VFP Invs. I L.L.C. v. Foot Locker, Inc., Index No. 152153/2015, 10/22/15(Ramos, J.)

Respondeat Superior; Actual Authority; Apparent Authority; Authority by Estoppel; Aiding and Abetting Fraud; Negligence.

By Christopher Arcitio | Staff Writer

Plaintiff VFP, Invs. I L.L.C. (“Plaintiff”) is an asset-based lender to G3K Displays, Inc. (“G3K”). Defendant Foot Locker, Inc. (“Defendant”) is an athletic footwear and apparel retailer and receives its in-store marketing materials and other fixtures from G3K. Plaintiff’s auditor requested verification of eight invoices from G3K from Defendant’s Director of In-Store Marketing Kathleen Smith (“Smith”). Smith incorrectly confirmed the G3K invoices were outstanding and unpaid on two occasions. Relying on such information, G3K entered into a loan and security agreement with Plaintiff, who agreed to use G3K’s receivables as collateral for the loan. Later, Plaintiff sought confirmation on additional invoices owed to G3K. Again, Smith incorrectly confirmed that such invoices were outstanding and unpaid. G3K later sought a loan facility from lender MVC Financial Services, Inc. (“MVC”). As a condition for the transaction, MVC requested that G3K’s receivables with Defendant be audited. Defendant’s Vice President of Franchise Development Robert Rainier (“Rainier”) confirmed 68 invoices were outstanding and unpaid. Later investigations by Plaintiff revealed that G3K participated in a circular payment scheme designed to hide fraudulent creations of false invoices and titles to obtain loan advances.

Plaintiff commenced a lawsuit against Defendant seeking damages on six grounds: respondeat superior, liability based on actual authority, liability based on apparent authority, liability based on authority by estoppel, aiding and abetting fraud, and negligent supervision. Defendant moved to dismiss Plaintiff’s complaint for failure to state a legally cognizable cause of action for each claim. The Court ruled that the factual allegations set forth herein did not allege legally cognizable claims against Defendant and were therefore dismissed. First, Smith and Rainer’s verification of invoices did not constitute respondeat superior because the verification was not within their scope of employment titles with Defendant. Second, Defendant did not directly manifest consent toward Smith and Rainier to constitute liability based on actual authority. Third, Defendant’s did not express words or conduct towards Smith and Rainer to confer apparent authority, noting that Smith and Rainer’s email titles were insufficient to confer such authority. Fourth, Defendant’s silence on the transaction was insufficient to establish that Defendant intentionally, knowingly, or carelessly effectuated an understanding that the transaction was made by or for Defendant and, therefore, no authority by estoppel could be established. Fifth, Defendant did not have knowledge of the transaction, did not substantially assist Smith and Rainier to effectuate the transaction, or have a duty to Plaintiff to establish the requisite elements under the aiding and abetting fraud claim. Indeed, these facts are directly applicable to Plaintiff’s sixth cause of action of negligent supervision. Defendant simply did not owe Plaintiff a duty to provide information regarding G3K’s receivables. Accordingly, Plaintiff has failed to provide factual allegations to support each cause of the action allowing the Court granted Defendant’s motion to dismiss.

VFP Invs. I L.L.C. v. Foot Locker, Inc., Index No. 152153/2015, 10/22/15 (Ramos, J.).

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