Shufeldt v. Nextcare ( 2016 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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 J. SHUFELDT, MD, a married man,
Plaintiff/Appellant,
v.
NEXTCARE, INC., a Delaware corporation,
Defendant/Appellee.
No. 1 CA-CV 15-0327
FILED 11-10-2016
Appeal from the Superior Court in Maricopa County
No. CV2012-014120
The Honorable Patricia A. Starr, Judge
AFFIRMED IN PART, VACATED IN PART AND REMANDED
COUNSEL
Jennings, Haug & Cunningham, L.L.P., Phoenix
By Mark E. Barker, Jorge Franco, Jr., Russell R. Yurk
Counsel for Plaintiff/Appellant
Sacks Tierney P.A., Scottsdale
By Matthew F. Winter
Counsel for Defendant/Appellee
SHUFELDT v. NEXTCARE
Decision of the Court
MEMORANDUM DECISION
Judge Samuel A. Thumma delivered the decision of the Court, in which
Presiding Judge Patricia K. Norris and Judge Margaret H. Downie joined.
T H U M M A, Judge:
¶1 Plaintiff Dr. John J. Shufeldt appeals from the entry of
summary judgment in favor of defendant NextCare, Inc. and the denial of
his motion for reconsideration. Shufeldt argues: (1) a written
noncompetition agreement between the parties is unenforceable and (2) if
it is enforceable, there are genuine issues of material fact precluding
summary judgment. As discussed below, the superior court properly
determined that the noncompetition agreement was enforceable but
disputed issues of material fact exist that preclude summary judgment.
Accordingly, summary judgment is vacated and this matter is remanded
for further proceedings consistent with this decision.
FACTS1 AND PROCEDURAL HISTORY
¶2 NextCare owns and operates walk-in family practice
medical clinics that specialize in urgent, accident and injury care. Shufeldt,
a medical doctor, founded NextCare in 1993 and continuously served as
NextCare’s chief executive officer and board chair until August 31, 2010.
¶3 While at NextCare, Shufeldt and NextCare entered into
various written agreements, including a 2005 employment agreement. In
2008, to secure an investment in NextCare, the parties amended the
employment agreement in a detailed, integrated agreement. In this 2008
agreement, NextCare agreed to pay Shufeldt a $325,000 annual salary,
annual bonuses, benefits and expenses. Shufeldt agreed to various
undertakings, including being bound by a noncompetition agreement (the
Noncompetition Agreement).
1 This court reviews the entry of summary judgment de novo, “viewing
the evidence and reasonable inferences in the light most favorable to”
Shufeldt. Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003).
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¶4 In the Noncompetition Agreement, Shufeldt
agree[d] that during my Relationship with
[NextCare] and for a period of 12 months
immediately following the termination of that
Relationship, . . . I shall not, either directly or
indirectly, . . . engage in any Competing
Business within a 25 mile radius of any
location where [NextCare] conducts business
or has conducted business (or has at any time
actively explored conducting business) during
the 24 months preceding my termination of my
Relationship with [NextCare].
“Competing Business,” in turn, was defined to “mean any business
involving the development, delivery or management of urgent care,
family, workers’ compensation or occupational health-related, or
emergency medical services (other than practicing medicine in an
emergency department in a hospital).” The Noncompetition Agreement
did not limit Shufeldt’s “ability to practice medicine personally as a
treating physician so long as I do not practice medicine in, or have a role
in the marketing, management, consulting or business planning for, or an
ownership in, a Competing Business.”
¶5 In 2010, Shufeldt decided to resign from, and terminate his
employment with, NextCare, although he remained a significant
NextCare shareholder. In a written Separation Agreement effective
August 31, 2010, NextCare agreed to pay Shufeldt $487,500 over an 18-
month period, an amount equal to his $325,000 annual salary for that time.
In this Separation Agreement, Shufeldt agreed to be bound by the
Noncompetition Agreement during this 18-month period, six months
longer than he had agreed to in 2008. The Separation Agreement specified
that any purported waiver of “any condition or of any breach of any term
or covenant” would not be effective unless in writing.
¶6 At about this same time, Shufeldt developed an Internet-
based virtual medicine delivery platform called MeMD. At his deposition,
Shufeldt testified he presented the MeMD concept to NextCare in
September 2010 but that NextCare declined his invitation to partner in
MeMD. Shufeldt testified he developed MeMD by partnering with an
urgent care facility in Lake Havasu City, Arizona. Through MeMD,
Shufeldt apparently began treating patients online in May 2011, many of
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whom NextCare alleges lived within the geographic scope of the
Noncompetition Agreement.
¶7 In late June 2011, NextCare wrote Shufeldt that it would not
make the remaining monthly Separation Agreement payments (through
February 2012 and totaling nearly $260,000). NextCare took the position
that Shufeldt’s “involvement with MeMD and [Shufeldt’s] and MeMD’s
activities constitute engagement in a ‘Competing Business’” in breach of
the Noncompetition Agreement contained in the Separation Agreement.
¶8 The Noncompetition Agreement expired on February 28,
2012. In September 2012, Shufeldt filed this case alleging NextCare
breached the Separation Agreement in June 2011 by failing to make the
monthly payments. Shufeldt alleged the Separation Agreement “expressly
modified and extended” the Noncompetition Agreement, that NextCare
materially breached by failing to pay Shufeldt and that, as a result,
Shufeldt had been damaged in the amount of nearly $260,000 plus
attorneys’ fees and costs. NextCare’s answer stated Shufeldt breached “the
Separation Agreement and the . . . Noncompetition Agreement by
operating a competing enterprise during the terms of those respective
agreements” and, tacitly asserting this constituted the first material
breach, alleged NextCare “owes no further payments to” Shufeldt.
¶9 After the completion of discovery, NextCare moved for
summary judgment, claiming that by owning, controlling and treating
patients through MeMD, Shufeldt engaged in a “Competing Business”
and breached the Separation Agreement and Noncompetition Agreement.
Shufeldt cross-moved for summary judgment, claiming the
Noncompetition Agreement was unenforceable and severable from the
Separation Agreement and that he was entitled to judgment as a matter of
law.
¶10 After full briefing, and waiver of oral argument, the superior
court granted NextCare’s motion and denied Shufeldt’s motion. After
rejecting as a matter of law Shufeldt’s argument that his presentation of
the MeMD concept to NextCare in September 2010 resulted in a waiver of
NextCare’s contractual rights, the court rejected Shufeldt’s argument that
the Noncompetition Agreement was unenforceable:
The reasonableness of a restrictive covenant “is
a fact-intensive inquiry that depends on the
totality of the circumstances.” Valley Medical
Specialists v. Farber, 194 Ariz. 363, 369, ¶ 20, 982
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P.2d 1277, 1283 (1999). Moreover, “each case
must be decided on its own unique facts.” Id. at
¶ 21.
Here, the Court finds no financial
hardship to Shufeldt, who was paid his salary
during the time he was restricted from
engaging in a competing business. Nor does
the Court find an unequal bargaining position
between Shufeldt, the founder and CEO of
NextCare, and NextCare itself.
The Arizona Supreme Court has held
that a restrictive covenant between a physician
and his employer cannot be enforced when the
employers’ “interest in enforcing the restriction
is outweighed by the likely injury to patients
and the public in general.” Farber, supra, at 372,
¶ 33, 982 P.2d at 1286. Here, the Court finds
that the noncompetition agreement had no
effect on patient choice or the general
availability of urgent care to the public, and
thus resulted in no likely injury to patients or
to the public in general.
Balancing all of the factors, the Court
finds the noncompetition agreement in this
case to be reasonable, and thus enforceable.
¶11 Shufeldt moved for reconsideration, claiming: (1) MeMD is
not a “Competing Business;” (2) “whether NextCare committed the first
material breach remains an issue of fact for the jury;” (3) a written waiver
of the contractual terms by NextCare was not required, suggesting the
issue of waiver created an issue of fact for the jury and (4) the
Noncompetition Agreement is unenforceable. Finding “no circumstances
warranting reconsideration in this case,” the court denied the motion
without a response. The court then entered final judgment awarding
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NextCare attorneys’ fees and taxable costs. See Ariz. R. Civ. P. 54(c)
(2016).2
¶12 This court has jurisdiction over Shufeldt’s timely appeal
pursuant to Arizona Revised Statutes (A.R.S.) §§ 12-120.21(A)(4) and -
2101(A)(1).
DISCUSSION
¶13 Summary judgment is proper “if the moving party shows
that there is no genuine dispute as to any material fact and the moving
party is entitled to judgment as a matter of law.” Ariz. R. Civ. P. 56(a).
This court reviews the entry of summary judgment de novo, to determine
“whether any genuine issues of material fact exist,” Brookover v. Roberts
Enter., Inc., 215 Ariz. 52, 55 ¶ 8 (App. 2007), and will affirm summary
judgment if it is correct for any reason, Hawkins v. State, 183 Ariz. 100, 103
(App. 1995). Although reasonableness in determining the enforceability of
a noncompetition agreement is a fact-intensive inquiry based on the
totality of the circumstances, see Farber, 194 Ariz. at 366-67 ¶ 11, this court
reviews de novo the entry of summary judgment.
I. The Noncompetition Agreement Is Enforceable.
¶14 Shufeldt argues the Noncompetition Agreement was
unenforceable under Farber. NextCare argues Farber does not apply:
Farber and all of the other restrictive
covenant cases involve restrictive covenants
entered into as part of an employment
agreement which were being enforced after
termination of the employment without
payment of additional, substantial sums to the
former employee in consideration for
compliance with that covenant. In contrast, the
instant case involves a restrictive covenant
incorporated into a separation agreement, and
in consideration for compliance therewith, Dr.
Shufeldt, was to receive his full salary during
the term of the covenant. This is a glaring and
2Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.
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dispositive distinction from Farber and the
other restrictive covenant cases.
At oral argument before this court, NextCare argued the enforceability of
the Noncompetition Agreement is governed by general contract principles
(not Farber). Because NextCare had shown offer, acceptance, consideration
and certainty of terms, it argued the Noncompetition Agreement was
enforceable without further inquiry. See K-Line Builders, Inc. v. First Federal
Savings & Loan Ass’n, 139 Ariz. 209, 212 (App. 1983) (citing cases).
¶15 As NextCare suggests, Farber is different from this case in
significant substantive and procedural ways. First, in this case, the
Noncompetition Agreement allowed Shufeldt to practice medicine in
hospital emergency departments and non-Competing Businesses, while
the covenant in Farber prohibited the doctor “from providing any and all
forms of ‘medical care.’” 194 Ariz. at 369 ¶ 21. Second, in this case, the
Noncompetition Agreement obligated NextCare to pay Shufeldt nearly
$500,000 during the covenant after the termination of his employment (if
Shufeldt did not first materially breach his obligations), while the
covenant in Farber involved no post-employment compensation. 194 Ariz.
at 364-65 ¶ 3. Third, Shufeldt filed this case seeking money damages after
the Noncompetition Agreement expired given the passage of time, while
in Farber, the former employer sought to enjoin the doctor from practicing
medicine during the noncompetition period. 194 Ariz. at 365-66 ¶¶ 3-4.
Unlike Farber, NextCare never sought to enjoin Shufeldt from practicing
medicine in any respect.
¶16 Notwithstanding these significant differences, NextCare has
not shown the analysis in Farber does not apply here. These differences
show that many of the concerns expressed in Farber about protecting the
doctor-patient relationship are not present in this case. 194 Ariz. at 369 ¶
19. But NextCare has failed to show Farber is inapplicable. Accordingly,
notwithstanding these significant differences, Farber provides the proper
analytical framework for assessing the enforceability of the
Noncompetition Agreement.
¶17 In general, “a contract restricting the right of an employee to
compete with an employer after termination of employment ‘which is not
unreasonable in its limitations should be upheld in the absence of a
showing of bad faith or of contravening public policy.’” Fearnow v.
Ridenour, Swenson, Cleere & Evans, P.C., 213 Ariz. 24, 26 ¶ 8 (2006) (quoting
Lassen v. Benton, 86 Ariz. 323, 328 (1959)). Because “the doctor-patient
relationship is special and entitled to unique protection,” a
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noncompetition agreement to which a physician is a party “will be strictly
construed for reasonableness” based on “the totality of the
circumstances.” Farber, 194 Ariz. at 369 ¶¶ 19, 20. “A restriction is
unreasonable and thus will not be enforced: (1) if the restraint is greater
than necessary to protect the employer’s legitimate interest; or (2) if that
interest is outweighed by the hardship to the employee and the likely
injury to the public.” Id. at 369 ¶ 20 (citations omitted). This
“reasonableness inquiry” focuses on “the interests of the employer,
employee, patients, and public in general,” recognizing that “no exact
formula can be used” in balancing these competing interests. Id. (citations
omitted).
¶18 “Balancing all of the factors,” the superior court concluded
the Noncompetition Agreement was reasonable, noting: (1) there was no
financial hardship to Shufeldt, “who was paid his salary during the time
he was restricted from engaging in a competing business;” (2) there was
no unequal bargaining power; and (3) “the noncompetition agreement
had no effect on patient choice or the general availability of urgent care to
the public, and thus resulted in no likely injury to patients or to the public
in general.” Shufeldt claims this was reversible error.
¶19 Focusing on NextCare’s interests, it is not genuinely
disputed that Shufeldt “was intimately familiar and involved with all of
NextCare’s operations, strategies, policies, procedures and data.” Indeed,
it appears undisputed that Shufeldt was an “inventor of the urgent care
model and an expert in the field of urgent care business.” NextCare
demonstrated it had a legitimate interest in restricting Shufeldt “from
offering to any competing businesses his knowledge and expertise about
the urgent care business gained during his tenure as the founder, owner,
chairman and CEO” of NextCare. See Farber, 194 Ariz. at 370 ¶ 22.
¶20 Shufeldt’s interest, at all times relevant here, was practicing
emergency medicine, which the Noncompetition Agreement restricted,
but did not preclude. Apart from the terms of the Noncompetition
Agreement, NextCare never sought to enjoin Shufeldt from practicing
medicine in any respect. And the Separation Agreement obligated
NextCare to pay Shufeldt during the term of the Noncompetition
Agreement, provided he complied with his contractual obligations. Thus,
Shufeldt was restricted in, but not prohibited from, practicing emergency
medicine and did not incur a financial hardship. Cf. Farber, 194 Ariz. at 371
¶ 27 (noting “restraint must be limited to the particular specialty”
involved).
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¶21 The Noncompetition Agreement restricted Shufeldt’s
practice in an urgent care facility for 18-months within a 25-mile radius of
any location where NextCare “conducts business or has conducted
business (or has at any time actively explored conducting business)
during the 24 months preceding” Shufeldt’s termination. Shufeldt argues
this restriction limited him from engaging in a “Competing Business” in
the Phoenix or Tucson metropolitan areas. As noted above, however,
unlike in Farber, NextCare agreed to compensate Shufeldt during this 18-
month period. Similarly, unlike in Farber, Shufeldt could practice medicine
in hospital emergency departments (including “in a hospital emergency
room”) and non-Competing Businesses. Cf. Farber, 194 Ariz. at 366 ¶6, 370
¶26, 372 ¶33 (holding noncompetition agreement precluding
pulmonologist from practicing any type of medicine for three years and
covering a five-mile radius of all medical centers unreasonable). These
distinctions from Farber do not compel a finding that the geographic scope
of the restriction required the Noncompetition Agreement to be stricken
as unenforceable.3
¶22 Nor does patient choice or the general availability of urgent
care mandate a finding the Noncompetition Agreement was
unenforceable. NextCare did not seek injunctive relief prohibiting
Shufeldt from practicing medicine. Moreover, although even an
unenforced covenant not to compete could have a chilling impact on a
doctor’s practice, there is no showing that occurred here. Indeed, before
3 Although the geographic scope of a covenant not to compete is a factor,
it is not dispositive. Compare Phoenix Orthopeadic Surgeons, Ltd v. Peairs, 164
54, 60 (App. 1989) (rejecting challenge to covenant prohibiting conduct
within a five-mile radius of former employer’s offices), overruled on other
grounds by Farber, 194 Ariz. 363, with Farber, 194 Ariz. at 365, 371 (striking
similar covenant); see also Compass Bank v. Hartley, 430 F. Supp. 2d 973, 980
(D. Ariz. 2006) (rejecting, in issuing preliminary injunction, challenge to
covenant prohibiting conduct within 25-mile radius of former employer’s
offices) (applying Arizona law); Bed Mart, Inc. v. Kelley, 373 202 Ariz. 370,
373-74 ¶¶17-18 (App. 2002) (rejecting challenge to covenant prohibiting
conduct within 10-mile radius of former employer’s offices); Varsity Gold,
Inc. v. Porzio, 202 Ariz. 355, 356 ¶ 4 (App. 2002) (striking covenant
prohibiting conduct “‘in the State of Pennsylvania or any contiguous
state’”); Gann v. Morris, 122 Ariz. 517, 518 (App. 1979) (rejecting challenge
to covenant prohibiting conduct in “Tucson and a 100 mile radius of
Tucson”). As Farber noted in distinguishing Peairs, “each case must be
decided on its own unique facts.” 194 Ariz. at 369 ¶ 21.
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the superior court, Shufeldt asserted that he “started an innovative online
venture [MeMD] intended to expand patient choice by providing a new
platform for non-urgent patients to consult with physicians via remote
online interaction.” (Emphasis added.)
¶23 On this record, applying Farber and given the significant
differences between this case and Farber, the court did not err in
concluding the Noncompetition Agreement was not unreasonable and
was enforceable. See Farber, 194 Ariz. at 365 ¶ 11 (“‘Each case hinges on its
own particular facts.’”) (quoting Bryceland v. Northey, 160 Ariz. 213, 217
(App. 1989)); see also id. at 369 ¶ 20 (“Reasonableness is a fact-intensive
inquiry that depends on the totality of the circumstances.”) (citing cases).
¶24 Shufeldt next argues the superior court erred by not
explicitly imposing a burden on NextCare to show the Noncompetition
Agreement was reasonable. See Farber, 194 Ariz. at 372 ¶ 33 (“The burden
is on the party wishing to enforce the covenant to demonstrate that the
restraint is no greater than necessary to protect the employer’s legitimate
interest, and that such interest is not outweighed by the hardship to the
employee and the likely injury to the public. Here VMS has not met that
burden.”). But the court properly found the Noncompetition Agreement
was reasonable based on the record presented in briefing cross-motions
for summary judgment. On this record, Shufeldt has not shown any
allocation of the appropriate burden resulted in an erroneous decision.
¶25 Shufeldt next argues the superior court “made no inquiry or
findings” regarding NextCare’s legitimate interests and whether the
Noncompetition Agreement was “no greater than necessary.” The court
expressly discussed why it found the Noncompetition Agreement was
enforceable. Moreover, although courts are encouraged “to state on the
record the reasons for” ruling on a motion for summary judgment, Ariz.
R. Civ. P. 56(a), as applicable here, “[f]indings of fact and conclusions of
law are unnecessary on decisions of motions” for summary judgment,
Ariz. R. Civ. P. 52(a). And, as discussed above, given the differences
between this case and Farber, Shufeldt has shown no substantive error in
assessing the Noncompetition Agreement. Accordingly, Shufeldt has not
shown the superior court erred in concluding the Noncompetition
Agreement was enforceable.4
4For similar reasons, Shufeldt has not shown the superior court erred in
denying his motion to reconsider addressing these issues. In addition,
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II. Genuine Issues Of Material Fact Preclude Summary Judgment
On Breach.
¶26 “‘To bring an action for the breach of the contract, the
plaintiff has the burden of proving the existence of the contract, its
[material] breach and the resulting damages.’” Thomas v. Montelucia Villas,
LLC, 232 Ariz. 92, 97 ¶ 16 (2015) (quoting Graham v. Asbury, 112 Ariz. 184,
185 (1975)). As applicable here, the inquiry includes whether Shufeldt (by
competing) or NextCare (by refusing to pay) committed the first material
breach of the Separation Agreement. See Murphy Farrell Development, LLLP
v. Sourant, 229 Ariz. 124, 133 ¶ 33 (App. 2012) (noting “that an uncured
material breach of contract relieves the non-breaching party from the duty
to perform and can discharge that party from the contract”) (citing
authority). Because the Noncompetition Agreement and the Separation
Agreement are enforceable, the remaining issues to be resolved in
addressing the parties’ competing motions for summary judgment were
whether, as a matter of law, Shufeldt committed the first material breach
of the Separation Agreement, relieving NextCare of its obligation to pay
him.
¶27 By entering summary judgment and then final judgment in
its favor, the superior court determined, as a matter of law, that MeMD
was a Competing Business; that Shufeldt breached; that Shufeldt’s breach
constituted the first material breach and that, as a result, NextCare was
relieved of its obligation to make the remaining payments. On appeal,
Shufeldt claims disputed issues of material fact precluded summary
judgment on these points, including whether his conduct constituted a
material breach and, even if it did, whether NextCare waived its rights by
approving (or not objecting to) his actions involving MeMD as early as
September 2010.
¶28 The record shows the parties provided conflicting evidence
about their actions from August 31, 2010 (the effective date of the
Separation Agreement) until NextCare stopped paying Shufeldt in June
2011.
¶29 Shufeldt’s evidence suggests that, in and after September
2010, but before MeMD’s website launched, Shufeldt spoke to NextCare’s
president John Julian several times. Shufeldt testified at his deposition that
given this conclusion, Shufeldt’s argument that the Noncompetition
Agreement was severable from the Separation Agreement is moot.
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he presented the idea of a partnership with MeMD to Julian multiple
times, and to another representative of NextCare as well, and NextCare
declined. Shufeldt also testified that he did not believe the MeMD virtual
medicine concept violated the Noncompetition Agreement. Shufeldt
testified that, after he presented the MeMD concept to NextCare in
September 2010, no one at NextCare told him that his efforts with MeMD
would violate the Noncompetition Agreement.
¶30 Shufeldt further testified that he received an email from
Julian in January 2011 stating “I hope you are doing well John, and the
new ventures are progressing.” Shufeldt testified that, even though he did
not believe the practice of virtual medicine violated the Noncompetition
Agreement, MeMD partnered with an urgent care facility in Lake Havasu
City, outside the geographic scope of the Noncompetition Agreement, in
an effort to be “overly cautious.” Shufeldt offered evidence (including pre-
dispute evidence) that could be read as indicating MeMD was not a
Competing Business, including that it was affiliated with a Lake Havasu
City facility well beyond the 25-mile radius of the Noncompetition
Agreement and that MeMD did not compete with NextCare.
¶31 NextCare’s evidence was in conflict. During his deposition,
Julian claimed no one at NextCare received a personal solicitation from
Shufeldt regarding MeMD. According to Julian, MeMD sent a general
solicitation to NextCare officer Laurel Stoimenoff in the fall of 2010. Julian
described it as:
a blanket, you know, marketing solicitation
sent probably to everybody on an urgent care
list. Because it was somewhat generic in form.
And it basically said, you know, MeMD would
like to recruit your urgent care physicians to be
part of our network to provide telemedicine
and urgent care services for our patients. If you
would like to generate revenue for your
providers and generate traffic for your clinic,
you know, please join us, call this number.
After Julian received the flyer, he put it in a folder he kept about MeMD.
Julian and others at NextCare, including NextCare’s general counsel,
conducted a month-long review of MeMD “in the fall of 2010.” At some
point, NextCare sent the collected information to outside counsel with the
directive “to contact [Shufeldt] and let him know that given all the
information we’ve acquired here, we believe he’s competing against us
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and he should cease and desist.” This apparently led to NextCare’s June
2011 decision to stop paying Shufeldt. This conflicting evidence presents
disputed issues of material fact not appropriate for resolution by
summary judgment. See generally Ariz. R. Civ. P. 56(a).
¶32 As discussed above, Shufeldt testified he met with Julian
starting in September 2010 and unsuccessfully invited NextCare to partner
with MeMD. Shufeldt asserted he disclosed to NextCare what MeMD
would be, what he intended to do with MeMD and NextCare expressed
no concern that MeMD’s conduct would violate the Noncompetition
Agreement. Indeed, Shufeldt testified that no one from NextCare told him
MeMD would violate the Noncompetition Agreement. According to
Shufeldt’s facts, MeMD, as a virtual medicine delivery platform partnered
with a Lake Havasu City facility outside of the geographic scope of the
Noncompetition Agreement, may not have been a “Competing Business”
under that contract, an issue implicating whether Shufeldt’s affiliation
with MeMD was the first material breach of the parties’ contractual
obligations.
¶33 As noted by the Arizona Supreme Court, such pre-dispute
conduct may be relevant to determining the meaning of contract terms,
which implicates whether the contract was breached. See Darner Motor
Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 393 (1984)
(“Evidence on surrounding circumstances, including negotiation, prior
understandings, subsequent conduct and the like, . . . may be used to
interpret the meaning of the provisions contained in the agreement. This
method obtains even though the parties have bargained for and written
the actual words found in the instrument.”) (citations omitted); Abrams v.
Horizon Corp., 137 Ariz. 73, 79 (1983) (similar). These facts, which
NextCare disputed, indicate the issue could not be resolved as a matter of
law on this record.
¶34 Shufeldt asserted this same conduct constituted a waiver by
NextCare, even if Shufeldt’s conduct otherwise could be construed as
having materially breached his contractual obligations to NextCare. The
summary judgment ruling stated NextCare never expressly waived its
rights or made unequivocal statements that it did not view MeMD as a
competing business; that Shufeldt never told NextCare that MeMD would
be competing with NextCare and that the Separation Agreement provided
that any waiver must be in writing and no such written waiver exists. But
a party need not expressly and unequivocally waive a contractual right for
a waiver to be effective. Instead, such a waiver may occur given the
passage of time, by inaction, implied from the circumstances or by
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conduct that “warrants an inference of . . . an intentional relinquishment”
of a known right. Russo v. Barger, 239 Ariz. 100, 103 ¶ 12 (App. 2016); see
also College Book Centers, Inc. v. Carefree Foothills Homeowners’ Ass’n, 225
Ariz. 533, 539 ¶ 22 (App. 2010) (“In the absence of an express waiver, the
intent to relinquish a right may be implied from the circumstances. In
context of this case, we do not find a meaningful distinction between
action and inaction.”) (citing Southwest Cotton Co. v. Valley Bank, 26 Ariz.
559, 563 (1924) (noting for waiver inferred from conduct, “it is essentially a
matter of intention . . . and, if the conduct from which such intention must
be inferred is such that reasonable minds may differ as to what the
inference should be whether there is a waiver becomes a question of fact
to be determined from the evidence submitted”)).
¶35 As discussed above, what Shufeldt told NextCare about
what MeMD would be doing is disputed. And the lack of a written waiver
required by the contract here is not dispositive. See Phoenix Orthopeadic
Surgeons, Ltd v. Peairs, 164 Ariz. 54, 57-58 (App. 1989) (noting “general
rule” that the “parties to a written contract may alter or modify its terms
by a subsequent oral agreement even though the contract precludes oral
modification”) (citation omitted), overruled on other grounds by Farber, 194
Ariz. 363.
¶36 On the record presented, disputed issues of material fact
precluded summary judgment, including, but not limited to, (1) the
meaning of “Competing Business;” (2) whether Shufeldt’s conduct falls
within the meaning of “Competing Business;” (3) which party committed
the first material breach and (4) whether NextCare waived its right to
enforce the Noncompetition Agreement. Accordingly, the entry of
summary judgment is vacated.5
III. Attorneys’ Fees And Costs.
¶37 Both parties request attorneys’ fees and costs incurred on
appeal. These requests are denied without prejudice to their reassertion
with the superior court upon final resolution of the parties’ claims on
remand.
5 As a result, Shufeldt’s arguments about the denial of his motion to
reconsider these issues are moot.
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SHUFELDT v. NEXTCARE
Decision of the Court
CONCLUSION
¶38 Although the superior court properly found the
Noncompetition Agreement was enforceable, disputed issues of material
fact precluded summary judgment. Accordingly, summary judgment is
vacated and this matter is remanded for further consideration consistent
with this decision.
AMY M. WOOD • Clerk of the Court
FILED: AA
15