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§77.2 Circumstances When Principal is Not Liable for Acts of Agent

The Case:  Abshure v. Methodist Heathcare - Memphis Hospitals, 325 S.W.3d 98 (Tenn. 2010).

The Basic Facts: 
Plaintiffs sued Doctor and Hospital for medical malpractice, and non-suited the claims against the Doctor twice.  By then, the statute of limitations and repose for claims against Doctor had expired.  Hospital then moved for summary judgment, claiming that the only claims against it were for vicarious liability for the acts of Doctor and, since the claims against Doctor were barred the claims against Hospital should be barred.

The Bottom Line:
  • “It has long been recognized in Tennessee that a principal may be held vicariously liable for the negligent acts of its agent when the acts are within the actual or apparent scope of the agent’s authority.  It is also generally recognized that a plaintiff may sue a principal based on its vicarious liability for the tortious conduct of its agents without suing the agent.  Even where the agent’s conduct is the sole basis for the principal’s liability, the agent remains a ‘proper, but not a necessary’ party. Thus, a plaintiff is free to sue the agent, the principal, or both. This common-law framework is well-established in Tennessee law.” Id. at 105-06 (footnotes omitted).
  • “Notwithstanding the general rule permitting a plaintiff to file suit against the principal, the agent, or both, the courts have recognized that there are certain circumstances in which it would be improper to permit a plaintiff to proceed solely against a principal based on its vicarious liability for the conduct of an agent. The orderly development of the common-law in Tennessee has identified four such circumstances. These circumstances include: (1) when the agent has been exonerated by a finding of non-liability; (2) when the plaintiff has settled its claim against the agent; (3) when the agent is immune from suit, either by statute or by the common law; and (4) when the plaintiff’s claim against the agent is procedurally barred by operation of law before the plaintiff asserts a vicarious liability claim against the principal.” Id. at 106.
  • “The first common-law limitation to emerge in Tennessee regarding a plaintiff’s ability to pursue a vicarious liability claim against a principal appeared in D.B. Loveman Co. v. Bayless, 128 Tenn. 307, 160 S.W. 841 (1913).”  Id.
  • “In 2002, this Court restated the holding in D.B. Loveman v. Bayless as follows: ‘[a] principal may not be held vicariously liable under the doctrine of respondeat superior based upon the acts of its agent…when the agent has been exonerated by an adjudication of non-liability.’ Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d 338, 345 (Tenn. 2002). Thus, where ‘the injured party sue[s] the actual wrongdoer and los[es] the action on a merits determination, the judgment in that case preclude[s] the injured party from suing the merely vicariously responsible party, as his liability [is] purely derivative.’ 1 Lawrence A. Pivnick, Tennessee Circuit Court Practice § 5:16, at 537 (2010).” Id. at 107.
  • “Tennessee’s courts have recognized a second limitation on a plaintiff’s ability to assert a vicarious liability claim against a principal for the conduct of its agents. This limitation occurs when ‘the injured party extinguishes the agent’s liability by conferring an affirmative, substantive right upon the agent that precludes assessment of liability against the agent.’ Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d at 345. Alternatively, Tennessee courts have recognized that plaintiffs should not be permitted to pursue a vicarious liability claim against a principal when they have settled with the agent and have agreed not to pursue a claim against the agent. See, e.g., Tutton v. Patterson, 714 S.W.2d 268, 269, 271 (Tenn. 1986); Craven v. Lawson, 534 S.W.2d 653, 654, 656-57 (Tenn. 1976); Stewart v. Craig, 208 Tenn. 212, 218, 344 S.W.2d 761, 763 (1961); Olympia Child Dev. Ctr., Inc. v. City of Maryville, 59 S.W.3d 128, 134-35 (Tenn. Ct.App.2001); McGee v. Wilson Cnty., 574 S.W.2d at 747; see also Rankhorn v. Sealtest Foods, 63 Tenn. App. at 721, 479 S.W.2d at 652 (noting that this limitation does not apply to a plaintiff who nonsuited her claim against the agent who received no ‘satisfaction or recovery’).” Id. at 108.
  • “The third limitation on a plaintiff’s ability to assert a vicarious liability claim against a principal arises when the agent is immune from suit under the common law or by statute.”  Id.
  • “The most recent case involving the immunity limitation to vicarious liability claims is Johnson v. LeBonheur Children’s Medical Center. The case involved a medical malpractice claim against a Memphis hospital based on the acts of two physicians who were practicing at the hospital as part of the University of Tennessee College of Medicine’s resident training program. The hospital asserted, among other things, that it could not be held liable for the acts of the resident physicians because, as state employees, these physicians were immune from suit. Both the trial court and the Court of Appeals concluded that the hospital could be held vicariously liable for the acts of the resident physicians. Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d at 341-42.” Id. at 109.
  • “Responding to the hospital’s argument based on the resident physician’s immunity, this Court acknowledged that vicarious liability claims against a principal may be barred ‘when the right of action against the agent is extinguished by operation of law.’ Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d at 345. However, we concluded that the patient’s claims against the hospital were not extinguished by operation of law (the statutory immunity of the individual resident physicians) because the physicians’ employer was still subject to liability before the Board of Claims. Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d at 345-46. Even though the private hospital could not seek indemnification from the agents, we concluded ‘that a private hospital may be held vicariously liable under the doctrine of respondeat superior solely for the acts of a state-employed physician resident when that resident is…the agent…of the hospital.’ Johnson v. LeBonheur Children’s Med. Ctr., 74 S.W.3d at 346-47.”  Id.
  • “[The fourth exception involves] circumstances in which a plaintiff’s claim against an agent has been barred by operation of legal principles that do not involve either common-law or statutory immunity. Two of the[] cases [decided to date] dealt with the procedural bars associated with the statute of repose and the res judicata doctrine.” Id.
  • “[The first such case arose] [i]n 2008, [when] the Court of Appeals addressed a circumstance in which the plaintiff’s claim against an agent became barred by operation of a statute of repose. Huber v. Marlow, No. E2007-01879-COA-R9-CV, 2008 WL 2199827 (Tenn. Ct. App. May 28, 2008) (Tenn. R. App. P. 11 application voluntarily dismissed). The plaintiffs filed suit against the principal based on the principal’s own negligence. However, the plaintiffs failed to include in their complaint a vicarious liability claim against the principal based on the conduct of its agents. When the plaintiffs realized that the principal’s liability arose from the negligence of its agent, they attempted to amend their complaint to assert a vicarious liability claim against the principal. By that time, however, the statute of repose had run with regard to the claims that the plaintiffs could have asserted against the agent. The Court of Appeals held that the plaintiffs could not amend their complaint to add a vicarious liability claim against the principal because their claims against the agent had been extinguished by operation of law – the running of the statute of repose. Huber v. Marlow, 2008 WL 2199827, at *3-4.” Id. at 109-10.
  • “[In the second case,] Creech v. Addington, [the plaintiffs] claimed that they had been swindled in a complicated real estate investment scheme, sued numerous defendants, including a principal and its agents. While the complaint contained claims based on alleged misrepresentations by each of the defendants, it did not assert that the principal was vicariously liable for the misrepresentations of its agents. Creech v. Addington, 281 S.W.3d at 371-72 & nn. 10-11.  Eventually, the plaintiffs attempted to amend their complaint to add a vicarious liability claim against the principal. By that time, however, their claims against the agents had been extinguished by the doctrine of res judicata. Creech v. Addington, 281 S.W.3d at 371-72, 376-83. We concluded that the plaintiffs could not pursue their vicarious liability claim against the principal because the doctrine of res judicata had extinguished their claims against the agents by operation of law. Creech v. Addington, 281 S.W.3d at 376-383.”  Id. at 110.
  • “The decisions in Creech v. Addington and Huber v. Marlow reflect a fourth limitation on a plaintiff’s ability to assert a vicarious liability claim. This limitation arises when the plaintiff attempts to assert a vicarious liability claim against the principal after its right to assert a claim against the agent has become procedurally barred. It reflects one of the traditional policy reasons for refusing to permit a plaintiff to pursue a vicarious liability claim against a principal – plaintiffs should not be permitted to engage in an ‘encircling movement’ against the principal when they cannot pursue a ‘frontal attack’ on the agent.”  Id. (citations omitted).
  • “The decisions in both Creech v. Addington and Huber v. Marlow were heavily influenced by the fact that the plaintiffs did not assert a vicarious liability claim against the principal when they first filed suit, even though they  could  have….Thus,  the  procedural  limitation  on  the  plaintiff’s ability to pursue a vicarious liability claim against a principal recognized in Creech v. Addington and Huber v. Marlow is triggered only when a plaintiff belatedly attempts to amend its complaint to add a new vicarious liability claim against a principal after its claims against the agent have become barred by operation of law. The limitation does not apply in circumstances where the plaintiff has initially filed a vicarious liability claim against the principal, and the plaintiff’s claims against the principal’s agents are later extinguished by operation of law.” Id. at 111.
  • “We now apply these principles to the two bases of the Court of Appeals’ decision to affirm Methodist Hospital’s summary judgment. The court first reasoned that the Abshures’ second voluntary dismissal of their claims against Dr. Ogle was ‘the substantive equivalent of a covenant not to sue’ and, therefore, that the Abshures should be barred from suing the hospital under the ‘third instance’ of non-liability identified in Johnson v. LeBonheur Children’s Medical Center. Abshure v. Upshaw, 2009 WL 690804, at *9. We cannot concur with this conclusion. The limitation on a principal’s liability that arises ‘when the injured party extinguishes the agent’s liability by conferring an affirmative, substantive right upon the agent that precludes assessment of liability against the agent’ applies to settlements between the plaintiffs and agents. This record does not reflect that the Abshures reached a settlement with Dr. Ogle when they voluntarily dismissed their claims against him. To the contrary, it appears that the Abshures gratuitously dismissed these claims.”  Id. at 111-12 (footnote omitted).
  • “The  Court  of  Appeals  also  held  that  the  Abshures  should  not  be permitted to pursue vicarious liability claims against Methodist Hospital because their right of action against Dr. Ogle had been extinguished by operation of law. The court noted that both Tenn. R. Civ. P. 41.01(2) and the statute of repose in Tenn. Code Ann. § 29-26-116(a)(3) (2000) barred the Abshures from pursuing any claims against Dr. Ogle. While we agree that the Abshures’ claims against Dr. Ogle have been extinguished by operation of law, we do not agree that their vicarious liability claims against Methodist Hospital should also be extinguished. The Abshures filed a proper vicarious liability claim against Methodist Hospital before their claims against Dr. Ogle were extinguished by operation of law. Accordingly, the subsequent procedural bar of their claims against Dr. Ogle does not prevent the Abshures from pursuing their timely filed vicarious liability claim against the hospital.”  Id. at 112 (footnote omitted).
Recent Cases:  Lavoie v. Franklin County Publishing Company, No. M2010-2335-COA-R9-CV, 2011 WL 1884562 (Tenn. Ct. App. May 17, 2011) (settlement with employee released employer, even though plaintiff attempted to preserve claim against employer in the release of claims entered into between employee and plaintiff; employer was not party to that agreement and therefore the private agreement did not trump common law).

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The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

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