Opinion ID: 568512
Heading Depth: 2
Heading Rank: 2

Heading: APIE's Liability for Dr. Eades' Actions

Text: 10 The first question presented is whether Dr. Eades' actions against Dr. Kiepfer--firing him from CVA and conducting a campaign to choke off his referral practice--may be charged against APIE. Those actions might be charged to APIE if, for instance, Dr. Eades were the agent of APIE, or if APIE authorized or ratified Dr. Eades' actions. To determine the extent of APIE's liability for the actions of the chairman of its board of directors, this Court must look to Texas law. 11 The Texas Insurance Code does not contain any provision relating to whether the directors of a reciprocal insurance exchange are agents of the exchange. Accordingly, the question of Dr. Eades' agency must be resolved by resort to the provisions of the Texas Business Corporation Act. 1 Those provisions and the cases interpreting them make clear that a single director of a corporation, even if he is the chairman of the board of directors, cannot by himself bind that corporation unless he is 1) acting within the course and scope of his duties as director, or 2) his actions are authorized or ratified by the board. 12 Article 2.02 of the Business Corporation Act sets forth the general powers of a corporation, but provides that 13 [n]othing in this Article grants any authority to ... directors of a corporation for the exercise of any of the foregoing powers.... Authority of ... directors to act beyond the scope of the purpose or purposes of a corporation is not granted by any provision of this Article. 14 Texas Bus.Corp.Act art. 2.02(B). Moreover, the Texas cases have long held that only officers and agents of a corporation--not individual directors--have the authority to act for the corporation, and then only as to routine matters arising in the ordinary course of business. See Texas Bus.Corp.Act art. 2.42(B) (Vernon 1980). For instance, while the president of a corporation has authority to bind her corporation in routine matters arising in the ordinary course of business, Capital Bank v. American Eyewear, Inc., 597 S.W.2d 17, 20 (Tex.Civ.App.--Dallas 1980), directors of a corporation must sit as a board in order to constitute valid corporate action; the board may exercise its powers only as a body at a meeting duly assembled and conducted. Curtis v. Pipelife Corp., 370 S.W.2d 764, 767 (Tex.Civ.App.--Eastland 1963). Thus, [i]ndividual action by a director ordinarily cannot bind the corporation. American Bank & Trust Co. v. Freeman, 560 S.W.2d 444, 446 (Tex.Civ.App.--Beaumont 1977). Similarly, the Fifth Circuit has explained that 15 a director exercises his office only through the collective action of the board of which he is a member and ... has no individual power of action as does an officer who is usually elected or appointed to perform specific duties as agent of the corporation by the board of directors. 16 FDIC v. Aetna Cas. & Sur. Co., 426 F.2d 729, 738 (5th Cir.1970). 17 Thus, as a matter of law, APIE is not responsible for Dr. Eades' actions solely because Dr. Eades is the chairman of its board of directors. APIE may be held liable for Dr. Eades' actions only if 1) they pertained to routine matters arising in the ordinary course of his duties to APIE, or 2) they were specifically authorized by APIE or were later ratified by APIE. Capital Bank, 597 S.W.2d at 20; Southern Kansas Ry. Co. of Texas v. Logue, 139 S.W. 11, 14 (Tex.Civ.App.--San Antonio 1911), aff'd, 106 Tex. 445, 167 S.W. 805 (1914). Although it is a close question, this Court concludes that the jury could properly have concluded that APIE was responsible for Dr. Eades' actions under the second of these theories. That is, the evidence was sufficient to support a finding that APIE had authorized or ratified Dr. Eades' actions. 18 Initially, APIE is correct that there was no evidence which would have allowed the jury to conclude that Dr. Eades' interference with Dr. Kiepfer's consulting practice was in any way part of his regular duties as chairman of the board of APIE. The evidence showed that APIE's bylaws provided that the board of directors of APIE should meet quarterly to review the business, determine the scope and nature of coverages offered by APIE, approve rates, advise APS as to general policy matters, review APS' operating procedures, and so on. APS officials testified that the board rarely reviews individual cases, and that the board does not determine who will or will not be insured. The evidence did not suggest that the board or any of its members had or were authorized to have dealings with individual insureds. 19 However, there was evidence before the jury that would have allowed it to conclude that APIE either authorized or ratified Dr. Eades' actions. First, the evidence showed that APIE might well have benefitted from Dr. Eades' actions. Dr. Eades' actions to put Dr. Kiepfer out of business would have a natural tendency to discourage other doctors from testifying on behalf of plaintiffs in medical malpractice actions; as a direct result, it would become considerably more difficult for plaintiffs to win such actions, and APIE's future losses would be reduced. In support of this theory, Dr. Kiepfer adduced considerable evidence tending to show that APIE believed that medical malpractice actions had created a crisis in the health care industry, plainly suggesting that APIE would be receptive to attempts to reduce the number of successful malpractice actions. 20 It is certainly true, as a matter of Texas law, that the fact that a corporation might gain some indirect or incidental benefit from the acts of one its officers does not, standing alone, indicate that the corporation approved or ratified the acts such that it is liable for those acts. Rhodes, Inc. v. Duncan, 623 S.W.2d 741, 743-44 (Tex.Ct.App.--Houston [1st Dist.] 1981). Here, however, the benefit was not indirect or incidental; the potential benefits to APIE would flow directly from Dr. Eades' retaliation against Dr. Kiepfer. More importantly, though, the evidence that APIE would benefit from Dr. Eades' actions did not stand alone. There was additional evidence before the jury indicating that Dr. Eades' actions were taken on behalf of APIE. 21 There were at least three other pieces of evidence to support the jury's verdict. In his original complaint Dr. Kiepfer alleged in paragraph nine that Dr. Eades was a duly authorized agent of APIE and that his actions were taken within the scope of his duties. In its original answer to the complaint, APIE responded that the allegations of paragraphs one through nine were admitted. APIE later moved to withdraw its answer on the grounds of mistake. The court granted the motion, and APIE filed an amended answer denying the allegations of paragraphs six through nine. At trial, Dr. Kiepfer sought to introduce the original, withdrawn admission into evidence. The trial judge, relying on Borel v. United States Cas. Co., 233 F.2d 385 (5th Cir.1956), properly allowed Dr. Kiepfer to introduce into evidence the withdrawn admission. The trial judge correctly instructed the jurors that the withdrawn admission was some evidence of the matter admitted, and that it was up to them to decide what weight to give it. See id. at 387-88. APIE contended that the initial admission was no more than a clerical error. The jury, however, which had the opportunity to observe firsthand APIE's witnesses and to assess their credibility, was not required to accept that explanation; instead, pursuant to the trial judge's careful instruction, they were entitled to consider APIE's initial admission of Dr. Eades' authorization as at least some evidence of that authorization. 22 Second, Dr. Kiepfer introduced evidence suggesting that APIE had previously refused to renew the policy of another doctor because that doctor had testified on behalf of a plaintiff in a medical malpractice action. In 1983 Dr. Salvador Ortiz, a physician insured by APIE, testified on behalf of a plaintiff in a medical malpractice trial. Later that year, APIE notified Dr. Ortiz that it would not renew his professional liability insurance. In a letter sent on APIE stationery and signed by an official of APS, Dr. Ortiz was informed that [t]he decision to not renew the policy ... relates to a disruptive influence in the medical community, by criticism of your colleagues. Ex. 7. The letter did not elaborate on just what it meant by a disruptive influence in the medical community, but the jury certainly might have concluded that APIE was referring to Dr. Ortiz' testimony in the medical malpractice trial. Moreover, the jury certainly might have inferred from the evidence before it that APIE, alarmed by what it saw as a crisis of medical malpractice insurance, was engaged in an effort to discourage physicians from testifying against other physicians in medical malpractice actions. 23 The jury could also find support for such an inference in APIE's inconsistencies in explaining its reasons for refusing to renew Dr. Kiepfer's liability insurance. APIE initially informed Dr. Kiepfer that it was refusing to renew his malpractice insurance because he had received an unfavorable review from a peer review committee. APIE later retracted this explanation; there had in fact been no peer review of Dr. Kiepfer. APIE contended at trial that the reason Dr. Kiepfer's policy was not renewed was that he had sued APIE, and that the error in the initial letter was simply a clerical error. Dr. Kiepfer contended that APIE refused to renew his insurance because he had testified against another doctor. It was up to the jury, of course, to resolve this conflict in the parties' positions; the jury was certainly entitled to believe Dr. Kiepfer and disregard APIE's explanations of the inconsistencies in its story. 24 In sum, this Court holds that there was sufficient evidence before the jury to allow it to conclude that APIE, alarmed by a crisis in medical malpractice insurance, ratified or authorized Dr. Eades' actions against Dr. Kiepfer, and therefore was legally responsible for those actions. Accordingly, the jury's verdict should not have been set aside on grounds that there was insufficient evidence to hold APIE liable for Dr. Eades' torts. The only remaining question is whether, given that APIE is liable for the actions of Dr. Eades, the jury had before it evidence sufficient to sustain its verdicts against APIE on Dr. Kiepfer's antitrust and tortious interference claims.