Stroud v. Denny's Restaurant, Inc.

• Decision Date: 13 March 1975
• Citation: 271 Or. 430,532 P.2d 790
• Parties: Malcolm Douglas STROUD, Respondent, v. DENNY'S RESTAURANT, INC., a New Jersey Corporation, Appellant.
• Court: Oregon Supreme Court

Page 790

532 P.2d 790

271 Or. 430

Malcolm Douglas STROUD, Respondent, v. DENNY'S RESTAURANT, INC., a New Jersey Corporation, Appellant.

Supreme Court of Oregon, In Banc.

Argued and Submitted Feb. 6, 1975.

Decided March 13, 1975.

Ralph C. Barker, of Buss, Leichner, Lindstedt, Barker & Buono, Portland, argued the cause and filed briefs for appellant.

Charles E. Hodges, Jr., Portland, argued the cause and filed a brief for respondent.

HOWELL, Justice.

This is an action by plaintiff for malicious prosecution. A jury returned a verdict for plaintiff for general and punitive damages, and defendant appeals. The only issue is whether the trial court erred in refusing to withdraw punitive damages from the jury's consideration.

Plaintiff, his wife, and two friends went to defendant's restaurant to have an early morning breakfast. Plaintiff ordered sausage, eggs, hash browns and toast. The menu indicated the toast contained melted butter. When plaintiff's breakfast arrived the toast did not have melted butter on it; instead a frozen or refrigerated patty of butter was placed on the toast. Plaintiff objected to the waitress, who took the toast back to the kitchen. When the toast was returned to plaintiff the butter was in the same condition.

The evidence is in dispute as to whether plaintiff ate part of the toast. In any event, when plaintiff paid for the breakfast he attempted to deduct 25 cents for the unsatisfactory toast. During the discussion at the cash register the defendant's cook shouted from the kitchen that plaintiff had to pay for the toast. A male host for defendant advised plaintiff he would call the police if plaintiff did not pay. When the police arrived the officer refused to arrest plaintiff, so the defendant's cook performed a citizen's arrest and a citation was issued. It was stipulated that the charge was dismissed and the record expunged.

Plaintiff alleged that the defendant's cook was an employee of defendant at the time and that he was acting for and on behalf of defendant. The allegation was admitted in defendant's answer in which defendant also alleged that the arrest was based on probable cause. The jury returned a verdict of $1,600 general damages and $9,000 punitive damages. Defendant appeals only as to the award of punitive damages. We affirm.

Defendant contends that punitive damages should not have been allowed in this case because defendant corporation did not direct or ratify the arrest.

The liability of a corporation for punitive damages for the acts of one of its servants has been the subject of some controversy. See Prosser on Torts 12, § 2 (4th ed. 1971); Morris, Punitive Damages in Personal Injury Cases, 21 Ohio St.L.J. 216 (1960); Note, 70 Yale L.J. 1296 (1961). Oregon and a substantial minority of states have generally followed the view adopted by Section 217(C) of the Restatement of Agency (Second) (1958):

'Punitive damages can properly be awarded against a master or other principal because of an act by an agent if, but only if:

'(a) the principal authorized the doing and the manner of the act, or

'(b) the agent was unfit and the principal was reckless in employing him, or

'(c) the agent was employed in a managerial capacity and was acting in the scope of employment, or

'(d) the principal or a managerial agent of the principal ratified or approved the act.'

See also Restatement of Torts § 909 (1939); Hodel, The Doctrine of Exemplary Damages

in Oregon, 44 Or.L.Rev. 175, 233 (1965).

In applying the above rule, this court has made a distinction between the 'menial' employee and an employee acting in a managerial capacity:

'* * * Whatever may be the rule in other jurisdictions, it seems to be settled here that a corporation is not liable in punitive damages for the wrongful act of its menial agent unless such act was authorized or ratified: (citations omitted).' Pelton v. Gen. Motors Accept. Corp., 139 Or. 198, 204--05, 7 P.2d 263, 266, 9 P.2d 128 (1932).

Thus it has been held that a 'credit man' who was in charge of certain credit accounts was not a menial employee and could subject a corporation to liability for punitive damages. Pelton v. Gen. Motors Accept. Corp., supra. And in Osborn v. Teague Chevrolet, 254 Or. 486, 459 P.2d 988 (1969), the court held that the trial court correctly refused an instruction that the corporation could not be held liable for punitive damages unless the 'president or other principal officers of the corporation authorized or ratified the acts of its servant':

'* * * We believe it was not error to refuse to give the instruction because the instruction was too restrictive. In effect, it would have told the jury that a principal officer of the corporation must have expressly authorized or ratified the conduct. Corporate responsibility has been adjudged in this state for punitive damages where the person authorizing or ratifying the conduct is of less consequence in the managerial hierarchy than a corporate officer. (Citations omitted).' 254 Or. at 491, 459 P.2d at 990.

See also Paur v. Rose City Dodge, 249 Or. 385, 438 P.2d 994 (1968).

The above rule, based upon the distinction between menial and managerial employees, has been subject to much criticism, particularly when applied in states such as Oregon where punitive damages are justified on the theory of deterrence. ¹ As stated by McCormick on Damages 285, § 80 (1935):

'* * * (I)f prevention be the purpose of exemplary damages against corporations, the threat and hence the prevention would seem to be lessened substantially by a rule which imposes upon the plaintiff the difficult task of showing wrongdoing by those 'higher up."

Distinctions based upon the position of the individual wrongdoer in the corporate hierarchy are criticized as ignoring the individual's true responsibilities within the corporation:

'Declining to accept any distinction based on difference in rank, one court has said: 'The president of a railway corporation is no more or less its agent than a brakeman on one of its trains. His agency is broader, but it is not boundless, and a matter which lies beyond its limits is as thoroughly beyond his powers as any matter beyond the very much smaller circle of a brakesman's (sic) duties; and, e converso, a brakeman is as fully authorized to act for the company, within the range of his employment, as the president is within the limits of his office. It can no more be said that the corporation has impliedly authorized or sanctioned the wilful wrong of its president, in the accomplishment of some end within his authority, than that a similar wrong by a brakeman, to an authorized end, is the wrong of the corporate entity. There is just the same and no more reason, in our opinion, for inflicting punishment on the corporation for the wilful misconduct of the one as of the other, and such punishment is no more vicarious in the one case than in the other. That punishment may be imposed on corporations for the wilful or wanton misconduct, within the general scope of their duties, of their chief executive officers, is well established, and not questioned in this case. We feel that we stand upon the same principles, and are moved by the same considerations to the same conclusion, in respect of the wilfulness, wantonness, and the like of brakemen and flagmen, while acting within the scope of their employment, and to the accomplishment of the legitimate ends thereof." 10 Fletcher Cyc Corp. (Perm.Ed.) 376--77, § 4907 (1970), quoting Mobile & O.R. Co. v. Seales,...