Clarifying the Extinguishment Rule in New Mexico: Dismissal With Prejudice of the Agent Does Not Bar Vicarious Liability Absent a Valid Release or Merits Exoneration

Introduction

In Trujillo v. Presbyterian Healthcare Services, Inc., S-1-SC-40109 (N.M. Feb. 20, 2025), the Supreme Court of New Mexico, per Chief Justice David K. Thomson, decisively clarified a recurring and consequential question in tort litigation: when does the disposition of claims against an agent extinguish vicarious liability claims against the principal? The Court answers that only two circumstances extinguish such claims—(1) a valid release of claims arising out of the agent’s conduct or (2) an adjudication on the merits that exonerates the agent. A voluntary stipulated dismissal with prejudice, standing alone, is neither. The Court reverses the Court of Appeals and district court, reinstating plaintiff’s vicarious liability claims, and expressly overrules KINETICS, INC. v. EL PASO PRODUCTS CO., 1982-NMCA-160, to the extent it treated a dismissal with prejudice as a “release.”

The decision has immediate practical implications for medical malpractice and broader tort practice in New Mexico, especially where plaintiffs streamline litigation by dismissing individual agents (such as physicians) while pursuing hospitals or corporate principals on vicarious theories. It also shores up doctrinal coherence between agency principles, contract law of releases, and the meaning of “adjudication on the merits.”

Summary of the Opinion

The Court affirms and articulates the “Extinguishment Rule”: a principal’s vicarious liability is extinguished only by (a) a valid release of claims arising from the agent’s conduct or (b) an exoneration of the agent through an adjudication on the merits of the tort claim against the agent.
A voluntary dismissal with prejudice of the agent is not an exoneration because it is not a merits determination; in New Mexico, such a dismissal is treated as an adjudication on the merits only for res judicata purposes, not as a finding on the underlying tort liability.
A voluntary dismissal with prejudice is not a release because releases are contracts; absent a written agreement supported by consideration (or other contract formalities) releasing claims against the agent, there is no “valid release.”
The Court reverses summary judgment for Presbyterian and remands to reinstate plaintiff’s vicarious liability claims.
To the extent Kinetics, Inc. suggested that a dismissal with prejudice operates as a release for extinguishment purposes, it is overruled.

Background and Procedural History

After the death of Severo Ortega from pneumonia while at Presbyterian Española Hospital, Plaintiff Liana Trujillo (individually and as personal representative of the wrongful death estate) sued Presbyterian and several treating physicians, including radiologists, alleging direct negligence and vicarious liability based on agency. One radiologist invoked the Medical Malpractice Act’s medical review panel stay (NMSA 1978, § 41-5-15), and the parties jointly secured a stay.

Approximately three months later, the district court entered a stipulated order dismissing with prejudice three radiologists and lifting the stay. The underlying stipulation itself was not docketed; the order contained no release language. Later, Plaintiff, through new counsel, sought partial summary judgment on Presbyterian’s vicarious liability for one radiologist’s negligence; the district court denied that motion, but granted Presbyterian’s cross-motion, holding that the earlier with-prejudice dismissal of the agents extinguished the vicarious claims against Presbyterian. The Court of Appeals affirmed, relying on its understanding of VALDEZ v. R-WAY, LLC, 2010-NMCA-068.

On certiorari, the Supreme Court reverses, clarifying that the dismissal with prejudice neither exonerated the agents on the merits nor constituted a valid release, and therefore did not trigger the Extinguishment Rule.

Analysis

1) Precedents Cited and Their Roles

Downer v. S. Union Gas Co., 1949-NMSC-045: The foundational New Mexico authority: “a valid release or exoneration of the servant releases the master.” The Court dubs this the “Extinguishment Rule” and emphasizes Downer’s core requirement that the release be valid—a contract—if it is to relieve the principal of vicarious liability.
HARRISON v. LUCERO, 1974-NMCA-085: Supports the proposition that exoneration of the servant removes the foundation for imputing negligence to the master where there is no independent negligence of the master.
JUAREZ v. NELSON, 2003-NMCA-011 (overruled on other grounds): Recognizes that “exoneration,” in this context, is typically understood as an adjudication on the merits of the agent’s tort liability. This frames the Court’s conclusion that a voluntary with-prejudice dismissal is not a merits exoneration.
Kirby v. Guardian Life Ins. Co. of America, 2010-NMSC-014: Clarifies that a dismissal with prejudice is an adjudication on the merits only for purposes of res judicata; it is not a merits determination of the underlying tort claim. Anchors the distinction central to the Court’s holding.
McNeill v. Rice Engineering & Operating, Inc., 2003-NMCA-078 and PEREA v. SNYDER, 1994-NMCA-064: Establish that releases are contractual in nature and governed by contract law. With the Restatement (Second) of Torts § 900 cmt. b, these authorities frame a “release” as a writing supported by consideration that discharges the claim.
VALDEZ v. R-WAY, LLC, 2010-NMCA-068: The Court of Appeals had described releases broadly by citing other jurisdictions, but those cases still involved actual contracts. The Supreme Court points out the misreading: Valdez did not convert a with-prejudice dismissal into a release; it surveyed definitions in cases where a written release existed.
KINETICS, INC. v. EL PASO PRODUCTS CO., 1982-NMCA-160: The outlier precedent that treated a with-prejudice dismissal as a release. Overruled to the extent it stands for that proposition.
Zamora v. St. Vincent Hospital, 2014-NMSC-035; HOUGHLAND v. GRANT, 1995-NMCA-005; Baer v. Regents of the Univ. of Cal., 1994-NMCA-124; Spurlock v. Townes, 2016-NMSC-014: These cases reinforce that vicarious liability imputes liability for the agent’s conduct, not for an adjudicated judgment against the agent, and that plaintiffs need not name or join the agent to pursue the principal on vicarious theories (including apparent agency in the hospital context).
Statutes: NMSA 1978, § 41-3A-1(C)(2) (preserving joint and several liability for vicarious liability relationships) supports the conduct-based nature of vicarious liability; NMSA 1978, § 41-5-15 (Medical Malpractice Act stay) is part of the procedural backdrop.

2) The Court’s Legal Reasoning

The Court’s reasoning turns on first principles of agency and on precise legal meanings attached to “exoneration,” “release,” and “dismissal with prejudice”:

Source of vicarious liability: Vicarious liability is liability for the agent’s conduct, not for the agent’s procedural posture in the litigation. A plaintiff can prove the agent’s negligence and the agency relationship even if the agent is not a party, never has been a party, or has been dismissed as a party. See Zamora; Baer.
Exoneration means an adjudication on the merits: To extinguish the principal’s vicarious liability under the Extinguishment Rule, the agent must be exonerated by a merits determination (e.g., summary judgment on no negligence, a defense verdict, or equivalent disposition adjudicating the tort merits). A stipulated dismissal with prejudice, by itself, does not test or resolve the merits. Kirby confines the meaning of “adjudication on the merits” for res judicata purposes; it does not transform a voluntary dismissal into a merits exoneration.
Release is a contract: A “valid release” arises from contract law. The Court reaffirms that releases require the hallmarks of a contract, typically a written agreement supported by consideration that expressly discharges the claim. No such instrument existed here; the stipulated order contained no release language. Therefore, there was no “valid release” under Downer.
Misreading corrected: The Court of Appeals relied on broad, cross-jurisdictional definitions of “release” in Valdez, but each of those cases involved actual written releases. The Supreme Court corrects the overextension: absent a contract, a dismissal with prejudice is not “tantamount” to a release.
Overruling Kinetics: Because Kinetics treated a with-prejudice dismissal as a release without analysis or citation, and because that proposition conflicts with the contract-law foundation of releases and with the conduct-based nature of vicarious liability, Kinetics is overruled on this point.

3) The Impact of the Decision

This decision is likely to significantly influence pleading, settlement structuring, and motion practice in New Mexico tort litigation, particularly in medical malpractice and institutional liability cases.

Streamlining parties without forfeiting vicarious claims: Plaintiffs may dismiss individual agents (e.g., physicians) with prejudice to simplify the case without inadvertently extinguishing vicarious claims against principals (e.g., hospitals), unless they sign a valid release or the agent is exonerated on the merits.
Settlement practice and drafting precision: Defendants seeking to cut off vicarious exposure must obtain a contractual release of claims arising from the agent’s conduct. A stipulated “with prejudice” dismissal order, without more, will not suffice. Release agreements should explicitly identify the agent’s conduct, specify that vicarious claims against the principal are discharged, and be supported by consideration.
Comparative fault and apportionment: Because vicarious liability remains joint and several by statute (NMSA § 41-3A-1(C)(2)), a principal found vicariously liable will be responsible for the full damages attributable to the agent’s negligence. Dismissing the agent as a party does not preclude the jury from assessing the agent’s conduct; the principal effectively stands in the agent’s shoes for those purposes.
Medical Malpractice Act (MMA) strategy: The opinion may encourage plaintiffs to avoid MMA panel delays by dismissing individual physician agents while continuing against hospitals on vicarious theories. Hospitals can no longer rely on such dismissals to argue extinguishment. If a hospital wants extinguishment via the agent’s disposition, it must obtain an adjudication on the merits exonerating the agent or secure a release that satisfies contract law.
Clarity reduces procedural traps: The Court addresses concerns, flagged by the Court of Appeals special concurrence, that prior doctrine had become a procedural snare. By tying extinguishment explicitly to contract releases or merits exoneration, the Court restores predictability and doctrinal coherence.
Direct negligence claims unaffected: The decision concerns only vicarious liability. Releases of agents do not affect a principal’s independent negligence (e.g., negligent hiring, supervision, credentialing), unless the release expressly encompasses such claims or other principles (e.g., claim preclusion) apply.

Complex Concepts Simplified

Vicarious liability (respondeat superior): A principal (e.g., employer, hospital) can be liable for an agent’s (e.g., employee physician’s) negligent conduct if the conduct occurred within the scope of agency. Liability is imputed for the conduct—the principal need not be personally at fault.
Apparent agency: Even if the agent is an independent contractor, a principal may be vicariously liable if it holds out the agent as its representative and the plaintiff reasonably relies on that representation (common in hospital settings). See Houghland; Zamora.
Extinguishment Rule: A principal’s vicarious liability ends only if (1) there is a valid release of claims arising from the agent’s conduct or (2) the agent is exonerated on the merits of the tort claim. A release is a contract; exoneration requires a merits determination (e.g., summary judgment, defense verdict).
Dismissal with prejudice: A case-ending dismissal that bars refiling of the same claim. In New Mexico, it counts as an “adjudication on the merits” only for res judicata (claim preclusion), not as a determination of whether the underlying tort occurred. It is therefore not an “exoneration” for extinguishment.
Release: A contract (typically written, supported by consideration) by which a claimant gives up legal claims against a tortfeasor. Without an actual release instrument (or equivalent contract), there is no “valid release.”
Exoneration on the merits: A judicial determination that the agent is not liable on the tort claim (e.g., a defense verdict, summary judgment on no negligence). Purely procedural terminations (like voluntary dismissal with prejudice) do not qualify.
Joint and several liability for vicarious liability: New Mexico preserves joint and several liability when liability is purely vicarious (NMSA § 41-3A-1(C)(2)), meaning the principal can be responsible for the full measure of damages attributable to the agent’s negligence.

Detailed Discussion of the Court’s Clarifications

A) Why a Dismissal With Prejudice Is Not Exoneration

The Court leans on Juarez and Kirby to emphasize that “exoneration” in the Extinguishment Rule context must reflect a merits-based resolution of the tort claim. A stipulated dismissal with prejudice is a procedural device—often motivated by strategy, cost, or settlement dynamics—that does not equate to findings on negligence, causation, or damages. Kirby confines the “adjudication on the merits” effect of such a dismissal to res judicata, preventing relitigation of the same claim against the same defendant, but it does not answer whether the agent was actually negligent. Without that merits resolution, the predicate for extinguishment—no wrong by the agent—has not been established.

B) Why a Dismissal With Prejudice Is Not a Release

The Court returns to Downer’s language—“valid release”—and to contract law basics in McNeill, Perea, and the Restatement. A dismissal order is a court disposition, not a contract. While a dismissal with prejudice implies a voluntary relinquishment of the right to continue litigating against that party, it does not necessarily reflect a bargain supported by consideration or the express terms needed to discharge claims, including those that may bind other parties through agency principles. Only a true release agreement—properly formed under contract law—can serve that extinguishing function. The absence of any release language in the stipulated order, and the absence of a separate written release, was dispositive.

C) Correcting the Misreading of Valdez and Overruling Kinetics

The Court of Appeals had extrapolated from Valdez’s broad verbiage that any abandonment of a claim, including a dismissal with prejudice, could be treated as a release. The Supreme Court clarifies that Valdez and all authorities it surveyed involved actual releases. Thus, Valdez does not support converting a dismissal with prejudice into a release. Kinetics, which treated a dismissal with prejudice as a release without analysis, is expressly overruled to the extent of that misstep. This restores doctrinal consistency and removes a recurrent trap in practice.

Practical Guidance for Litigants and Counsel

To extinguish vicarious liability via settlement: Obtain a written release that (1) identifies the agent and the conduct at issue, (2) expressly releases claims arising from that conduct, and (3) states the effect on vicarious claims against the principal. A bare stipulated dismissal with prejudice is insufficient.
To extinguish via litigation: Seek a merits determination exonerating the agent (e.g., summary judgment on no negligence or a defense verdict). Purely procedural dismissals will not trigger extinguishment.
Pleading strategy for plaintiffs: You may pursue the principal alone on vicarious theories without naming or maintaining claims against the agent. Dismissing the agent, even with prejudice, will not doom your vicarious claims absent a release or merits exoneration of the agent.
Drafting and record-building: If parties intend the dismissal to function as a release, reduce the release to a written agreement and file or incorporate it as appropriate; do not rely on a dismissal order to imply release terms.
Do not conflate doctrines: Remember that res judicata’s label of “adjudication on the merits” for a with-prejudice dismissal is a term of art preventing relitigation; it is not a merits adjudication for extinguishment purposes.

Open Questions and Boundaries

What counts as “adjudication on the merits” for exoneration? The opinion emphasizes adjudication of the tort merits. Summary judgment on lack of negligence, a trial verdict for the agent, or directed verdicts fit. Dismissals for procedural reasons (e.g., voluntary dismissals, sanctions, limitations, forum issues) would not exonerate on the merits.
Other contractual instruments: While the opinion focuses on “releases,” other contract forms (e.g., a covenant not to sue) that functionally waive claims may be analyzed similarly under contract principles. Parties should draft with care and clarity.
Independent negligence of the principal: Even where a valid release of the agent triggers the Extinguishment Rule, it does not bar independent direct negligence claims against the principal (e.g., negligent credentialing) unless expressly released.

Conclusion

Trujillo v. Presbyterian Healthcare Services, Inc. delivers a clear, workable rule for extinguishing vicarious liability in New Mexico: only a valid contract release of claims arising from the agent’s conduct or an adjudication on the merits exonerating the agent will cut off the principal’s liability. A voluntary dismissal with prejudice is neither. By overruling Kinetics and correcting the overbroad reading of Valdez, the Court harmonizes agency law with contract principles and the true meaning of “merits” adjudications. The ruling provides crucial clarity to litigants, avoids procedural pitfalls, and will guide settlement and litigation strategies across medical malpractice and broader tort practice.

On remand, Plaintiff’s vicarious liability claims against Presbyterian are reinstated, and New Mexico practitioners have a clarified roadmap: if you want extinguishment, secure a release or secure exoneration on the merits—do not rely on a dismissal with prejudice to do the work of either doctrine.

Note: This commentary is for informational purposes only and does not constitute legal advice.