## Facts

- Mrs. Rouse was a client of a New Jersey law partnership that included Thomas E. Fitzsimmons and the defendant partners, including Pollard.
- Fitzsimmons persuaded Mrs. Rouse to liquidate securities and deliver the proceeds to him.
- Fitzsimmons represented he would receive the money as a representative of the firm and invest it safely, including by placing it on mortgage.
- Rather than investing the funds, Fitzsimmons converted them to his own use.
- The other partners had no knowledge of the transaction, did not authorize or ratify it, and did not participate in the scheme.
- The partnership’s business was the practice of law; it did not customarily accept client money to invest at the firm’s discretion and was not held out as providing investment or mortgage-placement services.
- The firm later dissolved; after Fitzsimmons’s embezzlement came to light, Mrs. Rouse sought to hold the former partners civilly liable for her loss.

## Issues

1. Whether Fitzsimmons’s receipt of a client’s money to invest was within the scope of the law partnership’s ordinary business such that the other partners were vicariously liable for his misappropriation.
2. Whether Fitzsimmons’s statement that he acted on behalf of the firm could create apparent authority, and thus partner liability, when the underlying transaction was outside the firm’s ordinary course of business.

## Decision

- The court held that receiving client funds for discretionary investment was not within the scope of the partnership’s business as a law firm.
- Because the transaction was outside the partnership business, the other partners were not liable for Fitzsimmons’s fraud and conversion.
- Fitzsimmons’s representation that he acted for the firm did not bind the partnership in a transaction beyond the ordinary course of the firm’s business.

## Legal Principles

- Partners are jointly liable for a partner’s fraud when the fraud is committed in a transaction within the scope and ordinary course of the partnership business.
- If the transaction is outside the partnership business, innocent partners are not liable for the wrongdoing partner’s misconduct arising from that transaction.
- Apparent authority does not extend to acts wholly outside the kind of transactions the partnership ordinarily conducts; a partner’s assertion that he acts for the firm cannot alone expand authority beyond the partnership’s business.

## Conclusion

The court refused to impose vicarious liability on innocent law partners for a partner’s misappropriation of client funds where the partner obtained the money for discretionary investment, an activity not shown to be an ordinary incident of the firm’s legal practice.


Rouse v. Pollard, 130 N.J. Eq. 204, 21 A.2d 801 (N.J. Ct. Err. & App. 1941)