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Employers should take note of the Court of Special Appeals’ recent opinion in the case of Fidelity First v. Williams.[1]  In Williams, the Maryland Court of Special Appeals upheld a $220,000 judgment against a company for a wrong committed by the company’s employee.  The majority of that judgment, $150,000, represented an award of punitive damages.  Significantly, punitive damages are not designed to compensate a plaintiff for actual injuries.  Punitive damages are additional damages that may be awarded against a wrongdoer for egregiously bad conduct.  Under Maryland law, punitive damages may not be awarded unless the defendant has acted with “actual malice”.  The Williams case is noteworthy because the court found that the employee’s actual malice was sufficient to support a punitive damages award against the employer.

The defendant in the Williams case was Fidelity First Home Mortgage Company, Inc.  (“Fidelity First”).  Fidelity First was a mortgage broker.  It employed a number of loan officers who, among other things, assisted potential borrowers in connection with loan applications.

The incident at issue began in 2006.  The plaintiff responded to a solicitation by Fidelity First, and she was placed in contact with Fox, one of Fidelity First’s loan officers.  Fox told the plaintiff that he could assist her in refinancing her home.  What he actually did was to arrange for the plaintiff to sell her home to Dan, another loan officer who worked at Fidelity First.  Since there was equity in the home, the plaintiff received checks totaling over $70,000 in proceeds; however, Fox and Dan tricked her into signing the checks over to them.  The plaintiff continued to live in the home, believing she owned the property, until she was served with an eviction notice the following year.

Ultimately, the plaintiff sued the mortgage company, and put on evidence of the loan officers’ fraud.  The case was tried and the jury found in favor of the plaintiff on all counts.  The jury awarded $70,000.00 in compensatory damages and $150,000.00 in punitive damages.

Fidelity First appealed the verdict, including the jury’s award of punitive damages.  Fidelity First pointed out that a plaintiff must demonstrate actual malice in order to recover punitive damages.  It claimed that there was no basis for the punitive damages award because there was no evidence of malice on the part of the company.

The Court of Special Appeals disagreed.  According to the court, so long as an employee is acting within the scope of his employment, the employee’s tortious acts and the employee’s malicious state of mind will be imputed to the employer.  In this case, the court found sufficient evidence that Fox had acted within the scope of his employment, and that he had acted with actual malice.   Fox’s actual malice was sufficient to impose liability on the employer, and the court upheld the punitive damages award. 

Fidelity First has petitioned the Court of Appeals to review the decision, so this may not be the final word.  Regardless, employers would be well-advised to consult with counsel regarding their current employment policies and procedures.  By implementing certain steps, they may be able to minimize their liability exposure.

The foregoing is meant for general informational purposes only and does not constitute legal advice.  A party with specific questions relating to employment law should consult with an attorney for additional information.

[1] September Term, 2011, No. 726, filed November 27, 2012.

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