Holm v. Gateway ( 2018 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
JOHN G. HOLM, MD, et al., Plaintiffs/Appellees,
v.
GATEWAY ANESTHESIA ASSOCIATES PLLC, et al.,
Defendants/Appellants.
No. 1 CA-CV 16-0673
FILED 2-8-2018
Appeal from the Superior Court in Maricopa County
No. CV 2012-015741
The Honorable James T. Blomo, Retired Judge
The Honorable Sally Schneider Duncan, Judge
AFFIRMED
COUNSEL
Sherman & Howard LLC, Scottsdale
By Brian M. Mueller
Counsel for Defendants/Appellants
Tiffany & Bosco PA, Phoenix
By Tina M. Ezzell
Counsel for Plaintiffs/Appellees
HOLM et al. v. GATEWAY et al.
Decision of the Court
MEMORANDUM DECISION
Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Michael J. Brown and Judge Jennifer M. Perkins joined.
C A M P B E L L, Judge:
¶1 Gateway Anesthesia Associates PLLC, et al. (“Gateway”)
appeals from the superior court’s pre-trial, trial, and post-trial rulings
regarding a dispute over employment agreements with their former
employees, anesthesiologists Dr. John Holm and Dr. Lee Weiss
(collectively, “Doctors”). For the reasons explained, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 In October 2012, Dr. John Holm and Dr. Lee Weiss filed a
complaint against their former employer, Gateway, an entity that
coordinated anesthesiology services for medical providers. Doctors both
started working for Gateway in 2010 after each signed a separate but
identical two-year “non-member” employment agreement with Gateway.
In their complaint Doctors alleged that under the contracts, they agreed to
pay membership buy-in payments in anticipation of receiving offers of
membership at the end of the contract term. See infra ¶ 4. Additionally, they
alleged that during contract negotiations, Gateway’s president told them
they would become members (“partners”) in Gateway upon completion of
the two-year contracts. 1 The complaint also stated that about three or four
months prior to the end of their contracts, Gateway verbally informed
Doctors that it did not intend to make them partners, or renew their
employment contracts.2
¶3 The complaint further stated that Weiss left prior to the end
of the two-year agreement, with Gateway’s consent, and he had not been
1 We use “partners” interchangeably with “members,” as did the
superior court.
2 Gateway does not allege that Doctors were “terminated” in
accordance with the termination provisions contained in their employment
contracts.
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terminated within the meaning of his employment agreement. The
complaint also alleged Gateway later released Holm from employment two
weeks prior to the completion of the two-year agreement, to avoid
reimbursing him the buy-in payments. Doctors alleged, under these
circumstances, they were both entitled to reimbursement of their buy-in
payments, which Gateway denied.
¶4 Prior to the jury trial, Doctors moved to reform each of their
contracts with Gateway, asserting “[t]he contracts as written [did] not
clearly reflect the preexisting agreements and mutual intent of the parties.”
They alleged that prior to signing the contracts each doctor discussed their
compensation with Dr. Jon Nottingham, then president of Gateway, and, in
Holm’s case, also Dr. Brian Delisio, the subsequent president. They claimed
Nottingham explained to Doctors that Gateway utilized a three pool-
system of compensation for its physicians (the “eat what you kill pool,” “the
CRNA pool,” and the “first call or OB pool”).3 Further, Doctors alleged they
were told they would be paid equally “like partners” under the three-pool
system with two exceptions: a 10% founders’ fee deducted from the CRNA
pool; and buy-in payments equaling 20% of their gross pay during their
first year of employment, and 10% during their second year of
employment.4 Doctors argued the buy-in payments were for capital
3 The following facts are not in dispute. Nottingham designed the
three-pool system to fairly compensate all of its physicians. Under the “eat
what you kill pool” the physicians kept the money generated from cases
they did themselves. The CRNA pool refers to the money generated from
supervisory services provided by Gateway anesthesiologists in which, on a
rotating basis, an anesthesiologist would supervise two to four nurse
anesthetists; Gateway pooled the revenues and compensated all
anesthesiologists, including non-members, equally under this pool. The
first call/OB pool refers to revenues generated by Gateway’s physicians
when they provided 24-hour first-call services, and during that time
obstetric services, and under which Gateway pooled the revenues and
compensated all physicians, members and non-members, according to the
number of first-call shifts a physician worked.
4 Doctors agree that they had not initially discussed the founders’
fees, but that Doctors later agreed to it before signing their agreements.
Doctors did not claim that they were entitled to reimbursement of the
founders’ fee.
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contributions toward eventual partnership upon successful completion of
two full years of employment at Gateway.
¶5 Additionally, Doctors claimed the contracts as written were
ambiguous because they stated that Doctors would be paid based on “net
collections” for their services, and did not expressly define “net collections”
as the three-pool system of compensation described above. They alleged
Gateway eventually “seized” upon the ambiguous wording of their
contracts to reduce their compensation and to deny them the compensation
agreed to above. Doctors asked the court to determine “that the portion of
the parties’ contract relating to compensation be reformed in line with the
agreements made before they signed written agreements and that [the
compensation portions of their contracts that referred to] ‘net collections’
means payments as the members of Gateway were paid, under the pool
system.” Gateway opposed the motion.5
¶6 Before the jury trial, and without considering Doctors’
amended complaint, the court held a hearing and issued rulings on several
motions for partial summary judgment by Gateway. First, the court denied
Gateway’s partial summary judgment motion regarding Doctors’ breach of
contract claims based on paragraph 7, the buy-in provisions of the
contracts. As discussed more below, the court found that “based on the
plain language” of paragraph 7 there was a genuine issue of material fact
as to whether Doctors were entitled to reimbursement of the buy-in
payments.
¶7 The court, however, granted Gateway’s motion for partial
summary judgment on two issues, specifically finding the contract did not
contain provisions entitling Doctors to: 5.3% assessments and 12.8%
assessments Gateway had taken out of the first call pool and distributed to
its partners, but not Doctors; or, a portion of revenues generated by a non-
partner physician hired after Doctors (the “Spangler revenues”) that
Gateway had split among partners, but not Doctors.
5 The court denied Doctors’ motion because their complaint did not
include reformation in its prayer for relief. Doctors amended their
complaint and included a request for judgment against Gateway “[f]or
reformation of the written contracts between Gateway and [Doctors] to
reflect the actual agreements reached by the parties.”
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¶8 The court later heard oral arguments after Gateway and
Doctors each moved for partial summary judgment on Doctors’
reformation claims. Doctors again argued the parties intended and agreed
that they would be paid like partners, and thus, the contract should be
reformed to change the compensation portion of their separate written
contracts to reflect the intention of the parties. Doctors further identified
compensation they alleged that they ought to have received if they had been
“paid like partners.”
¶9 The court granted summary judgment in favor of Doctors’
reformation claims and denied Gateway’s summary judgment motions.
The court found Doctors had “proven by clear and convincing evidence that
the parties had a meeting of the minds and that the written contracts do not
accurately reflect the agreement due to mutual mistake” and thus
“reformation [was] appropriate to ensure that the [p]arties’ agreement is
accurately reflected in the contract.”
¶10 Gateway moved for clarification of the ruling and the court
issued a minute entry stating “the [c]ourt’s ruling dealt with the issue that
the written contract should mirror the oral agreement, which it did not. The
oral agreement was that the two individuals were to be paid like partners.”
The court further directed that the parties “will need to find a way to
represent it to the jury so they can make a determination as to whether they
were paid like a partner.”
¶11 Based on the court’s reformation ruling, instead of altering the
contract, the parties entered into stipulations before the start of the jury
trial. The parties first stipulated to Doctors’ damages, “amounts owed.”
This consisted of: (1) 5.3% and 12.8% assessments from the first pool, (2)
Spangler revenues, (3) Gateway’s budget surplus, (4) a stipend from
Ironwood Hospital, (5) post-employment payments, (6) and the buy-ins,
should the jury find in favor of Doctors’ breach of contract claims or their
breach of the implied contractual covenant of good faith and fair dealing
claims. Second, the parties also stipulated that after the jury trial, the court
would later determine whether any of the stipulated damages were subject
to trebling. The court did not reform the portion of their employment
agreements dealing with the buy-ins because the pretrial evidence
supported the contention that the parties had not discussed reimbursement
of the buy-ins prior to signing the agreements.
¶12 Two of Doctors’ claims were presented to the jury. First,
Doctors argued Gateway breached paragraph 7 of their contracts,
addressing the “Membership Buy-in” payments. Specifically, Doctors
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asserted Gateway withheld excessive buy-in payments and breached the
agreements when it refused to reimburse Doctors all the buy-in amounts at
the end of their employment. Doctors also presented their respective claims
for breach of the covenant of good faith and fair dealing based on the
membership buy-in provision and Gateway’s failure to tender return of
their buy-in payments upon separation. A jury later returned verdicts in
favor of each of Doctors’ claims. Doctors’ damages for both claims, decided
by the jury, were reimbursement of their buy-in payments.
¶13 The court later found that the stipulated damages, except for
the buy-ins and the post-employment payments, were treble damages. It
awarded Weiss damages in the amount of $442,182.12, attorney fees in the
amount of $142,981.35, and costs in the amount of $11,571.83. It also
awarded Holm damages in the amount of $439,123.80, attorney fees in the
amount of $142,981.35, and costs in the amount of $11,571.83.
DISCUSSION
I. Reformation
¶14 Gateway appeals the superior court’s summary judgment in
favor of Doctors’ reformation claims.6 Applying de novo review, we affirm
the superior court’s ruling. See Strojnik v. Gen. Ins. Co. of Am., 201 Ariz. 430,
433, ¶ 10 (App. 2001) (we review the superior court’s grant of summary
judgment de novo).
¶15 Summary judgment should be granted when there is no
genuine issue of material fact, and the moving party is entitled to judgment
as a matter of law. Id. “Summary judgment is appropriate when there is no
substantial evidence to support an alleged factual dispute . . . because, even
conceding its truth, it leads to an inevitable legal conclusion against its
proponent.” Hill-Shafer P’ship v. Chilson Family Tr., 165 Ariz. 469, 472 (1990).
On review, we examine the evidence presented to the superior court when
6Gateway also appeals the denial of its separate summary judgment
motions on each of Doctors’ reformation claims. This court does not
generally review the denial of a summary judgment motion unless it is on
a point of law. Strojnik v. Gen. Ins. Co. of Am., 201 Ariz. 420, 433, ¶ 11 (App.
2001). Moreover, we do not address the court’s refusal to grant Gateway’s
summary judgment motions because we affirm the court’s grant of
summary judgment in favor of Doctors.
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it addressed the motion.7 Brookover v. Roberts Enter’s, Inc., 215 Ariz. 52, 55, ¶
8 (App. 2007). We also review the evidence in the light most favorable to
Gateway, the non-prevailing party. Strojnik, 201 Ariz. at 433, ¶ 10.
¶16 “A party seeking reformation of a written agreement must
show that a definite [i]ntention on which the minds of the parties had met
pre-existed the written instrument and that [a] mistake occurred in its
execution.” SWC Baseline & Crismon Inv’rs, L.L.C. v. Augusta Ranch Ltd.
P’ship, 228 Ariz. 271, 279, ¶ 18 (App. 2011) (citation omitted); see also State v.
Ashton Co., 4 Ariz. App. 599, 602 (1967) (“Mistake, as the word is used in
connection with reformation, is a state of mind not in accord with the
facts.”). The party seeking reformation has the burden of establishing the
elements of reformation by clear and convincing evidence. Long v. City of
Glendale, 208 Ariz. 319, 331-32, ¶ 47 (App. 2004); see also McNeil v. Attaway,
87 Ariz. 103, 110 (1959) (“In a suit to reform a written instrument a clear and
convincing showing of the real agreement of the parties thereto is a
requisite.”).
¶17 Doctors testified, in deposition, that Nottingham explained
how they would be compensated before they were hired and before they
signed their contracts. Doctors both testified that during contract
negotiations, Nottingham said they would be paid like partners, with the
exception of the buy-in payments. In his deposition, Nottingham verified
that he talked to Weiss, and although he did not recall talking to Holm he
did not dispute having done so—thus, Holm’s testimony that they also
discussed compensation is not a material fact genuinely in dispute.
¶18 In his deposition, Nottingham testified he did not remember
what he specifically told Weiss regarding how he would be compensated,
but that he would have told him what he “standardly” explained to other
physicians hired under the same employment agreement, which is:
[T]hey would become partners -- they would join our group;
that they would have the same call, the same number of first
calls through whatever number; that their cases would be
assigned as an equal participant in the group; that their
holidays would be approximately the same number as the
7We therefore do not consider Gateway’s or Doctors’ summary
judgment arguments pertaining to trial testimony subsequent to the court’s
ruling.
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other members of the group; and that their average income
would be the same as other members of the group in that they
would receive the same opportunity to do cases as other
members, but that they had a 20 percent withhold from their
income the first year and a 10 percent withhold from their
income as a buy-in to the group.
¶19 Nottingham later elaborated:
I would assume that . . . I said 20 percent and 10 percent [buy-
in payments], and that everybody who works as a physician
knows that they’re going to share the expenses that go along
with operating. They were not going to be asked to share
anything that the other people in the group, to my
knowledge, were going to –- would share. So we all shared
equally. Everything was equal except for the 20 percent and
10 percent [buy-in payments].
In Nottingham’s deposition, he testified that he explained the contract to
Weiss as he “thought it was written.” Although Nottingham did not recall
telling this to Holm, he did not dispute that he routinely told physicians
hired by Gateway they would be paid like partners with the buy-in
exception. This testimony supports the conclusion that the parties intended
that Doctors would be paid like partners, as described above.
¶20 Further, Holm testified that Delisio also explained he would
be paid like a partner, except for the buy-in payments. Delisio did not
dispute this at his deposition:
[Counsel:] Am I understanding you correctly that you
basically told [Doctors] that they would be compensated like
the partners were except that they would get 20 percent off
their gross in the first year and 10 percent off their gross
income in the second year?
[Delisio:] Yes, I believe that’s essentially what we had
discussed; that they would be compensated in a similar
fashion to everybody else with the exception of their
administrative fees.
[Counsel:] When you say “administrative fees,” do you mean
the buy-in fees?
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[Delisio:] Administrative fees, yes.8
¶21 Delisio also testified that he would not have misled Doctors
about how they were to be compensated, and that at the time Doctors
signed their agreements, he “didn’t put it together” that the compensation
system he explained was not what was reflected in their employment
agreements. Again, Delisio’s deposition testimony shows no genuine issue
of material fact regarding the mistake in the contract language.
¶22 The record fails to show a genuine issue of material fact,
leading to the conclusion that all parties to the contract intended Doctors to
be paid like partners, except for the buy-ins and the later agreed upon
founders’ fee. Even viewing the evidence in the light most favorable to
Gateway, Doctors’ testimony is undisputed.
¶23 Gateway raises several arguments in opposition to the
superior court’s grant of summary judgment on Doctors’ reformation
claims. Gateway contends there is no evidence of what “paid like a partner”
meant and thus any reference to being paid like a partner simply
represented “preliminary and general negotiations, rather than a legal
‘meeting of the minds.’” We disagree. As discussed, the undisputed
evidence establishes what being paid like a partner meant: being paid the
same as a partner, except for the buy-ins and the later agreed upon
founders’ fee. This agreement was sufficiently specific in explaining how
Doctors would be compensated. See Leflet v. Redwood Fire & Cas. Ins. Co., 226
Ariz. 297, 302, ¶ 22 (App. 2011) (enforceable contract requires “an offer, an
acceptance, consideration, and sufficient specification of terms so that the
obligations involved can be ascertained”) (citations omitted). Moreover,
Nottingham’s and Delisio’s testimony that they believed the contracts
reflected this agreement contradicts any argument that the parties were
engaged in preliminary negotiations.
¶24 Gateway next argues there was no “intent” because “[t]he
parties never agreed to, or even discussed, the specific amounts claimed by
[Doctors].” Here, it is immaterial whether the parties discussed the specific
amounts, discussed below, infra ¶ 54, because the superior court properly
8 The record reflects that Delisio did not talk to Weiss about his
compensation until after Weiss had signed his contract. Nonetheless,
Delisio’s testimony that he continued to tell Doctors that they would be
compensated like partners, minus the buy-in payments and founders’ fee,
supports Doctors’ argument that the parties intended that they would be
paid as such.
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concluded that the agreement, understood by Doctors and Gateway,
required the Doctors to be “paid like partners” and thus was sufficiently
specific.
¶25 Gateway also argues there was “[no] evidence of any mistake
of any kind in the execution of the Agreement by either [Doctors] or
Gateway,” essentially, because both parties believed the contract reflected
their agreement. Gateway points to: deposition testimony by Holm that he
was unable to identify a “mistake” in the contract; Weiss’ deposition
testimony that he reviewed his contract with Nottingham who confirmed,
and represented, that what he offered was in the contract; Doctors’ separate
testimony that no one at Gateway told them there was a mistake in their
contracts; and Nottingham’s deposition testimony that he believed the
contract was consistent with the compensation method he described, aside
from the founders’ fee. As discussed, the purpose of reformation is to
correct a mistake that occurs when, as here, the parties’ intent is not in
accord with the written document. Supra ¶ 16. Gateway claims that this
evidence demonstrates a unilateral mistake by Holm and Weiss. However,
the deposition testimony of Nottingham and Delisio does not support this
assertion. Supra ¶¶ 17-21.
¶26 Finally, Gateway argues that the integration clauses in the
contracts legally precluded Doctors’ reformation claims, or, at least created
a presumption that the contracts reflected a fully integrated agreement
between the parties. We disagree that the integration clause bars
reformation here, or that it created any presumption in favor of Gateway.
The clause at issue in Doctors’ contracts states:
This Agreement constitutes the entire agreement of the
parties. All prior agreements between the parties, whether
written or oral, are merged herein and shall be of no force or
effect. This Agreement cannot be altered, modified or
discharged orally but only by an agreement in writing. There
are no representations, warranties, or agreements other than
those set forth in this Agreement, if any.
¶27 Generally, absent exceptions not applicable here, an
integration clause bars the use of parol evidence. See Formento v. Encanto
Bus. Park, 154 Ariz. 495, 498-99 (App. 1987); Hill v. Jones, 151 Ariz. 81, 83
(App. 1986). Reformation, however, is an equitable remedy to correct a
written contract when the contract does not reflect the parties’ real
agreement due to mistake. 76 C.J.S. Reformation of Instruments § 1 (2017). The
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parol evidence rule does not apply to reformation claims. Long, 208 Ariz. at
331, ¶ 44.
¶28 Doctors’ reformation claim is based on mutual mistake and,
thus, Doctors do not seek to alter the agreement in the sense of changing
what the parties agreed to, but rather to bring it in conformity with what
the parties actually agreed. Isaak v. Mass. Indem. Life Ins. Co., 127 Ariz. 581,
584 (1981) (“Reformation is the remedy designed to correct a written
instrument which fails to express the terms agreed upon by the parties; it is
not intended to enforce the terms of an agreement the parties never
made.”); 76 C.J.S. Reformation of Instruments § 2 (“Reformation, at its essence,
acts to correct an error not in the parties’ agreement but in the writing which
constitutes the embodiment of that agreement.”)
¶29 To hold that an integration clause bars reformation would
undermine the purpose of reformation, which is to bring the mistaken
instrument into alignment with the parties’ real intent. See McNeil v.
Attaway, 87 Ariz. 103, 110 (1959) (“Proof of [a pre-existing] agreement is
essential in a reformation action, since the purpose of such action is to
conform the instrument to the actual contract negotiated by the parties); see
also Hackin v. Pioneer Plumbing Supply Co., 10 Ariz. App. 150, 158 (1969) (trial
court did not err in denying reformation when substantial evidence
supported trial court’s finding that agreement executed included all terms
mutually agreed upon).
¶30 If we were to adopt Gateway’s interpretation of reformation,
after a court found by clear and convincing evidence that the proponent of
reformation had met its burden, the court would nonetheless enforce a
contract as written. If this were the case, there would be no need for
reformation in any circumstance. Such a position is at odds with the law of
contracts. See Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 152 (1993)
(“Generally, and in Arizona, a court will attempt to enforce a contract
according to the parties’ intent.”).
¶31 Accordingly, we affirm the superior court’s grant of Doctors’
motion for summary judgment on their reformation claims.
II. Denial of Summary Judgment Regarding Buy-ins
¶32 Gateway appeals the superior court’s pre-trial denial of its
motion for summary judgment on Doctors’ breach of contract claims. Supra
¶ 6. Gateway argues that paragraph 7 does not provide for reimbursement
of Doctors’ buy-in fees “under any sort of circumstances.” Rather, as it did
in the superior court, Gateway argues that the “terms of the [employment]
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[a]greements are plain and clear”; under paragraph 7 if Doctors became
members after two years, they would no longer pay buy-in fees and would
receive an equal membership in Gateway, and “if [Doctors] did not become
Gateway members after two years, they would no longer have to pay the
“buy-in” amounts. Exercising de novo review, Brookover, 215 Ariz. at 55,
¶ 8, we affirm the superior court’s denial of Gateway’s motion for summary
judgment.9
¶33 Contract interpretation is a question of law we review de
novo. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9 (App. 2009).
To determine the parties’ intent, we “first consider the plain meaning of the
words in the context of the contract as a whole.” Id. If the parties’ intent “is
expressed in clear and unambiguous language, there is no need or room for
construction or interpretation and a court may not resort thereto.” Id.
(citation omitted).
¶34 Paragraph 7, addressing membership buy-in, states:
Physician shall have the opportunity to become a Member of
Company upon the successful completion of two (2) full years
of employment hereunder and upon the appropriate vote in
accordance with the Operating Agreement of the Company.
It is agreed that Physician shall be responsible for paying to
Company an “Administrative Fee” over the first two (2) years
of this Agreement, commencing upon the Effective Date as
follows: during the first year of Physician’s employment,
Company shall retain an amount equal to twenty percent
(20%) of Physician’s Net Collections each month; and during
the second year of Physician’s employment, Company shall
9 Although the denial of a motion for summary judgment is not
generally reviewable on appeal, this court may grant review even after a
case has gone to trial if the denial is based on a purely legal issue—meaning
the issue “is one that does not require the determination of any predicate
facts, namely, the facts are not merely undisputed but immaterial.” Desert
Palm Surgical Grp., P.L.C. v. Petta, 236 Ariz. 568, 577, ¶¶ 21-22 (App. 2015)
(citation omitted). Here, the superior court based its finding on a purely
legal issue: that the plain language of paragraph 7 was ambiguous. See In re
Estate of Lamparella, 210 Ariz. 246, 250, ¶ 21 (App. 2005) (whether contract
language is reasonably susceptible to more than one interpretation is a
question of law for the court).
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retain an amount equal to ten percent (10%) of Physician’s Net
Collections each month. The amount retained by Company
each month is Physician’s “Administrative Fee.” It is agreed
that the Company will also retain these same percentages (i.e.,
20% in the first year and 10% in the second year) of the
Physician’s share of any CRNA profits. At such time as
Physician becomes a Member of the Company, he will be
transferred a Membership Interest in [the] Company in a
percentage which is equal to all other Members of Company.
Should Physician’s employment be terminated for any reason
prior to the completion of such two (2) year terms, then he
shall not be entitled to any interest in Company or to any of
the [buy-in] Fees paid by Physician to Company as set forth
hereinabove. In addition to the foregoing, should Physician
not become Board-certified in Anesthesiology on or before the
second anniversary of the Effective Date of this agreement,
then the Physician will not become eligible for becoming a
Member of the Company at such time, but may become
eligible to become a Member at a later date after obtaining
such Board-certification. Further, should Physician not
become a Member at the end of the second anniversary from
the Effective Date, he will still be entitled to the same
Compensation, as described above, however, he shall not be
responsible for paying any of the [buy-in] Fee.
(Emphasis added.) Here, the superior court found that under the contract’s
plain language, the term “any” in the phrase “he shall not be responsible
for paying any of the [buy-in] Fee” was susceptible to more than one
meaning. Specifically, the court found that “any” could mean Doctors were
not responsible for “all of the [buy-in] fees” paid, meaning if Doctors were
not made members they are not “responsible for having paid that into the
membership” or, alternatively, “any” could mean that if Doctors were not
made members they would not have to pay the fees moving forward. Thus,
the court concluded there was a genuine issue of material fact as to whether
Doctors were entitled to reimbursement under paragraph 7.
¶35 We agree with the superior court. The contracts, reasonably
construed, are ambiguous regarding whether Doctors were entitled to a
return of their buy-in fees upon separation from employment with
Gateway. The plain language, as identified by the superior court, is
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reasonably susceptible to both interpretations.10 See In re Estate of Lamparella,
210 Ariz. 246, 250, ¶ 21 (App. 2005) (a contract is ambiguous when its
language can reasonably be construed to have more than one meaning).
¶36 Accordingly, the court’s denial of summary judgment was
appropriate. See Assoc.’d Students of Univ. of Ariz. v. Ariz. Bd. of Regents, 120
Ariz. 100, 104-05 (App. 1978) (“Once a contract is determined to be
ambiguous, extrinsic evidence may be resorted to for the purpose of
ascertaining its real meaning”; “A determination of the surrounding facts,
consideration of which is necessary to resolve ambiguities, is for the trier of
fact”).
¶37 Because we affirm the superior court’s denial of Gateway’s
summary judgment motion on Doctors’ breach of contract claims, we need
not and do not address Gateway’s argument that the superior court erred
in denying Gateway’s motions for judgment as a matter of law, raised at
the close of the parties’ cases, on Doctors’ claims for breach of the covenant
of good faith and fair dealing.11 See Ariz. R. Civ. P. 50(a). The parties’
stipulated damages included the buy-ins, and damages relating to not
being paid like partners. The jury found that Gateway had breached
paragraph 7 of the employment agreements, and thus Doctors were entitled
10 In its briefing before the superior court, Gateway did not argue
that Doctors were not entitled to reimbursement under paragraph 7
because they were both “terminated” within the meaning of their
employment agreements. Rather, as discussed, Gateway’s position in the
superior court and on appeal was that it did not owe Doctors
reimbursement under any circumstance. Moreover, in their motion
opposing summary judgment, Doctors contested whether they were
“terminated” within the meaning of their employment agreements. The
termination formalities defined in the employment agreements required
written 90-day notice for termination without cause or reason, and lists
enumerated reasons for termination without notice. The parties disputed
Holm’s allegation that Gateway later terminated him to avoid having to
reimburse him the buy-in payments. The evidence before the court showed
only that Delisio provided Holm verbal notice that Gateway would not
make Doctors partners or renew their employment agreements due to
financial reasons. There is no argument by Gateway nor evidence that
Gateway complied with the termination formalities of the employment
agreements.
11Gateway did not make any pre-trial motion regarding Doctors’
good faith and fair dealing claims.
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to reimbursement of the buy-in payments. As such, the jury’s verdicts that
Gateway had breached the covenant of good faith and fair dealing did not
result in an award of any additional damages; the damages sought under
the breach of contracts claims and breach of the covenant of good faith and
fair dealing claims were for reimbursement of the buy-in payments.
Moreover, the court later denied Doctors’ request for treble damages
regarding the buy-ins. Thus, the superior court’s denial of Gateway’s Rule
50 motion has no impact on the resolution of this appeal, and we decline to
address this issue. Freeport McMoRan Corp. v. Langley Eden Farms, LLC, 228
Ariz. 474, 478, ¶ 15 (App. 2011) (appellate court does not decide
unnecessary issues).
III. Arizona Rule of Evidence 404(b)
¶38 Gateway next claims that the superior court committed
reversible error by allowing evidence of other breaches, wrongs, and
conduct between the parties. Gateway identifies eight categories of
evidence it claims violated 404(b)’s admissibility requirements. Infra ¶ 41.
Even if we were to assume, without deciding, that such evidence
constituted “other crimes, wrongs, or acts” within the meaning of Rule
404(b), Gateway has waived this argument on appeal.
¶39 Under Rule 404(b), “evidence of other crimes, wrongs, or acts
is not admissible to prove the character of a person in order to show action
in conformity therewith. It may, however, be admissible for other purposes,
such as proof of motive, opportunity, intent, preparation, plan, knowledge,
identity, or absence of mistake or accident.” If a party fails to timely object
to the admission of evidence the party waives the issue on appeal. See Estate
of Reinen v. N. Ariz. Orthopedics, Ltd., 198 Ariz. 283, 286, ¶ 9 (2000) (“An
objection to proffered testimony must be made either prior to or at the time
it is given, and failure to do so constitutes a waiver.”).
¶40 First, at the start of trial, Doctors’ counsel informed the court
that the parties had agreed to stipulations, see supra ¶ 11, and that she would
be presenting some evidence that would be pertinent to the parties’
stipulations. This evidence included testimony relating to Gateway’s
contract negotiations with Doctors and evidence that would be relevant to
the court’s later determination of the treble damage issues. This statement
put Gateway on notice that Doctors would elicit evidence of other issues
between the parties. Gateway failed to raise any objection at that time, nor
did Gateway file a motion in limine before trial seeking to limit or preclude
any of the proffered evidence. See State v. Duran, 233 Ariz. 310, 311, ¶ 7
(2013) (“Generally, a defendant preserves for appeal any issues raised in a
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motion in limine and ruled upon without the need for further objection at
trial.”) (citation omitted).
¶41 On appeal, Gateway identifies eight categories of evidence it
claims constitute reversible error under 404(b): (1) Doctors not being paid
as promised; (2) Gateway’s “[u]nfair or unequal treatment” of Doctors; (3)
promises that Doctors would be made partners; (4) Doctors’ expected post-
employment payments; (5) The Spangler revenues; (6) Gateway’s 5.3% and
12.8% assessments from the first call pool; (7) Gateway’s overbilling and
double billing; and (8) Gateway’s litigation with its billing company and
starting its own billing company.
¶42 This evidence, however, was relevant to the court’s later
determination of treble damages, which included Doctors’ post-
employment payments, the Spangler revenues, and Gateway’s 5.3% and
12.8% assessments from the first call pool. Additionally, the remaining
evidence, dealing with how Gateway paid Doctors, how it paid its partners,
and Gateway’s financial struggles, was pertinent to the court’s
determination of treble damages. See infra ¶¶ 54-67. Gateway
acknowledged that some of the objectionable facts presented by Doctors
were directly relevant to the court’s determination whether to award treble
damages.
¶43 Second, even if Gateway had not agreed to put on some of the
treble damages evidence during trial, it failed to adequately object in the
superior court and has thereby waived the issues on appeal. Gateway either
failed to object as the evidence was presented, or, when it did object, raised
specific objections based on “relevance” and not “other acts evidence.”
Ariz. R. Evid. 401, 404. And while relevance is one factor in a court’s 404(b)
analysis, State v. Escalante-Orozco, 241 Ariz. 254, 278, ¶ 77 (2017), an
objection under Rule 401 is insufficient to preserve a Rule 404(b) objection
on appeal, State v. Lopez, 217 Ariz. 433, 434, ¶ 4 (App. 2008) (“[A]n objection
on one ground does not preserve the issue on another ground.”). Gateway
argues that at the end of the first day of trial, and mid-way through the
second day of trial, it made a “record” of its ongoing 404(b) objections
thereby preserving the objection. We disagree. Gateway’s objections, at
best, were general objections, which are insufficient to preserve a challenge
to the admission of evidence on appeal. Lopez, 217 Ariz. at 434, ¶ 4. “[T]o
preserve a challenge to the admission of evidence, a party must make a
timely objection or motion to strike . . . stating the specific ground of
objection, if the specific ground was not apparent from the context.” Id.
(citation omitted). Here, Gateway’s “record” was made at the end of the
first day of trial, and again the next day of trial, well after the presentation
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of the majority of evidence Gateway now contests. Additionally, Gateway’s
“record” consisted of counsel’s general statement that “all these questions”
and “various issues” raised by Doctors’ counsel constituted improper bad
acts evidence. Accordingly, not only were Gateway’s objections untimely,
but they lacked the required specificity to preserve the issue for appeal. Id.
IV. Denial of Jury Instructions12
¶44 Gateway argues the superior court committed reversible
error when it denied six of Gateway’s requested instructions. We conclude
otherwise.
¶45 We review the court’s denial of a requested jury instruction
for an abuse of discretion, but review de novo whether, considering the
instructions as a whole, the instructions were legally sufficient. State v.
Causbie, 241 Ariz. 173, 177, ¶ 15 (App. 2016). We also review de novo
whether the evidence supports a requested instruction, as a party is entitled
to a jury instruction on any theory supported by reasonable evidence. State
v. Almeida, 238 Ariz. 77, 80, ¶ 9 (App. 2015).
¶46 Gateway argues the court should have given three
instructions to combat “prejudice” that arose following the introduction of
“inadmissible” 404(b) evidence. See supra ¶ 41. Gateway first requested the
following instruction: “[y]ou may not consider evidence of a person’s other
acts or wrongs to prove that person acted in conformity with the acts or
wrongs.” Gateway’s requested instruction, however, is an incomplete
statement of the law under Rule 404(b). See supra ¶ 39. Gateway is not
entitled to an instruction that would have misled the jury. State v. Rosas-
Hernandez, 202 Ariz. 212, 220, ¶ 31 (App. 2002) (jury instructions must not
mislead the jury).
¶47 Second, Gateway also requested the following instruction:
The [c]ourt has made several rulings in this case which bind
your deliberations and limit your findings. One of those
rulings was that, under the parties’ written employment
agreements as they existed prior to the [c]ourt’s reformation
to include the phrase “paid like a partner,” neither Dr. Holm
nor Dr. Weiss were entitled to recover any amounts regarding
(i) revenues generated by Dr. James Spangler, a Gateway
12In reviewing the denial of a jury instruction, we view the evidence
in the light most favorable to the proponent of the instruction. State v.
Almedia, 238 Ariz. 77, 77-78, ¶ 2 (App. 2015).
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contract physician; and (ii) the 5.3% assessment and then the
12.8% assessment against revenues of the “First Call Pool.”
¶48 The court properly instructed the jury that its previous
rulings had no bearing on what the jury must decide in the case. Thus, the
court did not err in declining the instruction. Rosas-Hernandez, 202 Ariz. at
220, ¶ 31; see also State v. Speers, 209 Ariz. 125, 132, ¶ 27 (App. 2004) (it is
error to instruct a jury on issues or theories not supported by evidence
“because it invites the jury to speculate as to possible non-existent
circumstances”) (citation omitted).
¶49 Third, Gateway requested the following instruction:
“Dr. Holm and Dr. Weiss were ‘at-will’ employees with Gateway. An at-
will employment can be terminated at any time for good cause or no cause
at the will of either party.” The requested instruction is misleading because
neither wrongful termination nor allegations Doctors were entitled to
become partners were issues for the jury to decide. Rosas-Hernandez, 202
Ariz. at 220, ¶ 31.
¶50 Next, Gateway requested the following two instructions:
A mistake of only one of the parties to a contract in the
expression of his agreement or as to the subject matter does
not affect its binding force and ordinarily affords no ground
for its avoidance, or for an award of damages.
If you find that one of the parties had an intention as to a
meaning of a contract provision or term and did not disclose
that intention to the other party to the contract, that
undisclosed intent is irrelevant and should not be considered.
The court found that neither instruction would be “beneficial” or would
“assist” the jury. We agree. The court provided instructions from the
Revised Arizona Jury Instructions (“RAJI”) (Civil) Contract (5th ed. 2013),
that adequately explained the law regarding the issues to be decided by the
jury, and thus, did not err in declining the instructions. State v. Rodriguez,
192 Ariz. 58, 61, ¶ 16 (1998) (on review, this court looks to whether
instructions adequately set forth the law applicable to the case). Specifically,
as to the claims, the court provided RAJI 16, 26, and 27.
¶51 Lastly, Gateway requested the court add the following
paragraph to the standard instruction on good faith and fair dealing under
RAJI 16:
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[A]cts that comply with the terms of the contract cannot,
without more, be equated with bad faith. The duty of good
faith and fair dealing must relate to existing contract terms,
and does not impose additional obligations upon a party that
are outside of the contract.
¶52 Again, the requested instruction would have misled and
confused the jury about what, under Arizona law, constitutes a breach of
the duty of good faith and fair dealing.13 As such, there was no obligation
on the court to grant Gateway’s request and the instruction the court did
provide adequately instructed the jury on that issue. See Rodriguez, 192 Ariz.
at 61, ¶ 16.
¶53 Accordingly, the superior court did not err in declining each
of Gateway’s requested instructions.
V. Treble Damages
¶54 Per the stipulations, the parties agreed that if the jury
returned verdicts in favor of Doctors, the superior court would determine
whether the following stipulated damages should be levied as treble
damages: (1) 5.3% and 12.8% assessments from the first pool, (2) Spangler
revenues, see supra ¶ 7, (3) Gateway’s budget surplus, (4) a stipend from
Ironwood Hospital, (5) post-employment payments, (6) and the buy-ins.
We conclude the superior court did not abuse its discretion in its award of
treble damages. See Schade v. Diethrich, 158 Ariz. 1, 14 (1988) (appellate court
13 Under Arizona law, there is an implied covenant of good faith and
fair dealing in every contract. Wells Fargo Bank v. Ariz. Laborers, Teamsters &
Cement Masons Local No. 395 Pension Tr. Fund, 201 Ariz. 474, 490, ¶ 59 (2002)
(“Such implied terms are as much a part of a contract as the express terms.”)
(citations omitted). “The implied covenant of good faith and fair dealing
prohibits a party from doing anything to prevent other parties to the
contract from receiving the benefits and entitlements of the agreement.” Id.
This court has previously stated, “a party can breach the implied covenant
of good faith and fair dealing both by exercising express discretion in a way
inconsistent with a party’s reasonable expectations and by acting in ways
not expressly excluded by the contract’s terms but which nevertheless bear
adversely on the party’s reasonably expected benefits of the bargain.” Bike
Fashion Corp. v. Kramer, 202 Ariz. 420, 424, ¶ 14 (App. 2002) (citation
omitted).
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reviews the superior court’s award of treble damages for an abuse of
discretion).
¶55 Section 23-355(A) states, absent an exception not applicable
here, “if an employer, in violation of this chapter, fails to pay wages due
any employee, the employee may recover in a civil action against an
employer or former employer an amount that is treble the amount of the
unpaid wages.” Under A.R.S. § 23-352(3), an employer’s withholding or
diverting of wages is not subject to trebling if the employer had a reasonable
good faith dispute as to the amounts owed. Apache E., Inc. v. Wiegand, 119
Ariz. 308, 312 (App. 1978) (a penalty will not be imposed when there is a
good faith dispute over unpaid wages). If, however, there does not exist a
reasonable good faith dispute, the court has discretion to award treble
damages pursuant to A.R.S. § 23-355. D’Amico v. Structural I Co., 229 Ariz.
262, 266, ¶ 17 (App. 2012). In doing so the court may consider “the origin
and nature of the dispute, efforts one party or the other made to resolve the
dispute short of litigation, the nature of the relationship between the
employer and employee, and other contemporaneous acts by either party
not bearing directly on the alleged breach of contract.” Id. at 266, ¶ 17.
¶56 At the time of this action, under A.R.S. § 23-352 and A.R.S.
§ 23-355(A), the Legislature defined “wages” to mean:
[N]ondiscretionary compensation due an employee in return
for labor or services rendered by an employee for which the
employee has a reasonable expectation to be paid whether
determined by a time, task, piece, commission or other
method of calculation. Wages include sick pay, vacation pay,
severance pay, commissions, bonuses and other amounts
promised when the employer has a policy or a practice of
making such payments.14
A.R.S. § 23-350(6) (2012); See also Schade, 158 Ariz. at 13.
¶57 Gateway appeals the superior court’s findings, based on the
parties’ briefing and arguments, of the following treble damage judgments:
14We cite to the statute in effect at the time of this action, as the
Legislature, subsequent to this action, renumbered and amended the
statute by omitting the last sentence of the quoted provision above. 2016
Ariz. Sess. Laws, ch. 203, § 2 (Sec. Reg. Sess.)
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(1) 5.3% and 12.8% assessments from the first pool; (2) Spangler revenues;
(3) Gateway’s budget surplus; and (4) the Ironwood stipend.
i. First Pool Assessments and Spangler Revenues
¶58 We address the assessments and Spangler revenues together
because Gateway raises the same arguments about each category. It is
undisputed that Gateway began to withhold assessments of 5.3% and then
12.8% from the revenues generated by the “first call pool” from Doctors,
and other new physicians, and Gateway split the revenues from the
assessments only among the members of Gateway.15 It is also undisputed
that the partners and Doctors shared the expenses for Dr. Spangler, a non-
partner salaried physician hired subsequent to Doctors’ employment, but
that Gateway split a portion of Dr. Spangler’s revenues among its members
and not Doctors.
¶59 Gateway contends the assessments and the Spangler
revenues were not “wages,” but rather “partnership profits.” The court,
however, did not abuse its discretion in determining that they were
“wages.” Gateway agreed to pay Doctors like partners except for the
founders’ fee and the buy-in payments, and thus, the assessments and
Spangler revenues were compensation Doctors reasonably expected in
return for their services as all members enjoyed this increase in earnings.
¶60 The court also did not err in concluding Gateway lacked a
reasonable good faith basis to withhold these wages. Gateway first attempts
to frame its failure to pay Doctors the return of the additional wages as a
“mistake” made in “hindsight.” Gateway’s position ignores the
consequences of Doctors’ successful claim for reformation, which, as
discussed, under Arizona law requires “a definite [i]ntention on which the
minds of the parties had met pre-existed the written instrument and that
the mistake occurred in its execution.” Ashton Co., 4 Ariz. App. at 602. Thus,
Gateway’s attempt to reframe its failure to pay Doctors as partners—which
would include the assessments and Spangler revenues—as a “mistake” in
which it “turned out to be wrong” is precisely what the Court determined;
they withheld wages without good cause. Had Gateway been diligent in
correcting the “mistake” this issue would not be the subject of litigation.
15The assessments here differ from the founders’ fee and the buy-
ins, and were taken from the first call pool. They were implemented by
Gateway’s board in 2012 after Nottingham stepped down as president.
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¶61 Second, Gateway also argues the superior court’s pre-
reformation ruling granting partial summary judgment in favor of Gateway
regarding the assessments and Spangler revenues, supra ¶ 7, demonstrates
that it had a reasonable good faith dispute regarding payment of any of the
disputed amounts. Gateway reasons the court “would not have entered the
[o]rder, finding that Gateway did not owe [Doctors] any amounts related
to the Assessments [or the Spangler revenues] if Gateway was
‘inappropriate and unreasonable.’” We also reject this argument. As
Doctors point out, Gateway misrepresents the court’s rulings; the court did
not find that “Gateway did not owe” the assessments or Spangler revenues
as Gateway contends. The court denied Gateway’s motion for partial
summary judgment on Doctors’ unjust enrichment claims, infra n. 16, and
specifically cited the assessments and the Spangler revenues as justification
for the denial. Accordingly, there is no basis for Gateway’s position that the
court’s rulings demonstrated that Gateway had a “reasonable” good faith
reason for withholding these amounts. See Wang Elec., Inc. v.
Smoke Tree Resort, LLC, 230 Ariz. 314, 318, ¶ 10 (App. 2012)
(“[U]njust enrichment provides a remedy when a party has received a
benefit at another’s expense and, in good conscience, the benefitted party
should compensate the other.”).
ii. Gateway’s Budget Surplus
¶62 Gateway deducted from all partners and Doctors, with
Doctors’ consent, a set monthly amount to pay for specified and agreed
upon overhead expenses. Gateway later discovered it had deducted much
more than was needed to cover the overhead, yielding a budget surplus of
$60,000. Gateway’s partners then voted to distribute the surplus among the
partners only and to exclude the Doctors from the distribution. On appeal,
Gateway argues the surplus reflected discretionary “profits,” not wages,
because Gateway did not have a “stated policy or procedure about how to
handle a budget surplus.”
¶63 Gateway does not dispute Doctors’ contention that the
deductions were to be used to pay for overhead expenses only. We reject
Gateway’s attempt to frame the surplus as discretionary “profit” and its
attempt to hide behind a lack of “policy or procedure” for what it admits
was a unique occurrence. Gateway points to no evidence to justify its
decision to split the surplus among only its partners, nor does Gateway
claim Doctors provided consent to the distribution. Given the
circumstances in which Gateway obtained the surplus the court did not err
in finding Doctors’ surplus damages were wages and trebling the
damage award. See A.R.S. § 23-350(6) (wages include non-discretionary
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compensation in return for services that an employee has a reasonable
expectation to get paid, including as determined by other method of
calculation).
¶64 Similarly, we reject Gateway’s argument that “it [was] not
bad faith to make a distinction between members . . . and non-members” in
deciding to pay the budget surplus only to its partners. Gateway only
procured the surplus because it withheld the amounts from the wages of
Doctors and others. In light of the fact that they withheld much more than
was needed to cover overhead expenses, it was bad faith to then distribute
the surplus to partners only and not to Doctors who had contributed a
similar amount.
iii. Ironwood Stipend
¶65 Gateway entered into a contract with a new hospital,
Ironwood. The hospital paid for anesthesia coverage services via a monthly
stipend paid the month after Gateway physicians rendered services.
Because the hospital was just opening, they paid a stipend to supplement
the physicians who would not have the steady stream of patients they
would attend to at a more established venue. The revenues that Doctors
and other Gateway physicians earned from working first call shifts at
Ironwood hospital were put into the first call pool and divided, pro rata,
based on the number of shifts that each contributing physician worked.
Doctors alleged that Gateway did not pay Doctors their share of the
Ironwood stipend earned during their last months of work, but paid by
Ironwood after they left.
¶66 On appeal, Gateway does not contest that the Ironwood
stipend constituted wages. Instead, Gateway asserts it had a “good faith
basis to dispute [Doctors’] claims to the Ironwood stipend by relying upon,
and performing under, the written provisions of paragraph 10” of Doctors’
employment agreements addressing Doctors’ compensation upon
termination of employment. Gateway fails to support its position with any
citations to the record, nor does it explain how compliance would
demonstrate good faith in withholding Doctors’ share of the Ironwood
stipend. Accordingly, because Gateway only argues its “performance”
under paragraph 10 demonstrates good faith, this issue is not properly
before this court and is waived on appeal. See Boswell v. Fintelmann, 242
Ariz. 52 n.3, ¶ 7 (App. 2017) (failure to develop and support conclusory
arguments waives appellate review); ARCAP 13(7)(a).
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¶67 Accordingly, the superior court did not abuse its discretion in
finding the assessments, Spangler revenues, budget surplus, and Ironwood
stipend were treble damages.
CONCLUSION16
¶68 For the foregoing reasons, we affirm the rulings of the
superior court. As the prevailing parties, we also award Doctors their costs,
A.R.S. § 12-341, and attorney fees on appeal, A.R.S. § 12-341.01, contingent
upon their compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
16 Because we affirm the rulings of the superior court, Gateway’s
appeal of the superior court’s pre-trial ruling rejecting Gateway’s motion
for partial summary judgment on Doctors’ unjust enrichment claims, which
did not go to the jury, is moot and we do not address it.
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