As an initial matter, it is not productive to speculate as to precisely what Judge Duffy had in mind when he denied plaintiff's summary judgment motion, although it is clear that he thought the matter should go to trial. I believe the right and fair result is somewhere in between the two positions taken by the parties.
The default judgment does not, by itself, establish that the Bank discriminated against plaintiff. It certainly is possible that, notwithstanding the comments purportedly made by Ozman to plaintiff, a reasonable jury could find that plaintiff was discharged by the Head Office for improper trades. On the other hand, because the default judgment was entered against Ozman in both his individual and official capacities, and given the inherent unfairness created by Ozman's discovery abuses, plaintiff should be able to make some use of the default judgment (or the admissions arising therefrom) at trial.
The Bank cites a number of decisions that hold that a default judgment against one defendant does not prevent a co-defendant from contesting the plaintiff's claim. See, e.g., Pfanenstiel Architects, Inc. v. Chouteau Petroleum Co., 978 F.2d 430, 431 (8th Cir. 1992); Rhodes v. Meyer, 334 F.2d 709 (8th Cir.), cert. denied, 379 U.S. 915, 85 S. Ct. 263, 13 L. Ed. 2d 186 (1964); State Farm Mut. Auto. Ins. Co. v. Jackson, 736 F. Supp. 958, 960 (S.D. Ind. 1990); Benoay v. Decker, 517 F. Supp. 490, 496 (E.D. Mich. 1981), aff'd, 735 F.2d 1363 (6th Cir. 1984). None of those cases, however, involved a situation where, as here, the defaulting defendant was an employee of the nondefaulting defendant, and the default was taken against the defaulting defendant in his individual and official capacity.
For example, in State Farm, an insurance company brought a declaratory judgment action against the driver of the insured automobile as well as a passenger in a second automobile who was injured in the accident. The insurance company sought a declaration that the accident was not covered by the policy. The driver failed to answer the complaint, and a default judgment was entered against him. The insurance company then moved for summary judgment against the passenger, arguing that the driver's default resulted in admissions of the allegations of the complaint, which admissions could be used against the passenger. The court denied the motion, holding that the default against the driver could not be used against the passenger. The court noted that because the passenger's rights were "not derivative of the rights of the defaulter," the default could not determine the passenger's rights and it could not preclude the passenger from "fully litigating all of the issues and defenses." 736 F. Supp. at 960.
The Bank cites Rhodes v. Meyer, 334 F.2d 709 (8th Cir.), cert. denied, 379 U.S. 915, 85 S. Ct. 263, 13 L. Ed. 2d 186 (1964), as a case where a default judgment against an "agent" was not permitted to be used against a "principal." While that technically was one of the results, in fact, the case does not stand for that proposition. There, the plaintiff, an inmate, had obtained a default judgment in a prior lawsuit against a penitentiary guard. He then relied on the default judgment in a subsequent civil rights case that alleged a conspiracy among the defendants, who consisted of state supreme court justices, state district judges, prosecuting attorneys, clerks of court, sheriffs, law enforcement officers, prison officials and members of the bar. 334 F.2d at 711.
The Court of Appeals noted simply that the default judgment was not part of the record before it and that "nothing" in the prior case had any "persuasive effect" on the issues it was considering. Id. at 718. The case hardly provides support for the proposition that a default judgment against a codefendant employee, who was acting within the scope of his employment when the default was committed, may not be used against the co-defendant employer.
Agency principles provide support for permitting plaintiff to make some use at trial of the default judgment against Ozman. Under agency law, it is fundamental that "a principal is liable for all obligations incurred by his agent within the course of his employment." 3 N.Y. Jur. 2d, Agency § 239 at 64 (1980). Even when an agent is guilty of misconduct, if that misconduct occurred in the course of the agent's employment, the principal must answer for the acts of misconduct whether he authorized them or not. Id., § 244 at 69. See generally Carrero v. New York City Hous. Auth., 890 F.2d 569, 578-79 (2d Cir. 1989) (discussing agency principles in Title VII context); Citibank, N.A. v. Nyland (CF8) Ltd., 878 F.2d 620, 624 (2d Cir. 1989) ("a principal is liable to third parties for the acts [including fraud] of an agent operating within the scope of his real or apparent authority").
These principles are based on the reasoning that a third party who is injured by the actions of an agent should have recourse against the principal who placed the agent in a position to inflict the injury and who held the agent out as someone competent and fit to be trusted. 3 N.Y. Jur. 2d, Agency § 240 at 66 (1980).
There is no reason why, as a theoretical matter, these agency principles should not be applied to an agent's actions in the context of a litigation. Here, Ozman's misconduct occurred in the course of his employment; it was certainly part of his duties as General Manager of the New York Branch to participate and assist in the defense of this lawsuit. The Bank put him in charge of the New York Branch, held him out as a person who was competent and fit to run the New York Office, and put him in a position where it was his responsibility to participate in the lawsuit. Accordingly, the Bank must answer for Ozman's acts of misconduct committed during the course of his participation in the defense of this lawsuit.
Significantly, Judge Duffy recognized that Ozman's actions that led to his default were within the scope of his employment, as the default judgment was entered against Ozman in both his individual capacity and in his official capacity as general manager of the New York Branch.
While it is true, as the Bank contends, that Ozman has put the Bank in a difficult position, Ozman has also severely prejudiced plaintiff. As plaintiff's immediate supervisor and as the head of the New York Branch, Ozman certainly had extensive knowledge of the events in issue. Yet, plaintiff was unable to fully depose him, and he is not available to be called at trial. Moreover, Ozman destroyed at least one document that might have been helpful to plaintiff's case. Judge Duffy found that his conduct was so egregious that it warranted the sanction of a default judgment. That default judgment may be rendered meaningless if plaintiff is not able to make some use of the default judgment at trial, for any monetary judgment against Ozman is likely to be uncollectible, as he has returned to Turkey.
Accordingly, plaintiff will be permitted to make use of the default judgment at trial to the following extent:
1. The jury will be instructed that Ozman was named as a defendant in this lawsuit, that he initially appeared and defended the lawsuit, represented along with the Bank by White & Case, that he thereafter defaulted on his obligations in the lawsuit, that thereafter his employment was terminated and he returned to Turkey, that he no longer is a party to the lawsuit, and that White & Case no longer represents him;