Risks of Umbrellaing

A recent court decision illustrates how an agency in an umbrella relationship with other agencies is able to successfully contractually wash its hands of liability for the actions and inactions of its subcontractors in the U.S. and abroad.

The Case
Jon and Trisha Smith filed suit in the United States District Court for the Northern District of Ohio against the adoption agency Island Coast International Adoption (ICIA) after they were unsuccessful in adopting twins from India. The Smiths waited several years for the adoption process to be completed and paid more than $20,000 to the agency. The Smiths filed suit seeking damages for breach of contract, fraud and intentional infliction of emotional distress.

In early 2004, the Smiths learned about the twins available for adoption in India and contacted ICIA. ICIA coordinated with International Families, Inc. (IFI), described in the court decision as ICIA’s “affiliated agency,” which was licensed to perform adoptions in India. The Smiths signed their contract with ICIA and paid three installments to ICIA totaling $3,750 plus a “country fee” of $20,500 which was forwarded to IFI. The “country fee” was used to cover the services performed by IFI as well as government and attorney costs in India.

The twins resided in an orphanage called Peace Home. Peace was licensed by CARA but its license expired in June 2004. IFI’s license with CARA had also expired and was not immediately renewed. In March 2005, Peace’s license was renewed, but its renewal was backdated to June 2004 because the license was valid for only one year. The license expired in June 2005. IFI was unable to process the adoption of the twins by June 2005.

Through 2004 and 2005, ICIA provided the Smiths with updates on the license renewal process, offered to allow them to switch countries and offered them a partial refund of the $3,750 that was paid to ICIA. The Smiths declined. The Smiths raised three claims against ICIA.

1. Breach of Contract Claim

The Smiths alleged that ICIA breached their contract because ICIA failed to properly coordinate the adoption process, and failed to accurately communicate with the Smiths and adoption officials in India. The Court disagreed and noted how the contract language did not support the Smith’s position. The contract included a description that ICIA’s fees may have covered coordination with foreign officials and with its foreign facilitator. According to the Court, “the plain language of this section clearly placed Plaintiffs on notice that Defendant would be working with others in India to complete the adoption. This only makes sense.” Further, the contract identified the specific services ICIA was required to perform which included, “locating the child, referring the child to the clients, and initiating the contact with the foreign orphanage and the affiliated agency.” Again, the Court found the contract clearly contemplated that Defendant would be working with other agencies in India and so ICIA’s coordination with them was both expected and appropriate.

The Smiths also argued that ICIA did not act in good faith when coordinating and communicating with IFI because ICIA did not have first-hand knowledge of the specific tasks undertaken by IFI and because IFI, not ICIA, was charged with coordinating the adoption process with Indian officials. In short, the Court stated, “Plaintiffs seek to blame Defendant for the failings of IFI, but Defendant had no contractual duty to deal directly with Indian officials. Nor do Plaintiffs allege, let alone show, that Defendant is responsible for any failure of IFI. There was no contract prohibition to subcontract services to Indian agencies or that Plaintiffs pre-approve working with those agencies. Indeed, contract language summarized above contemplated quite the opposite.” The Court ruled that there was no showing of lack of good faith. Rather, “[t]o the contrary, the evidence shows Defendant performed the services required by the contract and continuously acted in good faith, providing Plaintiffs with numerous updates on the status of the adoption.”

2. Fraud Claim

The Smiths alleged that ICIA made repeated misrepresentations about the status of the adoption process and its relationship with IFI. The Court found that ICIA sent several emails and made numerous phone calls to the Smiths (which satisfied two elements needed to establish a fraud claim), but the Smiths failed to show that ICIA’s statements were knowingly false or made with a reckless disregard for the truth or with the intent to mislead. Although ICIA passed along false statements to the Smiths, the Court pointed out that the Smiths had to prove not just falsity, but also actual knowledge or reckless behavior. According to the Court, ICIA “justifiably relied on statements made by IFI because of past dealings and successful adoptions. Defendant reasonably believed them to be true, even if they are eventually proven to be false.”

3. Intentional Infliction of Emotional Distress Claim

In order to recover for intentional infliction of emotional distress, a plaintiff in Ohio must establish several elements including “extreme” and “outrageous” conduct. The only “extreme and outrageous” conduct identified by the Smiths was that ICIA sent them pictures of the twins after the Smiths demanded that ICIA cease all contact with them. Although ICIA’s conduct may have “added, indeed aggravated, Plaintiffs’ disappointment,” the Court found that its actions fell significantly short of going “beyond all bounds of decency” or being “utterly intolerable.”

4. The Court’s Ruling

The Court granted ICIA’s motion for summary judgment on all three legal theories stating, “The Court recognizes there is much heartache that can accompany an unsuccessful adoption. Plaintiffs’ desire to be parents and raise children is clearly strong and commendable. However, there simply is no contract breach, fraud or intentional misconduct by Defendant who likewise wanted very much to bring these children in Plaintiffs’ lives.”

Important Facts Not Included in the Opinion

There is important background information that is not included in the Court’s opinion:

1. Peace Home’s licensing history

Peace’s license did not simply expire. According to a report by Sujata Mody from the Malarchi Women’s Resource Center in Chennai, “From Adoption Agencies and Institutional Practices in Tamil Nadu,” Peace was hurriedly issued a license by CARA at the behest of the Secretary of Social Welfare in 2003. The usual requirement is that an adoption agency must be registered for at least three years before it can be licensed to perform international adoptions.

Peace was inspected on October 10, 2002 and had five babies, one of which was a 13-day old infant for which there were no records. Authorities from the Department of Social Welfare observed that Peace had made insufficient efforts to identify Indian parents and had made insufficient efforts to match children with waitlisted parents. Despite this information, CARA licensed Peace on June 19, 2003.

Mody’s report also questioned the sourcing of children to Peace. She found that the number of relinquished babies at Peace were from almost every district and region in the state of Tamil Nadu. That fact is odd given that government-run cradles where infants can be abandoned anonymously are located in every district of Tamil Nadu. Despite the wide availability of these drop off locations, Mody questioned why parents arrived from geographically distant places to relinquish their babies to Peace.

There are several branches of Peace located in Tamil Nadu. In 2004, a branch was inaugurated in Kalapatti. Raman Rao was cited in a news article as the director of Peace Home and he indicated that the branch would shelter children between one week and seven years old in addition to destitute women. At the time of the article, 70 children were at the home, most of who came to the orphanage through the cradle baby scheme. In addition, it was claimed that many mothers left the children at the doorsteps at the home and fled. According to Mary Robert at the Coimbatore based Peace society, 75% of the 140 babies they had given for adoption were from the cradle baby scheme. The Kalapatti branch of Peace is still receiving abandoned infants.

According to a fact finding report issued by the Campaign Against Child Trafficking in 2005 entitled, "Fact-finding Investigation into the Functioning of Licenced and Recognised / Registered Adoption Placement Agencies and Regulatory Bodies in Tamil Nadu" a CARA inspection report, “Report of the Joint Inspection of Peace (Poor Economy and Children’s Educational Society) Home, Coimbatore, Tamil Nadu”, dated July 2, 2004, Peace had indulged in “unethical practices” and its “registration was not proper.” The report pointed out that most children from the agency were being sent to IFI in Washington DC whose executive director is Mrudula Rao, mother of the treasurer of Peace. E. Raman Rao, the treasurer’s father, donated most of the funds to the agency which is one such “unethical practice” cited in CARA’s report because most of the children were being sent to IFI. According to a Frontline investigative report of adoption agencies in Tamil Nadu, the 2004 CARA report included the following allegations against Peace:

• “The agency has tampered relinquishment deeds (surrendered directly to the Home), created false siblings, followed various unethical practices, i.e., giving wrong information about [some children in the agency at the time of the inspection].”


• “While siblings A[] and A[] were admitted at different times, the relinquishment deeds indicate that they were surrendered together.”


• “According to the relinquishment deed, Maheshwari and her sibling were surrendered by their widowed mother. But the inspection team found that Maheshwari’s father was alive; she was left there for better education; and the sibling she was paired with was actually not her brother.”


• “Several registers/records are not properly maintained.”


• “The registration of the Society is not proper.”


• “While more than 40 Indian parents have registered for children, the agency has not shown interest to complete home studies of the families.”
  

Despite CARA’s inspection report and an order to show cause issued to Peace that received no reply, CARA renewed Peace’s license in April 2005. Peace currently no longer has a license to perform inter-country adoptions.

2. Allegations about IFI

A visit to India-adoption related forums such as ichild and blogs will quickly confirm the long history of complaints about IFI similar to those raised by the Smiths. One mother writes on her blog in 2005:

Our agency isn’t at fault, really. Not directly, at least. They’re just too
passive. They’ve just accepted what the liason said and never questioned any of
it. This liason has a bad rap in the India adoption world – we knew this only
after we were knee-deep in the program and already in love with our little girl.
He is known for over-promising waiting families and not delivering – often
without refunding money invested by the waiting families. But we were assured
that he had never done anything negative in the years that he worked with our
agency and had, in fact, completed around 100 successful adoptions from India
with our agency. So we didn’t worry too much back then. Over the years, though,
our doubts grew. And now our doubts were confimed.

Despite its reputation and history of complaints, IFI received temporary Hague accreditation for a period of two years.

3. ICIA is not licensed by CARA. According to existing CARA guidelines, “a foreign social/child welfare agency desirous of sponsoring applications of foreign adoptive parents for adopting an Indian child shall make an application to CARA through the Office of Indian Diplomatic Mission in that country and only such foreign agencies enlisted for this purpose by CARA shall undertake this activity.”

Questions

1. Does CARA permit umbrella relationships such as that between ICIA and IFI?

2. Does ICIA or IFI have any accountability for charging a $20,500 “country fee” which is well above CARA’s guideline current maximum of $3,500?

3. Given the irregularities cited by CARA inspectors and reports by NGOs and investigative journalists about unethical practices at PEACE, what ethical responsibility did ICIA have to become aware of PEACE’s operations instead of relying solely on IFI’s statements along the way?

4. Did the unethical practices cited by CARA about PEACE, PEACE’s relationship with IFI, IFI’s long history of complaints from other families factor into its review for Hague accreditation?

Usha

Smith v. Island Coast International Adoption, Slip Copy, 2008 WL 839793 (N.D. Ohio March 27, 2008)

U.S. Department of States list of Accredited, Temporarily Accredited, and Approved Hague Adoption Service Providers as of April 15, 2008

CARA Guidelines, Rule 6.1 and List of Recognized Indian Placement Agencies in Tamil Nadu, as of April 20, 2008

“Baby girl abandoned in theatre,” The Hindu, November 28, 2007

"Adoption Agencies and Institutional Practices in Tamil Nadu: A Sociological Study”, Sujata Mody, Malarchi Women’s Resource Centre, Chennai, 2005

"Fact-finding Investigation into the Functioning of Licenced and Recognised / Registered Adoption Placement Agencies and Regulatory Bodies in Tamil Nadu", Campaign Against Child Trafficking, August 19, 2005

“The Adoption Market” by Asha Krishnakumar, Frontline, Vol. 22, Issue 11, May 21-June 3, 2005

“Behind the façade” by Asha Krishnakumar, Frontline, Vol. 22, Issue 11, May 21-June 3, 2005

AfrIndie Mum, blog post dated May 26, 2005

“Orphanage inaugurated,” The Hindu, April 6, 2004