Title: Vanderhoof v. Cleary

State: vermont

Issuer: Vermont Supreme Court

Document:

Vanderhoof v. Cleary  (97-514); 168 Vt. 555; 725 A.2d 917

[Filed 24-Dec-1998]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 97-514

Ronald J. & Eva M. Vanderhoof	                  Supreme Court

                                                  On Appeal from
     v.		                                  Franklin Superior Court

James H. & Judith S. Cleary, Gear &	          November Term, 1998
Davis, Inc. and Christopher Davis, Esq.

David A. Jenkins, J.

       Stuart M. Bennett, Shelburne, for Plaintiffs-Appellants

       Thomas F. Heilmann of Heilmann, Ekman & Associates, Inc., Burlington,
  for  Defendant-Appellee

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       SKOGLUND, J.  The question presented is whether a shareholder of a law
  firm organized  under the Vermont Professional Corporation Act, 11 V.S.A.
  Ch. 3, is vicariously liable for the acts  or omissions of another
  shareholder of the firm.  Plaintiffs sued defendant Davis for damages 
  arising out of an allegedly defective title search done by an attorney in
  defendant's law firm.(FN1)  The  Franklin Superior Court granted Davis's
  summary judgment motion, and this appeal followed.   We affirm.  	

       The relevant facts as developed in the summary judgment record are not
  in dispute.   Defendant Davis and Allen F. Gear created a professional
  corporation in 1982 under the Vermont  Professional Corporation Act.  Both
  Davis and Gear were shareholders of the corporation.  Gear  died in 1991,
  and in 1994 the Vermont Secretary of State issued a certificate of
  dissolution of the  

  

  corporation (then known as Gear, Davis & Kehoe).   

       Plaintiffs began the present action in February 1996 against Gear &
  Davis Inc. and  defendant Davis individually, alleging that a title opinion
  produced by Gear in 1989 in connection  with the purchase of an apartment
  house in Fairfax failed to mention that state and local permits  were
  required for the multi-family apartment but had not been obtained, an
  omission that  subsequently resulted in substantial financial harm to
  plaintiffs.  The title opinion was signed  "Gear & Davis, Inc. by Allen F.
  Gear, Esquire."  Plaintiffs concede that they dealt almost  exclusively
  with Gear, who signed the title search for the subject property.  

       Defendant moved for summary judgment on grounds that plaintiffs' claim
  against him was  purely one for vicarious liability, since he was not
  involved in the allegedly defective title search.   Relying on the Vermont
  Professional Corporation Act, defendant argued that the Act protects a 
  shareholder of a professional corporation from personal liability for
  negligence committed by  another shareholder.  The court granted
  defendant's motion, and the present appeal followed.   

       Pursuant to 11 V.S.A. § 803, professional corporations enjoy the
  powers and privileges --  and are subject to the duties, restrictions and
  liabilities -- of other corporations, except where  inconsistent with the
  letter and purpose of the Professional Corporation Act.  The general
  purpose  of the Professional Corporation Act is set forth in 11 V.S.A. §
  813 as:  

     	making available to professional persons the benefits of the 
        corporate form for the business aspects of their practices, while 
        preserving the established professional aspects of the personal 
        relationship between the professional person and those he [or she] 
        serves.

  Under the Vermont Business Corporation Act, 11A V.S.A. §§ 1.01 - 20.1, a
  "shareholder of a  corporation is not personally liable for the acts or
  debts of the corporation except that he or she  may become personally
  liable by reason of his or her own acts or conduct."  11A V.S.A. §
  6.22.(b).

       Plaintiffs agree that their claim against defendant is limited to a
  theory of vicarious  liability, but they argue that the Professional
  Corporation Act must be construed in light of 

  

  Vermont's Code of Professional Responsibility, specifically Ethical
  Consideration (EC) 6-6, which  states: 

          A lawyer should not seek, by contract or other means, to 
     limit his individual liability to his client for his malpractice.  A 
     lawyer who handles the affairs of his client properly has no need to 
     attempt to limit his liability for his professional activities and one 
     who does not handle the affairs of his client properly should not be 
     permitted to do so.  A lawyer who is a stockholder in or is associated 
     with a professional legal corporation may, however, limit his liability 
     for malpractice of his associates in the corporation, but only to the 
     extent permitted by law.   

  EC 6-6 (emphasis supplied).  Plaintiffs read the EC 6-6 as a direct
  limitation on the protection  from vicarious liability afforded lawyers
  practicing law as a professional corporation under the  Professional
  Corporation Act.    

       Plaintiffs' argument fails.  We begin by noting that there is nothing
  inconsistent with the  protection from liability for shareholders in a
  corporation found in 11A V.S.A. § 6.22(b) and the  letter or purpose of the
  Professional Corporation Act.  Nor does the Professional Corporation Act 
  contain any provision that alters or affects the rights and privileges
  granted to a shareholder of a  corporation under the Vermont Business
  Corporation Act.(FN2)   Therefore, the protection found in  11A V.S.A. §
  6.22.(b) is available to shareholders in corporations incorporated under
  the Vermont  Professional Corporation Act.

       To support their contention that the Professional Corporation Act must
  be analyzed within  the context of the Code of Professional Responsibility
  and EC 6-6, plaintiffs rely on First Bank &  Trust Co. v. Zagoria,