When Is a manager a managing agent?

Courts have consistently required the employee to possess a significant degree of companywide responsibility.

For causes of action arising after October 1, 1999, F.S. [sections] 768.72(3) governs the available theories for establishing corporate liability for punitive damages. The provisions of this recently amended statute are both consistent with and supplementary to the Florida Supreme Court's opinion in Schropp v. Crown Eurocars, Inc., 654 So. 2d 1158 (Fla. 1995). In Schropp, the Florida Supreme Court articulated the two theories then available for proving corporate liability for punitive damages. The vicarious liability theory is established through proof of independent corporate fault contributing to the damages caused by an employee's outrageous conduct. Common examples of such fault are negligent hiring and retention of an employee. The subject of this article, the "direct" liability theory, hinges on proof that a "managing agent," a "primary owner" of the corporation, or a corporate representative that "holds a policymaking position" committed the outrageous act or acts. A third theory, corporate ratification of an employee's outrageous conduct, is now codified in [sections] 768.72(3)(b).

For better or worse, the direct liability theory approved in Schropp is preserved by [sections] 768.72(3). Pursuant to the statute, direct corporate liability for punitive damages depends on proof that the "employer, principal, corporation, or other legal entity actively and knowingly participated in such conduct."(1) Because the statute is silent as to which representatives are qualified to impose liability on their employer or corporation for their participation in outrageous conduct, Florida's courts and practitioners must still look to Florida's common law for guidance. Because the opinions on this issue are far from models of clarity, the "managing agent" question persists.

Dicta contained in the Florida Supreme Court's Schropp opinion may lead some to believe that an employee with any management duties whatsoever qualifies to impose corporate liability for punitive damages, that legitimate policymaking authority for the company is not a factual prerequisite to liability. A careful reading of the court's pre-Schropp opinions, coupled with the decisional trends of Florida's courts and those of other jurisdictions, demonstrates that such a reading of Schropp is misguided. In Florida, corporate liability for punitive damages under the direct liability theory depends on a finding that the tortfeasor was a high-ranking employee with real policymaking authority on behalf of the company as a whole.

Court's Holding in Schropp

In Schropp, the court held that there is no corporate vicarious liability for punitive damages based on the conduct of an employee alone; the doctrine of respondeat superior does not apply. F.S. [sections] 768.72(3)(a) maintains this principle. As with any punitive damages theory, the conduct of the individual tortfeasor is first examined independently. If the conduct is sufficient to support a claim for punitive damages against the individual, it must then be determined whether that individual is sufficiently high-ranking to impose liability on the corporation. If the individual tortfeasor is not a "primary owner" of the corporation, a plaintiff must establish that "the person is a managing agent or holds a policymaking position" in order for there to be corporate liability. Schropp, 654 So. 2d at 1161.

A fundamental difficulty with the Schropp opinion and F.S. [sections] 768.72(3)(a) is that both fail to provide any reasoned guidance as to who constitutes a managing agent or holds a policymaking position. Although state and federal courts applying Florida law have considered on numerous occasions whether an officer or employee of a corporation is a "managing agent" for purposes of imposing corporate liability for punitive damages, the courts have never established any usable criteria.

Managing Agent in Florida

The "managing" part of the term "managing agent" is somewhat misleading as it seems to imply that a corporation is liable for punitive damages for the acts of any manager. Florida case law belies this notion. Individuals who manage the corporation as a whole are managing agents, whereas persons who merely have managerial responsibilities are not. A close analysis of the few cases that suggest otherwise demonstrates that these "suggestions" are nothing more than dicta.

The Florida Supreme Court explored the issue of corporate liability for punitive damages for the first time in Mercury Motors Express, Inc. v. Smith, 393 So. 2d 545 (Fla. 1981). The court in Mercury Motors held that corporations are not vicariously liable for punitive damages under the doctrine of respondeat superior for the outrageous actions of their employees.(2) Rather, there must be some independent fault on the part of the corporation aside from the employee's misconduct.

The Florida Supreme Court touched on the managing agent question for the first time when it clarified its Mercury Motors opinion in Bankers Multiple Line Ins. Co. v. Farish, 464 So. 2d 530 (Fla. 1985). The court limited its prior decision by stating that the rule of law requiring proof of independent corporate fault was not meant to apply "where the agent primarily causing the imposition of punitive damages was the managing agent or primary owner of the corporation."(3) This statement reflected a traditional limitation on the rule enunciated in Mercury Motors. Corporations had always been directly liable for the acts of their owners and managing agents.

The issue left open by Bankers Multiple Line and later in Schropp was the meaning of the term "managing agent." The language selected by the Florida Supreme Court in its Bankers Multiple Line opinion is vital to an understanding of this term's meaning. The court said that a corporation is liable for the acts of "the" managing agent, not "a" managing agent, implying that a corporation usually has one such representative. Further, the court puts the managing agent on par with the "primary owner" of a corporation. The court treats the terms as synonymous.

This approach is sensible from a policy standpoint. Not every supervisor of a corporation can be equated with its alter ego or regarded as the corporation itself. To hold the corporation liable for punitive damages based on the acts of low level managers would signify a reversion to a form of respondeat superior liability. In addition, the assets of the company as a whole are examined in awarding punitive damages, not merely the assets of the branch or department of the tortfeasing employee or lower manager. It is the company itself being punished. Accordingly, only when an alter ego of the company as a whole has committed the allegedly outrageous act should the company as a whole be punished.

Six months after Bankers Multiple Line, the Florida Supreme Court again considered the issue of corporate liability for punitive damages.(4) In Winn-Dixie Stores, Inc. v. Robinson, 472 So. 2d 722 (Fla. 1985), the court held Winn-Dixie liable in punitive damages for the willful and wanton acts of an assistant manager. The trial court had relied on Mercury Motors in granting Winn-Dixie's post-trial motion for directed verdict on the issue of punitive damages because there was no proof of independent fault on the part of Winn-Dixie as opposed to its employee. The Florida Supreme Court held that the trial court procedurally erred in directing a verdict based on Mercury Motors:

The Fourth District correctly concluded that because this case was tried on the basis of direct corporate liability, Mercury Motors was not applicable. Most recently in Bankers Multiple Line Insurance Co. v. Farish, 464 So. 2d 530 (Fla. 1985), we expressly held that Mercury Motors was not intended to apply to situations where the agent primarily causing the imposition of punitive damages was the managing agent or primary owner of the corporation. We also hold that Mercury Motors is not applicable in the present case where the suit was tried on the theory of the direct liability of Winn-Dixie, and the jury, by special verdict, decided that Winn-Dixie should be held directly liable for punitive damages.(5)

A casual reading of Winn-Dixie might suggest that the Florida Supreme Court held that the assistant manager of a local store is a managing agent of a large corporation. The court made no such holding. The managing agent distinction was not raised by Winn-Dixie before trial, not tried, and thus not properly raised before the appellate court.(6) Winn-Dixie allowed the trial to proceed on a theory of direct liability for the acts of its assistant manager, without challenge. The Florida Supreme Court merely held that Winn-Dixie waived the right to claim error.(7) Like any other issue on appeal, the protections of Mercury Motors can be waived if not preserved below.(8)

Following Winn-Dixie, in Montgomery Ward & Co. v. Hoey, 486 So. 2d 1368 (Fla. 5th DCA 1986), the Fifth District opined that a store manager and a security manager were "managing agents" though no such finding was necessary to its holding. A jury held Montgomery Ward liable for punitive damages, notwithstanding that the security guard employee that committed the acts in question was absolved of liability for punitive damages.(9) The court pointed out that it would have been error for the jury to have found Montgomery Ward liable under the independent fault theory because the jury had found that the security guard was not culpable for punitive damages. The court suggested that the only theory that would have been available for punitive damages is that managing agents--the store manager and security manager--committed willful and wanton acts, apart from that committed by the security guard. Because of inconsistencies in the jury instructions and verdict form, it was unclear under which theory the jury found Montgomery Ward liable for punitive damages, and the district court reversed for a new trial on that issue.(10) Accordingly, the court's discussion of whether the employer's managers were managing agents is dicta.

All of the managing agent opinions in Florida subsequent to Montgomery Ward mandate a high degree of corporate responsibility to find an employee to be a managing agent.(11) In P.V. Construction Corp. v. Atlas Pools, Inc., 510 So. 2d 318 (Fla. 4th DCA 1987), the court held that the president and chief operating officer of a company was its managing agent. In Pier 66 Co. v. Poulos, 542 So. 2d 377 (Fla. 4th DCA 1989), the acts in question were committed by the sales director, personnel director, and president of a hotel, as well as a staff attorney of the corporation that owned the hotel. The court held as a matter of law that none of these persons, including the hotel president, qualified as managing agents of Philips Petroleum Company, which owned the hotel.(12) Finally, in Taylor v. Gunter Trucking Co., 520 So. 2d 624, 625 (Fla. 1st DCA 1988), an employee truck driver was correctly rejected as a managing agent.

The U.S. Court of Appeals for the 11th Circuit, in Mr. Furniture Warehouse, Inc. v. Barclays American/ Commercial Inc., 919 F.2d 1517, 1524 (11th Cir. 1990), held that a manager who was an assistant vice president and director of furniture credit for a Barclay's office was not a managing agent of Barclays. In the most detailed factual inquiry of any court to date in this regard, the court expressly considered that the manager in question was one of 20 assistant vice presidents, was subordinate to 30 vice presidents and senior vice presidents, and did not participate in the formation of company policy.(13) Similarly, in Capital Bank v. MVB, Inc., 644 So. 2d 515, 521 (Fla. 3d DCA 1994), the appellate court held a bank vice president not to be a managing agent because he was one of several vice presidents and he was not on the board of directors or the loan committee.

Dicta in Schropp

The next opinion on the managing agent issue was the Florida Supreme Court's 1995 Schropp opinion, where the court rejected the plaintiffs contention that there was another basis for corporate punitive damages liability in addition to the independent fault and managing agent theories. Unfortunately, in vehemently rejecting the plaintiffs argument the court, in dicta, gave the impression that the term "managing agent" is less restrictive than Florida's courts have and continue to treat it.

The court in Schropp erroneously recited that the district court had concluded that the sales manager of the defendant car dealership was a managing agent.(14) The district court never made such a finding in its opinion. Moreover, the question of the employee's status was irrelevant. The jury found that the sales manager did not commit any malicious acts.(15) This conclusion was affirmed.(16) Thus, the dealership could not have been found liable for punitive damages regardless of the sales manager's corporate status because he had not engaged in conduct warranting the imposition of punitive damages. Accordingly, not only had the court misstated the findings of the district court, it had done so in dicta.

The Florida Supreme Court in Schropp further mischaracterized the holding in its prior Winn-Dixie decision. The court implied that the assistant store manager in Winn-Dixie was found to be a managing agent of the Winn-Dixie Corporation.(17) As discussed above, the court in Winn-Dixie never considered the issue of whether the assistant manager was a managing agent. The issue was not raised or preserved in the lower court.

These errors must be examined in light of the Schropp court's intent. The Florida Supreme Court in Schropp limited Winn-Dixie by defining it as a classic managing agent liability case in order to combat the plaintiff's argument that Winn-Dixie had articulated a third, new circumstance where a corporation may be liable for punitive damages for the malicious acts of its employees. Defensively characterizing Winn-Dixie as a managing agent case, the Florida Supreme Court stated that "[t]he acts of the store manager provided the jury with sufficient evidence of misconduct sufficient for direct liability under the Bankers managing-agent rule."(18) The court's intent was to constrain Winn-Dixie, not expand the concept of managing agent.

Schropp can only be read in this way. Schropp did not intend to and did not change the law. It preserved the law. For this reason, no published opinion since Schropp has seized on its dicta to hold that a simple manager is a managing agent.(19) Unfortunately, subsequent cases have still not articulated a clear definition (whether broad or narrow) of what exactly constitutes a managing agent in Florida.(20)

Courts Agree with Narrow Definition

This narrow reading of Schropp and a restrictive interpretation of the term "managing agent" are supported by well-reasoned decisions from the appellate courts of other states. For example, the Court of Appeals of New York and the Supreme Court of California have similarly held that employer liability for punitive damages based on a direct liability theory may only arise from the conduct of employees that truly manage the company, not its ordinary employees. These opinions provide insight into the policy underpinning this limitation.

The Supreme Court of California has stressed the importance of limiting punitive damages liability to the conduct of company leaders with policymaking authority. In White v. Ultramar, Inc., 981 P. 2d 944 (Cal. 1999), the court discussed California Civil Code 3294 and its provision for punitive damages liability for the acts of an officer, director, or managing agent of the corporation. Holding that the mere capacity to hire and fire employees does not make a corporate representative a managing agent, the court stated: "[W]e conclude the Legislature intended the term `managing agent' to include only those corporate employees who exercise substantial independent authority and judgment in their corporate decisionmaking so that their decisions ultimately determine corporate policy."(21)

Absent this requirement, the very policy behind punitive damages is abrogated. To award punitive damages against a corporation based on the acts of low level supervisors is to create a rule of respondent superior liability.(22)

In listing the potential actors that may subject a corporation to liability for punitive damages, the Florida Supreme Court included managing agents, primary owners, and corporate agents with policymaking authority.(23) Similarly, California Code 3294 limits such candidates to an officer, director, or managing agent of the corporation. The California Supreme Court found dispositive significance in the language employed in 3294: "Thus, by selecting the term `managing agent,' and placing it in the same category as `officer' and `director,' the Legislature intended to limit the class of employees whose exercise of discretion could result in a corporate employer s liability for punitive damages."(24)

The same analysis certainly applies to the parallels made by the Florida Supreme Court between a managing agent and an owner or person responsible for making company policy for a corporate defendant.

The Court of Appeals of New York has similarly held that corporate liability for punitive damages requires the participation of an agent with a high level of responsibility. Clarifying the criteria for the New York equivalent of the term "managing agent," the court held:

The term "superior agent" obviously connotes more than an agent, or "ordinary" officer, or employee vested with some supervisory or decision-making responsibility. Indeed, since the purpose of the test is to determine whether an agent's acts can be equated with participation by the employer, the term must contemplate a high level of managerial authority in relation to the nature and operation of the employer's business.

Loughry v. Lincoln First Bank, N.A., 494 N.E. 2d 70, 76 (N.Y. 1986).

Explaining the policy behind a heightened superior agent requirement, the court stated: "The agent's level of responsibility within the entity should be sufficiently high that his participation in the wrongdoing renders the employer blameworthy, and arouses the `institutional conscience' for corrective action."(25) This policy analysis mirrors that of the Florida Supreme Court.

Conclusion

Managers are not presumptively tantamount to managing agents for purposes of corporate punitive damages liability. Excluding misguided dicta, the body of decisions on this issue consistently requires employees to exercise high-level, policymaking authority before they can expose their corporate employers to direct liability for punitive damages. On the occasions where Florida's courts have taken the time to factually examine whether an employee qualifies as a managing agent, they have consistently required the employee to possess a significant degree of company-wide responsibility. Anything less would compromise the very purpose of corporate punitive damages liability.

(1) FLA. STAT. [sections] 768.72(3)(a).

(2) Mercury Motors Express, Inc. v. Smith, 393 So. 2d 545, 549 (Fla. 1981) (quoting Alexander v. Alterman Transp., Inc., 350 So. 2d 1128, 1130 (Fla. 1st D.C.A. 1977).

(3) Bankers Multiple Line Ins. Co. v. Farish, 464 So. 2d 530, 533 (Fla. 1985). The Florida Supreme Court also held that there was evidence that the bank participated in wrongdoing sufficient to establish liability pursuant to the "independent fault" theory. Id. at 533.

(4) The first case to apply the managing agent principle recognized in Bankers Multiple Line was Kent Insurance Co. v. Schroeder, 469 So. 2d 209 (Fla. 5th D.C.A. 1985). In that case, a corporation that owned a bar was held liable for punitive damages for the tortious acts of the individual who was the company's president and primary stockholder, as well as the manager of the bar. Kent Insurance is consistent with the notion that a managing agent must be more than just a manager.

(5) Winn-Dixie Stores, 472 So. 2d at 724.

(6) See Robinson v. Winn Dixie Stores, 447 So. 2d 1003, 1005 (Fla. 4th D.C.A. 1984).

(7) The Fourth District Court of Appeal also found that there was sufficient record evidence of independent fault on the part of Winn-Dixie to support an award of punitive damages pursuant to Mercury Motors. See Winn Dixie Stores, 447 So. 2d at 1005.

(8) This waiver conclusion hardly seems fair because Mercury Motors had not yet been decided when Winn-Dixie tried its case. Nevertheless, Alexander v. Alterman Transport Lines, Inc., 350 So. 2d 1128 (Fla. 1st D.C.A. 1977), had been decided, and Winn-Dixie thus could have raised the issue below.

(9) Montgomery Ward & Co. v. Hoey, 486 So. 2d 1368,1369-71 (Fla. 5th D.C.A. 1986).

(10) Id. at 1371.

(11) McArthur Dairy, Inc. v. Original Kielbs, Inc., 481 So. 2d 535, 536 (Fla. 3d D.C.A. 1986), is not a "managing agent" case, because the employee in question there was "nonmanagerial." In dicta the court misstated the managing agent rule by implying that the corporation would have been directly liable for punitive damages if the employee in question had been a "managerial employee" (rather than a managing agent). See id. at 540.

(12) Pier 66 Co. v. Poulos, 542 So. 2d 377, 379, 381 (Fla. 4th D.C.A. 1989).

(13) See Mr. Furniture Warehouse, Inc. v. Barclays American / Commercial Inc., 919 F. 2d 1517, 1524 (11th Cir. 1990).

(14) Schropp v. Crown Eurocars, Inc., 654 So. 2d 1158, 1161 (Fla. 1995).

(15) Crown Eurocars, Inc. v. Schropp, 636 So. 2d 30, 35 (Fla. 2d D.C.A. 1993).

(16) Schropp, 654 So. 2d at 1161.

(17) Id. at 1161.

(18) Id.

(19) The court in Beverly Enterprises-Florida, Inc. v. Spilman, 661 So. 2d 867 (Fla. 5th D.C.A. 1995), seemed to imply that the administrator of a nursing home was a managing agent. The court found that the home was liable for punitive damages pursuant to both the independent fault and managing agent theories. Beverly Enterprises-Florida, Inc., 661 So. 2d at 873. The court never stated which employee or employees were the managing agents in question. The court did discuss the apparent indifference of the facility administrator. It is unclear from the case, however, whether the facility in question was the corporation's only facility and thus whether this administrator was the senior manager of the company. The court also seemed to imply that the deliberate indifference went up to the highest levels of the corporation. The issue was thus not whether or not a managing agent was involved. The case presumes that this were so.

(20) For example, in Ryder Truck Rental, Inc. v. Partington, 710 So. 2d 575 (Fla. 4th D.C.A. 1998), a job foreman was not deemed to be a managing agent of the company.

(21) White v. Ultramar, Inc., 981 P.2d 944, 947 (Cal. 1999).

(22) Id. at 953.

(23) Schropp, 654 So. 2d at 1161.

(24) White, 981 P.2d at 951.

(25) Loughry v. Lincoln First Bank, N.A., 494 N.E. 2d 70, 76 (N.Y. 1986).

Ted C. Craig is a senior associate with Hunton & Williams, Miami. His practice focuses on intellectual property litigation, tort defense, and business litigation. He received his B.A. from the University of Virginia, and his J.D. from the University of Michigan Law School.

Christopher N. Johnson is a senior associate with Hunton & Williams, Miami. His practice focuses on the areas of creditor's rights and business litigation. Mr. Johnson earned his B.A. at the U.S. Military Academy and his J.D. at the University of Miami School of Law.

This column is submitted onb behalf of the Business Law Section, Hal K. Litchford, chair, and Steven Fender, editor.