Donnelly was terminated because of fraudulent improprieties for which he was later criminally convicted and incarcerated.
When an agent is terminated for criminal activity during the course of his agency, all reasonable and practical actions and communications must be taken by the principal to assure that third parties are aware of the termination, and that the former agent has no authority to act for the principal in any shape, form or manner, and that it would be fraudulent for him to so act. The court has not found direct case authority to support or refute this holding. However, such a ruling serves to protect innocent third parties from unscrupulous former agents who originally were given actual authority by the principal. It does not place an unreasonable burden on the principal to require it to take such extraordinary or additional reasonable steps for the protection of third parties when agents are fired for fraudulent activity. A principal which meets this obligation not only protects itself from liability, but also considerably reduces the risk that innocent members of the general public will be defrauded by former agents.
Because Nationwide was aware of Donnelly's criminal fraudulent improprieties, they were required to make every reasonable effort to remove his apparent authority to represent the companies. This is particularly true where, as here, the former agency relationship was longstanding and widely known. The actions of Nationwide in terminating Donnelly are not sufficient to exonerate defendants, as a matter of law, from liability for his subsequent actions. Rather, questions of fact remain for the fact-finder regarding the reasonableness of Nationwide's conduct surrounding Donnelly's termination.
For example, a jury must first decide the nature and extent of Nationwide's knowledge of Donnelly's criminal activity, and then under those special circumstances, decide whether or not Nationwide made reasonable efforts to: (1) notify all of Donnelly's customers, both current and past (including Mrs. Kelly, and especially from 1987 through 1991) of the fact that he had been terminated; (2) collect all of the client files and documents in his possession which included Nationwide stationery and forms; and (3) notify the public of his termination. This is especially true in view of the fact that his success as an agent was widely publicized, yet according to the submissions in this case, his improprieties - and even his crimes - were publicly ignored.
The court finds that Nationwide, armed with the knowledge of Donnelly's criminal and improper actions toward customers as a direct result of his acting as an agent for the companies, had a duty to take additional reasonable steps to strip him of any apparent authority as an agent of the company. Whether or not Nationwide fulfilled this obligation, and did, in fact, make such reasonable efforts is a question of fact for the jury.
2. Plaintiff's Reasonable Reliance
Johnson was new to the world of investing when she received her personal injury settlement in 1991. Donnelly was a relative acclaimed for success in the field in which she needed help. This court finds that it is for a jury to decide whether the documents she received, and the information gathered from her sister and mother led her to reasonably rely on Donnelly's authority to invest her money in Nationwide's tax-free fund. Whether she had a duty to make reasonable inquiries must also be considered. See Herbert Constr. Co., 931 F.2d at 995-96. It must be determined if the situation was one which should have put Johnson on inquiry. Was she justified in her reliance on Donnelly's authority to represent Nationwide? Was it an extraordinary transaction? If it is found that Nationwide's actions were insufficient to remove apparent authority from Donnelly, did Johnson reasonably rely upon the authority which Nationwide was unable to eliminate?
A reasonable jury could make the preceding determinations in Johnson's favor. If so, the plaintiff's loss was caused by Donnelly's apparent authority. The existence of apparent authority would make Nationwide liable for Donnelly's actions toward Johnson. "[A] principal is liable for an agent's misrepresentations that cause pecuniary loss to a third party, when the agent acts within the scope of his apparent authority." American Soc'y of Mechanical Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556, 566, 72 L. Ed. 2d 330, 102 S. Ct. 1935 (1982). Therefore, summary judgment is not appropriate on the question of Nationwide's liability for Donnelly's acts because issues of material fact exist regarding his apparent authority, and the plaintiff's reliance thereon. These questions should be answered by a jury rather than by this court. Summary judgment to the defendants must be denied in regard to the First Cause of Action.
B. Second Cause of Action: Negligent Employment
Respondeat superior requires an existing relationship between defendants and the person who committed the act. Loucks v. Community Home Care Servs., 209 A.D.2d 484, 618 N.Y.S.2d 826 (2d Dep't 1994). Discharging an employee before the complained of act prevents recovery for negligent hiring and/or retaining. Id. at 485. Defendants are not liable under this cause of action. Their dismissal of Donnelly prior to the improper actions which are the subject of this case is sufficient to relieve them of liability under this theory. Johnson's ability to hold Nationwide liable rests on her first cause of action. Therefore, summary judgment must be granted in the Second Cause of Action.
C. Third Cause of Action: Assignment
Finally, Johnson claims that she is entitled to Donnelly's deferred compensation which he attempted to assign to her on April 10, 1993. It is undisputed that Donnelly and Nationwide had agreements requiring Nationwide's authorization or consent to any assignment of funds due to Donnelly, (Defs.' Ex. F P 20, Ex. G P 18.) Defendants argue that this requirement of consent defeats Johnson's cause of action relating to the assignment. "A party is bound by the provision of a contract he signs, unless he can show special circumstances that would relieve him of such an obligation." Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987). "An assignment is subject to the same requisites for validity as are other contracts; i.e., mutuality of assent, proper parties with the capacity to make a contract, consideration and legal subject matter." Lone Mountain Prod. Co. v. Natural Gas Pipeline Co., 710 F. Supp. 305, 309 (D. Utah 1989), aff'd, 984 F.2d 1551 (10th Cir. 1992). Nationwide and Donnelly are the proper parties regarding this assignment. Without their participation and mutual assent, Donnelly's unilateral assignment to Johnson is invalid.
Johnson also does not have standing to enforce the attempt at assignment as a third party beneficiary. "Third party beneficiary rights arise, if at all, from a contract, and the contracting parties must have intended to confer a direct benefit on the third parties." Beaumont v. American Can Co., 621 F. Supp. 484, 492 (S.D.N.Y. 1985), aff'd, 797 F.2d 79 (2d Cir. 1986). Whether relying upon federal common law or the law of New York, third parties only have enforceable rights in a contract if it was made for their direct benefit. McNeill v. New York Hous. Auth., 719 F. Supp. 233, 248 (S.D.N.Y. 1989). There is no indication that the 1987 and 1989 agreements between Donnelly and Nationwide were made for the direct benefit of Johnson. Therefore, Johnson is not a third party beneficiary of those agreements. Without the consent of Nationwide, Johnson has no standing to enforce the purported assignment by Donnelly to her. If Nationwide did authorize the April 10, 1993, assignment, plaintiff would be a direct third-party beneficiary and entitled to enforce a valid assignment. Such is not the case. The Third Cause of Action must be dismissed.
E. Plaintiff's Cross-Motion
Viewing the facts in a light most favorable to Nationwide, the nonmovant, questions of material fact exist as to whether Donnelly was the apparent agent of Nationwide at the time he defrauded Johnson. Also, the plaintiff's reliance thereon must be assessed by a jury. Therefore, Johnson's cross-motion for summary judgment must be denied.
Accordingly, it is
1. The defendants' motion for summary judgment is GRANTED in part and DENIED in part;
a. The First Cause of Action is not dismissed; and
b. The Second and Third Causes of Action are dismissed;