Notary Bulletin

Employers May Be Liable for the Misconduct Of Their Notaries

This article originally appeared in Employment Relations Today, and has been reprinted with the permission of Wiley Publishing.

By Arthur F. Silbergeld and Dawn Irizarry

A recent decision by the Illinois Appellate Court might have national implications for employers who have employees acting as Notaries on their behalf. In Vancura v. Katris, the key issue was whether Kinkos was directly liable for damages resulting from its Notary employees notarization of a forged signature on a mortgage assignment. The court had to decide whether Kinkos was negligent in preventing the Notary employees misconduct.

The Notary employee in Vancura did not understand and did not adequately perform his duties as a Notary. He was unaware that his purpose as a Notary was actually to confirm that the person signing the document was the person he purported to be, a duty that cannot be fulfilled simply by matching the signature on a signed document with any signature found on an identification document. Moreover, supervisors were not trained in how to properly notarize a document or in what to look for in order to determine whether the Notaries were performing their duties properly. In fact, the manager in Vancura testified that he never actually observed his employees perform a notarization. The employees and managers lack of understanding in performing their jobs left Kinkos exposed to claims for negligence in properly training and supervising its Notary employee.

Employers Duty With Respect To Notary Employees And Agents
In order to hold any employer liable for an injury to a third party resulting from the negligent training or supervision of an employee, it must be established that the employer knew or should have known its employee behaved in a dangerous or otherwise incompetent manner, and that the employer, having this knowledge, failed to supervise the employee adequately, or take other action to prevent the harm. The Vancura court ruled that the loss from the notarization of a forged signature is a foreseeable risk resulting from an insufficiently trained or supervised Notary employee such that employers have an affirmative duty to ensure that the Notary understands and follows these notarial responsibilities. The court relied on the common principles of agency established under the Restatement (Second) of Agency Section 213, as well as the New Hampshire Supreme Courts decision in Cutter v. Town of Farmington, a case that involved allegations of negligence in the hiring, training, and supervision of public officers.

The Restatement (Second) of Agency Section 213, which has been widely cited by courts throughout the United States, sets forth three bases of liability that are pertinent to organizations employing Notaries or using Notaries as agents. The doctrine states that a person who conducts an activity through an agent is subject to liability for harm resulting from that activity if the person is negligent or reckless in:

  1. Giving improper or ambiguous orders or failing to make proper regulations;
  2. The employment of improper persons or instrumentalities in work involving risk or harm to others; or
  3. The supervision of the activity.

In Vancura, the negligent training cause of action effectively encompassed the first two paragraphs in this article. The negligent supervision cause of action reflected the third paragraph.

Negligent Training
Although Illinois has no mandatory education requirement for Notaries as part of the commissioning process, the court nevertheless held Kinkos liable for negligence after noting that Kinkos chose to train [its employees] and it showed no concern for whether its instruction did actually imbue its employees with their [Notary] duties under Illinois law. The court continued, Thus the weight of evidence indicates Kinkos had no regard for whether [Notary employee] understood his responsibilities and adhered to them. This is negligence.

A Notary employer faces liability for both incorrect instruction and failure to instruct. According to Restatement Section 213, The principal or master may be negligent in that he fails to use due care to give or in giving directions to the agent or servant as to the act to be done. . . . Such directions may be negligently given either because they contain misstatements or because, in view of what the employer should know concerning the capacities of the one employed, they are incomplete. Likewise, the directions may be negligent because the principal does not anticipate circumstances which he should realize are likely to arise.

In Vancura, the court affirmed the trial courts determination that the Notary did not understand his statutory and common-law responsibilities and, therefore, had been inadequately trained by the employer. Specifically, the Notary did not understand the responsibilities to positively identify document signers and secure the seal. Moreover, the employer affirmatively gave incorrect instructions concerning the proper standard of conduct in identifying a signer. The court said, Kinkos knew or should have known that [the Notarys] failure to positively identify persons requesting notarizations through pictorial identification and signature documents such as local drivers licenses would, sooner or later, permit fraud or forgery to occur.

When the purpose of notarization is to prevent fraud and forgery, adequate identification involves more than accepting a customers personal statement and signature exemplar.

Negligent Supervision
The court in Vancura concluded that Kinkos failed to satisfy the duty to adequately supervise its Notary employees. Employers should be aware of the additional obligations such a duty may impose. Vancura noted with disapproval that Kinkos made no attempt to supervise [the Notarys] practices and it helped [the Notary] store his Notary seal improperly. The court further noted, Kinkos did not instruct [the Notarys] supervisors about sound notarial practices or how to supervise an employee to ensure he or she was adhering to the basic rules of proper notarization.

The courts reference to Kinkos deficient acts is notable in several respects. First, if an employer offers Notary services to third parties, it assumes an ongoing duty to ensure that the Notary employees are competent and perform their Notary services properly. Second, an employer is obligated to instruct its managers and supervisors on sound notarial practices and/or on how properly to supervise a Notary employee to ensure that the Notary is adhering to basic rules of proper notarization.

The court concluded that Kinkos failed to satisfy that duty after noting that its managers did not monitor the conduct of its Notary employees on a routine basis or even through random auditing of their journals. Moreover, the court noted, even if a manager had been aware of the Notary employees practices, the manager still had no way of knowing what was or was not an acceptable practice because the managers had never received any instruction on those practices.

Liability Extends to Use of Independent Contractors
Although Vancura does not address the circumstance of independent-contractor Notaries, the case suggests that an employer has a duty to protect third parties from the potential harm attendant to the job of notarization regardless of whether the Notary is an employee or an independent contractor.

Although general agency law does not confer an affirmative duty on employers to train independent contractors, an employer may be liable under Restatement (Second) of Agency Section 213 if the employer entrusts a notarial service to an incompetent independent contractor.

Cutter demonstrates that an employer may be liable for failure to train under an agency theory. If fraud results from an improperly trained Notary independent contractor, the victim of the fraud will likely file a claim against the employer. Even if the employer ultimately prevails in defending against such claims, it would spend considerable time and energy, as well as financial resources, in order to have the case dismissed. Thus, Notary employers should adopt policies to ensure that their Notary independent contractors are adequately trained and properly performing their Notary services at all times.

Referencing Industry Standards for Proper Conduct
What is perhaps most significant about the Vancura decision is the extent to which the holding relies on an application of the standards set forth in the National Notary Associations Model Notary Act of 2002. The court relied on the standards set forth in the Model Notary Act with respect to what constitutes satisfactory evidence of identification, proper maintenance of a Notarys seal, and what constitutes consent of an employer to a Notary employees misconduct. The court reasoned that because the state statutes were silent on those issues, it was reasonable to look to industry standards to determine what is considered reasonable conduct by a Notary. In citing the Model Notary Act as a persuasive authority comparable to the American Institute of Laws Restatement (Second) of Agency and the American Bar Associations Model Business Corporations Act, the majority noted the expertise and representative breadth of the Acts drafters.

Compliance with a statutory or administrative requirement is merely evidence of having met a minimum standard of conduct and does not preclude a finding of negligence for having failed to follow professional codes or common-law requirements. If the statute is incomplete or a term is left undefined, a court may turn to the Model Notary Act, as it did in Vancura.

Accordingly, employers of Notaries should be familiar with the Model Notary Act, particularly if the employer provides Notary services in a state that has a fairly general Notary act or one that is limited in scope.

Steps To Reduce Liability Exposure
Employers of Notaries should take care to document that each Notary has been effectively trained, that supervisors understand notarial responsibilities, and that each Notary is complying with all statutory and common-law duties. An employer must maintain objective indicators of adequate training and supervision, including such items as certifications, test results, and journal records.

Provide Training for Notaries
Even though the court in Vancura did not specify what an adequate training program would consist of, the case provides some guidance to Notary employers. First, if an employer elects to provide in-house Notary training courses, it should engage a professional who is well versed in the applicable state-law statutes, as well as sound notarial practices in order to prepare training materials to ensure that they adequately convey the duties and responsibilities of a Notary.

Second, the training program should include objective indicators to show an employee mastered the training material. For example, the court indicated that training courses should incorporate a testing component to ensure that employees actually understand the materials being taught. In addition to a written question-and-answer section, the testing component should include a live simulation of the Notary process. Employees should be graded on this process and be required to repeat the process if they do not obtain a passing score.

Third, after the Notary employees have been trained, the employers should follow up periodically to determine whether the employees are actually performing their Notary duties properly.

In the alternative, employers should consider outsourcing the training portion to a reputable Notary training service, and then requiring its Notary employees to attend follow-up courses to ensure that they are up to date on the most recent developments in the industry.

Train Managers on Supervisory Duties
Although Vancura does not clearly define the extent to which an employer has a duty to supervise its Notary employees, the case provides direction for Notary employers. First, an employer is obligated to instruct its managers and supervisors on sound notarial practices and/or on how to properly supervise a Notary employee to ensure that the Notary is adhering to basic rules of proper notarization. Such basic rules of notarization include, but are not limited to, the following:

  • Carefully and positively identify each document signer.
  • Keep the Notary seal and journal in a safe place.
  • Keep a record or journal of all notarial acts.
  • Do not notarize a document if the document signer is not present at the time of notarization.
  • Do not lend a Notary seal and journal to anyone, not even the Notarys employer.

While this list is not exhaustive, it provides some guidance regarding what is expected of employers in order to satisfy their duty to supervise. A Notary employer would be wise to provide some form of training (through a reputable educator or Notary of indisputable credentials) on sound notarial practices to its managers. Further, employers should consider revising their review process for Notary employees by including random audits to determine whether the Notarys seal and journal are secure and to periodically observe the Notary employees while notarizing documents or monitor proper completion of journal entries to determine whether they are performing their Notary services properly.

Refer to Professional Sources for Guidance on Standards of Conduct
Vancura demonstrates that a states Notary statute may not provide all the guidance a Notary needs to thoroughly perform his or her duties. The court looked to the Model Notary Act to define what constitutes satisfactory evidence of identity and for the minimum characteristics an identification document should contain to identify a document signer when the Illinois Notary Public Act did not provide this direction. Therefore, employers should include instruction in widely held Notary best practices to guide Notaries in responsible conduct when statutes are unclear or fall short.

In a related and important development, The Notary Public Code of Professional Responsibility has emerged as an additional source of the standard of conduct owed by Notaries. The state of Hawaii recently adopted administrative regulations that expressly reference The Notary Public Code of Professional Responsibility in its entirety as defining the duties and standard of conduct for notaries. Similarly, the territory of American Samoa has formally adopted the ten guiding principles of The Notary Public Code of Professional Responsibility.

Conclusion
Setting a precedent for expanded Notary employer liability, the court in Vancura affirmed the finding of employer direct liability for negligent training and supervision based on common-law theories. Significantly, the court determined that an inadequately trained or supervised Notary employee poses the type of danger or risk of harm from which employers have a duty to protect third parties. Of additional importance to Notary employers, in defining the applicable standard of conduct for Notaries and Notary employers, the court looked beyond statutory language to available notarial professional codes and other common-law sources.

Arthur F. Silbergeld is a partner in the Los Angeles office of Bingham McCutchen LLP. His practice is devoted exclusively to representing employers in all facets of labor and employment law. He may be contacted at arthur.silbergeld@bingham.com. When this article was first published Mr. Silbergeld was a partner in the Los Angeles office of Proskauer Rose LLP. Dawn Irizarry is an associate in the Los Angeles office of Proskauer Rose LLP.

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