Tulsa Ambulatory Procedure Ctr. v. Olmstead

2024 OK 57

TULSA AMBULATORY PROCEDURE CENTER, LLC, OKLAHOMA PAIN & WELLNESS CENTER, PLC AND PRECISION ANALYSIS LABORATORY, LLC, Plaintiffs/Appellant, v. TODD OLMSTEAD, Defendant/Appellee, v. DR. JAYEN PATEL, Third-Party Defendant.

No. 119791

Supreme Court of Oklahoma

June 25, 2024

UNPUBLISHED OPINION

CERTIORARI FROM THE COURT OF CIVIL APPEALS, DIVISION I, ON APPEAL OUT OF THE DISTRICT COURT OF TULSA COUNTY, STATE OF OKLAHOMA, HONORABLE REBECCA NIGHTINGALE

SCOTT V. MORGAN, MOYERS, MARTIN, L.L.P., Tulsa, Oklahoma, Attorney for Plaintiffs/Appellants

DAVID R. ROSS, NORMAN, WOHLGEMUTH, L.L.P., Tulsa, Oklahoma Attorney for Defendant/Appellee

GURICH, J.

¶ 0 Medical providers sued a former employee for breach of an employment agreement. Employee filed counterclaims alleging he was owed unpaid wages and bonuses. Providers filed an answer to the counterclaims, raising "failure to state a claim" as the sole affirmative defense. After nearly four-years of litigation, providers attempted to raise, for the first time, that the contract was illegal and therefore void as a matter of law. The lower court issued an order finding providers had waived the affirmative defense, thus precluding its use as shield from liability. Following a trial on the merits, the trial judge determined providers had breached the employment agreement and issued a money judgment of $387,618.36 in favor of employee. Providers appealed and the Court of Civil Appeals reversed, concluding that refusal to consider providers' claim of illegality was an abuse of discretion. We granted certiorari and now hold the trial judge did not abuse her discretion in striking the Plaintiffs/Appellants' last-minute effort to raise a new affirmative defense.

Factual & Procedural History

¶ 1 Dr. Jayen Patel (Dr. Patel) is one of the principal owners of Tulsa Ambulatory Procedure Center, LLC (TAP), Oklahoma Pain & Wellness (OPW), and Precision Analysis Laboratory (PAL). ^[1] These entities were all housed in the same location and were interchangeably referred to by Dr. Patel and Olmstead as TAP, "the company," or "the center." ^[2] On January 28, 2015, Dr Patel sent a letter to his brother-in-law, Todd Olmstead (Olmstead), extending an employment offer with his medical groups in Tulsa. ^[3] The job proposal guaranteed Olmstead a base salary of $85,000 along with a performance bonus paid per month "base [sic] on new referrals to the center as well as urine analysis to the partner lab." ^[4] Dr. Patel's proposal did not specify the amount of any bonus, only that it would be a "performance bonus paid per month." ^[5] Olmstead accepted the offer to serve as the Director of Business Development by signing the contract form provided by Dr. Patel.

¶2 Olmstead began his employment on behalf of all three providers on February 23, 2015. During the period between August 23, 2015, and June 14, 2016, Olmstead successfully generated new business for the various medical entities. Generally speaking, the new client referrals were to OPW and PAL, although Olmstead also marketed TAP in an effort to secure additional providers for the surgical center. ^[6]

¶3 Throughout Olmstead's employment, he inquired about receiving his referral bonus, yet was never paid one. At some point, Dr. Patel increased Olmstead's salary to $100,000 annually; however, the record does not indicate precisely when this occurred. Dr. Patel testified the raise was to account for the parties' inability to come up with a suitable bonus formula. Despite a good performance record Dr. Patel terminated Olmstead's employment with TAP on June 14, 2016. ^[7]

¶4 On November 23, 2016, TAP, OPW, and PAL initiated a lawsuit against Olmstead, alleging inter alia a breach of company confidentiality and non-solicitation requirements associated with working for the medical group. ^[8] Olmstead filed an answer together with several counterclaims against the Plaintiffs, including demands to recover unpaid wages and performance bonuses. ^[9] Plaintiffs filed a joint answer to Olmstead's counterclaims on January 10, 2017. Under a heading entitled "Affirmative Defenses," Plaintiffs' sole assertion was that "Defendant/Third Party Plaintiff has failed to state a claim upon which relief may be granted." ^[10]

¶5 Not only did the Plaintiffs initiate the underlying suit, they also actively participated in the litigation. Throughout the entirety of the case, Plaintiffs filed motions, conducted discovery, sought entry of scheduling orders, and attended hearings. A scheduling order was first entered on March 27, 2018, and was filed on April 20, 2018. Therein, the court set a deadline of April 27, 2018, for amendments to the pleadings. The Plaintiffs did not seek leave to amend their joint answer by the April 27th deadline. Later, the parties filed a joint motion requesting entry of a new scheduling order. On August 1, 2019, one was approved by the trial court and filed of record. In the section of the scheduling order designated for amendments or adding parties, the document reflected that no changes to the pleadings or litigants were necessary.

¶6 Approximately three weeks before the pretrial conference, Olmstead filed a motion for sanctions. Therein, Olmstead alleged that the Plaintiffs had failed to comply with a prior order compelling the companies to provide supplemental information responsive to written discovery requests. ^[11] The trial judge sustained the motion, finding the Plaintiffs failed to comply with prior orders directing Plaintiffs to clarify/augment their discovery responses. The sanction order established the following designated facts for purposes of Olmstead's counterclaims: "50% of the gross income of the gross services income of Tulsa Ambulatory Procedure Center, Oklahoma Pain & Wellness Center, and Precision Analysis Laboratory during the period of Olmstead's employment were generated by Olmstead's referrals." ^[12]

¶7 On or about September 21, 2020, the parties' exchanged a draft pretrial conference order. Plaintiffs' new attorney submitted proposed additions to the draft order, arguing for the first time that the subject employment contract was illegal and unenforceable. ^[13] Specifically, Plaintiffs suggested that the bonus structure violated federal anti-kickback laws codified in 42 U.S.C.§1320a-7b. ^[14]

¶8 In response to this last-minute effort to raise a new defense, Olmstead filed a motion to strike, seeking to prevent Plaintiffs from utilizing illegality as a mechanism to vitiate the contract. Olmstead argued that the Plaintiffs had waived any defense predicated on illegality because: (1) the affirmative defense had not been included in their answer to Olmstead's counterclaims; and (2) Plaintiffs did not seek amendment in a timely manner. He also claimed Plaintiffs failure to comply with discovery relating to referrals based on Medicare or Medicaid exacerbated the prejudicial effect of the late attempt to raise the defense. In a footnote, Olmstead additionally suggested that, on its merits, the claim of illegality was untenable because the anti-kickback laws exempted amounts paid by an employer to a bona fide employee. Plaintiffs filed a response and objection to the motion, and maintained that an illegal contract may never be enforced. In the alternative, the Plaintiffs argued that by raising "failure to state a claim" in their original answer, they had presented an affirmative defense broad enough to encompass illegality.

¶9 The pretrial conference was rescheduled at least twice but was last docketed for September 23, 2020. During this conference, the trial judge reserved a trial date and directed the parties to submit filings relating to unresolved motions concerning sanctions and the illegality defense. At a hearing on November 12, 2020, the trial judge sustained Olmstead's motion and issued a ruling barring Plaintiffs' use of the illegality defense during the upcoming trial. Despite this decision, Plaintiffs filed a motion for summary judgment on December 11, 2020, again challenging Olmstead's counterclaim for unpaid wages and bonuses based on federal anti-kickback laws. Plaintiffs never filed a formal motion seeking leave to amend; nevertheless, they did ask the trial judge to "constructively amend" their answer via the motion for summary adjudication. Olmstead once more asked the trial court to prohibit use of illegality as an affirmative defense, maintaining: (1) the trial court had already issued a decision finding the defense had been waived; (2) because the trial court had already stricken prohibited Plaintiffs' reliance on illegality, constructive amendment would be improper; and (3) the motion was submitted outside of the deadline for filing dispositive motions under the court's most recent scheduling order. ^[15] On February 9, 2021, the trial court entered an order striking Plaintiffs' motion for summary judgment.

¶10 The lower court conducted a non-jury trial on March 2, 2021. Prior to taking testimony, Plaintiffs' counsel offered to stipulate that the bonus amount in the employment agreement was equal to "ten percent [10%] of the revenue generated by [Olmstead's] referrals." ^[16] Olmstead agreed and the stipulation was made a part of the record. Olmstead testified that new clients were cataloged with a spreadsheet which identified each patient and the provider who referred the individual. Records to support the number of referrals directly attributable to Olmstead were not submitted during trial proceedings; however, detailed documentation was unnecessary based on the trial court's sanction order. Instead, Olmstead produced profit and loss statements for TAP, OPW and PAL. After hearing all the evidence, the trial court entered judgment in favor of Olmstead, finding Plaintiffs breached the employment...