Alberici Constructors, Inc. v. Oliver et al

Filing 95

MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that the motion of Group Contractors, LLC to dismiss the amended complaint pursuant to Fed.R.Civ.P. 12(b)(6) [Doc. # 85 ] is DENIED. Signed by District Judge Carol E. Jackson on 12/31/12. (KJS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

ALBERICI CONSTRUCTORS, INC.,
Plaintiff,
vs.
CLONE JEFFERSON OLIVER, et al.,
Defendants.

)
)
)
)
)
)
)
)
)

Case No. 4:11-CV-744 (CEJ)

MEMORANDUM AND ORDER
This matter is before the Court on the motion of defendant Group Contractors,
LLC, to dismiss plaintiff’s amended complaint pursuant to Fed.R.Civ.P. 12(b)(6).
Plaintiff opposes the motion, and the issues are fully briefed.
I. Background
Plaintiff Alberici Constructors, Inc. is a construction company in St. Louis,
Missouri. Defendant Clone Jefferson Oliver (“Oliver”) was employed by plaintiff as the
Vice President of Construction. In 2006, plaintiff entered into a contract with Arlington
County, Virginia to upgrade and expand the Arlington County Water Pollution and
Control Plant. Oliver was the project director and was responsible for issuing purchase
orders and approving invoices submitted by subcontractors. Plaintiff alleges that Oliver
devised a fraudulent scheme to divert profits from plaintiff for his own personal gain.
Specifically, Oliver encouraged subcontractors to submit improperly inflated invoices,
price quotes, and change orders to plaintiff. Plaintiff would pay the prices listed on the
invoices and the subcontractors would then pay part of the proceeds to Advanced
Construction Solutions, Inc. (“ACS”). It is alleged that ACS was created by Oliver and

defendant Pamela Whitmore for the purpose of diverting and concealing proceeds from
inflated invoices.
Defendant Group Contractors (“Group”) is a limited liability company in
Louisiana, and is one of the eleven defendants named by plaintiff in the amended
complaint.

On October 2, 2006, at Oliver’s direction, plaintiff entered into a

$15,100,000 subcontract with Group. Subsequently, Oliver arranged opportunities for
defendant William T. Howard, the Vice President and Manager of Group and a close
personal friend of Oliver’s, to submit change orders and invoices for services outside
the scope of the subcontract. Group then diverted these funds to ACS. In total, the
eighteen change orders to the Group subcontract inflated the subcontract price to
$16,980,909.45, representing an increase of $1,880,909.45. Group also purchased
an automobile for Oliver’s wife and placed her on the payroll, although she performed
no legitimate business services for Group.
Plaintiff asserts the following claims against Group: fraud (Count I), conspiracy
to commit fraud (Count II), fraud in the inducement (Count III), breach of duty of
loyalty (Count IV), breach of contract (Counts V, VI, VII, VIII), and unjust enrichment
(Counts IX, X, XI). Group now moves to dismiss the amended complaint, pursuant to
Fed.R.Civ.P. 12(b)(6), for failure to state a claim upon which relief can be granted.
Group argues that Howard acted outside the course and scope of his employment, and
therefore Group cannot be found vicariously liable for Howard’s conduct.

In the

alternative, Group contends that if Howard’s conduct is imputed to Group, Oliver’s
conduct must be imputed to plaintiff - in which case, plaintiff and Group would be in
pari delicto, preventing plaintiff’s recovery from Group.
II. Legal Standard

-2-

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); Neitzke v. Williams, 490 U.S. 319, 327 (1989) (“Rule
12(b)(6) does not countenance . . . dismissals based on a judge’s disbelief of a
complaint’s factual allegations”); Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (a wellpleaded complaint may proceed even if it appears “that a recovery is very remote and
unlikely”). The issue is not whether the plaintiff will ultimately prevail, but whether the
plaintiff is entitled to present evidence in support of his claim. Id. 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 562-63 (“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 level.” Id.
at 555.
III. Discussion
A. Vicarious Liability for Howard’s Actions
It is undisputed, for purposes of this motion, that Howard was Group’s
employee. However, Group contests vicarious liability, arguing that Howard acted
outside the scope of his employment because Howard’s actions were not motivated by
a desire to further Group’s interests, nor did Group receive any “unearned benefit.”
Group relies on cases in which Missouri courts applied the doctrine of respondeat
superior to conclude employees acting to further their own interests were not acting

-3-

within the scope of employment. Bradley v. Transportation Sec. Admin., 552 F.Supp.
957, 961 (E.D. Mo. 2008) (finding that a TSA agent did not act within the scope of his
employment when he committed theft from a passenger’s luggage); Noah v. Ziehl, 759
S.W.2d 905, 910 (Mo. Ct. App. 1988) (declining to hold the owner of a bar vicariously
liable when a bouncer violently attacked a patron). Plaintiff, on the other hand, cites
to cases in which Missouri courts held employers vicariously liable under the principle
of apparent authority.
Respondeat superior and apparent authority are two different theories of
vicarious liability. They have been acknowledged as such by both the Second and
Third Restatements of Agency. RESTATEMENT (SECOND ) OF AGENCY § 219 cmt. e, (1958);
RESTATEMENT (THIRD )

OF

AGENCY § 2.04 cmt. b, (2006).

See also Premium Fin.

Specialists, Inc. v. Hullin, 90 S.W.3d 110, 116 n.3 (Mo. Ct. App. 2002) (“The principles
of apparent authority are broader than the principles of respondeat superior.”).
Respondeat superior holds employers vicariously liable for employees’ acts committed
within the course and scope of employment: acts “done by virtue of the employment
and in furtherance of the business or interest of the employer....” Ewing-Cage v.
Quality Prods., Inc., 18 S.W.2d 147, 150 (Mo. Ct. App. 2000) (emphasis added).
Under the doctrine of apparent authority, however, it is irrelevant whether an agent
acted to benefit the principal.1 Apparent authority is created “when a principal, either
by its acts or representations, has led third persons to believe authority has been
conferred upon an agent,” and third persons reasonably rely upon the agent’s
appearance of authority. Pitman Place Dev., LLC. v. Howard Invs., LLC., 330 S.W.3d

1

The respondeat superior cases cited by Group are inapposite; in neither case was there
a factual scenario com parable to the instant one, potentially giving rise to apparent authority.
Bradley, 552 F.Supp. at 961; Noah, 759 S.W .2d at 910.

-4-

519, 527 (Mo. Ct. App. 2010). A principal may be held vicariously liable for the acts
of an agent cloaked with apparent authority, “even when the agent acts wholly out of
personal motive or with the purpose of defrauding his principal and even when the
principal is innocent and deprived of any benefit.” Premium Fin. Specialists, Inc., 90
S.W.3d at 113. See also State of Inf. Taylor v. Am. Ins. Co., 355 Mo. 1053, 1114
(1946) (en banc) (“A corporation is liable for a fraud perpetrated on a third person by
its agent within the apparent scope of his authority or the course of his employment
even where the wrongful acts are ultra vires or in fraud of the corporation itself, and
despite the fact the corporation did not authorize, concur in, or know of the fraud.”).
Plaintiff’s allegations in the amended complaint are sufficient to support the
vicarious liability of Group and survive the motion to dismiss. Under the doctrine of
apparent authority as interpreted and applied by Missouri courts, it is of no
consequence whether Howard acted in furtherance of Group’s business interests and
to defendant’s benefit.

Therefore, the Court will proceed to address Group’s

alternative argument based on the defense of in pari delicto.
B. In Pari Delicto
The common-law defense of in pari delicto is often described as the legal
equivalent of the equitable doctrine of “unclean hands.” E.g., Dobbs v. Dobbs Tire &
Auto Ctrs., Inc., 969 S.W.2d 894, 897 (Mo. Ct. App. 1998). In pari delicto bars the
recovery of a plaintiff who has participated in the defendant’s illegal conduct and is
equally culpable. The defense derives its name from the Latin phrase in pari delicto
potior est conditio defendentis, meaning, “in a case of equal or mutual fault... the
position of the [defending] party... is the better one.” Bateman Eichler, Hill Richards,

-5-

Inc. v. Berner, 472 U.S. 299, 306 (1985) (quoting BLACK ’S LAW DICTIONARY 711 (5th ed.
1979)).
In pari delicto can only apply to a plaintiff corporation through imputation of the
wrongful behavior of the plaintiff’s agents. In other words, plaintiff cannot be found
to share fault equally with defendant Group, unless Oliver’s fraudulent conduct can be
imputed to plaintiff. Group encourages the Court to impute Oliver’s conduct to plaintiff,
his employer; defendant insists that a ruling attributing Howard’s conduct to Group,
but not Oliver’s conduct to plaintiff, would be inconsistent. However, the “adverse
interest exception” to imputation under in pari delicto clearly forbids imputation in
Oliver’s case, but not in Howard’s.

Courts will not impute an agent’s conduct or

knowledge to a principal when the agent is acting directly against the principal.
Lumbermens Mutual Casualty Co. v. Thornton, 92 S.W.3d 259, 270 (Mo. Ct. App.
2002); Grassmueck v. American Shorthorn Ass’n, 402 F.3d 833, 837 (8th Cir. 2005)
(“The refusal to impute knowledge to the principal of an agent who is acting adversely
to the principal is an acknowledgment that the usual legal fiction of complete agentprincipal communication is unjustified where the agent is acting adversely.”).
Group’s demand for the symmetrical treatment of Howard and Oliver ignores the
fact that Howard is alleged to have defrauded a third party, while Oliver defrauded his
own principal. A principal may be liable for its agent’s fraud of a third party through
the doctrine of apparent authority, but not for the agent’s fraud of the principal. The
“adverse interest exception” draws “[a] distinction...between a case of management
stealing or looting from the company and a case where management is stealing from
outsiders.”

Grove v. Sutliffe, 916 S.W.2d 825, 830 (Mo. Ct. App. 1995).

The

exception applies in the first scenario (stealing from the principal) but not the second

-6-

(stealing from outsiders). Id. This encourages principals to exercise caution to avoid
hiring agents who may defraud third parties; there is no need to further encourage a
principal to hire an agent who will not defraud the principal itself out of millions of
dollars - the natural incentive is already strong enough. There is no reason to further
punish the defrauded principal by allowing others who allegedly colluded with its rogue
agent to raise the defense of in pari delicto.
In conclusion, the “adverse interest exception” prevents the imputation of
Oliver’s fraud to plaintiff. Therefore, the defense of in pari delicto is inapplicable to
plaintiff’s claims against defendant.
Accordingly,
IT IS HEREBY ORDERED that the motion of Group Contractors, LLC to dismiss
the amended complaint pursuant to Fed.R.Civ.P. 12(b)(6) [Doc. #85] is DENIED.

___________________________
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE

Dated this 31st day of December, 2012.

-7-