Redhair v. Kinerk, Beal, Schmidt, Dyer & Sethi, P.C. – 4/30/2008

May 28, 2008

Arizona Court ofAppeals Division Two Holds that the One-Year Statute of Limitations in A.R.S. § 12-541(3) Applies to an Oral Contract for the Payment of an Employee Bonus and the One-Year Statute of Limitations in A.R.S. § 12-541(5) Applies to Employee’s Claim for Unpaid Wages.

Michael Redhair was an associate with the law firm of Kinerk, Beal, Schmidt, Dyer & Sethi, P.C.  Through Redhair’s father, Redhair was able to retain a potentially high-paying medical malpractice case.  The Kinerk firm agreed to pay Redhair a bonus in the event of a successful recovery in the malpractice case.  After Redhair left the firm, the firm received two million dollars in fees from the case.  The firm then refused to pay Redhair the promised bonus.  Redhair sued for breach of oral contract and unpaid wages, among other claims.  The firm, however, objected that Redhair’s claims were barred because they were precluded by the applicable statutes of limitations, both of which permitted only one year to bring the claims.  The trial court agreed and dismissed Redhair’s claims with prejudice.  Redhair appealed. 

The Arizona Appeals Court affirmed.  The Court held that Redhair’s claim for breach of the oral contract was barred by A.R.S. § 12-541(3), which requires that actions “[f]or breach of an oral or written employment contract” be brought within one year.  The court specifically rejected Mr. Redhair’s narrower, but reasonable, reading of the statute, which would have limited its applicability to “agreements affecting a term of employment or altering or limiting the at-will presumption from which an employee could state a claim for termination of employment . . . .”  The court then concluded that Redhair’s claim for unpaid wages (based on the same facts as above) likely was barred by A.R.S. § 12-541(5), which requires that actions for “liabilit[ies] created by statute” be brought within one year.  Redhair’s unpaid wage claim was statutory; it was brought under A.R.S. § 23-355.  Mr. Redhair claimed that the statute did not apply because it excepts penalties or forfeiture, and A.R.S. § 23-355 mandates treble damages for unpaid wage claims.  The court held, however, that the treble damage provision was not a penalty because it was based on the amount of actual damages; it was not a statutory penalty that applied irrespective of actual damages.  The court noted in closing that it had not decided whether A.R.S. § 12-541(3) or (5) applied to Redhair’s unpaid wage claim because both sections permitted only one year to bring the claim, which Redhair failed to do, and therefore it was unnecessary to decide which one actually applied.

Judge Eckerstrom authored the opinion; Judges Espinoza and Vasquez concurred.