The Principal’s Duty of Indemnification (p. 40)

1. The Principal’s Duty of Indemnification (p. 40) Donald J. Weidner • Restatement (Third), Agency § 8.14: Duty to Indemnify. “A principal has a duty to indemnify an agent • in accordance with the terms of any contract between them; and • unless otherwise agreed. • when the agent makes a payment • within the scope of the agent’s actual authority or • that is beneficial to the principal, unless the agent acts officiously in making the payment; or • when the agent suffers a loss that fairly should be borne by the principal in light of their relationship.” • Admiral v. Oriental Line?

2. Admiral Oriental Line v. United States (1936)(p.40) Donald J. Weidner • The U.S.A. owned the ship Elkton, which was lost with all hands in a typhoon. • The Elkton “had been entrusted to Atlantic Gulf & Oriental S.S. Co. (“Operator”) as ship’s agent under an operating contract.” • Plaintiff Admiral Oriental Line (“Outfitter”) alleged that it had been employed by Defendant Operator as ship’s agent in the Philippines. Outfitter had charge of fitting out the steamship for the voyage in which she was lost and: • was described as a “General Freight Agent” for all ships the Operator was operating in the Far East. • agreed to hire subagents at all ports where it had no offices. • agreed to perform all the principal’s [Operator’s] duties under its [Operator’s] contract with the U.S. • received a commission “on the gross freights with brokerage.” • Plaintiff Outfitter had been sued by the owners of the ship’s cargo. It cost money to defend the suit, which it did successfully.

3. Admiral Oriental Line v. United States (cont’d) Donald J. Weidner • Plaintiff Outfitter in turn sued the defendant Operator to recover these litigation expenses “on the theory that as agent it had paid them on the principal’s account.” The Operator, in turn, sued the U.S.A. for: • Operator’s expenses in defending the earlier suit, to which the Operator had also been made a party, and • for any expenses for which it would have to pay Outfitter. • Operator alleged that the U.S.A. was the “principal in the whole venture” and liable for any amounts that Operator would incur defending suits as well as any amounts it would be required to pay its “subagent,” the Outfitter. • That is, Operator says U.S.A. is the true principal, not me. • “An agent, compelled to defend a baseless suit, grounded upon acts performed in his principal’s business, may recover from the principal the expenses of his defense.”

4. Admiral Oriental Line v. United States (cont’d) Donald J. Weidner • Court rejected the U.S. argument that there should be a different result because the agent was a general agent. • The “venture is the principal’s, and . . . as the profits will be his, so should be the expenses.” • “Since by hypothesis the agent’s outlay is not due to his mismanagement, it should be regarded only as a loss, unexpected it is true, buy, but inextricably interwoven with the enterprise.” • Operator says the Outfitter should have given the Operator notice to defend the suit on its behalf. • But Operator was already a party to the suit; and • The Outfitter “had a separate interest of its own to defend.” • Until Operator volunteered to defend Outfitter, Outfitter was justified in defending itself. • If Operator was an agent of the U.S., the Outfitter was an agent of the Operator. • The U.S.A. apparently argued that it “chartered” the ships rather than operate them through agents.

5. Admiral Oriental Line v. United States (cont’d) Donald J. Weidner The U.S. Shipping Board “appointed [Operator] ‘its Agent to manage, operate and conduct the business of such vessel as it * * * may assign to the Agent,’” and Operator agreed to so act “in accordance with the directions” of the Board. It was to “man, equip, victual and supply” the vessels, and to pay all expenses and maintain them in a seaworthy condition, “all on the Board’s account.” “It was to issue all documents on the Board’s form, appoint sub-agents, collect freights which it must deposit in a bank approved by Board and in the Board’s name, and for which it was to account on forms prescribed by the Board.” Operator was to be paid in percentages on the gross receipts, out of which it was to bear its administrative expenses.

6. Admiral Oriental Line v. United States (cont’d) Donald J. Weidner • Rather than charter the ships to the Operator, The U.S. Board “put them in trade on its own account” and should “bear the hazard of defending unwarranted suits.” • Arguably similar cases have been decided differently. • What alternative arrangements are possible? • “A subagent is entitled to indemnity against either the immediate or the remote principal for appropriate expenses or losses. * * * In order to establish subagency, a principal must know or have reason to know that the agent will hire someone else to act on behalf of the principal and consent, expressly or impliedly, to such arrangement.” Hynes and Loewenstein at 75.

7. Admiral Oriental Line v. United States (cont’d) Donald J. Weidner • What if the suit had not been baseless? • Court cited Howe: even if the agent had lost the suit, the agent could “recover expenses necessarily incurred in the transaction of his principal’s affairs.” • In Howe, however, the agent was acting pursuant to specific instructions to eject passengers with tickets that were not recently issued. • Compare Restatement (Third) Agency § 8.14 Comment b: • “A principal’s duty to indemnify does not extend to losses that result from the agent’s own negligence, illegal acts, or other wrongful conduct.”

8. Agent’s Right to Indemnity (cont’d) Donald J. Weidner • Assume I ask a real estate agent to sell my house for me, knowing that part of the process is showing prospective purchasers the house. Assume I live at the far North end of town. • If the agent presents me a documented bill for the gasoline expenditures she has incurred showing prospective buyers my house, am I obligated to pay? • The answer depends in part on reasonable inferences from the circumstances, which can include normal business practice or custom in the area.

9. Subagents Donald J. Weidner Restatement (Third) § 3.15 Subagency “(1) A subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent’s principal and for whose conduct the appointing agent is responsible to the principal. The relationship between a subagent and the appointing agent and between the subagent and the appointing agent’s principal are relationships of agency as stated § 1.01. (2) An agent may appoint a subagent only if the agent has actual or apparent authority to do so.”

10. Subagents versus Coagents—§ 3.15 (cont’d) Donald J. Weidner • “An agent who appoints a subagent delegates to the subagent power to act on behalf of the principal that the principal has conferred on the agent. A subagent acts subject to the control of the appointing agent, and the principal’s legal position is affected by action taken by the subagent as if the action had been taken by the appointing agent. Thus, a subagent has two principals, the appointing agent and that agent’s principal.” • I hire a law firm to represent me. The law firm assigns my case to an associate, who begins to deal with me and handle my case. • “In contrast, an agent who appoints a coagent does not delegate power held by the agent to the coagent. By empowering an agent to appoint a coagent, the principal creates a mechanism through which to generate additional relationships of agency between the principal and persons chosen by the agent. Coagents, although they may occupy dominant and subordinate positions within an organizational hierarchy, share a common principal.” • Associate in that firm hires a paralegal.

11. Subagents versus Coagents—§ 3.15 (cont’d) Donald J. Weidner • The agreement by an appointing agent to be responsible for the new person the agent appoints (thus making that person a subagent) can be express or implied. • “Employees of an appointing agent whom the appointing agent designates to act on behalf of the appointing agent’s principal are presumed to be subagents . . . .” • I hire Handy Harry, LLC to act as my agent to do landscaping work for me. • “When an agent is itself a corporation or other legal person, its officers, employees, partners or members who are designated to work on the principal’s account are subagents.” • An appointing agent is responsible to the principal for the subagent’s conduct. • “A contract between the principal and the appointing agent that requires or permits the appointment of subagents will often delineate the extent of the appointing agent’s liability and will require indemnification by the principal of the appointing agent.”

12. Subagents versus Coagents—§ 3.15 (cont’d) Donald J. Weidner • On the other hand, if an agent creates a coagent rather than a subagent, the agent is not liable on that basis alone for the bad employee’s bad contracts (or, as we shall see later, his torts).” • An agent is subject to liability stemming from a coagent’s conduct “only when the agent’s own conduct subjects the agent to liability.” • “All else equal, an agent might prefer to create coagents rather than subagents in order to reduce its own liability.” • If an agent hires a bad employee, the agent is not liable on that basis alone for the bad employee’s bad contracts. • If an agent hires a bad subagent, the agent is responsible for that subagent’s acts.

13. Note on Imputation of Knowledge to a Principal (p. 43) Donald J. Weidner • When does notifying an agent have the same legal effect as notifying a principal? • The rules of agency law are formalistic and somewhat complicated. • Should an LLC that owns a nursing home be bound if its staff are aware that patients have bedsores? • The most general rule is that an agent’s notice of a fact, however acquired, will be imputed to the principal if the fact is “material to the agent’s duties to the principal.” • Stated differently, the principal is vicariously liable for the facts of which the agent has notice. • The law presumes that, in the normal course of things, the agent will have a duty to disclose to the principal information acquired, or that should have been acquired, in the normal course of the agency. • There is no imputation of a fact from agent to principal unless the agent knows the fact or has reason to know it.”

14. Why Impute Notice of a Fact to a Principal (cont’d) Donald J. Weidner • If the presumption is based on the facts in a particular case, the better question would be whether the parties would reasonably have expected the principal to have received notice. • If the question is whether the principal or a third party should suffer on account of the lack of notice or knowledge, then business norms in the particular situation may be a better basis for decision than abstract agency principles. • Also, statutes on particular business associations have their own rules on the imputation of notice • Comment b: “Imputation creates strong incentives for principals to design and implement effective systems through which agents handle and report immediately. By charging a principal with notice of material facts that an agent knows or has reason to know, imputation reduces incentives to deal through agents as a way to avoid the legal consequences of facts that a principal might prefer not to know.” • The law wants to incentivize nursing homes to have policies and procedures to identify, report, cure and prevent bedsores.

15. Note on Imputation of Knowledge to a Principal: The Basic Exception (cont’d) Donald J. Weidner • The basic exception is: if the agent is acting adversely to the principal’s interest, the agent’s knowledge will not be imputed to the principal. • See also Revised Uniform Partnership Act § 102(f): “A partner’s knowledge, notice, or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by, notice to, or receipt of a notification by the partnership, except in the case of a fraud on the partnership committed by, or with the consent of, that partner. • A firm is not deemed to know what its partners are trying to do in the process of defrauding it. • Another exception is: an agent’s knowledge is not imputed to the principal if the agent “is subject to a duty to another not to disclose the fact to the principal.”

16. Note on Imputation of Knowledge to a Principal: The Narrow Concept of Notification Donald J. Weidner “Notification is a narrower term than notice.” Notification is the taking of reasonable steps to give notice, even if the notice is not communicated to the agent. A “notification” is “a manifestation that is made in the form required by agreement among the parties or by applicable law, or in a reasonable manner in the absence of agreement or applicable law, with the intention of affecting the legal rights and duties of the notifier in relation to rights and duties of persons to whom the notification is given.” “The Restatement’s specific rule as to notifications is much narrower than its general rule about the imputation of knowledge.” Formal notifications given to an agent are effective as to the agent’s principal only if the agent has actual or apparent authority to receive the notification (unless the third party knows or should know that the agent is acting adversely to the principal).”

17. Norby v. Bankers Life Co. of Des Moines (1975)(p. 45) Donald J. Weidner Bankers Life issued a group accident and sickness policy to the Upper Midwest Employers Association. The Hoffman Corporation is a member of the Employers Association. The policy provides for reimbursement of a portion of the medical bills incurred by covered employees of the Association’s employer members, and their dependents. Plaintiff began his employment with Hoffman in August 1970. He completed and delivered to Hoffman his application for coverage in September 1970. Plaintiff asked Bankers Life to reimburse him $3,400 in medical expenses for his injured child. If Hoffman had transmitted the application to Bankers Life, Plaintiff’s coverage would have begun and his subsequent claim would have been paid.

18. Norby v. Bankers Life Co. of Des Moines (cont’d) Donald J. Weidner • Through “oversight or neglect, Hoffman failed to forward the application.” • When Plaintiff sued Bankers Life, who denied coverage. • Banker’s life in turn sued Hoffman (making it a third-party defendant) for “indemnity or contribution.” • The court said the primary question was whether “the initial, untransmitted application was binding upon Bankers Life.” • The trial court held for the plaintiff, concluding that “Hoffman stood in the relationship of agent to Bankers Life with authority to accept the application, thus binding Bankers Life at the time of plaintiff’s initial application.” • Dismissing the third-party complaint of Bankers Life. • Is “standing in the relationship” of agent the same as being an agent?

19. Norby v. Bankers Life Co. of Des Moines (cont’d) Donald J. Weidner • “Conventional wisdom [the majority rule] has been that the employer functions in the administration of a group insurance policy solely for its own interests or for the benefit of its employees, rather than serving the purposes of the insurer, and that the employer and the employees are allied in their interests adverse to the insurer.” • This perception seems opposed to an agency relationship. • Why is it relevant that group insurance in the workplace benefits: • employers by giving them a low-cost way to provide a benefit to their employees • employees by assured protection, often without examination, at low cost; and • insurance companies because mass sale and administration involves a low rate of lapse and low per-capital expense of administration • Does this sound familiar?

20. Norby v. Bankers Life Co. of Des Moines (cont’d) Donald J. Weidner • At the extreme, one can distinguish insurer-administered plans from employer-administered plans. • “The focus . . . should be on which specific and relevant administrative functions are performed by the employer on behalf of the insurer, with respect to the particular ground asserted for noncoverage or nonpayment under the policy.” • Here, the employer received applications from the employees on forms [provided by the insurance company] and forwarded them directly to the insurance company • No [other] agents of the insurers called upon the employees for purposes of taking the applications. • The employee had no contact with the insurance company. • The employer processed the applications and paid all premiums. • “To the extent the employer, with the consent of the insurer, performs the functions of the insurer, it may properly be considered the insurer’s agent. • “An employer may be considered an agent of the insurer for some purposes but not for others.”

21. Norby v. Bankers Life Co. of Des Moines (cont’d) Donald J. Weidner Although the court adopts the minority rule considering the employer the agent of the insurer for this purpose, the court acknowledges “the danger of collusion between an employer and employee to defeat the insurer for each other’s benefit.” The insurer’s interests are adverse. Whenever “the employer and employee have colluded adversely to the insurer, no agency may be found to exist. Any authority of an agent clearly terminates if, without knowledge of the principal, he acquires adverse interests or if he is otherwise guilty of a breach of loyalty to the principal.” “A principal is not bound by an agent’s actions where the agent acts adversely to the principal and the party with whom the agent deals is aware of such adverse dealing.”

22. Norby v. Bankers Life Co. of Des Moines (cont’d) Donald J. Weidner • The insurer has a choice on how to do business. If the insurer authorizes the employer to perform administrative functions, it “is in a position to exercise effective control over the performance of those functions.” • The employee does not have a choice. The employee • “does not ask whether the insurance plan is “insurer-administered” or “employer administered.” He may reasonably assume that his employer and the insurer will, in their dealings with each other, do that which is necessary to provide him the promised benefits. It is, therefore, unreasonable and inequitable to frustrate the employee’s expectations because of an employer’s negligence in administering the insurance agreement.” • Restatement (Third), Agency § 8.13: “A principal has a duty to act in accordance with the express and implied terms of any contract between the principal and the agent.”

23. Norby v. Bankers Life Co. of Des Moines (cont’d) Donald J. Weidner • The Supreme Court also affirmed the dismissal of the third-party complaint by Bankers Life against Hoffman. • The policy would have been written had the information been promptly transmitted. Therefore, “since the insurer was not prejudiced by the agent’s failure to advise it of the risk incurred, the insurer could not recover from the negligent agent.” • The Insurance Company “suffered no loss in payment of the reimbursable medical expenses as provided in the insurance policy.” • But see footnote 7: “It is true that Bankers Life was damaged to the extent that it was not paid premiums for the short period prior to plaintiff’s actual enrollment [pursuant to a subsequent application]. No evidence was offered as to the amount of those unpaid premiums, however, so the trial court properly denied recovery . . . . We trust, nevertheless, that Hoffman will be [willing], as a matter of commercial courtesy,” to pay the premiums earned and unpaid.

24. Agency and Tort: Respondeat Superior Donald J. Weidner • Restatement (Third), Agency § 2:04; Respondeat Superior • “An employer is subject to liability for torts committed by employees while acting within the scope of their employment.” • “Let the superior respond.” • Bayern notes that there is significant confusion in this area, both in the justifications for the rule and in the details of its application. • In general, a business is only liable for its negligence. • Although strict liability has made inroads, particularly in the area of defectively manufactured products. • However, the business is strictly liable for the negligence of its employees.

25. Respondeat Superior (cont’d) Donald J. Weidner Why, then, does a business that is only liable when it is negligent become strictly liable for the negligence of its employees? Bayern offers three “plausible” justifications for respondeat superior. Few employees have sufficient assets or even insurance to provide needed tort compensation for victims. Employers also have opportunities to take systematic precautions and make general operational decisions that would be hard to judge by a negligence standard. Respondeat superior “fills that gap without entirely replacing a negligence standard with a strict-liability standard.” Employers get the benefits from the good work of employees and thus it seems appropriate that they bear the burden when the work of their employees goes wrong.

26. Respondeat Superior (cont’d) Donald J. Weidner • Some would go further than respondeat superior. Bayern states that “strict liability for all risks created by an enterprise has strong analytical reasons in favor of it—large enterprises are excellent spreaders of cost, and it is arguably both moral and efficient to cause enterprises to internalize the costs they force onto others.” • However, he also notes the “conceptual and practical problems” with strict liability. • Strict liability “based on simple causation might identify far too many implausible defendants.” • Consider if I fall on a sidewalk while talking on a mobile phone. • You may not want all the people who contributed some cause—all the “but for” causes--to be sued because there was little any of them could have done to prevent my injury. • The mobile phone maker, the phone service carrier, the entity that commissioned the sidewalk, the contractor who built the sidewalk, the designer of my shoes, the manufacturer of my shoes, the seller of my shoes, the manufacturer of my eyeglasses, my optometrist, etc.

27. Respondeat Superior (cont’d) Donald J. Weidner • In short, the general rule of strict enterprise liability has never taken hold and “employee negligence probably serves as a useful rough indicator of the kind of risks that an enterprise can predict and perhaps readily prevent [or insure against].” • Employee negligence “also serves as an administratively useful focal point for a case: No longer are we faced with dozens of potential defendants to hold strictly liable; we have instead identified one—the person that employed the negligent person.” • Every employee is an agent. • Not every agent is an employee: • “This book . . . uses ‘employee’ to mean the sort of agent who can generate ordinary respondeat superior liability for an employer.”

28. Respondeat Superior (cont’d) Donald J. Weidner • There are other agents who are not employees. • For example, the term “independent contractor” can “sometimes refer to agents who are not a principal’s (e.g., client’s) employees, as is the case of most lawyers and real estate agents.” • Even if an independent contractor is an agent, he or she is not necessarily an employee for purposes of respondeat superior. • On the other hand, the term “independent contractor” can “also refer to mere contracting [parties] who are not agents at all, such as those remodeling one’s home or performing another service.” • In summary some independent contractors are agents, others are not. Some of those agents are employees for purposes of respondeat superior, others are not.

29. Heims v. Hanke (1958) (p. 51) Donald J. Weidner • In freezing weather, Defendant was washing his car by a sidewalk. His 16-year-old nephew was helping him, but was not being paid. Defendant directed his nephew to fetch buckets of water from a faucet on the outside of the house on the other side of the sidewalk, which the nephew did, spilling water on the sidewalk without cleaning it up or sanding it. The water froze and, a few minutes later, after Defendant and his nephew had left, Plaintiff slipped and fell on the ice on the sidewalk. • Nephew was “probably” a servant. • “A servant is one employed to perform service for another in his affairs and who, with respect to his physical conduct in the performance of the service, is subject to the other’s control or right to control.” • Or at least an agent who was not a servant: • If the Nephew “was not the employee or servant of the defendant in the strict sense, he was certainly defendant’s agent in fetching water from the faucet, though he received no compensation.”

30. Heims v. Hanke (cont’d) Donald J. Weidner • The court relied on the Restatement (Second) of Agency: • “A principal is subject to liability for physical harm to the person of another caused by the negligence of an agent who is not a servant, where the principal is under a duty to have care used to protect others and he confides the performance of the duty to an agent.” • That is: a person who is under a duty to use care to protect others cannot absolve herself of liability for physical injury simply by using an agent.

31. Lazo v. Mak’s Trading Co. (1994) (p. 52) Donald J. Weidner • Plaintiff was the “operator” of a tractor-trailer who delivered a shipment of rice to the defendant, a wholesale and retail grocer. Defendant grocer “engaged three neighborhood men to help unload the trailer.” Defendant paid $80 in cash to one of the three workers, who decided how to split the fee among themselves. They came and went as they pleased, worked at their own convenience, were free to work elsewhere and were never on defendant’s payroll. They had previously performed unloading tasks for the defendant, on an “on-inquiry-for-work basis.” • During the unloading, one of the three men engaged by the grocer got into an altercation with the plaintiff, injuring the plaintiff. • Defendant was not liable vicariously for the behavior of the worker. • “[D]efendant did not exercise actual or constructive control over the performance and manner in which the work of these unloaders was performed.” • Defendant did not “supervise these day laborers’ activities for vicarious liability purposes.” • Nor was the defendant liable for negligent hiring. • Here, “there is no duty to conduct background inquiries in the selection of individuals for this as-needed task.”

32. Lazo v. Mak’s Trading Co. (cont’d) Donald J. Weidner • Were the three neighborhood men agents? • Were they employees? Independent contractors? • Did employer control their “manner and means” of their performance • Were they acting outside the scope of their employment? • What if they had negligently dropped a bag of rice on the plaintiff? • Was this case correctly decided? • If the Grocer is not liable for the three men he paid to do work for him in his business, should the uncle have been liable for the water his unpaid nephew spilled on the sidewalk while washing his personal car?

33. Employees Versus Independent Contractors (p. 53) Donald J. Weidner • Agents who are not employees, often called independent contractors, do not ordinarily cause employers to be liable under the doctrine of respondeat superior. • The boundary between agents who are independent contractors and those who are employees is not precise. • “All agents work for principals’ benefit and subject to their control. Past a certain level of control, or subject to particular social conventions, agents become employees.” • The Restatement (Second) provides the ten factors at p. 53 that courts have used to distinguish independent contractors from employees.

34. Employees Versus Independent Contractors (cont’d) Donald J. Weidner • The two most important are probably (1) “the extent of control which, by agreement, the master may exercise over the details of the work” and (2) “the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.” • Do “popular convention and business norms indicate that a particular kind of agent is ordinarily thought of as an employee.” • The Restatement’s other factors are (3) whether the worker is engaged in a distinct operation or business; (4) the skill required in the occupation;

35. Employees Versus Independent Contractors (cont’d) Donald J. Weidner Restatement’s other factors (cont’d) (5) whether the worker or the employer supplies the instrumentalities, tools, and the place of work; (6) the length of time of the engagement; (7) the method of payment, whether by the time or by the job; (8) whether the task is a part of the regular business of the employer; (9) whether the parties believe they are creating the relationship of employer and employee; Note: The parties may not avoid “employee” classification, and hence the vicarious liability of the principal to a third party, by drafting it away in a contract between themselves; and (10) whether the principal is in business.

36. Employee versus Independent Contractor: Sea Change in California Donald J. Weidner Dynamex provided delivery services. Dynamex argued that their delivery drivers were independent contractors because they had significant control over their own working conditions: they could set their own hours and drive for multiple companies. If a worker is classified as an employee, the employer is responsible for federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, workers’ compensation insurance, and compliance with federal and California regulations governing the wages, hours, and working conditions of employees. Prior California law, like most jurisdictions, applied a multifactor test that looked at, among other things, the worker’s skill, the method of payment, the nature of the business, to determine the level of control exercised over the worker. Dynamex Operations West, Inc. v. Superior Court, April 30, 2018, was a unanimous decision making it more difficult for companies to classify workers as independent contractors rather than employees.

37. Employee versus Independent Contractor: Sea Change in California (cont’d) Donald J. Weidner • The new California rule presumes that workers are employees unless the hirer satisfies three 3 factors to classify their workers as independent contractors. • California employers must prove: • “the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact”; • “the worker performs work that is outside the usual course of the hiring entity’s business;” and • There must be wage protection to “all workers who would ordinarily be viewed as working in the hiring business.” (emphasis of court) • “the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.”

38. Christensen v. Swenson (1994)(p. 54) Donald J. Weidner Burns Security provides security services for the Geneva Steel Plant. Burns employed Gloria Swenson as a security guard in June 1988. One month later, an accident occurred on a day she was assigned to Gate 4. Gate 4 guards worked 8-hour shifts with no scheduled breaks, but could take 10-15 minute unscheduled lunch and restroom breaks. Gate 4 guards generally ate bag lunches but occasionally ordered take-out from the sole restaurant with close physical proximity, which was “150 to 250 yards” away “directly across the street.” Gloria ordered take out, drove to pick it up, and on her way back got in a collision with a motorcycle. Christensen and Fausett were injured. Injured sued Gloria and Burns Security. Burns argued that it was not liable under the doctrine of respondeat superior because Gloria was not acting within the scope of her employment at the time of the accident. The trial court granted Burns Security summary judgment and the intermediate appellate court affirmed.

39. Christensen v. Swenson (cont’d) Donald J. Weidner • Ordinarily, scope of employment is a question of fact. • “However, when the employee’s activity is so clearly within or outside the scope of employment that reasonable minds cannot differ, the court may decide the issue as a matter of law.” • Birkner said “acts falling within the scope of employment are ‘those acts which are so closely connected with what the servant is employed to do, and so fairly and reasonably incidental to it, that they may be regarded as methods, even though quite improper ones, of carrying out the objectives of employment.” • Do these words favor either the security guard or her employer? • Birkner listed 3 criteria helpful in determining whether action is within or without the scope of employment.

40. Christensen v. Swenson (cont’d) Donald J. Weidner The 3 “Birkner” criteria: The conduct must be “of the general kind the employee is hired to perform, that is, ‘the employee must be about the employer’s business and duties assigned by the employer, as opposed to being wholly involved in a personal endeavor;” [and] The conduct must occur substantially within the hours and ordinary spatial boundaries of the employment ; and The conduct “must be motivated, at least in part, by the purpose of serving the employer’s interest.” (emphasis added) The Intermediate Appellate Court said, because the second criterion was not met, there was no need to consider the other two, and granted summary judgment in favor of Burns. What did the Supreme Court say about each of these criteria? Why was Geneva Steel Plant apparently not a defendant?

41. Fiocco v. Carver (1922) Donald J. Weidner Defendant, a Manhattan business, sent a truckload of merchandise from Manhattan to Staten Island. It owned the truck and its agent was driving. The duty of the driver after delivering the load was to bring the truck back to the garage on the far West side of Manhattan (the West side is the side closest to Staten Island). Instead of heading directly to the West side, Driver bypassed the West side and went first to the East side to visit his mother, encountered a street fair, and allowed a group of young boys to come on board, after which he took them on a tour of the neighborhood. He stopped at a pool room to chat with a friend, during which time the 11-year old plaintiff climbed on the truck and was injured when it pulled away, still carrying the other boys. Driver said his purpose at that point was to return to the garage on the West side. The trial court allowed the case to go to the jury, which found the activity was in the course of employment, and a divided intermediate appellate court affirmed.

42. Fiocco v. Carver (cont’d) Donald J. Weidner • Judge Cardozo stated that, without more, the fact that a truck belonging to an employer was in the custody of an employee gives rise to a presumption that the employee was using it in the course of his employment. • Here, there was more, and the “departure from regularity is so obvious” that there can be no inference of “an adherence to the course of duty.” • “Location in space and time are circumstances that may guide the judgment, but will not be suffered to control it, divorced from other circumstances that may characterize the intent of the transaction.” • Was this within “time and space”? • “The dominant purpose must be proved to be the performance of the master’s business. Till then there can be no resumption of a relation which has been broken and suspended.” • The accident happened when the truck was pulling away from the pool hall, still loaded with boys.

43. Fiocco v. Carver (cont’d) Donald J. Weidner • The driver’s “purpose to return to the garage was insufficient to bring him back within the ambit of his duty.” • “Duty was resumed, if at all, when, ending the tour, he had embarked upon his homeward journey. It was in the very act of starting that the injury was done.” • “The field of duty once forsaken, is not to be re-entered by acts evincing a divided loyalty and thus continuing the offense.” • He was still entertaining people • The truck was still far from the route it would have traveled if the driver had followed his instructions • The homeward trip was bound up with “the effects of the excursion.”

44. Note on Scope of Employment (p. 60) Donald J. Weidner • Bayern says there is “little clarity” on scope of employment except that two principles explain most of the cases. • The scope of liability usually extends to include actions that reflect characteristic risks that the employer should expect to arise from the employment. • This relates to a potential purpose of respondeat superior, the proper scope of enterprise liability. See the cases that follow. • Scope of liability is usually “sticky” in that once an employee begins acting within the scope of employment, it usually takes some significant deviation to take the employee outside the scope, and vice versa. • Can be justified as a matter of administrative simplicity and attention to context. “To deny a plaintiff recovery merely because an employee crossed the street is arguably both (1) needlessly harsh and formal and (2) potentially difficult to administer as it raises extra questions about employees’ motivations and precise locations that may be hard to answer reliably.”

45. Ira S. Bushey & Sons, Inc. v. United States (1968)(p. 61) Donald J. Weidner • While the U.S. Coast Guard vessel Tamaroa was being overhauled in a floating drydock in the Gowanus Canal, an intoxicated seaman returning from shore leave late at night turned three large wheels on the drydock wall that caused flooding on one side of the drydock, causing the ship to list and slide off its blocks, damaging the drydock and partially sinking the ship. Drydock Owner Bushy seeks compensation from U.S. • The contract with the Drydock provided for the “berthing and messing” of crew, who were to have access at all times. The crew “will not interfere with the work . . . .” • USA argues it is not liable for Seaman Lane’s acts because they were not within the scope of his employment. • Citing Restatement of Agency (Second) § 228(1): “conduct of a servant is within the scope of employment if, but only if . . . it is actuated, at least in part by a purpose to serve the master.”

46. Ira S. Bushey & Sons, Inc. v. United States (cont’d) Donald J. Weidner • Judge Friendly says that courts have gone to considerable lengths to find such a purpose [recall the security guard case], but “it would be going too far to find such a purpose here.” • His return to the ship served his employer, turning the wheels did not. • The “motive” test has been applied in an “highly artificial way.” • The court below referred “to the larger purposes respondeat superior is supposed to serve.” • Court below held that expanding liability would lead to a moreefficient allocation of resources. • How do you state that argument? • How did Judge Friendly respond?

47. Ira S. Bushey & Sons, Inc. v. United States (cont’d) Donald J. Weidner • A “more efficient allocation of resources can only be expected if there is some reason to believe that imposing a particular cost on the enterprise will lead it to consider whether steps should be taken to prevent a recurrence of this accident.” • The suggestion that imposition of liability here on the U.S. will lead to a more intensive screening of employees rests on highly questionable premises. • Seaman Lane’s “prior record was unblemished” • A Harvard Note argued that the rationale behind the resource allocation thesis would not apply in Bushy because the victim of the tort was also a business organization, able to take safety measures and to spread costs.

48. Ira S. Bushey & Sons, Inc. v. United States (cont’d) Donald J. Weidner • From that Note: • “The broad purposes purportedly served by respondeat superior might then be best served by refusing to impose vicarious liability and leaving losses where they lie . . . . If respondeat superior is simply a means of social engineering—not founded in notions of the employer’s causation of or responsibility for the injury—the doctrine might be applied only when it best serves the purposes of cost-spreading and long-run prevention.” (emphasis added) • As the court put it: Applying the traditional rule [requiring purpose or motive to serve the principal] to deny recovery to the Dockowner “might induce drydock owners, prodded by their insurance companies, to install locks on their valves to avoid similar incidents in the future. Indeed, most modern drydocks have automatic locks to prevent unauthorized use. • Although in many cases the plaintiff will not be in a position to insure.

49. Ira S. Bushey & Sons, Inc. v. United States (cont’d) Donald J. Weidner It is true that allowing recovery here would “serve respondeat superior’s loss spreading function.” “But the fact that the defendant is better able to afford damages is not alone sufficient to justify legal responsibility.” * * * “A policy analysis thus is not sufficient to justify this proposed expansion of vicarious liability. This is not surprising since respondeat superior, even within its traditional limits, restsnot so much on policy grounds consistent with the governing principles of tort law as in a deeply rooted sentiment that a business enterprise cannot justly disclaim responsibility for accidents which may fairly be said to be characteristic of its activities. It is in light of this that the inadequacy of the motive test becomes apparent.”

50. Ira S. Bushey & Sons, Inc. v. United States (cont’d) Donald J. Weidner Risks characteristically attendant upon the operation of a ship include those from “expressions of human nature.” “[W]hat is reasonably forseeable in this context [of respondeat superior] * * * is quite a different thing from the foreseeably unreasonable risk of harm that spells negligence * * * The foresight that should impel the prudent man to take precautions is not the same measure as that by which he should perceive the harm likely to flow from his long-run activity in spite of all reasonable precautions on his own part.” Here, it was foreseeable that crew members crossing the drydock might do damage. It is immaterial that Lane’s “precise action was not to be foreseen.” Judge Friendly’s seeks an approach that accords with “modern understanding as to when it is fair for an enterprise to disclaim the actions of its employees.”