National Western Life Insurance Company v. Sheila Newman ( 2011 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-10-00133-CV
NATIONAL WESTERN LIFE APPELLANT AND APPELLEE
INSURANCE COMPANY
V.
SHEILA NEWMAN APPELLEE AND APPELLANT
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FROM THE 415TH DISTRICT COURT OF PARKER COUNTY
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MEMORANDUM OPINION ON REHEARING1
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We have considered Appellee Sheila Newman’s motion for rehearing. We
deny the motion but withdraw our August 11, 2011 opinion and judgment and
substitute the following.
Appellant National Western Life Insurance Company (National Western)
appeals the trial court’s judgment against it for the fraudulent acts of its agent,
1
See Tex. R. App. P. 47.4.
Lynn Strickland, Jr., upon appellee Shelia Newman. Newman filed a cross-
appeal, however, for ease of reading, we will refer to National Western as the
appellant and Newman as the appellee. We will reverse the trial court’s
judgment and render judgment that Newman take nothing.
I. Background Facts
In late 2005, Newman decided to invest a large amount of her savings.
She was uneducated in investing so she researched companies online and
chose to purchase an annuity from National Western because ―[i]t was a
reputable company that had been in business for many years.‖ Newman called
National Western, who told her an agent would contact her.
Soon after, Strickland called Newman and made an appointment to speak
with her at her home. Strickland told Newman that if she invested $200,000, she
could live off the interest received. He also told her that if she invested that
amount, she would receive a $20,000 bonus. Strickland gave Newman a
business card with his phone number and told her to call him when she had
decided whether to invest.
In November 2005, Newman phoned Strickland and agreed to the
$200,000 amount. Strickland told her to get two cashier’s checks, one for
$75,000 and another for $125,000. He also told Newman to make both checks
out to Lone Star Financial ―in order for him to be able to handle the money.‖
Lone Star Financial is owned by Strickland. In January 2006, Strickland went to
Newman’s house, where he gave her a two-page application for the annuity. The
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first page contained a section for Newman’s personal information, which she
filled out. The first page also contained blanks for identifying the type of plan, the
beneficiary, and a blank for the amount of money submitted with the application.
Newman left the amount blank because Strickland ―was in a hurry that day . . .
and [she] trusted that he would take care of it.‖ At the bottom of the first page
was the following statement:
I have read the statements above and to the best of my knowledge
and belief they are true and correct. Any statement made by either
the agent of this application or by any other person shall not be
binding on [National Western] unless such statement is reduced to
writing by [National Western] and made a part of the annuity
contract. I have received and read a copy of the annuity information
brochure and understand the features of the plan of insurance
applied for.
Below that, Newman and Strickland signed the application. The back page of the
application contained only one short section entitled ―Agent’s Section,‖ where
Strickland signed, and under that, in bold, the statement, ―***ALL CHECKS
MUST BE PAYABLE TO NATIONAL WESTERN LIFE INSURANCE
COMPANY***.‖ Strickland was also supposed to give Newman a document titled
―Consumer Disclosure Signatures.‖ That document contained the statement, ―If
you have any questions after you receive your annuity Policy, please contact
your agent or call National Western’s Customer Service Department at 1-800-
922-9422. We want to be sure that you read all 10 pages of this Disclosure and
are aware of the benefits and features explained herein.‖ Newman’s initials were
next to the statement that the policy had been explained to her, and Newman’s
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and Strickland’s signatures were under the statement that she had received a
copy of the Disclosure and had reviewed it with her agent. Newman testified at
trial that she did not recall ever seeing the disclosure and that her signature on it
was forged.
Strickland later deposited the $75,000 check into Lone Star Financial’s
account. Strickland filled out the amount section of Newman’s application for
$125,000 and endorsed the $125,000 check over to National Western. National
Western, in turn, issued Newman a policy in the amount of $125,000. National
Western sent Strickland a copy of the insurance policy for him to hand-deliver to
Newman.
Between January 2006 and December 2007, Newman drew on the annuity
a number of times. She also received checks from National Western, some that
she received in the mail and some that she claims were hand-delivered by
Strickland, although they were all addressed to her. Newman claims she never
received an annual statement or interest statement, although they were also sent
to her home address. Newman testified she tried for several years to get a copy
of her policy from Strickland, but he would give her excuses and cancel
appointments. When she threatened to go to National Western, he told her not
to call the company directly because ―they would not have the information and it
would be confusing.‖
Finally in December 2007, Newman complained to National Western that
she never received a copy of her $200,000 policy. National Western told
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Newman that her policy was only for $125,000. National Western contacted
Strickland about Newman’s complaint. He responded that ―the amount of the
annuity Mrs. Newman bought was for [$]125,000. I talk to Mrs. Newman about 2
or 3 times a month[.] She never complained about anything . . . .‖ Strickland
provided National Western with a copy of the delivery receipt, purportedly signed
by Newman, stating that she had received the copy of her policy on February 6,
2006. At trial, Newman denied receiving the copy National Western sent in 2006
and claimed her signature on the receipt was forged. National Western sent
Newman a letter reaffirming receipt of only the $125,000 check, and provided her
a copy of the check and another copy of her policy. After Newman’s complaint
that she did not receive her policy, National Western terminated Strickland’s
contract. Newman demanded that National Western reimburse her $200,000.
National Western refused.
Newman filed suit against Strickland and National Western. After striking
Strickland’s answer as sanctions for failing to appear at scheduled depositions,
the trial court rendered judgment against Strickland, awarding Newman treble
damages under the Deceptive Trade Practices Act. See Tex. Bus. & Com. Code
Ann. §§ 17.46, 50 (West 2011). The case against National Western proceeded
to a jury trial.
After hearing the evidence, the jury made the following relevant findings:
(1) Strickland had authority to act for National Western.
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(2) Strickland knowingly engaged in false, misleading, unfair, or
deceptive acts or practices that Newman relied on to her detriment.
(3) Strickland committed fraud against Newman.
(4) Strickland was not an independent contractor.
(5) National Western had the right to control Strickland with respect
to Strickland’s fraudulent acts.
(6) National Western ratified Strickland’s conduct.
(7) Newman’s damage resulted from gross negligence attributable
to National Western.
The jury awarded actual damages of $112,736.49 ($200,000 plus a $20,000
bonus less the amount Newman withdrew on the policy). At the bifurcated
punitive damages phase, the jury found clear and convincing evidence that
Newman’s damages ―resulted from gross negligence‖ and awarded Newman
$150,000,000 in punitive damages. Newman elected to recover for fraud, and
the trial court entered judgment on the verdict for the actual damages awarded
and prejudgment interest, attorney’s fees, and the punitive damages found by the
jury.
National Western filed both a motion for judgment non obstante veredicto
and a motion for new trial. The trial court refused to rule on each of these
motions. This appeal followed.
II. Discussion
A. Jury Question One
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All of Newman’s claims against National Western were predicated on its
position that Strickland was acting within the scope of authority that binds
National Western. Our analysis of National Western’s issues is complicated by
the trial court’s submission of Jury Question One:
Did Lynn Strickland, Jr. have the authority to act for National
Western Insurance Company?
Actual authority for another to act for a party must arise from
the party’s agreement that the other act on behalf and for the benefit
of the party to act on behalf of [National Western]. If a party so
authorizes another to perform an act, that other party is also
authorized to do whatever else is proper, usual, and necessary to
perform the act expressly authorized.
Apparent authority exists if a party (1) knowingly permits
another to hold himself out as having authority to act on behalf of
another, in this case, [National Western] or, (2) through lack of
ordinary care, bestows on another such indications of authority that
lead a reasonably prudent person to rely on the apparent existence
of authority to act on behalf of [National Western] to his detriment.
Only the acts of the party sought to be charged with responsibility for
the conduct of another may be considered in determining whether
apparent authority of another to act for the party exists. When a
person has notice of the limitations of an actor’s authority, then that
such person cannot detrimentally rely on the apparent existence of
the authority of the actor to act for the party.
National Western objected to this question:
Judge, we object to Jury Question No. 1. The defendant
believes that this particular question, the way it’s phrased, applies to
only the general grant of authority given an agent in the normal
course of his business in which it carries out those implied duties
and in-kind things as authorized.
We believe that it needs to include specific acts such as
―deposited the money into his account for his own use.‖ Otherwise,
if we do not—if we word it this way, what will happen is—the
practical effect is we will stand up and say—and they will as well—
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that the contract between the agent and National Western let him
solicit the contract and collect monies.
When you do that, they’re going to jump up and say ―We win
automatically almost as a matter of law because he can do those
things.‖ But he couldn’t take the money for his own use which is
what this case is about. So what we’ll have to argue to the jury is
―Wait a minute, it says here you have the authority to act for us. But
wait a minute. You’re saying he wasn’t authorized to take the money
for his own use.‖ That’s incongruent with what is in this question.
Newman contends that National Western’s objections at trial to Jury
Question One were confusing and limited only to apparent authority. As a result,
Newman argues National Western did not properly preserve its complaint
concerning Jury Question One as an issue for appeal. However, the above-
quoted objections contain no such limitation.
The real question before us is not whether there was a proper objection to
the charge; instead, the question is what is the import of the jury’s answer to that
question. The fact that Strickland had authority to act for National Western was
never in doubt. National Western and Strickland had a contract that specifically
authorized Strickland to procure applications and collect monies on behalf of
National Western. Jury Question One is immaterial to any element of Newman’s
causes of action, and the jury’s answer lends nothing to establish liability on the
part of National Western. The question fails to assist Newman in establishing
National Western’s liability because it fails to connect any authority Strickland
had to the injury-producing acts that the jury found Strickland to have committed.
See Gaines v. Kelly, 235 S.W.3d 179, 184 (Tex. 2007) (―The relevant issue . . . is
8
not merely the existence of an agency relationship, but rather the scope of that
agency.‖). Jury Question One and its answer cannot be considered as
contributing anything to the basis of this judgment or the outcome of this appeal.
National Western claims throughout its argument on appeal that there is no
evidence to support any finding that it authorized Strickland’s misdeeds,
controlled his fraudulent actions, or ratified his conduct after the fact. Despite our
conclusion that the submission of Jury Question One serves no useful purpose,
we will address National Western’s legal sufficiency challenge to the questions
contained in the court’s charge that are relevant to Newman’s causes of action.
B. Strickland had no authority to bind National Western through his
fraudulent acts.
The law does not presume agency. Tex. Cityview Care Ctr., L.P. v. Fryer,
227 S.W.3d 345, 352 (Tex. App.—Fort Worth 2007, pet. dism’d). The party
alleging agency has the burden to prove its existence. Id. An agent must have
the authority (either actual or apparent) to bind the principal. Id. Thus, absent a
showing that Strickland had the authority to bind National Western through his
actions, or a showing that National Western ratified Strickland’s conduct after the
fact, National Western cannot be liable for Strickland’s fraud.
An agent’s authority to act on behalf of a principal depends on some
communication by the principal either to the agent (actual or express authority) or
to the third party (apparent or implied authority). Gaines, 235 S.W.3d at 182.
Actual authority is authority that the principal intentionally confers upon the agent,
9
or intentionally allows the agent to believe he has, or by want of ordinary care
allows the agent to believe himself to possess. Tex. Cityview Care Ctr., 227
S.W.3d at 352. Apparent authority is based on estoppel, arising either from a
principal knowingly permitting an agent to hold himself out as having authority or
by a principal’s actions which lack such ordinary care as to clothe the agent with
the indicia of authority, thus leading a reasonably prudent person to believe that
the agent has the authority he purports to exercise. Gaines, 235 S.W.3d at 182.
1. Actual authority
We first address Newman’s argument that National Western did not
preserve error as to actual authority. A no-evidence point is preserved through
any one of the following: (1) a motion for instructed verdict; (2) a motion for
judgment notwithstanding the verdict; (3) an objection to the submission of the
issue to the jury; (4) a motion to disregard the jury’s answer to a vital fact issue;
or (5) a motion for new trial. T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847
S.W.2d 218, 220 (Tex. 1992). National Western filed a motion for directed
verdict on the issue of actual authority, a motion for new trial, and a motion for
judgment notwithstanding the verdict. Even if National Western did not preserve
error by properly objecting to the jury charge as Newman claims, it has
sufficiently preserved its issue of actual authority for our review.
In its first issue, National Western argues that there is no evidence to
support the jury’s finding that Strickland had the authority to act for National
Western when he committed fraud. We may sustain a legal sufficiency challenge
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only when (1) the record discloses a complete absence of evidence of a vital fact;
(2) the court is barred by rules of law or of evidence from giving weight to the
only evidence offered to prove a vital fact; (3) the evidence offered to prove a
vital fact is no more than a mere scintilla; or (4) the evidence establishes
conclusively the opposite of a vital fact. Uniroyal Goodrich Tire Co. v. Martinez,
977 S.W.2d 328, 334 (Tex. 1998), cert. denied, 526 U.S. 1040 (1999); Robert W.
Calvert, “No Evidence” and “Insufficient Evidence” Points of Error, 38 Tex. L.
Rev. 361, 362–63 (1960). In determining whether there is legally sufficient
evidence to support the finding under review, we must consider evidence
favorable to the finding if a reasonable factfinder could and disregard evidence
contrary to the finding unless a reasonable factfinder could not. Cent. Ready Mix
Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of Keller v. Wilson,
168 S.W.3d 802, 807, 827 (Tex. 2005).
The jury made an affirmative finding that Strickland had the authority to act
for National Western. As stated above, the contract between Strickland and
National Western established that Strickland did have authority to act for National
Western. Specifically, he had the authority to ―procure applications for insurance
and annuity contracts‖ by virtue of his contract with National Western. 2 This,
2
Newman argues that Strickland was a managing general agent of
National Western as defined in chapter 4053 of the insurance code because his
contract with the company is titled ―General Agent Manager Contract and
Schedule of Commissions.‖ See Tex. Ins. Code Ann. § 4053.001(3) (West 2009)
(defining managing general agent). A managing general agent may ―accept or
process on the insurer’s behalf insurance policies produced and sold by other
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however, is not sufficient to establish liability for Strickland’s fraud. That is, the
mere fact that Strickland had some authority to act for National Western does not
establish that Strickland’s fraud was within the scope of that authority. See
Gaines, 235 S.W.3d at 184 (―The relevant issue then is not merely the existence
of an agency relationship, but rather the scope of that agency.‖). The same
contract which established Strickland’s authority also explicitly limited that
authority to what was ―expressly stated in [the] contract‖ and specifically forbade
Strickland from, among other things, ―perpetrat[ing] any fraud against [National
Western], our policyholders, prospective policyholders or applicants.‖ The
contract explicitly stated that all monies collected by Strickland belonging to
National Western would be held in a fiduciary trust, not used for any personal
purpose, and would be immediately paid to the principal. In other words,
Strickland’s actual authority did not extend beyond procuring contracts for
National Western and accepting payment to be sent to National Western.
Newman argues that Strickland’s fraudulent acts were incidental to his
authorized duties, and thus should be attributable to National Western. As the
supreme court has said, ―In determining a principal’s vicarious liability, the proper
question is not whether the principal authorized the specific wrongful act; if that
were the case, principals would seldom be liable for their agents’ misconduct.‖
agents.‖ Id. Chapter 4053, however, does not apply to ―life, health, and accident
insurance, including variable life insurance and variable annuity contracts.‖ Id.
§ 4053.003(1) (West 2009). Any argument Newman makes that chapter 4053
imbued Strickland with the actual authority to defraud is without merit.
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Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96, 99 (Tex. 1994). Therefore, the
proper test for actual authority is whether the agent’s acts were within the course
and scope of his agency. Id.; Lyon v. Allsup’s Convenience Stores, Inc., 997
S.W.2d 345, 347 (Tex. App.—Fort Worth 1999, no pet.). ―If an employee
deviates from the performance of his duties for his own purposes, the employer
is not responsible for what occurs during that deviation.‖ Lyon, 997 S.W.2d at
347 (holding that employee’s defamation and intentional infliction of emotional
distress were deviations from employee’s duties and were not done in the
furtherance of employer’s business); see also Gaines, 235 S.W.3d at 185
(―Because an agent’s authority is presumed to be co-extensive with the business
entrusted to his care, it includes only those contracts and acts incidental to the
management of the particular business with which he is entrusted.‖). For an
employee’s acts to be within the scope of employment, the conduct must be of
the same general nature as that authorized or incidental to the conduct
authorized. Minyard Food Stores, Inc. v. Goodman, 80 S.W.3d 573, 579 (Tex.
2002) (holding that employer was not liable for employee’s defamation of other
employee because it was not furthering employer’s business or accomplishing a
purpose of employee’s job); Millan v. Dean Witter Reynolds, Inc., 90 S.W.3d 760,
767–68 (Tex. App.—San Antonio 2002, pet. denied) (holding that investment
company was not vicariously liable for broker’s embezzlement from client that in
no way related to his authorized duties and, thus, greatly exceeded the scope of
his authority); Lyon, 997 S.W.2d at 347. In cases involving serious criminal
13
activity, an employer is not liable for intentional and malicious acts that are
unforeseeable considering the employee’s duties. Millan, 90 S.W.3d at 768.
In a postsubmission letter brief, Newman relies on Coats for her
proposition that liability attaches because National Western authorized Strickland
to make representations on its behalf. But the facts of Coats are not analogous
to the present case. In Coats, the agent of the insurance company
misrepresented the benefits of the insurance policy he sold. 885 S.W.2d at 97.
The jury found that that the agent had authority to explain, on the company’s
behalf, the benefits of the policy. Id. at 99 (―The misrepresentation . . . was made
in the course of explaining the terms of the policy—a task the jury specifically
found to be within the scope of Harrell’s authority.‖). The jury also found that the
agent did not make the misrepresentations knowingly. Id. The agent in Coats
was within the scope of his authority at the time of the injury-producing act and
furthered the purpose of his agency. Here, Strickland’s misconduct took place
outside the authority granted him by National Western. He did not exceed his
authority when he described the terms of the annuity policy. Unlike the agent in
Coats, he could have delivered exactly what he promised. Strickland’s wrongful
acts did not further his principal’s business.
Other cases provide more guidance. In Morrow v. Daniel, 367 S.W.2d
715, 718 (Tex. App.—Dallas 1963, no writ), the court held that although the
agent was acting within the scope of his employment when he fraudulently
induced the plaintiff into purchasing stock in the principal’s company, he was not
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acting as an agent when he told the principal that the plaintiff was not purchasing
stock, gave plaintiff forged stock certificates, and used the plaintiff’s money for
his own purposes. In the first act of fraud (inducing the plaintiff to purchase
stock), the agent’s acts were in the furtherance of the principal’s business—
namely, selling stock and funding the corporation. The second act of fraud,
however, was fraud on the principal as well as the plaintiff. Id. at 716.
Similarly, in Millan, the agent was a broker whose authority permitted him
to ―open [brokerage] accounts for clients, receive deposits to these accounts, and
purchase and sell securities as directed by clients.‖ 90 S.W.3d at 768. The
agent took deposits made by his client (who was also his mother), deposited
them into a fictitious account, withdrew on that account, and stole his client’s
statements to hide his fraud. Id. at 763. The court of appeals in that case held
that the agent’s fraudulent acts were not in the scope of his authority and were
not related to his duties. Id. at 768.
Like the agents in Morrow and Millan, Strickland was authorized to accept
payment from the principal’s customers. And like the agents in Morrow and
Millan, Strickland was not authorized to retain the funds he received for his
personal use. Nor could Strickland’s acts be considered to be in furtherance of
National Western’s business or accomplishing his job because National Western
was deprived of the money which Strickland retained. There is a distinction
between defrauding a customer to reap a benefit for the principal and defrauding
a customer to reap a benefit for oneself. Compare Coats, 885 S.W.2d at 99
15
(holding that agent’s misrepresentation was made in the course of his authorized
duty to secure policies for his principal) with Minyard Food Stores, 80 S.W.3d at
579 (employee’s defamation of coworker during investigation, in which he was
required to participate, did not further employer’s business or accomplish the
purpose of his job). When Strickland deviated from his duty to accept payment
on behalf of National Western, he did so solely for his own personal gain.
Newman notes that the jury found in two questions that Strickland was not
an independent contractor and that National Western retained the right to control
Strickland’s actions. However, the scope of Strickland’s authority is set forth in
his contract with National Western. ―A contract expressly providing that a person
is an independent contractor is determinative of the relationship absent evidence
that the contract is a mere sham or subterfuge designed to conceal the true legal
status of the parties or that the contract has been modified by a subsequent
agreement between the parties.‖ Farlow v. Harris Methodist Fort Worth Hosp.,
284 S.W.3d 903, 911 (Tex. App.—Fort Worth 2009, pet. denied) (citing
Newspapers, Inc. v. Love, 380 S.W.2d 582, 588–90, 592 (Tex. 1964)). Newman
does not point to any evidence to support the jury’s findings, or to support any
finding that the contract between National Western and Strickland was a sham
designed to conceal the true status of the parties to the contract or that the
contract had been subsequently modified. To the contrary, Newman testified that
Strickland informed her that he was an independent contractor. She further
testified that at the time she signed the contract, she understood that statement
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on the application which said that Strickland’s statements were not binding on
National Western until reduced to writing by National Western in the annuity
policy.
Further, Newman does not claim that National Western retained the right
to control how Strickland procured applications or accepted payments. Instead,
Newman focuses on the fact that National Western’s referral procedure resulted
in Strickland being sent to Newman’s home. The referral to Newman’s home
was not, however, the injury-producing event. See Exxon Corp. v. Tidwell, 867
S.W.2d 19, 23 (Tex. 1993) (noting that in determining whether duty exists in
retained control cases, focus is on whether retained control was specifically
related to the alleged injury). Had Strickland performed his duties consistent with
his contract after being referred to and meeting with Newman, there would have
been no fraud. An entity’s liability must arise from its own injury-causing conduct.
Id. The injury-producing event occurred when Strickland convinced Newman to
write two checks to his company instead of National Western; sign an application
with critical information (i.e., the amount of the policy) left blank; and not to
contact National Western with her concerns. Because National Western did not
retain control over those aspects of Strickland’s job that led to Newman’s injury,
liability cannot be based on the right to control. We therefore hold that there is
no evidence to support the jury’s findings that Strickland was not an independent
contractor and that National Western retained the right to control. The evidence
conclusively establishes the opposite: Strickland was an independent contractor
17
and National Western did not retain the right to control Strickland’s fraudulent
acts. See Newspapers, Inc., 380 S.W.2d at 592 (―When . . . the parties . . . have
entered into a definite contract that expressly provides for an independent
contract relationship and does not vest in the principal . . . the right to control the
details of the work, evidence outside the contract must be produced to show that
despite the terms of the primary contract the true operating agreement was one
which vested the right of control in the alleged master.‖).
Newman points to evidence that National Western was aware of previous
bad conduct by Strickland and chose to continue to employ him. Newman
argues that by retaining Strickland as an agent after receiving complaints against
him, National Western, by lack of ordinary care and despite the language of his
contract, allowed Strickland to believe that he had the authority to request checks
from customers made out to his own companies so that he could retain those
funds for his own personal use and delay the delivery of contracts to conceal his
wrongdoing.
The evidence presented at trial included four customer complaint files, only
two of which contained complaints prior to Newman’s dealings with Strickland. A
customer complained in 2003 that he had not received copies of his policies.
National Western investigated the complaint and refunded the customer’s
contributions. In 2005, another customer complained that Strickland had
retained about $10,000 of her money and had told her to write a check to ―Estate
Services of Texas,‖ which the customer claimed was owned by Strickland.
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Strickland insisted that he had written her a check for the funds, wrote a new
check for the amount, and claimed no knowledge of any check written to Estate
Services of Texas. The customer then withdrew her complaint.
Even assuming these complaints are evidence that Strickland had retained
money and withheld policies in the past, they are not evidence that National
Western allowed Strickland to believe that he had the authority to retain checks
from customers made out to his own companies or to delay the delivery of
contracts. Nor are they evidence of Strickland’s subjective belief that he had the
authority to do so. See Austin Area Teachers Fed. Credit Union v. First City
Bank-N.W. Hills, N.A., 825 S.W.2d 795, 799 (Tex. App.—Austin 1992, writ
denied) (considering testimony that the agent believed that his action was
authorized in holding that implied authority existed). The complaint files show
that National Western investigated all complaints and that Strickland attempted to
conceal any misconduct that may have occurred by telling National Western that
he had not done the complained-of acts. While there is evidence that National
Western was aware of Strickland’s practice of requesting checks in the name of
his own company, there is no evidence that National Western acquiesced to any
practice Strickland may have had of retaining the funds. Nor are the files
evidence that National Western retained the right to control Strickland’s actions
despite the contractual language. See Farlow, 284 S.W.3d at 911 (noting that
the exercise of control that must occur so as to convert an independent
contractor to an employee ―must be so persistent and the acquiescence therein
19
so pronounced as to raise an inference that at the time of the act or omission
giving rise to liability, the parties by implied consent and acquiescence had
agreed that the principal might have the right to control the details of the work‖)
(quoting Newspapers, Inc., 380 S.W.2d at 592).
There is no evidence that National Western intentionally conferred, or
intentionally allowed Strickland to believe, or by want of ordinary care allowed
Strickland to believe that he possessed the authority to defraud National Western
clients or the company itself. See Gaines, 235 S.W.3d at 182 (holding that agent
had actual authority to deliver and explain loan documents but did not have
actual authority to negotiate terms of the loans); Morrow, 367 S.W.2d at 719
(holding that agent had authority to sell stock and accept payment but did not
have authority to retain the funds he received). Nor were Strickland’s acts in
furtherance of his duties as an agent of National Western. Because there is no
evidence of actual authority, we next turn to apparent authority.
2. Apparent authority
The principal’s full knowledge of all material facts is essential to establish a
claim of apparent authority. Gaines, 235 S.W.3d at 182. Only the conduct of the
principal is relevant. Id.; see also Zarzana v. Ashley, 218 S.W.3d 152, 161 (Tex.
App.—Houston [14th Dist.] 2007, no pet.) (―[A]ny of the agent’s representations
are wholly irrelevant in determining apparent authority.‖). The standard is that of
a reasonably prudent person, using diligence and discretion to ascertain the
agent’s authority. Gaines, 235 S.W.3d at 182–83.
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Apparent authority is not available when the other party has notice of the
limitations of the agent’s power. See Douglass, 504 S.W.2d at 779. As stated
above, Newman admits that she was aware that Strickland was an independent
contractor. She also testified that had she read the application, she would have
known that she could not rely on Strickland’s statements. That application also
stated in bold, capital letters that all checks should be made out to National
Western. It was incumbent upon Newman to protect herself by reading what she
signed. In re Lyon Fin. Servs., Inc., 257 S.W.3d 228, 233 (Tex. 2008) (orig.
proceeding). Although fraud may be an excuse to ignorance of a contract’s
terms in some cases, id., the fraud Strickland committed on Newman was for the
amount of the annuity, not the extent of his agency or ability to bind National
Western. It is notice of the limitations of his agency that is relevant to the issue
of apparent authority. See Douglass, 504 S.W.2d at 779.
Further, there is no evidence that National Western was aware that
Newman had given Strickland a second check for $75,000. It is undisputed that
Newman received the product that National Western received payments for—a
$125,000 annuity. Newman testified that she never spoke to anyone at National
Western concerning an amount until after Strickland’s fraud was discovered.
National Western therefore did not have the full knowledge necessary to
establish apparent authority. National Western’s acceptance of the $125,000
check endorsed over from Lone Star Financial is no evidence that it was aware
of the second check for $75,000 that Strickland kept for himself. By Newman’s
21
own admission, there was no conduct by National Western that could have
reasonably led Newman to believe that National Western had authorized
Strickland’s actions.
To hold the principal liable, the act of the agent must be done in the
furtherance of the principal’s business and for the accomplishment of the object
for which the agent is employed. ITT Consumer Fin. Corp. v. Tovar, 932 S.W.2d
147, 158 (Tex. App.—El Paso 1996, writ denied). When Strickland devised a
scheme to steal money from both Newman and National Western, he far
exceeded his authorized duties and was not acting in furtherance of his
employment. See Saenz v. Family Sec. Ins. Co. of Am., 786 S.W.2d 110, 111
(Tex. App.—San Antonio 1990, no writ) (―It is inconceivable that an employee
could plan and execute a fraud upon his employer and be in the furtherance of
his employment.‖).
To determine Strickland’s apparent authority, we must examine the
conduct of National Western and the reasonableness of Newman’s assumptions
about Strickland’s authority. Newman argues that the acts of National Western
we should rely upon to establish apparent authority are that National Western
contracted with Strickland in the first place and ―sent him to [Newman’s] house‖
to procure an application and accept payment. This is merely evidence of the
existence of an agency relationship and not of the scope of that relationship.
Strickland had authority to serve as an intermediary to contact potential
customers, deliver paperwork, explain product terms, and collect payment.
22
Newman entirely failed to produce evidence that connected this authorized
conduct and Strickland’s alleged apparent authority to misappropriate funds from
both Newman and National Western. In her effort to supply that evidence, her
theme was that she trusted National Western because of their reputation, and
they sent Strickland to her home. All injury-causing acts or statements were
attributed to Strickland and not National Western. If this level of proof were
sufficient, then an insurance company could do nothing to avoid liability for the
acts of rogue agents who engage in criminal acts outside the scope of their
authority. Newman’s subjective trust and the fact that Strickland was an agent
referred as a result of her call to National Western is not sufficient evidence to
support a reasonable belief that Strickland was authorized to convert funds to his
personal use to the detriment of both the principal and its customer. See Fryer,
227 S.W.3d at 353 (―[A] party dealing with an agent must ascertain both the fact
and the scope of the agent’s authority, and if the party deals with the agent
without having made such a determination, she does so at her own risk.‖).
Further, as we stated above, none of these acts were the cause of
Newman’s damages. Newman was injured because she followed Strickland’s
instructions to write two checks to Lone Star Financial, sign an incomplete
application, and not contact National Western because they would not have her
information. None of these directions may be attributable to National Western
because there is no evidence that National Western was aware of them or
authorized them. And Newman, by her own testimony, did not contact National
23
Western regarding the nondelivery of her policy. There is no evidence that
National Western was aware that Newman had not received it, nor was there
evidence that Newman ever informed National Western that the signed delivery
receipt it received was a forgery.
There is, in sum, no evidence of any conduct by National Western that
would have reasonably led Newman to believe that Strickland was authorized to
defraud her. We therefore hold that the evidence is legally insufficient to support
a finding of vicarious liability through actual or apparent authority. We sustain
National Western’s first issue.
C. National Western did not ratify Strickland’s acts.
In its second issue, National Western argues that there is legally and
factually insufficient evidence to support the jury’s finding that National Western
ratified Strickland’s fraudulent acts. ―Ratification may occur when a principal,
though he had no knowledge originally of the unauthorized act of his agent,
retains the benefits of the transaction after acquiring full knowledge.‖ Land Title
Co. of Dallas, Inc. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex. 1980).
Newman argues that because National Western did not return Newman’s funds
after she told them in December 2007, that her annuity should have been for
$200,000, it ratified Strickland’s conduct.
When Newman contacted National Western in December 2007, she told it
that she had paid its agent $200,000. In response, National Western contacted
Strickland. Strickland denied that he had received the additional $75,000 and
24
produced a policy receipt purportedly signed by Newman. National Western told
Newman that it believed that she had only applied and paid for a $125,000
policy. It included in its letter a copy of the delivery receipt. There is no evidence
in the record that Newman informed National Western that the receipt was a
forgery or otherwise spoke to National Western again until she had retained
counsel.
National Western had in front of it an application for a $125,000 annuity
signed by Newman, a check for $125,000 signed by Newman, a receipt of the
policy it believed was signed by Newman, multiple withdrawal requests on the
policy signed by Newman, and two years without any complaint by Newman that
she had not received her policy or her statements. In light of the information it
had, we cannot say it was unreasonable for National Western to believe that
Newman had contracted for, paid for, and accepted a $125,000 annuity, not a
$200,000 policy as she later claimed. Nor can we say that this was enough
information to rise to the level of the ―full knowledge‖ required to establish
ratification. See Gibson v. Bostick Roofing & Sheet Metal, Co., 148 S.W.3d 482,
492 (Tex. App.—El Paso 2004, no pet.) (holding that principal did not ratify
conduct of purported agent when he investigated the plaintiff’s complaint of
nonpayment, the agent told the principal that ―he would take care of the
payment,‖ and the principal was never informed of the agent’s fraud). There is
no evidence that National Western was aware of the $75,000 check until
Newman sent it to them, and after that, there was no evidence that National
25
Western knew that Newman had made the check to Lone Star Financial in order
to procure a contract with National Western. There is no evidence that National
Western knew that Newman had signed the application with the annuity amount
blank and that Strickland had filled it in later. There is no evidence that National
Western knew that the policy receipt was a forgery, that Newman had not
received her policy statements, or that it should have known she had not
received them when they had evidence that she had received checks delivered
to the same address.
The critical factors in discerning whether a principal has ratified an
unauthorized act by his agent is the extent of the principal’s knowledge of the
transaction and his actions in light of that knowledge. See Land Title Co. of
Dallas, 609 S.W.2d at 756. National Western did not have full knowledge of the
material facts of the transaction required to ratify Strickland’s conduct. National
Western’s refusal to pay Newman $200,000 is not affirmation of Strickland’s
fraud. In this case, Strickland’s conduct was fraud on the principal as well as on
Newman. Since the agent’s act is fraud upon the principal, it is incapable of
ratification, because no principal would confer authority to practice a fraud upon
itself. See Saenz, 786 S.W.2d at 111; Lincoln Fire Ins. Co. v. Taylor, 81 S.W.2d
1059, 1060 (Tex. App.—Fort Worth 1935, writ dism’d).
26
We therefore hold that there is no evidence that National Western ratified
Strickland’s fraudulent acts.3 We sustain National Western’s second issue and
hold that there is no basis for holding National Western vicariously liable for
Strickland’s fraud. Because our holdings on National Western’s first two issues
are dispositive, we do not need to reach the rest of National Western’s issues.
See Tex. R. App. P. 47.1.
D. Newman cannot recover on her alternate theories of recovery.
Newman argues in her motion for rehearing that she should be allowed to
seek recovery under one of the alternate theories of recovery on which the jury
returned favorable findings. See Boyce Iron Works, Inc. v. Sw. Bell Tel. Co., 747
S.W.2d 785, 787 (Tex. 1988). We first note that it seems that a judgment
3
To the extent that Newman argues that National Western ratified
Strickland’s conduct by continuing to employ him, we note that this is not
sufficient evidence of ratification. See, e.g., Durand v. Moore, 879 S.W.2d 196,
203 (Tex. App.—Houston [14th Dist.] 1994, no writ) (holding that an employer
may not be liable for exemplary damages under a theory of ratification when the
only evidence of ratification was ―[t]he mere retention of an employee‖); see also
Allen v. Ctr. Operating Co., L.P., No. CIV.A. 302CV1764P, 2003 WL 22364328,
at *8 (N.D. Tex. Oct. 1, 2003) (relying on Durand in holding that employer did not
ratify employee’s assault by not terminating employee). Although there was
evidence that National Western had received complaints about Strickland prior to
his dealings with Newman, the evidence was also that those complaints had
been investigated and resolved. The first complaint was for undelivered policies
and resulted in a full refund by National Western. The second complaint was
withdrawn ―due to a misunderstanding.‖ The third complaint involved Strickland’s
deceased partner’s failure to return funds to the policyholder. Strickland claimed
he was unaware of the failure, and when he was made aware, he returned the
amount to the policyholder. Retaining Strickland after investigating these
complaints is not evidence that National Western approved or ratified Strickland’s
acts.
27
rendered in this court is the proper remedy, not remand to the trial court. See
Transp. Ins. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex. 1995) (evaluating
alternative theories of liability and rendering a take nothing judgment on all
theories submitted to the jury).
The jury returned findings favorable to Newman on whether Strickland
violated the Deceptive Trade Practices Act and whether Strickland breached a
contract with Newman. However, to hold National Western liable for those
actions necessitates a finding that National Western is vicariously liable for
Strickland’s actions. See Qantel Bus. Sys., Inc. v. Custom Controls Co., 761
S.W.2d 302, 305 (Tex. 1988) (noting that ―traditional common law theories of
vicarious liability, such as agency or respondeat superior‖ provide the only bases
for creating vicarious liability under the DTPA); Sw. Land Title Co. v. Gemini Fin.
Co., 752 S.W.2d 5, 8 (Tex. App.—Dallas 1988, no writ) (holding that there was
no evidence of actual or apparent authority of agent by which to hold principal
liable for breach of contract). The only jury findings on that issue are in
Questions One, Nine, and Eleven. Question One, as we stated above, fails to
connect any authority Strickland had to the injury-producing acts that the jury
found Strickland to have committed and does nothing to establish liability on the
part of National Western. Question Nine asks whether Strickland was an
independent contractor. We stated above that he was not as a matter of law.
Question Eleven asks whether National Western ratified Strickland’s conduct. As
we held above, it did not. Thus, there is no jury finding by which National
28
Western can be held vicariously liable for Strickland’s bad acts on any of
Newman’s theories of recovery. Accordingly, we render judgment that Newman
take nothing against National Western on her alternate theories of recovery. See
Transp. Ins. Co., 898 S.W.2d at 280 (rendering a take nothing judgment on
alternative theories because there was no evidence to support recovery under
any of the theories); Beal Bank, S.S.B. v. Schleider, 124 S.W.3d 640, 652 (Tex.
App.—Houston [14th Dist.] 2003, pet. denied) (rendering a take nothing judgment
under the plaintiff’s alternative theory of recovery when there was no evidence to
support the jury’s findings on that theory).
E. Newman’s request for sanctions was properly dismissed.
Newman filed a postjudgment motion to sanction National Western for
allegedly failing to produce documents in pretrial discovery regarding customer
complaints against Strickland. During discovery, Newman made the following
relevant requests for production:
Request for Production No. 20: A copy of all complaints made
by anyone about you to the Texas Department of Insurance [TDI].
....
Request for Production No. 25: Your complete file on
Defendant Lynn Strickland and or Lone Star Financial.
....
Request for Production No. 28: Produce all documents
surrounding all complaints to you or the complete complaint file
regarding Lynn Strickland or Lone Star Financial.
29
In its response to request no. 20, National Western filed multiple
objections, including that ―[Newman] is in an equal or superior position to obtain
such information from the public records or available from [TDI] which is more
convenient, less burdensome or less expensive.‖ National Western produced
documents purporting to respond to requests nos. 25 and 28. It later ―informally
supplemented‖ its response with more documents relevant to requests 25 and
28.
Newman claims that in January 2010, she learned of a complaint against
Strickland that had not been disclosed by National Western. She requested files
from TDI in April 2010, and those files included documents which National
Western did not produce during discovery. She then filed a motion for sanctions
against National Western, requesting that the court require National Western to
―disclose its dishonest conduct‖ to TDI; strike National Western’s request for
findings of fact and conclusions of law; and grant a monetary sanction of
$75,000.
National Western filed a response and a plea to the jurisdiction. After a
hearing on the motion and the plea to the jurisdiction, the trial court dismissed
Newman’s motion for lack of jurisdiction. In her single issue on appeal, Newman
argues that the trial court incorrectly dismissed her motion for sanctions and
erred in refusing to sanction National Western.
We review a trial court’s determination whether to impose sanctions under
an abuse of discretion standard. Am. Flood Research, Inc. v. Jones, 192 S.W.3d
30
581, 583 (Tex. 2006); Cire v. Cummings, 134 S.W.3d 835, 838 (Tex. 2004). To
determine whether a trial court abused its discretion, we must decide whether the
trial court acted without reference to any guiding rules or principles; in other
words, we must decide whether the act was arbitrary or unreasonable. Low v.
Henry, 221 S.W.3d 609, 614 (Tex. 2007); Cire, 134 S.W.3d 835, 838–39 (Tex.
2004). An appellate court cannot conclude that a trial court abused its discretion
merely because the appellate court would have ruled differently in the same
circumstances. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549,
558 (Tex. 1995); see also Low, 221 S.W.3d at 620. An abuse of discretion does
not occur when the trial court bases its decisions on conflicting evidence and
some evidence of substantive and probative character supports its decision.
Unifund CCR Partners v. Villa, 299 S.W.3d 92, 97 (Tex. 2009); Butnaru v. Ford
Motor Co., 84 S.W.3d 198, 211 (Tex. 2002).
Assuming (without deciding) that the trial court did have jurisdiction to hear
Newman’s motion, we cannot say it erred in failing to sanction National Western.
National Western demonstrated that it directed Newman to retrieve the
documents from TDI in its response to her request for production. Newman does
not claim that there are other documents that National Western allegedly
withheld that were not in the documents she received from TDI. If Newman had
contacted TDI as National Western suggested, she would have received all the
documents prior to trial and would not have suffered any prejudice. However,
Newman chose not to contact TDI until after trial. We cannot say that not
31
imposing sanctions under these facts is unjust. See Tex. R. Civ. P. 215.2(b)
(requiring the order of sanctions to be just); see also Spohn Hosp. v. Mayer, 104
S.W.3d 878, 882 (Tex. 2003) (holding that a ―just‖ sanction must be directed to
remedying the prejudice caused). Newman also argued that National Western
should have been sanctioned because Newman filed two motions for sanctions.
We disagree with Newman’s implicit contention that a court should grant
sanctions against a party solely because a party has repeatedly moved for them.
We overrule Newman’s sole issue.
Conclusion
Having sustained National Western’s two dispositive issues and overruled
Newman’s sole issue, we reverse the trial court’s judgment and render judgment
that Newman take nothing.
PER CURIAM
PANEL: GABRIEL, J.; LIVINGSTON, C.J.; and McCOY, J.
DELIVERED: October 13, 2011
32