Orlob v. Wasatch Medical Management

• Decision Date: 14 October 2005
• Docket Number: No. 20040216-CA.,20040216-CA.
• Parties: David L. ORLOB, Plaintiff, Appellee, and Cross-appellant, v. WASATCH MEDICAL MANAGEMENT, Kenneth C. Jensen, Earlene B. Jensen, Steven K. Jensen, and Kevin J. Jensen, Defendants, Appellants, and Cross-appellees.
• Court: Utah Supreme Court

Page 269

124 P.3d 269

2005 UT App 430

David L. ORLOB, Plaintiff, Appellee, and Cross-appellant, v. WASATCH MEDICAL MANAGEMENT, Kenneth C. Jensen, Earlene B. Jensen, Steven K. Jensen, and Kevin J. Jensen, Defendants, Appellants, and Cross-appellees.

No. 20040216-CA.

Court of Appeals of Utah.

October 14, 2005.

COPYRIGHT MATERIAL OMITTED

James C. Haskins and Thomas N. Thompson, Haskins & Associates, Salt Lake City, and Dan Durrant, Phoenix, Arizona, for Appellants.

David W. Scofield, Peters Scofield Price, Salt Lake City, for Appellee.

Before BILLINGS, P.J., BENCH, Associate P.J., and WILKINS, Associate C.J.¹

OPINION

WILKINS, Associate Chief Justice:

¶ 1 For the second time in four years, we are called upon by Wasatch Medical Management (Wasatch) and David Orlob to resolve a now-fourteen-year-old dispute over their Combined Agreement for the sale of Orlob's medical billing service to Wasatch (Combined Agreement or Agreement). In the present action, Wasatch appeals and Orlob cross-appeals from a district court ruling, which held that (1) Orlob is entitled to one-half of the commission payments payable under the Agreement; (2) with the exception of Dr. Hamilton, Orlob fulfilled his obligation under the Agreement to deliver doctors to Wasatch at the billing rate of six percent of collections; (3) Orlob's breaches of the Agreement are not sufficiently serious to remove Wasatch's obligation to make commission payments to Orlob; (4) the parties' oral modification of the Agreement is barred by the statute of frauds; and (5) Orlob is entitled to prejudgment interest on unpaid commissions. We affirm.

BACKGROUND

¶ 2 In 1978, Orlob started a company called Professional's Control Group, which he later consolidated into Professional's Control Group, Inc., a Utah corporation (PCG). PCG provided a billing service for anesthesiologists in the Salt Lake Valley, and Orlob charged his clients at the rate of six percent of the amounts he collected. Wasatch, which is a partnership consisting of Kenneth Jensen, Earlene Jensen, Steven Jensen, and Kevin Jensen (the Jensens), operated a similar service primarily in the Ogden area. In 1987 and the first part of 1988, the Jensens attempted to enter the Salt Lake Valley market, offering services similar to Orlob but charging only a four percent commission on collections. Eventually, some physicians began to leave PCG and go to Wasatch.

¶ 3 As a result, Orlob approached the Jensens about selling his business, and in August 1988, the parties entered into their Combined Agreement. Under the Agreement, the Jensens agreed to purchase PCG's assets, but refused to purchase PCG's stock to avoid assuming that company's liabilities. In addition, Orlob was to receive a monthly commission of $7500 from October 1988 to July 1994. In exchange, Orlob was required to assist in maintaining and transferring PCG's accounts and to covenant not to compete with the Jensens in the medical billing services business for ten years.

¶ 4 When Orlob began transferring PCG's clients to Wasatch, the Jensens requested that he introduce them to the physicians as the owners of Wasatch. However, because the Jensens had previously offered services to some of the physicians at a rate of four percent, Orlob refused to introduce the Jensens as the owners, fearing that the physicians currently paying six percent would be unwilling to continue in their contracts. Nevertheless, the Jensens introduced themselves as the owners of the company to at least one physician, which subsequently caused other Salt Lake area physicians to threaten to terminate their contracts. As a consequence, the Jensens renegotiated those contracts to a billing rate of five percent. The Jensens allege that they orally agreed with Orlob to pay him a reduced commission as a result of the decreased billing rate.

¶ 5 Furthermore, the conduct of the parties with respect to two physicians in particular is important to the contractual dispute before us now. First, one physician, Dr. Hamilton, had sent a letter to Orlob just weeks before Orlob and the Jensens entered into their Agreement, seeking to terminate his contract with PCG. However, after taking over the company, the Jensens managed to renegotiate his contract to a five percent rate and keep him as a client.

¶ 6 Second, another physician, Dr. Peterson, canceled his contract with the Jensens in order to have his billing performed by Tracy Karstone. Orlob assisted Karstone in her billing service by providing her with equipment, office space, and consulting in conjunction with her work for Dr. Peterson. Consequently, the Jensens deducted the amount of commission lost by Dr. Peterson's departure from Orlob's monthly salary, claiming that Orlob's assistance of Karstone was a violation of his non-compete agreement with the Jensens.

¶ 7 Shortly after Orlob and the Jensens signed the Agreement, PCG ceased its business operations and was involuntarily dissolved by the State of Utah for failing to file an annual report. Later the next year, in 1989, Orlob moved to California.

¶ 8 In 1990, the United States Internal Revenue Service (IRS) served a notice of levy on the Jensens for unpaid taxes owed by PCG. It seized payments from PCG's former clients that were then due to Wasatch under the Combined Agreement, and it also seized PCG's interest in the Combined Agreement, including commission payments owed to Orlob. The IRS then sold PCG's "right, title, and interest" in the Combined Agreement to Wasatch at a public sale. However, there was no levy against Orlob personally, nor was his personal interest in the Combined Agreement sold at the public sale. Nevertheless, the Jensens thereafter ceased making commission payments to Orlob.

¶ 9 In 1991, Orlob filed a complaint in Third District Court against the Jensens, seeking damages for unpaid commission payments. The Jensens moved for summary judgment, arguing that Orlob had no interest in the Combined Agreement, since they had purchased PCG's interest in the Agreement at the IRS auction. Also, in 1992, while the case was pending before the district court, Orlob filed for bankruptcy in California. However, in his bankruptcy schedules he failed to include his lawsuit against the Jensens as required under bankruptcy law.

¶ 10 In 2000, the district court reached a decision in favor of the Jensens, concluding that the Combined Agreement referred to Orlob only in his professional capacity, and therefore, he did not have a personal interest in the Agreement separate from PCG's interest. Orlob appealed to this court in November 2000. See Orlob v. Wasatch Mgmt., 2001 UT App 287, 33 P.3d 1078.

¶ 11 In Orlob v. Wasatch Management, we held that Orlob was a party to the Combined Agreement separate from PCG, and that, because of his covenants, he had an individual interest in the Agreement. See id. at ¶ 20. Consequently, we reversed the district court's decision granting the Jensen's Motion for Summary Judgment and remanded for further proceedings. See id. at ¶ 21. On remand, the district court found that Orlob's interest in the Combined Agreement was equal to PCG's interest and therefore awarded Orlob half of the commission payments due under the Agreement.

¶ 12 The case before us now is an appeal from several of the district court's rulings on remand. Specifically, the Jensens advance six challenges to the district court's decision, arguing that: (1) Orlob did not have standing to pursue an action against the Jensens because he failed to list the action on his bankruptcy schedules; (2) the statute of frauds does not bar the parties' oral modification of the Combined Agreement that reduced Orlob's commission; (3) Orlob's breaches of the Agreement with respect to Drs. Hamilton and Peterson absolve the Jensens of their obligation to perform under the contract; (4) the six percent billing rate at which Orlob warrantied to deliver doctors to Wasatch was intended to last for the life of the Agreement; (5) the district court's factual finding, which divided Orlob and PCG's interest in the Combined Agreement evenly, is clearly erroneous; and (6) the district court erred in awarding Orlob prejudgment interest.

¶ 13 As cross-appellant, Orlob also challenges the district court's factual finding that evenly divided interest in commission payments between him and PCG. Each of these issues will be discussed in turn.

ANALYSIS

I. Standing

¶ 14 The first issue we address in this appeal is the Jensens' contention that Orlob lost standing to continue pursuing this action in district court when he filed for bankruptcy in California. Specifically, the Jensens argue that when Orlob failed to list his action seeking commission payments under the Combined Agreement on his bankruptcy schedules, he forfeited his claim for those payments to the bankruptcy estate and is, therefore, precluded from pursuing those payments in district court.

¶ 15 This argument misapprehends the nature of standing. To have standing to sue, "a party must allege that he or she has suffered or will imminently suffer an injury that is fairly traceable to the conduct at issue such that a favorable decision is likely to redress the injury." Provo City Corp. v. Thompson, 2004 UT 14, ¶ 9, 86 P.3d 735. Under this definition, Orlob clearly had standing to sue in 1991 when he first filed his complaint in district court, seeking recovery of commission payments withheld by the Jensens. That Orlob filed for bankruptcy over one and a half years later did not remove the injury nor its redressability. In fact, the Jensens' only allegation is that entitlement to seek redress for the injury was transferred to the bankruptcy estate.

¶ 16 However, the alleged transfer of Orlob's interest in the outcome of his case to the bankruptcy estate did not deprive him of the ability to continue pursuing his action in district court because standing to sue exists independent of a plaintiff's bankruptcy filings. See, e.g., Pershing Park...