Pediatric Neurosurgery, PC v. Russell

• Decision Date: 15 April 2002
• Docket Number: No. 00SC228.,00SC228.
• Citation: 44 P.3d 1063
• Parties: PEDIATRIC NEUROSURGERY, P.C., Petitioner, v. Christine RUSSELL and Uri Neil, as next friends of Michael Russell Neil, a minor, Respondents.
• Court: Colorado Supreme Court

44 P.3d 1063

PEDIATRIC NEUROSURGERY, P.C., Petitioner, v. Christine RUSSELL and Uri Neil, as next friends of Michael Russell Neil, a minor, Respondents.

No. 00SC228.

Supreme Court of Colorado, En Banc.

April 15, 2002.

Johnson, McConaty & Sargent, Craig A. Sargent, Glendale, Colorado, Attorneys for Petitioner.

Leventhal & Brown, P.C., Jim Leventhal, Natalie Brown, Anthony Viorst, Denver, Colorado, Attorneys for Respondents.

Kennedy & Christopher, P.C., John R. Mann, Denver, Colorado, Attorneys for Amicus Curiae Colorado Defense Lawyers Association.

Justice BENDER delivered the Opinion of the Court.

I. Introduction

In this case we determine the effect of section 12-36-134, 4 C.R.S. (2001) on the common-law corporate practice of medicine doctrine.¹ The plaintiffs, Christine Russell and Uri Neil as the next friends of Michael Russell Neil, sued defendant Pediatric Neurosurgery, a professional corporation, for medical negligence related to procedures performed on their son Michael as treatment for spina bifida. The trial court dismissed the case against the professional corporation on the grounds that under the corporate practice of medicine doctrine, a corporation may not be held vicariously liable for the negligence of a doctor.

The court of appeals reversed, holding that section 12-36-134 authorizes professional corporations to practice medicine and likewise be liable for the negligence of their physician employees. The court of appeals therefore remanded the case to the trial court to reinstate the plaintiffs' complaint against Pediatric Neurosurgery and to determine whether the professional corporation exercised control over the doctors. Russell v. Pediatric Neurosurgery, P.C., 15 P.3d 288 (2000).

We affirm in part and reverse in part. We hold that section 12-36-134 provides an exception to the corporate practice of medicine doctrine by permitting professional corporations to practice medicine and be liable for the negligence of physician employees. We also hold that under the two-prong test for liability under the theory of respondeat superior, the question of control applies only to the determination of whether an employer-employee relationship exists. When, as here, the corporation's C.R.C.P. 12(b)(5) motion to dismiss concedes that the alleged tortfeasor was its employee, the trial court need not inquire into whether the employer had a right to exercise control over the employee.

Thus, we remand this case to the court of appeals to return this case to the trial court to reinstate the plaintiffs' complaint against Pediatric Neurosurgery, P.C.

II. Facts and Proceedings Below

Michael Russell Neil was born with spina bifida, an incomplete closure of the spine. He was treated from the time of his birth, in 1981, until 1989 by first Dr. Robert Hendee and then his partner Dr. Edward McLeary. The plaintiffs allege that the doctors' negligent treatment of Michael's birth defect caused Michael to change from an incomplete paraplegic to a quadriplegic with some use of his upper extremities.

Dr. Hendee incorporated under the name of Pediatric Neurosurgery, a professional corporation, in 1983. At that time he was the sole shareholder and employee. Dr. McLeary joined Pediatric Neurosurgery as a shareholder and employee in 1986. Dr. Hendee retired in 1989 and Dr. McLeary continued to work for Pediatric Neurosurgery until his retirement in 1996.

The plaintiffs initially filed this suit only against the doctors individually. They subsequently amended their complaint to add Pediatric Neurosurgery, P.C., alleging that the professional corporation is vicariously liable for the negligent acts of its employees, doctors Hendee and McLeary, under the theory of respondeat superior.

Pediatric Neurosurgery filed a motion to dismiss under C.R.C.P. 12(b)(5), arguing that the negligence of a physician may not imputed to an employing corporation, "since the corporation is not permitted to practice medicine and cannot exercise any control over the physician's independent medical judgment." It also argued that section 12-36-134(1)(g), 4 C.R.S. (2001) provides that a professional medical corporation may only be statutorily liable for the acts of a physician when the physician does not carry liability insurance that meets the standards set forth in the statute. Because the doctors carried the minimum amount of insurance, Pediatric Neurosurgery is not liable for their actions.

The trial court granted Pediatric Neurosurgery's motion to dismiss. The court held that the corporate practice of medicine doctrine, as propounded by this court in Rosane v. Senger, 112 Colo. 363, 149 P.2d 372 (1944) and Moon v. Mercy Hospital, 150 Colo. 430, 373 P.2d 944 (1962), precludes a professional medical corporation from controlling the independent medical judgment of a physician and therefore from being liable for the torts of physician employees. The trial court also agreed with Pediatric Neurosurgery's interpretation of section 12-36-134(1)(g) and held that Pediatric Neurosurgery could not be held liable in this case because the doctors' insurance coverage met the minimum requirements of the statute.

On appeal, the court of appeals reversed the trial court, holding that section 12-36-134 allows professional corporations to practice medicine. However, that court held that liability under the theory of respondeat superior depends upon whether the corporation has the right to control the actions of the employee. Because the question of right to control is a question of fact, the court reasoned that on remand the trial court must determine whether Pediatric Neurosurgery had the right to control the actions of doctors Hendee and McLeary.

Finally, the court disagreed with the trial court's interpretation of section 12-36-134(1)(g). It held that the statute provides only that the shareholders of a professional medical corporation may not be held jointly and severally liable for the actions of a corporate employee when the physicians carry the minimum insurance required. It further held that subsection (1)(g) does not preclude the corporate entity from being held vicariously liable, despite the amount of insurance the doctors carry.

III. Analysis

A. Standard of Review

We review the trial court's dismissal of plaintiffs' case under C.R.C.P. 12(b)(5). We apply the same standards as the trial court and accept all pleadings of fact as true in the light most favorable to the plaintiff. Schoen v. Morris, 15 P.3d 1094, 1096 (Colo. 2000).

To answer the question presented, we initially discuss the history of the corporate practice of medicine doctrine and then consider whether section 12-36-134 abolishes the doctrine. Next we consider whether a professional medical corporate entity may be held vicariously liable for the torts of its physician employees. We then consider whether the court of appeals correctly held that the trial court should engage in a factual inquiry into whether the professional corporation had a right to exercise control over the actions of its physician employees when the corporation's C.R.C.P. 12(b)(5) motion to dismiss concedes that the doctors were its employees. Finally we address the contention of Pediatric Neurosurgery that subsection (1)(g) of section 12-36-134 precludes a court from imposing vicarious liability upon a professional medical corporation if minimum insurance requirements are met.

B. The Corporate Practice of Medicine Doctrine and Professional Corporations

As background, we begin with a brief review of the corporate practice of medicine doctrine. Until 1963, the corporate practice of medicine doctrine absolutely barred doctors in Colorado from practicing medicine through corporations. Rosane, 112 Colo. 363, 149 P.2d 372; Moon, 150 Colo. 430, 373 P.2d 944; R. Crawford Morris & Alan R. Moritz, Doctor and Patient and the Law 376-78 (5th ed.1971). The doctrine rests on the principle that only a person, not a corporation, may practice medicine because it is impossible for a fictional entity, a corporation, to perform medical actions or be licensed to practice medicine. Therefore, a corporation or employing entity may not interfere with a doctor's independent medical judgment. The corporate practice of medicine doctrine has historically been used by this court in cases such as Rosane and Moon to preclude hospitals from being held vicariously liable for the negligent acts of doctors.

The doctrine stems from a concern that corporations have distinct interests from those of doctors and that patients will receive inferior care if corporations have any control over physicians' medical judgment. Bruce A. Johnson, The Corporate Practice of Medicine: A Trap for the Unwary, 20 Colo. Law. 2503, 2503 (1991). It is presumed that allowing corporations to employ physicians will force physicians to sacrifice concerns for patient care for those of a corporation that is presumably most concerned with profits and shareholder satisfaction. Id.

The corporate practice of medicine doctrine has historically had the effect of requiring doctors to practice as sole practitioners or in partnerships. Under the dictates of the doctrine, doctors in Colorado generally have had independent contractor relationships with the corporations, such as hospitals, for whom they work. Allen Sparkman, Choice of Entity for Healthcare Professionals, 29 Colo. Law. 81, 81 (2000). Since 1995, hospitals in Colorado have been able to employ doctors under section 25-3-103.7(2), 8 C.R.S. (2001) (amendment effective July 1, 1995). However, section 25-3-103.7 explicitly provides that corporations may not control a doctor's independent medical judgment, and therefore does not entirely eviscerate the corporate practice of medicine doctrine. § 25-3-103.7(3), 8 C.R.S. (2001); G. Lane Earnest & Sarah E. Meshak, The Physician as the Hospital's Employee: S.B. 95-212, 24 Colo. Law. 2345, 2347 (1995).

C. Professional Medical Corporation Statute Section 12-36-134

We...