United States Court of Appeals,
Fifth Circuit.
No. 91–1290.
ENTENTE MINERAL COMPANY, Plaintiff–Appellant,
v.
Derek E. PARKER, et al., Defendants,
Pat M. Barrett, et al., Defendants–Appellees.
March 31, 1992.
Appeal from the United States District Court for the Southern
District of Mississippi.
Before THORNBERRY, GARWOOD, and DAVIS, Circuit Judges.
THORNBERRY, Circuit Judge:
This is an appeal from a directed verdict. The
defendant-appellee law firm was sued for vicarious liability. The
district court directed a verdict in favor of the firm, concluding
as a matter of law that the jury could not find vicarious
liability. The plaintiff-appellant, Entente, appeals the district
court's directed verdict. We find that the jury could not have
found vicarious liability and the directed verdict in favor of the
firm was proper.
I. Background
In February 1987, H.B. Sneed ("Sneed"), a petroleum landman
employed by Entente Mineral Company ("Entente"), negotiated with
McKinley Young ("Young") to purchase one-half of Young's royalty
interest in certain property. On February 23, Young and Sneed
orally agreed that Entente would purchase one-half of Young's
interest for $25,000. Sneed then presented a $25,000 draft and a
royalty deed to Young. Young, who does not read well if at all,
stated that he wanted his banker, Bruce Edwards, ("Edwards") to
review the deed to ensure that it accurately reflected the terms of
the oral agreement. Young and Sneed took the deed to Edwards, who
suggested that Young's attorneys at the firm of Barrett, Barrett,
Barrett, and Patton ("the firm") review the deed. Edwards
telephoned Derek Parker, a partner in the firm, and arranged for
Sneed and Young to meet with Parker.
That afternoon, Sneed and Young drove to the firm and met with
Parker. Parker reviewed the deed and told Young that the deed
reflected the terms and conditions of the oral agreement. He also
advised Young that before signing the deed, he should have a title
search performed to guarantee that he owned a one-sixteenth
royalty, the one-half of one-sixteenth that he intended to sell to
Entente and the one-half of one-sixteenth that he intended to
retain. Young then asked Parker to perform the title search.
Parker instructed Sneed and Young to return the next day at one
o'clock p.m. to close the deal. Sneed left the royalty deed and
the $25,000 draft with Parker.
After Sneed and Young left the firm, Parker telephoned his
brother, who was an oil and gas lease and royalty speculator.
Parker asked his brother whether he knew about a well being drilled
on Young's property. After doing some research, Parker's brother
informed him that the well looked promising and that he would
provide financing to Parker if he attempted to purchase the royalty
from Young. Parker's brother suggested offering Young $30,000 for
the one-half royalty. Parker replied that he did not want to pay
$30,000 and that he could probably buy it for $27,000. Later that
day, Parker asked his partner Pat Barrett, Jr. whether he thought
there was anything wrong with a lawyer's purchasing mineral
interests from a client, and Barrett replied that he did not see
anything wrong with it.
The following morning, Parker called Edwards and told him that
he knew of someone who could make Young a better offer. He asked
Edwards to have Young contact him. Young returned Parker's call
and the two agreed to meet that afternoon at Edwards's bank. Once
at the bank, Parker informed Young that he wanted to purchase the
one-half royalty for $27,000. Young agreed, and they executed the
same deed that Sneed had prepared except that Parker's name
appeared in the Grantee blank.
When Sneed arrived at the firm, prepared to close the sale, he
was informed that Young had received a better offer for the
one-half royalty. Sneed asked who purchased the one-half royalty
but was not given an answer. Eventually, Sneed discovered from the
officially recorded deed that Parker had purchased the one-half
royalty.
In June, 1987, Entente sued Parker and the firm in federal
district court based on diversity jurisdiction. Entente asserted
that Parker's actions constituted tortious interference with
business relations and contract in violation of Mississippi law,
and that the firm was vicariously liable for Parker's tortious
conduct. The court held a jury trial. At the close of Entente's
evidence, the firm moved for a directed verdict on the ground that
Parker's purchase of the royalty was not within the scope of his
employment, and hence, the firm could not be vicariously liable for
any tort he may have committed in purchasing the royalty. The
district court concluded that Parker had not been acting within the
scope of his employment when he purchased the royalty and granted
the firm's motion for directed verdict.
Shortly after the directed verdict, Entente and Parker reached
a settlement agreement. The court entered an Agreed Judgment under
which Entente settled all claims against Parker, but reserved all
rights against the firm and the individual partners. Entente now
appeals the district court's grant of the firm's motion for
directed verdict.
II. Analysis
A. The Standard of Review
In diversity cases, federal courts apply a federal test to
determine whether it is proper to direct a verdict. Boeing Company
v. Shipman, 411 F.2d 365, 368 (5th Cir.1969) (en banc). The
inquiry is the same at the trial court level and at the appellate
level: "[i]f the facts and inferences point so strongly and
overwhelmingly in favor of one party that the Court believes that
reasonable men could not arrive at a contrary verdict, granting of
the motion[ ] is proper." Boeing, 411 F.2d at 374; Fruge v.
Penrod Drilling Co., 918 F.2d 1163, 1166 (5th Cir.1990).
Furthermore, the evidence must be viewed in the light and with all
reasonable inferences most favorable to the party opposing the
directed verdict.1 Fruge, 918 F.2d at 1165.
B. Governing Law
Mississippi law applies in this diversity case. Accordingly,
the law firm's vicarious liability for Parker's conduct is assessed
under agency principles. See Miss.Code Ann. § 79–12–17 ("Every
partner is an agent of the partnership for the purpose of its
business...."); Id. § 79–12–25 ("Where, by any wrongful act ... of
any partner acting in the ordinary course of business of the
partnership ... loss or injury is caused to any person ... the
partnership is liable therefor to the same extent as the partner so
acting...."). We are also guided by the Restatement (Second) of
Agency, as the Mississippi Supreme Court has cited with approval
various sections of the treatise. See e.g., Short v. Columbus
Rubber and Gasket Co., 535 So.2d 61, 67 (Miss.1988) (citing § 456);
Marter v. Scott, 514 So.2d 1240, 1242 (Miss.1987) (citing § 228).
1
The relevant facts are not in dispute in this case.
C. Vicarious Liability
Section 219 of the Restatement (Second) of Agency discusses
the circumstances in which a master or principal is liable for the
torts of his servant or agent. Subsection (1) of § 219 provides
that a principal or master is vicariously liable for the torts of
his agent or servant that are committed within the scope of
employment. RESTATEMENT (SECOND) OF AGENCY § 219(1) (1958). An agent
or employee's conduct is within the scope of employment only if
(a) it is of the kind he is employed to perform;
(b) it occurs substantially within the authorized time and
space limits;
(c) it is actuated, at least in part, by a purpose to serve
the master, and
(d) if force is intentionally used by the servant against
another, the use of force is not unexpectable by the master.
RESTATEMENT (SECOND) OF AGENCY, § 228 (1958). Section 228 of the
Restatement, which the Mississippi Supreme Court adopted in Sears
Roebuck & Co. v. Creekmore, 199 Miss. 48, 23 So.2d 250, 251 (1945),
clearly requires that, in order to be within the scope of
employment, the agent's conduct must be actuated, at least in part,
by a purpose to serve the master.
Subsection (2) of § 219 lists four situations in which conduct
that fails to satisfy the "within the scope of employment" test
found in § 228, may still provide a basis for imposing vicarious
liability. Subsection (2) provides in part that
(2) A master is not subject to liability for the torts of his
servants acting outside the scope of employment, unless:
. . . . .
(d) the servant purported to act or to speak on behalf of
the principal and there was reliance upon apparent
authority, or he was aided in accomplishing the tort by
the existence of the agency relation.
Thus, under the Restatement, a principal is liable for the torts of
his agent if the agent commits the tort while acting within the
scope of his employment as defined by § 228, or if § 219(2)
applies. The situations listed in § 219(2) are not necessarily
exceptions to the scope of employment doctrine, but rather
situations in which courts have decided to impose liability on the
principal or employer even if the agent's conduct does not meet all
of the traditional "within the scope of employment" criteria.
Section 261 is an extension of § 219(2)(d), and states that
A principal who puts a servant or other agent in a position
which enables the agent, while apparently acting within his
authority, to commit a fraud upon third persons is subject to
liability to such third persons for the fraud.
Comment a to § 261 states that
The principal is subject to liability under the rule stated in
this section although he is entirely innocent, has received no
benefit from the transaction, and as stated in Section 262,
although the agent acted solely for his own purposes.
Unlike § 228, § 261 assesses vicarious liability even though the
agent's conduct was not actuated by a purpose to serve the
principal. Although Mississippi case law has not expressly
differentiated between the two types of vicarious liability found
in § 219(1) and § 219(2) of the Restatement, the distinction is
implicit.2 Hence, cases imposing liability under the theory
embraced by § 219(1) and defined in § 228, require the agent's
conduct to be for the principal's purposes; while other cases,
under the theory embodied in §§ 219(2)(d) and 261, allow liability
even when an agent acts solely for his own purposes. Compare
Seedkem South Inc. v. Lee, 391 So.2d 990, 995 (Miss.1980) with
Billups Petroleum Co. v. Hardin's Bakeries Corp., 217 Miss. 24, 63
So.2d 543 (1953) and Napp v. Liberty National Life Insurance Co.,
248 Miss. 320, 159 So.2d 164 (1963).
Recognizing the distinction between the types of liability, we
first address whether Parker's purchase of the royalty was within
the scope of his employment as defined by § 228, and second,
whether the firm can be held liable under the theory delineated in
§ 261.3
2
Entente, however, conflates the two theories, arguing that
it is not necessary that Parker's acts be for the firm's benefit
to be within the scope of his employment under § 228, but citing
Billups Petroleum Co. v. Hardin's Bakeries Corp., 217 Miss. 24,
63 So.2d 543 (1953), a case in which the theory of liability is
of the type embodied in § 219(2)(d).
3
Entente alleges four points of error: (1) the district
court erred in concluding that Parker's wrongful act was not
within the scope of his employment because it was not motivated
by a purpose to benefit the firm; (2) the district court erred
by concluding that Parker's purchase of the royalty was separated
by time and sequence from other acts within the scope of his
employment; (3) the district court required actual negligence by
the firm for vicarious liability; (4) the district court
erroneously focused on the purchase itself rather than the entire
context of the transaction in determining that the purchase was
separated by time and sequence from acts within the scope of
Parker's employment.
This opinion is not organized around the four points of
error but rather around the two applicable theories of
vicarious liability. Entente's first, second, and fourth
1. Was Parker's Conduct Within the Scope of His Employment?
The district court concluded that Parker's purchase of the
royalty from Young was an "abandonment of employment" and
therefore, not within the scope of his employment with the firm.
(Tr. at vol. 8, p. 441). Entente does not dispute that the firm is
not in the business of buying minerals or that the firm received no
gain from Parker's purchase of the royalty. Instead, Entente
asserts that the district court improperly focused on the last
event, the purchase itself, and that if the transaction is viewed
in the proper context, Parker's conduct satisfies each element of
§ 228.
In essence, Entente contends that Parker purchased the royalty
while acting as Young's attorney, and was motivated by the firm's
purposes both when he agreed to meet with Young, a longstanding
client, and when he agreed to perform the title search. Entente
maintains that Parker's conduct, from the time he agreed to meet
with Young to the time he purchased the royalty, is only one series
of conduct that cannot be separated into distinct acts; in
Entente's words, Parker's "legal engagement could not be turned on
and off." (Appellant's Br. at 32).
points of error are discussed within the appropriate
sections of the opinion. We do not discuss Entente's third
point of error because the district court did not require
actual negligence by the firm, but merely commented that
Parker's nebulous question to Pat Barrett, Jr. did not put
the firm on notice of Parker's intent to purchase the
royalty from Young.
Entente would have us hold that once Parker began representing
Young pursuant to the firm's purposes, no deviation from the firm's
purpose could take him outside the scope of his employment. Such
a holding would violate the well established rule that
if an employee who is delegated to perform certain work for
his employer steps or turns aside from his master's work or
business to serve some purpose of his own, not connected with
the employer's business, or, as it is often expressed,
deviates or departs from his work to accomplish some purpose
of his own not connected with his employment—goes on a "frolic
of his own'—the relation of master and servant is thereby
temporarily suspended, and the master is not liable for his
acts during the period of such suspension; ....
Seedkem South, Inc. v. Lee, 391 So.2d 990, 995 (Miss.1987). As the
"abandonment of employment" doctrine is entrenched in the law of
vicarious liability, we conclude, as the district court did, that
the proper inquiry is whether, at the time of the purchase, Parker
was acting within the scope of his employment.
There is no dispute that Parker purchased the royalty for
himself and was acting in his own interest, not in the interest of
the firm. (Tr. at vol. 7, p. 230.) There is also no dispute that
the firm did not receive any benefit from Parker's purchase of the
royalty. (Id.). In fact, Young was never billed by Parker or the
firm. (Tr. at vol. 7, p. 231–232). In order to satisfy the § 228
definition of "within the scope of employment," Parker's conduct
must have been motivated, at least in part, by a desire to serve
the firm. It is undisputed that Parker was motivated only by a
desire to serve himself when he purchased the royalty. Viewing the
conduct from the proper perspective, as a matter of law, Parker
could not have been acting within the scope of his employment when
he purchased the royalty interest.
2. Did the Agency Relationship Aid Parker in Committing Allegedly
Tortious Acts, Within the Meaning of §§ 219(2)(d) and 261?
Entente claims that two cases, Billups Petroleum Co. v.
Hardin's Bakeries Corp., 217 Miss. 24, 63 So.2d 543 (1953), and
Napp v. Liberty National Life Insurance Co., 248 Miss. 320, 159
So.2d 164 (1963), support its argument that conduct need not be
motivated by any desire to serve a master in order to be within the
scope of a servant's employment. As discussed above, Entente's
argument conflates two theories of liability.4 We examine the
Billups and Napp cases, however, to determine whether the type of
liability anticipated by § 261 exists in this case. After a
careful examination of the cases and the underlying theories of
liability, we find that as a matter of law, the liability described
in §§ 219(2)(d) and 261 does not exist in this case.
In Billups, a salesman for Hardin's Bakeries overcharged
Billups for bread over a period of several months, and kept the
excess for himself. The Mississippi Supreme Court held Hardin's
Bakeries vicariously liable for its agent's fraud, stating that
4
Although the holding of the Billups case is framed in
"scope of employment" language, upon close examination, the
underlying theory of liability is that expressed in § 219(2)(d)
of the Restatement. See RESTATEMENT (SECOND) OF AGENCY § 219 cmt. e
(1958).
[t]he Principal is liable to third persons for injuries
resulting from the fraud and deceit of his agent if such is
within the scope of the agent's authority. Acts of fraud by
the agent, committed in the course or scope of his employment,
are binding on the principal, even though the principal did
not know of or authorize the commission of the fraudulent
acts, and although he derives no benefit from the success of
the fraud, and the agent committed it for his own benefit.
Billups, 63 So.2d at 546. Contrary to some of the language in the
Billups case, the principal's liability is based on the theory
embodied in §§ 219(2)(d) and 261 of the Restatement, rather than
traditional "scope of employment" liability contained in § 219(1).
The four cases the Billups court discusses in support of its
holding evidence that the court imposed § 219(2)(d) liability.
Each of the four cases involves fraud by an agent upon the
principal's customer. Each case involved a situation in which the
principal delegated to the agent the power to perform a certain
task, such as collect monies for the principal. In each case, the
agent acted for his own purposes, but the fraud transpired as part
of the very duty that the principal authorized the agent to
perform. Because the customers had a relationship with the
principal that induced the customers to rely on the principal's
agent, and the agent defrauded the customers in the performance of
the duty entrusted to him by the principal, the agent was "aided in
accomplishing the tort by the existence of the agency relation."
RESTATEMENT (SECOND) OF AGENCY, § 219(2)(d) (1958).
In Napp, the insurance company's agent defrauded a beneficiary
by painstakingly convincing her that her husband's policy had
lapsed before his death, but that the insurance company would pay
half of the benefit she otherwise would have been due. In fact,
the policy had not lapsed, and when the agent delivered a check for
the full amount of the benefit to the beneficiary, he told her that
the check had been made out for the incorrect amount, and that she
would have to give half of it back to him to return to the company.
He induced her to sign a receipt for the full amount and he kept
one half of the money for himself. The court found that even
though this conduct was not within the scope of the agent's
employment contract, the company elected to have the agent deliver
the check, and "could not delegate to one certain duties and then
deny agency because the written contract between them limited his
activities to other matters." Napp, 159 So.2d at 166. Thus, as in
Billups, the fraud in Napp transpired as part of the very duty that
the agent was authorized to perform for the principal and customer.
Entente contends that, just as in Billups and Napp, Parker was
aided in purchasing the royalty by the existence of his agency
relationship with the firm. Entente advances that but for his
employment at the firm, Parker never would have met Young and never
would have had the opportunity to purchase the royalty; yet,
but-for causation is irrelevant in this case. The proper inquiry
for determining vicarious liability of a principal whose agent
defrauds the principal's customer is the relationship between the
principal and the customer. In Billups, the four cases it
discusses, and Napp, the principal had a relationship with the
customer and the customer was defrauded by the principal's agent.
The courts reasoned that a principal who provides his agent with
the tools or position necessary to perpetrate a fraud on the
principal's customers, should be held responsible to the innocent
customers who relied on the agent. In this case, there was no
relationship between the firm and Entente that could be imputed to
the firm's agent. It is undisputed that neither Parker nor the
firm represented Entente. (Tr. at vol. 6, p. 156). The premise
underlying § 219(2)(d) and § 261 liability, a relationship between
the principal and an innocent third party, is absent in this case.
Therefore, as a matter of law, the firm could not have been held
vicariously liable for Parker's acts.
We AFFIRM the verdict directed by the district court.