In a highly anticipated decision, the Court of Appeal clarified an issue on agency which is important to hospitals in California that host doctors working as independent contractors. In the Franklin v. Santa Barbara Cottage Hosp., 2d Civil B311482 (Cal. Ct. App. Aug. 8, 2022) decision, the court clarified that a hospital cannot be held liable for the acts of an independent contractor working at the hospital. Key documentation was pivotal in this decision, as the patient had executed paperwork formally recognizing the independent relationship. In addition, the hospital did not retain any ability to control how the physician chose to treat his patients, or the manner in which he performed operations or other procedures. He was also not an ostensible agent as the patient, not the hospital, had selected the doctor in question for his surgery.

Background Facts

Michael Franklin saw his primary care physician, Dr. O'Dowd for back pain. A MRI showed that Franklin was suffering from a herniated disc. Dr. O'Dowd referred Franklin to Dr. Park for further treatment of his back problems. When Franklin went to see Dr. Park, who was an independent contractor associated with Cottage Hospital Santa Barbara (Hospital), he recommended that Franklin do physical therapy for his herniated disc to avoid surgery. When physical therapy was not successful in solving the problem, Dr. Park recommended that Franklin have surgery, but Franklin's insurance refused to authorize the procedure. The insurance company did not think that Franklin had done enough physical therapy or other preventative measures to warrant surgery at that point. Franklin, however, felt that his back condition was getting worse. Dr. Park offered to do his surgery if he came to the Hospital's emergency room. Franklin understood that he had to go through the emergency room to expedite the procedure as well as in hopes of having the surgery covered by his insurance if it was characterized as an emergency procedure.

Once at the ER, Franklin signed a three page consent form authorizing the surgery. One section stated, “All physicians and surgeons providing services to me . . . are not employees or agents of the hospital . . . . They have been granted the privilege of using the hospital for the care and treatment of their patients . . . .” Franklin claims he does not recall any details surrounding the consent form because he was in pain and just wanted to get the surgery done.

Rosa Pinedo worked as a patient financial counselor at the Hospital. She served as the witness for Franklin's signature of the consent form, but does not remember him specifically. In her testimony, she stated that prior to any patient signing the form, she informs them “[t]hat the physician that is treating the patient is not a Cottage Hospital employee. They are independent contractors that have privileges here at the hospital.”

Before he initially saw Dr. Park, Franklin googled him and found an article that indicated Dr. Park was a board-certified neurosurgeon who had joined the Santa Barbara Neuroscience Institute at Cottage Health System. The article included a quote from the medical director of the Institute who stated that "The physicians and neurosurgeons of the Institute in collaboration with Cottage Health System have recruited a top tier neurosurgeon and scientist with a subspeciality expertise in the treatment of brain tumors." Based upon this research that Franklin did on the internet, he claims that he believed that Park worked for Cottage Hospital. The defense refutes this supposed belief by pointing to a prior declaration wherein Franklin stated, "Before retaining counsel to bring this suit, I had never thought about and had no information regarding what the legal relationship was between Dr. Park and Hospital."

In fact, the defense provided evidence that the Hospital, Dr. Park, and Neurological Surgery of Santa Barbara, Inc. (Neurological Surgery), entered into a “Physician Recruitment Agreement” in March of 2013. Dr. Park signed the agreement on behalf of Neurological Surgery. The agreement stated, “It is the current understanding of the parties that [Dr. Park] will establish [a neurosurgical oncology] practice as an employee of [Neurological Surgery] and will provide services at Hospital . . . .” Dr. Park will “join Hospital’s medical staff” and “establish a new private medical practice with [Neurological Surgery] in the Geographic Area” served by Hospital. In a section entitled “Independent Contractor,” the agreement also provided: “No relationship of employer and employee or joint venturers or partners between [Dr. Park] and Hospital or [Neurological Surgery] and Hospital is created by this Agreement. In performing the rights and duties identified in this Agreement, the parties are acting as independent contractors. In no event shall Hospital have or exercise control over the manner in which [Dr. Park] provide[s] professional services or other services required by this Agreement.” The defense used this agreement as the basis for their Motion for Summary Judgment.

As part of his opposition to the Hospital's Motion for Summary Judgment, Franklin offered the expert testimony of Dr. Prager, who expertise lies in pain medicine and complex pain syndromes. He testified that based on Franklin's severe pain level at the time he signed the consent forms coupled with the medication he was taking for his back pain, there was a "reasonable medical certainty" that he could not sufficiently concentrate on reading, understanding and comprehending their contents to the extent necessary to give true consent.

While Franklin was in surgery, an "unintended durotomy" caused by a "puncture of the lateral thecal sac with a probe" occurred and caused him additional injury. This lawsuit followed.

Trial Court's Ruling

The trial court found that Dr. Park was not an actual agent of the Hospital. The court reasoned that because the Hospital did not control the course of treatment provided by Dr. Park, it could not be held liable for his negligence in his treatment of Franklin. Further, the court ruled that the fact that Dr. Park is a member of the medical staff of the Hospital does not necessitate the conclusion that he acted as an agent of the Hospital.

As to the question of whether Dr. Park was an ostensible agent of the Hospital, the court also ruled that he was not. It found because Franklin was "treated by his personally selected physician, not by someone chosen by the Hospital", the hospital was not on the hook for Park's alleged negligence.

Actual Agency

The California Civil Code defines actual agency as "An agent who represents another, called the principal, in dealings with third persons. Such representation is called agency." (Civ. Code §2295). According to the Code, agency may be either actual or ostensible. §2298. In order to prove that actual agency existed between parties, the principal must affirmatively indicate that the other party, or agent, is to authorized to act on their behalf. The agent is also subject to the control of the principal in this situation. Id.

Speaking specifically to the hospital-doctor relationship, Whitlow v. Rideout Memorial Hospital (2015) 237 Cal. App.4th 631, 635 found, "A hospital is liable for a physician's malpractice when the physician is actually employed by or is the ostensible agent of the hospital." It is imperative that the doctor's actions are subject to the control of the hospital for actual agency to be present. (Civ. Code §2299) "The doctrine of respondeat superior… must necessarily be based upon a relationship between two parties by which one has the legal right to direct the activities of the other and the latter the legal duty to submit to such direction." Edwards v. Freeman (1949) 34 Cal.2d 589, 592.

In the case at hand, the "Physician Recruitment Agreement" made between the Hospital and Dr. Park specifically stated that no employer-employee relationship existed between the parties. It also clearly indicated that Dr. Park was an independent contractor and that the Hospital did not have the right to exercise any control "over the manner in which (Dr. Park) provided professional services." Franklin admits in his brief to the court that Dr. Park was an independent contractor of the Hospital.

Despite the acknowledgment of this fact, Franklin still asserts that Dr. Park acted as the Hospital's agent and that the Hospital did exercise control over Dr. Park in the following ways:

  • The Hospital controlled Dr. Park's vacation time and how much time he could take off for continuing education.
  • Dr. Park was required to treat certain types patients under their agreement, including Medicare insureds and others who had insurance with insurers the Hospital had entered into contracts with.
  • Required Dr. Park to support certain charities.
  • The Hospital decided the times that Dr. Park had to be on emergency call and dictated how quickly he had to arrive.
  • The agreement required that Dr. Park must spend at least 24 hours per month serving as the Director of the Neurosurgical Oncology Program.

The court was unpersuaded by the presentation of these facts because none of them gave the Hospital control over Dr. Park's treatment of patients. Dr. Park was free to diagnose and treat his patients as he saw fit without interference or control by the Hospital. In addition, Franklin did not provide any evidence to show that the Hospital exercised any right to control how Dr. Park treated him in his particular situation. Due to this lack of evidence showing the Hospital's control over Dr. Park's treatment of Franklin, or any other patients, Franklin failed to establish that Dr, Park was an actual agent of the Hospital. Therefore, the trial court's grant of summary judgment on this point was proper.

Ostensible Agency

Ostensible agency is present when "the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him." (Civ. Code §2300) To prove ostensible agency, a plaintiff must establish the following elements:

  • Representation by the principal that an agency relationship existed between the parties.
  • Justifiable reliance on those representations by a third party, and
  • Change of position or injury resulting from such reliance. Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 502.

Even in cases where a hospital does not exercise control over a doctor's treatment of patients, it still may be liable for the acts of a doctor or their staff if ostensible agency is present." Although a hospital may not control, direct or supervise physicians on its staff, a hospital may be liable for their negligence based on ostensible agency theory, unless:

  • The hospital gave the patient actual notice that the treating physicians are not hospital employees, and
  • There is no reason to believe the patient was unable to understand or act on the information, or
  • The patient was treated by his or her personal physician and knew or should have known the true relationship between the hospital and physician.” Wicks v. Antelope Valley Healthcare District (2020) 49 Cal.App.5th 866, 884.

In the case at hand, the Hospital clearly established that Dr. Park was not an ostensible agent. Franklin was referred to Dr. Park by his primary care physician and Dr. Park acted in his capacity as Franklin's personal physician. Franklin was neither referred to Dr. Park by the Hospital nor was the Hospital involved in his care or decisions made regarding his care. Franklin chose Dr. Park to perform the surgery of his own volition; the Hospital was not in any way involved in that decision. In fact, Dr. Park was the one who suggested the surgery be performed as an emergency procedure in hopes it would the be covered by insurance. The Hospital did not have knowledge of this agreement and did not consent or agree to this action. Franklin also signed a consent form before his surgery that stated specifically that Dr. Park was not an agent or employee of the Hospital. He was also informed by the patient counselor that physicians are not the Hospital's employees, but rather act as independent contractors using their facilities.

Despite Franklin's claims that he was in too much pain to comprehend the subject matter or importance of the consent forms, the nurses who treated him noted that he was "alert" and "oriented to person, place, and time." In addition, his record shows that he told the nurse his pain level was at 2 out of 10 at the time he signed the consent forms. Finally, Franklin stated under oath that, "Before retaining counsel to bring this suit, I had never thought about and had no information regarding what the legal relationship was between Dr. Park and the Hospital." This statement goes to show that Franklin did not rely on or believe that there was an agency relationship between Dr. Park and the Hospital. Therefore, he could not be injured by such a reliance because it did not exist.

Base don’t these facts, Franklin cannot successfully overturn the grant of summary judgment in favor of the Hospital. He did not satisfy his burden of proof and failed to show that:

  • The conduct by the hospital would cause a reasonable person to believe that Dr. Park was an agent of the Hospital, and
  • That he relied on that apparent agency relationship to his detriment. Markow v. Rosner, 3 Cal.App.5th 1027 (2016).

Franklin's arguments that his reliance on an apparent agency relationship stemmed from reading a public announcement about Dr, Park joining the Hospital's Neuroscience Institute, the fact that Dr. Park's office was directly across the street from the Hospital, and that Dr. Park didn't have his own website were not sufficient to meet the burden of successfully establishing an issue of material fact as to ostensible agency. None of these items proves that Dr. Park held himself out as or acted as an employee or agent of the Hospital. "A physician is not an agent of a hospital merely because he or she is on the medical staff of the hospital." Jacoves v. United Merchandising Corp. (1992) 9 Cal.App.4th 88. 104.

In addition, the court noted that Dr. Park's office is not located at the Hospital, but rather at Neurological Surgery of Santa Barbara, Inc. The court found that a reasonable person would infer that Dr. Park was employed by Neurological Surgery and not by the Hospital. The Physician Recruitment Agreement supports this finding as it explicitly provides that exact fact. “Ostensible agency cannot be established by the representations or conduct of the purported agent; the statements or acts of the principal must be such as to cause the belief the agency exists.” American Way Cellular, Inc. v. Travelers Property Casualty Co. of America (2013) 216 Cal.App.4th 1040, 1053.

The court also pointed out that many hospitals list staff physicians, but do have them on the payroll as employees. Even more telling, Franklin himself admitted that he did not rely on an agency relationship, or even think about that possibility, until he retained legal counsel to represent him in this case. He relied on his personal doctor, Dr. Park to competently perform his surgery. He did not rely on the Hospital to perform those services.

Therefore, Franklin failed to establish a triable issue of material fact as to either actual or ostensible agency between the Hospital and Dr, Park, and summary judgment was properly granted in favor of the Hospital.

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