Toward Coherence in Civil Conspiracy Law: a Proposal to Abolish the Agent's Immunity Rule

Publication year2021
CitationVol. 84

84 Nebraska L. Rev. 1. Toward Coherence in Civil Conspiracy Law: A Proposal to Abolish the Agent's Immunity Rule

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Martin H. Pritikin*


Toward Coherence in Civil Conspiracy Law: A Proposal to Abolish the Agent's Immunity Rule


TABLE OF CONTENTS


I. Introduction ....................................................... 2
II. The Nature of Civil Conspiracy .................................... 6
A. Civil Conspiracy Distinguished from Criminal
Conspiracy ..................................................... 6
B. The "Non-Tort" of Civil Conspiracy ............................. 9
C. The Reason for the Non-Tort Character of Civil
Conspiracy ..................................................... 10
D. Consequences of the Non-Tort Character of Civil
Conspiracy: The Underlying Duty Requirement .................... 12
1. Criticism of the Underlying Duty Requirement ................ 12
2. A Possible Defense of the Underlying Duty
Requirement ................................................. 14
3. A Better Defense of the Underlying Duty
Requirement ................................................. 16
III. The Agent's Immunity Rule: An Overbroad Defense to
Civil Conspiracy ................................................. 20
A. The Agent's Privilege Theory ................................... 22
1. Propriety of the Agent's Privilege as a Defense to
Interference Claims ...................................... 22
2. Impropriety of the Agent's Privilege Outside the
Interference Context ........................................ 26
B. The Single Legal Actor Theory .................................. 30
1. The Single Legal Actor Theory in the Antitrust
Context ..................................................... 31

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2. The Single Legal Actor Theory in the Criminal
Context ..................................................... 33
3. Comparing the Single Legal Actor Rules in the
Criminal and Antitrust Contexts ............................. 35
4. Whether to Apply the Single Legal Actor Theory
to Bar Common Law Civil Conspiracy Claims ................... 36
a. Applicability of the Single Legal Actor
Theory to Interference Claims ............................ 37
b. Inapplicability of the Single Legal Actor
Theory to Intentional Torts Generally .................... 39
5. Should the Agent's Immunity Rule Apply to
Individual Principals? ...................................... 42
IV. Understanding Why Courts Apply the Agent's
Immunity Rule ..................................................... 43
A. The Fallacy of Agents Conspiring "With" the
Corporation .................................................... 43
B. Courts Unnecessarily Overstate the Scope of Agents'
Immunity ....................................................... 45
C. Personal Gain as a Proxy for Intent ............................ 49
V. Conclusion and Recommendations ..................................... 53


I. INTRODUCTION

Theories of secondary liability, such as conspiracy and aiding and abetting, have gained renewed prominence in light of the recent rash of corporate financial fraud. The collapse of Enron is a prominent example. Enron ranked seventh on the Fortune 500 list of America's largest corporations in 2001, and was, by all appearances, an immensely successful and profitable company.(fn1) But in December of 2001, Enron filed for bankruptcy, whereupon it was revealed that the company was hiding tens of billions of dollars in debt through the use of "off balance sheet" partnerships and other accounting irregularities.(fn2) Enron's bankruptcy filing stayed most claims against it,(fn3) and its assets were insufficient to satisfy its creditors and shareholders in any event. So Enron's victims looked for solvent defendants--such as Enron's accountants, bankers, and lawyers--to sue on the theory that they knew of and participated in Enron's fraud.(fn4)

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Whenever a tortfeasor is bankrupt or otherwise judgment-proof (and even when it is not), resourceful plaintiffs will consider suing agents and employees on conspiracy or related theories to increase their chances of recovery. But suits against agents or employees for participating in the wrongful acts of their principal or employer involve an inherent tension. The nature of an agency relationship is that the agent has a duty to act in a manner that furthers the principal's goals.(fn5) If it is the agent's job to assist the principal or employer, when is it appropriate to impose liability on the agent for doing just that?

A number of courts have restricted the liability of agents and employees by means of the "agent's immunity rule"--a rule that provides that, as a matter of law, duly acting agents are incapable of conspiring with their principal or employer.(fn6) The rule applies only where the agent is acting on behalf of the principal and not for his or her own personal gain.(fn7) Courts have applied this rule to bar claims against agents for conspiracies to commit a variety of common law civil torts, such as fraud, intentional infliction of emotional distress, interference with prospective economic advantage, and malicious prosecution.(fn8) This Article argues that neither precedent nor policy justifies the application of such a broad-based defense to civil conspiracy claims.

A trace of the historical roots of the agent's immunity rule reveals that the rule is based on two distinct but related rationales. First, an agent is privileged to induce a breach of, or interfere with, his or her employer's contract.(fn9) Second, and more commonly, when agents act

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on behalf of the corporation, the corporation is deemed to be the sole legal actor; thus, there can be no conspiracy because the corporation cannot "agree" with itself.(fn10) Neither of these rationales supports a rule that immunizes agents against civil conspiracy claims generally.

The agent's privilege to induce a breach of the principal's contract is justified by economic considerations that are unique to that cause of action, which lies at the intersection of tort and contract. Courts do not impose tort damages on contracting parties who breach to avoid deterring the "efficient" breach--one where the breaching party can make the non-breaching party "whole" by paying expectancy damages, yet still come out ahead.(fn11) If tort liability via civil conspiracy were imposed upon duly acting agents for effecting or recommending a breach, contracting parties might internalize the cost through indemnification or by chilling the agent's conduct. The agent's privilege to induce a breach thus helps preserve the contracting party's own "privilege" to breach and pay only expectancy damages. Agents are likewise privileged to conspire to induce a breach under the rationale that someone immune from the underlying tort cannot be liable for conspiring to commit it--a notion referred to herein as the "underlying duty requirement."

However, where the object of the alleged conspiracy is not a breach of contract, but a tort such as fraud, these same considerations do not apply. The principal is not "privileged" to commit fraud, so the agent is not privileged to induce the principal to commit fraud, and likewise should not be immune from conspiring with the principal to commit it.

Similarly, the single legal actor theory--the fiction that the agent's acts are those of the principal, and thus that the "plurality" element of conspiracy is absent--arose where policy considerations regarding the underlying offense supported its application. The fiction is accepted in the antitrust context, on the rationale that proscribing certain intracorporate combinations that restrain trade could chill legitimate business conduct. However, the same fiction is rejected in the context of criminal conspiracy, on the rationale that the increased danger aris

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ing from a group of criminal actors that justifies punishing conspiracy generally exists even where the conspirators are all agents and employees of a single entity.

Whether the single legal actor theory is applied to bar common law civil conspiracy claims against agents should depend on the policies of the underlying tort. Using a policy-based analysis, the result should be the same as that reached when applying the agent's privilege theory: the agent should not be immune from conspiracy to commit most torts. The fiction of an agent as an arm of the principal is entertained so principals (especially corporate principals, who cannot act but through agents) can conduct business, not so they can harm others. Thus, where the agent "conspires" to induce a breach of the principal's contract, the principal is seen under the efficient breach theory as merely "doing business," and so the fiction of the single legal actor should be respected. But where the object of the conspiracy is fraud, battery, or any other intentional tort, no policy is furthered by immunizing anyone who intentionally encourages or participates in the tort, even agents who do so on behalf of their principals.

The impetus for courts to apply the agent's immunity rule to protect agents who act on behalf of the principal, but not those who act for their own personal gain, is understandable. Courts may be reluctant to impose liability on someone who did not actually commit a tort based on something as ephemeral as an "agreement" (which itself may be proved by circumstantial evidence).(fn12) That reluctance is likely magnified where the defendant is an agent of the tortfeasor--the fact that the agent worked in concert with his principal is not necessarily circumstantial evidence of anything sinister. Where an agent is merely acting on behalf of the principal, he is likely not the "bad guy" who deserves punishment, but rather an unwitting pawn in the principal's scheme. Conversely, where the agent acts not on the principal's behalf, but for his own personal gain...

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