Fortune v. Principal Financial Group, Inc.

• Citation: 219 Ga.App. 367,465 S.E.2d 698
• Decision Date: 17 November 1995
• Docket Number: A95A1334,Nos. A95A1333,s. A95A1333
• Parties: FORTUNE et al. v. PRINCIPAL FINANCIAL GROUP, INC. et al. ETHRIDGE v. PRINCIPAL FINANCIAL GROUP, INC. et al.
• Court: United States Court of Appeals (Georgia)

Page 698

465 S.E.2d 698

219 Ga.App. 367

FORTUNE et al. v. PRINCIPAL FINANCIAL GROUP, INC. et al.

ETHRIDGE v. PRINCIPAL FINANCIAL GROUP, INC. et al.

Nos. A95A1333, A95A1334.

Court of Appeals of Georgia.

Nov. 17, 1995.

Reconsideration Denied Dec. 6, 1995.

Certiorari Denied March 8, 1996.

Taylor & Roberson, Leah O. Taylor, Jerry D. Roberson, Ted Taylor, Birmingham, AL, John P. Tucker, Jr., Blue Ridge, for appellants.

Carter & Ansley, Ben Kingree, III, Elizabeth J. Bondurant, Atlanta, for appellees.

BLACKBURN, Judge.

Evelyn Ethridge and John and Denise Fortune appeal from the grant of summary judgment to the Principal Financial Group, Inc. and the Principal Mutual Life Insurance Company (Principal). In their suits against Principal and Ernie Malcolm James, Ethridge and the Fortunes sought damages arising out of their investments in the "Principal Manager's Fund," a non-existent fund which James falsely represented to be a Principal fund. In identical four-count complaints against Principal, they alleged that James made false representations to them as Principal's agent; that Principal breached its contract with them; that Principal negligently hired James as its agent; and that Principal negligently failed to adequately regulate, supervise, and monitor James. We have consolidated these closely-related appeals for disposition in a single opinion.

1. Ethridge and the Fortunes urge that the trial court erred in granting summary judgment to Principal in that genuine issues of material fact remain as to Principal's liability in tort. In this regard, they argue that jury questions exist as to whether James may be deemed to have acted within the scope of actual or apparent agency on behalf of Principal; as to whether Principal was negligent in hiring and supervising James; and as to whether Principal breached investment contracts with the Fortunes and Ethridge.

"To prevail at summary judgment under OCGA § 9-11-56, the moving party must demonstrate that there is no genuine issue of material fact and that the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law. [Cit.] A defendant may do this by showing the court that the documents, affidavits, depositions and other evidence in the record reveal that there is no evidence sufficient to create a jury issue on at least one essential element of the plaintiff's case. If there is no evidence sufficient to create a genuine issue as to any essential element of plaintiff's claim, that claim tumbles like a house of cards. All of the other disputes of fact are rendered immaterial. [Cit.] A defendant who will not bear the burden of proof at trial need not affirmatively disprove the nonmoving party's case; instead, the burden on the moving party may be discharged by pointing out by reference to the affidavits, depositions and other documents in the record that there is an absence of evidence to support the nonmoving party's case." Lau's Corp. v. Haskins, 261 Ga. 491, 405 S.E.2d 474 (1991).

The evidence reflects that Ethridge and the Fortunes met James as a result of their common membership in the same church. Ethridge had heard that James taught Sunday school and had friends at church who had invested money through him. The Fortunes and James had taught Sunday school together. Over dinner one evening in his home, James told the Fortunes that he was a Principal agent able to handle "all kinds of insurance, plus securities and investments." It was upon this background that Ethridge and John Fortune later contacted James for the purpose of seeking his assistance in making Individual Retirement Account (IRA) investments.

On each occasion, James advised that he could do so; however, he indicated that he could make them more money if they allowed him to first invest their funds in the Principal Manager's Fund (Fund). Ethridge invested $3,000 upon James' recommendation that she defer making a $2,000 IRA investment until the April deadline for doing so. The Fortunes invested a total of $12,000 in the Fund on the understanding that James would later move $4,000 from it to a Principal IRA. ¹ In both cases, the investment checks were written by the appellants directly to James, not to Principal. Principal never received the funds and had no knowledge of the transaction. In turn, James personally executed and delivered promissory notes to appellants promising repayment with interest at a date certain and said notes did not purport to bind Principal. Neither the Fortunes nor Ethridge asked to be shown the Fund's prospectus. Apart from his business cards which James showed John Fortune, both relied exclusively on James' oral representations as to the scope of his authority on behalf of Principal Mutual.

"An employer generally is not responsible for torts committed by his employee when the employee exercises an independent business and in it is not subject to the immediate direction and control of the employer." OCGA § 51-2-4. In the absence of evidence of actual control, the test distinguishing an employee from an independent contractor is whether the employer assumed " 'the right to control the time, manner and method of executing the work, as distinguished from the right merely to require certain definite results in conformity to the contract.' [Cit.]" Allrid v. Emory Univ., 249 Ga. 35, 40, 285 S.E.2d 521 (1982).

Principal and its predecessor entity, the Bankers Life Company, entered into five contracts with James between July 16, 1984 and October 1, 1990. Although termed agent's contracts, each contract denominated James' status as that of an independent contractor. In Georgia, such a contractually conferred designation is presumed true unless other evidence is introduced to show that the employer exercised control as to the time, manner and method of performing the work sufficient to establish an employer-employee relationship. Lagoueyte v. Rocket Express, 196 Ga.App. 143, 395 S.E.2d 389 (1990). "On the other hand, where the contract specifies that the employee's status shall be that of independent contractor but at the same time provides that he shall be subject to any rules or policies of the employer which may be adopted in the future, no presumption arises." (Punctuation omitted.) Ross v. Ninety-Two West, 201 Ga.App. 887, 891-892, 412 S.E.2d 876 (1991).

Neither Ethridge nor the Fortunes assert that James was contractually denominated as other than an independent contractor of Principal. Such contracts made Principal's "rules, requirements and instructions" applicable to James; however, unlike Gulf Life Ins. Co. v. McDaniel, 75 Ga.App. 549, 43 S.E.2d 784 (1947), cited by the dissent, they did so only to the extent that these were not inconsistent with his status as an independent contractor. Further, although the dissent cites Franklin Life Ins. Co. v. Hill, 136 Ga.App. 128, 133(4), 220 S.E.2d 707 (1975) for the proposition that susceptibility to monitoring, grading and discharge will deny an insurance agent status as an independent contractor, Franklin was decided principally upon the fact that the agent therein was a manager in a hierarchical organizational structure. As such, he supervised those below him and was subject to the supervisory control of those who were above him in the company. Id. Both Gulf Life and Franklin are here inapposite on the basis of other factors as well. Among these, Principal did not specify or restrict James' sales territory; Principal allowed James to sell the products of other companies; ² and Principal did not require James to work out of a certain location or require him to attend scheduled training for company agents. ³ Moreover, the contracts authorized James to solicit life and health policies and annuity contracts for Principal and denied him authority to "[i]ncur any liability or debt against us" or to "accept risks or contracts of any kind or bind us in any way."

While Ethridge and the Fortunes correctly contend that Principal enabled James to distribute company business cards describing himself as an agent and brochures describing its insurance products, such evidence is insufficient to establish that James lacked independent contractor status. " 'In passing upon a motion for summary judgment, a finding of fact which may be inferred but is not demanded by circumstantial evidence has no probative value against positive and uncontradicted evidence that no such fact exists.' (Citation and punctuation omitted.) Withrow Timber Co. v. Blackburn, 244 Ga. 549, 553 (261 SE2d 361) (1979)." McElroy v. Cody, 210 Ga.App. 201, 202, 435 S.E.2d 618 (1993). In this regard, it is undisputed in the record that James did not have authority under his contracts with Principal to sell investment funds or securities; Principal never received any money from James' sales of the Fund; and, on July 25, 1991, it terminated James upon first learning that it existed.

Citing Jester v. Hill, 161 Ga.App. 778, 288 S.E.2d 870 (1982), the dissent notes that a jury may impute liability to an insurance provider upon evidence that the criminal acts of an independent insurance broker resulted out of apparent authority it conferred upon such agent to so act.

" 'In order to recover under (an apparent or ostensible agency) theory, however, a plaintiff must present evidence that: (1) the apparent principal represented or held out the apparent agent; and (2) justifiable reliance upon the representation led to the injury. Further, it is not enough that plaintiff simply believe there is an agency relationship. There is an objective standard. The apparent principal must represent or hold out the apparent agent. Then, too, justifiable reliance must lead to the injury.' (Citations and punctuation omitted.) [Cit.]" Marcoux v. Northside Realty Assoc., 207 Ga.App. 99, 100, 427 S.E.2d 72 (1993). While the dissent correctly points out that Principal provided James business cards which described him as an agent of the...