The opinion of the court was delivered by: Mishler, District Judge.
MEMORANDUM OF DECISION AND ORDER
These actions (the "Bukhari" action) are based on
substantially the same franchise and security agreements that
form the basis of CV 90-1375 (Mir/Ali franchisees), CV 90-1377
(Nasim franchisee), and CV 90-1379 (Mir/Mir franchisees), and
the actions related thereto which were removed from New York
State Supreme Court. The court issues a separate memorandum of
decision and order in those actions, making findings of fact
and conclusions of law. 748 F. Supp. 969. To the extent that the
findings of fact and conclusions of law made in that memorandum
of decision are pertinent to the issues raised in the
Bukhari action they are incorporated into this
memorandum of decision.
Jameel Bukhari ("Bukhari") opened his franchised store on
December 16, 1988. In March 1989, he traveled to Pakistan to
attend his father's funeral and handle matters related to his
father's estate, returning to the United States on May 31,
1989. During this period, Asim Nasim ("Nasim") oversaw the
day-to-day operations of Bukhari's store on Bukhari's behalf.
When Nasim was not in attendance, Ahmad Raza (a/k/a "Tony"),
employed by Bukhari as the manager of the store and authorized
to sign cash reports, exercised his authority in the operation
of the store. When Bukhari returned to this country on May 31,
1989, he was unable to give his full attention to the business
at the store. From that day until April 24, 1990, he visited
the store at various hours a few days in each week. The
management of the store was shared by Tony, Nasim, and Nasim's
father, Nasim Hussain, in addition to Bukhari.
Bukhari's answer to the claim of substantial breach of the
franchise agreement through the money order scam is that he was
unaware of any such scheme (Bukhari Post-trial Memorandum at p.
6) and such criminal acts of an employee cannot be the basis
for termination of his rights under the franchise agreement.
During the period March 1, 1989 to April 17, 1990, Bukhari's
store issued yet failed to record about 100 money orders
totalling about $14,700. Many of the money orders were payable
to vendors; one was payable to Ahmad Raza (11/22/89 in the
amount of $108).*fn1 (See Ex. 44).
The franchise agreement requires that Bukhari "will actively
and substantially participate in the operation of the Store and
will have full managerial authority and responsibility for the
operation of the Store." (¶ 33). He is specifically charged
with "the conduct of FRANCHISEE'S agents and employees,
including, but not limited to, the day-to-day operations of the
Store and all Store employees." (¶ 21).
The liability of a principal for the fraud committed by
agents and employees acting within the scope of their authority
was defined in American Society of Mechanical Engineers v.
Hydrolevel Corp., 456 U.S. 556, 565-66, 102 S.Ct. 1935,
1942, 72 L.Ed.2d 330 (1982) as follows:
[U]nder general rules of agency law, principals
are liable when their agents act with apparent
authority and commit torts. . . . [footnote
omitted]. For instance, a principal is liable for
an agent's fraud though the agent acts solely to
benefit himself, if the agent acts with apparent
See Maritime Ventures Int'l v. Caribbean Trading &
Fidelity, 689 F. Supp. 1340, 1355 (S.D.N.Y. 1988).
In L.J. Dreiling Motor Co. v. Peugeot Motors of America,
Inc., 605 F. Supp. 597 (D.Col. 1985), aff'd in relevant
part, 850 F.2d 1373, 1378 (10th Cir. 1988), Dreiling, a
Peugot franchisee, brought an action for damages claiming a
wrongful termination of its dealership franchise. Peugot moved
for summary judgment on the ground that it had the right to
terminate the franchise based on the fraudulent warranty claims
submitted to it. Dreiling responded to the motion by showing
that the claims were submitted by its service manager, one Lou
Bartlett, and that it was unaware of the fraud perpetrated on
Peugot. In granting summary judgment, the court cited section
261 of the Restatement (Second) of Agency*fn3 and held:
It cannot be disputed that Dreiling, by employing
Bartlett as service manager, put him in a position
where he could submit fraudulent warranty claims
while apparently acting within his own authority.
Id. at 611. See also Hatton v. Quad Realty
Corp., 100 A.D.2d 609, 473 N.Y.S.2d 827, 829 (2d Dep't
1984) (following section 261).
In accordance with the findings of fact and conclusions of
law made in the court's memorandum of decision in the Mir/Ali,
Nasim, and Mir/Mir actions, to the extent they are pertinent to
the issues raised in this action, Southland's motion herein for
order of seizure is granted, with the same provision for stay