Carraway Methodist Health Systems v. Wise

• Decision Date: 30 November 2007
• Docket Number: 1041483,1041545.
• Citation: 986 So.2d 387
• Parties: CARRAWAY METHODIST HEALTH SYSTEMS and Carraway Management Foundation, Inc. v. William D. WISE. William D. Wise v. Carraway Methodist Health Systems and Carraway Management Foundation, Inc.
• Court: Alabama Supreme Court

986 So.2d 387

CARRAWAY METHODIST HEALTH SYSTEMS and Carraway Management Foundation, Inc. v. William D. WISE.

William D. Wise v. Carraway Methodist Health Systems and Carraway Management Foundation, Inc.

1041483

1041545.

Supreme Court of Alabama.

November 30, 2007.

Peyton Lacy, Jr., Sandra B. Reiss, and Christopher A. Mixon of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Birmingham, for appellants/cross-appellees Carraway Methodist Health Systems and Carraway Management Foundation, Inc.

Stephen D. Heninger of Heninger, Burge, Vargo & Davis, LLP, Birmingham, for appellee/cross-appellant William D. Wise.

LYONS, Justice.¹

Carraway Methodist Health Systems ("CMHS") and Carraway Management Foundation, Inc. ("the Foundation") (hereinafter sometimes referred to jointly as "the Carraway entities"), appeal from a judgment entered on a jury verdict in favor of William D. Wise on his breach-of-contract claim against them. Wise cross-appeals from a judgment as a matter of law ("JML") entered in favor of the Carraway entities on his tort-of-outrage claim against them. As to the Carraway entities' appeal (no. 1041483), we reverse; as to Wise's cross-appeal (no. 1041545), we affirm.

I. Facts and Procedural History

The Carraway entities were established under the Alabama Nonprofit Corporation Act, § 10-3A-1 et seq., Ala.Code 1975 ("the Alabama Nonprofit Act"). The primary facility operated by CMHS was Carraway Methodist Medical Center in Birmingham, but CMHS also operated other medical-care facilities in central and north Alabama. CMHS established the Foundation to employ key management personnel for the medical facilities operated by CMHS. The Foundation was specifically contractually obligated to employ the chief executive officer ("CEO"), chief financial officer ("CFO"), and general counsel for CMHS. In 1985, the Carraway entities entered into a management contract; that contract stated, in pertinent part:

"[E]ach party covenants that it shall not, during the term of this Agreement and any renewals thereof, and for a period of one (1) year thereafter, directly or indirectly impair or initiate any attempt to impair the relationship or expectancy of a continuing relationship which exists or will exist between the other party and the personnel employed by the other party at any time during the term of this Agreement or renewals thereof, or make offers or contracts of employment or offers or contracts for services with such personnel, or with any partnership, corporation or association through which such personnel may render services or employment to the offending party."

CMHS first employed Wise in its print shop in 1971 while he was attending the University of Alabama at Birmingham. After graduating, Wise continued to work at CMHS while attending the Birmingham School of Law. Wise began working in CMHS's legal department in 1975 and was named its general counsel in 1992. In 1994, the Foundation executed a written employment contract with Wise ("the 1994 contract"). The 1994 contract stated, in pertinent part:

"1. Employment and Term. [The Foundation] hereby employs [Wise] as its Vice President-Legal Affairs and General Counsel, and as Vice President-Legal Affairs and General Counsel of CMHS, for the period beginning September 1, 1994, and ending December 31, 1999; provided that on January 2, 1998 and on January 2 of each subsequent year, the Contract term shall be extended automatically for one (1) year unless either party on or before January 1, 1998 or any January 1 of a subsequent year, gives written notice to the other of its or his intention to terminate the Contract."

Roy Crawford, outside counsel retained by the Carraway entities, drafted the contract. Wise had the opportunity to review the contract before it was presented to the Foundation's board of directors for review. Wise made the following changes to the contract: he changed his title from "Vice President-Legal Affairs" to "Vice President-Legal Affairs and General Counsel"; he changed a provision giving him free medical care so as to include his immediate family; and he changed a provision establishing a death benefit of three months' salary to make the death benefit six months' salary.

In 2000, CMHS's board of directors approved contingency employment contracts for Dr. Robert Carraway, CMHS's CEO, and for Wise ("the 2000 contingency contract"). Crawford also drafted these contracts. Wise's contract stated that "CMHS desires to ensure that Wise's services will remain available to CMHS should his employment by [the Foundation], and thus the availability of his services to CMHS, terminate because of the expiration of the [1994] Contract." According to Dr. Carraway, CMHS was undergoing a financial "crunch" in 2000, and he and the members of CMHS's board of directors were concerned that CMHS might be sold to another entity. Dr. Carraway stated that CMHS executed the 2000 contingency contracts to ensure that any purchaser would have to retain him and Wise and thus continue "a link to the Health Systems." Wise's 2000 contingency contract with CMHS stated, in pertinent part:

"1. Employment and Term. Effective immediately upon the termination of Wise's employment by [the Foundation] because of the expiration of the term of the [1994] Contract as provided in Section 1 thereof on or before December 31, 2010, CMHS shall employ Wise as its Vice President-Legal Affairs and General Counsel for the period ('the Employment Term') beginning on the date Wise's employment with [the Foundation] terminates and ending on the fifth anniversary of the commencement of the Employment Term; provided that on the fourth anniversary date of the commencement of the Employment Term and on said anniversary date of each subsequent year, the Employment Term shall be extended automatically for one (1) year unless either party gives written notice to the other of its or his intention to terminate this Contract before the applicable anniversary date."

In 2000 and 2001, CMHS continued to experience financial difficulties. By May 2002, CMHS says it was in "very, very deep financial distress" with debt of $146 million, including $117 million in bonded indebtedness and $25 million in accounts payable to vendors. CMHS was also in violation of the covenants relating to its bonds because it had insufficient cash on hand. Realizing its financial situation, CMHS's board of directors began considering cost-cutting measures. At a September 2001 meeting of CMHS's board of directors at which Wise was present, the board voted to consider terminating the employment contracts held by senior management. At a December 2001 board meeting, the board established an ad hoc committee to review those employment contracts. Wise was aware of the situation and was encouraged to hire an attorney to protect his interests, which he did in early 2002.

On February 22, 2002, CMHS provided the Foundation with written notice pursuant to the management contract between the Carraway entities that it intended to cancel that contract in 60 days. The notice was hand-delivered to Wise. Because the Foundation was solely funded by CMHS, when CMHS canceled the management contract, funds were no longer available for the Foundation to pay the salaries of senior management. The only remaining employees of the Foundation at the time the management contract was terminated, Dr. Carraway and Wise, were transferred to CMHS's payroll. The Carraway entities contend that Wise became an at-will employee of CMHS when it canceled the management contract; Wise contends that the 2000 contingency contract took effect at that time. It is undisputed that CMHS, not the Foundation, paid Wise's salary in May 2002. The record indicates that Wise's annual base salary at that time was $138,384 and his annual compensation package was approximately $177,300.

In May 2002, Coy Cooper, the chairman of CMHS's board of directors, asked Wise to sign a termination-and-release agreement. The termination-and-release agreement stated:

"The undersigned, William D. Wise, in consideration for (i) his at will employment effective May 4, 2002, by Carraway Methodist Health Systems ('CMHS') as its Vice President-Legal Affairs and General Counsel at an annual salary equal to his salary from Carraway Management Foundation, Inc. ('[the Foundation]') as of May 3, 2002, with benefits comparable to those provided CMHS'[s] other administrative personnel, (ii) the assumption by CMHS of the undersigned's accrued vacation and sick time pay to which the undersigned became entitled as an employee of CMHS, and (iii) the payment of CMHS of 50% of said accrued vacation and sick time pay to the undersigned on June 25, 2002:

"1. The undersigned agrees to the termination as of May 3, 2002, of that certain Employment Contract by and between the undersigned, as employee, and [the Foundation], as employer, dated as of September 1, 1994 (the `Employment Contract'), and further agrees that neither the undersigned nor [the Foundation] has any further rights or obligations thereunder.

"2. The undersigned agrees to the termination as of May 3, 2002, of that certain Employment Contract by and between the undersigned, as employee, and CMHS, as employer, dated as of September 1, 2000 (the `Contingent Employment Contract'), and further agrees that neither the undersigned nor CMHS has any further rights or obligations thereunder.

"3. The undersigned hereby releases and forever discharges CMHS and [the Foundation] from any claims, liabilities, obligations or expenses becoming due and payable under, arising out of, or in any way related to, the Employment Contract or the Contingent Employment Contract or the termination of the Employment Contract and the Contingent Employment Contract."

Wise refused to sign the termination-and-release agreement.

Wise testified that he had plans with his family on Memorial Day of 2002 but that, because Cooper asked him to work that weekend, he canceled...