Harkness v. Platten

In determining the likelihood of success in the case underlying a malpractice case: a principal (Mortgage Brokerage) is not vicariously liable for the acts of their agent for acting with apparent authority by giving financial advice and brokering hard-money loans because the principal did not take an affirmative step giving that agent the appearance of such authority solely by giving the title of "loan officer" to the agent.

Plaintiff appealed a judgment for directed verdict favoring defendant. Plaintiffs brought a legal malpractice and negligent misrepresentation action against defendant for defendant’s representations to plaintiffs in a settlement negotiation. At trial, defendant moved for directed verdict, and the trial court held that plaintiffs would not have prevailed on their underlying action. In the underlying action, Kantor, a loan officer for Sunset, and later Directors, both mortgage brokers, induced plaintiff to an investment scheme whereby plaintiff financed hard-money loans to real estate developers with their home equity. After plaintiffs discovered Kantor’s fraud, plaintiffs retained defendant and sued Kantor, Sunset, and Directors. Plaintiff settled for significantly less than their damages. Plaintiffs then brought the present action against defendant, believing that they would have prevailed at trial had defendant not misrepresented their ability to later recover from the hard-money loan borrowers. The trial court granted directed verdict. Plaintiff appealed, and the Court of Appeals reviewed the motion for directed verdict. The Court held that plaintiffs could not bind Sunset and Directors for Kantor’s investment scheme because plaintiffs did not have an objective reason to believe that Kantor had authority to broker hard-money loans as a loan officer for a mortgage broker. The Court reasoned that because neither Sunset nor Directors provided plaintiff any information to believe that investment schemes and financial advice were part of Kantor’s employment, and further neither Sunset nor Directors had reason to believe that Kantor’s title would cause a third-party to believe Kantor’s authority to broker investment schemes. Affirmed.