Financial Statement Cases

A.P. Smith MFG Co. V. Barlow

 AP was a corporation that wanted to donate money to Princeton University, but its
shareholders had an issue with this act (most likely because they wanted the excess
money to go to them rather than a donation).
 A.P. brought an action seeking a declaratory judgment declaring that the contribution was
intra vires = within the power of the corporation to make this particular gift
 Shareholders argument: 1) the articles of incorporation (defines what the company can
and cannot do aka a corporation’s “birth certificate”) did not give the company express
authority to give money to charity; and 2) even though the state statute authorizes these
types of gifts, it doesn’t apply to a corp that was incorporated before the statute was
enacted.
 Court’s reasoning: The stat. specifically said that corps are subject to alterations,
suspension and repeal at the discretion of the court, so this was a lawful determination
that the corp could give money to Princeton. Court also evaluated that the donation
wasn’t’ discriminatory, the amount was reasonable, it wasn’t going to a specific person.

Burwell v. Hobby Lobby

 Determined that a corp entity is considered a person and they can make direct political
campaign contributions directly from the corp.
 Issue was that if corps have ability to make contributions, they can influence elections in
a significant manner

Agency Cases:
 QCV, LLC v. Casey
 P’s argument: defendant owed a duty of loyalty to the P as the P’s office manager and
breached that duty by using P’s confidential trade secrets to unfairly compete with the P,
causing P to suffer damages
 D’s argument: owed P no duty of loyalty because the duty of loyalties arises out of a
contractual relationship between the parties and the contractual obligation between the
two arose out of fraud and false representations to the D.
 The duty of loyalty extends out of the agency relationship.
 The elements of common law agency are present in relationships between employer and
employee.
 A contract is not necessary to create a relationship of agency
 Knowledge acquired by employee during his employment cannot be used for his own
advantage to the injury of the employer during the employee; and after the employment
has ceased the employee remains subject to a duty not to use trade secrets, or other
confidential information which he has acquired in the course of his employment, for his
own benefit or that of a the detriment of his former employer. It matters not that there is
no specific agreement on the part of the employee not to disclose the knowledge she has
so acquired. Employees are bound by such an implied obligation even though they be not
under contract that all.
  The duty of loyalty is not based in contract but rather in agency. A contract is not
necessary to create a relationship of agency. Because the duty of loyalty is based in the
law of agency and actionable in tort, the fraudulent misrepresentations of an employer to
induce an employee to take the position with the employer does not absolve the duty of
loyalty, and therefore, does not defeat and employers tort action against that employee for
the breach of her duty of loyalty.

 Every employee has a duty not to use their employer’s trade secrets and confidential
information to the detriment of that employer.

Alms v. Baum
 volunteer counselors at a children’s camp run by the Ronald McDonald House(RMH)
(Baum, Berger and Delanty)
 attended 4 mandatory training sessions – last session was on Friday, June 6 and
attendance was also required the next day when the campers were to arrive – counselors
weren’t required to stay the night at the camp the night before even though rooms were
available for them
 After the Friday night session, the 3 men drove in Baum’s 2-seater sports car to a local
bar – Baum had 5 beers - after 2 hours, got back into Baum’s car. Delanty sat on Berger’s
lap – Baum lost control of the car and crashed – Berger died and Delanty suffered
personal injuries
 Berger’s estate (Alms) and Delanty sued Baum and the RMH in tort
 Argument against the RMH was respondeat superior (Baum was acting as its employee in
the course of employment at the time of the crash).
 Holding: Court finds for RMH

Reasoning:
 Respondeat superior applies when acts are committed within the scope of employment
and when the act is in furtherance of the business of the employer.
 One who volunteers services without an agreement for or expectation of reward may be a
servant of the one accepting such services.
 An employee is a type of agent employed by an employer to perform service in his affairs
whose physical conduct in the performance of the service is controlled or is subject to the
right to control by the master.
 There’s no exact definition for the relationship between master/employer and
servant/employee, so the trier of fact must look to other factors to determine the
relationship, i.e., the hiring, right to discharge, manner of direction of the servant, right to
terminate the relationship and the character of the supervision of the work done – unless
one of these factors clearly appear, the relationship cannot be purely a question of law

Appellants also argue that the weekend as a whole was a mandatory working weekend and that
the RMH had the right to control Baum’s physical conduct at the time of the accident (because
director of the camp said he believed he could prohibit the counselors from drinking) – also
argued that this was in the scope of the relationship b/c Baum was performing a duty that was in
the scope of the master-servant relationship because he was transporting the 2 back to the camp
from a place where they had been conducting camp business. Court disagrees.
Reasoning:
 It’s true that Baum had a master-servant relationship w/ the RMH but Baum was not
acting within the course and scope of his volunteer relationship with the RMH
 All official camp business ended when the training session ended on Friday night until
the next morning – camp leaders were on their own free time
 No policy prohibited them from leaving and although director could have prohibited
drinking, there were no rules or regulations preventing them from doing so
 Baum went in his own car, wasn’t working on camp business
 Doesn’t matter that Delanty worked on camp business. Issue is: whether Baum was
acting as an agent of the RMH when the accident occurred
 Baum went to socialize

 Hayes v. National Service Industries, Inc.

 ROL: An attorney has apparent authority to bind a client to a settlement
agreement if the client’s limitations on the attorney’s authority have not been
communicated to the opposing party.
 Haynes sued her employer and its parent company (National Linen) alleging
that she was wrongfully terminated from her job as a sales rep
 Hayne’s attorney contacted National’s attorney and said he had the authority
to settle Hayne’s case for $15k – they settled
 Later, Haynes said she did not consent to the settlement
 National filed a motion to enforce the settlement – district court said
Hayne’s attorney had apparent authority to settle on her behalf
 Haynes appealed asking for a determination of whether the judge had
abused his discretion in enforcing the settlement

 Issue: Does an attorney have apparent authority to bind a client to a settlement

agreement if the client’s limitations on the attorney’s authority haven’t been
communicated to the opposing party? YES.

 Holding/Reasoning:
 An attorney of record is the client’s agent in pursuing a cause of action and
under GA law, an act of an agent within the scope of his apparent authority
binds the principal
 Attorney’s authority is determined by the representation agreement between
the client and the attorney and any instructions given by the client, and that
authority may be considered plenary(absolute) unless it’s limited by the
client and that limitation is communicated to opposing parties.
 Therefore, the client is bound by his attorney’s agreement to settle a lawsuit,
even though the attorney may not have had express authority to settle, if the
opposing party was unaware of any limitation on the attorney’s apparent
authority.
 Thus, per GA law, the agreement is enforceable against Haynes
  Haynes’ challenge to the agreement is simply as to the authority of her
attorney to enter into the agreement…
Miller v. McDonald’s Corp.
 Miller sued McDonald’s for injuries sustained when she bit into a sapphire stone in a
burger
 McDonald’s had a franchise agreement with 3k Restaurants (3K) that conducted the
business of the restaurant where the incident occurred
 The agreement had very strict and extensive requirements concerning how 3k was to
operate the restaurant in conformity with McDonald’s standards and practices – in
essence, the Agreement required 3K to ensure that the restaurant appeared virtually
identical to other McDonald’s restaurants and provided the same type of food and
standard of service but said that McDonald’s would not be liable for anything
 Miller said she only went to that restaurant under the assumption that McDonalds
owned, controlled and managed it. Nothing was disclosed to her that any other entity
other than defendant was involved in its operation (pgs. 51-2)
 Court said 3k is directly liable but need to determine if McDonalds can be
vicariously liable. – Miller asserts they are vicariously liable through actual and
apparent agency:
 The type of actual agency relationship that would make McDonald’s
vicariously liable for 3K’s negligence requires that defendant have the right
to control the method by which 3K performed its obligations under the
agreement. The common context for this is in an employer/employee
relationship and the relationship between 2 business entities is not an
employer/employee relationship, but the Oregon SC and most other courts
have applied he “right to control” test for vicarious liability.
 In regard to the test as it applies to franchise situations, the Billops court
said it applies in the franchise context: “if, in a practical effect, the franchise
agreement goes beyond the stage of setting standards, allocates to the
franchisor the right to exercise control over the daily operations of the
franchise, an agency relationship exists
 Through the express authority and apparent authority, 3K was acting on
behalf of the Principal(McDonalds) so vicarious liability comes into play
here b/c of that control
 Court looked to Billops case to determine that a jury could find that
McDonalds retained sufficient control over 3K’s daily operations and that
an actual agency relationship existed because the agreement did not simply
set standards 3K had to meet. Instead, it required 3K to use the precise
methods established, both in the agreement and the detailed manuals the
agreement incorporated (how to handle and prepare food, McDonalds sent
inspectors regularly) McDonalds clearly had a right to control 3K

 For second argument: vicariously liable for 3K’s negligence because 3K

was McDonalds’ apparent agent
 Court said: one who represents that another is his servant or other agent and
thereby causes a 3rd person justifiably to rely on th care or kill of such
 apparent agent is subject to liability to the 3rd person for harm caused by the
lack of care or skill of the servant.
 And to apply this rule to franchise situations, must determine whether the
putative principal held the 3rd party out as an agent and whether the P relied
on that holding out
 First have to look at what may constitute a franchisor’s holding a franchisee
out as its agent – court looked at Gizzi v. Texaco (pg 54) - the franchise
agreement required the franchisee to act in ways they identified it with the
franchisor. The franchisor imposed those requirements as a part of
maintaining an image of uniformity of operations and appearance for the
franchisors entire system. Its purpose was to attract the patronage of the
public to the entire system. This centrally imposed uniformity is the
fundamental basis for the court’s conclusion that there was an issue of fact
whether the franchisors help the franchisees out as a franchisors’ agents –
AND THE CURRENT CASE HAS SIMILAR FACTS:
 Everything about the appearance and operation of the McDonald’s identified
it with the 3KMcDonald’s and with the common image for all McDonald’s
restaurants that McDonald’s has worked to create through national
advertising, common signs and uniforms, common menus, common
appearance, and common standards
 The possible existence of a sign identifying 3K as the operator does not
alter the conclusion that there is an issue of the apparent agency for the jury
– there are issues of fact of whether that sign was sufficiently visible to the
public, in light of miller’s apparent failure to see it, and of whether one
signed by itself is sufficient to remove the impression that the defendant
created through all of the other indicia of its control that it, and 3K under
the requirements that McDonald’s imposed, presented to the public
 McDonald’s does not seriously dispute that a jury could find that it he’ll 3K
K out as its agent. Rather, it argues that there is insufficient evidence that
plaintiff justifiably relied on that holding out – it argues that it is not
sufficient for her to prove that she went to the 3K location because it was a
McDonald’s restaurant. Rather, she also had to prove that she went to it
because she believed that McDonald’s operated both it and other
McDonald’s restaurant that she had previously patronized
 a jury could find from plaintiffs affidavit that she believed that all
McDonald’s restaurants were the same because she believed that one entity
owned and operated all of them or, at least, exercise sufficient control that
the standards that she experienced at one would be the same as she
experienced at others --- Miller testified in her affidavit that her reliance on
McDonald’s for the quality of service and food at the 3K McDonald came in
part from her experience at other McDonald’s restaurants. So McDonald’s
argument that she must show that it, rather than a franchisee, operated those
restaurants is, at best, disingenuous --- a jury could find that it was
McDonald’s very insistence on uniformity of appearance in standards,
designed to cost the public to think of every McDonald’s, franchised or
unfranchised, as a part of the same system, that makes it difficult or
 impossible for plaintiff to tell whether her previous experiences were at
restaurants that McDonald’s founder franchise

Ramirez v. Long Beach Memorial Medical center

 Challenging a summary judgment in a wrongful death action based on alleged medical
malpractice in treating a gunshot victim at Long Beach Memorial
 Court found that the hospital immunized itself against respondeat superior liability for
any malpractice by the treating physicians by having the patient’s mom sign a printed
admission form which included an express acknowledgement that the medical providers
were independent contractors and not employees or agents of the hospital
 Though the trial court properly found no triable issue of fact as to the ER nurse, there are
unresolved factual issues in determining whether the admission form was binding so that
it terminates the hospitals liability, so summary judgment reversed
 P Arguments: Ramirez unnecessarily bled to death as a result of a negligent delay in
getting him to surgery
 Hospital argued that she signed the conditions
 Under the doctrine of ostensible agency, a hospital may be held vicariously liable for the
actions of its doctors, even if the doctors are independent contractors and not employees
of the hospital
 Ostensible agency requires: 1) conduct by the hospital that would cause a reasonable
person to believe that the physician was an agent of the hospital;
 The first element is usually satisfied unless the hospital gives the patient
notice stating otherwise. However, in an emergency-room context, prior
notice is often not sufficient, because the injured patient cannot be expected to
understand and act based on that notice. And
 2) reliance on that apparent agency relationship by the plaintiff
 The second element is established when the patient goes to the hospital for
services, rather than to an individual physician. Therefore, ostensible agency
is inferred unless the hospital gives the patient actual notice or the patient is
treated by his personal physician.
 Here, ostensible agency is inferred because the patient, Julio, was not given actual notice
of the relationship between the Hospital and the emergency-room doctors, and was not
treated by his personal physician. If Julio had gone to the Hospital for a pre-arranged
surgery and personally signed the Form, the Hospital would have immunity from suit.
However, Herminia signed the Form for Julio, and there is no evidence that she had
authority to act on behalf of Julio.
 Further, there are factual questions about Herminia’s authority to bind Julio’s
children to the Form. In addition, Herminia did not bind herself to the Form,
and a jury could find that she did not understand or accept the terms.
Therefore, the existence of the Form, which was not signed by Julio or anyone
authorized to act on his behalf, is insufficient to establish that the Hospital is
immune from liability