Paul S. Fardy, M.D. brought suit against Physicians Health Rehabilitation Services, Inc. and Charles J. Frahm, M.D. personally to recover unpaid wages, unreimbursed expenses, and damages constituting wages which would have accrued over the remainder of his five-year term of employment pursuant to his contract. Physicians Health countersued alleging that Fardy, as director, had breached a fiduciary duty to the corporation by appropriating corporate clients.
The trial judge entered an amended judgment, after a bench trial, in favor of Fardy and against Physicians Health for $34,285.00 ($17,500 as unpaid wages and $16,785 as unreimbursed expenses and unmitigated damages under the employment contract). On the countersuit, Fardy was found to have breached his fiduciary duty, as a director, to Physicians Health. The trial judge gave Physicians Health credit for Fardy's earnings from competing organizations in mitigation of Fardy's damages of wages under the unexpired term of his employment contract.
Fardy appeals alleging the trial court erred in 1) not awarding him treble damages and reasonable attorney's fees for the unpaid wages earned before resignation; 2) not awarding him salary constituting the remainder of the term of his employment contract; and 3) finding Frahm free from personal liability.
We agree that Fardy is entitled to treble damages and reasonable attorney fees pursuant to statute for unpaid wages earned before his resignation. We reverse and remand to that extent. We affirm in all other respects.
Drs. Fardy and Frahm entered into various agreements and formed a corporation, Physicians Health Rehabilitation Services, Inc., in May of 1984. Fardy, an expert in cardiac rehabilitation, agreed to provide professional services for salary and a 50% interest. Frahm agreed to loan Physicians Health $150,000.00 for a 50% interest and control of the board. Whether Frahm agreed to assume personal liability for corporate debts was in dispute.
Physicians Health experienced financial difficulties from the beginning and, despite additional capital injections, liabilities far exceeded assets by October 15, 1985. Physicians Health paid Fardy an amount smaller than he was entitled to throughout 1985, and failed to pay him at all in the months of September and October 1985. Fardy resigned employment with the corporation October 15, 1985. He remained executive director of Physicians Health.
Fardy brought this suit seeking the unpaid wages earned plus statutory penalties, unreimbursed expenses, and the balance of his salary under the five year contract.
I. Whether Fardy is entitled to treble damages and reasonable attorney fees for his unpaid wages?
Fardy asserts that he is entitled to an award three times the wrongfully withheld wages plus reasonable attorney fees pursuant to IND. CODE 22-2-5-1 et seq. The relevant statutes read as follows:
I.C. 22-2-5-1 et seq. is a penal statute which, being in derogation of the common law, must be strictly construed. A close examination makes clear that it is concerned with the time of payment of wages. Its thrust is to create a statutory requirement that wages be paid semi-monthly or bi-weekly if so requested by the employee. The remainder of the statute sets out when an employer need pay wages due after the employee terminates his employment. Thus, the statute is one designed to insure the regularity and frequency of wage payments. Wilson v. Montgomery Ward & Co. (D.C.Ind. 1985), 610 F.Supp. 1035.
After reviewing Indiana authority, we have determined that section 1 promulgates three distinct regulations, the violation
The facts of the case at bar appear to be quite similar to those in Baesler's where the employee made a demand for unpaid, accrued vacation benefits upon separation from her employer. We affirmed an award of treble damages plus attorney fees holding a demand for wages was not a requisite of the third regulation.
In Baesler's, we noted the penalty provision, I.C. 22-2-5-2, was ambiguous with respect to whether it authorized double or treble damages. We refused to address this question because it had not been properly briefed. We did, however, state we would have had difficulty concluding treble damages were contrary to law observing:
We interpret I.C. 22-2-5-2 (Supp. 1988) to authorize a maximum penalty equal to double the unpaid wages to be awarded in addition thereto the unpaid wages amounting to a total award of three times the wages due.
In the case at bar, the judge found the statute had not been violated because Fardy had never requested that his wages be paid semi-monthly or bi-weekly. This was erroneous because Physicians Health violated the third regulation (failure to pay wages due upon separation) and not the second regulation. No demand to be paid semi-monthly or bi-weekly is necessary to activate the penalty in the case where an employer fails to pay amounts due an employee upon separation. Baesler's, supra.
An award of reasonable attorney fees, including appellate attorney's fees, is activated without further showing upon the violation of I.C. 22-2-5-1 et. seq. Vazquez v. Dulios (1987), Ind. App., 505 N.E.2d 152. Because this issue is severable from the other issues litigated in this case and the statute authorizes attorney fees only for a narrow area of employment disputes, fairness requires that Fardy recover only those fees attributable to the collection of the unpaid wages earned before his resignation. Fardy has presented evidence and asserts that $15,000.00 is a reasonable award for attorney fees. But because no determination of the reasonableness of this amount has been made, we must remand this issue.
The trial judge awarded Fardy unpaid wages of $17,500.00. We reverse this portion of the total award and remand with instructions that judgment for $17,500 X 3 or $52,500.00 be entered with regard to this portion of Fardy's damages. Also, we remand for a determination of the reasonable measure of attorney fees, including appellate fees, to be awarded attributable to the recovery of Fardy's unpaid wages earned before resignation.
II. Whether Fardy is entitled to salary constituting the balance of his five year contract?
The trial judge found that Physicians Health's failure to pay Fardy his salary constituted a breach of contract. The judge found that this breach entitled Fardy, under the contract, to be paid to the end of his five year term. However, the court awarded Fardy an amount for the short period after his resignation until his earnings from other cardiac rehabilitation consulting work reached the amount he was to be paid under the employment contract.
The judge found in Physicians Health's favor on its counterclaim against Fardy. Fardy breached a fiduciary duty to Physicians Health by appropriating corporate clients while a director of the corporation. The judge awarded no damages based on Fardy's breach of his fiduciary duty to Physicians Health finding that:
Fardy has misunderstood the court's findings. Fardy argues the court committed error by finding the contract damages were mitigated by his earnings from other sources. He has assumed, erroneously, that the court followed the general rule that one suing on an employment contract has a duty to mitigate his damages. Salem Community School Corp. v. Richman (1980), Ind. App., 406 N.E.2d 269. Fardy asserts the general rule does not apply because his contract provided for liquidated damages.
Fardy's argument is irrelevant; the court did not use the general rule of contract mitigation in reaching its decision. The court reached an equivalent result by awarding Fardy all of his contract damages but setting them off against Physicians Health's successful countersuit. Fardy does not appeal the finding that he breached his fiduciary duty to Physicians Health.
III. Whether Frahm is personally liable for Physicians Health debts?
Fardy asserts that Frahm agreed to be personally liable for corporate debts pursuant to the following term contained in the AGREEMENT signed May 24, 1984 by Physicians Health, Frahm, and Fardy:
The court found this clause to be patently ambiguous and was willing to hear parole evidence. The parties stipulated that the clause was not ambiguous and that the judge should interpret its meaning as a matter of law without hearing parole evidence. We agree that the clause is ambiguous; we do not understand how a clause becomes unambiguous upon stipulation. However, we will interpret this clause, as did the trial court, by applying rules of contract interpretation.
Even in the case of the ambiguous contract, the question of meaning is one of law for the court if the ambiguity arises by reason of the language used and not because of extrinsic facts. Clyde E. Williams & Associates, Inc. v. Boatman (1978), 176 Ind.App. 430, 375 N.E.2d 1138; Wilson v. Kauffman (1973), 156 Ind.App. 307, 296 N.E.2d 432. In this case the court must "accept an interpretation of the contract which harmonizes its provisions as opposed to one which causes the provisions to be conflicting." R.R. Donnelley & Sons Co. v. Henry-Williams, Inc. (1981), Ind. App., 422 N.E.2d 353, 356. The meaning of the contract is to be determined from an examination of all of its provisions, not from a consideration of individual words, phrases or even paragraphs read alone. Oser v. Commercial Union Ins. Companies (1980), Ind. App., 409 N.E.2d 706. Thus, upon a review of all of the contract provisions, the court must avoid "a construction ... that is inequitable and gives an unfair or unreasonable advantage to one of the parties." Komisarow v. Lansky (1966), 139 Ind.App. 351, 219 N.E.2d 913, 916.
We hold that the court correctly applied the law in the present case. The court's well reasoned analysis and conclusion as set out in the judgment is as follows:
We believe this analysis is beyond reproach. We affirm; Frahm has no personal liability for corporate debts.
For all of the above reasons, we reverse and remand with instructions that judgment be entered in favor of Fardy against Physicians Health in the amount of $69,285.00. ($17,500.00 X 3 + $16,785.00). We also instruct the trial court to hold a hearing to determine an award in favor of Fardy and against Physicians Health of reasonable attorney fees, including appellate fees, for the litigation attributable to the recovery of Fardy's unpaid wages earned before resignation. (Issue I above) In all other respects, we affirm.
GARRARD, P.J., and NEAL, J., concur.