JILL HAZEN v. THOMAS A. LEACH, M.D., P.A.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5021-04T55021-04T5

JILL HAZEN,

Plaintiff-Respondent,

v.

THOMAS A. LEACH, M.D., P.A.,

doing business as THE

PRINCETON CENTER FOR PLASTIC

SURGERY; THOMAS A. LEACH,

individually,

Defendant-Appellant,

and

932 SPA ASSOCIATES,

L.L.C., doing business as SPA

THERAPIA; VIRGINIA PLAZA; and

MARIA ROMERO,

Defendants.

___________________________________

 

Argued: May 2, 2006 - Decided May 22, 2006

Before Judges Skillman and Axelrad.

On appeal from the Superior Court of New Jersey, Law Division, Somerset County, L-455-02.

Robert P. Zoller argued the cause for appellant (Sterns & Weinroth, attorneys; Mr. Zoller and Christopher E. Torkelson, on the brief).

David B. Rubin, attorney for respondent.

PER CURIAM

Plaintiff Dr. Jill Hazen, a plastic surgeon, filed a complaint against her former employer, Thomas A. Leach, M.D., P.A., doing business as The Princeton Center for Plastic Surgery, seeking compensation for underpayments and minimum annual salary and bonuses earned during her employment with Leach's medical practice from 1995 to 2001. A three-day bench trial was held and thereafter an oral opinion was rendered rejecting Dr. Hazen's claim for bonuses, but awarding her a total of $64,634.23 in unpaid minimum salary for 1998, 2000 and 2001.

Defendant moved to amend the judgment, arguing that the judge overstated plaintiff's damages by $51,783.07. More particularly, defendant contended the judge failed to credit three checks totaling $7,410.07 paid to plaintiff in 2000 as salary, and incorrectly awarded plaintiff the balance as compensation in 2001, which appeared to be inconsistent with the findings articulated in his oral decision. The court denied the relief. As to the second issue, the court elaborated upon and clarified its findings, indicating that although plaintiff may have acquiesced in temporarily receiving a different form of compensation to accommodate cash flow problems, it was never the court's intent "to rule in any way that [it] had found that it was ever Dr. Hazen's intention to accept less than the base minimum compensation" for the 2001 year. Following the entry of the April 29, 2005 order, defendant appealed.

On appeal, defendant renews the arguments made on the motion to amend judgment. More specifically, defendant argues that the trial court erroneously failed to credit the three checks totaling $7,410.07 that plaintiff received in 2000 as salary. As to the larger amount, defendant contends that the award is inconsistent with the judge's finding that Dr. Hazen agreed to a change in the manner of her compensation in 2001 from a paycheck to a draw arrangement and, in effect, waived any claim relating to her base compensation for that year. Defendant further contends that the trial record supports such a finding. We agree that the record supports defendant's first argument but are not persuaded that it supports his second argument.

Plaintiff entered defendant's practice in 1995 and left in December 2001. There were written employment agreements from 1995 through 1997 and oral agreements thereafter, with discussion between the parties about the possibility of plaintiff becoming a shareholder in defendant's medical practice. This did not occur, however, and plaintiff remained a contract employee. The parties, along with two other partners, did begin a separate business venture known as 932 Spa Associates, L.L.C.

It was undisputed that from 1998 through 2001 plaintiff received a minimum guaranteed salary of $125,000 reduced by up to $10,000 in yearly personal expenses, which the practice would fund at her request, and an additional reimbursement, not chargeable against salary, for professionally-related expenses and contributions by the practice to a pension plan. During trial there was an issue with regard to $5,600.41 paid to plaintiff, which the judge found was reimbursement for practice-related expenses not chargeable to base salary, which defendant has not appealed.

The three checks relating to the dispute concerning the $7,410.17 are number 4874, dated August 10, 2000 for $3,205.04; number 4995, dated November 3, 2000, for $3,205.03; and number 5007, dated October 31, 2000, for $1,000. On all checks plaintiff is provided as the payee and all are noted in the memo line to be for "salary." Plaintiff admitted that she received these checks. Defendant's testimony was that cash flow problems prevented the business from funding the payroll service and the checks were intended to make up the net difference after payroll taxes. Dr. Leach testified, as an example, that the first two checks were equal to plaintiff's net salary, after taxes, for those payroll periods, and he provided five payroll register sheets over the years to support this statement.

Defendant contended the judge confused the $7,410.07 payment with the $5,600 payment made as reimbursement of personal expenses and that the three checks had nothing to do with reimbursement for personal as opposed to practice-related expenses. We agree. Plaintiff never claimed these three checks were for practice-related expenses, which were not chargeable against salary, and her testimony provides no support for the judge's finding. We are satisfied defendant presented substantial credible evidence that the checks were paid to plaintiff as salary. Accordingly, we reverse the portion of the judgment awarding plaintiff $7,410.07 in unpaid salary for 2000.

As to 2001, defendant argues that the court erred by, on the one hand, finding that plaintiff "acquiesced and agreed to accept $3,500 net as her base compensation," and, on the other, awarding plaintiff damages for unpaid compensation in 2001 based on the minimum guaranteed salary of $125,000. Further, defendant argues that plaintiff's testimony supports such a finding; she admitted she agreed to the change in form of compensation. Moreover, defendant urges that she received approximately the same net amount (less payroll taxes) in 2001 that she had been paid in 1998, 1999 and 2000 and that any additional compensation would constitute a "windfall" to her.

Parties to an existing contract may, by mutual agreement, modify it. County of Morris v. Fauver, 153 N.J. 80, 99 (1998). Contractual modification may be proven by explicit agreement to modify and by the conduct of the parties, so long as the intention to modify is mutual and clear. Ibid. A proposed modification by one party to a contract must be accepted by the other to constitute mutual assent to modify. Id. at 100. Knowledge and assent to the changes are essential to an effective modification. Ibid. Moreover, an agreement to modify must be based on new or additional consideration. Ibid.

Defendant does not dispute that plaintiff was entitled to a minimum guaranteed salary of $125,000 for 2001 or challenge the judge's calculation of the award based on that amount. Defendant's position is that due to cash-flow problems in the practice early in 2001, plaintiff agreed to forego her $125,000 minimum guaranteed salary completely in favor a reduced 1099 draw arrangement and thus she is not entitled to any additional compensation. Plaintiff disputed defendant's contention, and claimed that she agreed to accept lower payments on a temporary basis to help the practice cope with short-term cash flow problems related to her by Dr. Leach and his accountant, but that she never agreed to reduce her overall entitlement of $125,000 for the year. Based on our review of the record, we are satisfied that the trial judge accepted Dr. Hazen's testimony on the matter, that his initial finding was not inconsistent with the award, and that it is supported by substantial credible evidence.

Dr. Hazen testified that under her agreement with Dr. Leach from 1998 through her last day of work in 2001, she was entitled to a minimum guaranteed salary of $125,000. In early 2001, Dr. Hazen was told by Dr. Leach that because of severe cash flow problems she would no longer receive standard W-2 payroll checks through the payroll system. Instead, she would begin receiving a 1099 draw of $3,500 per pay period, which purportedly represented a $125,000, net of employment taxes. Defendant indicated that the spa business, in which the parties had an interest, would provide pass-through losses that would offset any potential tax liability for 2001 and plaintiff conferred with defendant's accountant.

Although she agreed to the arrangement, the record is clear that the reduction was intended as a stop-gap measure to abide the temporary cash-flow shortage the practice was supposedly having but was not a waiver of her overall minimum entitlement to the $125,000 contractual annual salary. Nor would there have been any reason for anyone in her position to have agreed to accept a pay-cut of nearly one-third. Dr. Hazen was only an employee of defendant's practice, not an equity partner. Moreover, as the court noted, any of the cash difficulties the practice was experiencing were due to defendant's funding a real estate project with the practice's funds, in which plaintiff had no interest, and 2001 was the practice's best year in terms of revenue, which increased roughly one-third over the prior two years.

Additionally, at the time the draw arrangement arose, defendant was obligated to pay plaintiff an $125,000 annual salary if she upheld her end of the bargain, which was to work. Plaintiff's twenty-five percent ownership interest in the spa, which she received for cosigning a promissory note, was completely independent of her employment agreement with defendant. Therefore, any tax benefits that plaintiff received from the spa would have been hers even if she had continued to receive her $125,000 minimum salary through the payroll system. Thus, those pass-through losses cannot be considered as new or additional consideration for modification of the agreement.

Nor are we persuaded by defendant's framing of the issue as a shift in the manner of compensation rather than a reduction in plaintiff's base salary. It is immaterial whether plaintiff continued to receive approximately the same net amount that she had been paid in prior years. Plaintiff was a W-2 employee of defendant's medical practice. There is no evidence of an intent by plaintiff to assume responsibility for payroll taxes and no explanation as to why, as an employee, she would agree to do so. In addition, Dr. Hazen's agreement to convert from a payroll check to a draw did have adverse consequences to her despite the pass-through losses available from the spa. Dr. Hazen testified that she did, in fact, end up paying taxes for the 2001 year. Thus, there was sufficient credible evidence in the record for the court to conclude that plaintiff was entitled to receive her $125,000 minimum salary from defendant through the payroll system for the 2001 tax year, and to enter judgment against defendant for the amount of the underpayment.

Affirmed in part and reversed in part. The April 29, 2005 order amending judgment is modified to reflect a judgment in favor of plaintiff in the amount of $57,224.16.

 

The complaint also sought damages from several other parties in connection with the spa business affiliated with Dr. Leach's medical practice, in which Dr. Hazen had an interest, which were subsequently dismissed and which are not implicated in this appeal.

(continued)

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9

A-5021-04T5

May 22, 2006