Opinion ID: 1057678
Heading Depth: 2
Heading Rank: 1

Heading: Agent Exoneration from Vicarious Liability

Text: Parker and Flowers' primary contention in this appeal is that because the complaint against their agents had already been dismissed, they, as principals, cannot be held vicariously liable for any fraudulent misrepresentations by their agents. They argue that they cannot be held liable under the doctrine of respondeat superior because their agents have already been absolved from liability by a prior, favorable and final adjudication. When an agency relationship has been established, the principal may be bound by the acts of the agent performed on the principal's behalf and within the actual or apparent scope of the agency. Boren ex rel. Boren v. Weeks, 251 S.W.3d 426, 432 (Tenn.2008); White v. Revco Disc. Drug Ctrs., Inc., 33 S.W.3d 713, 723 (Tenn. 2000). The law does not require that the principal either expressly direct or have knowledge of the agent's tortious act; rather, it is enough that the agent was acting in the business of his superior. White, 33 S.W.3d at 724. Here, the jury returned a special verdict establishing the relationship between Parker and Flowers, as principals, and the Links, as their agents. The verdict also established that the Links made false and misleading statements upon which at least some of the Plaintiffs detrimentally relied. As to this appeal, Parker and Flowers do not challenge the existence of their agency relationship with the Links. In fact, they concede the point as a basis for their argument. A principal's vicarious liability for the tortious acts of his agent is not without limitation. It is well-established, for example, that vicarious liability for the principal is extinguished when the agent himself is exonerated for the actions giving rise to the liability. See D.B. Loveman Co. v. Bayless, 128 Tenn. 307, 160 S.W. 841, 843 (1913) (If the immediate actor is free from responsibility ... can his employer[]one taking no direct part in the transaction[]be held responsible?... The question carries its own answer .... (quoting New Orleans & N. E. R. Co. v. Jopes, 142 U.S. 18, 27, 12 S.Ct. 109, 35 L.Ed. 919 (1891))); Restatement (Second) of Judgments § 51(1) (1982). We most recently considered this issue in Johnson v. LeBonheur Children's Medical Center , which involved a claim against a hospital for the negligence of two resident physicians who were employed by the University of Tennessee through a training program. Johnson, 74 S.W.3d at 341. The hospital asserted that it could not be held vicariously liable because the physicians, as state employees, were immune from personal liability for negligent acts under Tennessee Code Annotated section 9-8-307. Id. at 342. In Johnson , this Court, after conducting an analysis of prior case law, concluded that a principal could not be held vicariously liable for the acts of an agent in three instances. Initially, when an action is filed against an employer based solely upon the tortious actions of its employee under the doctrine of respondeat superior, a verdict in favor of the employee entitles the employer to a discharge from liability. Id. at 344 (citing Bayless, 160 S.W. at 842). Secondly, a defendant, as the owner of a vehicle, could not be held liable to his daughter-in-law for his son's negligent operation of the vehicle; because the marital unity rule extinguished the daughter-in-law's right of action against her husband, the defendant father-in-law could not be held vicariously liable under the doctrine of respondeat superior. Raines v. Mercer, 165 Tenn. 415, 55 S.W.2d 263, 264 (1932). Finally, when a plaintiff has executed a covenant not to sue the driver of a vehicle, the plaintiff cannot then bring a suit for negligence against the employer of the driver based solely upon vicarious liability. Stewart v. Craig, 208 Tenn. 212, 344 S.W.2d 761, 763 (1961). Combining the holdings of these three cases, this Court set forth the following rule of law: [A] principal may not be held vicariously liable under the doctrine of respondeat superior based upon the acts of its agent in three instances: (1) when the agent has been exonerated by an adjudication of non-liability, (2) when the right of action against the agent is extinguished by operation of law, or (3) when the injured party extinguishes the agent's liability by conferring an affirmative, substantive right upon the agent that precludes assessment of liability against the agent. Johnson, 74 S.W.3d at 345. We ultimately held in Johnson that the plaintiff could maintain her action against the hospital because, unlike the marital unity rule, the statute conferring immunity did not extinguish a claimant's right of action against the State of Tennessee by operation of law, but merely immunized the physicians in residence at the hospital from individual monetary liability. Id. at 345-46. We have described the categories established in Johnson to be exhaustive, setting forth the only three instances in which a principal may not be held vicariously liable for his agent's tortious acts under the doctrine of respondeat superior. Shelburne v. Frontier Health, 126 S.W.3d 838, 844 (Tenn.2003). In consequence, unless Parker and Flowers fall within one of the protected categories, they may be held vicariously liable to the Plaintiffs based upon the fraudulent misrepresentations of the Links. Because the third of the three categoriesthat the Plaintiffs conferred an affirmative right on the Links precluding any assessment of liabilitydoes not apply, the dispositive question is either whether the Links were exonerated by an adjudication of non-liability or whether the Plaintiffs' right of action against the Links was extinguished by operation of law. Parker and Flowers argue that the Links' dismissal from the lawsuit in February 1998 was an adjudication of non-liability. We disagree. When the trial judge considered the motion to dismiss filed by GE Capital and Transport International, in which the Links and Link and Associates joined, the Plaintiffs' claim was founded upon breach of contract. The Plaintiffs had alleged that the Defendants had, either orally or in writing, promised financing for the development, construction and operation of hotels to be located on Parker and Flowers' property. The trial judge found that none of the writings presented by the Plaintiffs rose to the level of a contract wherein there is a meeting of the minds. Because there was no written agreement [or] written contract between these parties as to financing, the trial judge concluded that the statute of frauds required dismissal of the breach of contract suit. While totally dismiss[ing] the Links from the lawsuit because they had joined in the Motion to Dismiss along with the GE Companies and based again upon the Statute of Frauds, the trial court did not make a finding or holding regarding fraud on the part of the Links. The trial court limited its ruling to the scope of the documents signed in October of 1993 in Gatlinburg, and indicated that any allegations of fraud or misrepresentation would be related to the lease agreements that closed several weeks later in a separate jurisdiction. The trial court, therefore, made no judgment as to the allegations of fraudulent misrepresentation that form the basis of the litigation between the Plaintiffs and Parker and Flowers today. In consequence, there has been no determination of liability or non-liability of the Links as to the fraudulent misrepresentation issue. Cf. Rankhorn v. Sealtest Foods, 63 Tenn. App. 714, 479 S.W.2d 649, 652 (1971). Indeed, the Plaintiffs insist that they did not become aware of the Links' fraudulent misrepresentations regarding the financing until taking the depositions of Parker and Flowers in September of 2000, some two-and-a-half years after the Links were dismissed from the lawsuit. The Plaintiffs did not amend their complaint to include these allegations until November of 2005. The trial court's holding that the Plaintiffs failed to state a breach of contract claim against the Links upon which relief could be granted is not an adjudication of non-liability that would absolve Parker and Flowers from vicarious liability for any fraudulent misrepresentations by the Links. [12] As such, this case does not fall within the first Johnson category. A more difficult question is whether the Plaintiffs are able to pursue their suit for vicarious liability against Parker and Flowers based upon the second category identified in Johnson , that their right of action against the Links has been extinguished by operation of law. The phrase operation of law is defined as [t]he means by which a right or a liability is created for a party regardless of the party's actual intent. Black's Law Dictionary 1119 (7th ed.1999); see also Ward v. Doss, 361 Ark. 153, 205 S.W.3d 767, 771 (2005) (accepting definition of [t]he term operation of law... as the manner in which rights [...] devolve upon a person by the mere application [...] of the established rules of law, without the act or co-operation of the party himself (quoting Kaplus v. First Cont'l Corp., 711 So.2d 108, 111 (Fla.Dist.Ct.App. 1998))). Johnson and most of the cases that have interpreted and applied the second category of its agent exoneration rule have done so only in the statutory context, considering either specific provisions intended to confer immunity on an agent or the expiration of a statute of repose. [13] See Johnson, 74 S.W.3d at 345-46; Shelburne, 126 S.W.3d at 845; Huber v. Marlow, No. E20007-01879-COA-R9-CV, 2008 WL 2199827, at -4 (Tenn.Ct. App. May 28, 2008); Logan v. Everett, No. M2005-00012-COA-R3-CV, 2006 WL 223708, at  (Tenn.Ct.App. Jan.27, 2006). Supreme courts in other states have at least intimated that the doctrines of res judicata and collateral estoppel also serve to bar relitigation of a suit or issue by operation of law. See, e.g., Huff v. Huff, 648 S.W.2d 286, 288 (Tex.1983) (holding that claim for child support merged into final divorce judgment is precluded from further relitigation by operation of the law of res judicata); Lundeen v. Hackbarth, 285 Minn. 7, 171 N.W.2d 87, 89 (1969) (declining to apply collateral estoppel because it would work a manifest injustice of turn[ing a] traffic light from green to red by operation of law). Whether res judicata serves to extinguish a right of action by operation of law for purposes of the Johnson rule, however, is a question of first impression for this Court. To illustrate the second category of agent exoneration, Johnson discussed this Court's opinion in Raines , which applied the common-law doctrine of interspousal tort immunity. [14] Although res judicata is very different, nothing in our ruling in Johnson placed limitations on the term operation of law. Res judicata, much like the marital unity doctrine or a statute of repose, may serve as a complete bar to relitigation, thus extinguishing the right of action against the same defendant, regardless of the merits of the claim. If, therefore, the 1998 order of dismissal bars any future action by the Plaintiffs against the Links under the doctrine of res judicata, then the Plaintiffs' right of action has been extinguished by operation of law. By the principles confirmed in Johnson , res judicata, as an operation of law, would preclude an action against Parker and Flowers based solely upon the fraudulent misrepresentations by their agents.