Entente Mineral Co. v. Parker

• Court: Court of Appeals for the Fifth Circuit
• Decided: May 20, 1992
• Docket: 91-1290
• Status: Published

Opinion

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.