UPUAA civil claims: Who is a “high managerial agent” for double damages?

Under the Utah Pattern of Unlawful Activity Act, a plaintiff seeking double damages in a civil case must show that the misconduct was, at a minimum, recklessly tolerated by a “high managerial agent” of the defendant.  The UPUAA does not define “high managerial agent,” so what does it mean under state law?

Utah’s criminal code does contain a definition of “high managerial agent,” similar to the definition in the Model Penal Code.  An argument could be made that the standard for high managerial agent required for criminal responsibility is, or should be, higher than that for civil liability.  But for discussion purposes, Utah Code Ann. § 76-2-204(2), “high managerial agent” in a criminal case means:

(a)        A partner in a partnership;

(b)        An officer of a corporation or association; [or]

(c)        An agent of a corporation or association who has duties of such responsibility that his conduct reasonably may be assumed to represent the policy of the corporation or association.

The first two categories are usually easy to apply.  It is the third category that is fodder for litigation.  One relatively recent opinion by the Missouri Court of Appeals is illustrative.  Like Utah, Missouri requires the involvement or toleration of a “high managerial agent” in order to impose criminal liability.  Under Missouri’s statute, a high managerial agent is “an officer of a corporation or any other agent in a position of comparable authority with respect to the formulation of corporate policy or the supervision in a managerial capacity of subordinate employees,” Mo. Rev. Stat. § 562.056.3(2).

In State v. Community Alternatives Missouri, Inc., 267 S.W.3d 735 (Mo. Ct. App. 2008), a corporation was criminally prosecuted for neglect of residents in one of 30 nursing homes operated by the defendant.  It was alleged that a woman named Mary Collura had engaged in and knowingly tolerated the conduct in question.  Collura was the “lead staff person for two of the group homes,” a management position that included management of residents’ care, evaluation and discipline of employees, and the authority to write checks on behalf of residents and take residents to the doctor.  Id. at 737.

The defendant argued that Collura did not qualify as a high managerial agent because, regardless of her authority at the individual group home, she did not have authority to make company-wide policy:

Defendant’s argument regarding whether Mary Collura was a high managerial agent and whether the actions she took, or failed to take, occurred on behalf of defendant within the scope of her employment is directed to Ms. Collura’s status in defendant’s overall corporate structure.  Defendant contends it cannot be held liable because Mary Collura lacked corporate-wide authority and lacked authority comparable to a corporate officer within that structure.  [Id. at 744.]

The Missouri Court of Appeals rejected that argument.  Explaining that “[i]t is the function within a corporate structure that must be considered, not merely job titles,” id. at 745, the court found that Ms. Collura qualified as a “high managerial agent” based on her supervisory duties at the home, authority over local expenditures and communication with patients’ doctors, and the limited oversight of company officers.  See id. at 744-46.  Regarding the scope of her authority, the court held that a corporation could not avoid criminal liability for what occurred at one of its units merely because it operated multiple units:

A question this appeal presents is whether the definition of “high managerial agent” is to be applied differently with respect to corporations that operate numerous business units than to corporations that operate a single business unit.  Is a corporation that operates numerous business units shielded from criminal liability when the same conduct would subject a corporation with a single business unit to criminal liability?  This court thinks not.  [Id. at 745]

Collura’s authority at the group home was such that, if the home had been a single unit, the defendant could not have denied her status as a high managerial agent, the court noted.  Id.  Accordingly, it would not make sense to allow the same defendant to deny her status just because it owned more than one unit:

In this case, defendant operated many facilities, or business units, under a single corporate ownership.  Each business unit had personnel responsibility for the care of the residents at its facility.  This court does not perceive the legislative intent that fostered enactment of [the high managerial agent requirement] to have been to treat large corporations with numerous operating units different from those that operate a single or a few business units.

See also People v. Lanzo Construction Co., 726 N.W.2d 746 (Mich. Ct. App. 2006) (crew chief in charge of safety on job site qualified as a “high management official” under similar criminal responsibility standard); People v. Mejia Real Estate, Inc., 672 N.Y.S.2d 645, 647-48 (N.Y. Sup. Ct. 1998) (jury could find that real estate agent was high managerial agent under similar corporate liability provision).

UPUAA civil claims – is knowledge by a “high managerial agent” required?

In some ways, the Utah Pattern of Unlawful Activity Act is the same for criminal cases as in civil cases.  In other ways, the two are very different.

In a recent case we brought under the UPUAA, the defendant corporation argued that, even though it was a civil case, our clients were still required to establish certain elements of criminal responsibility from the Criminal Code.  In particular, the corporation argued that it could not be found liable in a UPUAA civil case unless a “high managerial agent” (not just an employee or lower-level agent) had knowledge of or tolerated the misconduct.

The corporation’s argument went like this:  If this were a criminal case, knowledge or participation by a high managerial agent would be required to get a conviction.  In a civil UPUAA case, a plaintiff has to prove the elements of one or more underlying criminal offenses (called “predicate” offenses.  For example, a common predicate offense in an UPUAA claim is Communications Fraud.)  Because the plaintiff has to show the elements of an underlying criminal offense, then the plaintiff should also have to show other requirements for a criminal conviction, such as the “high managerial agent” requirement.

The corporation’s argument was fairly easy to rebut.  First, it was contradicted by the Criminal Code itself, which expressly says that its provisions do not apply to civil claims.  In the introductory provisions of the Criminal Code, Utah Code Ann. § 76-1-107(3) states:

This act does not bar, suspend, or otherwise affect any right or liability to damages, penalty, forfeiture, impeachment, or other remedy authorized by law to be recovered or enforced in a civil action, administrative proceeding, or otherwise, regardless of whether the conduct involved in the proceeding constitutes an offense defined in this code.

The corporation’s argument had other problems as well.  For example, the statute upon which it relied, Utah Code Ann. § 76-2-204(2), applies only in prosecutions in which a defendant is subject to criminal sentencing.  The section addresses “criminal responsibility of corporation[s],” and says that “A corporation or association is guilty of an offense” when it has been recklessly tolerated, etc., by a high managerial agent.  Being found “guilty of an offense” triggers criminal sentencing.  Utah Code Ann. § 76-3-101(1) (“A person adjudged guilty of an offense under this code shall be sentenced in accordance with the provisions of this chapter”) (emphases added).  No criminal sentencing is at issue in a civil case.

An additional flaw in the corporation’s argument was that it disregarded the Criminal Code’s recognition that, even in criminal prosecutions, its general provisions do not apply if a different requirement is specified in a particular statute.  See Utah Code Ann. § 76-1-103(1) (“The provisions of this code shall govern the construction of, the punishment for, and defenses against any offenses defined in this code or, except where otherwise specifically provided or in the context otherwise requires, any offenses defined outside this code”).  (This, of course, is nothing more than a recognition of the settled proposition that, a more specific statutory provision always takes precedence over a more general statutory provision.  Taghipour v. Jerez, 2001 UT App 139, ¶ 10, 26 P.3d 885.)

Utah Code Annotated § 76-2-204(2)  says that, in criminal cases,

“A corporation or association is guilty of an offense when: . . . (2) The conduct constituting the offense is authorized, solicited, requested, commanded, or undertaken, performed, or recklessly tolerated by the board of directors or by a high managerial agent acting within the scope of his employment and in behalf of the corporation or association.”

Compare that to Utah Code Annotated § 76-10-1605(4), which says that, in civil cases under the Utah Pattern of Unlawful Activity Act, such a showing is required only if the plaintiff is seeking double damages:

“In all actions under this section, a principal is liable for actual damages for harm caused by an agent acting within the scope of either his employment or apparent authority.  A principal is liable for double damages only if the pattern of unlawful activity alleged and proven as part of the cause of action was authorized, solicited, requested, commanded, undertaken, performed, or recklessly tolerated by the board of directors or a high managerial agent acting within the scope of his employment.”

Under the plain wording of the UPUAA, therefore, all that claimants in a civil action need show to recover actual (single) damages is that the harm was caused by an agent acting within the scope of his employment or agency.             Interpreting the UPUAA as requiring a high managerial agent to have been involved in the unlawful activity for any damages award would render the first sentence of Subsection 76-10-1605(4) meaningless.  See also Williams General Corp. v. Stone, 632 S.E.2d 376 (Ga. 2006) (rejecting similar argument by the defendant in a civil case).

Finally, our interpretation was supported by legislative history.  When introducing a bill on the state senate floor amending UPUAA’s precursor (the Utah Racketeering Influenced and Criminal Enterprises Act), Senator David Schwendiman expressly noted this graduated corporate liability standard:

Insofar as corporations are concerned, if a corporation is involved, that corporation is not liable for double damages unless it can be proven that one of the high managerial agents or one of the partners or whomever actually sought to have the criminal conduct committed, or authorized it, or knew about it and condoned it.  Under the ordinary circumstances there would be actual damages available to a plaintiff when a corporation is involved in this type of conduct but there is no managerial agent who has sought to have a crime committed.

Sub. S.B. 145, 47th Leg., Morning Sess. (Feb. 20, 1987) (statement of Sen. Schwendiman).

There are some legal issues under the Utah Pattern of Unlawful Activity Act that could be close calls – this is not one of them.  A plaintiff in a civil case does not have to show knowledge or participation by a “high managerial agent” unless the plaintiff is seeking double damages.

If you come across interesting developments or issues involving the Utah Pattern of Unlawful Activity Act, feel free to e-mail us confidentially, kporter@chrisjen.com.