Opinion
Civ. No. 00-0725 (DRD).
March 26, 2001
Andrew Muscato, Esq., Katherine H. Creenan, Esq., Gary J. Ruckelshaus, Esq., Sakdden, Arps, Slate, Meagher Flom, LLP Newark, New Jersey, Attorneys for Plaintiff.
Richard D. Shapiro, Esq., Hellering Lindeman Goldstein Siegal LLP, Newark, New Jersey, Chaim Book, Esq., Moskowitz Book, New York, New York, Attorneys for Defendants.
OPINION
Plaintiff Statewide Funding, LLC, a Delaware company based in New Jersey, filed a complaint against defendant Prosperity Partners, Inc., a Florida company, alleging breach of contract. Jurisdiction is based on diversity. Plaintiff brings the instant motion for summary judgment. For the reasons set forth below, plaintiff's motion is denied.
FACTS
Plaintiff is in the business of buying deferred payments such as lottery winnings, annuities, structured lawsuit settlements, and various insurance claims. Plaintiff funds its purchases by selling the income stream to other entities, such as defendant. In May 1999, Todd Perry, a winner of the Pennsylvania State Lottery, agreed to convey to plaintiff or its assigns his rights to 14 annual lottery prize payments, each in the amount of $270,164.00. Perry agreed to make that conveyance in exchange for $2,410,000.00. The agreement provided that the transaction would take place during the first week of January 2000.
Prior to plaintiff entering into the Perry transaction, John Braccio, plaintiff's president, met with Randall Simoes, defendant's president, and Donald Wickham head of defendant's structured settlement department, to discuss further business between the two companies. Plaintiff asserts that prior to that time, plaintiff and defendant had engaged in a number of transactions. Defendant denies that allegation. Additionally, Braccio testified that he had dealt with Wickham previously and that he believed that Wickham represented defendant in contractual matters. Defendant denies that it or Wickham had worked on many transactions with plaintiff in the past. Braccio testified that Simoes told him that Wickham was someone Braccio could talk to when plaintiff wanted to do business with defendant. At that meeting, plaintiff and defendant entered into an agreement unrelated to the Perry transaction. Braccio executed the agreement on behalf of plaintiff and Simoes executed the agreement on behalf of defendant.
Sometime thereafter, Braccio and Wickham negotiated for the purchase and sale of the Perry transaction. Pursuant to a Receivable Purchase and Sale Agreement, executed by Braccio and Wickham, defendant agreed to purchase from plaintiff Perry's fourteen lottery prize installments for a purchase price of $2,430,000.00. The agreement provided that defendant would pay $20,000 to plaintiff and $2,410,000.00 to Perry. Plaintiff relied on the agreement to fund the Perry transaction and obtained a court order transferring the lottery prize installments from Perry to plaintiff. Braccio testified that prior to the Perry transaction, plaintiff had never sold lottery payments to defendant. Plaintiff sent documentation concerning the agreement to Wickham. Wickham placed that documentation in his desk and did not speak to anyone at defendant about the agreement.
In the fall of 1999, Braccio made repeated attempts to contact Wickham. According to Wickham's testimony, he informed Brian Sullivan, a vice president and head of defendant's lottery-prize-winner department, about the Perry transaction in the fall of 1999 and gave him documents relating to the transaction. By doing so, Wickham believed that he was completing his role in commencing an effort to obtain financing for the transaction.
According to Braccio's testimony, once he finally got in touch with Wickham, Braccio was told that defendant could not go through with the transaction because its financial source for the deal had backed out.
According to Sullivan's testimony, Braccio called Sullivan in December 1999 regarding the Perry transaction. Sullivan told Braccio that he knew nothing about the Perry transaction. Braccio, however, testified that Sullivan reported that defendant's source of funding for the transaction had backed out. After the call, Sullivan spoke to Wickham and then notified Simoes that Wickham had entered into the Perry transaction on behalf of defendant. Sullivan testified that after speaking to Simoes, Sullivan had no further contact with Braccio or other representatives of plaintiff.
Simoes testified that he learned about the Perry transaction from Sullivan in late 1999 or early 2000. Simoes spoke to Braccio and told him that Wickham was not authorized to execute the Perry agreement. Braccio, however, testified that the content of his conversation with Simoes was the same as his conversation with Wickham. Simoes testified that he believed Braccio understood that defendant was not going through with the deal. Simoes did tell Braccio that he would attempt to discuss it with Perry and, in the interest of good relations between the two companies, defendant was willing to see if it could use its investors to fund the transaction at a lower price. Matthew Zabel, an attorney for plaintiff, sent a letter dated December 30, 1999, to Simoes, stating: "My client has now been advised that you do not intend to go forward with" the Perry agreement.
Plaintiff sought to find alternate financing in order to close the Perry transaction. Plaintiff was able to acquire only $2,350,000.00 — $60,000 less than the price plaintiff agreed to pay Perry. The closing date was extended and plaintiff attempted to renegotiate the deal with Perry for a lower price. Perry declined. Eventually, the deal between plaintiff and Perry closed, but plaintiff was required to execute two promissory notes, one for $60,000 and one for $12,991.82, each at 6% per diem interest.
Plaintiff contends that Wickham had apparent authority to execute the agreement on behalf of defendant, but that even if he did not have apparent authority, defendant ratified the contract and therefore summary judgment should be entered in favor of plaintiff. Defendant asserts that the agreement signed by Wickham is not enforceable because it was not approved by its board of directors, was not agreed to by an authorized agent of defendant, and that Wickham did not have apparent authority to execute the agreement. Additionally, defendant asserts that the contract was not ratified.
STANDARD OF REVIEW
Summary judgment will be granted if the record establishes that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).
Rule 56(c) imposes a burden on the moving party simply to point out to the district court that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met this burden, the burden then shifts to the opposition to "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The evidence need not be in a form that would be admissible at trial. Celotex, 477 U.S. at 324. However, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
At the summary judgment stage, the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Id. at 247. In determining whether there exists a material issue of disputed fact, however, the facts and the inferences to be drawn from the facts are to be viewed in the light most favorable to the nonmoving party. Pollock v. American Tel. Tel. Long Lines, 794 F.2d 860, 864 (3d Cir. 1986).
In addition to being genuine, the disputed facts must be material, as determined by the substantive law. Anderson, 477 U.S. at 248. Debate over extraneous issues will not suffice; "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id.
DISCUSSION
It is undisputed that plaintiff contracted with defendant. It also appears undisputed that the contract was breached — defendant never dispensed payment as provided for in the Receivable Purchase and Sale Agreement. Plaintiff argues that Wickham acted as defendant's agent and thus that defendant is liable in breach of contract. Further, plaintiff argues that even if Wickham was not authorized, defendant ratified the contract. Defendant asserts that Wickham was not authorized to act as defendant's agent in conducting the transaction. Further, defendant argues that it did not ratify the contract with plaintiff and therefore the contract is unenforceable.
1. Apparent Authority
Agency is the fiduciary relationship in which an agent acts on behalf of a principal. See Restatement (Second) of Agency § 1 (1958). An agent must have "authority" to act for the principal. Such authority may be "actual" or "apparent." See Sears Mortgage Corp. v. Rose, 134 N.J. 326, 338 (1993). A principal will be found liable for his agent's actions only when the agent acts with "authority."
Contrary to the argument raised in plaintiff's reply brief (Pl. Rep. Br. at 5-8), there is no dispute that Wickham did not have actual authority to execute the agreement. Only Simoes, Sullivan, and one other person had authority to execute contracts involving lottery prizes on behalf of defendant. (Simoes Tr. at 10:11-11:13.)
Apparent authority arises in those situations where the principal causes persons with whom the agent deals to reasonably believe that the agent has authority. See ATT Co. v. Winback and Conserve Program, Inc., 42 F.3d 1421, 1439 (3d Cir. 1994). The Restatement states that "[a]pparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons." Restatement (Second) of Agency § 8. Apparent authority imposes liability on the principal because the principal's actions have misled a third party into believing that an "agent" has authority to act for the principal. See Mercer v. Weyerhaeuser Co., 324 N.J. Super. 290, 317 (App.Div. 1999).
Whether an agent is cloaked with apparent authority is a factual question. See Gizzi v. Texaco, Inc., 437 F.2d 308, 310 (3d Cir. 1971). The question for the trier of fact is whether the "principal, by his voluntary actions, placed the agent in such a situation that a person of ordinary prudence, conversant with general business practice, is justified in believing that the agent had authority to perform the act in question."
Newark Branch, NAACP v. Township of West Orange, 786 F. Supp. 408, 424 (D.N.J. 1992). In other words, the plaintiff must establish: (1) that the conduct of the alleged principal created the appearance of authority; and (2) that a third party reasonably relied on the agent's apparent authority to act for the principal.
Plaintiff asserts that Wickham had apparent authority to execute the agreement because Braccio and Wickham had worked together on many deals between plaintiff and defendant in the past and based on those dealings Braccio believed that Wickham represented defendant in contractual matters. Plaintiff argues that Braccio reasonably relied on Wickham's apparent authority to act on defendant's behalf in executing the Perry transaction and that therefore the agreement should be enforced.
Contrary to plaintiff's assertions, there exist genuine and material issues of disputed fact: whether defendant's conduct created the appearance that Wickham had authority and whether Braccio reasonably relied on Wickham's apparent authority to act for defendant. More specifically, Braccio testified that:
(1) plaintiff and defendant had engaged in a number of transactions prior to the Perry transaction and that
(2) previously Braccio had dealt with Wickham on transactions between the two companies. Defendant denies both of these allegations. These disputed facts go to the very heart of whether defendant held Wickham out as its agent and, if so, whether Braccio reasonably relied on Wickham's apparent authority when engaging in the Perry transaction. These are issues to be resolved by the trier of fact.
2. Ratification
Even when a contract is unauthorized, if it is ratified it will be given legal effect as though it were authorized and thus will be enforceable. Restatement (Second) of Agency § 82, Comment b. A contract will be deemed ratified if the principal accepts the existence of the contract. See American Photocopy Equip. Co. v. Ampto, Inc., 82 N.J. Super. 531, 539 (App.Div.), certif. denied, 42 N.J. 291 (1964). Ratification of an unauthorized act may be inferred from a corporation's silence with respect to that act; "i.e., failure to disaffirm the unauthorized act of its agent within a reasonable time, will under certain circumstances amount to the acquiescence from which ratification will be implied." See id.; Restatement (Second) of Agency § 94. There is no need to consider whether ratification occurred if an agent acts with apparent authority. See Zurbrugg Health Found. v. Graduate Health Sys., Civ. No. 89-0432, 1989 WL 139785 (D.N.J. Nov. 16, 1989).
Plaintiff contends that defendant had knowledge of the contract and did nothing to repudiate it. Plaintiff points to the date on the agreement, June 15, 1999, implying that plaintiff knew of the agreement as early as that date. (Pl. Br. at 12, 13.) As stated above, however, Wickham testified that he did not discuss the agreement with anyone at defendant until he gave the documents to Sullivan in the fall of 1999. Plaintiff contends that defendant elected to conceal its intention to abandon the transaction until the moment before the deal was supposed to close. (Pl. Br. at 13.) Moreover, defendant never explicitly stated that it was not going through with the deal; according to plaintiff, defendant's president "did nothing" and thought plaintiff "understood" that defendant was not going through with the deal. (Pl. Br. at 15.). Plaintiff contends that defendant's conduct amounted to a ratification of Wickham's execution of the agreement.
Plaintiff's account of the events is inconsistent with the testimony and the documents. Braccio, plaintiff's president, testified that he was told by Wickham that defendant "couldn't produce and go ahead with the transaction" (Braccio Tr. 102:14-16) because defendant's "funder backed out of a number of transactions." (Braccio Tr. 104:25-105:1.) Braccio testified that Sullivan said defendant's "backer backed out." (Braccio Tr. 147:22.) Braccio testified that the substance of his conversation with Simoes was the "same" as he had with Wickham. (Braccio Tr. 148:21.) Additionally, plaintiff's attorney sent a letter to defendant dated December 30, 1999, stating: "My client has now been advised that you do not intend to go forward with" the Perry agreement." Braccio's account of the events is inconsistent with the testimony of defendant's employees:
Sullivan testified that he told Braccio that he knew nothing about the agreement (Sullivan Tr. 35:19-22); Simoes testified that he told Braccio that the agreement was unauthorized (Simoes Tr. 16:11-17:5).
Inconsistencies aside, however, no view of the facts indicates that defendant ratified the agreement. Defendant was anything but silent with respect to the agreement: even plaintiff's president testified, repeatedly, that representatives of defendant indicated that its financial source would not come through. Moreover, plaintiff's own counsel wrote that plaintiff understood that defendant did "not intend to go forward." Therefore, in the event that the trier of fact concludes that Wickham acted without authority to execute the agreement, there is no issue of fact to be resolved concerning ratification: defendant did not ratify the agreement.
CONCLUSION
For the reasons set forth above, plaintiff's motion for summary judgment is denied. An appropriate order shall follow.