency, Inc., 327 S.W.3d 7 (Mo. App. 2010 ("competing inferences" as to right to control make actual agency issue for jury and preclude summary judgment).

#10: Shook v. Retail Hardware Mut. Fire Ins. Co., 154 Mo. App. 394, 134 S.W. 589, 592 (Mo. App. 1911) (restrictions on agents authority not brought home to third party are not binding; and, the power of agent is determined by nature of business intrusted to him and is prima facie coextensive with its requirements).

Missouri Follows Comment C to Restatement (Second) Agency Section 49

Inferences from agent's position. Acts are interpreted in the light of ordinary human experience. If a principal puts an agent into, or knowingly permits him to occupy, a position in which according to the ordinary habits of persons in the locality, trade or profession, it is usual for such an agent to have a particular kind of authority, anyone dealing with him is justified in inferring that he has such authority.

Adopted: Trail v. Industrial Commission, Division of Employment Security, 540 S.W.2d 179, 181 n.1 (Mo.App.1976).

Sunday, July 31, 2011

When there is actual authority, the absence of apparent authority is irrelevant

American Standard Credit v. National Cement Co., 643 F.2d 248, 267 (5th Cir.1981).

See also Taylor v Taylor, 20 Ill. 650, 652 (1858 (all acts of act performed within the scope of the agency bind the principal).

Actual authority may be:
  • express
  • implied from facts and circumstances
  • implied from knowing acquiescence in the agent's earlier actions or course of conduct
  • incidental
  • by operation of law
  • inherent

Wednesday, July 27, 2011

Imputed Knowledge: Sole Shareholder? Yes

FDIC v Ernst & Young, 967 F.2d 166, 171 (5th Cir. 1992)

There is substantial authority in support of the "sole actor" doctrine which imputes knowledge of the dishonest agent to the principal

Munroe v. Harriman, 85 F.2d 493, 111 A.L.R. 657 (2nd Cir. 1936)  certiorari denied Harriman Nat. Bank & Trust Co. v. Munroe, 299 U.S. 601, 57 S.Ct. 194, 81 L.Ed. 443.

Restatement (Second) Agency, Sec. 282, sub. c (1958)

Restatement (Third) Agency, Sec. 5.04, Ill. 10, Reporter's Notes (2005) (citing Munroe)

Missouri agrees:

Newco Land Co. v. Martin, 358 Mo. 99, 213 S.W.2d 504, 515 (1948).

Writings are meaningless, especially if self-serving

    Restatement (Third) Agency Sec. 1.02 (2005)
    E.g., Empson v. Mo. Hwy. & Trans. Comm., 649 S.W.2d 517, 521 [4][5][6] (Mo. App. 1983). 
    Empson states:
[4][5][6] It is important to note the mere characterization of one party (in a contract) as an independent contractor is not controlling on the question of agency where surrounding facts evince an agency relationship, however artfully disguised. Northern v. McGraw-Edison Co., 542 F.2d 1336, 1343 (8th Cir.1976)."
Accord In re Mid-America Living Trust Assoc. Inc., 927 S.W.2d 855, 866 (Mo. 1996) (describing such disclaimers and “self-serving”); and State ex rel Ford Motor Co. v. Dierker, 766 S.W.2d 691, 695 (Mo. 1989)

Ford Motor adopted Empson’s holding:

[T]he characterization of the relationship by the parties is not controlling “where surrounding facts evince an agency relationship, however artfully disguised.” Empson v. Missouri Highway & Trans. Comm'n, 649 S.W. 2d 517, 521 ( Mo.App. 1983).