McKean v. Bernard, 76

• Court: Court of Appeals of Oregon
• Citation: 54 Or.App. 540,635 P.2d 673
• Docket Number: No. 76,76
• Parties: Dr. Samuel H. McKEAN, Respondent, v. Dr. Lawrence BERNARD and McKenzie Dental Laboratories, Inc., a corporation, Appellants. 3913; CA 18893.
• Decision Date: 02 November 1981

Page 673

635 P.2d 673 54 Or.App. 540 Dr. Samuel H. McKEAN, Respondent,
v.
Dr. Lawrence BERNARD and McKenzie Dental Laboratories, Inc.,
a corporation, Appellants. No. 76 3913; CA 18893. Court of Appeals of Oregon. Argued and Submitted May 18, 1981.
Decided Nov. 2, 1981.

[54 Or.App. 541]

Page 674

Marvin S. Nepom and David R. Nepom, Portland, argued the cause and filed the briefs for appellants.

Ausey H. Robnett, III, Eugene, argued the cause for respondent. With him on the brief was Thwing, Atherly & Butler, Eugene.

Before RICHARDSON, P. J., and THORNTON and VAN HOOMISSEN, JJ.

[54 Or.App. 542] VAN HOOMISSEN, Judge.

Plaintiff brought this action to recover amounts he claimed were due under his employment contract with defendant Bernard. The trial court, sitting without a jury, awarded plaintiff $96,699.20, plus prejudgment interest and attorney's fees. Defendants appeal. We affirm.

Plaintiff was employed as the manager of Bernard's Eugene dental office from May, 1964, to November, 1973. Under the employment contract, plaintiff was guaranteed a minimum salary. Plaintiff was entitled to additional compensation (equal to 50 percent of the office's net profits "after deducting all operating expenses including office supplies, but excluding dental equipment and other capital expenses * * * ") in employment years when the net profits of the office exceeded twice his guaranteed salary. The contract also provided that, upon its termination, Bernard was to pay plaintiff 15 percent of the "difference of the increase of good accounts receivable (those accounts 90 days or less) from May 1, 1964 to the date of termination * * *."

In 1968, defendant McKenzie Dental Laboratories, Inc. (McKenzie), the laboratory affiliated with Bernard's Eugene dental office, was separately incorporated. Although the written contract between plaintiff and Bernard relates by its terms only to plaintiff's management of the dental office, plaintiff alleged that he and Bernard orally agreed that he was also to manage McKenzie and that the net profits and the receivables of McKenzie were to be included in those of the dental office for purposes of determining his compensation and termination rights under the written contract. Prior to McKenzie's incorporation and, apparently, thereafter, plaintiff acted as manager of both the laboratory and the dental office.

At the time his employment terminated, plaintiff demanded an accounting from Bernard to determine the amounts due him under the contract. Documents prepared by Bernard's then accountants showed plaintiff owed Bernard slightly more than $5,000. In 1976, plaintiff brought the present action seeking, inter alia, that the court appoint a certified public accountant "to make an accounting [54 Or.App. 543] * * * of the amount owing to plaintiff and that the Court enter judgment for plaintiff in said amount * * *." The parties stipulated that Eugene accountant John Sooy be appointed for that purpose. After Sooy was appointed, he requested certain source documents from defendants. He was informed by defendants' attorney that "during a house cleaning session last summer these records were thrown out." ¹ Sooy then petitioned the court to withdraw on the ground that he could not perform an accounting without the records. Subsequently, the trial court ordered defendants to make all extant documents and records relevant to damages available to plaintiff, and the court directed the parties to proceed to trial on the issue of damages.

Page 675

Defendants' first contention on appeal is that the trial court erred in its award of contract damages to plaintiff and that this court should review de novo and find no damages are owing. The threshold question is whether our review is de novo. ² Defendants argue that this is a proceeding in equity for an accounting, rather than an action at law on the contract. It is true that the remedy originally sought by plaintiff was an accounting. However, after defendants failed to produce the documents necessary for Sooy to perform an accounting, the trial court directed that a trial on damages be held, and the parties then proceeded to try the case in the manner contract actions are tried. Defendants do not contend that the trial court erred in setting the case for trial on damages without the accounting sought by plaintiff having been performed. More significantly, neither does plaintiff. At the conclusion of the trial, plaintiff amended the prayer of his complaint, without objection, to reflect the amount of damages supported by his evidence.

This case is distinguishable from Flaherty v. Bookhultz et al., 207 Or. 462, 291 P.2d 221, 297 P.2d 856 (1956), on which defendants rely. There, the Supreme Court held that a proceeding to recover sales commissions [54 Or.App. 544] under an employment contract was reviewable as an equitable accounting, rather than as a contract action. However, the court did not hold in Flaherty that all similar proceedings are necessarily equitable, and it suggested that the defendants might have demurred but did not, on the ground that the plaintiff had a plain, speedy and adequate remedy at law. The court in Flaherty simply held that the subject matter of the case "was not clearly beyond the pale of equitable cognizance" and that, as the parties proceeded, "(t)he case was tried as a suit in equity and was so appealed to this court." 207 Or. at 472, 291 P.2d 221.

There is something tautological and disingenuous about defendants' arguments concerning the scope of appellate review and plaintiff's proof. Defendants posit that they are entitled to a new fact-finding process on appeal, because this is a suit for an equitable accounting. However, defendants made no accounting; instead, they essentially forced plaintiff to his proof by their claimed inability to produce documentation which should have been uniquely within their control. Defendants now argue that plaintiff's proof was inadequate and that we have the ability to review de novo (and reverse the trial judge's acceptance of the proof) because the equitable nature of the proceeding was permanently established by plaintiff's frustrated effort to obtain an accounting. Phrased somewhat differently, defendants claim that, because plaintiff originally sought an equitable remedy which their inability to produce evidence denied him, defendants are nevertheless now entitled to de novo review of the evidence of damages plaintiff was able to present. We conclude that the case was tried as a contract action and that our evidentiary review is for substantial evidence.

The approach plaintiff followed to prove damages was to introduce the dental office's profit and loss statements for the period of plaintiff's employment. Those statements had been prepared by defendants' accountants. Plaintiff also introduced certain other documents which were furnished by defendants. Plaintiff then put on the testimony, with supporting exhibits, of an accountant who had analyzed the profit and loss statements and had made adjustments to them, mainly by...