USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1300
DOROTHY BATES, THROUGH
HER GUARDIAN, BARBARA MURPHY,
Plaintiff - Appellant,
v.
SHEARSON LEHMAN BROTHERS, INC.,
Defendant - Appellee.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Francis J. Boyle, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Campbell, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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Quentin Anthony, with whom Sheffield & Harvey was on brief
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for appellant.
David A. Wollin, with whom Paul V. Curcio, Christopher C.
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Whitney, and Adler Pollock & Sheehan Incorporated were on brief
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for appellee.
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December 16, 1994
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TORRUELLA, Chief Judge. Dorothy Bates, through her
TORRUELLA, Chief Judge.
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guardian Barbara Murphy ("Bates"), brought an action against
Shearson Lehman Brothers, Inc. ("Shearson"). Bates claimed that
Shearson was liable for the acts of its alleged agent, Carl P.
Nykaza, a broker at Shearson, who diverted approximately $70,000
of Bates' funds, for his own personal account. A trial
commenced, and at the conclusion of Bates' case, Shearson moved
for judgment as a matter of law. The court granted Shearson's
motion, finding that Bates had failed to present sufficient
evidence to support her theory that Shearson should be held
liable for Nykaza's actions under the theory of apparent
authority. Bates now appeals. Although Bates was the victim of
a tremendous inequity and we sympathize with her situation, we do
not believe that liability can be attributed to Shearson.
Therefore, for the following reasons, we affirm.
I. BACKGROUND
I. BACKGROUND
In reviewing the court's decision to grant Shearson's
motion for judgment as a matter of law, we consider the evidence
in the light most favorable to Bates, the nonmoving party.
Jordan-Milton Machinery, Inc. v. F/V Teresa Marie, II, 978 F.2d
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32, 34 (1st Cir. 1992).
At the time of trial, Bates was an 82-year-old woman.
In 1991, Bates entered a nursing home in Providence, Rhode
Island. Bates is mentally incompetent and unable to describe the
events and transactions which form the basis of this lawsuit.
Nykaza began working in the securities industry as a
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broker for E.F. Hutton in 1984. E.F. Hutton assigned Nykaza to
Bates' account in 1985, at which time Nykaza met with Bates at
her home in Providence to discuss the status of her accounts and
to solicit money for investment.
Nykaza left E.F. Hutton in 1988 and began working for
Thomson McKinnon Securities, Inc. ("Thomson"). Nykaza
transferred Bates' account, as well as fifteen or twenty other
accounts, from E.F. Hutton to Thomson at that time. While at
Thomson, Nykaza continued to manage Bates' account and would
visit her at her home two or three times a month.
In the spring of 1989, Nykaza closed Bates' account at
Thomson. Nykaza's employment with Thomson also ceased. At this
time, Nykaza was attempting to secure a broker position at
Shearson in Westport, Connecticut. Shearson hired Nykaza as a
broker sometime in June or July, 1989. Shearson policy required
brokers to open an account for a customer before a broker could
invest any of that customer's money. A branch manager then had
to approve all new accounts. Nykaza transferred approximately
twelve accounts from Thomson to Shearson, but he never opened an
account for Bates at Shearson.
On June 13, 1989, Nykaza went to Bates' home to obtain
money. Nykaza prepared a check from her account at Fleet
National Bank ("Fleet") in the amount of $25,000, payable to
Rhode Island Hospital Trust National Bank ("Hospital Trust"), and
had Bates sign it. Nykaza then deposited the check into his
personal account at Hospital Trust, without endorsement.
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On August 3, 1989, Nykaza went to Bates' home and
prepared a second check from Bates' account at Fleet in the
amount of $20,000, made it payable to Hospital Trust, and had
Bates sign the check. Nykaza then deposited the check into his
personal account at Hospital Trust.
On January 9, 1990, Nykaza again went to Bates' home,
prepared a third check from Bates' account at Fleet in the amount
of $25,000, and made it payable to Hospital Trust. After Bates
signed the check, Nykaza deposited it in his personal account at
Hospital Trust.
Nykaza's employment with Shearson ended on February 16,
1990. During Nykaza's employment with Shearson, no one at
Shearson was aware that Nykaza was receiving money from Bates.
Nykaza never deposited at Shearson the funds he received from
Bates. Nykaza also never told Bates, or otherwise represented,
that he was going to deposit the funds reflected by her checks at
Shearson. Nykaza used all the funds obtained from Bates for his
own personal benefit.
After leaving Shearson, Nykaza began working for
Dominick and Dominick, Inc. ("Dominick") as a broker. Nykaza
continued to prepare checks from Bates' account at Fleet for her
signature and deposit them into his personal account at Hospital
Trust. These checks, prepared after he left Shearson, totalled
$95,000.
On June 12, 1990, Nykaza set up an account at Dominick
in the name of "D.M. Bates." Nykaza listed Bates' social
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security number, but all of the other information on the account
was false. Nykaza signed Bates' name to the new account form and
all other required documentation. Nykaza then invested
approximately $5,000 from money he had previously obtained from
Bates. His stated purpose in opening the account was to try to
make some money through trading in order to repay Bates.
After Bates discovered Nykaza's diversion of her funds,
she brought this lawsuit against Nykaza and Shearson to recover
the $70,000 allegedly lost during Nykaza's employment with
Shearson. Nykaza subsequently allowed judgment to be entered
against him in the sum of $70,000. Bates then proceeded to trial
with her suit against Shearson, claiming that it was liable for
the acts of its agent Nykaza. After Bates concluded presenting
her case at trial, Shearson moved for judgment as a matter of
law. The court granted its motion. Bates then moved for a new
trial, and the court denied her motion. Bates now appeals.
II. ANALYSIS
II. ANALYSIS
A. The Court's Judgment as a Matter of Law
A. The Court's Judgment as a Matter of Law
In granting Shearson's motion for judgment as a matter
of law, the court found that Shearson's liability hinged upon
whether Nykaza acted as an agent of Shearson. After concluding
that there was no evidence that there was an actual agency, the
court determined that the issue was whether Nykaza had apparent
authority from Shearson. The court stated:
That essentially there are two prongs to
a determination as to whether or not a
principal is liable for the acts of its
agents or employees in these
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circumstances, that is, that there must
be some kind of manifestation to the
third party from the principal that the
agent or employee is acting in the scope
or in the course of employment or agency.
Certainly there must be some basis which
one might believe that indeed this was
so. So that there are two prongs here,
(1) a manifestation by the principal, and
(2) a reliance to some extent by the
third party dealing with the agent or
employee.
I must consider the evidence at this
point in the point of view most favorable
to the Plaintiff. However, having said
that the evidence it seems to me is
totally lacking of any manifestation by
Shearson Lehman to the putative investor
that Mr. Mykaza [sic] was acting as its
agent or employee in receiving funds.
Furthermore, there is no evidence at all,
even from the point of view of viewing
the evidence most favorable to the
Plaintiff, of any basis, reasonable or
otherwise, for a belief that this was
indeed what was happening.
The checks were drawn to Rhode Island
Hospital Trust Company. We might have a
different situation if they had been
drawn to Shearson Lehman but any dealings
that were had here were with Mr. Mykaza
[sic] and Hospital Trust and the third
party. It seems to me given those
circumstances I have no choice but to
grant the Defendant's motion for
judgment as a matter of law and it is
granted.
Bates took exception to this ruling. On appeal, she now claims
that the court erred, and that the evidence was sufficient to
permit the jury to reasonably conclude that Nykaza did have
"apparent authority" to act as an agent of Shearson.1
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1 On appeal, Bates does not challenge the district court's
ruling that Nykaza lacked actual authority to act as an agent of
Shearson in his dealings with Bates.
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As a preliminary matter, we set forth the appropriate
standard of review. Appellate review of a motion for a judgment
as a matter of law is de novo. Jordan-Milton Machinery, 978
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F.2d at 34. When a motion for a judgment as a matter of law has
been granted, we review the evidence and the inferences
reasonably drawn therefrom, in the light most favorable to the
nonmoving party. Id; Fashion House, Inc. v. K Mart Corp., 892
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F.2d 1076, 1088 (1st Cir. 1989). To affirm, we must find that
the evidence led to only one reasonable conclusion. Jordan-
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Milton Machinery, 978 F.2d at 34; Fashion House, Inc., 892 F.2d
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at 1088; see Commercial Assocs. v. Tilcon Gammino, Inc., 998 F.2d
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1092, 1099 (1st Cir. 1993). In performing this analysis, we will
not make credibility determinations or evaluate the weight of the
evidence. Jordan-Milton Machinery, 978 F.2d at 34; Fashion
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House, Inc., 892 F.2d at 1088. "Nevertheless, the evidence to
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which the nonmovant points must comprise more than fragmentary
tendrils: a mere scintilla of evidence is not enough to forestall
[judgment as a matter of law], especially on a claim or issue as
to which the burden of proof belongs to the objecting party."
Fashion House, Inc., 892 F.2d at 1088 (citations omitted).
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Under Rhode Island law, agency may be based upon
apparent authority.2 Commercial Assocs., 998 F.2d at 1099.
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"To establish the apparent authority of
an agent to do a certain act, facts must
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2 The parties both agree that Rhode Island law controls this
diversity action.
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be shown that the principal has
manifestly consented to the exercise
of such authority or has knowingly
permitted the agent to assume the
exercise of such authority; that a third
person knew of the fact and, acting in
good faith had reason to believe and did
actually believe that the agent possessed
such authority; and that the third
person, relying on such appearance of
authority, has changed his position and
will be injured or suffer loss if the act
done or transaction executed by the agent
does not bind the principal."
American Title Ins. Co. v. East West Financial Corp., 16 F.3d
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449, 454 (1st Cir. 1994) (quoting Calenda v. Allstate Ins. Co.,
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518 A.2d 624, 628 (R.I. 1986)) (other citations omitted).
Apparent authority arises from the principal's manifestation of
such authority to the party with whom the agent contracts.
Commercial Assocs., 998 F.2d at 1099 (citing Menard & Co. Masonry
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Bldg. Contractors v. Marshall Bldg. Systems Inc., 539 A.2d 523,
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526 (R.I. 1988)). The focus is therefore on the conduct of the
principal, and not on the putative agent. Commercial Assocs.,
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998 F.2d at 1099. Additionally, a third party's belief in the
agent's authority to act on behalf of the principal must be a
reasonable one. Id. (citing Rodr gues v. Miriam Hospital, 623
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A.2d 456 (R.I. 1993)).
In the present case, there is simply no evidence of any
representation or conduct by Shearson that would suggest to Bates
that Nykaza had authority to act for it. When Nykaza commenced
working at Shearson, Nykaza never opened up an account for Bates
at Shearson. Thereafter, when Nykaza would go to Bates' home,
and prepare checks for Bates to sign, he never had her issue them
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to Shearson. Rather, the checks were made out to Hospital Trust.
Nykaza never deposited any of Bates' funds with Shearson.
Additionally, Nykaza never expressly told or otherwise
represented to Bates that her funds would be invested with
Shearson.
Shearson did not give Nykaza any authority to solicit
money from Bates in such a fashion. Shearson policy in no way
countenanced Nykaza's actions. Rather, its policy required
brokers to open a customer account before investing a client's
money. A Shearson branch manager then had to approve any new
account. Furthermore, Shearson required that all money placed
into an account for investment purposes be made payable to
Shearson. Moreover, Shearson had no way to know of Nykaza's
dealings with Bates -- Nykaza never opened an account at Shearson
for Bates, and all of his dealings with her took place at her
home.
Even if Bates in fact believed that Nykaza represented
Shearson, no reasonable jury could have found that belief
justifiable. A generous reading of the evidence would suggest
that Bates gave Nykaza money to invest for her, and while Nykaza
was working at Shearson, Bates learned, "at one point," that he
was working there. Based on this reading, Bates contends that by
virtue of Shearson hiring Nykaza to work as a broker for it, she
assumed that the money she gave Nykaza would be invested at
Shearson. See Restatement (Second) of Agency, 261. A third
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party's belief in an agent's authority to act on behalf of a
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principal, however, must be reasonable. Commercial Assocs., 998
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F.2d at 1099; see American Soc. of Mechanical Engineers, Inc. v.
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Hydrolevel Corp., 456 U.S. 556, 566 (1982) (citing Restatement
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(Second) of Agency 261 and explaining that under an apparent
authority theory, liability can be based upon the fact that the
agent's position facilitates the consummation of the fraud, where
from the point of view of the third person, the transaction seems
regular on its face and the agent appears to be acting in the
ordinary course of the business confided to him). Here, the
reasonableness of Bates' contention is undermined by the fact
that the alleged investments with Shearson did not appear regular
on their face -- Nykaza never told her that he was investing her
money at Shearson, Bates never filled out an application to open
an account at Shearson, and the checks she gave Nykaza were not
made out to Shearson. See Veranda Beach Club Ltd. Partnership v.
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Western Surety Co., 936 F.2d 1364, 1378 (1st Cir. 1991) (when
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applying analogous Massachusetts law, court found that
plaintiff's knowledge that employee was officer of company did
not create a reasonable belief that employee had apparent
authority to act for employer). There is simply no evidentiary
basis from which to reasonably conclude that Nykaza had apparent
authority to act as an agent of Shearson in his dealings with
Bates.
B. The Evidentiary Rulings
B. The Evidentiary Rulings
Bates claims that the district court erred in excluding
certain testimony. Before we analyze the substance of these
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claims, we set forth the standard of review and certain
evidentiary principles. The admission and exclusion of evidence
is primarily committed to the discretion of the trial court, and
we will not disturb this determination absent a showing of an
abuse of discretion. Doty v. Sewall, 908 F.2d 1053, 1058 (1st
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Cir. 1990). In general, "[a]ll relevant evidence is admissible"
and "[e]vidence which is not relevant is not admissible." Fed.
R. Evid. 402. A trial court has appreciable flexibility in
admitting or excluding evidence on relevancy grounds. Veranda
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Beach Club, 936 F.2d at 1373. Evidence is "relevant" if it has
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"any tendency to make the existence of any fact that is of
consequence to the determination of the action more probable or
less probable than it would be without the evidence." Fed. R.
Evid. 401.
1. The Proffered Testimony Regarding Justin Grace
1. The Proffered Testimony Regarding Justin Grace
Bates claims that the court erred by excluding
testimony from Nykaza regarding funds he had received from Justin
Grace. To support this contention, Bates argues that Nykaza
testified that the first check he received from Bates was a loan
in anticipation of his move to Connecticut and his temporary
unemployment. To rebut the credibility of this testimony, Bates
offered to prove that one month prior to Nykaza's solicitation of
Bates for a loan, Nykaza had deposited into his own account a
check in the amount of $21,000 from another client, Justin Grace,
and that these funds were still available to Nykaza on June 13th.
Therefore, Bates argues that because Nykaza did not need a loan
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from Bates on June 13, 1983, he had other purposes for her check,
such as investment.
The court excluded this testimony because it determined
that the evidence was irrelevant. We do not believe that the
court abused its discretion in so finding. The central issue in
this case was whether or not Nykaza had apparent authority from
Shearson in his dealings with Bates. As we have previously
stated, the focus in determining whether an agent has apparent
authority from its principal is not on the conduct of the
putative agent, but rather on the conduct of the principal.
Commercial Assocs., 998 F.2d at 1099. Nykaza's testimony
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regarding Grace in no way related to conduct by Shearson.
Nykaza's alleged diversion of Grace's funds occurred before he
was employed by Shearson. Additionally, Grace was not a Shearson
client. Moreover, Bates' overly speculative argument fails to
have any tendency to show that Nykaza somehow had apparent
authority to act on behalf of Shearson.
2. The Proffered Testimony of William Harvey
2. The Proffered Testimony of William Harvey
Bates claims that the court erred in excluding the
testimony of William Harvey, who had two telephone conversations
with Nykaza in July 1991, over a year after Nykaza left Shearson.
Harvey's testimony, if allowed, was to the effect that Nykaza had
told him that part of the funds he had obtained from Bates were
for personal use and part of the funds were for investment.
Harvey's testimony also would have shown that Nykaza told him
that the purpose of the Dominick account he subsequently opened
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with $5,000 was to regain the monies he had previously taken from
Bates. Bates argues that this evidence was necessary to prove
that Nykaza obtained the funds from Bates for investment
purposes, presumably at Shearson.
The court excluded this testimony because it did not
believe that Harvey's testimony added anything to assist the jury
with respect to the issue of whether Nykaza was acting as an
agent of Shearson in his dealings with Bates. We do not believe
that the court abused its discretion in excluding the evidence
because it was cumulative and only marginally relevant at best.
The issue in this case was whether or not Shearson had
engaged in any conduct that gave Nykaza apparent authority to act
as its agent in his dealings with Bates. None of Harvey's
proposed testimony was to the effect that Nykaza was going to
invest Bates' money at Shearson. In fact, Harvey's proffer
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indicated that Nykaza never mentioned Shearson at all to him.
As a final matter, we note that even if we were to find
error in the court's two evidentiary decisions, which we do not,
we would be bound to hold the error harmless on this record.
Even if this evidence had been admitted, none of the testimony
was sufficient to establish that Shearson engaged in any conduct
that gave Nykaza apparent authority to act as its agent in his
dealings with Bates.
For the foregoing reasons, the decision of the district
court is affirmed.
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