Commercial Division Blog
Posted: February 19, 2017 / Categories Commercial, Fraud/Misrepresentation, Agency
Dismissal of Fraudulent Misrepresentation Claim Based on Respondeat Superior Theory Affirmed
On February 14, 2017, the First Department issued a decision in VFP Investments I LLC v. Foot Locker, Inc., 2017 NY Slip Op. 01148, affirming the dismissal of a fraudulent misrepresentation claim based on the theory of respondeat superior, explaining:
The fraudulent misrepresentation claim based on the theory of respondeat superior fails to state a cause of action. The allegations reasonably permit the inference that the verification of accounts receivable issued to Foot Locker by nonparty G3K, a provider of marketing materials, fell within the scope of defendant Smith's employment as Foot Locker's "Director of In-Store Marketing," although they do not support a finding that verification was within the scope of defendant Rainier's employment as "Divisional Vice President of Franchise Development." However, nothing in the complaint permits the inference that Smith engaged in this fraudulent verification in furtherance of Foot Locker's business, rather than solely for personal motives.
The fraudulent misrepresentation claim based on implied actual authority fails to state a cause of action. The allegation that Smith procured marketing materials directly from G3K permits the inference that Smith could reasonably have believed that she had implied authority to verify G3K's accounts receivable. However, she could not reasonably have believed that she had the authority to verify receivables falsely, and Foot Locker is not bound by the conduct in which she engaged that exceeded her authority. The allegations do not support a finding that Rainier could reasonably have believed he had authority to verify G3K's accounts receivables.
The fraudulent misrepresentation claim based on apparent authority also fails to state a cause of action. As the trial court correctly noted, Smith's and Rainier's job titles were insufficient, by themselves, to convey that they had authority over accounting matters. Moreover, the complaint fails to allege any misleading facts or words by Foot Locker. The fraudulent misrepresentation claim based on authority by estoppel fails to state a cause of action. The complaint does not allege that Foot Locker intentionally or carelessly caused plaintiff to believe that Smith or Rainier had the authority to verify receivables on its behalf. It alleges only that Foot Locker knew or should have known of Smith's fraudulent acts but did not take reasonable steps to notify plaintiff of the acts, to plaintiff's detriment. However, the allegations that Foot Locker knew or should have known of Smith's fraudulent acts are conclusory. Nothing in the complaint shows that Foot Locker was aware of the communications between Smith and plaintiff.
(Internal quotations and citations omitted).