Violette v. Shoup
93 Daily Journal DAR 7563, 16 Cal.App.4th 611, 20 Cal. Rptr. 2d 358 (1993)
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Rule of Law:
Performing a mere favor for another, such as making a referral without being subject to any legal duty or right of control, does not create an agency relationship or an attendant legal duty of care.
Facts:
- Rod Violette, a sophisticated investor and tax professional, sought an aggressive tax shelter investment for the 1984 tax year.
- Violette and Richard L. Shoup, an independent life insurance agent, were social acquaintances.
- Violette asked Shoup if he knew anyone who sold aggressive tax shelters, as Shoup did not handle such products.
- As a personal favor, Shoup introduced Violette to Margaret Sciaroni, a financial planner Shoup had met at a seminar, without vouching for her competence or expecting a fee.
- After consulting with Sciaroni, the Violettes independently decided to invest $60,000 in Eagle Wind Partnerships, a high-risk private offering, after carefully reading a Private Placement Memorandum that detailed numerous substantial risks.
- The Violettes based their decision on their own review of the memorandum and a conversation with the partnership's accountant, not on any advice from Shoup.
- The Eagle Wind investment failed, resulting in a total loss for the Violettes.
- After the Violettes made their investment, Shoup received an unexpected payment of $2,400 from Sciaroni.
Procedural Posture:
- Rod and Helene Violette filed a complaint in San Mateo County Superior Court (a trial court) against Eagle Wind Partnerships and its principals.
- The Violettes later amended the complaint to name Richard L. Shoup and ManEquity, Inc. as defendants.
- Shoup and ManEquity moved for summary judgment against the Violettes' remaining claims of negligence and agency liability.
- The trial court granted the motion for summary judgment in favor of Shoup and ManEquity, finding they owed no duty to the Violettes.
- The Violettes (appellants) appealed the trial court's grant of summary judgment to the California Court of Appeal (an intermediate appellate court).
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Issue:
Does a person who, as a social favor, introduces an acquaintance to a financial planner create an agency relationship or owe a legal duty of care to that acquaintance regarding the financial planner's competence or the quality of a subsequent investment?
Opinions:
Majority - Kline, P. J.
No. A person who introduces an acquaintance to a financial planner as a social favor does not create an agency relationship or owe a legal duty of care regarding the investment. The chief characteristic of an agency relationship is the principal’s right to control the activities of the agent, which was entirely absent here. The undisputed facts show that Shoup was merely performing a favor for a social acquaintance; he did not offer investment advice, did not vouch for Sciaroni's competence, and was not subject to the Violettes' control. The Violettes were sophisticated investors who acknowledged reading and understanding the extensive risk disclosures before investing. The unexpected referral fee Shoup received after the investment was made does not retroactively establish an agency relationship that was not present at the time of the referral.
Analysis:
This case clarifies the distinction between a non-liable social favor and a legally cognizable agency relationship that imposes a duty of care. It reinforces the principle that the 'right to control' is the essential test for agency, preventing the imposition of liability on individuals who make casual referrals without any agreement, representation of expertise, or compensation arrangement. The ruling protects informal social and professional networks from the chilling effect of potential negligence liability for good-faith introductions. It establishes that an after-the-fact, unexpected payment for a referral does not, by itself, create a legal agency relationship.
