The Fourth District Court of Appeal of Florida recently decided the case of HRB Tax Group, Inc. v. Florida Investigations Bureau, Inc., No. 4D22-2981 (4th DCA May 17, 2023), wherein it reversed the trial court’s order granting the plaintiff’s motion for leave to amend the complaint to add a claim for punitive damages against the defendant based on a theory of vicarious liability. The Fourth District found that the plaintiff failed to make sufficiently allege or proffer evidence to establish a reasonable basis for the recovery of punitive damages under Section 768.72(3), Florida Statutes against the corporate defendant, HRB Tax Group, Inc. (“HRB”).
The action arose from an alleged fraudulent investment which the corporate plaintiff made through a third party. The proffered evidence was that plaintiff was referred to the third party fraudster by one of HRB’s employees, who was an expert in investments and tax planning. HRB’s employee allegedly advised the plaintiff’s president to invest at least $250,000 with the third party. Further, it was alleged that HRB’s employee facilitated communications between the plaintiff and the third party using a personal email address, and her personal emails contained a signature line reflecting her HRB employment. It was alleged that, due to the employee’s influence and recommendation, the corporate plaintiff wired more than $250,000 to the third party’s bank account in Hong Kong, but never received any returns on the investment. Moreover, when the plaintiff requested that the money be returned, the requests were ignored by HRB’s employee and the third party, who absconded with the money.
The plaintiff’s original complaint alleged claims of fraud and negligence against HRB’s employee, a claim for civil conspiracy against HRB’s employee and the third party, and claims for vicarious liability and negligent supervision against HRB.
After the complaint was filed, the plaintiff learned that HRB’s employee had recommended the investment as part of a reciprocal referral program implemented by HRB’s managers. The plaintiff also learned that the involved employee was later terminated by HRB for violating company policies, including HRB’s policy against using personal email addresses to communicate with clients.
Based on this information, the plaintiff moved for leave to amend the complaint to assert a claim for negligence against HRB based on its reciprocal referral program. Thereafter, the plaintiff moved to amend and add a claim for punitive damages against HRB.
The trial court granted the plaintiff’s motion for leave. In doing so, the trial court partially relied on evidence relating to the direct negligence claim against HRB regarding the referral program. HRB appealed the order to the Fourth District.
In reversing the trial court, the Fourth District noted that section 768.72(1), Florida Statutes provides that “no claim for punitive damages shall be permitted unless there is a reasonable showing by evidence in the record by the claimant which would provide a reasonable basis for recovery of such damages.” Under section 768.72, a defendant may be liable for punitive damages if the defendant was personally guilty of intentional misconduct or gross negligence. In order to impute an employee’s conduct to his or her employer, a plaintiff must establish that the employee’s conduct constituted “intentional misconduct” or “gross negligence,” AND establish one of the following: (a) the employer, principal, corporation, or other legal entity actively and knowingly participated in such conduct; (b) the officers, directors, or managers of the employer, principal, corporation or other legal entity knowingly condoned, ratified, or consented to such conduct; or (c) the employer, principal, corporation or other legal entity engaged in conduct that constituted gross negligence and that contributed to the loss, damages, or injury suffered by the claimant.
The Fourth District found that the plaintiff’s proffered evidence relating to HRB’s maintenance of a reciprocal referral program did not establish any of the three bases for vicarious punitive liability, as there was no evidence proffered that HRB knew that the third-party would defraud the plaintiff and abscond with its investment, nor that its failure to vet the third-party participating in its reciprocal referral program rose to the level of gross negligence.
This decision reminds us of the high bar plaintiffs face in Florida to support a claim for punitive damages against a corporate defendant based on the conduct of the defendant’s employee.