Wood v. Nw. Hosp., LLC

• Decision Date: 28 August 2020
• Docket Number: No. 2 CA-CV 2019-0189,2 CA-CV 2019-0189
• Citation: 249 Ariz. 600,473 P.3d 729
• Parties: Gary WOOD, M.D., a married man, Plaintiff/Counterdefendant/Appellee/Cross-Appellant, v. NORTHWEST HOSPITAL, LLC, dba Northwest Medical Center, a Delaware Limited Liability Company, Defendant/Counterclaimant/Appellant/Cross-Appellee.
• Court: Arizona Court of Appeals

249 Ariz. 600

473 P.3d 729

Gary WOOD, M.D., a married man, Plaintiff/Counterdefendant/Appellee/Cross-Appellant,

v.NORTHWEST HOSPITAL, LLC, dba Northwest Medical Center, a Delaware Limited Liability Company, Defendant/Counterclaimant/Appellant/Cross-Appellee.

No. 2 CA-CV 2019-0189

Court of Appeals of Arizona, Division 2.

Filed August 28, 2020

Review Denied February 16, 2021

Ward, Keenan & Barrett P.C., Phoenix, By Gerald Barrett and Taylor Secemski, Counsel for Plaintiff/Counterdefendant/Appellee/Cross-Appellant

Campbell, Yost, Clare & Norell P.C., Phoenix, By Kari B. Zangerle and Robert C. Stultz, Counsel for Defendant/Counterclaimant/Appellant/Cross-Appellee

Judge Eckerstrom authored the opinion of the Court, in which Presiding Judge Eppich and Judge Espinosa concurred.

OPINION

ECKERSTROM, Judge:

¶1 This appeal arises out of a wage-related dispute between Dr. Gary Wood and Northwest Hospital LLC dba Northwest Medical Center (NWMC). For the reasons that follow, we affirm the trial court's judgment as to Wood's wage claim and vacate its judgment as to his claim for treble damages, remanding to allow the trial court to exercise its discretion in considering the request.

Procedural Background

¶2 The details of the factual background are provided below as relevant to the parties’ claims on appeal. In short, after Dr. Wood outperformed his contractual productivity target and was paid corresponding wages in excess of a contractual compensation cap, NWMC sought to recover the overpayment by withholding $108,673.40 in earned wages during the subsequent fiscal year. Wood initiated the present lawsuit, alleging breach of contract and seeking treble unpaid wages. NWMC filed a counterclaim alleging that Wood had breached his contract by accepting and failing to repay the overpayment, seeking to recover that amount in full, including by retaining the unpaid wages as an offset.

¶3 The parties cross-moved for summary judgment. After a hearing, the trial court granted Dr. Wood's motion (and denied NWMC's corresponding motion) regarding payment of the withheld wages, but granted summary judgment in NWMC's favor regarding Wood's claim for treble damages. NWMC moved for reconsideration, which the court summarily denied. Final judgment was entered in September 2019.¹ NWMC appealed, which prompted Wood to cross-appeal the denial of his request for treble damages. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1).

Standard of Review

¶4 In reviewing a trial court's rulings on cross-motions for summary judgment, we review questions of law de novo , construing the facts and reasonable inferences in the light most favorable to the party against whom summary judgment was granted. Nelson v. Phx. Resort Corp. , 181 Ariz. 188, 191, 888 P.2d 1375, 1378 (App. 1994). We therefore view the facts related to the wage claim in the light most favorable to NWMC, whereas we view the facts related to the treble damages claim in the light most favorable to Dr. Wood. We will affirm the grant of summary judgment if there are no genuine issues of material fact and the prevailing party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a) ; Green Cross Med., Inc. v. Gally , 242 Ariz. 293, ¶ 5, 395 P.3d 302 (App. 2017).

Wage Claim & Application of Voluntary Payment Doctrine

Factual Background

¶5 NWMC employed Dr. Wood as a staff interventional radiologist pursuant to a written "Physician Employment Agreement" that specified he was employed "on a full-time, exclusive basis." The parties amended the agreement on a number of occasions. During the 2015-2016 and 2016-2017 contract years, the Fifth Amendment to the agreement was in effect.

¶6 As with the previous iterations of the agreement, the Fifth Amendment established that Dr. Wood's compensation would be "incentive compensation" based on worked relative value units (wRVUs).² His base draw ($424,800 annually) was premised on the assumption that his personal productivity would fall within a stated range (6,800-8,125 wRVUs annually). The agreement specified that if Wood failed to meet his productivity target in a particular quarter, NWMC would be able to recoup a corresponding portion of the base draw already paid to him.³ Conversely, if Wood outperformed the target productivity range in a particular quarter, the agreement established that "a [s]ettlement payment will be due" him.

¶7 The agreement required the parties to conduct a quarterly reconciliation process to ascertain whether Dr. Wood's productivity in the prior quarter had met or exceeded the stated productivity range and to calculate deficits or productivity settlement payments accordingly. Both were to be calculated based on a "wRVU Conversion Factor" of $44 per wRVU, a rate the parties agreed reflected the fair market value for Wood's performance of medical procedures.

¶8 The Fifth Amendment also established an Annual Compensation Cap Amount of $587,000. This cap expressly included Dr. Wood's base salary and all incentive compensation based on wRVUs, among other things. The Fifth Amendment also stipulated that payment above the cap would not be made unless a written amendment was executed by the parties to modify the cap. No such amendment was ever executed. There is no dispute that these provisions of the Fifth Amendment would have permitted NWMC to refuse to pay any productivity settlements in excess of the $587,000 cap, even if Wood had performed the work required to earn such payments.

¶9 However, despite the annual compensation cap, NWMC paid Dr. Wood in excess of the cap during both of the contract years governed by the Fifth Amendment.⁴ In particular, in the 2015-2016 contract year, NWMC paid $55,318.08 above the cap.⁵ Then, in the 2016-2017 contract year, NWMC paid Wood $124,442.56 above the cap. All of the productivity settlement payments that resulted in these two consecutive cap exceedances were the product of the contractually mandated reconciliation process. They involved a calculation by NWMC's accounting department (wRVUs in excess of target range x $44 wRVU Conversion Factor), review by NWMC's practice administrator, a reconciliation meeting between the practice administrator and Wood, and independent review and approval by NWMC's CFO and CEO.

¶10 In September 2017, the parties executed a Sixth Amendment to Dr. Wood's employment agreement, which extended the contract through March 2018.⁶ It retained the Fifth Amendment's "incentive compensation" based on wRVUs for September-December 2017, but eliminated it effective January 1, 2018.

¶11 During the fourth quarter of 2017, the last quarter subject to the incentive compensation arrangement, Dr. Wood earned a productivity settlement payment of $108,673.40.⁷ That payment was due in January 2018, but it was never made. According to NWMC, this was because, in late December 2017 or early January 2018—as Wood's retirement approached—NWMC had "uncovered" or "realized" that he had been paid above the compensation cap in the prior two contract years.

¶12 NWMC did not provide any explanation for not making the payment until Dr. Wood retained a lawyer and made a demand. In response to the demand letter, NWMC did not deny that Wood had earned the $108,673.40 in question as a productivity settlement payment. Rather, it stated that it was withholding that payment to offset payments that had been made above his compensation cap in both the 2015-2016 and 2016-2017 contract years.

¶13 As noted above, in subsequent litigation, the parties cross-moved for summary judgment. The trial court ruled in Dr. Wood's favor on his wage claim, concluding that the voluntary payment doctrine barred NWMC from seeking to recover past overpayments by withholding the final productivity settlement payment.

Discussion

¶14 NWMC's appeal centers on the trial court's application of the voluntary payment doctrine to the hospital's overpayment of Dr. Wood. Arizona courts have long applied this common-law doctrine, under which, "[e]xcept where otherwise provided by statute, a party cannot by direct action or by way of set-off or counterclaim recover money voluntarily paid with a full knowledge of all the facts, and without any fraud, duress, or extortion, although no obligation to make such payment existed." Moody v. Lloyd's of London , 61 Ariz. 534, 540, 152 P.2d 951 (1944) (quoting Merrill v. Gordon , 15 Ariz. 521, 532, 140 P. 496 (1914) ).

¶15 There is no dispute that NWMC had all the information necessary to track Dr. Wood's productivity settlement payments and their relation to his contractual compensation cap. Thus, NWMC paid Wood over the cap—for two consecutive years—"with a full knowledge of all the facts." Even if the repeated productivity payments in excess of the cap were—as NWMC alleges—the result of mistake, the trial court correctly concluded that NWMC "had every opportunity to know" that payment was being made in excess of the cap and could have asserted the payment cap to avoid making such payments, had it exercised ordinary diligence. There is certainly no allegation of any fraud, duress, or extortion on the part of Wood. Therefore, if the general rule applies in this case, it would preclude NWMC from taking back the productivity settlement payments made to Wood above the compensation cap during the 2015-2016⁸ or 2016-2017 contract years.

¶16 Importantly, nothing in the Fifth Amendment mentioned recovery of any payments in excess of the cap. Rather, while the agreement expressly stipulated that NWMC would recoup portions of Dr. Wood's base draw if he failed to meet stated productivity targets (either by reducing future pay or, if the employment arrangement had ceased, through contractually mandated repayments from Wood), no such mechanism was included in the agreement to allow NWMC to reclaim payments made in excess of the cap. The only relevant provision states that NWMC was permitted to reduce wage payments "by [amounts] due and owing" to the "extent allowed by law." But, under the voluntary payment doctrine,...