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§19.3 Intracorporate Conspiracy Doctrine

The Case: Trau-Med of America, Inc. v. Allstate Insurance Co. , 71 S.W.3d 691 (Tenn. 2002).

The Basic Facts: Plaintiff sued Allstate saying that it was engaged in various practices designed to hurt its business operations. Among the claims alleged was civil conspiracy.

The Bottom Line:

  • "Finally, Trau-Med also alleges that Allstate Insurance Company, through its employees, representatives, agents, and attorneys, engaged in a civil conspiracy 'for the purpose of destroying [Trau-Med's] reputation, business and clinic.' Specifically, Allstate's agents purportedly conspired to deter attorneys representing indigent claimants from referring their clients to Trau-Med. First, Trau-Med asserts that a 'hit list' was circulated among Allstate's agents and employees, indicating those clinics, including Trau-Med, being targeted for destruction. Relying on this list, the insurance company's agents and employees conveyed to plaintiffs' attorneys that Allstate 'will get [Trau-Med],' or that Trau-Med is 'next,' with the design to deter these attorneys from referring their clients to Trau-Med. The result has been the destruction of Trau-Med's business. In response to these allegations, Allstate argues that the claim fails because it does not allege the requisite plurality of legal actors necessary for a finding of conspiracy." 71 S.W.3d at 702.
  • "An actionable civil conspiracy is a combination of two or more persons who, each having the intent and knowledge of the other's intent, accomplish by concert an unlawful purpose, or accomplish a lawful purpose by unlawful means, which results in damage to the plaintiff. See Brown v. Birman Managed Care, Inc., 42 S.W.3d 62, 67 (Tenn. 2001) (citing Dale v. Thomas H. Temple Co., 208 S.W.2d 344, 353 (Tenn. 1948)]). Upon a finding of conspiracy, each conspirator is liable for the damages resulting from the wrongful acts of all co-conspirators in carrying out the common scheme. Id." Id. at 703.
  • "It has long been accepted in Tennessee that a corporation is capable of extra-corporate conspiracy; that is, a corporation becomes vicariously liable for the conduct of its agents who conspire with other corporations or with outside third persons. See, e.g., Standard Oil Co. v. State, [100 S.W. 705, 716-17 (Tenn. 1907)]. However, where each alleged co-conspirator is an agent or employee of the same corporate entity and is acting on the corporation's behalf, the conspiratorial liability of that corporation becomes less clear." Id.
  • "Courts in other jurisdictions-both federal and state-that have addressed issues involving civil intracorporate conspiracy allegations have adopted the 'intracorporate conspiracy immunity doctrine' to hold that wholly intracorporate conduct does not satisfy the plurality requirement necessary to establish an actionable conspiracy claim.FN6 This single entity view of intracorporate conduct derives from traditional principles of agency law. A basic principle of agency is that a corporation can act only through the authorized acts of its corporate directors, officers, and other employees and agents. Thus, the acts of the corporation's agents are attributed to the corporation itself. 'The two are not one and another. So merged are their identities, when the agent is acting for the corporation (the only way it can act at all[)], that the one may not be an accessory of the other.' Haverty Furniture Co. v. Foust, [124 S.W.2d 694, 698 (Tenn. 1939)] (citations omitted). Because the law requires two or more persons or entities to have a conspiracy, a civil conspiracy is not legally possible where a corporation and its alleged co-conspirators are not separate entities, but instead stand in a principal-agent relationship. See 16 Am. Jur. 2d Conspiracy § 56 (1998).
    FN6 See, e.g., Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 770-71 (1984) (applying the doctrine in the antitrust context and holding that a parent corporation and its wholly owned subsidiary are incapable of conspiring under Section 1 of the Sherman Act);Hills & Dales Gen. Hosp., 40 F.3d at 839-41 (applying the doctrine in the context of civil rights) (citing Hull v. Cuyahoga Valley Joint Vocational Sch. Dist. Bd. of Educ., 926 F.2d 505, 510 (6th Cir. 1991)); Renner v. Wurdeman, 434 N.W.2d 536, 542 (Neb. 1989) (''A corporation cannot conspire with an agent when that agent is acting within the scope of his authority.'' (citation omitted) (emphasis in original)); Collins v. Union Fed. Sav. & Loan Ass'n, 662 P.2d 610, 622 (Nev. 1983) ('Agents and employees of a corporation cannot conspire with their corporate principal or employer when they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage.'); Gray v. Marshall County Bd. of Educ., 367 S.E.2d 751, 752 (W. Va. 1988) ('A corporation, as a single business entity, acts with one "mind" and the unilateral acts of a corporation will not satisfy the requirement of a [conspiracy].')."
    Id .
  • "We recognize the rule expressed by this doctrine as a sound one, and consequently, we hold that there can be no actionable claim of conspiracy where the conspiratorial conduct alleged is essentially a single act by a single corporation acting through its officers, directors, employees, and other agents, each acting within the scope of his or her employment.FN7 The acts of these representatives, if performed within their representative, agency, or employment capacities on behalf of the corporation, are attributed to the corporation. See Forrester v. Stockstill, 869 S.W.2d 328, 334-35 (Tenn. 1994). As long as the agent is acting within the scope of his or her authority, the agent and the corporation are not separate entities and cannot be the sole parties to a conspiracy. See, e.g., Day v. General Elec. Credit Corp., 546 A.2d 315, 318-19 (Conn. App. Ct. 1988). Indeed, it is this 'scope of employment' exception that prevents the intracorporate conspiracy immunity doctrine from being applied too broadly and thereby immunizing all private conspiracies from redress where the actors coincidentally were employees of the same company. See Johnson v. Hills & Dales Gen. Hosp., [40 F.3d 837, 840 (6th Cir. 1994)]. Therefore, for a claim of intracorporate conspiracy to be actionable, the complaint must allege that corporate officials, employees, or other agents acted outside the scope of their employment and engaged in conspiratorial conduct to further their own personal purposes and not those of the corporation. See, e.g., Renner v. Wurdeman, 434 N.W.2d 536, 542 (Neb. 1989).
    FN7 Although not discussed by the parties, we acknowledge that this Court has expressed, albeit in dicta, a different view in Standard Oil Co. v. State. However, there are important and distinct factual differences between the two cases. First, unlike in the present case, the conspiracy at issue in Standard Oil Co. involved a corporation and an individual unaffiliated with that corporation, thereby satisfying the requisite plurality of parties necessary for an actionable claim of conspiracy. Moreover, Standard Oil Co. involved charges of criminal conspiracy. Because the case presently before us involves allegations of civil conspiracy, we leave for another day the decision of whether to apply the intracorporate conspiracy immunity doctrine in the criminal context."
    Id . at 703-04.
  • "In the present case, the Court of Appeals upheld Trau-Med's claim for civil conspiracy, maintaining that 'under a proper set of facts,' the corporate individuals could be held liable for conspiring to further their own individual interests. We disagree and conclude that the plaintiff has not made sufficient allegations to support a claim of civil conspiracy. Although a complaint 'need not contain in minute detail the facts that give rise to the claim,' the complaint must at least 'contain allegations from which an inference may fairly be drawn that evidence on these material points will be introduced at trial.' Donaldson v. Donaldson, 557 S.W.2d 60, 61 (Tenn. 1977). Furthermore, '[t]here is no duty on the part of the court to create a claim that the pleader does not spell out in his complaint.' Id. at 62 (citing Clark v. National Travelers Life Ins. Co., 518 F.2d 1167 (6th Cir. 1975))." Id. at 704.
  • "Trau-Med's complaint alleges that Allstate, as a corporation, conspired with its employees, representatives, agents, and attorneys. Excluding, for the time being, the alleged involvement of the attorneys in the conspiracy, we focus our attention on the alleged conspiratorial conduct of the corporate employees. In this case, the plaintiff does not even intimate, much less expressly allege, in the complaint that the corporate agents involved in conspiratorial conduct were acting outside the scope of their employment or that they were pursuing their own personal objectives. To the contrary, the complaint specifically avers that Allstate, with its employees and agents, 'devised a scheme . . . to limit access to health care for injured persons in Memphis and Shelby County, Tennessee, and thus control and limit their claims expenses.' This fact, even when viewed in a light most favorable to Trau-Med, demonstrates that the employees or agents were not acting to advance their own personal interests, but were acting in the course of their duties with the primary intent to further the corporation's interests." Id. at 704-05.
  • "Proof of the existence of a conspiracy must therefore be found, if at all, in the alleged conspiratorial conduct between Allstate and the attorneys hired to defend the insureds. As we have explained in Givens, the attorney-client relationship in this situation is between the attorney and the insured. The attorney is generally characterized as an independent contractor who represents the insured, not the insurer. The insurer has no legal right to control the independent professional judgment of the attorney whom it hires to defend the insured." Id.
  • "However, in this case, Trau-Med alleges that Allstate exercised actual control over the attorneys hired to defend the insureds by directing them to file defamatory motions. Presuming all factual allegations to be true, the attorneys did not act 'with that independence which was required of [them] as counsel and as [officers] of the court,' cf. Doherty v. American Motors Corp., 728 F.2d 334, 343 (6th Cir. 1984), but instead, the attorney became an agent of the corporation, acting at the direction, and on the behalf, of the insurer with the primary intent to further the interest of the corporation. Because all acts of the corporation's agents are attributed to the corporation itself, the intracorporate conspiracy immunity doctrine applies in this case. Consequently, we reverse the judgment of the Court of Appeals on this issue and dismiss Trau-Med's civil conspiracy allegations for failure to state a claim upon which relief may be granted." Id.

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The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

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