Opinion ID: 563774
Heading Depth: 1
Heading Rank: 4

Heading: the directed verdict in favor of ewm co.

Text: 40 Plaintiffs complain that the lower court erred in directing a verdict in favor of EWM Co. They contend that sufficient evidence was presented to warrant a finding that the firm was vicariously liable for Mongillo's fraud or, alternatively, that the firm had authorized him to contract with FRG on its behalf. Under the accepted standard of appellate review, we examine the evidence and the inferences reasonably to be drawn therefrom in the light most favorable to the nonmovant to determine whether reasonable persons could reach but one conclusion. Wagenmann v. Adams, 829 F.2d 196, 200 (1st Cir.1987). If so, and if that exclusive conclusion favors the movant, then the instructed verdict may stand. Id. While a court faced with such a motion may not consider the credibility of witnesses, resolve conflicts in testimony, or evaluate the weight of the evidence, a mere scintilla of evidence is not enough to forestall a directed verdict, especially on a claim or issue as to which the burden of proof belongs to the objecting party. Fashion House, Inc. v. K Mart Corp., 892 F.2d 1076, 1088 (1st Cir.1989); see also Vahlsing v. Commercial Union Ins. Co., 928 F.2d 486, 490 (1st Cir.1991) (reviewing court must refrain from conjecture or speculation). 41
42 Viewed through such a glass, the proof in this case showed that Mongillo was an agent for Western Surety, both individually and through EWM. He began to work for EWM, a family-owned enterprise, in 1960. He served as president of the firm for an unspecified period ending in 1981 or 1982, when his wife, Patricia, succeeded him. Thereafter, he served as treasurer and a director until the late 1983. Throughout, he owned stock in the firm. Mongillo maintained his only business office at EWM's headquarters in New Haven, Connecticut. 43 In 1983, Mongillo established IRM, a Delaware corporation. No person other than Mongillo had any interest in IRM. Its business address was a postal drop. It had no listed telephone number. It was not licensed by any state as an insurance agent or broker. It had no employees. It had no discernible links with either EWM or Western Surety. 7 IRM, in short, was Mongillo's paper tiger--a straw corporation. In contrast, EWM was a thriving concern with an independent identity. It had stockholders, directors, officers, and employees. It was a licensed agent for a number of insurance companies, including Western Surety. 44 In early 1984, Eller sent an assortment of sample bond forms and background materials on Veranda Beach to Mongillo at EWM's offices. At the end of January, Mongillo sent Faneuil a letter, written on EWM stationery, which stated that IRM had made arrangements for Western Surety to issue a bond. He enclosed a copy of what purported to be a commitment letter from Western Surety, written on its letterhead and ostensibly signed by an officer. The commitment letter confirmed that Western Surety would provide the bond if a number of conditions were met. This letter was completely bogus; it was written by Mongillo and the signature was forged by him. 8 45 The negotiations which followed were based on the representations contained in the apocryphal commitment letter. The parties understood all along that IRM would collect both the bond premium and the service fee at the closing. Arrangements were in place to wire-transfer these sums immediately to IRM's bank account in Delaware. Neither Western Surety nor EWM Co. would have seen a dime. 46
47 It is settled law in Massachusetts that an employer may be held vicariously liable for an intentional tort committed by an agent or employee within the scope of the employment. Worcester Ins. Co. v. Fells Acres Day School, Inc., 408 Mass. 393, 558 N.E.2d 958, 967 (1990). The Massachusetts Supreme Judicial Court (SJC) has established a tripartite test for determining scope-of-employment questions: 48 [C]onduct of an agent is within the scope of employment if it is of the kind he is employed to perform; if it occurs substantially within the authorized time and space limits; and if it is motivated, at least in part, by a purpose to serve the employer. 49 Wang Laboratories, 501 N.E.2d at 1166 (citations omitted). It is beyond cavil that selling bonds is the kind of work Mongillo was employed by EWM Co. to do. It is also reasonably clear that Mongillo concocted the hoax from his New Haven office during normal working hours. The issue on vicarious liability, therefore, reduces to what evidence, if any, was adduced that would found the conclusion that Mongillo had an intention of serving his employer, EWM Co., when he perpetrated the fraud. 50 Having ransacked the record, we agree with the magistrate that no such evidence was presented. The correspondence between Mongillo and Faneuil made clear that IRM was the intermediary of record. From aught that appears, Mongillo acted solely to benefit himself, using IRM as a conduit. He took great pains to alert the other participants that IRM, not EWM, would be responsible for orchestrating the transaction. Even the letter written on EWM's stationery indicated in its opening sentence that it was sent on behalf of IRM. IRM, not EWM, was to receive not only the servicing fee, but the bond premium. The evidence, we think, would not allow a rational juror to reach any conclusion other than that Mongillo and his alter ego, IRM, were intended to be the exclusive beneficiaries of the fraud. 51 Plaintiffs' counterattack is on both factual and legal fronts. On the facts, they point to Mongillo's deposition, where he stated that he ventured upon this scheme in order to secure more lucrative business opportunities for the future. Because some of this new business would probably inure to EWM Co., plaintiffs hypothesize, it can be inferred that Mongillo intended to serve the firm when he practiced the fraud. We find this reasoning anfractuous. The logical import of the cited testimony is that Mongillo's long-term goal was to solidify the working relationship between Faneuil and his alter ego, IRM. Why else, one might ask, would Mongillo have falsified so elaborate an imbrication, see supra note 7, between IRM and Faneuil's top executives? There is not so much as a hint of an intimation that Mongillo intended to enrich EWM's coffers. 52 The plaintiffs' legal argument has more substance. Citing New England Acceptance Corp. v. American Mfrs. Mut. Ins. Co., 4 Mass.App.Ct. 172, 344 N.E.2d 208 (1976), aff'd, 373 Mass. 594, 368 N.E.2d 1385 (1977), they contend that an agent's intent to benefit the principal is not necessarily an element in determining the scope of his employment. In New England Acceptance, certain corrupt agents of the defendant insurers sold promissory notes secured by nonexistent policies, purportedly written by the agents on behalf of the defendants, to a premium financing agency. When the fraud was discovered, the financier sued. Although the facts established that the agents had acted solely for their own benefit, the Appeals Court upheld a judgment for the plaintiff: 53 Having put the [agents] in a position to commit the fraud while apparently acting for the companies, the companies are liable to the plaintiff for the losses sustained thereby. Such liability attaches without regard to whether the companies received any benefit from the transactions and regardless of the fact that the [agents] were acting entirely for their own purposes in selling the fraudulent notes. 54 344 N.E.2d at 214. 55 From our coign of vantage, the chief problem with New England Acceptance is that it is a decision of an intermediate appellate court antedating by roughly a decade the SJC's definitive formulation of the vicarious liability standard in Wang Laboratories, 501 N.E.2d 1163. A federal court of appeals is bound ... by the actual expression of the state's highest court on points of state law. Jackson v. Liquid Carbonic Corp., 863 F.2d 111, 115-16 (1st Cir.1988), cert. denied, 490 U.S. 1107, 109 S.Ct. 3158, 104 L.Ed.2d 1021 (1989); see also Commissioner of Internal Revenue v. Bosch's Estate, 387 U.S. 456, 465, 87 S.Ct. 1776, 1783, 18 L.Ed.2d 886 (1967) (a State's highest court is the best authority on its own law). Hence, we cannot honor New England Acceptance at the obvious expense of Wang Laboratories. 56 Above and beyond this reality, even if New England Acceptance retains some vitality, it is distinguishable from the present case in three salient respects. In New England Acceptance, the facts established that the defendants' management was aware of the transaction upon which suit was later premised, see 344 N.E.2d at 211; conversely, there is no evidence that anyone affiliated with EWM Co., apart from the tortfeasor himself, knew anything about the Veranda Beach scam. Second, the New England Acceptance court noted that the agents appeared to be acting for the defendant insurers, id. at 214, whereas the facts here demonstrated an absence of any such apparent authority, see infra Part IV(C). Lastly, the New England Acceptance court based its decision largely on the well settled principle[ ] of agency law [that] the authority of an insurance agent to sell insurance, unless limited by his principal, includes authority to do all acts which are incidental thereto.... Id. at 212. But in New England Acceptance, unlike here, the employer was the issuer of the instrument in question. Put another way, in New England Acceptance the defendants were both the employers of the tortfeasors and the purported issuers of the fictitious policies said to secure the phony notes sold to the plaintiff. In contradistinction, EWM Co., while charged with being Mongillo's employer, was never thought to be the maker of the bogus bond; instead, EWM is itself being sued as, or in the shoes of, the agent-tortfeasor who delivered the bond, not as the principal who purportedly issued it. 57 Given the tenor of the SJC's opinion in Wang Laboratories, the doubtful precedential value of New England Acceptance, and the factual incongruences in the cases, we believe that the magistrate was correct in ruling that EWM, as a matter of law, could not be held vicariously liable for Mongillo's cozenage. 58
59 Under Massachusetts law, apparent authority is that authority resulting from conduct by the principal which causes a third person reasonably to believe that a particular person has authority to make representations as his agent. Hudson v. Massachusetts Property Ins. Underwriting Ass'n, 386 Mass. 450, 436 N.E.2d 155, 159 (1982). The requirement that the principal's conduct must engender a reasonable belief in the agent's authority implicates the theory of agency by estoppel. If a third person goes on to change his position in reliance on this reasonable belief, the principal is estopped from denying that the agency is authorized. Id. 60 We agree with the court below that there was no evidence sufficient to show that EWM Co. engaged in conduct leading the plaintiffs reasonably to believe that Mongillo possessed, and was exercising, the authority to bind the firm. Rather, the facts admit of only one set of conclusions: Mongillo was acting for himself, through his straw corporation, IRM; the plaintiffs knew it; and they did not care. Concededly, Mongillo was an officer of EWM at the time of the transaction; he wrote a letter to Eller on EWM's stationery; he used an office, telephone, and secretary provided to him by EWM as a base of operations for his machinations in regard to Veranda Beach; and he cherry-picked a bond kit that Western Surety had entrusted to EWM. Such fragmentary tendrils, however, show much more about Mongillo's conduct than about EWM's conduct. We recently held in Sheinkopf v. Stone that a partner's use of his law firm's office, secretary, telephone, and stationery in transacting a real estate deal to his own behoof was not enough to make out a jury question on apparent authority under Massachusetts law. 927 F.2d at 1265-66; see also Kanavos v. Hancock Bank & Trust Co., 14 Mass.App.Ct. 326, 439 N.E.2d 311, 315 (titles or trappings of office in themselves do not supply a basis for finding apparent authority), rev. denied, 387 Mass. 1103, 440 N.E.2d 1177 (1982). We believe that, unless we are willing to draw leap-of-faith inferences on the basis of evidence that is, at best, faintly suggestive rather than fairly probative, the same result must obtain here. 61 Nor was there evidence of any detrimental reliance or change in position which might fairly be laid at EWM's doorstep. All the indicators in the record point unerringly to the fact that the plaintiffs placed their trust and confidence--foolishly, as matters turned out--in Mongillo, without regard to whether EWM was part of the equation. Lobbying for an opposite finding, the plaintiffs spotlight Eller's testimony that, because Mongillo, acting on behalf of EWM Co., had written insurance in the past for Carmen Elio (Faneuil's president), Eller assumed that Mongillo was working on behalf of EWM in arranging for the bond. But Eller did not say, and the record would not permit an illation, that it made any difference to Faneuil or FRG whether Mongillo was free-lancing, or representing EWM, or representing IRM, or fronting for Beelzebub. At any rate, Eller's conjectural testimony cannot overcome the uncontradicted evidence that, in connection with the deal in question, Mongillo made it clear that he was acting on behalf of his own corporation, IRM, and not on behalf of EWM Co. There was no basis for reasonable reliance to the contrary. 62 In the final analysis, liability must rest on proof, not mere suspicion. Thus, the trial court was under no obligation to draw unreasonably speculative inferences or to see mountains where only molehills existed. See Yerardi's, etc., Inc. v. Board of Selectmen, 932 F.2d 89, 93-94 (1st Cir.1991); Santiago-Negron v. Castro-Davila, 865 F.2d 431, 445 (1st Cir.1989). Because the attempts to link EWM to Mongillo's hoax, though valiant, relied principally on tenuous insinuation, they were impuissant to take the issues of vicarious liability and apparent authority to the jury.