Personal Liability of a Principal in a Professional Corporation Limited to the Principal’s Tortious Conduct
BCC Partner and Chair of BCC’s Litigation Practice Group, Robert F. Parker, recently obtained a summary judgment in favor of a client concerning the question of whether a principal of a professional corporation could be held personally liable when the actions complained of were not performed under the principal’s direction and control. The court’s holding in the case, was that, just as in a regular corporation, a principal in a professional corporation can only be held individually liable to the extent he personally participated in the tortious conduct.
Indiana’s Professional Corporations Act provides as follows, in pertinent part in I.C. § 23-1.5-2-6:
(a) An individual who renders professional services as an employee of a professional corporation is liable for any negligent or wrongful act or omission in which he personally participates to the same extent as if he rendered such services as a sole practitioner.
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(e) An individual who renders professional services as an employee of a professional corporation is liable for the conduct of other employees of the professional corporation under his direction or control to the same extent a sole practitioner would be so liable.
The designated evidence in this particular case showed that the individual Defendant, the principal of the professional corporation, did not directly control, perform, participate or supervise the work of the employee in the upgrade of a client’s software program. The software allegedly malfunctioned, and the client sued the professional corporation, also naming the principal individually.
BCC filed a motion for summary judgment on the issue of the principal’s individual personal liability, contending that he had no personal involvement in the upgrade, and that the mere fact that he employed the person responsible for performing the work was not the type of “direction and control” which produced liability under the statute. It was undisputed that the Principal did not perform the work, nor did he direct or control the manner in which the employee accomplished the installation. The only remaining question was the proper legal interpretation of the above provisions of the Professional Corporation Act.
The seminal case in Indiana on this issue is Birt v. St. Mary Mercy Hospital of Gary, Inc., 175 Ind. App. 32, 39 370 N.E.2d 379, 383 (1977) (affirming summary judgment for physician shareholder in professional medical corporation in action based on vicarious liability for professional negligence of corporation’s employees). In Birt, a patient brought an action for medical malpractice. The trial court granted summary judgment in favor of the individual non-treating defendant physicians who had been associated with the treating physician in a medical professional corporation, and the patient appealed. The Court of Appeals affirmed, holding that no vicarious liability could be imposed upon a stockholder, director, officer, or employee of a medical professional corporation for the tort of a physician employee merely because of the corporate association under the Indiana Medical Professional Corporations Act, specifically, the Court held that:
The IMPCA manifests legislative intent that medical professional corporations be imbued with as many of the attributes of general corporations as may be, without destroying the traditional professional relationship between physician and patient. We conclude that neither the express language of the statute, nor the qualification purpose of maintaining strong professional relationships require importation of the partnership doctrine of vicarious liability into the professional corporate arena. Plainly general corporate concepts preclude it. Accordingly we hold that no vicarious liability arises solely from association under the IMPCA.
175 Ind. App. at 43, 370 N.E.2d at 385.
Applying the reasoning and ruling of the Birt case, the court similarly ruled in this recent case that vicarious liability for the professional malpractice of the employee could not be imposed individually on the professional corporation’s principal merely because he was a principal of the professional corporation who employed the employee performing the software upgrade. Without direct involvement on his part, or his direction and control of the employee in the manner in which she performed the work, the principal of the professional corporation had no personal liability if the work was performed negligently.