Schade v. Diethrich

• Decision Date: 19 July 1988
• Docket Number: No. CV-87-0072-PR,CV-87-0072-PR
• Citation: Schade v. Diethrich, 158 Ariz. 1, 760 P.2d 1050 (Ariz. 1988)
• Parties: Dewey D. SCHADE, Plaintiff/Counter-Defendant/Appellee, v. Edward DIETHRICH, M.D., AHI Cardiovascular Surgeons, Ltd., a professional corporation, Defendants/Counter-Claimants/Appellants.
• Court: Arizona Supreme Court

Page 1050

760 P.2d 1050

158 Ariz. 1

Dewey D. SCHADE, Plaintiff/Counter-Defendant/Appellee, v. Edward DIETHRICH, M.D., AHI Cardiovascular Surgeons, Ltd., a professional corporation, Defendants/Counter-Claimants/Appellants.

No. CV-87-0072-PR.

Supreme Court of Arizona, In Banc.

July 19, 1988.

Motion for Reconsideration Granted and Opinion Modified Sept. 20, 1988.

Ely, Bettini & Ulman by Herbert L. Ely, J. Wayne Turley, Eileen S. Willett, Phoenix, for plaintiff/counter-defendant/appellee.

Goldstein, Kingsley & Myres, Ltd. by Philip T. Goldstein, Pamela L. Kingsley, Phoenix, for defendants/counter-claimants/appellants.

FELDMAN, Vice Chief Justice.

Edward B. Diethrich, M.D. seeks review of a court of appeals' decision that his promise to develop an "equitable and fair separation agreement" for employee Dewey D. Schade was enforceable on the basis of promissory estoppel. Schade v. Diethrich, No. 1 CA-CIV 8478 (Ariz.Ct.App. Jan. 15, 1987). We granted review to consider the following issues:

1. Whether Diethrich's promise was enforceable and on what theory;

2. If Schade was entitled to recover, did A.R.S. § 23-355 permit the trial judge to treble the damages;

3. Whether Schade was entitled to prejudgment interest;

4. Whether Schade was entitled to attorney's fees.

We have jurisdiction pursuant to Ariz.Const. art. 6, § 5(3) and A.R.S. § 12-120.24.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant Edward B. Diethrich (Diethrich) is a heart surgeon, founder of the Arizona Heart Institute (Institute), ¹ and guiding spirit behind its nonprofit educational and research corporation, the International Heart Foundation (Foundation). ² At all times relevant to this action, Diethrich was president of the Institute and president, medical director, and board member of the Foundation.

In August 1972, the Institute hired Dewey D. Schade (Schade) as assistant to its director, Diethrich. Schade's starting salary was $20,000. Diethrich's organization was then in its infancy, having been incorporated only six months earlier. Diethrich appreciated Schade's work and within five years Schade's salary tripled and he rose to executive vice president and chief administrative officer of the Institute. In July 1981 Schade moved, on paper at least, to the Foundation. He became its executive vice president and chief operating officer. However, Schade continued to work for the Institute after July 1981 and his salary was split between the two entities. ³ At the time of his "resignation" in November 1982, Schade was earning $84,000 per year.

On November 15, 1982 Diethrich asked for Schade's resignation. He claimed Schade had lost support among some important Foundation board members. In consideration of the resignation he offered "a very generous and fair separation agreement that reflects the contributions that you have made to this organization, to the Institute, and to me over this 10 year period." Reporter's Transcript (RT), Apr. 9, 1985, at 74-75. Schade was reluctant to resign. Moreover, he doubted Diethrich's ability to be fair under the circumstances and voiced his doubts to Diethrich's attorney, Paul Meyer, on the same day. ⁴ In response to Schade's concerns, Meyer proposed the appointment of a committee of the Foundation's board to recommend a severance package. Meyer reasoned that many members of the board were business people familiar with personnel practices involving senior executives, their compensation packages, and severance agreements. Appointment of the committee would both relieve Diethrich of the burden of determining what was fair and ensure that the package offered Schade was equitable.

When Schade met with Meyer the next day, Meyer related Diethrich's approval of the plan to have a committee appointed and Diethrich's intention to personally ask the Foundation's board chairman to appoint such a committee. In a telephone conversation that night, Meyer urged Schade not to worry about the severance package, assuring him that Diethrich was committed to the plan to have the committee formulate a recommendation.

Schade next met with Meyer and Diethrich at St. Joseph's Hospital in Phoenix on the morning of November 17, 1982. Angered that Schade's resignation had not been forthcoming, Diethrich now threatened to fire him by five o'clock that day if he did not resign by four.

By late afternoon, Schade decided to resign and telephoned Meyer to report his decision. Once again Meyer assured him that he had no cause to worry about the separation agreement, "because we'll have a committee and they'll work out something we're sure will be fair and equitable." RT, Apr. 9, 1985, at 110. About 5:30 p.m. Schade hand-delivered a letter of resignation to Diethrich. In pertinent part the letter stated:

Based on our recent discussions, I am offering my resignation at this time in reliance on your assurance that a separation agreement, to be subsequently worked out, will be equitable, fair, and commensurate with my 10 and a half years of tireless and devoted service to the building of the Arizona Heart Institute and the International Heart Foundation.

Exhibit 28.

In response to the letter, Diethrich expressed his regret that "it had to come to this." Schade had done a good job, Diethrich recalled, and had been loyal and supportive. Then Diethrich reiterated Meyer's assurances that Schade need not worry about severance pay. Diethrich had already spoken to the Foundation's board chairman and arranged for the appointment of a committee to formulate a recommendation for a separation agreement.

Shortly thereafter, Diethrich called Schade to address another troubling issue. The Foundation-sponsored International Cardiovascular Congress was three months away. This biennial program was Diethrich's major educational and public relations showcase, attracting speakers and guests from around the world. Schade had been concerned about abandoning his preparations for the event. Now Diethrich seemed to share Schade's concerns. Expressing his doubt that the Congress could succeed without Schade's efforts, Diethrich asked him to continue working on it.

After he returned home that night Schade received another telephone call from Diethrich. He had written Schade a letter, Diethrich explained, and he wanted to be able to read it to him in person. Schade returned to the Institute, where Diethrich jumped into Schade's car and asked Schade to drive him home. En route Diethrich read aloud his letter accepting Schade's resignation:

It is with the deepest regret that I accept your resignation.... You have exhibited untireless [sic] energy and devotion over the past ten and a half years and there is no question in my mind that the success of the Institute, the Foundation and me personally are due in no small part to the energies you have exerted.

....

Since you have been such an integral part of our program, I would like to make two requests. First, the upcoming International Cardiovascular Congress has been essentially a program which you have directed and nurtured since its inception. I would appreciate it very much if you would continue to coordinate that program for us and bring it to a successful completion....

... You can rest assured that I will develop an equitable and fair separation agreement for you.

Exhibit 27. Schade accepted Diethrich's offer of continued employment, relying on Diethrich's assurance of an equitable and fair separation agreement, ⁵ and proceeded with his work on the Congress. ⁶

Within a week Diethrich formally requested the Foundation's board to develop a severance package for Schade. The minutes of the board meeting of November 22, 1982 reflect this request:

Dr. Diethrich read a letter of resignation from Dewey Schade, resigning from his position as a member of the Board and as chief operating officer.... He emphasized that Mr. Schade had served both the Foundation and the Institute with great dedication for more than ten years. [The chairman] appointed a committee ... to meet with Mr. Schade for the purpose of formulating a recommendation of an equitable financial arrangement for his severance.

Exhibit 47.

The committee of Foundation members (Committee) proceeded to carry out its charge. On December 14, 1982 it met, developed its recommendation for a separation agreement, and communicated that recommendation to Diethrich. Basing its recommendation on the fact that Schade had been employed by the Institute for nine years and by the Foundation for only one, the Committee proposed that

... Mr. Schade be given one year's salary as separation pay, with the Foundation paying for 25% of that cost and [the Institute] paying 75%.

We also feel that Mr. Schade should be allowed to keep the leased automobile with covering insurance, his credit card and telephone ... during the year of 1983.

As we understand it, Mr. Schade has been lax in taking his vacation over the years and consequently, we feel that his earned, but untaken, vacation for the past two years should be compensated for with the same percentages applied as stated above.

Exhibit 12.

The record does not establish when Schade first learned of the substance of the Committee's recommendation. ⁷ It does indicate, however, that he knew "within days" of December 14, 1982 that the Committee had made its recommendation. RT, Apr. 15, 1985, at 239-40. Schade continued his work on the Congress.

Between December 14, 1982 (when Diethrich received the Committee's report) and March 6, 1983 (when Schade concluded his work on the Congress), Diethrich did not communicate with Schade about the Committee's recommendation. Indeed, it was not until March 30, 1983 that Diethrich announced for the first time "the final terms of your separation agreement" with the Institute. Exhibit 1. In a letter to Schade, Diethrich prefaced his offer by noting that "your service and contribution to AHI Cardiovascular Surgeons and AHI Ltd. in both time and accomplishments were compromised...