Richards v. Attorneys' Title Guar. Fund, Inc., 85-2656

• Decision Date: 14 February 1989
• Docket Number: No. 85-2656,85-2656
• Citation: 866 F.2d 1570
• Parties: David K. RICHARDS, Plaintiff-Appellee, v. ATTORNEYS' TITLE GUARANTY FUND, INC., Defendant-Appellant, H. Ray Christman and Platte Valley Bank, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1570

866 F.2d 1570

David K. RICHARDS, Plaintiff-Appellee, v. ATTORNEYS' TITLE GUARANTY FUND, INC., Defendant-Appellant H. Ray Christman and Platte Valley Bank, Defendants.

No. 85-2656.

United States Court of Appeals Tenth Circuit.

Feb. 14, 1989.

Rehearing Denied March 22, 1989.

Steven J. Merker of Davis, Graham & Stubbs, Denver, Colo., for plaintiff-appellee.

Mark R. Davis (John A. Criswell of Branney, Hillyard & Criswell, Englewood, Colo., with him, on the briefs), of Wood, Ris & Hames, P.C., Denver, Colo., for defendant-appellant.

Before SEYMOUR, McWILLIAMS, and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

Plaintiff Richards brought a civil action based upon diversity of citizenship against defendant, Attorneys' Title Guaranty Fund, Inc. (Attorneys' Title), a title insurance company. 28 U.S.C. Sec. 1332 (1966). Richards sought to recover from Attorneys' Title $430,000 in funds that the president of Centennial Escrow Services, Inc. (Centennial) embezzled from Centennial's trust account. Richards alleged Centennial was an agent of Attorneys' Title and Attorneys' Title should be held responsible for the intentional conversion by Centennial's president. The jury returned a verdict against Attorneys' Title.

Attorneys' Title appeals, alleging the district court improperly instructed the jury because: (1) the general liability instruction based on the Restatement (Second) of Agency Sec. 261 (1958) was not the law of Colorado; (2) the court improperly refused an instruction on the element of reliance; and, (3) the instruction defining agency did not contain the necessary element of control.

We find the district court properly instructed the jury on the law and AFFIRM the district court's judgment against Attorneys' Title.

Richards owned thirteen "7-Eleven" stores which he leased to the Southland Corporation. He was approached by a real estate agent regarding sale of the stores to Snyder. Richards negotiated a sale with Snyder. Richards agreed to provide title insurance. Richards then contacted the Attorneys' Title office in Utah and requested they issue title insurance on the properties. Attorneys' Title referred him to their Colorado office to prepare the title insurance on the three properties located in Colorado. Richards requested that the Colorado Attorneys' Title office prepare the title insurance policies on the three properties, asked if that office could handle the closing on the entire transaction, and asked if they could hold the sale proceeds check until all transaction documents were properly recorded. Attorneys' Title agreed to perform these services.

The closing date was postponed from December 10, 1982, to December 30, 1982. Richards learned the Attorneys' Title office manager would be out of town on December 30. An Attorneys' Title employee told Richards that Walter, an employee of Centennial, would perform the closing. At the closing, Walter refused to release the sales proceeds check to Richards before the transactions documents were recorded. The buyer, Snyder, and Richards' attorney, in fact agreed to reissue the sales proceeds check to Centennial to be held in Centennial's escrow account until the transaction documents were recorded.

Walter took the sales proceeds check for $430,000 to Centennial's office and prepared a deposit slip to the escrow account. She then left the check and deposit slip for Centennial's president, Marshall, to deposit. Marshall deposited the check in Centennial's trust account at Platte Valley Bank on January 3, 1983. On January 5, 1983, Marshall asked the bank to release the $430,000 to him in cash, which the bank was unable to do because its cash on hand did not amount to $430,000. Marshall then instructed the bank to wire transfer the $430,000 to United Bank of Denver where Marshall received the money in cash and left the state.

Richards contacted Walter at Centennial and requested transfer of the sales proceeds because all the transaction documents had been properly recorded. Walter then learned that Centennial's president had taken the proceeds and she informed Richards.

Richards brought this diversity suit to recover the $430,000 against Attorneys' Title and Platte Valley Bank. 28 U.S.C. Sec. 1332 (1966). The jury returned a verdict against both defendants. Each defendant has appealed. Our opinion on Platte Valley Bank's appeal is reported at Richards v. Platte Valley Bank, 866 F.2d 1576 (10th Cir.1988) In diversity cases, the federal court must apply the law of the forum state, in this case, Colorado. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Brady v. Hopper, 751 F.2d 329 (10th Cir.1984).

I.

Attorneys' Title asserts the trial court improperly instructed the jury on the theory of liability based upon Sec. 261 of the Restatement (Second) of Agency (1958) because this section is not the law of Colorado. We have been unable to find, and neither party has cited us to a Colorado case which has discussed Sec. 261. Our task is to predict whether the Colorado Supreme Court would apply this provision in a case like the one presented to this court. Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir.1984).

The district court instructed the jury on the liability of Attorneys' Title stating:

In order for the plaintiff, David K. Richards, to recover from the Defendant Attorneys' Title Guaranty Fund on his claim that Attorneys' Title Guaranty Fund is responsible for the theft of the escrow proceeds by Duane Marshall, you must find--you must find all of the following have been proved by a preponderance of the evidence.

(1) In connection with the sale of the 13 7-Eleven stores and the escrow of the funds, Centennial Escrow Services, Inc., was an agent of Attorneys' Title Guaranty Fund;

(2) Attorneys' Title Guaranty Fund put Centennial Escrow Services in a position that permitted its president, Duane Marshall, to commit the theft of the $430,000;

(3) At the time of the theft, Centennial Escrow Services was apparently acting within its authority as an agent of Attorneys' Title.

If you find any of these propositions has not been proved by a preponderance of the evidence, then your verdict must be for the defendant. On the other hand, if you find that all of these propositions have been proved by a preponderance of the evidence, then your verdict must be for the plaintiff.

This instruction is based on the Restatement (Second) of Agency Sec. 261. This section states:

A principal who puts a servant or other agent in a position which enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud.

Attorneys' Title objected to this instruction as being an inappropriate theory of law.

On appeal, Attorneys' Title asserts Sec. 261 is not the law of Colorado because this section improperly imposes liability upon a principal solely upon an agent's intentional misrepresentation not authorized or consented to by the principal. Attorneys' Title contends this instruction is contrary to the holdings in Schuette v. Winternitz, 498 P.2d 1183 (Colo.App.1972) (not selected for official publication); and Erisman v. McCarty, 77 Colo. 289, 236 P. 777 (1925). We do not find this argument persuasive.

The general rule that a principal is liable for the torts of his agent is not grounded on agency principles, but rather the maxim of "respondeat superior." Simpson v. Townsley, 283 F.2d 743, 746 (10th Cir.1960) (applying Kansas law); Dyer v. Johnson, 757 P.2d 178, 181 (Colo.App.1988). Liability is determined by considering, from a factual standpoint, whether the tortious act was done while the employee, whether an agent or servant, was acting within the scope of employment. Id. at 180; Crosswaith v. Thomason, 95 Colo. 240, 35 P.2d 849 (1934). The principal's knowledge of the agent's tort is not a necessary element of liability. See Stockwell v. United States, 80 U.S. 531, 546, 20 L.Ed. 491 (1871).

In Gilmore v. Constitution Life Ins. Co., 502 F.2d 1344 (10th Cir.1974), this court construed Colorado law and held a principal liable for the fraudulent acts of its agent who was acting within the scope of his apparent authority. The court distinguished the holding in Schuette, which denied a principal's liability without proof of consent or knowledge of the agent's misrepresentations, because that case did not discuss the agent's apparent authority to perpetrate the alleged fraud. Likewise Erisman is distinguishable. The Colorado Court of Appeals has also recognized this exception for an agent's false representations made with apparent authority. See Dyer, 757 P.2d at 180.

After hearing each party's arguments, the district judge concluded the instruction based on Sec. 261 was the correct law. This instruction based on Sec. 261 is consistent with the legal principle recognized by the courts of Colorado that, when one of two innocent persons must suffer from the acts of a third, he must suffer who put it in the power of the wrongdoer to inflict the injury. Bemel Assocs., Inc. v. Brown, 164 Colo. 414, 435 P.2d 407, 411 (1968) (Sutton, J., dissenting) (citing Burck v. Hubbard, 104 Colo. 83, 88 P.2d 955, 957-58 (1939)); see also Gordon v. Pettingill, 105 Colo. 214, 96 P.2d 416, 418 (1939). This court has applied Sec. 261 to principal-agent liability cases arising in Colorado. See Thomas v. Colorado Trust Deed Funds, Inc., 366 F.2d 140, 143 (10th Cir.1966); L.J. Dreiling Motor Co. v. Peugeot Motors, 605 F.Supp. 597, 610-11 (D.Colo.1985), aff'd, 850 F.2d 1373 (10th Cir.1988). We agree with the district judge's instruction based on Sec. 261. We believe the Colorado Supreme Court would apply Sec. 261 if placed in the position of the district court in this case.

Attorneys' Title next contends if Sec. 261 is an accurate statement of the law of Colorado, the district court improperly substituted "theft" for "fraud" as one of the elements...