Wolfe v. Graether, 85-03

• Decision Date: 18 June 1986
• Docket Number: No. 85-03,85-03
• Citation: 389 N.W.2d 643
• Parties: Henry L. WOLFE, Appellee, v. John M. GRAETHER and Wolfe Clinic, P.C., Appellants.
• Court: Iowa Supreme Court

Page 643

389 N.W.2d 643

Henry L. WOLFE, Appellee, v. John M. GRAETHER and Wolfe Clinic, P.C., Appellants.

No. 85-03.

Supreme Court of Iowa.

June 18, 1986.

As Amended on Denial of Rehearing

July 18, 1986.

H. Richard Smith, Robert G. Allbee and David Swinton of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, Des Moines, for appellant John M. Graether.

John C. Cortesio, Jr., Michael Figenshaw, Denny M. Dennis and David L. Jenkins of Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellant Wolfe Clinic, P.C.

Ross H. Sidney and Mark J. Wiedenfeld of Grefe & Sidney, Des Moines, for appellee.

Considered by HARRIS, P.J., and LARSON, SCHULTZ, CARTER and WOLLE, JJ.

CARTER, Justice.

Defendant, Wolfe Clinic, P.C. (the clinic), appeals from a judgment awarding damages in an action brought against it by plaintiff, Henry L. Wolfe, alleging that the clinic breached its contract of employment with him. Defendant, John M. Graether, M.D. (Dr. Graether), appeals from a judgment against him in the same action for actual and punitive damages on a claim that he tortiously induced a breach of plaintiff's employment contract by the clinic.

The clinic is a professional corporation, and Dr. Graether is a shareholder and director thereof. Both defendants contend that the district court erred in not directing a verdict against the plaintiff on all of his claims, or, in the alternative, erred in rulings on evidence and in instructing the jury on certain issues. Both defendants also assert that the amount of damages awarded by the jury is excessive. We consider the separate claims of the parties and reverse the judgment against both defendants.

Plaintiff's father, Otis R. Wolfe, was a medical doctor and surgeon who began practicing his profession in Marshalltown, Iowa, in 1919. He had been a licensed optometrist in Kansas and had practiced as such prior to obtaining his medical degree. In his medical practice he specialized in treatment of the eyes, including surgical removal of cataracts. Two of Otis R. Wolfe's sons, Otis D. and Russell, were medical doctors with specialized training in opthalmology. They joined their father in the practice of medicine in Marshalltown shortly before the outbreak of World War II and, except for military service during that war, continued to practice in Marshalltown into the 1970s.

The plaintiff is a licensed optometrist who entered into a professional association with his father and brothers around 1941. He performed refracting services in the testing of vision and prescribing of eyeglasses and also assisted his father and brothers in the scheduling and management of their medical and surgical patients. He acted as the de facto business manager for other family members with respect to both professional and investment activities. Both plaintiff and his father frequently appeared before groups of optometrists lecturing to them concerning the proper identification and treatment of cataracts. Such activities, the record reflects, resulted in a high number of surgical referrals by optometrists to Otis R. Wolfe, Otis D. Wolfe, and Russell Wolfe.

By the mid-1950s, Dr. Otis R. Wolfe had ceased to practice medicine. The Wolfe Eye Clinic was operating as a partnership with Otis D., Russell, and the plaintiff being the partners. The clinic provided traditional professional eye care, with special emphasis placed upon the surgical removal of cataracts by Otis D. and Russell. Plaintiff and salaried optometrists performed refracting services with respect to the prescription of standard eyeglasses. Plaintiff continued to act as clinic business manager. Sometime in the late 1940s, the brothers had formed another partnership, "Wolfe Brothers," to pursue investment opportunities. Plaintiff was virtually the exclusive manager of such activities.

In 1958, the partnership hired Dr. Russell Watt, an opthalmologist, as a salaried employee. Watt was made a partner with the Wolfe brothers in 1962. Dr. Graether, an opthalmologist, joined the clinic as a salaried employee in 1962 and became a partner in 1965. Dr. Russell Widner, an opthalmologist, joined the clinic as a salaried employee in 1968. Widner was to be made a partner effective January 1, 1970. The proposed partnership agreement designed to implement that status was never executed, however, because a decision was made to convert the partnership into a professional corporation. Between 1970 and the time of trial in 1984, two additional opthalmologists and one otolaryngologist joined the medical staff of the clinic and became shareholders and directors in the professional corporation. Surgery was the principal income-producing activity of the clinic.

Effective July 1, 1970, the clinic became Wolfe Eye Clinic, P.C. Prior to its incorporation, legal counsel advised the members of the partnership and Widner that, because one of the partners, the plaintiff, was an optometrist and the others were all medical doctors, plaintiff would not be eligible for shareholder status if the clinic was converted to a professional corporation. In the present action against the clinic, plaintiff has contended that, when this information became known, he was assured by the other partners and Dr. Widner that he would be given a permanent employment status with the professional corporation commensurate in responsibility and remuneration with that which he had experienced during the existence of the partnership. In 1969, plaintiff was being compensated equally with Otis D., Russell, Watt, and Graether.

At the trial, plaintiff presented evidence that his father, Otis R. Wolfe, had exacted an agreement from Otis D. and Russell in the late 1940s that, in their professional association, the plaintiff would be compensated equally with them. This was corroborated by the testimony of Otis D. Wolfe. He stated that he was not happy with that arrangement and believed it resulted in plaintiff being overcompensated, but agreed to it in order to satisfy his father. Plaintiff testified that, when it was determined that he could not become a shareholder and director of the professional corporation, "[t]hey [the other partners] assured me that I would have all of the rights that I had had as a partner." He was then asked:

Q. Having been given that promise, did you then agree to let them go ahead and incorporate? A. Yes, sir.

Plaintiff testified that he interpreted this assurance to be that he would enjoy permanent employment with the newly-formed professional corporation. Russell Wolfe testified that he agreed with plaintiff's interpretation of the transaction. In their testimony, Otis D. Wolfe, Watt, Graether, and Widner do not agree that this was the intention of the arrangements made at that time.

After incorporation, plaintiff functioned as business manager and public relations director of the clinic. He performed a substantially reduced amount of refraction in testing for eyeglasses and played an increasing role in the scheduling of patients. There is a dispute in the evidence presented at trial concerning whether the plaintiff at the time of incorporation consented to a schedule of compensation which would provide him with an amount equal to seventy-five percent of the amount paid to a surgeon working full time. With the possible exception of Russell Wolfe, the other partners and Widner, all of whom were surgeons, testified that the plaintiff agreed that after incorporation his compensation would be 95 percent of a surgeon's share in 1970, 90 percent in 1971, 85 percent in 1972, 80 percent in 1973, and 75 percent in 1974. A similar compensation schedule for plaintiff had been included in the unexecuted 1969 partnership agreement that had been proposed in order to add Widner as a partner. The plaintiff maintains that he only agreed to a one-time reduction from the full share he had been receiving as a partner to ninety-five percent of a full share.

Plaintiff was compensated for his first year as an employee of the professional corporation at the rate of ninety-five percent of the amount which was received by the surgeons. By fiscal year 1973-74, his share had been reduced to eighty-five percent. This was in part attributable to a newly-adopted compensation formula applicable to both the surgeons and plaintiff which, to some extent, made compensation dependent upon the type of work being performed. Under this formula, plaintiff's compensation would become seventy-five percent of the amount paid to the surgeons effective July 1, 1974. By July 1, 1978, this formula would have reduced his compensation to sixty percent of that paid to a surgeon working full time.

When plaintiff balked at a proposed reduction of salary below seventy-five percent of the amount paid a surgeon working full time, the board of directors of the clinic, dealing through Dr. Widner, attempted to negotiate a compromise providing for payment of plaintiff's salary at a rate of sixty-five percent of what the surgeons received until he attained age sixty-five, at which time plaintiff would be expected to retire. Plaintiff attained age sixty-five in 1982. There is a dispute in the evidence concerning whether plaintiff ever accepted this proposal. Widner testified that plaintiff agreed to this arrangement in June of 1978, and that he (Widner) so informed the board of directors. Plaintiff testified that he never accepted the proposal and never agreed to retirement at age sixty-five.

During the time that he was employed by the professional corporation, plaintiff had two written employment agreements. The first of these agreements was dated July 1, 1970. The preamble of that agreement recited that the former partnership had recently been dissolved, that plaintiff had been a partner in that partnership, and that the newly-formed corporation wished to assure itself of the continued services of the plaintiff upon terms and conditions set forth in the employment agreement. With respect to compensation, section 2 of...