Court of Appeals Considers Scope of Employer’s Duty of Supervision Over Employee

In Moore Charitable Foundation v. PJT Partners, the Court of Appeals considered the scope of an employer’s duty of supervision over its employee and whether a complaint sufficiently alleged that an employer was on notice of its employee’s propensity to commit fraud before the employee caused injury to the plaintiff. In a majority decision written by Judge Anthony Cannataro and joined by Chief Judge Wilson and Judges Rivera, Troutman and Nancy E. Smith of the Fourth Department (sitting by designation), the court reversed the Appellate Division, First Department and held that the parties to whom employers owe a duty of supervision include more than just the employer’s actual customers and that the plaintiffs adequately alleged a cause of action for negligent supervision and retention where the plaintiff was defrauded by an employee of the defendants while using his work email address and documents obtained in connection with his employment.

According to the complaint, the defendant investment bank and one of its divisions hired an employee to represent private equity fund managers interested in offering liquidity to their investors. The employee was initially successful and brought in a substantial amount of work for the defendants, but over time he allegedly engaged in “dangerous and destructive behaviors” while at work, including excessive high-risk trading from personal accounts, obsessively monitoring the performance of his investments, and “drinking to excess.” In 2014, the employee closed a deal earning the defendants a deal fee of $8.1 million. The employee allegedly intercepted the payment and diverted it to his own personal funds, which he later lost in connection with personal investments. When the defendants inquired about the missing payment, the employee lied and claimed that no payment would be received until after a “stub closing” was complete. The complaint asserts that the employee’s explanation was implausible and transparently false for a variety of reasons but that the defendants failed to challenge the employee’s explanation about the delayed payment at that time.