Spencer Convenient Healthcare v. McGregor ( 2018 )

IN THE COURT OF APPEALS OF IOWA
No. 17-0389
Filed January 10, 2018
SPENCER CONVENIENT HEALTHCARE, L.L.C.,
Plaintiff-Appellant,
vs.
ANGELA McGREGOR,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Dickinson County, David A. Lester,
Judge.
Spencer Convenient Healthcare, L.L.C. appeals a district court ruling
denying its petition for an injunction and damages and awarding Angela
McGregor damages on her counterclaim for breach of contract. AFFIRMED IN
PART, VACATED IN PART, AND REMANDED.
Jill M. Davis of Montgomery, Barry, Bovee, Steffen & Davis, Spencer, for
appellant.
Matthew T. E. Early of Fitzgibbons Law Firm, L.L.C., Estherville, for
appellee.
Considered by Danilson, C.J., and Doyle and Mullins, JJ.
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MULLINS, Judge.
Spencer Convenient Healthcare, L.L.C. (SCH) appeals a district court
ruling denying its petition for an injunction and awarding Angela McGregor
damages on her counterclaim for breach of contract. SCH contends the district
court erred in (1) concluding it breached the employment contract in terminating
McGregor’s employment rather than finding McGregor breached the contract; (2)
interpreting the student loan repayment provision of the employment contract;
and (3) awarding damages that were not foreseeable. McGregor requests an
award of appellate attorney fees.
I. Background Facts and Proceedings
Based upon the evidence we find credible, we make the following findings
of fact. SCH is an urgent-care medical clinic located in Spencer, Iowa that is
owned and operated by John and Carol Lewallen. Carol is an advanced
registered nurse practitioner. John and Carol opened SCH in November 2012.
The business was successful from the onset and drew patients from
approximately a fifty-mile radius. As a result of this success, the Lewallens
decided to open a second clinic. They leased and remodeled a building in Spirit
Lake and hired another nurse practitioner to be the medical provider at that
location. In July 2013, the Lewallens officially opened Lakes Convenient
Healthcare (LCH) in Spirit Lake. Over the next year, the Lewallens hired other
nurse practitioners to serve as medical providers in both locations, but the
turnover for those positions was rather high.
In the summer of 2014, the Lewallens advertised for an opening for a
provider. McGregor initiated communications with the Lewallens, but after a few
3
weeks, she accepted a position with a different employer in southeast Iowa.
Shortly after that, the Lewallens reopened negotiations with McGregor. On
November 17, 2014, the parties executed an employment contract memorializing
the terms of McGregor’s employment with SCH—the contract was prepared by
the Lewallens without the assistance of legal counsel. The contract included a
termination provision requiring both parties to provide ninety days written notice
of any desire to terminate the employment relationship. The contract also
included a non-compete clause which, upon termination, prohibited McGregor
from working in another clinic within a sixty-mile radius of either SCH or LCH for
two years. The contract also provided that SCH “agree[d] to take over the
student loan repayment obligation that [McGregor] allegedly owe[d] to her [then]
employer.” McGregor officially began her employment with SCH in December.
During her employment, she primarily worked at the LCH location.
Beginning in 2014, the Lewallens directed at least one of the nurses they
employed, Tara Mixon, on more than one occasion to use outdated medical
supplies before using newer supplies. Mixon advised Carol that this practice
caused her concern, but Carol responded the outdated supplies needed to be
used because supplies are expensive. In January 2015, as a result of her
concern for the continuing practice, Mixon filed a complaint with the Iowa Board
of Nursing (Board). Also in January, Mixon approached McGregor, a fairly new
employee at the time, and advised her of the informal outdated-supplies policy.
Mixon showed McGregor some of the outdated supplies, upon which McGregor
observed notations to “use these products first.” McGregor advised Mixon they
could not use the outdated supplies. Mixon agreed but noted she was getting in
4
trouble for not using them. McGregor made several attempts to discuss this
practice with the Lewallens, but she was largely ignored. McGregor confronted
John about the practice at one point, but he simply replied, “It’s my clinic. When
you have your clinic, you can do what you want. And this stuff is expensive, you
know.”
Because McGregor believed that some of her reference books had
previously been stolen from her office at LCH, on February 9, she removed the
remainder of her books from her office. However, she left personal effects and
medical equipment in her office. On this date, McGregor also advised the office
manager that she had some issues she needed to discuss with the Lewallens.
The office manager relayed this message to John, but he did not want to talk to
McGregor. Concerned, McGregor contacted the Board and CLIA1 on February
12. Both bodies advised McGregor she should file an official report outlining her
concerns. On February 13, McGregor filed a complaint with the Board alleging,
among other things, lab supplies are expired and medications are outdated. 2 A
complaint was also filed with CLIA.3
February 14 was McGregor’s scheduled day off, but she worked on
February 15. On February 16, SCH and LCH staff met at a local grocery store to
discuss health-insurance options. McGregor attended this meeting. After the
meeting, McGregor returned to the clinic in Spencer and worked for an hour but
1
According to testimony, CLIA is a federal regulatory body that oversees medical
laboratory procedures.
2
In November, the Board notified the Lewallens that the complaint filed by McGregor
was closed with no further action.
3
CLIA’s investigation found expired products and deficiencies in the clinics’
documentation practices. SCH developed a plan of correction which was ultimately
approved by CLIA.
5
then went home sick. McGregor called in sick on February 17 as well. That
evening, McGregor reported she would be at work on February 18, but John
directed her to take another day off if she was not at one-hundred percent. Prior
to this, John had no problem with McGregor working while she was ill. The next
two days, February 19 and 20, were McGregor’s scheduled days off.
On February 18, John called the office manager and advised her he
recently heard one of the staff members turned SCH in to the State for using
expired supplies. In a separate phone call later that day, John advised the office
manager that he planned to ask McGregor if she was the one who filed a
complaint, that if she responded in the affirmative, “he doesn’t want her back,”
and, if she responded in the negative, he “knows she is lying.” The office
manager relayed this information to McGregor. McGregor testified that, upon
receiving this information, she realized she may have to start exploring other
employment opportunities.
On February 20, the Lewallens called an impromptu staff meeting
regarding McGregor’s continued employment with SCH. It does not appear that
McGregor was invited to or otherwise aware of this meeting. After the meeting,
John called McGregor and left a voicemail directing her to turn in her keys
because he and Carol had not had any communication with her in sixteen days. 4
McGregor responded with a text message that evening, advising she would turn
her keys in when she received her final paycheck. Shortly after the separation,
4
It is unclear why John provided this reasoning for his direction that McGregor turn in
her keys. Based on the facts that McGregor attended a staff meeting on February 16
and, despite being sick, attempted to come to work on February 18, we conclude John’s
stated reasoning is pretextual.
6
McGregor accepted a position with Crown Clinic, another urgent-care provider.
In July, Crown Clinic opened its facility near the LCH clinic.5
Prior to the conclusion of McGregor’s employment with SCH, the
Lewallens did not make any payments towards McGregor’s student-loan
obligation. After the separation, McGregor’s prior employer notified her that the
entire outstanding balance of her loan, $21,735.47, was due and noted it was
unsuccessful in its attempts to contact SCH for payment. The notice advised,
“Because you are ultimately responsible for the loan, we are looking to you for
repayment.” McGregor was able to settle this loan obligation with her prior
employer by paying it $20,000.00 rather than the full amount. Because her
financial resources were limited at this time, McGregor withdrew funds from her
403(b) retirement plan to meet the obligation. A certified public accountant and
valuation analyst testified McGregor’s withdrawal of these funds subjected her to
state and federal taxes at a rate of thirty-three percent and an additional early-
withdrawal penalty of ten percent. Applying these figures to the amount paid
would result in a total penalty of $8600.00.
In March, SCH petitioned for a temporary and permanent injunction,
alleging McGregor’s employment with Crown Clinic was in violation of the non-
compete clause contained in her employment contract and requesting an order
enjoining McGregor from working for Crown Clinics and an award of damages.
In her answer, McGregor forwarded a number of counterclaims—the only one
relevant to this appeal is breach of contract. The district court subsequently
denied SCH’s petition for a temporary injunction and set the matter for trial.
5
Unable to compete with Crown Clinic, the Lewallens decided to close LCH in August.
7
Following a two-day trial, the district court entered a written ruling. With
regard to SCH’s claim, the court concluded (1) John terminated McGregor’s
employment on February 20, 2015; (2) the termination, which was unjust and
unfair and was effectuated without proper notice, was a breach of the termination
provision contained in the contract; and (3) as such, SCH was not entitled to
enforcement of the non-compete clause or an award of damages.
As to the relevant portion of McGregor’s breach-of-contract counterclaim,
the district court interpreted the student-loan provision of the contract to require
SCH “to assume payment of the full principal amount” of the loan and concluded
SCH “remained obligated to pay that amount in full at the time [it] terminated
McGregor’s employment on February 20, 2015.” The district court awarded
McGregor damages in the amount of $28,600.006 in relation to SCH’s breach of
the student-loan provision of the contract. The district court denied SCH’s
subsequent motion to enlarge or amend. This appeal followed.
II. Standard of Review
The parties disagree as to the appropriate standard of review. SCH
argues, because the district court tried this case in equity, our review should be
de novo. See, e.g., Davis-Eisenhart Mktg. Co., Inc. v. Baysden, 539 N.W.2d
140, 142 (Iowa 1995). McGregor contends, because the case contemplates
legal, rather than equitable claims, our review should be for correction of errors at
law. See, e.g., Iowa Mortg. Ctr., L.L.C. v. Baccam, 841 N.W.2d 107, 110 (Iowa
2013) (“The standard of review for a breach of contract action is for correction of
6
This amount equals the sum of the amount paid by McGregor to settle the obligation,
$20,000.00, and the tax liability and penalties associated with McGregor’s withdrawal of
the funds from her retirement account, $8600.00.
8
errors at law.”); Hartig Drug Co. v. Hartig, 602 N.W.2d 794, 797 (Iowa 1999) (“We
generally review the construction and interpretation of a contract as a matter of
law.”).
During the trial on the merits, the district court specifically noted, due to
the presence of an equitable claim, it was trying the case in equity. See Matlock
v. Weets, 531 N.W.2d 118, 121 (Iowa 1995) (“A request for an injunction invokes
the court’s equitable jurisdiction.”). In fact, the court advised the parties “[i]t will
be a de novo review if appealed.” Neither party objected. Because of the parties
implicit agreement to have this case tried in equity, we will review this case de
novo. See Iowa Waste Sys. v. Buchanan Cty., 617 N.W.2d 23, 32 (Iowa Ct. App.
2000).
Under a de novo review, our duty is to review the facts as well as the law
and adjudicate rights anew. Abodeely v. Cavras, 221 N.W.2d 494, 504 (Iowa
1974). Where, as here, the testimony is conflicting, we give great weight to the
factual findings of the district court, especially when considering the credibility of
witnesses, but we are not bound by them. Iowa R. App. P. 6.904(3)(g); Albert v.
Conger, 886 N.W.2d 877, 880 (Iowa Ct. App. 2016). “This is because the trial
court is in a far better position to weigh the credibility of witnesses than the
appellate court.” Albert, 886 N.W.2d at 880.
III. Breach of Employment Contract
SCH challenges the district court’s finding that it breached the
employment contract. SCH contends McGregor breached the contract first by
voluntarily quitting her position without providing ninety days written notice and,
as such, she subsequently breached the contract by violating the non-compete
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clause. This is largely a challenge to the district court’s factual findings and the
legal conclusions flowing from those findings. As noted above, we give great
weight to the district court’s factual findings. Id. Further, the finder of fact “is free
to believe or disbelieve any testimony as it chooses and to give weight to the
evidence as in its judgment such evidence should receive.” State v. Thornton,
498 N.W.2d 670, 673 (Iowa 1993). “In fact, the very function of the [factfinder] is
to sort out the evidence and ‘place credibility where it belongs.’” Id. (quoting
State v. Blair, 347 N.W.2d 416, 420 (Iowa 1984)).
Upon our de novo review of the record, we conclude SCH terminated
McGregor’s employment on February 20, 2015. Although there is some
evidence McGregor may have intended to seek other employment, this flowed
from McGregor’s receipt of information that John did not “want her back” as a
result of his assumption that she filed official complaints with the Board and
CLIA. And at the time she was terminated by John, McGregor had not taken any
overt act to officially end her employment with SCH. Cf. Peck v. Emp’t Appeal
Bd., 492 N.W.2d 438, 440 (Iowa Ct. App. 1992) (“[Q]uitting requires an intention
to terminate the employment relationship accompanied by an overt act carrying
out that intent.”). She stated her intention to report to work on February 18, but
John directed her not to do so. She was scheduled to have days off on February
19 and 20 but was ultimately terminated by John on the 20th.
Under these circumstances, we agree with the district court that McGregor
did not voluntarily quit. We limit our analysis on this issue to SCH’s sole
argument on appeal, that McGregor breached the contract first by voluntarily
10
quitting.7 See Iowa R. App. P. 6.903(2)(g)(3). We therefore affirm the district
court’s determination that SCH breached a material provision of the employment
contract by terminating McGregor’s employment and, accordingly, that the non-
compete clause is unenforceable against her.
IV. Interpretation of Student-Loan Provision
SCH contends the district court erred in its interpretation of the student-
loan-repayment provision of the employment contract. As noted above, the
district court interpreted the student-loan provision of the contract to require SCH
“to assume payment of the full principal amount” of the loan and concluded SCH
“remained obligated to pay that amount in full at the time [it] terminated
McGregor’s employment on February 20, 2015.”
Contract “[i]nterpretation is the process for determining the meaning of the
words used by the parties in a contract.” Pillsbury Co. v. Wells Dairy, Inc., 752
N.W.2d 430, 435 (Iowa 2008). “The cardinal rule of contract interpretation is to
determine what the intent of the parties was at the time they entered into the
contract.” Id. at 437; see also Peak v. Adams, 799 N.W.2d 535, 543 (Iowa
2011). Unless the contract contains an ambiguity, we determine the parties’
intent from the language of the contract alone and enforce it as written. Petty v.
Faith Bible Christian Outreach Ctr., Inc., 584 N.W.2d 303, 306 (Iowa 1998).
The provision contained in McGregor’s employment contract provides the
following:
7
SCH does not challenge the district court’s determination that its termination of
McGregor’s employment was a material breach of the employment contract that
rendered unenforceable the non-compete clause.
11
[SCH] agrees to take over the student loan repayment obligation
that [McGregor] allegedly owes to her current employer. Currently
the principal amount due is $21,735.47. SCH will make every effort
to determine if this loan is legitimately owed to the [current
employer] or if any of the amount was already paid by the federal
loan forgiveness program. If the amount is found to be accurate
and due, SCH may take a business loan for the entire amount with
an extended repayment term up to 4 years to lower the current
payment to better fit into the business budget. In return for
repayment of this loan, a 4 year obligation of [McGregor] to work for
[SCH] is expected as a term of agreement to cover the student
loan. If [McGregor] would terminate employment prior to
completion of the loan repayment term, the balance of the noted
minus the reduced pro-rated amount for credit during the time
employed, is expected to be reimbursed by [McGregor] to [SCH].
At the end of the loan repayment term, and after the employment
obligation has been met, the entire amount of this loan is
considered paid in full by both parties.
We find this language clear and unambiguous: SCH “agree[d] to take over the
student loan repayment obligation.” Under this provision, upon the
commencement of McGregor’s employment, SCH had the option to “take a
business loan for the entire amount with an extended repayment term up to 4
years.” If SCH selected that option, then, in return for payment of the business
loan, “a 4 year obligation of [McGregor] to work for [SCH] [was] expected as a
term of agreement to cover the student loan.” But, if McGregor left employment
prior to the completion of the four-year business-loan term, she would be
required to reimburse SCH for any payments made after her separation.
SCH took no steps to exercise the four-year business-loan option. Thus,
we need not determine whether McGregor’s involuntary departure from
employment triggered the repayment provision of the student loan provision.
SCH’s failure to exercise the business-loan option at the commencement of
McGregor’s employment leaves it with its obligation to “take over the student loan
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repayment obligation” which was due in full at the time McGregor terminated her
employment with her prior employer. We accordingly affirm the district court’s
conclusion that SCH is responsible for payment of the student loan in its entirety.
In doing so, we repeat the district court’s admonition that “employers should not
attempt to draft something as important as an employment contract without the
assistance of an attorney trained in such matters.”
V. Foreseeability of Damages
Finally, SCH argues the district court erred in awarding McGregor
damages that were not foreseeable. SCH specifically argues the income taxes
and the penalty to which McGregor was subjected as a result of liquidating her
retirement account to pay off her student loan were not foreseeable results of
SCH’s breach. McGregor contests error preservation on this argument,
contending “[t]his argument was neither raised at trial nor raised in SCH’s post
trial motion.” However at the hearing concerning SCH’s motion to enlarge or
amend, SCH specifically argued, “[T]he whole balance of the student loans and
then the penalty and expenses that she incurred when she had to use her . . .
retirement funds in order to pay off that loan, . . . those damages are not
foreseeable.” The district court rejected SCH’s foreseeability-of-damages
argument in its entirety. We conclude error was preserved. See Meier v.
Senecaut, 641 N.W.2d 532, 537 (Iowa 2002).
“[D]amages based on breach of contract must have been foreseeable or
have been contemplated by the parties when the parties entered into the
agreement.” Kuehl v. Freeman Bros. Agency, Inc., 521 N.W.2d 714, 718 (Iowa
1994). “Whether the damages were reasonably anticipated by the parties when
13
the contract was formed may be discerned from ‘the language of the contract in
light of the facts, including the nature and purpose of the contract and
circumstances attending its execution.’” Id. (quoting 22 Am. Jur. 2d Damages
§ 460 (1988)). “Damages which a reasonable person would expect to follow
from breach of a contract are direct and thus should be awarded.” Id.
With these principles in mind, we conclude, although McGregor’s
obligation to pay the student loans flowed directly from SCH’s breach, her
decision to incur the resulting of tax and early-withdrawal penalties could not
have been reasonably anticipated by the parties when the contract was formed.
As such, we vacate the portion of the damage award relating to the tax and early-
withdrawal penalties and remand the case to the district court to enter judgment
consistent with our decision.
VI. Appellate Attorney Fees
McGregor requests an award of appellate attorney fees under Iowa Code
section 91A.8, which allows an award of attorney fees for claims brought under
the Iowa wage payment collection law. Because this appeal did not contemplate
McGregor’s wage claim, we decline McGregor’s request for an award of
appellate attorney fees.
VII. Conclusion
We affirm the district court’s (1) determination that SCH breached a
material provision of the employment contract by terminating McGregor’s
employment and, accordingly, that the non-compete clause is unenforceable
against her and (2) interpretation and application of the student-loan-repayment
provision of the employment contract. We conclude, although McGregor’s
14
decision to incur tax and early-withdrawal penalties flowed directly from SCH’s
breach, such penalties could not have been reasonably anticipated by the parties
when the contract was formed. As such, we vacate the portion of the damage
award relating to the tax and early-withdrawal penalties and remand the case to
the district court to enter judgment consistent with our decision. We deny
McGregor’s request for an award of appellate attorney fees.
AFFIRMED IN PART, VACATED IN PART, AND REMANDED.