Surgical Institute of South Dakota, P.C. v. Sorrell

#26143-a-DG
2012 S.D. 48IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
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THE SURGICAL INSTITUTE OF
SOUTH DAKOTA, P.C., Plaintiff and Appellant,
v.
MATTHEW J. SORRELL, M.D., Defendant and Appellee.
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APPEAL FROM THE CIRCUIT COURT OF
THE SECOND JUDICIAL CIRCUIT
MINNEHAHA COUNTY, SOUTH DAKOTA
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THE HONORABLE PATRICIA C. RIEPEL
Judge
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JAMES E. MOORE
SCOTT HENDRICKS LEUNING
JAMES A. POWER of
Woods Fuller Shultz & Smith P.C.
Sioux Falls, South Dakota Attorneys for plaintiff
and appellant.
ALEX M. HAGEN
BRETT A. LOVRIEN
STEPHEN C. LANDON of
Cadwell, Sanford, Deibert & Garry, LLP
Sioux Falls, South Dakota Attorneys for defendant
and appellee.
****
ARGUED APRIL 18, 2012
OPINION FILED 06/20/12
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GILBERTSON, Chief Justice
[¶1.] A medical practice filed suit against a surgeon formerly employed at
that practice, alleging breach of contract by failing to give required notice of
resignation and breach of an implied contract resulting in unjust enrichment. The
implied contract claim was dismissed by summary judgment, which the practice
appeals. The jury subsequently found the surgeon did not breach the contract. We
affirm.
FACTS
[¶2.] Dr. Matthew Sorrell was an employee, director, and shareholder at the
Surgical Institute (the Institute) in Sioux Falls, South Dakota. Dr. Sorrell began
practicing general surgery at the Institute in 2000. In 2002, he became a
shareholder. Dr. Sorrell signed an Employment Agreement and Shareholders’
Agreement (collectively, “the contracts”) in 2006. Neither contract addressed
extended leave for additional training.
[¶3.] In 2007, Dr. Sorrell expressed an interest in applying for a fellowship
to receive training as an intensivist, specializing in critical care. At the time, the
Institute had six surgeons. Dr. Sorrell’s proposed leave would burden the other five
surgeons, who would have to cover trauma calls for a full year with five surgeons
instead of six. The Shareholders’ Agreement only permitted military leave. After
meeting, the shareholders approved Dr. Sorrell’s requested leave and amended the
Shareholders’ Agreement accordingly. The amendment allowed a doctor to have
extended leave for a fellowship and to receive deferred compensation. The
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amendment did not address fringe financial benefits such as malpractice coverage
or health insurance.
[¶4.] Dr. Sorrell obtained a one-year fellowship, beginning in July 2007.
The fellowship included a stipend, but Dr. Sorrell also obtained a forgivable
fellowship loan from Avera-McKennan Hospital. The loan would not have to be
repaid so long as Dr. Sorrell returned to Sioux Falls and practiced surgery, trauma,
and critical care medicine for two years. As a condition for the loan, Dr. Sorrell
could not be subject to a covenant not to compete. The Institute agreed by written
amendment to his Employment Agreement to suspend Dr. Sorrell’s covenant not to
compete until the loan was repaid.
[¶5.] Dr. Sorrell returned to Sioux Falls in April 2008 and attended a
shareholders’ meeting. There was testimony that the practice was having some
internal problems and that Dr. Sorrell did not feel as though the meeting solved
many of them. Dr. Sorrell was friends with another surgeon at the Institute, Dr.
Don Wingert. The two men had previously discussed problems with the practice.
On June 10, 2008, Dr. Sorrell called Dr. Wingert and indicated he did not intend to
return to the Institute permanently. Dr. Wingert told other members at the
Institute about the conversation. Dr. Sorrell did not respond to an email from the
executive director asking if he was leaving. On June 13, 2008, the Institute sent Dr.
Sorrell a letter confirming his voluntary termination of employment without cause.
There were other subsequent communications indicating Dr. Sorrell’s willingness to
return for nine months, to cover weekend call, or “help out.”
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[¶6.] The Institute sued Dr. Sorrell in September 2008, asserting two
claims. First, the Institute claimed Dr. Sorrell breached his Employment
Agreement by failing to give nine-month notice before leaving. Second, the
Institute alleged that Dr. Sorrell breached an implied contract by receiving financial
benefits from the Institute during his fellowship and then not returning, resulting
in unjust enrichment. Dr. Sorrell counterclaimed, demanding payment for his
stock; claiming the Institute violated a confidentiality provision and wrongfully
interfered with a prospective business advantage; and that the Institute owed him
compensation under his employment contract. Thereafter, Dr. Sorrell voluntarily
dismissed his breach of confidentiality claim. The circuit court dismissed his
counterclaim for tortious interference and dismissed the Institute’s claim for breach
of an implied contract resulting in unjust enrichment. The Institute then filed an
amended complaint in August 2010. The Institute alleged breach of a written
contract, which was the same as the original complaint, and replaced the implied
contract equitable claim with breach of an oral contract, i.e., not returning to the
practice even though he promised he would. 1
[¶7.] At trial, the primary issues were the Institute’s claim for breach of
contract for failure to give required notice and Dr. Sorrell’s counterclaim for the
value of his shares and unpaid wages. The jury found by special interrogatory
verdict form that Dr. Sorrell did not terminate his employment without giving the
1. The circuit court granted summary judgment on the claim for breach of an
oral contract. That decision was not appealed.
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required notice. Dr. Sorrell was awarded a sum of money for his shares and
deferred compensation. The Institute appeals. We address the following issues:
1. Whether the Institute is entitled to a new trial.
2. Whether the circuit court erred in granting summary judgment
on the equitable claim for breach of an implied contract
resulting in unjust enrichment.
ANALYSIS
[¶8.] 1. Whether the Institute is entitled to a new trial.
a. Whether the circuit court abused its discretion in denying the Institute’s
motion for a new trial based on insufficient evidence.
[¶9.] “‘The decision to grant a new trial is left in the sound judicial
discretion of the trial court’ and the ‘decision will not be disturbed absent a clear
showing of abuse of discretion.’” Onnen v. Sioux Falls Indep. Sch. Dist. No. 49-5,
2011 S.D. 45, ¶ 18, 801 N.W.2d 752, 757 (quoting Sherburn v. Patterson Farms, Inc.,
1999 S.D. 47, ¶ 8, 593 N.W.2d 414, 416). “All inferences are indulged in favor of the
nonmoving party; if competent evidence exists to support the verdict, it will be
upheld.” Baddou v. Hall, 2008 S.D. 90, ¶ 33, 756 N.W.2d 554, 562 (citations
omitted).
[¶10.] The special verdict form to the jury asked: “Did [Dr. Sorrell] fail to
provide [the Institute] with nine months’ notice of the termination of his
employment?” The jury answered no. The Institute made a motion for a new trial
under SDCL 15-6-59(a)(6), insufficient evidence to justify the verdict, which the
circuit court denied. As grounds for its motion, the Institute asserted that “the fact
of breach was undisputed.” After a hearing, the circuit court denied the motion by
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order. The transcript from the hearing was not included as part of the record and
the court’s order does not explain why the motion was denied. 2
[¶11.] The Institute asserts that on June 10 Dr. Sorrell indicated to Dr.
Wingert that “he would not return as a full-time employee after the fellowship
ended.” On June 13, less than three days after this conversation, the Institute sent
Dr. Sorrell a letter confirming his voluntary termination of employment without
cause. The Institute argues that this evidence is undisputed, and therefore, there
was insufficient evidence to support the jury’s verdict that Dr. Sorrell did not
commit a breach. A review of the record, however, reflects that the evidence
regarding a breach was disputed. Contrary to the Institute’s argument, there is
some evidence that during the June 10 call, Dr. Sorrell told Dr. Wingert that he did
not intend to stay with the Institute long-term, but that he intended to continue
working for nine months and that he therefore did not breach. There is also some
evidence supporting the theory that the Institute prevented Dr. Sorrell from giving
notice due to the June 13 letter.
[¶12.] Dr. Sorrell presented the theory at trial that his June 10 conversation
with Dr. Wingert was not a resignation effective immediately. 3 The jury could have
2. On appeal, the Institute argues that there is insufficient evidence to support
this verdict because Dr. Sorrell’s conversation with Dr. Wingert constituted
an anticipatory repudiation. There is no indication this argument was raised
below and testimony from the record does not support this conclusion.
3. The Employment Agreement addresses termination. Under certain
circumstances, employment would terminate immediately. There is no
assertion any of those circumstances apply here. Termination could also be
for cause, or without cause by physician, or without cause by the Institute.
(continued . . .)
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believed the testimony that his June 10 call was part of “a series of discussions that
we had been having that began in April where it was in earnest that now I felt I will
probably have to leave this practice . . . and it ended up being the last [discussion]
because of what transpired after.” Dr. Sorrell testified that on June 10, as part of
this on-going discussion, he told Dr. Wingert that he “didn’t want to come back to
the practice as it was . . . and I wanted to take up his offer that I felt was given to
me to work outside of the group and stay in town.” He also testified that coming
back to the Institute was not “a long-term, viable option.” From this testimony, the
jury could have inferred that Dr. Sorrell intended to fulfill his nine-month
obligation, only not intending to stay with the Institute long-term.
[¶13.] The Institute argues that agreeing to cover call is not necessarily
agreeing to return for nine months. However, Dr. Sorrell testified that he “offered
to stay as long as the group needed me to stay to cover call and help out.”
(Emphasis added.) There is other testimony from Dr. Sorrell indicating he was
willing to work with the Institute after returning. The jury could have concluded
that Dr. Sorrell was resigning in the long-term, but was planning to return after his
fellowship to fulfill his commitments.
________________________
(. . . continued)
The clauses for termination for cause or termination without cause by
physician both require written notice. It is undisputed that Dr. Sorrell did
not provide written notice of resignation. The only written notice was the
Institute’s June 13 letter indicating that Dr. Sorrell had “voluntarily
terminated employment with Surgical Institute without cause.” The jury
could have relied on the Employment Agreement and Institute’s letter in
concluding that Dr. Sorrell had not resigned, but was terminated by the
Institute, and consequently did not breach the notice requirement.
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[¶14.] There was also evidentiary support for the jury to find that the
Institute prevented Dr. Sorrell from giving notice. First, Dr. Sorrell testified that
he did not get the opportunity to give his notice because of the Institute’s June 13
letter. He further testified that the letter did not reflect the substance of the phone
conversation with Dr. Wingert. Dr. Sorrell specifically disputed that he had
voluntarily resigned in the call. Also, the Executive Director for the Institute, Mark
Hatting, testified that once Dr. Sorrell indicated he did not plan to return long-
term, the other shareholders made a decision that they did not want him back at
all. After Dr. Wingert suggested at a board meeting of the Institute that the June
13 letter may have gone out too soon, two doctors responded that they did not want
Dr. Sorrell back. Dr. David Strand testified that the Institute was not interested in
having Dr. Sorrell return after the June 10 call, despite his willingness to do so. Dr.
Brad Thaemert testified that after the phone call and letter, “we realized we have a
major trust issue of going any further no matter what is going to happen. And that
trust issue was multiple things: financial issues and patient care issues . . . .” The
Institute even concedes in its brief that it “unsurprisingly was not interested in
having its patients seen by a doctor who had no desire to be part of its practice
group, was not subject to a covenant not to compete, and intended to work
elsewhere in Sioux Falls.” Finally, Hatting testified that the Institute members had
a financial incentive not to have Dr. Sorrell return. If he failed to give appropriate
notice, they could retain his outstanding accounts receivable rather than paying
him.
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[¶15.] In reviewing the record in a light most favorable to the jury’s verdict,
the Institute has not demonstrated there was insufficient evidence to support the
jury’s verdict. The jury could reasonably have found based on all the evidence and
testimony that Dr. Sorrell had not “resigned” on June 10 without giving notice, or
that he was preemptively terminated by the June 13 letter. The jury could have
credited this testimony and found that Dr. Sorrell had not breached the notice
requirement, especially in light of the Institute’s termination letter and subsequent
actions. We have previously said that “a jury’s verdict should not be set aside
‘except in extreme cases where it is the result of passion or prejudice or the jury has
palpably mistaken the rules of law . . . .’” Morrison v. Mineral Palace Ltd. P’ship,
1999 S.D. 145, ¶ 10, 603 N.W.2d 193, 196 (quoting Stoltz v. Stonecypher, 336
N.W.2d 654, 657 (S.D. 1983)). The extreme remedy of reversing the circuit court’s
decision not to grant a new trial is not warranted in this case. 4
b. Whether the circuit court abused its discretion in excluding evidence that Dr.
Sorrell “promised” to return to the Institute after his fellowship.
[¶16.] Normally, “[w]e afford broad discretion to circuit courts in deciding
whether to admit or exclude evidence.” Ronan v. Sanford Health, 2012 S.D. 6, ¶ 8,
809 N.W.2d 834, 836. “The trial court’s evidentiary rulings are presumed correct
and will not be overturned absent a clear abuse of discretion. An abuse of discretion
refers to a discretion exercised to an end or purpose not justified by, and clearly
4. The court limited the Institute’s damages for breach of the notice provision to
nine months. The Institute argues that it should be able to seek all damages
caused by Dr. Sorrell’s failure to give timely notice, arguments which should
be made to a jury. Because we affirm the verdict, the issue is not addressed.
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against reason and evidence.” Id. (quoting St. John v. Peterson, 2011 S.D. 58, ¶ 10,
804 N.W.2d 71, 74).
[¶17.] The Institute asserts that the circuit court abused its discretion in
excluding evidence that, at the time Dr. Sorrell was given the leave of absence, he
promised to return after his fellowship. Dr. Sorrell made a motion in limine to
exclude the evidence because (1) it is inadmissible under the parol evidence rule
and (2) the evidence is not relevant to the “notice issue and would only be
prejudicial and likely to confuse the jury.” The court granted the motion. The court
did not discuss why it was excluding the evidence in its order. A hearing was
apparently held on the motion in limine, but the transcript was not included in the
record. Although we do not know the precise basis for the court’s ruling, we agree
that the evidence was not relevant and was likely to confuse the jury.
[¶18.] “‘Relevant evidence’ means evidence having any tendency to make the
existence of any fact that is of consequence to the determination of the action more
probable or less probable than it would be without the evidence.” SDCL 19-12-1
(Rule 401). Dr. Sorrell’s alleged oral promises to return became irrelevant after the
circuit court granted summary judgment dismissing the Institute’s amended
complaint claiming breach of an oral agreement. The issue before the jury was only
whether Dr. Sorrell breached his contract by failing to provide required notice of
resignation. Evidence of Dr. Sorrell’s promises to return, made during or before his
fellowship, was not relevant to whether he later gave (or was prevented from giving)
the required nine-month notice.
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[¶19.] Even if the evidence was relevant, it could have potentially confused
the jury. Relevant evidence may be excluded if its probative value is substantially
outweighed by the danger of confusion of the issues or misleading the jury. SDCL
19-12-3 (Rule 403). Had earlier alleged promises to return been allowed into
evidence, it is possible the jury could have erroneously concluded that Dr. Sorrell
breached merely by not returning as “promised.” Accordingly, even if the evidence
was relevant, it was properly excluded under SDCL 19-12-3 (Rule 403). Also, the
Institute has not shown that it was prejudiced by the exclusion of the evidence. We
affirm.
[¶20.] 2. Whether the circuit court erred in granting summary
judgment on the equitable claim for breach of an implied
contract resulting in unjust enrichment.
[¶21.] The Institute argues the circuit court erred in granting summary
judgment on the equitable claim for breach of an implied contract resulting in
unjust enrichment. After the court granted summary judgment, the Institute
amended its complaint without re-alleging the equitable claim. Dr. Sorrell argues
that because the Institute’s amended complaint did not allege the equitable claim
again, the Institute waived its right to appeal the grant of summary judgment.
[¶22.] Generally, an amended complaint supersedes an original complaint.
See Young v. City of Mount Ranier, 238 F.3d 567, 572 (4th Cir. 2001); see also 6
Charles Alan Wright et al., Fed. Prac. & Proc. Civ. § 1476 (3d ed. 2011 update) (“A
pleading that has been amended under Rule 15(a) supersedes the pleading it
modifies and remains in effect throughout the action unless it subsequently is
modified.”). Despite this rule, courts have determined that a “plaintiff need not
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replead dismissed claims in an amended complaint to preserve the right to appeal
the dismissal.” Wangler v. Lerol, 670 N.W.2d 830, 840 (N.D. 2003)(citing Young v.
City of Mount Ranier, 238 F.3d 567, 572-73 (4th Cir. 2001); In re Crysen/Montenay
Energy Co., 226 F.3d 160, 162 (2d Cir. 2000); Dunn v. Air Line Pilots Ass’n, 193 F.3d
1185, 1191 n.5 (11th Cir. 1999); Parrino v. FHP, Inc., 146 F.3d 699, 704 (9th Cir.
1998); USS-POSCO Indus. v. Contra Costa Cnty. Bldg. & Constr. Trades Council,
31 F.3d 800, 811-12 (9th Cir. 1994); Davis v. TXO Prod. Corp., 929 F.2d 1515, 1517-
18 (10th Cir. 1991); Wilson v. First Houston Inv. Corp., 566 F.2d 1235, 1238 (5th
Cir. 1978), vacated on other grounds, 444 U.S. 959, 100 S. Ct. 442, 62 L. Ed. 2d 371(1979); 35A C.J.S. Federal Civil Procedure § 445 (2003)).
[¶23.] In general, these courts have determined that requiring a plaintiff to
replead dismissed claims is “needlessly formalistic.” Young, 238 F.3d at 572. “By
dismissing the claims . . . [the] court has quite clearly given its view of the viability
of the claims, a view not made any clearer or more final by requiring the plaintiff to
re-allege the already rejected claims.” Id. Additionally, some plaintiffs may be
hesitant to replead a dismissed claim, fearing sanctions, and unknowingly fail to
preserve their claim for appeal. See Davis, 929 F.2d at 1518 n.2; USS-POSCO
Indus., 31 F.3d at 812. This reasoning is persuasive. Accordingly, the Institute was
not required to replead its implied contract claim and the grant of summary
judgment on the Institute’s equitable claim is appropriate for appellate review.
[¶24.] The Institute argues that the circuit court should not have dismissed
its equitable claim by summary judgment. The Institute asserts that an implied
contract was formed based on verbal promises by Dr. Sorrell that he intended to
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return to the Institute after his fellowship. Based on these promises, the Institute’s
shareholders agreed to pay him financial benefits and deferred compensation while
he was at his fellowship. The Institute further claims that these payments and
benefits unjustly enriched Dr. Sorrell.
[¶25.] Dr. Sorrell argues that the court was correct in granting summary
judgment because the claim fails as a matter of law. The amendments to the
contracts made changes to facilitate fellowship leave, but retained all other written
provisions. Under the language of those written agreements, Dr. Sorrell was
entitled to his employee benefits and deferred compensation payments. Because the
language of the contracts addresses and controls the subjects of compensation and
benefits, there was no need to derive an implied contract.
[¶26.] The court granted summary judgment, saying at the hearing that
“unjust enrichment and implied contract are not available here. We have a written
employment agreement. We have a written addendum. The law requires that a
written employment agreement can only be amended by the written amendment or
an executed oral agreement.” “In reviewing a grant or a denial of summary
judgment under SDCL 15-6-56(c), we determine whether the moving party has
demonstrated the absence of any genuine issue of material fact and showed
entitlement to judgment on the merits as a matter of law.” Danielson v. Hess, 2011
S.D. 82, ¶ 8, 807 N.W.2d 113, 115. “Entry of summary judgment is mandated
against a party who fails to make a showing sufficient to establish the existence of
an element essential to that party’s case, and on which that party will bear the
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burden of proof at trial.” Dakota Indus., Inc. v. Cabella’s.com, Inc., 2009 S.D. 39, ¶
11, 766 N.W.2d 510, 513.
[¶27.] The amendment to the Shareholders’ Agreement changed the section
addressing “leave” to allow for fellowship leave. It further provided that the
shareholder with a leave of absence “shall be paid any compensation due under the
Employment Agreement pursuant to the terms and conditions of such Employment
Agreement for those periods during which the Shareholder was actually
participating in the operations of the Corporation.” The topics of compensation and
leave were both covered in the Employment Agreement. The amendment to the
Employment Agreement addressed termination of the non-competition provision,
and then provided that “[a]ll other provisions of the Employment Agreement . . .
shall remain unaffected.”
[¶28.] “Where there is a valid express contract existing between parties in
relation to a transaction fully fixing the rights of each, there is no room for an
implied promise, or suit on quantum meruit.” Aetna Life Ins. Co. v. Satterlee, 475
N.W.2d 569, 574 (S.D. 1991); see also Jurrens v. Lorenz Mfg. Co. of Benson, Minn.,
1998 S.D. 49, ¶ 6, 578 N.W.2d 151, 153 (“If a valid express contract exists, no
implied contract need be inferred.”); Johnson v. Larson, 2010 SD 20, ¶ 8, 779
N.W.2d 412, 416 (“[T]he equitable remedy of unjust enrichment is unwarranted
when the rights of the parties are controlled by an express contract.”). Following
this rule, we examine the express contracts to determine if they fully fix the parties’
rights.
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[¶29.] The contracts in this case address Dr. Sorrell’s benefits. The
amendments indicated that all provisions not directly changed by the amendments
remained the same. The express writings address leave, compensation, and
benefits. The amendment to the Shareholders’ Agreement provided for deferred
compensation benefits to a shareholder on leave. The Institute states in its brief
that the fringe “benefits that Surgical Institute agreed to pay Dr. Sorrell were not
documented in the amended Employment Agreement, but instead in corporate
minutes.” The minutes from a shareholders’ meeting on June 13, 2007, reflect a
discussion “regarding benefits [for Dr. Sorrell] to include health, disability, and
401(k) plan.” The shareholders unanimously agreed to split all expenses equally.
Under this written corporate resolution, Dr. Sorrell was entitled to those fringe
benefits while on leave without qualification. 5 Therefore, the circuit court correctly
concluded that written amendments and contracts occupied the field, precluding an
equitable claim. We affirm.
CONCLUSION
[¶30.] There was sufficient evidence at trial supporting the jury’s verdict and
the court, consequently, did not abuse its discretion in denying the motion for a new
trial. Additionally, the Institute has not shown a “clear abuse of discretion” in
excluding Dr. Sorrell’s alleged promises to return to the practice after his
fellowship. Finally, the Institute has not shown that the circuit court abused its
5. Although the minutes reflect that one stockholder was motivated by his
understanding that Dr. Sorrell was returning, another stockholder expressed
a different motivation. Ultimately, all six stockholders voted in favor of a
resolution that was not qualified by Dr. Sorrell’s return.
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discretion in granting summary judgment on the equitable implied contract claim.
Affirmed.
[¶31.] KONENKAMP, ZINTER, and SEVERSON, Justices, and MILLER,
Retired Justice, concur.
[¶32.] MILLER, Retired Justice, sitting for WILBUR, Justice, disqualified.
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