Opinion ID: 2626433
Heading Depth: 2
Heading Rank: 4

Heading: corporate liability for punitive damages

Text: {20} The trial court awarded Plaintiffs punitive damages against Fleetwood based on the fraudulent conduct of Fleetwood's employees. Fleetwood does not dispute the trial court's finding that Pike and Lancaster committed fraud in this case but argues it should not be held liable for the punitive damages award. The Court of Appeals agreed with Fleetwood, concluding that the evidence did not support a finding of corporate ratification. Chavarria, 2005-NMCA-082, ¶¶ 29-33, 137 N.M. 783, 115 P.3d 799. The Court of Appeals also declined to consider Plaintiff's managerial capacity theory because it was not clearly raised by Plaintiffs until their response to Defendant's motion to amend judgment. Id. ¶ 34. We disagree, and we reverse the Court of Appeals on this issue. {21} A corporation may be held liable for punitive damages for the misconduct of its employees if: (1) corporate employees possessing managerial capacity engage in conduct warranting punitive damages, Albuquerque Concrete Coring Co. v. Pan Am World Servs., Inc., 118 N.M. 140, 144-45, 879 P.2d 772, 776-77 (1994); (2) the corporation authorizes, ratifies, or participates in conduct that warrants punitive damages, id. at 143-44, 879 P.2d at 775-76; or (3) under certain circumstances, the cumulative effects of the conduct of corporate employees demonstrate a culpable mental state warranting punitive damages, Clay v. Ferrellgas, Inc., 118 N.M. 266, 270, 881 P.2d 11, 15 (1994). {22} In both their complaint and amended complaint, Plaintiffs pled facts that would give rise to an award of punitive damages against Fleetwood and requested punitive damages as a form of relief. This pleading complied with the notice requirements of Rule 1-008(A) NMRA, which only requires a short and plain statement of a party's claim and a demand for relief. A specific pleading of the theory that supports an award of punitive damages against the corporation is not required by the rules. {23} In addition, Plaintiffs expressly relied on the managerial capacity theory in closing argument. We fail to see how it would be unfair to Defendant to rely on a managerial capacity theory here, and we examine the record to determine whether the evidence supports the judgment. In doing so, we resolve all disputed facts and indulge all reasonable inferences in favor of the judgment. Coates v. Wal-Mart Stores, Inc., 1999-NMSC-013, ¶ 46, 127 N.M. 47, 976 P.2d 999. Although Plaintiffs need only prove one theory of punitive damages in order to succeed, we conclude that the evidence supports an award under the theories of managerial capacity and corporate ratification. We do not address the theory of corporate indifference.
{24} A corporation may be liable for punitive damages for the wrongful acts of employees who are acting within the scope of employment and who are employed in a managerial capacity. Albuquerque Concrete Coring Co., 118 N.M. at 144-45, 879 P.2d at 776-77. This theory of liability derives from the Restatement (Second) of Torts Section 909(c) (1979) and the Restatement (Second) of Agency Section 217(C)(c) (1958), which we adopted in Albuquerque Concrete Coring Co., 118 N.M. at 145, 879 P.2d at 777. The trial court concluded that Pike, Lancaster, Gifford, and Kasprzyk were acting within the course and scope of their employment at all times material to the transaction with Plaintiffs. Fleetwood does not challenge these findings, and there is ample evidence in the record that these employees' acts were fairly and naturally incidental to the business Fleetwood assigned them and were done while engaged in Fleetwood's business with the view of furthering Fleetwood's interest. See UJI 13-407 NMRA; Narney v. Daniels, 115 N.M. 41, 48, 846 P.2d 347, 354 (Ct.App. 1992) (Generally, whether an employee is acting in the course and scope of employment is a question of fact.). The question remains whether any of these participants possessed managerial capacity. {25} An employee has managerial capacity if he or she has the discretion or authority to speak and act independently of higher corporate authority. Brashear v. Baker Packers, 118 N.M. 581, 583, 883 P.2d 1278, 1280 (1994). In Albuquerque Concrete Coring Co., we noted how [i]n the modern world of multinational corporations, corporate control must be delegated to managing agents who may not possess the requisite upper-level executive authority traditionally considered necessary to trigger imposition of corporate liability for punitive damages, and we rejected the traditional standard requiring wrongful acts committed by an employee with the whole executive power of the corporation. 118 N.M. at 146, 879 P.2d at 778. Instead, we noted that [c]orporate liability for punitive damages should depend upon corporate responsibility for wrongdoing, not corporate ability to insulate top executives from daily, hands-on management. Id. Therefore, we concluded that [j]ob titles, in and of themselves, are not necessarily dispositive. Id. at 145, 879 P.2d at 777. The key in determining whether an agent acts in a managerial capacity is to look at the nature of what the agent is authorized to do by the principal and whether the individual has discretion regarding both what is done and how it is done. Id. {26} Fleetwood argues that it is not liable for punitive damages because Lancaster was not employed in a managerial capacity. We disagree. Lancaster was employed by Fleetwood as the general manager of its Las Cruces office at the time that he and Pike sold the mobile home to Plaintiffs. Fleetwood general managers were responsible for the financing of mobile homes, and the evidence indicates that Lancaster dealt directly with GreenPoint regarding Plaintiffs' financing without oversight from upper-management. General managers were also responsible for advertising and for determining the value of trade-ins. When asked in his deposition how Lancaster was able to get away with his misconduct without it being detected sooner, Jim Gifford replied: Any paperwork coming through would look simply normal as far as if a garage was going to be put on. I mean, you can't oversee, on a daily basis, every deal. That's why you have a general manager in a store. That is his responsibility, to put business together. Gifford also discussed how Fleetwood depends on general managers providing the company with correct information, and Kasprzyk testified that he confronted Lancaster instead of Pike regarding the nonexistent garage and decks because the whole deal was Bob Lancaster's responsibility as general manager of that store. Finally, Kasprzyk indicated that he did not fire Lancaster immediately upon learning of his fraudulent activity because of Lancaster's elevated status as a general manager. We conclude that Lancaster had sufficient discretionary authority regarding both what is done and how it is done to bind Fleetwood for punitive damages. Id. {27} The evidence also indicates that Kasprzyk and Gifford were employed in a managerial capacity. Vice-president Gifford was responsible for Fleetwood's operations and expansion in Arizona, Colorado, Nevada, and New Mexico, and he described himself as the chief cook and bottlewasher for the region. Gifford had the authority to repurchase Plaintiffs' $82,688.75 loan from GreenPoint without seeking corporate approval or authorization. Gifford's zone district manager, Kasprzyk, was the day-to-day supervisor for approximately 13 stores between New Mexico, Arizona and Colorado. Kasprzyk, who had trained Pike and Lancaster, was the direct supervisor of the general managers of each store in his region and was also physically responsible for all the actions of each individual store that [he] was supervising. {28} Fleetwood concedes that Kasprzyk and Gifford were employed in a managerial capacity but argues that they were not involved in defrauding Plaintiffs. The evidence indicates otherwise. After GreenPoint discovered that a garage and decks had not been installed on Plaintiffs' land, GreenPoint notified Gifford that Fleetwood had falsely certified the construction of the garage and decks and requested that Fleetwood repurchase the loan. With this knowledge of fraud, Gifford placed Kasprzyk in charge of rectifying the situation. Kasprzyk confronted Lancaster in Las Cruces and asked, Bob, do you understand what you've just done here? You've closed on a loan . . . and defrauded our lender. Instead of firing Lancaster in accordance with Fleetwood's Call to Integrity policy, which required immediate dismissal for falsification of information, Kasprzyk continued to leave Lancaster in charge. {29} In addition, because a garage could not be placed on the property, GreenPoint authorized a substitution of a fence of similar value in place of the garage and decks. Without Plaintiffs' permission, Fleetwood erected a fence worth $1,000 as a substitute for the promised $9,500 in garage and decks. In their depositions, Kasprzyk and Gifford blamed each other for the substitution of the fence. Gifford said he left Kasprzyk in charge of remedying the situation and denied his involvement with the fence. However, Kasprzyk testified in his deposition that Mr. Gifford and Vangie out of the zone office were also involved in that transaction, in regards to the fence issue and that they had just told me that they were going to take and move forward and put a fence in for the value. At trial, Kasprzyk testified again that the fence issue was being handled through the zone office directly with GreenPoint Credit and the store itself. Kasprzyk denied any personal involvement with the fence substitution and testified that he left Lancaster in charge of remedying the consequences of the fraud. Gifford disputed Kasprzyk's claims when he testified that Mr. Kasprzyk told me we were putting a fence on the property. Problem solved, as far as I was concerned. The trial court was at liberty to accept or reject their testimony, and we believe the evidence is sufficient to find that Pike, Lancaster, Kasprzyk, and Gifford each participated to some extent in defrauding Plaintiffs and GreenPoint. Therefore, Fleetwood is liable for punitive damages under a managerial capacity theory.
{30} A corporation may be liable for punitive damages for the fraudulent acts of an employee where the corporation in some way authorizes, ratifies, or participates in that fraudulent conduct. Albuquerque Concrete Coring Co., 118 N.M. at 143-44, 879 P.2d at 775-76. This theory of liability is consistent with the Restatement (Second) of Torts Section 909(d) and the Restatement (Second) of Agency Section 217(C)(d), which indicate that a corporation is liable for punitive damages where the corporation or a managerial agent of the corporation ratifies or approves of the act. In Brashear, 118 N.M. at 583, 883 P.2d at 1280, we implicitly recognized Sections 909 and 217C, in their entirety, as being consistent with New Mexico law. While our adoption of these Restatement provisions has only been implicit, we take this opportunity to explicitly adopt Sections 909 of the Restatement (Second) of Torts and 217C of the Restatement (Second) of Agency. Therefore, proof of corporate ratification may include evidence that a managerial agent ratified, accepted, or acquiesced to the fraudulent conduct of corporate employees. See Albuquerque Concrete Coring Co., 118 N.M. at 144, 879 P.2d at 776 (A corporation can ratify the acts of its agents by acquiescence in or acceptance of the unauthorized acts.). {31} In this case, Kasprzyk and Gifford, whom Fleetwood concedes were managerial agents, knew of the fraud committed by both Pike and Lancaster. The evidence is sufficient to support a finding that Kasprzyk and Gifford, with knowledge of the fraud related to the garage and decks, authorized the substitution of a fence worth $1,000 for the garage and decks. Knowing that Fleetwood had defrauded Plaintiffs and substituted a fence without their permission, Fleetwood proceeded to pay Pike a full commission for his fraudulent sale, failed to discipline Lancaster, and did not fire Pike or Lancaster until another customer complained that the two had attempted to falsify income. {32} Fleetwood also kept the $9,500 Plaintiffs had been wrongfully charged for the garage and decks. Although Gifford repurchased Plaintiffs' loan from GreenPoint on behalf of Fleetwood, he did not reduce the principal balance by the amount wrongfully charged for the garage and decks. Subtracting $9,500 from the principal would have reduced the interest points Plaintiffs had to pay by roughly $800, reduced Plaintiffs' monthly payments by $79, and reduced the total finance charges on the loan by roughly $28,000. {33} Fleetwood's policing system offers further evidence of corporate ratification. According to Evangeline Bustamonte, Gifford's office manager, Fleetwood did not want Gifford's zone office to police the files of local offices for falsification. Policing the files would have alerted Fleetwood to Pike and Lancaster's falsification of Plaintiffs' income, and to the improper construction income related to the garage and decks. Furthermore, there is evidence that Fleetwood's centralized finance office received a tool-belt sheet showing construction income that doesn't make any sense and should have alerted Fleetwood to the fraudulent activity. However, despite the fraud that occurred in this case, Fleetwood did not change its financing procedure or how its zone offices were to supervise local offices. We conclude that the conduct attributable to Fleetwood constitutes the substantial evidence needed to uphold the trial court's award of punitive damages for ratification, authorization, or participation. See Brashear, 118 N.M. at 583-84, 883 P.2d at 1280-81; see also Ulibarri Landscaping Material, Inc. v. Colony Materials, Inc., 97 N.M. 266, 270, 639 P.2d 75, 79 (Ct.App.1981) (A principal who expressly or impliedly elects to ratify unauthorized acts of an agent will not be permitted to accept the benefits and reject the burdens of the acts.). {34} Fleetwood argues that punitive damages are inappropriate in this case because, under Fleetwood's view of the evidence, Gifford and Kasprzyk merely left Lancaster in charge of rectifying the situation and Lancaster compounded the fraudulent scheme. Even if we were to accept Fleetwood's view of the evidence, placing a wrongdoer like Lancaster in charge of rectifying his own fraudulent activity under such circumstances would alone demonstrate an acquiescence in or acceptance of Pike and Lancaster's fraudulent activity. Albuquerque Concrete Coring Co., 118 N.M. at 144, 879 P.2d at 776. There is sufficient evidence to support the trial court's findings that Fleetwood is liable for punitive damages under the theory of corporate ratification.