New York Court of Appeals Expands Potential Liability for Negligent Supervision and Retention of Employees

On June 13, 2023, the New York Court of Appeals decided that Wall Street bank PJT Partners, Inc. (“PJT”), could be held liable for failing to stop a former partner from defrauding The Moore Charitable Foundation (“Moore”) of $25 million through a fake investment scheme.  While this case may seem far removed from the average New York employee, it is crucial to understand the precedent this ruling could set for the future concerning proving negligent supervision and retention.  To highlight, on behalf of the Court, Judge Anthony Cannataro stated, “[A]an employer cannot avoid liability for negligent supervision and retention by shutting its eyes to the tortious practices and propensities of its employees—that is, by being doubly negligent.”

In 2013, PJT hired and gave significant authority to Defendant Caspersen to primarily start a new business line focusing on “fund recapitalization” work.  To achieve this goal for the company, PJT allowed Caspersen to solicit potential clients over the phone and email, use PJT’s brand name and resources to market these services, act as the primary or sole point of contact for clients during these deals, and finally PJT gave Caspersen access to virtual data rooms which held confidential documents related to any deals made.  While at the beginning of his employment, Caspersen was considered to be a high-performing employee, after a while, Caspersen began to show signs of “dangerous and destructive behaviors,” including, at one point in 2014, misappropriating an $8 million fee due to the PJT from a deal Caspersen handled on his own then proceeding to lie to PJT to cover up his theft.  Regarding Moore, Caspersen used his authority and access given to him by PJT to dupe Moore into investing $25 million into fictitious financial security and then embezzled Moore’s investment.

Moore then sued the PJT, alleging negligent supervision and retention of Caspersen.  Initially, the lower courts dismissed the claim as Moore was not a customer of PJT and lacked any special relationship to establish privity with PJT that would give rise to any duty of care.  While typically, to establish a prima facie case for negligence, the Plaintiff must show that Defendants owed them a duty of care, the Court of Appeals balanced various factors including, but not limited to, the reasonable expectations of parties and society generally.  After evaluating multiple factors, the Court of Appeals ultimately decided that a customer relationship or other privity was not a prerequisite to a negligent supervision or retention claim, relying on precedents established in cases involving an employer’s liability for physical injuries to an unrelated third party.

Following the Court’s finding of the potential for liability, they evaluated whether PJT knew or should have known of Caspersen’s propensity to commit fraud.  Moore then used Caspersen’s misappropriation of funds in 2014 and the implausible lies he told to PJT following that to show that a reasonable employer would have looked further into what occurred and did a thorough investigation into the matter.

If you believe you have a claim for negligent supervision and/or retention, please feel free to contact Borrelli & Associates, P.L.L.C., to schedule a free consultation through one of our websites, www.employmentlawyernewyork.com, www.516abogado.com, or any of our phone numbers: (516) 248-5550, (516) ABOGADO, or (212) 679-5000.