
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 94-1300                                DOROTHY BATES, THROUGH                            HER GUARDIAN, BARBARA MURPHY,                                Plaintiff - Appellant,                                          v.                           SHEARSON LEHMAN BROTHERS, INC.,                                Defendant - Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                     [Hon. Francis J. Boyle, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                               Torruella, Chief Judge,                                          ___________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                _____________________               Quentin Anthony, with  whom Sheffield & Harvey was  on brief               _______________             __________________          for appellant.               David A.  Wollin, with whom  Paul V. Curcio,  Christopher C.               ________________             ______________   ______________          Whitney, and Adler Pollock &  Sheehan Incorporated were on  brief          _______      _____________________________________          for appellee.                                 ____________________                                  December 16, 1994                                 ____________________                    TORRUELLA,  Chief Judge.   Dorothy  Bates, through  her                    TORRUELLA,  Chief Judge.                                ___________          guardian  Barbara Murphy  ("Bates"),  brought  an action  against          Shearson Lehman Brothers, Inc.  ("Shearson").  Bates claimed that          Shearson  was liable for the  acts of its  alleged agent, Carl P.          Nykaza, a broker at  Shearson, who diverted approximately $70,000          of  Bates'  funds,  for  his  own  personal  account.    A  trial          commenced, and at the  conclusion of Bates' case,  Shearson moved          for judgment  as a matter of  law.  The court  granted Shearson's          motion,  finding  that Bates  had  failed  to present  sufficient          evidence  to  support her  theory  that Shearson  should  be held          liable  for  Nykaza's  actions   under  the  theory  of  apparent          authority.  Bates now appeals.  Although Bates was the victim  of          a tremendous inequity and we sympathize with her situation, we do          not  believe  that  liability  can  be  attributed  to  Shearson.          Therefore, for the following reasons, we affirm.                                      I.  BACKGROUND                                    I.  BACKGROUND                    In reviewing the  court's decision to grant  Shearson's          motion for  judgment as a matter of law, we consider the evidence          in  the light  most  favorable  to  Bates, the  nonmoving  party.          Jordan-Milton Machinery, Inc.  v. F/V Teresa Marie,  II, 978 F.2d          _____________________________     _____________________          32, 34 (1st Cir. 1992).                      At  the time of trial,  Bates was an 82-year-old woman.          In  1991,  Bates  entered  a nursing  home  in  Providence, Rhode          Island.  Bates is mentally incompetent and unable to describe the          events and transactions which form the basis of this lawsuit.                      Nykaza began  working in  the securities industry  as a                                         -2-          broker for E.F.  Hutton in 1984.  E.F.  Hutton assigned Nykaza to          Bates' account in 1985,  at which time Nykaza  met with Bates  at          her home in Providence to discuss the status  of her accounts and          to solicit money for investment.                      Nykaza left E.F. Hutton in  1988 and began working  for          Thomson   McKinnon   Securities,   Inc.  ("Thomson").      Nykaza          transferred Bates' account,  as well as  fifteen or twenty  other          accounts, from  E.F. Hutton to  Thomson at  that time.   While at          Thomson,  Nykaza continued  to  manage Bates'  account and  would          visit her at her home two or three times a month.                      In the spring of 1989,  Nykaza closed Bates' account at          Thomson.   Nykaza's employment with Thomson also ceased.  At this          time, Nykaza  was  attempting  to secure  a  broker  position  at          Shearson  in Westport, Connecticut.   Shearson hired  Nykaza as a          broker  sometime in June or July, 1989.  Shearson policy required          brokers to open  an account for a customer before  a broker could          invest  any of that customer's money.   A branch manager then had          to approve  all new  accounts.  Nykaza  transferred approximately          twelve  accounts from Thomson to Shearson, but he never opened an          account for Bates at Shearson.                      On  June 13, 1989, Nykaza went to Bates' home to obtain          money.    Nykaza  prepared a  check  from  her  account at  Fleet          National Bank  ("Fleet")  in the  amount of  $25,000, payable  to          Rhode Island Hospital Trust National Bank ("Hospital Trust"), and          had  Bates sign it.   Nykaza  then deposited  the check  into his          personal account at Hospital Trust, without endorsement.                                         -3-                    On  August  3, 1989,  Nykaza  went to  Bates'  home and          prepared  a  second check  from Bates'  account  at Fleet  in the          amount of $20,000,  made it  payable to Hospital  Trust, and  had          Bates sign the check.   Nykaza then deposited the  check into his          personal account at Hospital Trust.                    On January 9, 1990,  Nykaza again went to Bates'  home,          prepared a third check from Bates' account at Fleet in the amount          of $25,000, and  made it payable to Hospital Trust.   After Bates          signed  the check, Nykaza deposited it in his personal account at          Hospital Trust.                    Nykaza's employment with Shearson ended on February 16,          1990.   During  Nykaza's  employment  with Shearson,  no  one  at          Shearson was aware  that Nykaza was  receiving money from  Bates.          Nykaza  never deposited at  Shearson the  funds he  received from          Bates.  Nykaza also  never told Bates, or otherwise  represented,          that he was going to deposit the funds reflected by her checks at          Shearson.  Nykaza used all the funds obtained from  Bates for his          own personal benefit.                     After   leaving  Shearson,  Nykaza  began  working  for          Dominick and  Dominick, Inc.  ("Dominick") as  a broker.   Nykaza          continued  to prepare checks from Bates' account at Fleet for her          signature and deposit  them into his personal account at Hospital          Trust.  These checks, prepared  after he left Shearson,  totalled          $95,000.                    On  June 12, 1990, Nykaza set up an account at Dominick          in  the  name  of "D.M.  Bates."    Nykaza  listed Bates'  social                                         -4-          security  number, but all of the other information on the account          was false.  Nykaza signed Bates' name to the new account form and          all  other  required   documentation.     Nykaza  then   invested          approximately $5,000  from money he had  previously obtained from          Bates.  His stated purpose  in opening the account was to  try to          make some money through trading in order to repay Bates.                    After Bates discovered Nykaza's diversion of her funds,          she brought this  lawsuit against Nykaza and Shearson  to recover          the  $70,000  allegedly  lost  during  Nykaza's  employment  with          Shearson.   Nykaza  subsequently allowed  judgment to  be entered          against him in the sum of $70,000.  Bates then proceeded to trial          with her suit against  Shearson, claiming that it was  liable for          the acts of its  agent Nykaza.  After Bates  concluded presenting          her  case at trial,  Shearson moved for  judgment as  a matter of          law.  The court  granted its motion.  Bates then moved  for a new          trial, and the court denied her motion.  Bates now appeals.                                       II.  ANALYSIS                                    II.  ANALYSIS                     A.  The Court's Judgment as a Matter of Law                     A.  The Court's Judgment as a Matter of Law                     In granting Shearson's motion for judgment as a matter          of law,  the court  found that  Shearson's liability  hinged upon          whether Nykaza acted as  an agent of Shearson.   After concluding          that there was no  evidence that there was an actual  agency, the          court determined that the issue  was whether Nykaza had  apparent          authority from Shearson.  The court stated:                        That  essentially there are two prongs to                      a determination  as to  whether or  not a                      principal is  liable for the  acts of its                      agents    or     employees    in    these                                         -5-                      circumstances, that is,  that there  must                      be   some  kind  of manifestation  to the                      third  party from the  principal that the                      agent  or employee is acting in the scope                      or in the course of employment or agency.                      Certainly there must be some  basis which                      one  might believe  that indeed  this was                      so.   So that there are  two prongs here,                      (1) a manifestation by the principal, and                      (2)  a reliance  to  some  extent by  the                      third  party dealing  with  the agent  or                      employee.                        I  must consider  the evidence  at this                      point in the point of view most favorable                      to the Plaintiff.   However, having  said                      that  the  evidence  it seems  to  me  is                      totally lacking of  any manifestation  by                      Shearson Lehman to the  putative investor                      that Mr. Mykaza [sic]  was acting as  its                      agent  or  employee  in receiving  funds.                      Furthermore, there is no evidence at all,                      even from  the point of  view of  viewing                      the  evidence  most   favorable  to   the                      Plaintiff,  of  any basis,  reasonable or                      otherwise,  for a  belief  that this  was                      indeed what was happening.                        The checks  were drawn to  Rhode Island                      Hospital Trust Company.  We might have  a                      different  situation  if  they  had  been                      drawn to Shearson Lehman but any dealings                      that were had  here were with Mr.  Mykaza                      [sic]  and Hospital  Trust and  the third                      party.    It  seems  to  me  given  those                      circumstances I  have  no choice  but  to                      grant   the     Defendant's   motion  for                      judgment  as a  matter of  law and  it is                      granted.          Bates took exception to this ruling.   On appeal, she now  claims          that the court  erred, and  that the evidence  was sufficient  to          permit the  jury  to reasonably  conclude  that Nykaza  did  have          "apparent authority" to act as an agent of Shearson.1                                        ____________________          1    On appeal,  Bates does  not  challenge the  district court's          ruling  that Nykaza lacked actual authority to act as an agent of          Shearson in his dealings with Bates.                                         -6-                    As a  preliminary matter, we set  forth the appropriate          standard of review.   Appellate review of a motion for a judgment          as a  matter of law  is de novo.   Jordan-Milton Machinery,   978                                  __ ____    _______________________          F.2d at 34.  When a motion for a  judgment as a matter of law has          been  granted,   we  review  the  evidence   and  the  inferences          reasonably drawn  therefrom, in the  light most favorable  to the          nonmoving party.   Id; Fashion House,  Inc. v. K  Mart Corp., 892                             __  ____________________    _____________          F.2d 1076,  1088 (1st Cir. 1989).   To affirm, we  must find that          the  evidence led  to only  one reasonable  conclusion.   Jordan-                                                                    _______          Milton Machinery, 978 F.2d  at 34; Fashion House, Inc.,  892 F.2d          ________________                   ___________________          at 1088; see Commercial Assocs. v. Tilcon Gammino, Inc., 998 F.2d                   ___ __________________    ____________________          1092, 1099 (1st Cir. 1993).  In performing this analysis, we will          not make credibility determinations or evaluate the weight of the          evidence.    Jordan-Milton Machinery,  978  F.2d  at 34;  Fashion                       _______________________                      _______          House,  Inc., 892 F.2d at  1088.  "Nevertheless,  the evidence to          ____________          which the  nonmovant points  must comprise more  than fragmentary          tendrils: a mere scintilla of evidence is not enough to forestall          [judgment as a matter of law],  especially on a claim or issue as          to which the  burden of  proof belongs to  the objecting  party."          Fashion House, Inc., 892 F.2d at 1088 (citations omitted).                 ___________________                    Under  Rhode  Island  law,  agency may  be  based  upon          apparent authority.2  Commercial Assocs., 998 F.2d at 1099.                                __________________                      "To establish the  apparent authority  of                      an agent to do  a certain act, facts must                                        ____________________          2   The parties both  agree that Rhode  Island law controls  this          diversity action.                                         -7-                      be   shown   that   the   principal   has                      manifestly     consented  to the exercise                      of  such  authority   or  has   knowingly                      permitted   the   agent  to   assume  the                      exercise of such  authority; that a third                      person knew  of the  fact and, acting  in                      good faith had reason to believe  and did                      actually believe that the agent possessed                      such  authority;  and   that  the   third                      person,  relying  on  such appearance  of                      authority, has changed  his position  and                      will be injured or suffer loss if the act                      done or transaction executed by the agent                      does not bind the principal."          American Title Ins.  Co. v.  East West Financial  Corp., 16  F.3d          ________________________     __________________________          449, 454 (1st Cir.  1994) (quoting Calenda v. Allstate  Ins. Co.,                                             _______    __________________          518  A.2d  624,  628  (R.I.  1986))  (other  citations  omitted).          Apparent authority  arises from the principal's  manifestation of          such  authority  to the  party  with  whom  the agent  contracts.          Commercial Assocs., 998 F.2d at 1099 (citing Menard & Co. Masonry          __________________                           ____________________          Bldg. Contractors  v. Marshall Bldg. Systems Inc.,  539 A.2d 523,          _________________     ___________________________          526 (R.I. 1988)).  The  focus is therefore on the conduct  of the          principal, and  not on the  putative agent.   Commercial Assocs.,                                                        __________________          998 F.2d at 1099.   Additionally, a  third party's belief in  the          agent's authority to  act on  behalf of the  principal must be  a          reasonable one.   Id. (citing  Rodr gues v. Miriam  Hospital, 623                            __           _________    ________________          A.2d 456 (R.I. 1993)).                    In the present case, there is simply no evidence of any          representation or conduct by Shearson that would suggest to Bates          that Nykaza had authority to  act for it.  When  Nykaza commenced          working  at Shearson, Nykaza never opened up an account for Bates          at  Shearson.  Thereafter, when  Nykaza would go  to Bates' home,          and prepare checks for Bates to sign, he never had her issue them                                         -8-          to Shearson.  Rather, the checks were made out to Hospital Trust.          Nykaza  never  deposited  any  of  Bates'  funds  with  Shearson.          Additionally,   Nykaza   never   expressly  told   or   otherwise          represented to  Bates  that  her funds  would  be  invested  with          Shearson.                     Shearson did not give  Nykaza any authority to solicit          money from  Bates in such a  fashion.  Shearson policy  in no way          countenanced  Nykaza's  actions.   Rather,  its  policy  required          brokers to  open a customer  account before investing  a client's          money.   A Shearson  branch manager then  had to approve  any new          account.   Furthermore, Shearson  required that all  money placed          into an  account  for  investment  purposes be  made  payable  to          Shearson.   Moreover,  Shearson had  no way  to know  of Nykaza's          dealings with Bates -- Nykaza never opened an account at Shearson          for Bates,  and all of  his dealings with  her took place  at her          home.                     Even if Bates in  fact believed that Nykaza represented          Shearson,  no  reasonable  jury  could  have  found  that  belief          justifiable.  A  generous reading of  the evidence would  suggest          that Bates gave Nykaza money to invest for her, and  while Nykaza          was working at Shearson,  Bates learned, "at one point,"  that he          was working there.  Based on this reading, Bates contends that by          virtue of  Shearson hiring Nykaza to work as a broker for it, she          assumed  that  the money  she gave  Nykaza  would be  invested at          Shearson.   See Restatement  (Second) of Agency,    261.  A third                      ___          party's  belief in  an agent's  authority to act  on behalf  of a                                         -9-          principal, however, must be  reasonable.  Commercial Assocs., 998                                                    __________________          F.2d  at 1099; see American Soc. of Mechanical Engineers, Inc. v.                         ___ ___________________________________________          Hydrolevel Corp.,  456 U.S.  556, 566 (1982)  (citing Restatement          ________________          (Second)  of Agency   261  and explaining that  under an apparent          authority theory, liability can  be based upon the fact  that the          agent's position facilitates the consummation of the fraud, where          from the point of view of the third person, the transaction seems          regular  on its face  and the agent  appears to be  acting in the          ordinary  course of  the business  confided to  him).   Here, the          reasonableness  of Bates'  contention is  undermined by  the fact          that the alleged investments with Shearson did not appear regular          on their face -- Nykaza never  told her that he was investing her          money  at Shearson, Bates never filled out an application to open          an account at Shearson, and  the checks she gave Nykaza were  not          made out to Shearson.  See Veranda Beach Club Ltd. Partnership v.                                 ___ ___________________________________          Western Surety Co.,  936 F.2d  1364, 1378 (1st  Cir. 1991)  (when          __________________          applying   analogous   Massachusetts   law,   court   found  that          plaintiff's knowledge  that employee  was officer of  company did          not  create  a  reasonable  belief  that  employee  had  apparent          authority to act for  employer).  There is simply  no evidentiary          basis from which to reasonably conclude that Nykaza  had apparent          authority to act  as an agent  of Shearson  in his dealings  with          Bates.                             B.  The Evidentiary Rulings                             B.  The Evidentiary Rulings                    Bates claims that the district court erred in excluding          certain  testimony.   Before we  analyze  the substance  of these                                         -10-          claims,  we  set  forth  the  standard  of  review  and   certain          evidentiary principles.  The  admission and exclusion of evidence          is  primarily committed to the discretion of the trial court, and          we will not  disturb this  determination absent a  showing of  an          abuse of  discretion.  Doty v.  Sewall, 908 F.2d 1053,  1058 (1st                                 ____     ______          Cir. 1990).   In general, "[a]ll relevant evidence is admissible"          and "[e]vidence which is  not relevant is not admissible."   Fed.          R.  Evid.  402.   A trial  court  has appreciable  flexibility in          admitting or  excluding evidence  on relevancy grounds.   Veranda                                                                    _______          Beach  Club, 936 F.2d at 1373.   Evidence is "relevant" if it has          ___________          "any  tendency  to make  the  existence of  any fact  that  is of          consequence  to the determination of the  action more probable or          less probable than it  would be without the  evidence."  Fed.  R.          Evid. 401.                       1.  The Proffered Testimony Regarding Justin Grace                      1.  The Proffered Testimony Regarding Justin Grace                    Bates  claims   that  the  court  erred   by  excluding          testimony from Nykaza regarding funds he had received from Justin          Grace.   To  support this  contention, Bates  argues that  Nykaza          testified that the first check he  received from Bates was a loan          in  anticipation of  his move  to Connecticut  and his  temporary          unemployment.  To rebut the credibility of this  testimony, Bates          offered to prove that one month prior to Nykaza's solicitation of          Bates  for a loan,  Nykaza had deposited  into his own  account a          check in the amount of $21,000 from another client, Justin Grace,          and that these funds were still available to Nykaza on June 13th.          Therefore, Bates argues that  because Nykaza did not need  a loan                                         -11-          from Bates on June 13, 1983, he had other purposes for her check,          such as investment.                    The court excluded this testimony because it determined          that the  evidence was irrelevant.   We do  not believe that  the          court abused its discretion in so finding.   The central issue in          this case was whether  or not Nykaza had apparent  authority from          Shearson  in  his dealings  with Bates.    As we  have previously          stated,  the focus in  determining whether an  agent has apparent          authority  from  its  principal is  not  on  the  conduct of  the          putative  agent,  but rather  on  the conduct  of  the principal.          Commercial  Assocs.,  998  F.2d  at  1099.    Nykaza's  testimony          ___________________          regarding  Grace  in  no  way  related  to  conduct by  Shearson.          Nykaza's alleged  diversion of  Grace's funds occurred  before he          was employed by Shearson. Additionally, Grace was  not a Shearson          client.   Moreover, Bates'  overly speculative argument  fails to          have  any  tendency  to show  that  Nykaza  somehow had  apparent          authority to act on behalf of Shearson.                       2.  The Proffered Testimony of William Harvey                      2.  The Proffered Testimony of William Harvey                    Bates  claims that  the  court erred  in excluding  the          testimony of William Harvey,  who had two telephone conversations          with Nykaza in July 1991, over a year after Nykaza left Shearson.          Harvey's testimony, if allowed, was to the effect that Nykaza had          told him that part of  the funds he had obtained from  Bates were          for  personal  use and  part of  the  funds were  for investment.          Harvey's testimony also  would have  shown that  Nykaza told  him          that the purpose  of the Dominick account he  subsequently opened                                         -12-          with $5,000 was to regain the monies he had previously taken from          Bates.   Bates argues that  this evidence was  necessary to prove          that  Nykaza  obtained  the   funds  from  Bates  for  investment          purposes, presumably at Shearson.                      The court  excluded this  testimony because it  did not          believe that Harvey's testimony added anything to assist the jury          with respect  to the  issue of  whether Nykaza was  acting as  an          agent of  Shearson in his dealings with Bates.  We do not believe          that the  court abused its  discretion in excluding  the evidence          because it was cumulative and only marginally relevant at best.                      The  issue in this case was whether or not Shearson had          engaged in any conduct that gave Nykaza apparent authority to act          as  its  agent in  his dealings  with  Bates.   None  of Harvey's          proposed testimony was  to the  effect that Nykaza  was going  to          invest  Bates' money  at  Shearson.   In  fact, Harvey's  proffer                                ____________          indicated that Nykaza never mentioned Shearson at all to him.                      As a final matter, we note that even if we were to find          error  in the court's two evidentiary decisions, which we do not,          we would  be bound  to hold  the error  harmless on  this record.          Even  if this evidence had  been admitted, none  of the testimony          was sufficient to establish that Shearson engaged in  any conduct          that gave Nykaza  apparent authority to act  as its agent in  his          dealings with Bates.                    For the foregoing reasons, the decision of the district          court is affirmed.                   ________                                         -13-
