On April 28, 2023, in a 4-3 decision, the Arizona Supreme Court ruled that a respondeat superior claim against an employer remains viable even if the underlying employee-claim is dismissed with prejudice for reasons unrelated to the merits of the respondeat superior claim. In Laurence v. Salt River Project Agric. Improvement & Power Dist., defendant Salt River Project Agricultural Improvement & Power District (SRP) argued that it could not be held vicariously liable for the actions of its employee driver because the trial court granted summary judgment in favor of the driver on the negligence claim. CV-21-0292-PR. By contrast, plaintiff Jacob Laurence argued that SRP could still be vicariously liable for its driver’s actions because summary judgment was granted for reasons unrelated to the merits of the negligence claim. In agreeing with Laurence, the Arizona Supreme Court overruled a substantial portion of its longstanding precedent in DeGraff v. Smith, 62 Ariz. 261 (1945) and undoubtedly expanded the potential exposure faced by employers in all aspects of civil litigation.

Background

Laurence and his minor son were involved in a motor vehicle accident with a truck owned by SRP and operated by SRP’s employee, John Gabrielson. Laurence alleged the accident was caused by Gabrielson’s negligence, and SRP was vicariously liable for his negligence under the doctrine of respondeat superior. Due to SRP’s status as a political subdivision of the State of Arizona, Laurence was required to file a claim against SRP and Gabrielson as a public employee within 180 days after the cause of action accrued pursuant to A.R.S. § 12-821.01. While Laurence filed a timely claim against SRP, he did not file a claim against Gabrielson until well after the 180 days had passed. Once Laurence filed his action in the trial court, Gabrielson moved for summary judgment based on Laurence’s failure to comply with A.R.S. § 12-821.01(A). The trial court granted the motion as it pertained to Laurence’s negligence claim against Gabrielson. SRP then moved for partial summary judgment against Laurence on his respondeat superior claim based on the dismissal of Gabrielson from the action. The trial court granted SRP’s motion, and the court of appeals affirmed. The Arizona Supreme Court reversed the partial summary judgment entered in favor of SRP and remanded it to the trial court for further proceedings.

The Arizona Supreme Court Ruling

The Court acknowledged that it was overruling a substantial portion of the DeGraff holding and its progeny to the extent that those cases foreclosed a respondeat superior claim if the employee-claim was dismissed with prejudice for any reason. Instead, the Court ruled that dismissal of a respondeat superior claim against an employer is not summarily required if the tort claims against the employee are not adjudicated on the merits. Now, courts must first determine whether dismissal of a claim against an employee is on the merits before precluding a respondeat superior claim against an employer. In that respect, the Court upheld the portion of DeGraff that requires dismissal of a respondeat superior claim against an employer when the employee is exonerated on the merits.

The Court’s Legal Analysis

A considerable portion of the majority opinion is devoted to justifying the Court’s refusal to invoke stare decisis in order to overrule DeGraff. The majority opines that DeGraff’s legal reasoning was clearly erroneous because it failed to explain why an employee’s dismissal with prejudice precluded pursuit of the separate respondeat superior claim against the employer. While the Court agrees with DeGraff in that a “dismissal with prejudice” is synonymous with an “adjudication on the merits,” it points to Rule 41(b) to support this proposition. The Court concludes that the dismissal of the employee-claims in DeGraff are governed by Rule 41(b), which codifies the types of dismissals that operate as an adjudication on the merits. The Court goes on to cite Rule 41(b) and case law interpreting its federal equivalent to support that such dismissals do not bar a separate claim against another party. Rather, they merely preclude a plaintiff from refiling the same claim in the same court.

The Court also concludes that DeGraff conflicts with Arizona case law that adopts the doctrine of respondeat superior. Specifically, Arizona recognizes that an employer is vicariously liable for its employee’s tortious acts, but the DeGraff holding improperly dispenses with the tortious acts component by requiring dismissal of the respondeat superior claim regardless of the reason for the dismissal of the employee-claims. In addition, the Court concludes that DeGraff is contrary to public policy because it places procedural rules ahead of an individual’s substantive rights.

One justice authored a concurring opinion, while three justices dissented. The dissent highlighted that the majority opinion overrode stare decisis and relied on conclusions from other jurisdictions that are contrary to Arizona’s jurisprudence on the topic. Specifically, the dissent pointed out that DeGraff’s abrogation will now require courts to differentiate the wide spectrum of case dismissals – from jury verdicts to court judgments to party settlements – in order to discern what embodies the majority’s definition of “adjudication on the merits” for the purpose of precluding a respondeat superior claim.

Takeaway

The Laurence decision is a clear victory for civil plaintiffs. Employers will be faced with many practical disadvantages while defending against claims that are entirely derivative of a non-party’s actions. This is especially true in cases where the employee no longer works for the employer and the employer had limited communications with the employee about the specific incident. Aside from the clear implications on employers, employees also are likely to be negatively impacted. Plaintiffs will be more inclined to disregard their procedural rights if they know any claims against the employer, oftentimes the more sought-after defendant with the deeper pockets, will remain viable. The Court briefly addressed this by stating that plaintiffs will be deterred from violating an employee’s procedural rights due to “the consequence of dismissal itself.” However, this defense ignores the practical outcome of the Court’s holding as shown by this case.