persons is subject to liability to such third persons for the fraud.
Comment a explains this rationale:
The principal is subject to liability under the rule stated in this Section although he is entirely innocent, has received no benefit from the transaction, and . . . although the agent acted solely for his own purposes. Liability is based upon the fact that the agent's position facilitates the consummation of the fraud.
The reasoning behind this logic (that between two innocent parties, the one who has allowed the fraud to be perpetrated should bear the loss) has been accepted by New York courts on several occasions Hatton v. Quad Realty Corp., 100 A.D.2d 609, 473 N.Y.S.2d 827, 829 (2d Dept. 1984) (citations omitted). Bogert, as vice president of Gateway, was in such a position, and under these circumstances the court must decide whether First Interregional has a colorable claim that Bogert had apparent authority from Gateway to do as he did.
Two factors are especially important here in determining whether Bogert acted with apparent authority. The first is the extent of Bogert's actual authority, and the second is the degree to which Bogert's actions should have been foreseen by Gateway.
The greater the authority within the company, the greater the damage that can be done by the abuse of that authority. The Second Circuit has held that a firm is more appropriately liable for the tortious behavior of a vice president than for a routine employee. Cf. S.E.C. v. Management Dyn. Inc., 515 F.2d 801, 813 (2d Cir. 1975); S.E.C. v. Geon Indus. Inc., 531 F.2d 39, 54-55 (2d Cir. 1976). The degree of responsibility placed upon the employee in determining the liability of the master is a factor in New York state law as well. Carroll v. Station Managers, Inc., 104 Misc.2d 1014, 429 N.Y.S.2d 825, 827 (N.Y.Civ.Ct. 1980).
But New York has added another gloss to the law of respondeat superior -- the foreseeability of the agent's tortious conduct. "Although it has long been held that a principal is relieved of liability where his agent is acting for the agent's own purposes . . . the Court of Appeals has held that the principal will be liable where the general type of conduct may have been reasonably expected." Hatton, 473 N.Y.S.2d at 829. 473 N.Y.S.2d at 829.
First Interregional has alleged a triable issue of fact over whether Gateway should have foreseen the need for closer supervision of Bogert's accounts. While the lawsuits alleged by First Interregional could not have put Gateway on notice when Bogert was hired, they perhaps should have put Gateway on notice that Bogert might be named as a defendant in his capacity as a vice president of Gateway. It is true that the nature of the other lawsuits may not have alerted Gateway to concern over any particular type of conduct, but whether Gateway should have increased its supervision of Bogert in some fashion is at least a triable issue.
The only problem with imputing liability for Bogert's apparent authority is that, since First Interregional did not even know about Bogert or the Gateway accounts until after the fraud, Gateway claims that First Interregional was not in privity with it and could not have relied upon Bogert's apparent authority. However, the precise factual nature of the fraud has not been established. On a motion to dismiss, the Court must draw all reasonable inferences in favor of the non-moving party. Cosmas v. Hassett, 886 F.2d 8, 12 (2d Cir. 1989). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). Gateway has not met its heavy burden of showing that First Integrated can prove no set of facts in support of its claim which would entitle it to relief.
For the reasons given above, Gateway's motion to dismiss the claims stated against it in First Interregional's Third Amended Complaint is denied.
It is so ordered.
New York, N. Y.
October 28, 1992
ROBERT W. SWEET