Joint Technology, Inc. v. Weaver , 567 F. App'x 585 ( 2014 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT May 28, 2014
Elisabeth A. Shumaker
Clerk of Court
JOINT TECHNOLOGY, INC.,
d/b/a Revert Systems, an Oklahoma
corporation,
Plaintiff Counter Defendant -
Appellant,
v. No. 13-6070
(D.C. No. 5:11-CV-00846-M)
GARY KENT WEAVER, JR., (W.D. Okla.)
Defendant Counterclaimant
Third-Party Plaintiff - Appellee,
v.
JIM PATTON,
Third-Party Defendant.
------------------------------
WEAVER MEDICAL GROUP, INC.,
Intervenor.
JOINT TECHNOLOGY, INC.,
d/b/a Revert Systems,
Plaintiff - Appellant,
v.
No. 13-6157
GARY KENT WEAVER, JR.; WEAVER (D.C. No. 5:13-CV-00089-M)
MEDICAL GROUP, INC., (W.D. Okla.)
Defendants - Appellees.
ORDER AND JUDGMENT*
Before KELLY, ANDERSON, and MATHESON, Circuit Judges.
This diversity case involves two appeals that we consolidate for procedural
purposes only. Both stem from the termination of a business relationship.
In appeal number 13-6070, Joint Technology, Inc. (Joint), a distributor of
durable medical equipment, challenges the district court’s grant of summary
judgment to Gary Kent Weaver, Jr., on Joint’s breach-of-contract claims (First
Lawsuit). In appeal number 13-6157, Joint challenges the district court’s grant of
Mr. Weaver’s and Weaver Medical Group, Inc.’s (collectively, Defendants’) motion
to dismiss Joint’s complaint alleging conversion, fraud, unjust enrichment, and alter
ego, as barred by claim preclusion (Second Lawsuit). Joint and Joint’s attorney also
challenge the district court’s grant of Defendants’ Rule 11 motion for sanctions.
See Joint Tech., Inc. v. Weaver, No. CIV-13-89-M, 2013 WL 3305202, at *2
(W.D. Okla. June 28, 2013) (sanctioning Joint’s counsel for filing a complaint that
contains claims identical to the proposed amended claims denied in the First Lawsuit;
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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namely: conversion, fraud, unjust enrichment, and alter ego). We lack jurisdiction to
entertain that portion of Joint and Joint’s attorney’s appeal because the district court
has not fixed the amount of fees and costs Joint’s attorney must pay. Am. Soda, LLP
v. U.S. Filter Wastewater Grp., Inc., 428 F.3d 921, 924 (10th Cir. 2005). We do,
however, have jurisdiction under 28 U.S.C. § 1291 to review the district court’s
rulings on summary judgment and the motion to dismiss, and we affirm the judgment
of the district court in each appeal.
Appeal Number 13-6070
In 2008, Joint entered into a written agreement with Mr. Weaver to solicit
referrals for durable medical equipment sold by Joint. The Agreement provided that
Mr. Weaver “shall not be deemed a servant or employee.” Aplt. App. at 115. It
stated that Joint “has no control over the operations of [Mr. Weaver] or any of his
employees, agents, owners, [or] managers.” Id. And it provided that either party
could terminate the Agreement at any time with or without cause and/or notice.
Pursuant to the Agreement, Mr. Weaver was paid a commission and he was
ineligible for insurance benefits. Joint neither withheld nor paid payroll taxes or
employment taxes for Mr. Weaver, and Mr. Weaver was issued an IRS Form 1099 at
the end of each year. Joint, however, maintains that it considered Mr. Weaver to be
an independent agent for tax purposes only.
In May 2011, Mr. Weaver terminated the Agreement. Joint filed the First
Lawsuit two months later. Mr. Weaver moved for summary on Joint’s contract
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claims. He asserted the Agreement was illegal (and therefore unenforceable under
Oklahoma law) because Joint paid him as an independent contractor to induce patient
referrals for the furnishing of Medicare/Medicaid-covered equipment, in violation the
Medicare Anti-Kickback Act (the Act), 42 U.S.C. § 1320a-7b(b)(2)(A). See United
States v. McClatchey, 217 F.3d 823, 835 (10th Cir. 2000) (holding that “a person who
offers or pays remuneration to another person violates the Act so long as one purpose
of the offer or payment is to induce Medicare or Medicaid patient referrals”).
Joint countered that the Agreement was legal and enforceable because
Mr. Weaver was its bona fide employee within the meaning of one of the Act’s safe
harbor provisions. Specifically, Joint relied on subsection (b)(3)(B), which provides
that the Act’s illegal remuneration provisions “shall not apply to . . . any amount paid
by an employer to an employee (who has a bona fide employment relationship with
such employer) for employment in the provision of covered items or services.”
42 U.S.C. § 1320a-7b(b)(3)(B).1
Thereafter, Joint filed an “Application for Leave to Re-File Amended
Complaint” to add claims for conversion, fraud, unjust enrichment, and alter ego.
The district court denied leave because the request was filed more than three months
1
42 U.S.C. § 1001.952(i) states that the statutory term “employee,” as used in
the Act, “has the same meaning” as the Internal Revenue Code’s definition of
“employee,” found in 26 U.S.C. § 3121(d)(2). That statute provides, in relevant part,
that an “employee” is “any individual who, under the usual common law rules
applicable in determining the employer-employee relationship, has the status of an
employee.” 26 U.S.C. § 3121(d)(2).
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after the deadline set forth in the court’s scheduling order and because Joint had
failed to demonstrate good cause to allow the amendment out of time.2
As to summary judgment, the district court discussed the conduct prohibited
under the Act and observed that, whether a party fits the common law definition of
“employee” in 26 U.S.C. § 3121(d)(2), depends on the “the hiring party’s right to
control the manner and means [of the work]” which is determined by considering the
following factors:
the skill required; the source of the instrumentalities and tools; the
location of the work; the duration of the relationship between the
parties; whether the hiring party has the right to assign additional
projects to the hired party; the extent of the hired party’s discretion over
when and how long to work; the method of payment; the hired party’s
role in hiring and paying assistants; whether the work is part of the
regular business of the hiring party; whether the hiring party is in
business; the provision of employee benefits; and the tax treatment of
the hired party.
Joint Tech., Inc. v. Weaver, No. CIV-11-846-M, 2013 WL 257075, *2 (W.D. Okla.
Jan. 23, 2013) (emphasis added) (quoting Nationwide Mut. Ins. Co. v. Darden,
503 U.S. 318, 323-24 (1992)). The court also noted that “‘[a] contract made in
violation of a statute is void [in Oklahoma] and when a plaintiff cannot establish his
cause of action without relying upon an illegal contract, he cannot recover.’” Id.
(quoting Kincaid v. Black Angus Motel, Inc., 983 P.2d 1016, 1018 (Okla. 1999)).
2
Joint has forfeited appellate consideration of the district court’s denial of leave
to amend by failing to raise the issue in this appeal. Bronson v. Swensen, 500 F.3d
1099, 1104 (10th Cir. 2007).
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After considering the parties’ submissions and applying the applicable law, the
district court determined that, given the language in the Agreement governing the
parties’ relationship, Mr. Weaver’s tax treatment, his commission-based pay, and his
ineligibility for employee benefits, no rational jury could find that he was a bona fide
employee. Stated differently, the court concluded that Joint failed to raise a genuine
dispute regarding Mr. Weaver’s employment status; that is, the record could only
support a conclusion that Mr. Weaver was an independent contractor. The court also
determined, after observing that Medicare and Medicaid paid an average of 20% of
Joint’s total billings and Mr. Weaver’s pay was based on his volume of sales, that a
rational jury would conclude that the Agreement violated the Act and was void under
Oklahoma law. As such, the court granted Mr. Weaver summary judgment on all of
Joint’s breach-of-contract claims.
We review the district court’s grant of summary judgment de novo. SEC v.
Thompson, 732 F.3d 1151, 1156 (10th Cir. 2013). Summary judgment is appropriate
when there “is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). “In making that determination,
a court views the evidence and draws reasonable inferences therefrom in the light
most favorable to the nonmoving party.” Thompson, 732 F.3d at 1156-57 (internal
quotation marks and brackets omitted). If there is no genuine issue of material fact,
then the reviewing court must determine if “the district court correctly applied the
substantive law.” Id. at 1157 (internal quotation marks omitted).
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Employment Status: Bona Fide Employee or Independent Contractor
On appeal, Joint argues that it provided ample evidence that Mr. Weaver was
its bona fide employee.3 Joint then asserts, apparently in the alternative, that
summary judgment was improper because genuine disputes of material fact remain
regarding whether Mr. Weaver was a bona fide employee or an independent
contractor, and that the district court failed to view the evidence and make reasonable
inferences in Joint’s favor. We disagree. Although the question “[w]hether an
individual is an employee or an independent contractor is generally [one] of fact for
the jury to decide,” Herr v. Heiman, 75 F.3d 1509, 1513 (10th Cir. 1996), in cases,
like this one, where evidence of the movant’s status as an independent contractor is
“so one-sided,” the movant “must prevail as a matter of law.” Shero v. City of Grove,
Okla., 510 F.3d 1196, 1200 (10th Cir. 2007); see also Farlow v. Wachovia Bank of
N.C., N.A., 259 F.3d 309, 313 (4th Cir. 2001) (“Merely because employee and
independent contractor status is each supported by certain factors does not bar entry
of summary judgment.”).
3
In addition to the Agreement, Joint relied upon an affidavit from its founder
and President, Jim Patton. However, Mr. Patton’s affidavit is largely uncorroborated,
conclusory, and contradicted, in parts, by a two-hour recording of a conference call
with Mr. Weaver and others. See generally Scott v. Harris, 550 U.S. 372, 380 (2007)
(explaining that court may disregard non-movant’s version of events if it “is blatantly
contradicted by the record, so that no reasonable jury could believe it”); Fitzgerald v.
Corr. Corp. of Am., 403 F.3d 1134, 1143 (10th Cir. 2005) (“[C]onclusory allegations
without specific supporting facts have no probative value.” (internal quotation marks
omitted)). Joint also relied upon a copy of Mr. Weaver’s former business card as
evidence of its alleged employer-employee relationship. But a business card is not
dispositive. Cf. Darden, 503 U.S. at 323-24.
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Enforceability of the Agreement
Joint also asserts that the district court improperly applied Oklahoma’s
illegal-contract doctrine, in a doubtful situation, because the purportedly offensive
aspect of the Agreement (Mr. Weaver’s status) was not essential and should have
been severed. We have reviewed the applicable law and disagree. Having held that
the district court did not err in concluding that Mr. Weaver was an independent
contractor, and because an essential part of the Agreement (consideration) consisted
of “Joint pa[ying] Weaver to solicit Medicare or Medicaid referrals,” Joint Tech.,
Inc., 2013 WL 257075, *3, in violation of the Act, we conclude that Oklahoma’s
illegality doctrine rendered the entire Agreement void, Hargrave v. Canadian Valley
Elec. Co-op, 792 P.2d 50, 60 (Okla. 1990). See also Kincaid, 983 P.2d at 1018
(“A void contract is one that is illegal or contrary to public policy. . . . If the
consideration for a contract is illegal by reason of being contrary to public policy, the
contract is void and not susceptible to ratification.”). Thus, the district court
correctly applied the applicable law.
Appeal Number 13-6157
Less than a week after the district court entered judgment for Mr. Weaver in
the First Lawsuit, Joint filed the Second Lawsuit, raising the same claims it had
sought to add via its application for leave to amend in the First Lawsuit. Defendants
moved to dismiss and for sanctions. The district court concluded that the Second
Lawsuit was barred by claim preclusion, which prohibits a party from relitigating
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claims that were, or could have been, raised in a previous action, and it granted both
of Defendants’ motions.
Joint contends that the district court erroneously granted Defendants’ motion
to dismiss. Defendants counter that Joint’s appeal is frivolous and have filed a
motion for sanctions under Fed. R. App. P. 38.
We review de novo a “district court’s dismissal under Fed. R. Civ. P.
12(b)(6),” accepting “as true all well-pleaded factual allegations in the complaint and
view[ing] them in the light most favorable to [the non-movant].” SEC v. Shields,
744 F.3d 633, 640 (10th Cir. 2014) (internal quotation marks omitted). “‘To survive
a motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)).
We also review “de novo . . . conclusions of law on the applicability of . . .
claim preclusion.” Clark v. Zwanziger (In re Zwanziger), 741 F.3d 74, 77 (10th Cir.
2014) (internal quotation marks omitted). “Federal common law governs the
preclusive effect of a judgment of a federal court sitting in diversity.” Id. “The
federally prescribed rule of decision to determine the preclusive effect of a diversity
court’s judgment is the law that would be applied by state courts in the State in which
the federal diversity court sits.” Id. (internal quotation marks omitted). This case
arose in Oklahoma. Under Oklahoma law, claim preclusion teaches that “a final
judgment on the merits of an action precludes the parties from relitigating not only
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the adjudicated claim, but also any theories or issues that were actually decided, or
could have been decided, in that action.” Wilson v. State ex rel. State Election Bd.,
270 P.3d 155, 158 (Okla. 2012) (internal quotation marks omitted); see also
McDaneld v. Lynn Hickey Dodge, Inc., 979 P.2d 252, 255-56 (Okla. 1999)
(explaining that “claim preclusion . . . bars the parties (or their privies) from
relitigating . . . any theories or issues that . . . could have been decided” and that it is
“based largely on a policy of conserving judicial resources”).
Having reviewed the briefs, the record, and the applicable law, we hold that
Joint has failed to identify any reversible error in the district court’s grant of
Defendants’ motion to dismiss. We therefore affirm the district court’s judgment for
substantially the same reasons stated in its order granting the motion, Joint Tech.,
Inc. v. Weaver, No. CIV-13-89-M, 2013 WL 3305202 (10th Cir. June 28, 2013).
Finally, we turn to Defendants’ motion for sanctions against Joint and its
attorney for taking a frivolous appeal. See Fed. R. App. P. 38. Joint has had an
opportunity to, and has, responded to the motion. We have reviewed the parties’
filings and the applicable law, and we conclude that appeal number 13-6157 is
frivolous under Fed. R. App. P. 38. Braley v. Campbell, 832 F.2d 1504, 1510 (10th Cir.
1987) (“An appeal is frivolous when the result is obvious, or the appellant’s
arguments of error are wholly without merit.”) (internal quotation marks omitted)).
Accordingly, we grant Defendants’ request for attorney’s fees and double costs, and
we remand to the district court for it to determine an award of reasonable fees
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associated with defending appeal number 13-6157. See Garcia v. Berkshire Life Ins.
Co. of Am., 569 F.3d 1174, 1183 (10th Cir. 2009) (“[A]n application for
appeal-related attorneys’ fees must first be made to our court. Should we decide that
it is appropriate to award such fees, we may then remand to the district court to
determine an award of reasonable fees.” (internal quotation marks omitted)).
Conclusion
We affirm the judgment of the district court in appeal numbers 13-6070 and
13-6157, and we grant Defendants’ Rule 38 motion for sanctions in appeal number
13-6157.
Entered for the Court
Stephen H. Anderson
Circuit Judge
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