In Matter of First Impression Supreme Court Sets Forth Rule for Franchisor Vicarious Liability.

February 4, 2008

In Papa John’s International, Inc. v. Mccoy, the Supreme Court decided the issue of franchisor vicarious liability, an issue of first impression in Kentucky, arising in the context of a malicious prosecution and defamation lawsuit filed by a customer as a result of a Papa John’s pizza delivery gone wrong.

The customer originally sued the delivery driver and Papa John’s International, Inc., alleging that Papa John’s was vicariously liable as the driver’s employer. The driver’s employer, however, was RWT, Inc ., a Papa John’s franchisee. The customer filed another lawsuit against RWT. The circuit court granted summary judgment in favor of RWT and Papa John’s for various reasons. The Court of Appeals affirmed in part and reversed in part as to both. The Supreme Court noted;

As is well-settled in our case law, the driver’s employer, RWT, is subject to vicarious liability for a tort committed by its employee acting within the scope of employment. We conclude that the acts complained of here occurred within an independent course of conduct that could not have been intended by the driver to serve any purpose of the employer. So, although for different reasons that we will discuss below, we conclude that the circuit court properly granted summary judgment dismissing the malicious prosecution claim against RWT. Accordingly, we reverse the Court of Appeals as to RWT.

As to the claims involving Papa John’s, the Court concluded:

[W]e must take a more precise approach given the ubiquity of the franchise method of doing business in Kentucky. To that end, we adopt a rule in which the franchisor is vicariously liable for the tortious conduct of the franchisee when it, in fact, has control or right of control over the daily operation of the specific aspect of the franchisee’s business that is alleged to have caused the harm . Papa John’s had no control over the pizza delivery driver’s intentional, tortious conduct in this case. So Papa John’s cannot be held vicariously liable… Accordingly, we reverse the Court of Appeals as to Papa John’s.

As to RTW, the Court noted that, “if the servant “acts from purely personal motives…which [are] in no way connected with the employer’s interests, he is considered in the ordinary case to have departed from his employment, and the master is not liable.”” The Court found that allegedly making false statements to police is not connected to RTW’s business of pizza and pizza delivery.

As to Papa John’s the Court noted initially, that “taking the unique franchise arrangement into consideration, there is an emerging judicial consensus to apply a franchisor vicarious liability test that considers the franchisor’s control or right of control over the instrumentality that is alleged to have caused the harm.” The Court adopted this rule. While a franchisor may adopt or impose quality and operational controls over a franchisee, the franchisor does not typically have control over a franchisee’s employees. Because the Court found the employees statements to be an independent course of conduct that could not have been intended to serve any purpose of the employer, Papa John’s could not have been found to be vicariously liable.

Scott dissented as to RTW, but concurred as to Papa John’s. Scott concluded that there was sufficient evidence that the employee WAS acting in the course and scope of his employment at the time of the unlawful prisonment charge was made, which was based on events that allegedly occurred on the job. In fact, the managers of RTW encouraged the employee to press charges, although he initially did not want to. Justice Scott believed this was sufficient to make the issue a jury question.

Lambert dissented and believed that the Appellant had stated a claim against Papa John’s under the theory of ostensible agency. The basis for the apparent agency arises from the reliance of the party dealing with the ostensible agent. In this case, the Appellant ordered a Papa John’s pizza and not an RTW pizza. Lambert stated his belief that the theory of ostensible agency was now in “grave doubt.”

The Majority could have adopted Justice Scott’s notion that the employee was acting within the course and scope of his employment, since the act of making the allegedly false statements resulted out of his work. However, the intentional torts at issue, malicious prosecution and defamation, do not fit easily into the course and scope of a pizza delivery franchisee (as opposed to say a newspaper publisher). Here the appellant does not just have to prove that the employee made false statements, but that he did so intentionally. While Justice Scott is correct that employers can be held vicariously liable for intentional acts, the nexus between making “intentionally false” accusations and delivering pizzas is distinct from those intentional cases mentioned.

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