421 Mass. 659 | Mass. | 1996
The United States Court of Appeals for the First Circuit has certified to this court, pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981), the following two questions of State law:
“1. Under Massachusetts law, to find that a certain act is within the scope of a partnership for the purpose of applying the doctrine of vicarious liability, must a plaintiff show, inter alla, that the act was taken at least in part with the intent to serve or benefit the partnership?
“2. May defendants be found vicariously liable for authorized conduct by their partner that violated Mass.Gen.L. ch. 93A, even if they were entirely unaware of and uninvolved with that conduct?”
Kansallis Fin. Ltd. v. Fern, 40 F.3d 476, 481-482 (1st Cir. 1994).
In order that we may give the guidance that the Court of Appeals seeks, we offer the more extensive “discussion of relevant Massachusetts law” that the Court of Appeals invites in its certification order. See generally Wilkins, Certification of Questions of Law: The Massachusetts Experience, 74 Mass. L. Rev. 256 (1989).
The questions arise out of an appeal by Kansallis Finance Ltd. (plaintiff) from a trial in the United States District Court for the District of Massachusetts. The Court of Appeals stated that the first question concerns an issue on which an apparent conflict exists in Massachusetts precedent, and that the second question concerns a separate issue on which there is no controlling Massachusetts precedent.
I.
We summarize the facts relevant to the questions certified. See S.J.C. Rule 1:03, § 3 (2). Stephen Jones and the four defendants were law partners in Massachusetts when, in connection with a loan and lease financing transaction, the plain
In an effort to recover its loss, the plaintiff brought suit in the District Court seeking compensation from Jones’s law partners on the theory that the partners were liable for the damage caused by the fraudulent letter. Advancing the claim on essentially three grounds, the plaintiff asserted that defendants are liable for the letter because: (1) the defendants gave Jones apparent authority to issue the letter; (2) Jones acted within the scope of the partnership in issuing the letter; and (3) the issuance of the letter violated G. L. c. 93A, under which the partners are vicariously liable. The District Court submitted the first two common law claims to the jury and reserved the G.L. c. 93A (1994 ed.) count to itself. Both the judge and jury, for different reasons, decided that defendants were not liable for Jones’s conduct. The Court of Appeals affirmed both the judge’s and the jury’s factual findings and certified two questions to this court in order to resolve the legal issues.
On the plaintiff’s common law claims, the jury based their verdict on their findings that (1) Jones did not have apparent authority to issue the opinion letter
On the plaintiff’s claim under G. L. c. 93A, the District Court based its ruling on its own independent findings of fact. In the certification, the Court of Appeals noted that, “[ujnlike the jury, [the judge] found that the partnership had clothed Jones with apparent authority to issue the letter on its behalf. Nonetheless, the [judge] went on to hold, as a matter of law, that ‘innocent’ partners may not be held vicariously liable under 93A for their partners’ fraudulent acts. In other words, the [District Court] held that a partner, entirely unaware and uninvolved with another partner’s fraud, is immune from vicarious liability under 9 3A, even when the conduct constituting fraud was authorized.”
II.
A.
The parties have cited to us cases from this and other jurisdictions, as well as general principles set out in the Restatement (Second) of Agency and in the Uniform Partnership Act, codified at G. L. c. 108A. Whatever difficulties this array of authorities presents may in part be attributed to the fact that the issue of vicarious liability has engendered somewhat divergent formulations in the several different contexts in which it has arisen. The genus here is agency, and two of its species, for which there are special rules for determining vicarious liability; are partnership and master-servant.
In the context of a partnership, the person acting and the persons who might be held liable for his actions usually stand on an equal footing and may be thought of as equally implicated in a joint enterprise. Bachand v. Vidal, 328 Mass. 97, 100 (1951). By contrast, the law of the vicarious liability of a master for the acts of his servant grew up in circumstances where the actor was often in a subordinate position and had a limited interest in the enterprise which he assists. See Restatement (Second) of Agency § 218 introductory note, third par. (1957). See generally W.A. Seavey, Agency § 6 (A) (1964) (explaining historical origins of the master-servant and principal-agent distinction); Restatement (Second) of Agency § 2 comment a, & § 218, Title B, Torts of Servants, introductory note (1957) (same). Yet both servants and partners are categorized as agents of their principals. See G. L. c. 108A, § 9 (1994 ed.) (Uniform Partnership Act) (partners are agents of the partnership); Restatement (Second) of Agency § 218 Title B, Torts of Servants, introductory note, fourth par. (1957) (servants are agents of their master); Restatement of Agency (Second) § 14 (A) comment a (1957) (partner is general agent for copartners and liable to copartners for any breach of fiduciary obligation); H.G. Reuschlein
Standing behind these diverse concepts of vicarious liability is a principle that helps to rationalize them. This is the principle that as between two innocent parties — the principal-master and the third party — the principal-master who for his own purposes places another in a position to do harm to a third party should bear the loss. See W.A. Seavey,
This overarching principle measures the imposition of vicarious liability in particular contexts and suggests its own limitations. Where there is actual authority to transact the very business or to do the very act that causes the harm, the agent acts as the extension of the will of his principal and the case for vicarious liability is clear. Where the authority is only apparent, vicarious liability recognizes that it is the principal who for his own purposes found it useful to create the impression that the agent acts with his authority, and therefore it is the principal who must bear the burden of the misuse to which that appearance has been put. See Hudson v. Massachusetts Property Ins. Underwriting Ass’n, 386 Mass. 450, 457 (1982) (apparent authority conferred by “conduct by the principal [that] . . . causes a third person reasonably to believe that a particular person . . . has [such] authority”); Neilson v. Malcolm Kenneth Co., 303 Mass. 437, 441 (1939); Restatement (Second) of Agency § 8 (1957); 2 S. Williston, Contracts § 277 (3d ed. 1959). See generally H.G. Reuschlein & W.A. Gregory, Agency and Partnership § 96 (2d ed. 1990).
Where the wrongdoer transacts business with the victim, the authority — actual or apparent — of the agent to act on the principal’s behalf may be conceptualized as the dangerous instrumentality the principal has put in the agent’s hands, enabling him to do harm with it. And this creates the temptation to use the concepts of apparent authority and scope of employment interchangeably. But they are not equivalent concepts. A servant or agent may sometimes act within the scope of his master’s employment and yet lack apparent authority. The clearest instances are in accident cases where the victim neither knew nor cared what the wrongdoer’s relation to his employer might be. Another rarer divergence may be illustrated by the present case. The scope of employment test asks the question: is this the kind of thing that in a general way employees of this kind do in employment of this kind. It does not ask the different question: whether a reasonable person in the victim’s circumstances in the particular case would have taken the agent to be acting with the principal’s authority. And so there arises the possibility of vicarious liability where the victim transacted business or otherwise dealt with an agent who lacked even apparent authority in the particular matter.
In the case before us here, the jury instructions required the jury to consider both routes to vicarious liability. The jury found that Jones acted without actual or apparent authority, presumably because the form and circumstances of the letter were such that they concluded that no reasonable person in the plaintiff’s position would have believed that the
B.
Our cases and statutes can readily be rationalized against the background of these principles. The Uniform Partnership Act provides as general principles that: the law of agency shall apply under that chapter, G. L. c. 108A, § 4 (3); the
Because the Uniform Partnership Act § 4 (3) specifically provides that the law of agency applies, it is appropriate to refer, as did the District Court in formulating its jury instructions, to the Restatement (Second) of Agency (1957). The District Court derived the second theory of liability, which it labeled vicarious liability and on which it instructed the jury regarding the scope of the partnership business, from § 228 (1) of the Restatement (Second) of Agency. Section 228 (1) provides in relevant part that conduct of a servant is within the scope of his employment, if but only if the conduct is (a) of the kind he is employed to perform, (b) within the employment’s authorized time and space limits, and (c) actuated, at least in part, by a purpose to serve the master. Subsection (2) states the complementary proposition that conduct is not within the scope of employment if it is different in kind from that authorized or too little actuated by a purpose to serve the master. Section 261 states the alternative ground of vicarious liability based on apparent authority: that a principal who puts an agent in a position which enables the agent, while apparently acting within his authority, to commit a fraud on a third party is subject to
The two cases which concerned the Court of Appeals may be understood in this light. Wang Labs., Inc. v. Business Incentives, Inc., 398 Mass. 854 (1986), a G. L. c. 93A case, did indeed require and find an intention to benefit the corporate principal as a condition of vicarious liability, but in that case we did not address and so did not negate the possibility of vicarious liability by the route of apparent authority.
C.
Accordingly, if we take the first certified question to ask whether a partner must necessarily at least in part act for the benefit of the partnership if the partnership is to be liable for his actions, the answer is, “No.” But the answer is “no” only because under our law — and the law of partnership and agency generally — there are two routes by which vicarious liability may be found. If the partner has apparent authority to do the act, that will be sufficient to ground vicarious liability, whether or not he acted to benefit the partnership. It is only where there is no apparent authority, which is what the jury found on the common law counts here, that there may yet be vicarious liability on the alternative ground requiring such an intent to benefit the partnership. Since there is no evidence that Jones was acting to benefit the partnership, the District Court’s judgment for the defendants on the common law counts accords with our statutes and precedents. The jury instructions on the common law claims were correct.
The second question asks whether there must be a finding that the partners were at all aware of or involved in Jones’s misconduct before they may be held liable to Jones’s victim under G. L. c. 93A. This question raises a difficulty of a different order, because it arises under a statute, c. 93A, which was designed to offer broader and more comprehensive relief to victims of dishonesty than may be available at common law. See Nei v. Burley, 388 Mass. 307, 313 (1983); Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693 (1975); Commonwealth v. DeCotis, 366 Mass. 234, 241-242 (1974). Accordingly, it is not surprising that neither the statutory language nor our cases suggests that vicarious liability under the statute is measured by any less comprehensive standards than those we have set out above in considering the common law cause of action. The plaintiffs point out, for example, that c. 93A recoveries are routinely had against corporate defendants, all of whom, of course, have been landed in liability by the acts — often not actually authorized — of their agents. See, e.g., Wang Labs., Inc. v. Business Incentives, Inc., 398 Mass. 854 (1986) (employer liable for act of employee within scope of his employment); Shaw v. Rodman Ford Truck Ctr., Inc., 19 Mass. App. Ct. 709, 712 (1985) (employer liable for conduct of salesman and sales manager); Makino, U.S.A., Inc. v. Metlife Capital Credit Corp., 25 Mass. App. Ct. 302, 305 & n.3, 322 (1988) (affirming c. 93A award against corporation for agents’ deceptive conduct, noting that judgments against agents appeared uncollectible); Computer Sys. Eng’g, Inc. v. Qantel Corp., 571 F. Supp. 1365, 1375, 1377 (D. Mass. 1983), afFd, 740 F.2d 59 (1st Cir. 1984) (awarding c. 93A damages for agent’s act).
Accordingly, the simple answer to the second question — whether a defendant may be vicariously liable under c. 93A for conduct of which it was entirely unaware and with which it was entirely uninvolved — is “Yes.”
The statute does, however, by its terms make a distinction between cases where simple compensatory damages are paid to the plaintiff and where there are double or treble — that is, punitive — damages. In those latter cases, the statute requires that the court find that “the act or practice was a willful or knowing violation.” Thus the Legislature envisaged multiple damage awards against those defendants with a higher degree of culpability than that sufficient to ground simple liability. See, e.g., International Fidelity Ins. Co. v. Wilson, 387 Mass. 841, 855 (1983) (“The Massachusetts Legislature consciously enacted a rule whereby the defendant’s liability is measured by the degree of his culpability”); Linthicum v. Archambault, 379 Mass. 381, 388 (1979), ab
We must, however, approach this question with some caution, lest we unsettle a large body of accepted practice under c. 93A. As we have noted, the definition section of c. 93A equates partnerships to corporations and natural persons; and § 13 of the Uniform Partnership Act makes partnerships liable for penalties incurred by an errant partner. Moreover, our cases have routinely held corporations liable for multiple damages because of the knowing and wilful acts of their agents. Nevertheless, we are not persuaded that partners should automatically be equated with corporations for the purpose of assessing multiple damages for the knowing and wilful act of their agents. A corporation is an impersonal entity that can act only through agents, and so requiring some measure of personal culpability would exempt businesses operating in corporate form from multiple damages. Partnerships differ from corporations in that those held vicariously liable for multiple damages are often themselves natural persons, capable of personal culpability.
IV.
To summarize, we hold that under the law of the Commonwealth a partnership may be liable by one of two routes for the unauthorized acts of a partner: if there is apparent authority, or if the partner acts within the scope of the partnership at least in part to benefit the partnership. Where there is neither apparent authority nor action intended at least in part to benefit the partnership, there cannot be vicarious liability. Accordingly, we answer the first question “no,” but only because even if a partner acts with no purpose to benefit the partnership, vicarious liability may yet be appropriate, if he is clothed with apparent authority. In this case, however, the jury found that there was no apparent authority. We answer the second question, “Yes,” but add that, while c. 93A permits a finding that an innocent and
The judge instructed the jury that “[tjhere is no contention here that Jones had actual authority from the defendants to issue this Opinion Letter.”
See Wallace Motor Sales v. American Motor Sales Corp., 780 F.2d 1049, 1063-1067 (1st Cir. 1985) (no violation under Seventh Amendment to the United States Constitution where judge considering c. 93A liability made findings inconsistent with jury’s finding as to contract claim).
Complicating this still further, as the District Court noted, is the circumstance that corporations and other such abstract entities can only act through agents. We discuss this circumstance in connection with the c. 93A claim.
While the appearance in apparent authority is measured by the standard of reasonableness, it is only those things that the principal has done to create the appearance that are so measured.
Of course today we hold the owner liable even for the acts of a thief or other wrongdoing stranger if the owner took an unreasonable risk of just that kind of misuse. See Jesionek v. Massachusetts Port Auth., 376 Mass. 101, 105 (1978) (injury caused by misappropriated forklift negligently secured with keys in ignition); Smith v. Eagle Cornice & Skylight Works, 341 Mass. 139 (1960) (defendant negligently left axe in courtyard frequented by children; finding of causation permissible when one youth negligently injured another youth with axe).
“Partners are the general agents of each other while transacting the partnership business and one partner is liable for the tort of another committed in the course and within the scope of the business of the firm.” Bachand v. Vidal, 328 Mass. 97, 100 (1951). “But in committing a tortious act which is outside of the agency or common business a partner acts only for himself, and he alone is responsible for the consequences.” Teague v. Martin, 228 Mass. 458, 461 (1917).
This court stated in Wang Labs., Inc. v. Business Incentives, Inc., 398 Mass. 854, 859 (1986), that “[w]e agree that Wang cannot be held liable under G. L. c. 93A for the conduct of an employee acting outside the scope of his employment.” We went on to hold that the employee’s conduct had been within the scope of the employment.
The approach set out here is consistent with our decision in DeVaux v. American Home Assurance Co., 387 Mass. 814 (1983). The plaintiff had written and called the defendant’s law office requesting legal assistance in regard to a possible tort claim. The letter and calls were received by a secretary who did not bring them to the defendant attorney’s attention until after the statute of limitations on the plaintiff’s claim had run. The plaintiff sued the attorney for malpractice on alternative theories that the secretary’s actions bound her employer: (a) because the secretary was acting within the scope of her employment, and (b) because she had apparent authority to establish an attorney-client relationship. We held that, “[u]nder either theory, the question whether there was an attorney-client relationship depends on the reasonableness of the plaintiff’s reliance.” Id. at 819. This emphasis on the plaintiff’s reliance interest is entirely appropriate in most cases. It is only in the rare event that the reliance, while present is not reasonable, and yet when the agent acts in part to benefit the principal, an additional reason to cast responsibility on the principal may be found. To the same effect is the decision of the First Circuit Court of Appeals in Sheinkopf v. Starr, 927 F.2d 1259 (1st Cir. 1991).
“Although c. 93A, § 9 and § 11 are distinct in that § 9 grants a cause of action to consumers and § 11 grants a cause of action to persons engaged in trade or commerce, principles established in § 9 cases often apply to § 11 cases. See Trempe v. Aetna Casualty & Sur. Co., 20 Mass. App. Ct. 448, 458 (1985); Refuse & Envtl. Sys., Inc. v. Industrial Servs. of Am., Inc., 932 F.2d 37, 42 n.3 (1st Cir. 1991). See also Brennan v. Carvel Corp., 929 F.2d 801, 814 (1st Cir. 1991) (“claims brought under section 9
We do not rule on a number of other possible situations, as where there is a corporation which is a partner or there is a limited partnership perhaps with a corporate general partner. And particularly, we do not consider the bearing of the recently enacted statute, St. 1995, c. 281, which allows law firms to organize as limited liability partnerships and limited liability corporations, on the appropriateness of assessing multiple damages against copartners under c. 9 3A.
Maryland held innocent partners liable in an alternative holding in Meleski v. Pinero Int’l Restaurant, Inc., 47 Md. App. 526, 535-536 (1981) (sufficient evidence for the jury to have found that the partners ratified or authorized the fraudulent acts, but such evidence not necessary because partners punitively liable for copartner’s actions). Texas held innocent partners liable in Termeer v. Interstate Motors, Inc., 634 S.W.2d 12 (Tex. Ct. App. 1982) (innocent partner in auto dealership told consumer that partnership would pay for car after innocent partner learned of accident, but court stated that he would nevertheless be liable for treble damages for copartner’s actions). Missouri held innocent partner liable in Rogers v. Hickerson, 716 S.W.2d 439, 447 (Mo. Ct. App. 1986) (question concerning innocent partner’s silence set aside because partners are liable punitively for copartner’s fraud committed within the scope of the partnership). See also Blue v. Rose, 786 F.2d 349, 352-353 (8th Cir. 1986) (stating that Missouri law holds innocent partners liable for punitive damages); Glass Design Imports, Inc. v. Rastal GmbH & Co. KG, 672 F. Supp. 419, 423 (W.D. Mo.) (partners liable for copartner’s act so long as done within scope of wrongdoer’s authority), afFd in part and rev’d in part on other grounds, 867 F.2d 1139 (8th Cir. 1987).
New Mexico specifically held that innocent partners are liable for compensatory damages but not punitive damages arising from a partner’s fraudulent conduct. Duncan v. Henington, 114 N.M. 100, 102-103 (1992) (innocent partners not punitively liable for copartner’s fraudulent acts); Samedan Oil Corp. v. Neeld, 91 N.M. 599, 601 (1978) (principal or master liable for punitive damages only where he “has in some way authorized, participated in or ratified the acts of the agent or servant, which acts were wanton, oppressive, malicious, fraudulent or criminal in nature”). Hawaii, according to the Bankruptcy Court in Hayes v. Quincy (In re WPMK Corp.), 59 B.R. 991, 997 (Bankr. D. Haw. 1986), prohibits punitive damages liability against innocent copartners unless “the partnership [expressly or impliedly] authorized, ratified, controlled, or participated in the alleged tortious activity.” Indiana holds that innocent copartners are exempt from punitive damages liability, because the purposes of punishment and deterrence are not served by assessing innocent parties. Husted v. McCloud, 450 N.E.2d 491, 495 (Ind. 1983), superseded on other grounds by statute, Ind. Code § 34-4-30-2 (1988), which provides that “it is not a defense to an action for punitive damages that the defendant is subject to criminal prosecution for the act or omission that gave rise to the civil action.” See also Lake Shore v. Prentice, 147 U.S. 101, 107 (1893) (punitive damages punish the guilty).