Opinion ID: 2626433
Heading Depth: 3
Heading Rank: 2

Heading: Corporate Authorization, Ratification, and Participation

Text: {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.