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Punishing an Employer for the Acts of a Dishonest Employee

Posted by James M. Connolly
James M. Connolly
Jim Connolly has applied his understanding of complex litigation, insurance claims and real estate transaction...
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on December 4, 2012
in Legal News

May punitive damages be entered against an employer whose employee engaged in dishonest acts?  In the view of the Maryland Court of Appeals, if the employee acted within the scope of his employment when he did so, the answer is – Yes.

In Fidelity First Home Mortgage Co. v. Williams (decided 11/27/2012), the Maryland Court of Appeals considered a case where two former employees of a mortgage broker participated in a fraudulent foreclosure rescue scheme that caused plaintiff to lose title to and equity in her home.  Subsequently, Plaintiff sued the mortgage broker and two of its employees.  While dismissing the two employees from the lawsuit prior to trial, plaintiff continued her case against the mortgage broker.  Following a three day trial, a jury awarded plaintiff $70,000 in compensatory damages and $150,000 in punitive damages.

Crying foul, the mortgage broker appealed.  Because Maryland law only permits an award of punitive damages where consciousness of wrongdoing exists, the mortgage broker argued that this state of mind cannot be imputed to an employer.

In considering this argument, the Court began its inquiry by discussing the doctrine of respondeat superior.  A Latin phrase meaning “Let the master answer,” this legal doctrine states that an employer is responsible for an employee’s acts if done within the scope of employment.   If, at time of the wrongful acts, the employee was acting in the course of his employment, for the employer’s benefit, and within the scope of his employment, the employer is liable for the employee’s wrongful acts.

The Court recognized that some view a punitive damage award premised on respondeat superior as unfair because it punishes an employer for acts the employer itself did not commit.  However, others view such an award as fair because it causes employers to more carefully monitor their employees to avoid wrongdoing.  Following the majority of other courts, the Court of Appeals held that respondeat superior was a sufficient basis for the imposition of punitive damages against an employer.  In support of its decision, the Court quoted from an 1869 case from the Supreme Court of Maine:

“A corporation is an imaginary being. It has no mind but the mind of its servants; it has no voice but the voice of its servants; and it has no hands with which to act but the hands of its servants. All its schemes of mischief, as well as its schemes of public enterprise, are conceived by human minds and executed by human hands; and these minds and hands are its servants' minds and hands. All attempts, therefore, to distinguish between the guilt of the servant and the guilt of the corporation; or the malice of the servant and the malice of the corporation; or the punishment of the servant and the punishment of the corporation, is sheer nonsense; and only tends to confuse the mind and confound the judgment.”

In Maryland courts, therefore, where an employee commits a wrong within the scope of his employment and there is clear and convincing evidence supporting a finding that the employee acted with actual malice, that conduct may support an award of punitive damages premised on respondeat superior.

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Jim Connolly has applied his understanding of complex litigation, insurance claims and real estate transactions to earn numerous victories in cases involving professional liability, commercial and business disputes, serious personal injury and tort claims at Kramer & Connolly.  Full Profile of Attorney James M. Connolly

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