Northwest Oral Surgeons, P.C. v. Joseph Lovasko, D.D.S. (mem. dec.)

MEMORANDUM DECISION
FILED
Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be Sep 29 2016, 8:24 am
regarded as precedent or cited before any CLERK
Indiana Supreme Court
court except for the purpose of establishing Court of Appeals
and Tax Court
the defense of res judicata, collateral
estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Scott E. Yahne John P. Reed
Yahne Law, P.C. Abrahamson, Reed & Bilse
Munster, Indiana Hammond, Indiana
David E. Wickland
Munster, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Northwest Oral Surgeons, P.C., September 29, 2016
Appellant-Defendant, Court of Appeals Case No.
45A03-1604-PL-734
v. Appeal from the Lake Superior
Court
Joseph Lovasko, D.D.S., The Honorable Bruce D. Parent,
Appellee-Plaintiff. Special Judge
Trial Court Cause No.
45D04-1112-PL-125
Bailey, Judge.
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Case Summary
[1] Joseph Lovasko, D.D.S. (“Dr. Lovasko”) brought suit against Northwest Oral
Surgeons, P.C. (“Northwest”) for breach of a severance agreement, inter alia.
Northwest countersued, alleging that Dr. Lovasko failed to repay a loan from
Northwest, and that Dr. Lovasko was obligated to repay Northwest for certain
deficits related to Dr. Lovasko’s failure to satisfy payment obligations
associated with unearned compensation that Northwest had paid in advance.
The matter proceeded to a bench trial. The trial court found that Northwest
breached the terms of the severance agreement with Dr. Lovasko, and that
Northwest was entitled to an offset against its liability to Dr. Lovasko as a result
of his failure to repay the loan. Dr. Lovasko filed a motion to correct error
related to the calculation of the damages owed by Northwest; the trial court
entered a corrected award of damages with respect to Dr. Lovasko’s damages
and corrected Northwest’s offset against the judgment, to incorporate both the
loan and the deficit from compensation Northwest had paid in advance.
Northwest now appeals the trial court’s determination of damages.
[2] We affirm.
Issues
[3] Northwest raises several issues on appeal. We find two dispositive:
I. Whether the trial court erred in its construction of contract
provisions related to the determination of the date of Dr.
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Lovasko’s disability for the purposes of calculating his
severance benefit; and
II. Whether the trial court erred in calculating the amount of
Dr. Lovasko’s severance benefit.
Facts and Procedural History
[4] We present the facts of this case in conformance with the standard of review,
and focus only on those facts relevant to the issues now before us.1
[5] Dr. Lovasko was, until 2011, employed as a dentist with Northwest and its
predecessor corporation.2 Dr. Lovasko, along with Dr. Paul Wolf (“Dr.
Wolf”), another member of the practice, were shareholders in Northwest and
the predecessor corporation.
[6] In 2002, after a restructuring of the practice along with Dr. Wolf and another
dentist, Dr. Lovasko and Northwest entered into a Restatement of Severance
Benefits Agreement (“the Severance Agreement”). The Severance Agreement
1
The statement of facts portions of both parties’ briefs fail to conform to the standards set forth in our
Appellate Rules and case law. Northwest advances an argumentative presentation of the facts that focuses
on its preferred interpretation of contract provisions and evidence, and Dr. Lovasko’s statement of facts also
includes argumentation. We remind counsel that the statement of facts “shall be stated in accordance with
the standard of review appropriate to the judgment or order being appealed,” Ind. Appellate Rule
46(A)(6)(b), and that the statement of facts “must also be devoid of argument.” Ramsey v. Review Bd. of
Indiana Dep't of Workforce Dev., 789 N.E.2d 486, 489 (Ind. Ct. App. 2003). Further, Northwest’s statement of
the case cites large portions of the trial court’s orders. We remind counsel that the statement of the case
“shall briefly describe the nature of the case, the course of the proceedings relevant to the issues presented for
review, and the disposition of these issues by the trial court or Administrative Agency.” App. R. 46(A)(5)
(emphasis added).
2
For convenience’s sake, we refer throughout to Northwest and all predecessor corporations as Northwest.
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provided for a calculated severance benefit for Dr. Lovasko or his estate in the
event of death, disability, retirement, or other situations related to separation of
employment. Dr. Lovasko was defined in the agreement as an Equal
Shareholder Employee. Under the Severance Agreement, an Equal
Shareholder Employee’s estate was entitled, upon death, to “a Death Severance
Benefit equal to eighty (80%) percent of the average of the annual compensation
paid to an Equal Shareholder Employee for the eight (8) quarters preceding the
date of death.” (Appellant’s App’x at 44.)
[7] The same benefit was to inure to a permanently disabled Equal Shareholder
Employee, with the exception that the severance benefit would be reduced by
the amount of any disability payments made to the Equal Shareholder
Employee from insurance funds under any disability insurance policies
purchased by Northwest. Permanent disability was defined to mean an
employee’s “inability to fully perform services for or on behalf of [Northwest]”
as required by any employment agreements where the condition giving rise to
the inability to perform “continu[ed] for a period of one (1) year.” (Appellant’s
App’x at 44.)
[8] Beginning around 2008, Dr. Wolf sought to change Northwest’s compensation
model from one where dentists shared revenues to one where dentists were paid
entirely on a production-based compensation model—that is, relative to each
dentist’s contribution to revenues, less certain overhead costs. Dr. Lovasko did
not agree to this plan in its entirety. Nevertheless, compensation of physicians
moved toward the production model, with salary taking the form of an advance
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against each doctor’s future revenues. Northwest would also pay as an advance
certain expenses for each dentist, such as marketing, cellular phones, and
vehicle use, and dentists became eligible for production bonuses upon reaching
certain revenue milestones. Also during this timeframe, in 2009, a third dentist,
Dr. Sherif Mekhail (“Dr. Mekhail”) became an Equal Shareholder Employee
alongside Drs. Lovasko and Wolf.
[9] In May 2011, Dr. Lovasko incurred back injuries that prevented him from
continuing to work for Northwest. Dr. Lovasko’s final day of work was May 2,
2011. On September 16, 2011, Dr. Lovasko announced his retirement.
[10] Conflict over compliance with various agreements arose between Dr. Lovasko
on the one hand and Northwest and Drs. Wolf and Mekhail on the other. On
August 2, 2011, Dr. Lovasko filed a complaint in the trial court, setting out
multiple counts against the various defendants, including breach of contract and
fiduciary duties with respect to shareholder and employment agreements, fraud,
and wage claim violations. Dr. Lovasko also alleged that Northwest breached
the provisions of the Severance Agreement.
[11] On November 15, 2011, Northwest answered the complaint and asserted
counterclaims. Among the counterclaims were allegations that Dr. Lovasko
had failed to repay a loan that Northwest had extended to him, and that Dr.
Lovasko owed money to Northwest to compensate for deficits related to his
failure to draw in sufficient revenues to cover the cost of his salary and other
compensation.
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[12] After motions for summary judgment, the trial court disposed of a number of
the counts in Dr. Lovasko’s complaint. Other counts, including Dr. Lovasko’s
claim that Northwest breached the Severance Agreement and Northwest’s
claims concerning the loan and deficit attributable to Dr. Lovasko, remained for
trial.
[13] On June 24, 2015, Northwest filed a written motion for findings of fact and
conclusions thereon. A bench trial was conducted on June 24, 25, and 26,
2015. During the trial, live or deposition testimony was offered by Drs.
Lovasko, Wolf, and Mekhail; Jack Weichman, Northwest’s accountant; and
several other witnesses.
[14] At the conclusion of the trial, the court took the case under advisement. On
November 9, 2015, the trial court issued findings of fact and conclusions
thereon and entered judgment. The trial court found that Northwest had
breached the Severance Agreement. The court construed the agreement to
require that the appropriate look-back period for calculating the severance
benefit commenced with the quarter prior to Dr. Lovasko’s last day of work in
May 2011. The court further construed the contract to required that the
severance benefit be calculated with reference to all three doctors’
compensations, and found that that the proper measure of that compensation
was the average across the three dentists of the top-line value of all the income
available for allocation to partners after revenues were allocated to cover the
overhead of running the business itself. Based upon this construction, the trial
court found that Northwest owed Dr. Lovasko a severance benefit of $122,152,
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as well as $10,416 for certain expenses incurred by Dr. Lovasko for which
Northwest had not provided compensation. (Appellant’s App’x at 41, 42.) The
trial court also found that Dr. Lovasko had failed to repay the loan Northwest
had given him, and determined the amount of that debt to be $10,000.
(Appellant’s App’x at 43.) With the offset, the court’s aggregate judgment in
favor of Dr. Lovasko was $122,568. (Appellant’s App’x at 43.)
[15] On December 8, 2015, Dr. Lovasko filed a motion to correct error in which he
challenged the trial court’s calculation of the severance benefit. Dr. Lovasko
argued that the trial court’s calculation was a correct calculation of the average
quarterly compensation called for in the Severance Agreement, but that the
court had failed to annualize that amount and should have entered judgment in
the amount of $488,608—four times the trial court’s calculation in its order
after trial. In response, Northwest argued that the trial court had misconstrued
the Severance Agreement when the court used a look-back period that
commenced at the time Dr. Lovasko’s injury started, rather than the one-year
mark defining permanent disability in the contract; that the trial court erred in
using the compensation available to all three dentists instead of only that
available to Dr. Lovasko; and that the court should have used only the gross
salary paid to Dr. Lovasko, and not the top-line figure of all funds available for
allocation. Northwest also argued that the trial court had erred when it did not
find that Northwest was entitled to compensation of the funds it had advanced
to Dr. Lovasko. Moreover, each party sought pre-judgment interest on their
claims.
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[16] A hearing was conducted on the motion and Northwest’s response. On
February 4, 2016, the trial court entered its order in response to the motion to
correct error and the responsive briefing. The court agreed with Dr. Lovasko
that while its calculations were correct, it had failed to properly extend the
quarterly average compensation over the course of a year. The court therefore
quadrupled the severance benefit from $122,152 to $488,608, and reaffirmed the
award of $10,416 in compensation for expenses. (Appellant’s App’x at 26.)
The court also agreed with Northwest that Northwest had established its
entitlement to payment from Dr. Lovasko of the funds it had advanced to him;
these totaled $90,512. (Appellant’s App’x at 26.) Accordingly, the trial court
found that Northwest was entitled to an offset of $100,512 against the funds
Northwest owed to Dr. Lovasko. (Appellant’s App’x at 26.) This yielded an
aggregate award to Dr. Lovasko of $398,512.
[17] On March 4, 2016, the trial court entered a supplemental order that awarded
Dr. Lovasko prejudgment interest on the judgment. The court calculated the
pre-judgment interest owed to Dr. Lovasko on the $398,512 judgment to be
$42,026.09, yielding a total award to Dr. Lovasko of $440,538.09. (Appellant’s
App’x at 19.) The court ordered a five-year payment schedule for Northwest, in
conformance with the Severance Agreement’s payment provisions, and ordered
that Northwest make monthly payments to Dr. Lovasko of $6,641.87.
(Appellant’s App’x at 18.)
[18] This appeal ensued.
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Discussion and Decision
Standard of Review
[19] Northwest appeals the trial court’s order determining damages; that order came
in response to Dr. Lovasko’s motion to correct error. Our standard of review
for decisions upon motions to correct error is well settled. We review a trial
court’s order upon a motion to correct error for an abuse of discretion, which
occurs when the trial court’s decision is clearly against the logic and effect of
the facts and circumstances before it, or when the court errs on a matter of law.
Corn v. Corn, 24 N.E.3d 987, 993 (Ind. Ct. App. 2015), trans. denied.
[20] Northwest’s challenge to the trial court’s decision on the motion to correct error
followed the court’s original entry of judgment along with findings of fact and
conclusions thereon. Where, as here, a party has filed a written request for
findings and conclusions pursuant to Trial Rule 52, we employ a two-tiered
standard of review:
First, we consider whether the evidence supports the findings,
and second, whether the findings support the judgment. We
neither reweigh the evidence nor assess witness credibility, and
we consider only the evidence most favorable to the judgment.
We will set aside the trial court's findings and conclusions only if
they are clearly erroneous, that is, if the record contains no facts
or inferences supporting them. We review conclusions of law de
novo.
Huber v. Hamilton, 33 N.E.3d 1116, 1122 (Ind. Ct. App. 2015) (citations
omitted), trans. denied, 41 N.E.3d 690 (Ind. 2015). A party challenging a trial
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court’s judgment must bear a heavy burden, but one that may be overcome by
showing that the trial court’s findings are clearly erroneous. Oil Supply Co. v.
Hires Parts Serv., Inc., 726 N.E.2d 246, 248 (Ind. 2000).
Disability Date
[21] Northwest’s first contention on appeal is that the trial court erroneously
construed contract provisions relating to the date of Dr. Lovasko’s disability.
Questions of contract construction are pure questions of law. Fraternal Order of
Police, Evansville Lodge, No. 73, Inc. v. City of Evansville, 940 N.E.2d 314, 318 (Ind.
Ct. App. 2010), trans. denied.
When construing the meaning of a contract, our primary task is
to determine and effectuate the intent of the parties. First, we
must determine whether the language of the contract is
ambiguous. The unambiguous language of a contract is
conclusive upon the parties to the contract and upon the courts.
If the language of the instrument is unambiguous, the parties’
intent will be determined from the four corners of the contract.
If, on the other hand, a contract is ambiguous, its meaning must
be determined by examining extrinsic evidence and its
construction is a matter for the fact finder. When interpreting a
written contract, we attempt to determine the intent of the parties
at the time the contract was made. We do this by examining the
language used in the instrument to express their rights and duties.
We read the contract as a whole and will attempt to construe the
contractual language so as not to render any words, phrases, or
terms ineffective or meaningless. We must accept an
interpretation of the contract that harmonizes its provisions,
rather than one that places the provisions in conflict.
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Id. at 318–19 (quoting Whitaker v. Brunner, 814 N.E.2d 288, 293-94 (Ind. Ct.
App. 2004), trans. denied).
[22] Here, Northwest challenges the trial court’s interpretation of specific provisions
in the Severance Agreement with Dr. Lovasko, whom all parties agree was
permanently disabled and entitled to benefits under the Severance Agreement.
The Severance Agreement provides for severance benefits in the event of an
employee’s death, permanent disability, or voluntary termination of
employment with Northwest. In cases of permanent disability, Section 2 of the
contract provides:
SECTION 2. Severance Benefit Upon Permanent Disability.
In the event of the permanent disability of the Employee, the
Corporation shall pay to the employee a Disability Severance
Benefit equal to the Severance Benefit payable upon the death of
the Employee, reduced however, (but not below zero) by the
Disability Income Payments made to the Employee by the
Corporation from proceeds paid to the Employee from any
disability insurance policies, the premiums of which are paid for
by the Corporation.
For purposes of this agreement, the Employee’s permanent
disability shall mean the Employee’s inability to fully perform
services for and on behalf of the Corporation in accordance with
prior services rendered or as required by any employment
contract, and that condition shall continue for a period of one (1)
year.
[23] (Appellant’s App’x at 44.) The parties agree that Dr. Lovasko received no
disability insurance proceeds from any policy held by Northwest.
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[24] Section 2’s payment calculation relies in part on the provisions of Section 1:
SECTION 1. Severance Benefit Upon Death. In the event of
the death of the Employee, the Corporation shall pay to the
Estate of the Employee, or his designated beneficiary, a Death
Severance Benefit equal to eighty percent (80%) of the average of
the annual compensation paid an Equal Shareholder Employee
for eight (8) quarters preceding the date of death. For the
purposes hereof, an “Equal Shareholder Employee” shall mean
an employee who owns at least one hundred (100) shares of the
issued and outstanding common capital stock of the Corporation.
(Appellant’s App’x at 44.)
[25] Section 4 of the agreement sets forth the schedule for payment of the severance
benefit. The Severance Agreement provides that payment of benefits was to be
made “in equal monthly installments over a five (5) year period,” and provides
for calculation of interest. (Appellant’s App’x at 46.) The contract further
provides, “In the event of the Employee’s permanent disability, settlement shall
take place within thirty (30) days of the one (1) year anniversary of the
inception of the Employee’s disability.” (Appellant’s App’x at 46.) In the event
of an employee’s death or voluntary separation, severance benefits were to be
settled within sixty days of the qualifying event.
[26] Northwest acknowledges the interrelation of the provisions above. However,
Northwest argues that the trial court erred in construing Section 2’s language
defining permanent disability. The parties agree that Dr. Lovasko became
disabled in May 2011. In light of Dr. Lovasko’s disability, the trial court
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construed Section 2 of the agreement to require that May 2011 was the
beginning of the eight-quarter look-back period set forth in Section 1.
[27] Northwest challenges the trial court’s conclusion that the look-back period
began in May 2011. Northwest argues that Section 2, properly construed,
requires that the look-back period for calculating Dr. Lovasko’s severance
benefit amount should have commenced in May 2012—one year after Dr.
Lovasko became disabled, and not on the date of the onset of the inception of
the disability. Northwest’s argument here relies on the definition of permanent
disability in the Severance Agreement: “permanent disability shall mean the
Employee’s inability to fully perform services … required by any employment
contract, and that condition shall continue for a period of one (1) year.” (Appellant’s
App’x at 44.) Northwest insists that “the only possible conclusion” is that Dr.
Lovasko became permanently disabled in May 2012 (Appellant’s Br. at 35), and
thus severance benefits should have been calculated starting from that point.
[28] The Severance Agreement does not directly address the question of when the
look-back period commences. However, Section 2 provides for payment of
severance in the event of disability in an amount “equal to the Severance Benefit
payable upon the death of the Employee,” even as it also contemplates
permanent disability as being defined by the elapsing of a period of time.
(Appellant’s App’x at 44). The one-year period in Section 2 serves to establish
that a disability is, in fact, permanent and thereby gives rise to an obligation on
Northwest’s part to pay a severance benefit. But the one-year provision does
not by its own terms set a look-back date—let alone a look-back date one year
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after the beginning of the period of disability—and to conclude otherwise would
amount to this Court writing new terms into the agreement, which we cannot
do. See Four Seasons Mfg., Inc. v. 1001 Coliseum, LLC, 870 N.E.2d 494, 501 (Ind.
Ct. App. 2007). We instead interpret the contract as a whole and with an eye
toward harmonizing its provisions. Fraternal Order of Police, Evansville Lodge, No.
73, Inc., 940 N.E.2d at 319. When we do so, we conclude that the Severance
Agreement contemplated a look-back date based solely upon the date of the
inception of disability.3
[29] Because we conclude that the one-year look-back period commenced with the
inception of Dr. Lovasko’s disability, we find no error in the trial court’s
construction of the Severance Agreement in this regard.
Calculation of Severance Benefit Amount
[30] In addition to challenging the trial court’s determination on the look-back date,
Northwest argues that the trial court erred in its construction of Section 1’s
provision governing calculation of the total severance benefit. Under the
Severance Agreement, “the Corporation shall pay to the Estate of the
employee” a severance benefit amount “equal to eighty percent (80%) of the
average of the annual compensation paid to an Equal Shareholder Employee
3
Northwest argues in its reply brief that Dr. Lovasko’s interpretation of the Severance Agreement suggests
that Section 2 is ambiguous and requires looking to evidence extrinsic to the contract. Because we reach our
conclusion solely through interpretation of the language of the Severance Agreement, we do not reach the
questions of ambiguity and extrinsic evidence, particularly extrinsic evidence related to negotiations that took
place several years after the Severance Agreement was negotiated.
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for the eight (8) quarters preceding the date of death [or other qualifying
event].” (Appellant’s App’x at 44.)
[31] Looking to this language, the trial court construed the Severance Agreement to
require that the 80% figure be determined by averaging the annual
compensation available to all three Equal Shareholder Employees for the eight
quarters prior to Dr. Lovasko’s disability. For purposes of construction of the
agreement, the trial court identified the aggregate of the annual compensation
paid under the agreement as the Net Income Available to Physicians figures
(“Net Income Available”) set out in Northwest’s Income & Expense Allocation
reports. Taking the average of the Net Income Available over eight quarters
and the three Equal Shareholder Employees (Drs. Lovasko, Wolf, and
Mekhail), the trial court arrived at an average compensation figure of $152,690.
After reducing that amount to 80% of its value as provided under the Severance
Agreement, the court found that the severance benefit was $122,152. In his
motion to correct error, Dr. Lovasko noted that the $122,152 was a quarterly
average, and requested that the trial court annualize that figure. The court
agreed with Dr. Lovasko, and, quadrupling the quarterly amount, determined
that Dr. Lovasko’s total severance benefit under the Severance Agreement was
$488,608. The trial court then ordered that amount offset by the amount it
found Dr. Lovasko owed to Northwest as a result of the unpaid loan and
accounting deficit allocated to him under Northwest’s Income & Expense
Allocation reports.
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[32] Northwest contends that this result was in error. It argues that the correct
severance benefit for Dr. Lovasko was $75,000, which, taken with the trial
court’s finding that Dr. Lovasko owed Northwest more than $100,000, would
likely result in a net judgment in favor of Northwest. Northwest rests its
argument on several presumptions. Throughout its argument, Northwest
assumes that the look-back period for Dr. Lovasko’s disability severance benefit
began in 2012. Further, Northwest contends that the trial court was required to
consider only Dr. Lovasko’s compensation when it calculated the severance
benefit, and that the court misconstrued the agreement when it used the average
for all three dentists of the Net Income Available figure from Northwest’s
Income & Expense Allocation statements.
[33] We have already held that Northwest’s preferred look-back period is not the
one required under the terms of the Severance Agreement. To the extent
Northwest’s argument assumes the correctness of its preferred position despite
any possibility to the contrary, Northwest’s argument that the trial court erred
in calculating Dr. Lovasko’s severance benefit fails.
[34] We turn now to Northwest’s argument that the trial court erred when it took
into account all three Equal Shareholder Employees’ compensations, rather
than limiting the calculation solely to Dr. Lovasko’s actual compensation. The
Severance Agreement states that the severance benefit is to be calculated based
upon “the annual compensation paid to an Equal Shareholder Employee.”
(Appellant’s App’x at 44, emphasis added.) The agreement defines Equal
Shareholder Employee to mean “an employee who owns at least one hundred
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(100) shares” of issued and outstanding common stock in Northwest.
(Appellant’s App’x at 44.) As a stand-alone term, the Severance Agreement
defined “Employee” to mean only Dr. Lovasko. (Appellant’s App’x at 44.)
The provision governing calculation of the severance benefit does not state that
the calculation is to be based upon the compensation of only “the Employee,”
but rather the compensation paid to an Equal Shareholder Employee.
Moreover, the agreement uses “the Employee” at other points in Section 1, and
indeed throughout the agreement.
[35] Thus, the language of the agreement indicates that the parties intended that the
compensation made available to other employees of Northwest was to be taken
into account in determining any one employee’s severance benefit. Had the
parties intended to use only the departing employee’s compensation as the basis
for the severance benefit, the agreement as drafted shows they could easily have
done so; they did not. Accordingly, we find no error in the trial court’s decision
to base its calculation on an average of the compensation paid to all the Equal
Shareholder Employees in this case.
[36] Moreover, as we noted above, Northwest’s argument throughout its challenge
to the trial court’s calculation of the severance benefit depends upon
Northwest’s assumptions regarding the look-back period and its argument that
the court should have taken into account only Dr. Lovasko’s compensation.
Northwest’s argument on appeal—namely, the very specific figure it argues the
trial court should have reached—falls with the failure of those two assumptions.
This Court has rejected both of Northwest’s assumptions, and Northwest’s
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argument on appeal thus fails. As a result, we do not consider the remainder of
Northwest’s argument concerning the trial court’s interpretation of the financial
information presented at trial. And because we will not “sift through a record
to locate error,” Wright v. Elston, 701 N.E.2d 1227, 1230 (Ind. Ct. App. 1998),
trans. denied, we conclude that Northwest has failed to establish reversible error
on the part of the trial court.
Conclusion
[37] The trial court did not err in its construction of the look-back provision in the
Severance Agreement. The trial court did not err when it reached a severance
benefit amount other than that proffered by Northwest.
[38] Affirmed.
Riley, J., and Barnes, J., concur.
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