D’Amico v. Structural I Company – 4/3/2012

April 11, 2012

Arizona Court of Appeals Division One Holds that the Psychologist-Patient Privilege Belongs Personally to the Patient and May Not Be Asserted by Other Parties and that Awards of Treble Damages Under A.R.S. § 23-355(A) Are Left to the Discretion of the Superior Court.

Doug and Mary Jo McLeod were the founders and managers of a framing business called Structural I Company (“Structural I”). During a counseling session, the McLeods told their psychotherapist that they were planning on scaling back their involvement with the company, ultimately intending to retire. Their therapist recommended that they hire a “bridge CEO” to oversee the company to give younger employees time to develop their managerial skills. In July 2003, Strucutural I hired Irene D’Amico as CEO with a contract term of five years that only allowed her to be terminated for cause. The McLeods and D’Amico did not get along and Structural I fired D’Amico in April 2006. D’Amico sued Structural I alleging that it breached her employment agreement and withheld her wages in bad faith. The jury awarded $753,846 in wages and unpaid bonuses to D’Amico, finding that there was only a good faith dispute over $229,792 of the amount due. The jury also found that D’Amico had violated her fiduciary duty to Structural I and awarded Structural I $150,000 in damages.

Both parties appealed. The Court affirmed in part and vacated in part, issuing a published opinion considering two issues raised by the parties and concurrently issuing an unpublished opinion considering other issues.

Structural I argued on appeal that the trial court had improperly admitted privileged testimony from the McLeods’ therapist. The Court rejected their argument because the privilege belonged personally to the McLeods, not to Structural I, and the McLeods were not parties to the case. The Court held that “on appeal, ‘the erroneous denial of the privilege can only be complained of by the client whose privilege has been infringed’” and that “[o]n appeal, a litigant cannot assert a privilege that was ‘not created for his benefit.’” (quoting McCormick on Evidence). The Court explained that Structural I thus lacked standing to argue that the court improperly admitted the allegedly privileged testimony because the privilege did not belong to Structural I.

D’Amico argued that the court abused its discretion in refusing to grant treble damages under A.R.S. § 23-355(A). The Court rejected this argument holding that “treble damages are not mandatory under § 23-355(A), but are left to the discretion of the superior court.” The Court of Appeals declared, however, that the trial court’s reasons for refusing to award treble damages were invalid. The Court explained that the factors which trial courts may examine when determining whether to award treble damages are “the origin and nature of the dispute, efforts one party or the other made to resolve the dispute short of litigation, the nature of the relationship between the employer and employee, and other contemporaneous acts by either party not bearing directly on the alleged breach of contract.” The Court therefore vacated the trial court’s order refusing to grant treble damages and remanded the case so that the trial court could properly exercise its discretion.

Judge Johnsen authored the opinion; Judges Downie and Winthrop concurred.