                               IN THE

    SUPREME COURT OF THE STATE OF ARIZONA
                        THOMAS KOPP, ET AL.,
                         Plaintiffs/Appellants,

                                  v.

              PHYSICIAN GROUP OF ARIZONA, INC., ET AL.,
                        Defendants/Appellees.


                         MELISSA ORNELAS,
                         Plaintiff/Appellant,

                                  v.

              PHYSICIAN GROUP OF ARIZONA, INC., ET AL.,
                        Defendants/Appellees.


                   MARIA JUDITH GONZALEZ, ET AL.,
                        Plaintiffs/Appellants,

                                  v.

              PHYSICIAN GROUP OF ARIZONA, INC., ET AL.,
                        Defendants/Appellees.


                         No. CV-17-0222-PR
                          Filed July 9, 2018

         Appeal from the Superior Court in Maricopa County
              The Honorable David M. Talamante, Judge
         Nos. CV2011-098899; CV2012-092733; CV2012-092734
                            REVERSED

     Memorandum Decision of the Court of Appeals, Division One
Nos. 1 CA-CV 16-0227; 1 CA-CV 16-0228; 1 CA-CV 16-0232 (Consolidated)
                          Filed June 8, 2017
                             VACATED
               KOPP V. PHYSICIAN GROUP OF ARIZONA
                         Opinion of the Court


COUNSEL:

H. Michael Wright, Lincoln M. Wright, Udall Shumway, P.L.C., Mesa; and
J. Robert Tolman (argued), Tolman Law Firm, Tempe, Attorneys for
Thomas Kopp, et al.

John J. Checkett (argued), James G. Bennett, The Checkett Law Firm, PLLC,
Scottsdale; and Kevin R. Myer, Campbell, Yost, Clare & Norell, P.C.,
Phoenix, Attorneys for IASIS Healthcare Corporation, IASIS Healthcare
Holdings, Inc., and IASIS Finance, Inc.

Stanley G. Feldman, Miller, Pitt, Feldman & McAnally, P.C., Tucson; and
David L. Abney (argued), Ahwatukee Legal Office, P.C., Phoenix,
Attorneys for Amicus Curiae Arizona Association for Justice/Arizona Trial
Lawyers Association

CHIEF JUSTICE BALES authored the opinion of the Court, in which VICE
CHIEF JUSTICE BRUTINEL and JUSTICES PELANDER, TIMMER,
BOLICK, GOULD, and LOPEZ joined.

CHIEF JUSTICE BALES, opinion of the Court:

¶1            Nearly seventy-five years ago, we held in DeGraff v. Smith that
a dismissal with prejudice is a judgment on the merits that carries
preclusive effect. 62 Ariz. 261, 269-70 (1945). We today hold that a
stipulated dismissal with prejudice of an agent-surgeon does not preclude
a party from asserting a claim against the surgeon’s principal for its own
independent negligence. This is true even when the independent
negligence claim requires proof of the surgeon’s negligence. This
conclusion comports with our more recent holding in Chaney Building Co. v.
City of Tucson that a stipulated dismissal does not trigger issue preclusion
because only issues that have been “actually litigated” may be precluded.
148 Ariz. 571, 573 (1986). Thus, we disavow our holding in DeGraff insofar
as that case and its progeny conclude that a stipulated dismissal with
prejudice “operate[s] as an adjudication that [the dismissed party] was not
negligent in the treatment of [the] plaintiff.” Torres v. Kennecott Copper
Corp., 15 Ariz. App. 272, 274 (1971).



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               KOPP V. PHYSICIAN GROUP OF ARIZONA
                         Opinion of the Court

                                      I.

¶2             Thomas Kopp, Melissa Ornelas, and Maria Judith Gonzalez
(collectively, “Plaintiffs”) underwent bariatric surgery performed by Dr.
Eric Schlesinger, M.D., at Tempe St. Luke’s Hospital. After experiencing
post-operative complications, Plaintiffs filed medical malpractice actions
against Physician Group of Arizona, IASIS Healthcare Corp., IASIS
Healthcare Holdings, Inc., IASIS Finance, Inc., and St. Luke’s Medical
Center (collectively, the “Hospital”) and Dr. Schlesinger. Plaintiffs’ cases
were later consolidated for discovery. Plaintiffs alleged Dr. Schlesinger was
negligent in his surgical care and the Hospital was both vicariously liable
for the doctor’s negligence and independently negligent in the
administration of its bariatric surgery program, including its hiring,
selection, and credentialing.

¶3             Plaintiffs entered into a settlement agreement with Dr.
Schlesinger, which required Plaintiffs to “dismiss with prejudice the
pending claims against” him and further “preclude[d] the [Plaintiffs] from
pursuing claims against the [H]ospital . . . based on a theory of vicarious
liability or respondeat superior,” although Plaintiffs could bring
“independent claims” against the Hospital. Additionally, the agreement
stated that “no past or present wrongdoing on the part of [Dr. Schlesinger]
is implied or should be inferred” from the settlement agreement. Pursuant
to the agreement, Plaintiffs dismissed with prejudice all claims against Dr.
Schlesinger and “any claims against any co-defendants for vicarious
liability,” but in their stipulation specifically reserved independent claims
against the Hospital.

¶4            The Hospital moved to dismiss most of the remaining claims,
arguing they were derivative of Dr. Schlesinger’s negligence. The trial
court agreed and dismissed with prejudice Plaintiffs’ negligent
credentialing, hiring, and supervision claims, although it noted that “[a]ny
independent negligence claims alleged against [the Hospital] survive the
settlement with Dr. Schlesinger.”

¶5             Affirming, the court of appeals stated that “[p]ursuant to both
the plain terms of the settlement agreement and Torres, the dismissal of
Plaintiffs’ negligence claims against Dr. Schlesinger preclude[s] Plaintiffs
from litigating [the Hospital’s] alleged liability as vicariously derived from


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                KOPP V. PHYSICIAN GROUP OF ARIZONA
                          Opinion of the Court

any alleged negligence of Dr. Schlesinger.” Kopp v. Physician Grp. of Ariz.,
2017 WL 2470826, at *3 ¶ 14 (Ariz. App. June 8, 2017) (mem. decision).

¶6            We granted review because this case presents recurring issues
of statewide importance. We have jurisdiction under article 6, section 5(3)
of the Arizona Constitution and A.R.S. § 12-120.24.

                                       II.

¶7          This case presents solely issues of law, which we review de
novo. See Frank R. v. Mother Goose Adoptions, 243 Ariz. 111, 114-15 ¶ 17
(2017) (“Questions of law and statutory interpretation are reviewed de
novo.”).
                                   A.

¶8             We first consider whether Plaintiffs’ negligence claims
against the Hospital are properly characterized as vicarious or
independent. Because “the surgery is a necessary component of any of
Plaintiffs’ theories” of liability, the Hospital seeks to characterize Plaintiffs’
claims as “derivative” and thus based on vicarious liability. Consequently,
the Hospital argues that Plaintiffs’ claims were properly dismissed because
“[i]n cases of derivative liability, a judgment or dismissal in favor of the
servant relieves the master of liability.” Chaney Bldg. Co., 148 Ariz. at 574;
see also DeGraff, 62 Ariz. at 266 (“[A] verdict in favor of the servant and
holding the master guilty of negligence relieves not only the servant but the
master from liability.”). We disagree.

¶9              Under the doctrine of respondeat superior, an employer is
vicariously liable for “the negligent work-related actions of its employees.”
Engler v. Gulf Interstate Eng’g, Inc., 230 Ariz. 55, 57 ¶ 9 (2012). Vicarious
liability results solely from the principal-agent relationship: “those whose
liability is only vicarious are fault free - someone else’s fault is imputed to
them by operation of law.” Wiggs v. City of Phoenix, 198 Ariz. 367, 371 ¶ 13
(2000); see also Restatement (Second) of Agency § 217B, cmt. c (Am. Law
Inst. 1958) (stating that “the liability of the [principal] cannot exist without
the liability of the [agent]”). Thus, we have often used “vicarious” liability
synonymously with “derivative” liability. See e.g., Chaney Bldg. Co., 148
Ariz. at 573-74; Degraff, 62 Ariz. at 264.



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                KOPP V. PHYSICIAN GROUP OF ARIZONA
                          Opinion of the Court

¶10            The Hospital and the courts below apparently reasoned that
a principal’s liability is “derivative” if a claim requires proof of the agent’s
wrongful acts. But that position conflicts with our case law, which
recognizes that derivative liability is no broader than vicarious liability: a
principal’s liability for an agent’s wrongful conduct that is imputed to the
principal by operation of law. See, e.g., Wiggs, 198 Ariz. at 371 ¶ 13.
Although Plaintiffs must prove Dr. Schlesinger’s negligence to establish the
causation and damages elements for their claims against the Hospital, those
claims are not properly characterized as vicarious liability claims. Plaintiffs
do not attempt to hold otherwise faultless defendants liable for Dr.
Schlesinger’s negligent surgical care, but rather assert that the Hospital
breached a separate duty of care in its administration of the surgery
program.

¶11            Indeed, Plaintiffs’ claims against the Hospital fall squarely
within the type of independent negligence claims this Court has previously
recognized. See, e.g., Fridena v. Evans, 127 Ariz. 516 (1980); Tucson Med. Ctr.
v. Misevch, 113 Ariz. 34 (1976). In Misevch, we explained that a hospital can
be held negligent “[i]f the medical staff [is] negligent in . . . supervising its
members.” 113 Ariz. at 36. We recognized in Fridena that the “true issue”
for claims of this type “is not . . . whether the hospital is vicariously liable
. . . but whether the hospital should be held liable on the theory of negligent
supervision.” 127 Ariz. at 518. This reflects that a hospital’s potential
liability under a negligent supervision, credentialing, or hiring claim rests
on the hospital’s alleged breach of its duty to monitor the “quality of
medical care furnished to patients within its walls.” Id. at 519.

¶12           Plaintiffs’ claims for negligent credentialing, hiring, and
supervision are based on the Hospital’s independent negligence and thus
were preserved in the settlement agreement with Dr. Schlesinger, which
released the Hospital only from claims based on vicarious liability. This
result comports with our case law, which recognizes that “[i]f there is an
independent ground for finding the principal liable, judgment can be
entered against him.” Torres, 15 Ariz. App. at 274 (quoting Restatement
(Second) of Agency § 217B, cmt. d (Am. Law Inst. 1958)); accord DeGraff, 62
Ariz. at 266.
                                     B.

¶13           The Hospital contends that even if Plaintiffs’ negligence
claims are based on its independent negligence, those claims are still barred

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               KOPP V. PHYSICIAN GROUP OF ARIZONA
                         Opinion of the Court

because “[a] dismissal with prejudice is an adjudication on the merits,”
DeGraff, 62 Ariz. at 269, thereby precluding Plaintiffs from litigating any
claims requiring proof of Dr. Schlesinger’s negligence. For that proposition
the Hospital relies on the court of appeals’ opinion in Torres. There, the
plaintiff sued a hospital for two counts of negligence under both respondeat
superior and negligent selection theories. 15 Ariz. App. at 273-74. The
plaintiff dismissed with prejudice the claim against the co-defendant
treating physician without determining his negligence. Id. at 274. Relying
on DeGraff, the court of appeals held that the plaintiff was collaterally
estopped from bringing the negligent selection claim because the doctor’s
negligence was “an essential element to [the hospital]’s liability under [the
negligent supervision claim],” and the issue of the doctor’s negligence had
“been adjudicated in his favor by the order of dismissal.” Id. at 274-75.

¶14           But Torres conflicts with our issue preclusion jurisprudence.
In Chaney Building Co., we explained that a dismissal with prejudice does
not, on its own, trigger issue preclusion:

      Collateral estoppel or issue preclusion is applicable when the
      issue or fact to be litigated was actually litigated in a previous
      suit, a final judgment was entered, and the party against
      whom the doctrine is to be invoked had a full opportunity to
      litigate the matter and actually did litigate it, provided such
      issue or fact was essential to the prior judgment.

      When an issue is properly raised by the pleadings or
      otherwise, and is submitted for determination, and is
      determined, the issue is actually litigated. However, in the
      case of a judgment entered by confession, consent or default,
      none of the issues is actually litigated. A judgment entered
      by stipulation is called a consent judgment, and may be
      conclusive, with respect to one or more issues, if the parties
      have entered an agreement manifesting such intention.

148 Ariz. at 573 (emphasis added) (internal citations omitted) (citing
Restatement (Second) of Judgments § 27 cmts. d, e (Am. Law Inst. 1982)).
Thus, Chaney Building Co. abrogated DeGraff and Torres to the extent those
cases suggest that a stipulated dismissal with prejudice is a judgment on
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               KOPP V. PHYSICIAN GROUP OF ARIZONA
                         Opinion of the Court

the merits for purposes of issue preclusion. (By contrast, “a judgment can
be ‘on the merits’ for purposes of claim preclusion even if it results from the
parties’ stipulation or certain pre-trial rulings by the court.” 4501 Northpoint
LP v. Maricopa County, 212 Ariz. 98, 102 (2006) (emphasis added).)

¶15            Here, issue preclusion does not apply because Plaintiffs’
claim against Dr. Schlesinger was not actually litigated, nor did Plaintiffs
agree that their settlement with him would preclude their independent
negligence claims against the Hospital. In fact, the settlement and dismissal
documents state just the opposite, expressly preserving those claims.
Furthermore, the parties’ agreement did not manifest an intent to
conclusively establish the doctor’s negligence or lack thereof – the
agreement stated only that “no past or present wrongdoing on the part of
[Dr. Schlesinger] is implied or should be inferred by” the settlement. Thus,
Plaintiffs are not barred from bringing their claims for negligent hiring,
credentialing, and supervision against the Hospital.

                                      III.

¶16            We vacate the court of appeals’ memorandum decision,
reverse the trial court’s Rule 54(b) judgment dismissing Plaintiffs’
independent negligence claims against the Hospital, and remand this case
to the trial court for further proceedings.




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