Oetting v. Heffler, Radetich & Saitta, LLP

Filing 19

MEMORANDUM AND ORDER : IT IS HEREBY ORDERED that the motion of defendant Heffler, Radetich & Saitta, LLP, to dismiss Count III of plaintiff's complaint for failure to state a claim [Doc. # 8 ] is granted.. Signed by Honorable Carol E. Jackson on 7/25/11. (KKS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
DAVID P. OETTING, individually and on
behalf of all others similarly situated,
Plaintiffs,
vs.
HEFFLER, RADETICH & SAITTA, LLP,
Defendant.

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Case No. 4:11-CV-253 (CEJ)

MEMORANDUM AND ORDER
This matter is before the Court on defendant’s motion, pursuant to Fed.R.Civ.P.
12(b)(6), to dismiss Count III of plaintiff’s purported class-action complaint, alleging
liability on a theory of respondeat superior. Plaintiff has filed a response in opposition
to the motion and the issues are fully briefed. Also pending is defendant’s motion to
transfer to the Eastern District of Pennsylvania, which the Court will address by
separate order.
I. Background
Plaintiff David P. Oetting was class representative for a class of NationsBank
shareholders who alleged improprieties by Bank of America in its merger with
NationsBank. See In re BankAmerica Corp. Sec. Litig., No. 4:99-MD-1264 (CEJ) (E.D.
Mo.). A settlement was approved by the Court and defendant Heffler, Radetich &
Saitta, LLP (Heffler) was appointed to administer claims. Christian Penta, a Heffler
accountant, participated with five non-employees in a scheme to present false claims
for payment from the settlement fund, resulting in the misappropriation of more than
$5 million from the fund. The members of the scheme were indicted on charges of

mail fraud, wire fraud, and money laundering in the Eastern District of Pennsylvania.1
Plaintiff filed this action against Heffler asserting claims of breach of fiduciary duty,
accountant malpractice, and respondeat superior.

Defendant moves to dismiss

plaintiff’s respondeat superior claim for failure to state a claim upon which relief can
be granted.
II.

Legal Standard

The purpose of a motion to dismiss under Rule 12(b)(6) of the Federal Rules of
Civil Procedure is to test the legal sufficiency of the complaint. The factual allegations
of a complaint are assumed true and construed in favor of the plaintiff, “even if it
strikes a savvy judge that actual proof of those facts is improbable.” Bell Atlantic Corp.
v. Twombly, 550 U.S. 544, 556 (2007) (citing Swierkiewicz v. Sorema N.A., 534 U.S.
506, 508 n.1 (2002)). However, the court is “not bound to accept as true a legal
conclusion couched as a factual allegation.” Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct.
1937, 1950 (2009).

“Threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.” Id. at 1949. A viable
complaint must include “enough facts to state a claim to relief that is plausible on its
face.” Bell Atlantic Corp., 550 U.S. at 570. See also id. at 563 (“no set of facts”
language in Conley v. Gibson, 355 U.S. 41, 45-46 (1957), “has earned its retirement.”)
“Factual allegations must be enough to raise a right to relief above the speculative

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The co-conspirators were charged with submitting false claims to three different
funds, for a total loss in excess of $40 million. Penta pleaded guilty and was sentenced
to a term of 60 months’ imprisonment and ordered to pay restitution in an amount in
excess of $19.5 million. United States v. Christian J. Penta et al., No. 2:08-CR-550
(TJS) Judgment (E.D. Pa. Mar. 30, 2010). Another participant in the scheme, Kenneth
Waltzer, was sentenced to 132 months’ imprisonment and ordered to pay in excess of
$40.5 million in restitution. United States v. Kevin Waltzer, No. 2:08-CR-552 (SD)
Judgment (E.D. Pa. Mar. 12, 2010).
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level.” Id. at 555. “The court may consider, in addition to the pleadings, materials
embraced by the pleadings and materials that are part of the public record.” Detroit
General Retirement System v. Medtronic, Inc., 621 F.3d 800, 805 (8th Cir. 2010)
(quoting In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 889 (8th Cir. 2002)).
III.

Background

Plaintiff makes the following allegations: In 1999, Heffler was appointed as
claims administrator for In re BankAmerica Corp. Sec. Litig., No. 4:99-MD-1264 (CEJ).
Compl. ¶ 5 [Doc. #1]. On September 30, 2002, the court approved the terms of
settlement, which established a settlement fund in the amount of $490 million.

Id.

¶ 6, 7. Heffler was responsible for reviewing submitted claims, identifying valid and
invalid claims, and distributing settlement proceeds to valid claimants.

Id. ¶ 17.

Christian Penta was a senior accountant for Heffler, employed to assist in evaluating
submitted claims.

Id.

¶ 45. His duties included reviewing claim documents and

addressing issues that arose with the claimants. Id. ¶ 19. He submitted or caused to
be submitted false claims seeking payment from the settlement fund. Id. ¶ 20.
On May 13, 2004, lead counsel for the NationsBank Class filed a motion for
distribution of the settlement funds. The motion was supported by an affidavit from
Heffler stating that it had examined the claims to determine that they were “properly
completed, signed, and documented.” Id. ¶ 21. The court granted the motion for
distribution and ordered distribution in accordance with Heffler’s examination and
calculations. The distribution included payments of over $5 million based on false
claims submitted by Penta and his co-conspirators. Id. ¶ 22. At all times relevant to
the claims, Penta was employed by Heffler as a certified public accountant assisting in
the evaluation of submitted claims. Id. ¶ 45. He was acting within the scope of his

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employment duties, was “engaged in and about Heffler’s business, and was carrying
out Heffler’s purposes in part.”

Id. ¶ 47, 48.

Penta’s conduct was outrageous,

oppressive, and characterized by malice or wantonness justifying the imposition of
punitive damages on Heffler. Id. ¶ 49.
The indictment against Penta, which the parties agree the Court may properly
consider, provides further details regarding the scheme. United States v. Penta, et al.,
2:08-CR-550 (TJS) Indictment (E.D. Pa. Sept. 11, 2008) [Doc. #9-1]. By virtue of his
position with Heffler, Penta had access to the computer system that contained the
records of each claim.

Penta was responsible for reviewing claim documents to

determine whether the claimant was entitled to recovery. Id. ¶ 9. The conspirators
created fake corporations, opened bank accounts, and used professional office services
to take phone messages and receive mail. They also created fake brokerage account
statements to falsely establish ownership of securities and entitlement to a share of the
settlement funds. Id. ¶ 14. Penta used his inside knowledge to advise the outside
conspirators regarding impending deadlines. He also provided confidential documents
to assist in the preparation of false claims.

He reviewed the false claims once

submitted and gave advice regarding amendments or corrections.

He personally

approved the fraudulent claims or took steps to ensure that other Heffler employees
approved them. Id. ¶ 16.
IV.

Discussion

The parties are in agreement that Missouri law applies in this diversity action.
Under the doctrine of respondeat superior, an employer is liable to third parties for
torts committed by an employee, if the tort was committed while the employee was
engaged in activities within the course and scope of his or her employment. H.R.B. v.

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J.L.G., 913 S.W.2d 92, 97 (Mo. Ct. App. 1995) (citing P.S. v. Psychiatric Coverage,
Ltd., 887 S.W.2d 622, 624 (Mo. Ct. App. 1994)). The plaintiff has the burden of
proving that an employee’s tortious conduct was within the course and scope of his
employment. Ewing-Cage v. Quality Productions, Inc., 18 S.W.3d 147, 150 (Mo. Ct.
App. 2000) (citing Galemore Motor Co., Inc. v. State Farm Mut. Ins. Co., 513 S.W.2d
161, 168 (Mo. Ct. App. 1974)). Plaintiff’s assertions that Penta was acting within the
scope of his employment are merely conclusory allegations and are not sufficient to
meet his burden.
In determining whether an act was committed within the scope of one’s
employment, courts look not at the time or motive of the conduct, but rather at
whether the act was done by virtue of the employment and in furtherance of the
business or interest of the employer. Ewing-Cage, 18 S.W.3d at 150. If the act is
fairly and naturally incident to the employer’s business, although mistakenly or ill
advisedly done, and did not arise wholly from some external, independent or personal
motive, it is done while engaged in the employer’s business. Noah v. Ziehl, 759
S.W.2d 905, 910 (Mo. Ct. App. 1988).

“Under Missouri law, there can be no

respondeat superior liability if the employee was acting entirely for his own purposes.”
Doe by Doe v. B.P.S. Guard Services, Inc., 945 F.2d 1422, 1425 (8th Cir. 1991).
Plaintiff argues that his respondeat superior claim falls within the category of
“mixed motive cases” because Penta’s actions were undertaken to serve both his own
criminal interests and Heffler’s interests. “[A] servant may act within the scope of his
employment even though pursuing his own ends, if he is at the same time doing his
master’s business.” Doe by Doe v. B.P.S. Guard Services, Inc., 945 F.2d 1422, 1425
(8th Cir. 1991) (citing Restatement (Second) of Agency § 235 and § 236 (1958)).

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“Conduct may be within the scope of employment, although done in part to serve the
purposes of the servant,” and respondeat superior liability may be found where the
“master’s business actuates the servant to any appreciable extent.” § 236, text and
cmt. b.
Plaintiff cites Doe by Doe v. B.P.S. Guard Services, Inc., 945 F.2d 1422, 1425
(8th Cir. 1991) to support his argument that he presents a mixed motive case. The
employer in B.P.S. Guard Services was held liable for the actions of its employees who
used secretly videotaped fashion-show models while they were changing clothes. The
evidence established that the guards had been told “to practice taping on the VCR -‘[i]f you had free time to experiment with it, learn how to use it’ and to ‘learn how it
works.’” Id. at 1424 (alteration in original). There was also evidence that persons with
supervisory rank were aware of the guards’ activities. Id. at 1426. The Eighth Circuit
upheld the jury verdict in favor of the plaintiffs, stating, “the jury could conclude that
since these guards were engaged in exactly the type of activity their employer had
bade them to do, they were furthering their employer’s business at the same time they
were pursuing their own gratification.” See also Butler v. Circulus, Inc., 557 S.W.2d
469, 475 (Mo. Ct. App. 1977) (security guards who used excessive force in attempting
to make institutionalized plaintiff obey orders were acting within scope of
employment).
Here, plaintiff does not allege that defendant directed Penta to submit fraudulent
claims or aware that he was doing so. Plaintiff alleges that Penta’s duties were to
determine if the claimants were entitled to recover from the funds. Plaintiff also does
not allege that Penta was serving defendant’s interests by submitting false claims.
Plaintiff has failed to make allegations that Penta was engaged in authorized activities

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such that Heffler may be held liable for his actions under the doctrine of respondeat
superior.
Plaintiff argues that Heffler should be liable for Penta’s “outrageous” conduct.
However, “the fact that an act is done in an outrageous or abnormal manner has value
in indicating that the servant is not actuated by an intent to perform the master’s
business.” Henderson v. LaClede Radio, Inc., 506 S.W.2d 434, 436-37 (Mo. 1974)
(quoting Restatement (Second) of Agency § 235 cmt. c); Wellman v. Pacer Oil Co., 504
S.W.2d 55, 58 (Mo. 1973) (en banc) (holding that acts of gas station attendant who
shot customer were “outrageous and criminal” and as a matter of law were outside
scope of employment).
Plaintiff finally argues that Heffler should be liable for Penta’s conduct because
the fraud was foreseeable. The Missouri Supreme Court has adopted the following
language from the Restatement (Second) of Agency § 231, cmt. a:
The fact that the servant intends a crime, especially if the crime is of some
magnitude, is considered in determining whether or not the act is within the
employment, since the master is not responsible for acts which are clearly
inappropriate to or unforeseeable in the accomplishment of the authorized
result. The master can reasonably anticipate that servants may commit minor
crimes in the prosecution of the business, but serious crimes are not only
unexpectable but in general are in nature different from what servants in a
lawful occupation are expected to do.
Wellman, 504 S.W.2d at 58; see also Bradley v. Transportation Sec. Admin., 552 F.
Supp. 2d 957, 961 (E.D. Mo. 2008) (dismissing claim against TSA because, under
Missouri law, any TSA agent who committed a criminal act and removed items from
plaintiff’s luggage was operating outside the scope of his employment).
Plaintiff has failed to allege facts sufficient to support his claim that Penta was
acting within the scope of his employment when he participated in a fraudulent scheme
to submit false claims to the settlement fund.
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Accordingly,
IT IS HEREBY ORDERED that the motion of defendant Heffler, Radetich &
Saitta, LLP, to dismiss Count III of plaintiff’s complaint for failure to state a claim [Doc.
#8] is granted.

___________________________
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE
Dated this 25th day of July, 2011.

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