Opinion ID: 3009507
Heading Depth: 5
Heading Rank: 3

Heading: within the power of the agent to

Text: make for the principal. Second Restatement § 257 at 558 (cited in Prosser and Keeton, § 70, n.70). Moreover, to the extent that Baldasarre can be read to hold that independent contractors may never bind principals for their torts, that proposition was eviscerated the very next year by the same court. In Sears Mortgage Corp., the Supreme Court of New Jersey held a title insurance company responsible for its attorney's fraud. The Court directly relied on agency principles. Sears Mortgage Corp., 634 A.2d at 83-84. Since it can in no way be argued that the attorney was the title insurer's servant, the Court implicitly recognized the category of agentindependent contractors. definition a non-agent. Winback, 851 F. Supp. at 626. Moreover, in determining that the representatives were independent contractors, the court used precisely the factors normally used to distinguish between servants and independent contractors: the principal's right of physical control, the place where the representatives work, the method of payment, the fact that the representatives had their own business enterprises. See Warren A. Seavey, Agency, § 84 at 142 (1964) (hereinafter Seavey) (the relation of master and servant is indicated by the fact that the employee is given a salary and is employed for a considerable period; that he is using an instrumentality of the principal on his premises; that the work is unskilled, usually supervised; that the one employed does not have a distinct business). The district court's failure to make the additional finding is crucial, because while generally principals are not liable for the torts of their independent contractors, the common law is littered with exceptions: [T]here is a range of tortious conduct on the part of an agent that may bind the principal and subject him to liability even where the agent is not a servant, where the act was not done in the manner authorized or directed by the principal, and where the result was not authorized or intended by the principal. Sanders v. Rowan, 484 A.2d at 1029. A principal is not generally liable for physical torts committed by its independent contractor-agent, but a principal will be held liable for the independent contractor-agent's misrepresentations upon matters which the principal might reasonably expect would be the subject of representations, provided the other party has no notice that the representations are unauthorized. Id. at 1029 (quoting Restatement (Second) of Agency § 258); see also Nagels v. Christy, 330 S.W.2d 754, 757 (Mo. 1959) (principal liable for misrepresentations by independent contractor sales agent) (citing cases). As one commentator has written: Where an agent is authorized or apparently authorized to conduct a transaction, and the other party is unaware of any limitation upon the agent's authority, a problem similar to that of the limits of the scope of employment by a servant arises. The difficulties are best seen in the cases of selling agents. Their principals have been held liable for the unauthorized and untrue statements as to the capacity of the machine sold, the age of a second-hand automobile, the construction and material used in building a house, the income from property, the amount of taxes due upon it, the extent of coverage of insurance, the intent of the manufacturer not to disturb a distributorship awarded by it to the plaintiff. Seavey, § 92 at 163. Although liability at common law generally was limited to actions by the purchaser for deceit, we see no reason why the doctrine should not be transplanted to the area of unfair competition. The basis for the common law exception is the injustice in allowing a principal to place agents in the marketplace, to allow the agents to complete contracts on the principal's behalf, to profit from the agents' misrepresentations, and then to disclaim liability for the agents' actions while benefitting from the fraud. The theory relies on the distinction between torts of misrepresentation that benefit the defendant, and torts such as negligently injuring a passerby while driving a car, from which the defendant does not profit at all. Moreover, as the New Jersey Supreme Court has noted, it is appropriate for courts to consider awareness of the risk and the element of foreseeability of loss in their consideration of liability based on agency principles. Sears Mortgage Corp., 634 A.2d at 83. Correctly characterized, then, the doctrine simply states a circumstance in which the principal justly is held responsible for the torts of its independent contractor-agent. We hold, then, that when a principal authorizes its independent contractor agent to conduct and conclude a transaction with third parties on the principal's own behalf, and the principal benefits financially from the contracts, the principal will be liable in an action brought pursuant to section 43(a) of the Lanham Act based on the agents' foreseeable infringing actions upon which it would be reasonable for the third party to rely, provided the third party has no notice that the representations are unauthorized.18 Of course, it would be unfair for a principal to be liable for all misrepresentations of its agent independent contractors. Thus, we include the requirements that the 18 . As noted above, the Restatement holds a principal liable for tortious representations that are authorized or apparently authorized. See n.17 supra. We believe that this terminology unnecessarily confuses the issues. Therefore, we employ Seavey's approach and the approach of the New Jersey Supreme Court in Sears Mortgage Corp. and use the concept of foreseeability. See typescript at 43-44 (quoting Seavey). misrepresentations be foreseeable and that reliance be reasonable. In considering whether the infringing actions were foreseeable, the district court should consider all of the surrounding circumstances. For instance, if the principal went to great lengths to ensure that the agents knew not to make certain representations, such representations, if made, may be found to be unforeseeable. But if, at the same time, the principal gave the agents carte blanche to hold themselves out as the principal itself, then such infringing actions may become foreseeable, notwithstanding the principal's efforts at policing the agents. The point, of course, is to hold the principal liable when it is just to do so, but still to encourage the principal to police the agents enough so as to avoid liability. This is the type of balancing the district court must undertake in the first instance. Professor Seavey's cautionary observations about reliance are also apt: It is difficult to suggest a limitation upon the power of a selling agent to bind the principal if the statements are relevant to the transaction which the agent is authorized to conduct. . . A working rule would be the limitation of liability to statements concerning matters as to which the principal might think the agent, or any agent, might misrepresent in forwarding their joint interests. There must be limits. The seller of a New England farm should not be liable to a credulous buyer for tort damages if the agent were to represent that the land to be sold contained oil or gold. Seavey, § 92 at 164. Because the district court failed to address whether the representatives were agents or non-agents, and therefore failed to consider these questions, we must remand the case for further fact findings and renewed application of the law to the facts. Upon remand, then, the district court first must determine whether the sales representatives were agentindependent contractors or non-agent independent contractors. The Restatement defines a non-agent independent contractor as follows: A person who contracts to accomplish something for another or to deliver something to another, but who is not acting as a fiduciary for the other is a non-agent contractor. He may be anyone who has made a contract and who is not an agent. The term is used colloquially to describe builders and others who have contracted to accomplish physical results not under the supervision of the one who has employed them to produce the results. Restatement (Second) Agency § 14N, Comment (b). Thus, the district court should assess whether the representatives are analogized better to a firm that contracts to perform a particular, discrete task, such as to build a swimming pool, or to a party who is empowered to speak for another and bind the other in contracts. In making this determination, the facts analyzed by the district court and adduced at the hearing are certainly relevant. While the district court should focus on the level of control exercisable by Winback over the manner in which the sales representatives market its product, it should not emphasize physical control (as it properly did in considering whether the representatives were servants). Inga's testimony that he attempts to police the representatives is certainly relevant to this inquiry, particularly if Winback authorizes the agents to represent themselves as Winback.19 If the district court finds that the sales representatives are agents, it then must proceed to determine whether they committed infringing acts and whether, under the test we detailed above, Winback and Inga may be held liable. If the district court determines that the representatives are non-agent independent contractors, it still must consider whether they were acting with apparent authority to make the representations.