WINKEL v FAMILY HEALTH CARE P C

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NO. 82-156 I N THE SUPREME COURT OF THE STATE OF MONTANA 1983 DENNIS WINKEL, Plaintiff and A p p e l l a n t , Defendant and Respondent. VS. FAMILY HEALTH CARE, LOREN VRANISH, Appeal from: Counsel of P.C. and D i s t r i c t Court of t h e Eleventh J u d i c i a l D i s t r i c t , I n and f o r t h e County o f F l a t h e a d Honorable Robert Sykes, Judge p r e s i d i n g . Record: For Appellant: Warden, C h r i s t i a n s e n , J o h n s o n & B e r g , K a l i s p e l l , K r a t t e n , Muchin, Z a v i s , P e a r l & G a l l e r , Chicago, F l o y d A.Mandel1 a r g u e d , C h i c a g o , I l l i n o i s Montana Illinois For Respondents: Murphy, R o b i n s o n , H e c k a t h o r n a n d P h i l l i p s , K a l i s p e l l , Montana I . James H e c k a t h o r n a r g u e d , K a l i s p e l l , Montana Submitted: Decided: , , & ,'Q/ - I / ~ ~ ~ ~ ~ Y w L k ; c ~ - f l k Clerk May 1 2 , 1 9 8 3 July 1 2 , 1 9 8 3 Mr. J u s t i c e J o h n Conway H a r r i s o n d e l i v e r e d Court. Dennis Winkel filed a complaint May t h e O p i n i o n of 4, 1979, seeking a c c o u n t i n g of p r o f i t s , damages and i n j u n c t i v e r e l i e f six causes of Health Care. deceptive action arising from his trade t r i a l commenced practices and based employment w i t h Family Health Care counter-claimed malicious an upon Family f o r u n f a i r and prosecution. i n t h e D i s t r i c t C o u r t of the jury A the Eleventh J u d i c i a l D i s t r i c t , F l a t h e a d C o u n t y , on November 1 6 , 1979. On November 1 9 , 1 9 7 9 , t h e j u r y r e n d e r e d a s p e c i a l v e r d i c t f o r W i n k e l , f i n d i n g him entitled to a bonus The D i s t r i c t C o u r t and Vranish in of $30,942.41 entered the amount judgment of v a c a t i o n pay of $3,000. a g a i n s t Family H e a l t h Care $33,942.41, a c c o r d a n c e w i t h s e c t i o n 39-3-206, fees and p l u s $33,942.41, in and r e a s o n a b l e a t t o r n e y ' s MCA, . On December judgment for 4, 1981, Vranish f i l e d a l t e r n a t i v e motions f o r defendant notwithstanding the t r i a l and t o a l t e r and amend t h e judgment. verdict, for a new On J a n u a r y 1 9 , 1 9 8 2 , t h e D i s t r i c t C o u r t e n t e r e d a memorandum o p i n i o n a g r e e i n g w i t h t h e jury t h a t Winkel was e n t i t l e d t o a b o n u s and v a c a t i o n p a y , disagreeing Further, the with the jury District as Court to the failed amount to of apply the p e n a l t i e s f o r u n p a i d wages and a t t o r n e y ' s f e e s . stated that, judgment, a p p e a 1s should Vranish Winkel would be fail entitled to to accept a new the but bonus. statutory The o r d e r a l s o the "modified" trial. Winkel . D e n n i s Winkel e n t e r e d i n t o a n employment c o n t r a c t w i t h L o r e n Vranish, a doctor p r a c t i c i n g the contract, i n F l a t h e a d County. The terms of a s set f o r t h i n a l e t t e r dated February 15, 1977, were a s follows: (1) A n n u a l s a l a r y of $ 2 6 , 0 0 0 t o be computed a s f o l l o w s : 1st 4 months $1,80O/month 2nd 4 m o n t h s $2,20O/month 3 r d 4 months $2,50O/month (2) Hospitalization and malpractice (3) T h r e e weeks v a c a t i o n p e r y e a r ; (4) Option for insurance coverage; f u l l p a r t n e r s h i p a f t e r o n e y e a r of salaried W i n k e l commenced w o r k i n g f o r V r a n i s h i n J u l y 1 9 7 7 . A t that employment. Dr. Max Q u a a s was a l s o w o r k i n g f o r V r a n i s h . time I n August 1977, Vranish incorporated u n d e r t h e name of F a m i l y H e a l t h C a r e , P.C. s i d e n t and sole shareholder of the his medical practice V r a n i s h was t h e p r e - corporation. A t the same t i m e , V r a n i s h conveyed h i s o f f i c e b u i l d i n g t o h i s w i f e , who b e g a n charging rent to the corporation. I n December 1 9 7 7 , D r . Q u a a s ended h i s employment w i t h F a m i l y Health Care. left, so W i n k e l ' s workload i n c r e a s e d g r e a t l y af t e r D r . Q u a a s Vranish increased s t a r t i n g J a n u a r y 1, 1 9 7 8 . the salary increase, c o n s i d e r a t i o n of the Winkel ' s salary to $3 ,OOO/month, Winkel t e s t i f i e d t h a t i n a d d i t i o n t o i n c e n t i v e s were following offered in h i s c o n t i n u i n g a s s o c i a t i o n with Family Health Care: (1) a p r o f i t s h a r i n g b o n u s ; (2) a refund t o Winkel of a l l funds contributed t o Family H e a l t h C a r e ' s p e n s i o n p l a n i n t h e e v e n t t h a t W i n k e l ' s employment was t e r m i n a t e d ; (3) f o u r weeks p a i d v a c a t i o n p e r y e a r ; and (4) a 50 p e r c e n t i n t e r e s t i n t h e o f f i c e b u i l d i n g t o W i n k e l ' s wife. I t was W i n k e l ' s to "buy Vranish in" to the disagrees. u n d e r s t a n d i n g t h a t he would n o t be r e q u i r e d corporation to When W i n k e l ' s receive salary these increased incentives. i n January 1 9 7 8 , V r a n i s h t o l d h i s CPA t h a t he wanted t o make Winkel a f u l l a n d e q u a l s h a r e h o l d e r by A u g u s t 1, 1 9 7 8 . tends that the profit-sharing bonus and T h e r e f o r e , V r a n i s h conother incentives were c o n t i n g e n t upon Winkel " b u y i n g i n " t o t h e c o r p o r a t i o n . N e g o t i a t i o n s commenced t o w a r d e f f e c t u a t i n g t h i s "buy i n , " and i n August 1978, the parties reached a temporary agreement. It V r a n i s h d e s c r i b e d W i n k e l ' s mood a s " s u r l y " when he came t o work on Monday. Winkel's of Therefore, appointments. Vranish Winkel I had the receptionist cancel p a t i e n t s were g i v e n t h e o p t i o n s s e e i n g V r a n i s h o r w a i t i n g t o s e e Winkel when he opened h i s new o f f i c e . Winkel d i d n o t r e c e i v e t h e v a c a t i o n pay n o r t h e $ 9 , 6 0 0 w h i c h Vranish offered to pay i n h i s February 22, 1979, letter. A t t r i a l , Winkel t e s t i f i e d t h a t h i s c o n t r a c t u a l damages amounted t o $35,000. The j u r y f o u n d t h a t Winkel was e n t i t l e d t o v a c a t i o n pay o f $ 3 , 0 0 0 and a p r o f i t - s h a r i n g In a post-judgment judgment by d e c r e a s i n g b o n u s of $ 3 0 , 9 4 2 . 4 1 . order, the the bonus District award to Court amended $9,600. The the court stated : "By r e a s o n of t h e f a c t t h a t t h i s was t h e o n l y bonus c o n s i d e r e d i n t h e n e g o t i a t i o n s between t h e p a r t i e s and was t o a p p l y on t h e buy-in a g r e e m e n t , n e g o t i a t i o n s l i m i t e d t h e amount due P l a i n t i f f t o t h e sum of $ 9 , 6 0 7 . 5 1 . The D e f e n d a n t F a m i l y H e a l t h C a r e acknowledged t h i s amount by r e a s o n of n e g o t i a t i o n s b e t w e e n t h e two a s a b a s i s of p a r t of t h e P l a i n t i f f ' s purchase. A t t i m e of t e r m i n a t i o n , t h e d e f e n d a n t a c k n o w l e d g e d same and o f f e r e d t e r m s f o r payment. P l a i n t i f f a g r e e d t o t h i s amount, b u t c l a i m e d a c o n t i n u a l bonus a s p a r t of s a l a r y ; and t h a t same was a c o n t i n u i n g b a s i s f o r employment. " Four issue issues for are purposes on a p p e a l . of review Vranish argues the underlying is whether the original written employment c o n t r a c t was amended a s a m a t t e r of law. Vranish contends Winkel is only entitled to recover the amount of v a c a t i o n p a y owing a t t h e time of W i n k e l ' s t e r m i n a t i o n . He argues Winkel is not entitled to any p r o f i t - s h a r i n g bonus b e c a u s e t h e o r i g i n a l w r i t t e n employment c o n t r a c t d i d n o t p r o v i d e f o r prof it-sharing b o n u s and t h e w r i t t e n employment c o n t r a c t was n e v e r amended a s a m a t t e r of law. A contract i n w r i t i n g may be a l t e r e d by a c o n t r a c t o r by a n executed o r a l agreement MCA. and n o t o t h e r w i s e . S e c t i o n 28-2-1602, An o r a l a g r e e m e n t a l t e r i n g a w r i t t e n a g r e e m e n t i s n o t a n executed o r a l agreement w i t h i n t h e s t a t u t e a u t h o r i z i n g modificat i o n of w r i t t e n c o n t r a c t s by a n e x e c u t e d o r a l agreement u n l e s s i t s terms h a v e b e e n f u l l y p e r f o r m e d , and p e r f o r m a n c e on o n e s i d e is not s u f f i c i e n t . 6 2 5 P.2d S t o d d a r d v. Gookin ( 1 9 8 1 ) , 5 2 9 , 5 3 4 , 38 S t . R e p . , Mont. An e x e c u t e d c o n t r a c t i s o n e 326. w h e r e n o t h i n g r e m a i n s t o be d o n e by e i t h e r p a r t y . An e x e c u t o r y c o n t r a c t i s o n e i n which a p a r t y b i n d s h i m s e l f t o d o o r n o t t o d o a particular thing i n the future. Bauer v. Monroe ( 1 9 4 5 ) , 1 1 7 Mont. 3 0 6 , 3 1 6 , 1 5 8 P.2d 4 8 5 , 490. For Winkel to be entitled to any p r o f i t - s h a r i n g we bonus, m u s t f i n d t h e w r i t t e n employment a g r e e m e n t was a l t e r e d by a n exec u t e d o r a l agreement. Vranish reached prof it-sharing Winkel t e s t i f i e d i n December 1 9 7 7 , he and a g r e e m e n t t h a t Winkel would an o r a l bonus. T h u s t h e q u e s t i o n becomes, i.e., agreement executed, a n s w e r comes from W i n k e l I receive was t h i s o r a l f u l l y p e r f o r m e d by b o t h p a r t i e s . s a The own t e s t i m o n y : "Q. And you w e n t t o work u n d e r t h e a g r e e m e n t t h a t h a s b e e n s u b m i t t e d i n e v i d e n c e which was t h e l e t t e r from D r . Q u a a s t o you e x p l a i n i n g w h a t your s a l a r y would b e , i s t h a t c o r r e c t ? A. [Winkel] Y e s . "Q. And t h a t a g r e e m e n t t h e n a s f a r a s any w r i t i n g is c o n c e r n e d h a s n e v e r c h a n g e d , i s n ' t t h a t correct? Anything o t h e r t h a n t h a t h a s b e e n by word of mouth, b e e n o r a l ? A. Yes. "Q. And t h e o n l y c h a n g e t h a t was made and h a s b e e n c o m p l e t e l y d o n e , c o m p l e t e l y e x e c u t e d was t h e f a c t t h a t y o u r s a l a r y was r a i s e d t o $ 3 , 0 0 0 rather than twenty-two or some figure? A. Yes. "Q. And y o u r t e s t i m o n y i s t h a t t h e r e was p r o m i s e s made t o you t h a t s o m e t h i n g e l s e would b e done b u t t h e y have never been p u t i n t o e f f e c t , have t h e y ? They h a v e n e v e r b e e n c o m p l e t e d ? You h a v e n e v e r g o t t e n a n y t h i n g o u t o f t h o s e ? A. T h a t is c o r r e c t ." From this testimony agreement concerning we see, a s a matter profit-sharing bonus t h u s t h e o r a l a g r e e m e n t was n o t e x e c u t e d . entitled to Winkel employment. I s allowing the reversible any jury profit-sharing to bonus Therefore, was of law, never the oral performed, W e f i n d Winkel was n o t when V r a n i s h jury instruction terminated no. f i n d Winkel was e n t i t l e d t o a b o n u s , 11, was e r r o r and V r a n i s h i s e n t i t l e d t o a new t r i a l on t h e i s s u e of a c c u m u l a t e d v a c a t i o n t i m e owing a t W i n k e l ' s t e r m i n a t i o n . Judgment g r a n t i n g new t r i a l d e n i e d and d i s m i s s e d . We concur: Chie Justice /. Justices 6 2 /& The Honorable R.C. ~c~o,&ouqh, District Judge, sittin6 inplace of the Honorable Frank B. Morrison, Jr. i s a££ i r m e d . Counter-claim is Mr. J u s t i c e J o h n C. S h e e h y , d i s s e n t i n g : I dissent. The o p i n i o n s and c u r i o u s e r . " i s s u i n g from t h i s C o u r t g e t "curiouser For example, V r a n i s h c r o s s - a p p e a l e d in this c a s e . You w i l l r e a d t h e m a j o r i t y o p i n i o n i n v a i n t o d i s c o v e r that. Winkel raised four i s s u e s on h i s D i s t r i c t C o u r t ' s amended j u d g m e n t . appeal froin t h e The m a j o r i t y f a i l s t o m e n t i o n w h a t t h e y a r e o r d i s c u s s them. I am n o t g o i n g to d i s c u s s them i n d i s s e n t b e c a u s e I t h i n k W i n k e l is e n t i t l e d t o a rehearing i n t h i s case. If I s h o u l d d i s c u s s them, it might be c o n c l u d e d t h a t t h e m a j o r i t y had c o n s i d e r e d W i n k e l ' s i s s u e s s o a s t o d e n y r e h e a r i n g u n d e r R u l e 3 4 , M.R.App.Civ.P. 1 w i l l d i s c u s s them i n d e p t h i f t h i s C o u r t d e n i e s r e h e a r i n g . however, will, I discuss t h e s i n g l e g r o u n d on w h i c h t h e majority set a s i d e t h e jury v e r d i c t , the holding t h a t Winkel c a n n o t r e c o v e r b e c a u s e h i s c l a i m i s b a s e d on a n o r a l amendment o f a w r i t t e n c o n t r a c t . T h i s i s n o t a c a s e o f a n o r a l amendment t o a w r i t t e n contract. The o n l y w r i t t e n c o n t r a c t i n t h i s c a s e a r i s e s from a l e t t e r d a t e d F e b r u a r y 1 5 , w r i t i n g on b e h a l f o f V r a n i s h . would work f o r a s e t s a l a r y , enter into Quaas. a partnership Winkel, Vranish. under the 1977, f r o m a Dr. Quaas, Under t h a t a g r e e m e n t , Winkel and a f t e r o n e y e a r including letter, Winkel, would be h e would Vranish employed and by T h i s a g r e e m e n t f o r e v e n t u a l p a r t n e r s h i p was n e v e r carried out. Instead, 1977. Winkel came t o work f o r V r a n i s h on J u l y 1, On A u g u s t 1, 1 9 7 7 , V r a n i s h i n c o r p o r a t e d h i m s e l f i n t o F a m i l y H e a l t h C a r e , and f r o m t h a t d a t e o n Winkel worked f o r the c o r p o r a t i o n and n o t f o r V r a n i s h . Quaas l e f t t h e group i n November of 1 9 7 7 ( h e a l s o was a n e m p l o y e e o f t h e c o r p o r a t i o n when h e l e f t ) . partnership was When t h e F e b r u a r y 1 5 , 1 9 7 7 , l e t t e r f o r written, Vranish owned the p r a c t i c e d i n a n a c h a r g e d no r e n t t o h i m s e l f . building he A t t h e t i m e of t h e i n c o r p o r a t i o n , he t r a n s f e r r e d t h e b u i l d i n g t o h i s wife, who charged the retrospectively. corporation rental prospectively and B e f o r e A u g u s t 1, 1 9 7 7 , a n y p r o f i t p r o d u c e d by Winkel o v e r h i s s a l a r y w e n t t o V r a n i s h p e r s o n a l l y . After A u g u s t 1, 1 9 7 7 , s u c h p r o f i t f r o m W i n k e l ' s p r o d u c t i o n w e n t t o the professional corporation. I t d e f i e s common s e n s e , and t h e law a s I u n d e r s t a n d i t , t o h o l d t h a t an i m p l i e d c o n t r a c t of employment by a new e n t i t y i s m e r e l y a n o r a l amendment o f a w r i t t e n c o n t r a c t o f employment by a f o r m e r c o m p l e t e l y d i f f e r e n t e n t i t y . Vranish is a l e g a l e n t i t y ; h i s professional corporation is l e g a l l y a completely separate l e g a l e n t i t y . hire Winkel personally, partnership l e t t e r expired. the When V r a n i s h c e a s e d t o written contract under the When W i n k e l ' s employment t r a n s - f e r r e d t o t h e c o r p o r a t i o n , h e b e g a n a new employment e x p e r i e n c e w i t h a new e m p l o y e r . Winkel's employment by V r a n i s h c a n n o t b e i n t e g r a t e d w i t h h i s employment by t h e c o r p o r a t i o n , s o a s t o c o n s i d e r h i s new employment s i m p l y an o r a l amendment o f a f o r m e r w r i t t e n c o n t r a c t . same. After August 1, 1 9 7 7 , The p a r t i e s a r e n o t t h e Winkel was w o r k i n g under a c o m p l e t e l y d i f f e r e n t c o n t r a c t , a n o r a l c o n t r a c t b a s e d on new promises. of the V r a n i s h was n o t h i s e m p l o y e r , b u t a co-employee same c o r p o r a t i o n . Winkel's cause of a c t i o n on a c o n t r a c t b a s i s i n t h i s a c t i o n i s a g a i n s t t h e c o r p o r a t i o n and n o t a g a i n s t Vranish. Here, t h e j u r y d e c i d e d t h a t W i n k e l was d e p r i v e d of a s h a r e of t h e c o r p o r a t i o n ' s p r o f i t s d u e him u n d e r contract of employment by the corporation. his oral The m a j o r i t y b r u s h a s i d e t h a t d e c i s i o n by a n i n c o r r e c t c o n c e p t i o n o f issues here. would I at the least reinstate the the jury verdict against the corporation. The f a c t s o f t h i s case show a v a l i d o r a l a b r o g a t i o n o f a w r i t t e n c o n t r a c t and o r a l contract. that contract a ignore t h e provisions of written in writing contract be of, s e c t i o n 28-2-1602, altered See, only by a P e a r s a l l v. 3 2 5 , 95 P. 1 5 4 , 1 5 7 ; K l e i n N o r t o n Co. v. Cohen ( 1 9 3 0 ) , 1 0 7 Cal.App. thought may as n o t a p p l i c a b l e . Henry ( 1 9 0 8 ) , 1 5 3 Ca1.314, Mot an enforceable We should follow the lead of California i n s u c h c a s e and IYCA, t h e s u b s t i t u t i o n of 3 2 5 , 3 3 0 , 290 P. 6 1 3 , 616. certainly m a j o r i t y is t h e t r u e i m p a c t of not discussed, s e c t i o n 28-2-1602, by the MCA, and i t s i n t e r p r e t a t i o n by t h i s C o u r t i s Dalakow v . G e e r y ( 1 9 5 7 ) , 1 3 2 Mont. 4 5 7 , 3 1 8 P.2d 253. MCA, i s n o t a Recognize f i r s t t h a t s e c t i o n 28-2-1602, p a r t of t h e s t a t u t e of f r a u d s , which w e have i n s t a t u t e form i n s e c t i o n 28-2-903, MCA. The p r o v i s i o n t h a t a w r i t t e n c o n - t r a c t may o n l y be a l t e r e d by a n o t h e r w r i t t e n c o n t r a c t , t i o n 28-2-1602, instruments, sec- was " b o r r o w e d f r o m t h e l a w g o v e r n i n g s e a l e d and now g e n e r a l l y r e l a x e d e v e n a s t o t h e m , " in t h e w o r d s o f W i l l i s t o n , who c a l l s i t a n " u n f o r t u n a t e l e g i s lative adoption for Contracts (3rd Ed.) California, from a h a r s h 28-2-1602. written contracts." 15 Williston on 495, f n . 6 , s e c t i o n 1828. through then J u s t i c e Traynor, moved away its counterpart t o section i n t e r p r e t a t i o n of The b a s i s o f d i s t i n c t i o n was a d d i t i o n a l c o n s i - deration for the oral modification. Here, Winkel t o o k o v e r a l a r g e s h a r e o f t h e p r a c t i c e when Q u a a s l e f t t h e employment of the corporation, a valid consideration. C a l i f o r n i a h e l d i n D.L. In such c a s e , Godbey and S o n s C o n s t . Co. v . Deane " S e c t i o n 1 6 9 8 o f t h e C i v i l Code p r o v i d e s : ' A c o n t r a c t i n w r i t i n g may be a l t e r e d b y a c o n t r a c t i n w r i t i n g , o r by a n e x e c u t e d o r a l a g r e e m e n t , and n o t o t h e r w i s e . ' ... " S e c t i o n 1698 h a s a d u a l o p e r a t i o n . On the one hand it invalidates oral c o n t r a c t s of modification that are u n e x e c u t e d , and on t h e o t h e r h a n d , i t v a l i d a t e s executed agreements t h a t might o t h e r w i s e f a i l f o r l a c k of c o n s i d e r a t i o n . ... "The s i t u a t i o n i s d i f f e r e n t , however, where t h e r e is c o n s i d e r a t i o n f o r t h e o r a l m o d i f i c a t i o n a g r e e m e n t . I n s u c h cases t h e r i g h t s and d u t i e s of b o t h p a r t i e s t o t h e w r i t t e n c o n t r a c t a r e a f f e c t e d , a n d by performing t h e c o n t r a c t a s modified each p a r t y w i l l be i n a p o s i t i o n t o e x e c u t e t h e o r a l a g r e e m e n t on h i s s i d e . Since p l a i n t i f f has a l l e g e d an adequate consid e r a t i o n f o r t h e o r a l m o d i f i c a t i o n and f u l l p e r f o r m a n c e on i t s p a r t u n d e r t h e terms t h e r e o f , it has s t a t e d a cause of action.'' .. T h i s Court followed t h e lead of case i n Dalakow, 28-2-1602 supra, t h e C a l i f o r n i a Godbey s a y i n g w e would interpret section a s d i d C a l i f o r n i a s i n c e we adopted that statute from C a l i f o r n i a . I n Dalakow t h i s C o u r t f o u n d t h a t o n e o f t h e p a r t i e s t o a c o n t r a c t o r a l l y a g r e e d t o d o s o m e t h i n g h e was not bound to do under the written contract, and s u f f i c e d a s c o n s i d e r a t i o n f o r a n o r a l m o d i f i c a t i o n of w r i t t e n c o n t r a c t . 1 3 2 Mont. a t 466-467, this the 318 P.2d a t 258-259. The s a l u t a r y r u l e o f Dalakow i n t e r p r e t i n g s e c t i o n 28-2-1602 h a s by i m p l i c a t i o n b e e n o v e r r u l e d by t h i s d e c i s i o n , w i t h o u t a b r e a t h of d i s c u s s i o n . Henceforth a l l w r i t t e n c o n t r a c t s i n blontana w i l l be g i v e n t h e f o r c e o f regard t h a t r e s u l t regressive. a sealed instruments. I I concur in the foregoing dissent of Mr. Justice Sheehy. Mr. Justice Daniel J. Shea will file a written dissent later.

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