D'Amico v. Structural I Co.

• Court: Arizona Court of Appeals
• Writing for the Court: JOHNSEN
• Citation: D'Amico v. Structural I Co., 229 Ariz. 262, 274 P.3d 532, 631 Ariz. Adv. Rep. 11 (Ariz. App. 2012)
• Decision Date: 03 April 2012
• Docket Number: 1 CA–CV 10–0569,Nos. 1 CA–CV 09–0493,1 CA–CV 10–0762.,s. 1 CA–CV 09–0493
• Parties: Irene E. D'AMICO, Plaintiff/Counterdefendant/Appellee/Cross–Appellant, v. STRUCTURAL I COMPANY, Defendant/Counterclaimant/Appellant/Cross–Appellee.Irene E. D'Amico, Plaintiff/Appellant, v. Structural I Company, Defendant/Appellee.Irene E. D'Amico, Plaintiff/Counterdefendant/Appellee, v. Structural I Company, Defendant/Counterclaimant/Appellant.

229 Ariz. 262

274 P.3d 532

631 Ariz. Adv. Rep. 11

Irene E. D'AMICO, Plaintiff/Counterdefendant/Appellee/Cross–Appellant,

v.STRUCTURAL I COMPANY, Defendant/Counterclaimant/Appellant/Cross–Appellee.Irene E. D'Amico, Plaintiff/Appellant,

v.Structural I Company, Defendant/Appellee.Irene E. D'Amico, Plaintiff/Counterdefendant/Appellee,

v.Structural I Company, Defendant/Counterclaimant/Appellant.

Nos. 1 CA–CV 09–0493

1 CA–CV 10–0569

1 CA–CV 10–0762.

Court of Appeals of Arizona, Division 1, Department B.

April 3, 2012.

Cavanagh Law Firm By David A. Selden, Julie A. Pace, Jodi R. Bohr, Phoenix, Attorneys for Structural I.

Cohen Law Firm By Larry J. Cohen, Phoenix, Attorneys for Irene D'Amico.

OPINION

JOHNSEN, Judge.

¶ 1 A framing company fired its chief executive officer, who then sued the company for breach of contract. We address two issues raised by the resulting jury verdicts and judgments in favor of the former officer. For the reasons set forth below, we hold that on appeal, a litigant may not contest a decision by the superior court to admit arguably privileged testimony when the litigant does not hold the privilege that protects the testimony. We also hold the superior court has discretion to decline to award treble damages in a wage claim even when the employer did not withhold the wages in good faith.

FACTS AND PROCEDURAL HISTORY

¶ 2 Structural I Company was a family-owned framing company founded and operated by Mary Jo and Doug McLeod.¹ As their retirement approached, the McLeods were seeing a counselor, Sharon Cottor, about personal and business matters. When the McLeods told Cottor they wanted to transition out of day-to-day involvement in Structural I, she suggested they hire a “bridge CEO” to run the company while younger insiders developed their management skills. At Cottor's suggestion, Structural I hired Irene D'Amico as a consultant, then negotiated an agreement to bring her on as CEO. Under the agreement, Structural I would pay D'Amico $200,000 a year in salary, plus a bonus based on the company's net income. The agreement, dated July 2003, was for a term of five years and provided that D'Amico could be terminated only for cause. Things did not go well, however. The McLeods disputed D'Amico's calculation of her bonuses in 2004 and 2005, and other disagreements also arose. Structural I finally discharged D'Amico in April 2006.

¶ 3 D'Amico sued Structural I, alleging it breached the agreement by terminating her without cause and withholding wages in bad faith. Structural I counterclaimed, alleging breach of fiduciary duty, fraud, unjust enrichment, fraudulent concealment and replevin.

¶ 4 After a 13–day trial, the jury returned six special verdicts. It found Structural I breached by terminating D'Amico without cause and by shorting her a total of $29,792 in bonuses for 2004 and 2005. It awarded D'Amico $547,000 in unpaid salary for the duration of the agreement, plus $177,054, which the parties stipulated would have been D'Amico's 2006 bonus. Of the total wages assessed of $753,846, the jury found there was a good-faith dispute over just $229,792. The jury also found for D'Amico on Structural I's claims for fraudulent inducement, fraud and unjust enrichment. It concluded, however, that D'Amico breached her fiduciary duty to Structural I and awarded Structural I $150,000 in damages. After calculating prejudgment interest, entering awards of attorney's fees and costs and setting off the verdicts against each other, the court entered judgment in favor of D'Amico for $910,616.

¶ 5 Both parties appealed. In this opinion, we address two issues raised by D'Amico's claim for breach of contract. Pursuant to Arizona Rule of Civil Appellate Procedure 28(g), we resolve the other issues raised by the appeals in a separate memorandum decision.

DISCUSSION

I. Psychologist–Patient Privilege.

¶ 6 Structural I argues the superior court erred by denying its Motion for Judgment as a Matter of Law and Motion for a New Trial pursuant to Arizona Rules of Civil Procedure 50(b) and 59(a). Among other things, Structural I argues the superior court should have excluded privileged testimony by Cottor concerning her personal counseling sessions with the McLeods.²

¶ 7 Although Cottor is a clinical social worker and not a psychologist, D'Amico does not dispute that a privilege may protect Cottor's confidential communications with her clients in counseling sessions about personal matters. A psychologist's confidential communications with her patient are privileged and “are placed on the same basis as [those] provided by law between attorney and client.” Bain v. Superior Court, 148 Ariz. 331, 333, 714 P.2d 824, 826 (1986) (citing Arizona Revised Statutes (“A.R.S.”) section 32–2085). Once it attaches, this privilege prohibits pretrial discovery of privileged information and testimony about “information within the scope of the privilege.” Id. We review de novo whether a privilege exists. State v. Miles, 211 Ariz. 475, 477, ¶ 7, 123 P.3d 669, 671 (App.2005). We also review de novo whether a party has standing to assert the privilege. Id.

¶ 8 A psychologist's client holds the privilege. A.R.S. § 32–2085 (West 2012); see also State v. Sucharew, 205 Ariz. 16, 21, ¶ 10, 66 P.3d 59, 64 (App.2003) (attorney-client privilege “belongs to the client”). ³ Put differently, the privilege is “personal to the client.” State v. Griswold, 105 Ariz. 1, 5, 457 P.2d 331, 335 (1969). For that reason, on appeal, “the erroneous denial of the privilege can only be complained of by the client whose privilege has been infringed.” 1 McCormick on Evidence § 92 (6th ed. 2006). Thus, appellate review of a decision to admit arguably privileged testimony is only available if the client is a party to the appeal; if the client is not a party, the appellant “is without recourse.” Id. On appeal, a litigant cannot assert a privilege that was “not created for his benefit.” Id. ¶ 9 While Arizona courts have not addressed this issue, other jurisdictions follow the rule stated in McCormick's treatise. See, e.g., United States v. Harrelson, 754 F.2d 1153, 1169 (5th Cir.1985) (client's wife may not assert attorney-client privilege held by her husband); United States v. Dien, 609 F.2d 1038, 1043–44 (2d Cir.1979) (defendant may not assert marital privilege held by another defendant); United States v. Crockett, 534 F.2d 589, 604 (5th Cir.1976) (refusing to address marital privilege question because alleged holder of privilege was not a party to appeal); People v. Corona, 211 Cal.App.3d 529, 259 Cal.Rptr. 524, 532 (1989) (citing Cal. Evid.Code § 918) (appellant may challenge privilege ruling only if he holds the privilege); Schaibly v. Vinton, 338 Mich. 191, 61 N.W.2d 122, 124 (1953) (trial ruling on privilege cannot be appealed when owner of privilege is not party to lawsuit). We conclude the rule these cases apply is sensible and adopt it.

¶ 10 At issue in this case is testimony by Cottor concerning her personal counseling sessions with the McLeods.⁴ Any privilege that may have protected those sessions was held not by Structural I but by the McLeods. The McLeods were not parties to the lawsuit and are not parties to this appeal. Because Structural I does not hold the privilege, it lacks standing to argue the superior court erred when it admitted Cottor's testimony concerning her counseling sessions with the McLeods.⁵

II. Treble Damages.

¶ 11 D'Amico argues the superior court abused its discretion by refusing to treble her damages pursuant to A.R.S. § 23–355(A) (2012). Under that statute, “if an employer, in violation of this chapter, fails to pay wages due any employee, the employee may recover in a civil action against an employer or former employer an amount that is treble the amount of the unpaid wages.”

¶ 12 Section 23–355(A) plainly does not impose treble damages whenever an employer withholds wages. We know this because another statute, A.R.S. § 23–352 (2012), states in relevant part that “[n]o employer may withhold or divert any portion of an employee's wages unless ... [t]here is a reasonable good faith dispute as to the amount of wages due....” Put differently, § 23–352 allows an employer to withhold wages when the employer disputes in good faith that it owes the wages. Certainly it must follow that treble damages may not be awarded pursuant to A.R.S. § 23–355(A) when an employer withholds wages subject to a good-faith dispute. See Apache East, Inc. v. Wiegand, 119 Ariz. 308, 312, 580 P.2d 769, 773 (App.1978) (“The treble damages penalty should not be awarded when there is a reasonable good faith wage dispute between the employer and the employee.”).

¶ 13 The jury in this case concluded that Structural I owed D'Amico $753,846 in wages, and that the company had disputed “in good faith” only $229,792 of that amount.⁶ D'Amico argues that because the jury necessarily found that the remaining $524,054 was not disputed in good faith, the court was required to treble those damages pursuant to A.R.S. § 23–355(A).

¶ 14 In explaining its denial of D'Amico's request for treble damages, the superior court stated that “there was a good faith dispute concerning the amount due [D'Amico] under the employment contract.” This conclusion, however, flies in the face of the jury's verdict that only $229,792 of the total owed of $753,846 was disputed in good faith.

¶ 15 The court also observed that the amount due D'Amico under her employment agreement was “not a set amount,” but “required a calculation based on the company's success.” While a disagreement over the application of a complex compensation formula contract may form the basis of a good-faith dispute, Cummings v. Aviation Specialties Trade Corp., 120 Ariz. 536, 537, 587 P.2d 255, 256 (App.1978), we presume the jury applied that standard when it determined that Structural I disputed in good faith only $229,792 of D'Amico's damages.

¶ 16 Nevertheless, although we conclude the factors the superior court cited do not...