National Union Fire Ins. Co. of Pittsburgh, PA v. Wuerth, Slip Opinion No. 2009-Ohio-3601
On July 29, 2009, the Ohio Supreme Court decided the case of National Union Fire Ins. Co. of Pittsburgh, PA. v. Wuerth. In National Union, the Court sought to resolve a certified question of state law from the U.S. Court of Appeals for the 6th Circuit. The precise question was:
"Under Ohio law, can a legal malpractice claim be maintained directly against a law firm when all of the relevant principals and employees have either been dismissed from the lawsuit or were never sued in the first instance?"
The Supreme Court said no. In response to the certified question, two points of Syllabus law were established:
1. A law firm does not engage in the practice of law and therefore cannot directly commit legal malpractice.
2. A law firm may be vicariously liable for legal malpractice only when one or more of its principals or associates are liable for legal malpractice.
While the certified question and its resolution have obvious importance to considerations of professional liability and legal malpractice, the decision by its terms has direct application to medical claims as well. Additionally, there is broad language in the decision that potentially affects any consideration of vicarious liability, where any principal might be held liable for the actions of its agent.
The Question in National Union
In National Union, a lawyer and his law firm were sued for legal malpractice. The individual attorney was sued for his alleged negligence, and his law firm was sued on the basis that it was vicariously liable for his negligence, as well as being directly liable to the client.
On summary judgment, the Federal District Court dismissed the individual attorney, finding that the case against him had been filed after the statute of limitations had expired. With only the law firm remaining as a defendant, the Court was confronted with the question of whether any cognizable claim remained against the law firm. The court ruled that the law firm could not be directly liable for malpractice, because a law firm does not practice law. The court also ruled that, since the individual lawyer had already been dismissed from the case, there was no claim for vicarious liability, since there was no agent remaining in the case upon which a finding of vicarious liability could be based. An appeal was taken, and the question was thus certified to the Ohio Supreme Court. The National Union Decision
The Court answered the question of direct liability of a law firm forthrightly, drawing the bright-line distinction that, since only lawyers can be licensed to practice law in Ohio, only lawyers can be held directly liable for legal malpractice. While there is some limiting language suggesting that law firms can be liable for things "other" than legal malpractice, it is not expected that this point of law will invite further issues. The practical reality emerging from this point is that, in order to allege liability against a firm or institution comprised of professionals, the individual professional must be named, and in a timely fashion. If not, the claim cannot be sustained.
Since the opinion makes an express analogy to the practice of medicine, there should be little question of its applicability to hospitals, and professional corporations and associations engaged in the practice of medicine.
But on the question of vicarious liability, there is some fairly sweeping language that should prompt a question whenever the issue of vicarious liability arises, regardless of whether it is framed in the professional context.
The question arises by the use of the terms "liable," or "liability." Black's Law Dictionary defines liability as "the quality or state of being legally obligated or accountable." Liability, therefore, can only be conferred by judgment. Any defendant or prospective defendant in a lawsuit is potentially or allegedly liable. Only those who have been thus adjudicated are actually liable.
In the Court's discussion of the vicarious liability issue, the following language, quoting and adopting the Restatement of The Law Governing Lawyers, concludes the majority opinion:
The drafters’ commentary emphasizes, however, that “[t]his Section sets forth the vicarious liability of a law firm and its principals. It presupposes that a firm principal or employee is liable on one or more claims * * * and considers when the firm itself and each of its principals share in that liability.” (Emphasis added.) Comment a. {¶ 26} Based on this authority, we hold that a law firm may be vicariously liable for legal malpractice only when one or more of its principals or associates are liable for legal malpractice. Accordingly, we answer the certified question of state law in the negative.
Applied to the facts in National Union, the Court held that the elimination of the individual lawyer’s liability by the statute of limitations, also eliminated a cognizable claim from being based on his actions, however negligent those actions may have been. Once his “liability” had been legally precluded, the ability to establish a finding of vicarious liability on those actions had been eliminated.
In other words, it is only actual liability of the agent upon which vicarious liability of the principal may be established. And, while there will be immediate attempts to limit the National Union case to either law firms or hospitals, those attempts will be met by the argument referenced from the Court immediately preceding the above language: "There is no basis for differentiating between a law firm and any other principal to whom Ohio law would apply" (emphasis added).
Thus, if the individual agent has a defense, such as the statute of limitations, the principal cannot be held liable on the basis of its agent's actions, because such a successful defense eliminates the prospect of liability by the agent. Once the agent's "liability" is eliminated, the principal can no longer be held liable unless there is the basis for direct liability. At least in the cases of law firms or hospitals, National Union has precluded the prospect of direct liability.
To be sure, there is language in National Union that can be argued to limit its holding, but it is tangential compared to the fairly bold statements above. This will invite some debate on the effect of National Union, as noted below.
The Next Step
There is an obvious next step. Any law firm or hospital, or professional association of lawyers or doctors of any kind, should examine whether they have been sued only in a direct capacity, without an agent being named. By the express terms of National Union, it is inevitable that motions challenging theories of vicarious liability will be launched, and we should expect to see trial and appellate courts grapple with these issues.
While we expect less controversy in the non-professional context, primarily for the reason that non-professional prinicpals and employers are not prohibited from engaging in their business directly, we still expect that the more prudently crafted lawsuit will name the individual agent or employee whenever possible, if only to avoid these issues.
Should you have any questions regarding this or other professional liability matters, do not hesitate to contact any of the following attorneys at Reminger Co. LPA.