       IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: _______________

Filing Date: September 16, 2014

Docket No. 32,178

STEVEN JONES, D.O., BRANT BAIR, M.D. AND
SANFORD DAVID SCHULHOFER, D.P.M. and
THE NORTHERN NEW MEXICO ORTHOPAEDIC
CENTER, P.C.,

       Plaintiffs/Counter-Defendants/Appellees,

v.

WAYNE K. AUGÉ, II, Individually and as Trustee
of the Covalent Global Trust U/T/I dated 12/1/03,

       Defendant/Counter-Plaintiff/Appellant.

APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
Raymond Z. Ortiz, District Judge

Law Office of Jane B. Yohalem
Jane B. Yohalem
Santa Fe, NM

Jeffrey R. Brannen
Santa Fe, NM

for Appellees

Moody & Warner, P.C.
Christopher M. Moody
Albuquerque, NM

Lorenz Law
Alice T. Lorenz
Albuquerque, NM

for Appellant


                                        1
                                           OPINION

BUSTAMANTE, Judge.

{1}     Appellees Steven Jones, D.O., Brant Bair, M.D., Sanford David Schulhofer, D.P.M.,
and the Northern New Mexico Orthopaedic Center, P.C. (NNMOC) brought suit against
Wayne K. Augé, II, M.D. (Appellant) for fraud in the inducement, misrepresentation, breach
of contract, securities fraud, breach of fiduciary duty to shareholders, breach of fiduciary
duty to corporation, and prima facie tort after Jones, Bair, and Schulhofer discovered that,
unbeknownst to them, Appellant had included in his shareholder employment agreement a
deferred compensation clause that was significantly different from—and more generous
than—theirs. In the course of discovery, Appellees also learned that Appellant had caused
NNMOC to overcompensate him by over $370,000. After a bench trial, the district court
found in favor of Appellees and awarded compensatory and punitive damages. Appellant
appeals. We affirm the judgment with the exception of one item of compensatory damages
that we remand for reconsideration.1

PREFATORY MATTERS

{2}      The district court entered 234 findings of fact and forty-five conclusions of law.
Appellant challenges fifty-nine of the findings of fact. In addition to the arguments in his
brief in chief, Appellant makes several new arguments in his reply brief. In reviewing his
arguments, we are guided by several principles of appellate review. First, “[o]n appeal, a
reviewing court liberally construes findings of fact adopted by the fact finder in support of
a judgment[.]” Toynbee v. Mimbres Mem’l Nursing Home, 1992-NMCA-057, ¶ 16, 114
N.M. 23, 833 P.2d 1204. Second, “such findings are sufficient if a fair consideration of all
of them taken together supports the judgment entered below.” Id. Third, “[w]e have long
held that findings are sufficient where they justify the judgment, though they intermingle
matters of fact and conclusions of law.” Watson Land Co. v. Lucero, 1974-NMSC-003, ¶
5, 85 N.M. 776, 517 P.2d 1302. Fourth, appellate courts generally “do not address issues
raised for the first time in a reply brief, [unless] the arguments in [the a]ppellants’ reply brief
. . . are ‘directed only to new arguments or authorities presented in the answer brief.’ ”
Mitchell-Carr v. McLendon, 1999-NMSC-025, ¶ 29, 127 N.M. 282, 980 P.2d 65 (quoting
Rule 12-213(C) NMRA (1999)). Fifth, “[w]e will not review unclear arguments, or guess
at what [an appellant’s] arguments might be.” Headley v. Morgan Mgmt. Corp., 2005-
NMCA-045, ¶ 15, 137 N.M. 339, 110 P.3d 1076.

{3}     Applying these principles, we decline to review Appellant’s arguments that
“[v]irtually all ‘overpayment’ from 2007 through 2009 resulted from . . . adding depreciation
to the expenses attributable to each shareholder” and that Appellees failed to prove damages


        1
        Though not a matter of particular substance in this case, we also reverse the
conclusion that a prima facie tort was committed.

                                                2
related to securities fraud, because they were first raised in the reply brief. We also decline
to address Appellant’s contentions that the district court intermingled findings of fact and
conclusions of law or other arguments, the resolution of which would have no impact on the
judgment.

{4}     Rule 12-213(A)(3) requires appellants to provide “a summary of the facts relevant
to the issues presented for review.” New Mexico case law is clear that this requirement
compels appellants to set out a full summary of the pertinent evidence admitted at trial,
including the facts supporting the district court’s findings and conclusions, and that this
Court may decline review for failure to do so. See, e.g., Chavez v. S.E.D. Labs., 2000-
NMCA-034, ¶ 26, 128 N.M. 768, 999 P.2d 412 (“[W]e review substantial evidence claims
only if the appellant apprises the Court of all evidence bearing upon the issue, both that
which is favorable and that which is contrary to appellant’s position. Failure to do so may
result in our deeming the issue waived.” (citations omitted)), aff’d in part, rev’d in part,
2000-NMSC-034, 129 N.M. 794, 14 P.3d 532; see also Gish v. Hart, 1966-NMSC-028, ¶
10, 75 N.M. 765, 411 P.2d 349. Rule 12-213(A)(3) reflects the standard of review we apply
to challenges to factual findings where “it is the supporting evidence, not that adverse to the
finding, that ordinarily determines the issue.” Gish, 1966-NMSC-028, ¶ 10. Here,
Appellant’s summary of the evidence comes perilously close to being too one-sided for
review. We conclude that Appellant complied with the rule sufficiently to allow review. See
State v. Martinez, 1996-NMCA-109, ¶ 13, 122 N.M. 476, 927 P.2d 31 (stating that non-
compliance with Rule 12-213(A)(3) “does not require this Court to disregard an issue when
an appellant fails to comply with its provisions”). But we again urge all counsel appearing
before us to abide by the spirit and letter of the rule.

BACKGROUND

The Parties

{5}     The NNMOC is a professional corporation of orthopaedic surgeons founded by
Appellant in 1998. Dr. Wise was an NNMOC shareholder from 1998 to 2008. Drs. Jones,
Bair, and Schulhofer joined NNMOC as shareholders in 2007, 2008, and 2009, respectively.
The shareholders each owned the same amount of stock in NNMOC.

Shareholder Agreements

{6}      Jones, Bair, Schulhofer, and Appellant each signed a shareholder employment
agreement, a shareholder agreement, and a subscription agreement that collectively set out
their rights and obligations as shareholders of NNMOC. Because the terms of the
shareholder employment agreements are most at issue, we provide a summary of their
critical terms. Details about the other agreements are provided as needed in our discussion.

{7}    The shareholder employment agreement governs the shareholders’ compensation,
deferred compensation, and termination. Compensation for each shareholder is based on

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each physician’s “direct physician gross revenue,” which is defined as “all revenues
collected by NNMOC on account of medical services provided by Physician to NNMOC
patients net of New Mexico gross receipts taxes.” The compensation clause goes on to state
that:

              Physician shall be entitled to receive as compensation for all services
       rendered by Physician under this Agreement during the term hereof
       (“Physician’s Compensation”) an amount equal to:
              the sum of:
                      (i)    Direct Physician Gross Revenues, plus
                      (ii)   a percentage of revenues collected by NNMOC on
                             account of Ancillary Services equal to the percentage
                             of the total common stock of NNMOC owned by
                             Physician,

               less:

               the amount of NNMOC’s overhead attributable to Physician.

{8}    “Ancillary services” are defined as “x-rays, physical, occupational and other therapy
services, physician assistant services, soft goods, medications, cast supplies, medical
supplies, and other products or services not provided directly by Physician[.]”

{9}     Under the compensation clause, each shareholder is paid a salary based on the
“anticipated amount of Physician’s Compensation.” In addition, “[a]t the end of each
quarter, if Physician’s Compensation exceeds the amount of Physician’s [s]alary during such
quarter, the difference will be paid to Physician as additional salary.” The parties referred
to this payment as a “bonus.” If, on the other hand, the salary is more than Physician’s
Compensation for the quarter, each shareholder “will be liable to repay NNMOC the
difference between [the s]alary and Physician’s Compensation.” The compensation clause
is the same for all shareholders.

{10} In contrast to the compensation clause, Appellant’s deferred compensation clause
differs from that in Appellees’ shareholder employment agreements. The deferred
compensation clause in Appellees’ shareholder employment agreement provides for payment
of sixty percent of direct physician gross revenues for six months after termination in
compliance with the termination clause. Appellant’s deferred compensation clause provides
for eighty percent of direct physician gross revenues for six months and twenty percent of
ancillary services revenue for three years after termination. This difference and, more
importantly, how it came about, forms the basis for Appellees’ fraud claims, as well as a
portion of their breach of fiduciary duty claims.

Procedural Background


                                             4
{11} Appellees sued Appellant for fraud, misrepresentation, breach of contract, securities
fraud, breach of fiduciary duty to shareholders, breach of fiduciary duty to corporation, and
prima facie tort. They also sought declaratory judgment that the deferred compensation
clause in Appellant’s shareholder employment agreement is void to the extent it differs from
that in Appellees’ shareholder employment agreements. Appellant denied all claims and
counterclaimed, alleging breach of contract, minority shareholder oppression, breach of
fiduciary duty, and tortious interference with contract. He also requested “an accounting of
the assets and liabilities of NNMOC.”

{12} Just before trial, the district court granted Appellees’ motions for summary judgment
both with regard to the proper methodology for calculating the value of NNMOC shares
when a shareholder’s employment is terminated and the exclusion of non-shareholder
physician employee revenues from ancillary services revenue. It denied summary judgment
as to when Appellant had ceased being a shareholder and whether Appellant’s deferred
compensation clause violated 42 U.S.C. § 1395nn (2012), which “prohibit[s] physicians
from making referrals to, and prohibit[s] laboratories from billing Medicare for, services
ordered by physicians who have a financial interest in the laboratory.” Atl. Urological
Assocs., P.A. v. Leavitt, 549 F. Supp. 2d 20, 22 (D.D.C. 2008). The parties proceeded to trial
on all other issues.

{13} After a bench trial, the district court entered extensive findings of fact and
conclusions of law. In sum, the district court concluded, among other things, that Appellant
made knowing misrepresentations to Jones, Bair, and Schulhofer; committed securities fraud
by inducing them to become shareholders; fraudulently induced Jones, Bair, and Schulhofer
into signing the shareholder employment agreements; committed a continuing fraud and
breached his fiduciary and other duties to Appellees and NNMOC by knowingly
overcompensating himself and by concealing from Appellees that he had done so; breached
his shareholder employment agreement and shareholder agreement; and committed prima
facie tort. It also found that “all of the claims brought by [Appellant] in this matter [are]
without merit” and denied Appellant’s request for an accounting.

{14} The final judgment ordered Appellant to pay NNMOC $527,821.49 for his negative
balance with the corporation, which includes the amount Appellant was overcompensated
and the amount he failed to pay in overhead costs. Appellant was also ordered to pay
$72,936.32 for the negative value of his NNMOC shares. The district court also awarded
$1 million in punitive damages. Finally, the district court granted Appellees’ request for
declaratory relief that “Paragraph 8 of [Appellant’s] [s]hareholder [e]mployment [a]greement
is null and void to the extent it grants deferred compensation to [Appellant] which is
different than that set forth in [Appellees’] deferred compensation provision[].”

{15} The district court based its conclusions of law and judgment on the findings of fact,
which reflect a pattern of self-dealing and misrepresentation made possible by Appellant’s
control of corporate records and financial matters. If the district court’s findings of fact are
supported by substantial evidence in the record, the judgment must be affirmed.

                                               5
{16} The findings of fact reveal that Appellant founded NNMOC in 1998. In 2005, after
Appellee Jones became a non-shareholder employee, Appellant began talking to him about
becoming a shareholder in NNMOC. Jones decided to become a shareholder based on
Appellant’s representations that NNMOC would be a firm of equals. Appellant, with the
help of NNMOC’s attorney, prepared a form of shareholder employee agreement. Appellant
led Jones to believe that his shareholder employment agreement was the same as Appellant’s
with two exceptions: Appellant did not have a non-compete clause, and he could be
terminated for cause only. Jones accepted the proposed shareholder employment agreement
with the understanding that both the current and deferred compensation provisions were
identical to Appellant’s. Jones signed his agreements on or about July 31, 2007.

{17} Unbeknownst to Jones, Appellant modified his shareholder employment agreement
within a month or two thereafter, putting in place a materially more generous deferred
compensation package for Appellant. Appellant never told Jones about the changes he had
instituted.

{18} Later, in 2008 and 2009, Appellant induced Appellees Bair and Schulhofer to
become shareholders of NNMOC in part by making the same representations he had made
to Jones concerning the compensation package. Appellant never showed his shareholder
employment agreement to Jones, Bair or Schulhofer. In fact, Appellant kept tight control
of the corporate records as a whole, keeping them with him and not making the records
available at the offices of NNMOC.

{19} Jones, Bair, and Schulhofer did not discover that the deferred compensation packages
differed until January 2010. Appellant had approached them a few months before with the
idea of taking a leave of absence, and it was during the negotiations for the terms of the leave
that the difference was disclosed by NNMOC’s attorney. After disclosure of the difference
between the shareholder employment agreements, negotiations for the leave of absence
could not be successfully completed, and Appellant resigned in November 2010.

{20} After his resignation, Appellees started this litigation seeking damages and a
declaration nullifying Appellant’s shareholder employment agreement to the extent it was
different from the other shareholder employment agreements with regard to deferred
compensation. In the course of discovery, Appellees learned that Appellant had substantially
overcompensated himself in 2008 and 2009 and had hidden the overcompensation from his
fellow shareholders, NNMOC’s external accountant, and its internal practice manager.
Appellant was able to hide the overpayments because he maintained control of corporate
finances—in particular the calculation of bonuses under the shareholder employment
agreements—to the exclusion of everyone else. Appellant alone calculated the bonuses.
Appellant controlled and kept in his possession the paper files on which he reported his
calculations and did not share them or his calculations with anyone. The overpayments in
2008 and 2009 amounted to over $370,000, an amount which materially adversely affected
his fellow shareholders and NNMOC.


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{21} Other pertinent findings of fact will be outlined as needed in the following
discussion.

DISCUSSION

{22} Appellant makes five main arguments: three relate to liability issues and two relate
to damages. As to liability, Appellant maintains that Appellees failed to prove fraud and
argues that a breach of fiduciary duty cannot be based on contractual duties. Appellant also
argues that the prima facie tort cannot be based on the same facts as other torts. In relation
to damages, he argues that the amount of compensatory damages should be reduced and that
the award of punitive damages was improper. We begin with the liability arguments.

I.     Liability

A.     Fraud

{23} Appellant makes two arguments to the effect that Appellees failed to prove fraud in
the inducement or securities fraud. We address them in turn.

1.     Voidness/Materiality

{24} Appellant argues that Appellees failed to prove fraud in the inducement or securities
fraud because his deferred compensation clause was void ab initio or because his
representations about the clause were immaterial. Both arguments are based on
misinterpretations of the district court’s findings.

{25} Appellant’s position that the deferred compensation clause was void ab initio rests
on two of the district court’s conclusions. First, Appellant relies on the district court’s use
of the term “void ab initio” to argue that the deferred compensation clause in Appellant’s
agreement “never could have had any legal effect.” Appellant overstates the significance
of the district court’s use of the term. The referenced conclusion states, “The language of
[Appellant’s] [s]hareholder [e]mployment [a]greement regarding his deferred compensation
benefit based on a percentage of ancillary services revenue is void ab initio because it
violates [42 U.S.C. § 1395nn].” (Emphasis omitted.) This language refers specifically to
the provision in Appellant’s agreement entitling him to a percentage of the ancillary services
revenue for three years after termination from NNMOC. It does not address the other
portion of Appellant’s deferred compensation clause that is different from the clauses in
Appellees’ agreements, i.e., the provision giving him eighty percent of direct physician gross
revenues. Thus, the district court concluded only that the ancillary services revenue
provision violated 42 U.S.C. § 1395nn and that only that provision was void. It did not
conclude that the entire clause was void ab initio.

{26} Second, Appellant points to the district court’s conclusion that “[t]he [s]hareholder
[e]mployment [a]greement of [Appellant] is not a valid contract between him and

                                              7
[NNMOC].” He directs us to AMX International, Inc. v. Battelle Energy Alliance, LLC, a
federal district court case, in which AMX sued Battelle, its client, for tortious interference
with contract after Battelle hired several AMX employees in spite of the fact that the
employees’ contracts with AMX included non-compete clauses precluding them from
working for AMX clients. 744 F. Supp. 2d 1087, 1089-90 (D. Idaho 2010). Battelle argued
that it could not have interfered with AMX’s contracts with its employees because the
contracts were unenforceable because the non-compete clause was contrary to public policy.
Id. at 1093. The court stated that although “protection is extended against unjustifiable
interference with contracts even though the contract is voidable or unenforceable in an
adversary proceeding[,] . . . this protection does not extend to contracts void ab initio.” Id.
(alteration, internal quotation marks, and citation omitted). It concluded that “[c]ontracts
that are void ab initio are deemed never to have existed in the eyes of the law and cannot
form the basis for a tortious interference action.” Id. Having set out this rule, the court went
on to examine whether the non-compete clause in AMX’s contract was “void ab initio or
simply voidable.” Id. It concluded that because AMX’s non-compete clause was
unreasonably broad, it violated public policy and was, therefore, void ab initio. Id. at 1095.
It concluded that “the contracts, which were unenforceable as written, cannot support
AMX’s action against Battelle for tortious interference with contract.” Id.

{27} AMX is distinguishable from this case. While contract clauses that violate public
policy are void, i.e., “[o]f no legal effect[,]” Black’s Law Dictionary 1709 (9th ed. 2009),
where, as here, there is fraud in the inducement to enter into the contract, the contract is
merely voidable, i.e., “capable of being affirmed or rejected at the option of one of the
parties.” Id.; see McLean v. Paddock, 1967-NMSC-165, ¶ 10, 78 N.M. 234, 430 P.2d 392
(stating that “[w]here [fraud] is in the inducement, the instrument is voidable,” not void),
overruled on other grounds by Duke City Lumber Co. v. Terrel, 1975-NMSC-041, 88 N.M.
299, 540 P.2d 229. When a contract or clause is voidable, it remains in effect “until the
fraud by which [the defrauded party] had been induced to sign [is] discovered.” Gross, Kelly
& Co. v. Bibo, 1914-NMSC-085, ¶ 35, 19 N.M. 495, 145 P. 480. Thus, here, unlike in AMX
and contrary to Appellant’s position, the deferred compensation clause continued in full
force and effect until Appellees’ request for modification of it was granted by the district
court.

{28} Finally, we interpret the district court’s conclusion that the agreement was “not a
valid contract” to incorporate both the district court’s determination that Appellant’s
deferred compensation clause was voidable and that it was in fact void at the request of
Appellees. See Golden Cone Concepts, Inc. v. Villa Linda Mall, Ltd., 1991-NMSC-097, ¶
8, 113 N.M. 9, 820 P.2d 1323 (“When a party is challenging a legal conclusion, [we
examine] whether the law correctly was applied to the facts, viewing them in a manner most
favorable to the prevailing party, indulging all reasonable inferences in support of the court’s
decision, and disregarding all inferences or evidence to the contrary.”). This interpretation
is supported by the fact that Appellees’ complaint sought modification of the deferred
compensation clause, not avoidance of the entire contract and the judgment orders only
reformation of the clause, not rescission of the entire contract.

                                               8
{29} We turn next to Appellant’s contention that his representations about the deferred
compensation clause were immaterial. He argues that “a representation about . . . [the
deferred compensation clause], which was not intended to be enforced, cannot support a
fraud claim, because fraud requires clear and convincing proof that a material fact was
misrepresented or concealed.” Appellant relies on the district court’s finding that
“[Appellant] told . . . Bair that the [deferred compensation clause] w[as] put in only as a
safety net in the event that a new corporation . . . would be formed by the [Appellees that did
not include Appellant]. He assured . . . Bair that the provision no longer applied.” Appellant
interprets this statement as a finding that he in fact did not intend to enforce the clause and
characterizes it as a finding that the deferred compensation clause was not a material term
of the agreement. But this finding merely reflects the district court’s determination that
Appellant made certain statements and does not indicate that the district court found that
Appellant did not actually intend to enforce the clause. Appellant’s reading would not be
consistent with the tenor of the district court’s findings about how the clause came into
existence and the lengths Appellant went to hide its existence from his fellow shareholders
and the numerous findings that they in fact relied on his misrepresentations. Thus, the
finding has no bearing on the materiality of Appellant’s representations.

{30} Appellant also makes a cursory argument that, because the district court concluded
that execution of the later agreements “constitute[s] a corporate modification of
[Appellant’s] deferred compensation provision[,]” his deferred compensation clause was not
a material, enforceable term at the time Appellees signed their shareholder employment
agreements and, therefore, he could not have committed fraud by misrepresenting it. This
argument rests on the premise that Appellant’s deferred compensation clause would never
have been enforceable. But there is nothing inherent about the shareholder employment
agreements that would make differing clauses necessarily unenforceable. In fact, Appellees
did not raise any arguments related to the other differences in the shareholder employment
agreements. Just as they agreed to those terms, it is possible that the parties might have
agreed to Appellant’s deferred compensation provision, or some variation of it, had he not
lied about it. Instead, it was because of Appellant’s misrepresentation of the terms that
Appellees challenged Appellant’s deferred compensation clause. The fact that the district
court concluded after trial that Appellant’s deferred compensation clause was modified does
not preclude a finding that Appellant’s misrepresentations about his deferred compensation
clause were material to Appellees when made. To treat them otherwise would be absurd:
Appellees would be deprived of a remedy because they proved that the clause should not be
enforced.

{31} In sum, we conclude that the deferred compensation clause, with the exception of the
language contrary to 42 U.S.C. § 1395nn, was in full force and effect until it was reformed
and, therefore, was an adequate basis for Appellees’ fraud in the inducement claim. We also
conclude that neither Appellant’s statements about his intent to enforce his deferred
compensation clause nor the district court’s conclusion that it was modified preclude a
finding that Appellant’s deferred compensation clause was a material term of his shareholder
employment agreement.

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2.     Justifiable Reliance

{32} Appellant next argues that Appellees failed to prove fraud when they failed to prove
an essential element—that they justifiably relied on his representations. Although he styles
this argument as a challenge to the district court’s findings, several of his assertions relate
more to the legal significance of the district court’s findings than to the findings themselves.
For instance, Appellant maintains that “[w]here, as here, the alleged misrepresentations were
with respect to a document all [Appellees] admitted they were told to read, justifiable
reliance was absent as a matter of law.” Appellant’s statement of the law is incorrect.
Although “each party to a contract has a duty to read and familiarize himself with the
contents of the contract, each party generally is presumed to know the terms of the
agreement, and each is ordinarily bound thereby,” Ballard v. Chavez, 1994-NMSC-007, ¶
8, 117 N.M. 1, 868 P.2d 646, where a party acts in good faith and “in accordance with
reasonable standards of fair dealing[,]” id. (internal quotation marks and citation omitted),
failure to do so does not automatically preclude a finding of justifiable reliance. See
Sisneros v. Citadel Broad. Co., 2006-NMCA-102, ¶ 23, 140 N.M. 266, 142 P.3d 34 (holding
that summary judgment as to whether a party justifiably relied on the other party’s
representations when the first party failed to read the entire contract was improper where the
“[p]laintiff . . . produced evidence giving rise to factual inferences that could reasonably
support the determination that his failure to read the agreement was justified by [the other
party’s] conduct”). Furthermore, because “[a] fraudulent misrepresentation is an intentional
tort[,] . . . the plaintiff’s recovery is not barred by his own negligence which has contributed
to his loss.” Restatement (Second) of Torts § 545A cmt. a (1977). Finally, negligent
reliance may be justified “when there is a relation of trust and confidence between the parties
or the defendant has made successful efforts to win the confidence of the plaintiff and then
takes advantage of it to deceive him.” Id. cmt. b.

{33} The determination of whether a party’s reliance on the other party’s representations
was justified “is fact-specific and includes consideration of the conduct of both parties.”
Sisneros, 2006-NMCA-102, ¶ 22. Thus, we examine the record to see whether the evidence
supports the district court’s finding of justifiable reliance. See Varbel v. Sandia Auto Elec.,
1999-NMCA-112, ¶ 18, 128 N.M. 7, 988 P.2d 317 (“A finding of fraud normally requires
proof by clear and convincing evidence.”). In doing so, we “view the evidence in the light
most favorable to the prevailing party, and . . . determine therefrom if the mind of the
fact[]finder could properly have reached an abiding conviction as to the truth of the fact or
facts found.” Duke City Lumber Co., 1975-NMSC-041, ¶ 5.

{34} Jones, Bair, and Schulhofer all testified that Appellant told them that the shareholders
of NNMOC would be equal partners and that the shareholder employment agreements were
the same with the exception of the termination and non-compete clauses. They testified that
these representations were critical to their decisions to become shareholders in NNMOC.
Jones’s conversations with Appellant about the shareholder arrangements and the structure
of the corporation had continued over months or years. Jones considered Appellant a mentor
and friend. Schulhofer and Bair testified that Appellant did not tell them about the deferred

                                              10
compensation clause in his agreement even when they questioned him about the agreements.
Bair testified that Appellant kept the corporate documents, including the shareholders’
agreements, in his possession, not at the NNMOC offices. And the practice manager for
NNMOC testified that no corporate documents were kept at the NNMOC offices. Appellees
first learned of the deferred compensation clause in Appellant’s agreement in early 2010.
This evidence is sufficient to support the district court’s findings that Appellees justifiably
relied on Appellant’s representations about the shareholder agreements.

{35} To the extent Appellant argues that, after becoming shareholders and officers of
NNMOC, Appellees breached their duty to properly oversee NNMOC and that “their claims
resulted in large part from their ongoing failure to meet their fiduciary duties[,]” we are
unpersuaded. Appellant relies on NMSA 1978, § 53-11-35(B) (1987), which states that “[a]
director shall perform his duties . . . in good faith, in a manner the director believes to be in
. . . the best interests of the corporation, and with such care as an ordinarily prudent person
would use under similar circumstances in a like position.” He maintains that “[h]aving
steadfastly ignored their duties of care and oversight, . . . none of [Appellees] could establish
justifiable reliance on [Appellant’s mis]representation or non-disclosure” after they became
officers of NNMOC. But Appellant overlooks the remainder of Section 53-11-35(B)(1),
which provides that “a director shall be entitled to rely on . . . reports or statements,
including financial statements and other financial data, in each case prepared or presented
by . . . officers . . . of the corporation whom the director reasonably believes to be reliable
and competent in the matters presented[.]” Here, Appellant founded NNMOC and was its
president and treasurer for approximately nine years before Appellees became shareholders.
When Bair joined in 2008, Appellant became its treasurer and secretary. Several witnesses
testified that Appellant controlled NNMOC’s financial matters. Given this history, we
conclude that the evidence supports the district court’s findings that Appellees reasonably
relied on Appellant’s representations and that these findings support the district court’s
conclusion that “[Appellees] had no duty to audit or otherwise discover [Appellant’s]
misdeeds.”

{36} Finally, Appellant argues that Appellees’ reliance on his representations was
obviated by clauses stating that the written agreements supersede all other agreements and
representations, including oral representations. For instance, the shareholder employment
agreement states,

        This Agreement constitutes the entire agreement and understanding of the
        parties with respect to the subject matter hereof, and supersedes all prior oral
        or written agreements, arrangements, and understandings with respect
        thereto. No representation, promise, inducement, statement[,] or intention
        has been made by any party hereto that is not embodied herein, and no party
        shall be bound by or liable for any alleged representation, promise,
        inducement, or statement not so set forth herein.

{37}    Appellant’s reliance on these clauses is misplaced because “in New Mexico

                                               11
exculpatory clauses do not preclude liability.” Golden Cone Concepts, Inc., 1991-NMSC-
097, ¶ 6. A party fraudulently induced to enter into a contract “cannot be precluded from
seeking redress by a provision inserted in the contract by the party perpetrating the fraud,
designed to shut the mouth of the adverse party as to such fraudulent representations which
led up to the making of the contract.” Id. (internal quotation marks and citation omitted)
(holding that the district court correctly permitted the plaintiff to proceed on its fraud and
misrepresentation claims when the contract included an exculpatory clause similar to that
here). We conclude that the clauses referenced by Appellant do not present a barrier to
Appellees’ suit or Appellant’s liability.

B.      Breach of Fiduciary Duty

{38} Appellant argues that “the judgment based upon breach of fiduciary duty must be
reversed” because the district court’s findings of a breach of fiduciary duties were based on
Appellant’s failure to pay his share of overhead costs and the negative value of his NNMOC
shares, which, he maintains, are duties imposed by the shareholder employment agreement
and the shareholder agreement, respectively. He argues that “breach of fiduciary duty claims
cannot be based on contractual duties.”

{39} Appellant’s argument is both factually and legally flawed. First, the district court’s
findings related to Appellant’s breach of fiduciary duties to Appellees and NNMOC are not
based on Appellant’s failure to pay overhead or the negative share value. Rather, the district
court found that the fiduciary duty was breached when Appellant (1) failed to inform
Appellees of “bonuses paid by him to him without appropriate basis”; (2) failed to inform
Appellees of “material facts and information relating to [NNMOC’s] business and financial
affairs”; (3) “knowingly” submitted incorrect information about his bonuses to Appellees
at shareholder meetings; (4) “knowingly and intentionally” paid himself bonuses “to the
substantial economic detriment of [Appellees] . . . as well as to [NNMOC] itself.” Thus,
Appellant’s position that the breach of fiduciary duty findings are based only on
contractually-imposed duties is not supported by the record.

{40} Second, this Court has held that a breach of duties imposed by contract may also
constitute a breach of the fiduciary duties of “loyalty, good faith, inherent fairness, and the
obligation not to profit at the expense of the corporation.” See Walta v. Gallegos Law Firm,
P.C., 2002-NMCA-015, ¶¶ 41, 46-47, 131 N.M. 544, 40 P.3d 449 (adopting the holding of
Fought v. Morris, 543 So. 2d 167, 171 (Miss. 1989), and stating that “breach of [a]
shareholder agreement could also be a breach of [a] fiduciary duty”). Although Appellant
is correct in pointing out that not all breaches of a contract are necessarily breaches of a
fiduciary duty, determination of “whether a breach of fiduciary duty has occurred will
normally be a question of fact.” Walta, 2002-NMCA-015, ¶ 47. Since the district court
resolved this question in favor of Appellees and Appellant challenges the district court’s
findings, we examine the record for evidence supporting that determination. See Bagwell
v. Shady Grove Truck Stop, 1986-NMCA-013, ¶ 23, 104 N.M. 14, 715 P.2d 462 (stating that
in reviewing a district court’s factual determination for substantial evidence, “[t]he appellate

                                              12
court . . . disregards all evidence and all inferences unfavorable to the [district] court’s
result”).

{41} We begin by defining “fiduciary duty.” “The duty between shareholders of a close
corporation is similar to that owed by directors, officers, and shareholders to the corporation
itself; that is, loyalty, good faith, inherent fairness, and the obligation not to profit at the
expense of the corporation.” Walta, 2002-NMCA-015, ¶ 41. In other words, a fiduciary
duty is “[a] duty of utmost good faith, trust, confidence, and candor owed by a fiduciary
(such as a . . . corporate officer) to the beneficiary (such as a . . . shareholder)” and involves
“a duty to act with the highest degree of honesty and loyalty toward another person and in
the best interests of the other person (such as the duty that one partner owes to another).”
Black’s Law Dictionary 581 (9th ed. 2009). “An act that is detrimental to the interests of
someone to whom a fiduciary duty is owed[,] esp[ecially] an act that furthers the actor’s own
interests” is a breach of loyalty. Id. at 214. The common thread between these statements
is the idea that a fiduciary may not promote his interests above the interests of those to whom
a duty is owed.

{42} Based on this principle, we examine the record for evidence that Appellant advanced
his interests at the expense of Appellees or NNMOC. Under the substantial evidence
standard, we “indulge[] all reasonable inferences in support of the prevailing party.” Las
Cruces Prof’l Fire Fighters v. City of Las Cruces, 1997-NMCA-044, ¶ 12, 123 N.M. 329,
940 P.2d 177. We conclude that the evidence supports the district court’s findings of breach.

{43} Two witnesses testified about the amount overpaid to Appellant. NNMOC’s
accountant conducted an audit of the compensation of shareholders. She discovered that the
amount paid to Appellant was “off” by “hundreds of thousands” of dollars. Edward Street,
an expert in “accounting, business valuation, review and analysis of financial documents,
and forensic accounting,” testified that he compared the amount of compensation due to
Appellant with the amount of compensation actually paid to determine if Appellant had been
overpaid. Based on this analysis, he concluded that Appellant had been overpaid by
$173,187.54 in 2007-2008, $199,233.83 in 2009, and $185,424.89 in 2010, for a total of
$557,846.47, which was adjusted to $527,821.49. He also described the consequences of
overpayment, stating, “if one of the doctors has been overpaid by several hundred thousand
dollars, other doctors have to be underpaid by several hundred thousand dollars or the
corporation has to be negative, has to spend more money than, in total, it has earned. . . . So
if somebody is drawing more money than what is due them, it has to come from someplace
else.”

{44} In addition, the evidence supports the district court’s finding that Appellant was the
only person calculating “bonus” payments to shareholders on the shareholder allocation
sheets that the shareholders used to track their compensation. Several witnesses testified that
Appellant was either in charge of or closely involved with the generation of the shareholder
allocation sheets. NNMOC’s external accountant testified that she prepared the shareholder
allocation sheets and gave them to Appellant. She stated that she would enter “the

                                               13
breakdown of the income and the allocation of the expenses” but not the bonuses on the draft
allocation sheet and send the sheet to Appellant. She and NNMOC’s internal practice
manager both testified that Appellant was their main point of contact for financial matters
through early 2010. The internal practice manager never saw the allocation sheets prior to
the litigation. Bair and Schulhofer testified that Appellant brought a single copy of the
shareholder allocation sheets to meetings with the shareholders approximately monthly and
that Appellant would take the copy with him after the meetings. He stated that “none of [the
Appellees] had any active role in the finances until . . . 2010” when Appellant stopped
working at NNMOC. Schulhofer described Appellant as “controll[ing]” the shareholder
allocation sheets. We conclude that this evidence supports the district court’s findings of
breach of fiduciary duty based on Appellant’s overcompensation.

{45} As to the findings of a breach of fiduciary duty based on Appellant’s failure to inform
Appellees of material facts related to NNMOC’s finances, such as his deferred compensation
clause, we conclude that the evidence also supports these findings. Appellees testified about
Appellant’s failure to inform them of the deferred compensation clause in his shareholder
employment agreement, as discussed above. Appellant’s deferred compensation clause
would provide him with eighty percent of direct physician gross revenues and twenty percent
of ancillary services revenue for three years, in contrast to Appellees’ deferred compensation
clause, which provides them with only sixty percent of direct physician gross revenue for
six months and no income based on ancillary services revenue. Jones’s testimony supports
an inference that the effect of Appellant’s deferred compensation clause would be to reduce
the amount of ancillary services revenue for NNMOC and the other shareholders, contrary
to what they understood when they signed the agreement. Schulhofer testified that having
to pay Appellant according to his deferred compensation clause would be devastating to
NNMOC, and possibly to him personally as well, stating that if the clause were valid “it[
would not be] in [his] interest to continue working. . . . So I would resign, which would
mean, I assume, a bankruptcy for the business, and depending on the outcome of that,
possibly a personal bankruptcy for myself to cover whatever liabilities we didn’t meet.”
This evidence supports the district court’s findings to the effect that Appellant promoted his
own interests to the detriment of Appellees and NNMOC. We discern no error in the district
court’s conclusions related to breach of fiduciary duty.

C.      Prima Facie Tort

{46} Appellant argues that the district court erred in concluding that “[Appellant]
committed a prima facie tort against [Appellees] and [NNMOC].” Appellees concede that
the facts on which the prima facie tort was based “duplicate[ Appellees’] fraud and breach
of fiduciary duty claims” and appear to agree that the district court’s conclusion is, therefore,
improper. We agree. See Guest v. Allstate Ins. Co., 2009-NMCA-037, ¶ 33, 145 N.M. 797,
205 P.3d 844 (“New Mexico appellate courts have held that where a plaintiff does not assert
any separate factual basis to support its prima facie tort claim, and the plaintiff's proof is
susceptible to submission under another tort, the action should be submitted to the jury on
the other cause of action and not as a prima facie tort claim”), aff’d in part, rev’d in part,

                                               14
2010-NMSC-047, 149 N.M. 74, 244 P.3d 342. In Appellees’ complaint, the only facts
alleged in support of the prima facie tort claim were those “as set forth” in the fraud,
securities fraud, breach of fiduciary duty, and breach of contract claims. No separate factual
basis for the prima facie tort was established at trial. Thus, the district court’s conclusion
as to prima facie tort must be reversed. See Bogle v. Summit Inv. Co., LLC, 2005-NMCA-
024, ¶ 24, 137 N.M. 80, 107 P.3d 520 (holding that prima facie tort was not available when
“existing causes of action provided reasonable avenues to a remedy for the asserted wrongful
conduct”).

II.    Damages

{47} We turn now to Appellant’s arguments as to the damages awarded. Appellant argues
that the amount of compensatory damages should be reduced and that punitive damages were
improperly awarded.

A.     Compensatory Damages

{48} “Generally, we review findings regarding damages to determine whether they are
supported by substantial evidence.” Miller v. Bank of Am., N.A., 2014-NMCA-053, ¶ 28,
326 P.3d 20, cert. granted, 2014-NMCERT-005, 326 P.3d 1112. “Substantial evidence is
that which a reasonable mind accepts as adequate to support a conclusion.” Id. (internal
quotation marks and citation omitted). We address each of Appellant’s five arguments for
reduction of the compensatory damages in the order presented.

1.     Overhead Expenses

{49} As discussed above, each shareholder’s compensation consists of the sum of their
direct physician gross revenues and ancillary services revenue less a portion of NNMOC’s
overhead costs. Hence, each shareholder is responsible for his or her share of overhead
expenses. Appellant argues that the compensatory damages award must be reduced by
$154,655.55 because he ceased being a shareholder in January 2010, and thus he was no
longer responsible for a portion of NNMOC’s overhead expenses. Although Appellant does
not dispute that he submitted a letter of resignation in November 2010, he maintains that
Appellees had agreed during negotiations over his leave of absence to make his termination
date retroactive to January 2010 if he did not return to work after six months. Since he did
not return to work, he contends that the January termination date should apply.

{50} The district court found that Appellant’s status as a shareholder was terminated on
December 30, 2010, thirty days after Appellant submitted a letter of resignation, and that his
shareholder status was terminated as of that date pursuant to paragraph 7.1(d) of the
shareholder employment agreement. It also found that Appellant “never sought termination”
during the leave of absence negotiations and that “[h]e did not terminate those negotiations,
or terminate his employment as he sought advantage in the negotiation.” Hence, the district
court implicitly rejected Appellant’s argument that the parties had agreed to a termination

                                             15
date of January 2010. Based on the finding of a termination date of December 2010, the
district court found that Appellant “continued to be responsible for his share of overhead”
until that date. Finally, the district court found that Appellant continued to receive a share
of ancillary services revenue and other revenue from NNMOC during the leave of absence
negotiations. Because Appellant challenges each of these findings, we review the record to
determine whether they are supported by substantial evidence. See Bagwell, 1986-NMCA-
013, ¶ 23.

{51} The heart of Appellant’s challenge to these findings is his contention that Appellees
agreed to make his termination date retroactive to January 2010 during the leave of absence
negotiations. We therefore address that issue first. Bair testified that early in the
negotiations Appellees proposed a termination date that would be retroactive to the date the
leave of absence began, rather than the date it ended. Bair also testified, however, that in the
course of negotiations Appellees reversed this position and proposed that the termination
date would not be retroactive. Finally, he testified that no agreement on the terms of
Appellant’s leave of absence was ever reached. This testimony is supported by several
exhibits admitted at trial, including (1) an email sent to Bair by Appellant in March 2010 in
which Appellant acknowledges that agreement on the terms of the leave of absence had not
been reached and stating, “It may be best for me to resign”; (2) a letter sent on June 7, 2010,
in which Bair informed Appellant that NNMOC still considered him an employee of the
corporation and that he was still responsible for his share of overhead costs; and (3) an email
exchange in which Appellant acknowledges that the terms related to his termination date had
not been resolved as late as June 29, 2010. This evidence is sufficient to support the district
court’s finding that the parties did not agree to a termination date in January 2010.
Furthermore, since Appellant’s only argument as to why the shareholder employment
agreement’s termination provision does not apply to him is that he had been terminated in
January 2010, we conclude that substantial evidence also supports the district court’s
determination that that provision governed Appellant’s termination.

{52} Turning to the district court’s determination that Appellant continued to receive
income through December 2010 and was responsible for a portion of overhead expenses
incurred during that time, we conclude that these findings are supported by the record.
Edward Street, Appellees’ forensic accounting expert, testified that a portion of non-
shareholder employee physician revenue and ancillary services revenue had been allocated
to Appellant in 2010 and that Appellant had received a salary of over $30,000 in 2010.
Street agreed with Appellees’ counsel that these payments were pursuant to the shareholder
employment agreement. He also agreed with counsel that “so long as [Appellant is]
employed, he has to pay his share of the overhead.” Appellant’s shareholder employment
agreement also requires that calculation of a shareholder’s compensation must incorporate
each shareholder’s portion of overhead expenses. Thus, the terms of the shareholder
employment agreement obliges shareholders to cover their portion of NNMOC’s overhead
expenses. We conclude that there is substantial evidence in the record to support these
findings.


                                              16
{53} To the extent that Appellant maintains that the district court’s finding that he was
terminated in December 2010 is inconsistent with its finding that his share value should be
determined as of January 2010, we disagree. The employment termination date is governed
by paragraph 7 of the shareholder employment agreement, whereas the date of valuation of
the shares is governed by paragraph 6 of the shareholder agreement. The shareholder
agreement provides that “upon the occurrence of a [t]riggering [e]vent, the [c]orporation
shall redeem the shares of stock owned by the [s]hareholder . . . upon the terms and for the
purchase price set forth in [paragraph] 11.” Paragraph 6(D) provides that “in the case of the
termination of the [s]hareholder’s employment,” the “triggering event” shall be “the earlier
to occur of (i) the date set forth in the [s]hareholder’s resignation . . ., or (ii) the last day on
which the [s]hareholder actually performs services for the [c]orporation.” The district court
found that the “triggering event” here was the date that Appellant stopped providing
services, which is the earlier of the two options stated in paragraph 6(D). Thus, it treated the
termination of employment as a condition antecedent to the triggering event, which is
consistent with the plain language of paragraph 6(D). We discern no inconsistency in the
district court’s findings as to the employment termination date and the date for valuation of
Appellant’s shares.

2.      Inconsistent Accounting Treatment

{54} Appellant next argues that the district court’s findings based on Street’s calculations
of the damages are erroneous because Street handled a certain transaction differently than
the NNMOC board of directors did. Street testified that when Schulhofer became a
shareholder, he paid $137,500 for his shares. One-third of this amount was allocated to each
of the other shareholders (Appellant, Bair, and Jones) on the shareholder allocation sheets.
When Street examined the NNMOC financial records and calculated the amounts paid to
shareholders, he noted that stock purchase payments should be treated as capital
contributions to the corporation, rather than income to shareholders. Accordingly, he
reallocated $43,833.33 each from Appellant, Bair, and Jones to NNMOC. According to
Street, this adjustment had the effect of reducing the amount NNMOC owed to Bair and
Jones, whereas it increased the amount Appellant owed to NNMOC because he was already
running a deficit. Street’s testimony supports the district court’s finding that reallocation of
the stock purchase payment of $137,500 “is required by sound accounting practices and
[principles.]”

{55} Appellant also argues that, because all of the shareholders had agreed to treat the
stock purchase payment as income years before Street examined NNMOC’s financial
records, that treatment cannot “form the basis for a finding of breach of fiduciary duty” or
breach of contract. After a careful review of the district court’s findings, we conclude there
is no finding or conclusion by the district court indicating that it based its conclusions as to
breach of contract or fiduciary duty specifically on the way these funds were treated. Thus,
we need not address this contention further.

3.      Responsibility for Dr. Wise’s Negative Balance

                                                17
{56} Appellant’s third argument against Street’s calculations is that the district court erred
in finding that “[Appellant] was responsible for, directed and/or intended the entries
reflecting his absorption of . . . Wise’s [who ceased being a shareholder at the end of 2008]
negative running balance and [Appellant] should be estopped from repudiating that action.”
Although the finding does not state the type of estoppel invoked, the language of the district
court’s finding evinces a reliance on the doctrine of acquiescence, “a species of estoppel.”
Scott v. Jordan, 1983-NMCA-022, ¶ 20, 99 N.M. 567, 661 P.2d 59. “[A]cquiescence arises
where a person who knows that he is entitled to . . . enforce a right neglects to do so for such
a length of time that, under the circumstances of the case, the other party may fairly infer that
he has waived or abandoned his right.” Id. (internal quotation marks and citation omitted).
“Whether the defense of acquiescence has been established is a factual issue which must be
decided under the facts existing in each case.” Id. ¶ 21.

{57} Here, according to the shareholder agreement, Wise’s negative balance could have
been borne by Appellant and Jones, who were the two shareholders at the time Wise left
NNMOC. Thus, Appellant was not obligated to allocate the balance to himself. However,
Appellees testified that the monthly shareholder allocation sheets, including the one
reflecting Wise’s negative balance, were completed and/or brought to shareholder meetings
by Appellant, and NNMOC’s accountant testified that although she provided drafts of the
allocation sheets to Appellant, Appellant completed them. The allocation sheet in question
was completed in early 2008, nearly two years before Appellant stopped working at
NNMOC in January 2010, and nearly four years before trial. This evidence supports the
district court’s finding that Appellant was responsible for the allocation of Wise’s negative
balance to himself and that he failed to correct any error for nearly four years.

4.      Improper Allocation of Jones’s Revenue

{58} Finally, Appellant argues that the compensatory damages award must be adjusted
because revenue generated by Jones before he was a shareholder was improperly allocated
to Jones by Street. He maintains that accounts receivable based on Jones’s work as a non-
shareholder employee physician should have been allocated to Appellant and Wise, rather
than credited to Jones as either direct physician gross revenue or non-shareholder employee
physician revenue. Appellant testified at trial that the effect of this adjustment would be a
reduction of $75,303 in the amount Appellant owes in compensatory damages. Appellees
argue that the amount allocated to Jones on the shareholder allocation sheets by Street had
already been adjusted to exclude revenues generated by Jones before he was shareholder
and, therefore, no further adjustment is necessary.

{59} Under our standard of review of damages awards, we review the record and affirm
the district court’s findings as to the treatment of revenue attributed to Jones if there is
substantial evidence to support them. See Miller, 2014-NMCA-053, ¶ 28 (stating that
damages awards are reviewed for substantial evidence). The district court made only one
finding of fact related to the allocation of revenues to Jones. That finding states,


                                               18
               When . . . Jones executed his [s]hareholder [e]mployment
       [a]greement, that [a]greement superseded his prior [e]mployment
       [a]greement under the terms of his [s]hareholder [e]mployment [a]greement
       and he is entitled to his proportionate share of all [a]ncillary [s]ervices and
       [n]on-[s]hareholder [p]hysician revenues, there being no limitation language
       in his [a]greement.

{60} This finding states only that Jones is entitled to a proportionate share of revenue from
ancillary services and non-shareholder employee physician services. It does not address
whether Jones was or was not credited with direct physician gross revenue generated before
he was a shareholder. This finding is supported by the text of the shareholder employment
agreement, in which we too find no language preventing the allocation of those revenues to
Jones. See Maestas v. Martinez, 1988-NMCA-020, ¶ 15, 107 N.M. 91, 752 P.2d 1107
(“Where an issue to be determined rests upon the interpretation of documentary evidence,
an appellate court is in as good a position as the trial court to determine the facts and draw
its own conclusions.”).

{61} To the extent we might infer from the district court’s acceptance of Street’s testimony
as to the total amount Appellant owes NNMOC that it found that the revenue allocated to
Jones had already been adjusted to exclude revenue earned before he was a shareholder, we
conclude that the evidence does not support such a finding, even viewed in the light most
favorable to the judgment. See Weidler v. Big J Enters., Inc., 1998-NMCA-021, ¶ 30, 124
N.M. 591, 953 P.2d 1089 (“In reviewing a sufficiency of the evidence claim, this Court
views the evidence in a light most favorable to the prevailing party and disregard[s] any
inferences and evidence to the contrary.” (alteration in original) (internal quotation marks
and citation omitted)). Street testified that NNMOC “may have made an adjustment” to
exclude Jones’s non-shareholder employee revenue from Jones’s compensation. He based
his statement that such an adjustment may have been made on his review, apparently on the
witness stand, of shareholder allocation sheets for the first six months that Jones was a
shareholder. In this review, he noted that the revenue allocated to Jones in the first two
months after becoming a shareholder was significantly less than that in the following four
months, and stated that “there is indication that the revenue reflected . . . may have been
adjusted based on the amounts [for the first two months] compared to the subsequent [four
months].” But Street also acknowledged that he “didn’t ask or didn’t test that” question as
part of his analysis and that he “[didn’t] know if [NNMOC made] an adjustment.” This
testimony is too speculative to amount to substantial evidence.

{62} Nevertheless, we conclude that remand for recalculation is appropriate. Based on the
district court’s finding that Jones is entitled to a portion of non-shareholder physician
revenue, including that generated by him, we next examine the record for evidence
indicating that amount and whether he was properly credited with it. The district court did
not make an explicit finding as to the amount that should have been allocated to Jones and,
as discussed above, we cannot infer that the amounts shown on the allocation sheets were
adjusted properly. Confusingly, on the allocation sheets admitted at trial, on which both

                                             19
Appellant and Street relied, the revenues allocated to Jones are labeled as “direct physician
revenue,” and there is no line item indicating how much revenue was attributed to Jones
from his services rendered as a non-shareholder, although other non-shareholder physician
revenues are identified by physician name. Given that there is no specific finding as to the
correct amount of non-shareholder physician revenue that should have been allocated to
Jones and that “[a]s an appellate court, we will not originally determine the questions of
fact[,]” we remand for calculation of the amounts attributable to Jones’s direct physician
revenue and his portion of the non-shareholder physician revenue, including that generated
by him prior to becoming a shareholder. Guidry v. Petty Concrete Co., 1967-NMSC-048,
¶ 13, 77 N.M. 531, 424 P.2d 806.

5.     Shareholder Approval of Bonuses

{63} Appellant next challenges the district court’s finding that there was no “corroborating
evidence or testimony to support [Appellant’s] contention that [NNMOC] owed him any
amount for loans, or that the other [s]hareholders agreed to give him any bonus or other
payment inconsistent with the . . . [s]hareholder [e]mployment [a]greement.” Jones testified
that “[u]nder no circumstances other than those in the [shareholder e]mployment [a]greement
have [the NNMOC shareholders] ever okayed any bonus for any partner.” Bair testified to
the effect that bonuses were not given to shareholders just for doing a good job because
“[t]hat’s not how the corporation was set up.” He also stated that he never discussed with
Appellant any monies Appellant claimed were owed to him by NNMOC. Street testified that
he did not find any “loans for capital contributions made in 2008 reflected on the financial
statements for the year ended December 31, 2008, from [Appellant].” We conclude that the
district court’s finding is supported by substantial evidence.

B.     Punitive Damages

{64} Appellant argues that “because not even nominal damages were awarded on the fraud
claims the punitive damages award is erroneous.” See UJI 13-1827 NMRA (permitting a
jury to award punitive damages “only if” it finds the plaintiff “should recover compensatory
[or nominal] damages.” (alteration in original)). We are unpersuaded for two reasons: (1)
punitive damages are appropriate when an actor willfully breaches fiduciary duties and
Appellant’s acts in overpaying himself fit that category, and (2) Appellant’s argument is
based on the faulty premise that money damages are the only available remedies for fraud.

{65} First, New Mexico does not require a finding of fraud in the classical sense to support
a punitive damage award. See Akins v. United Steel Workers of Am., 2010-NMSC-031, ¶ 28
n.3, 148 N.M. 442, 237 P.3d 744 (allowing punitive damages for breach of duty of fair
representation); Skeen v. Boyles, 2009-NMCA-080, ¶¶ 36-38, 146 N.M. 627, 213 P.3d 531
(allowing punitive damages for egregious breach of well-sharing agreement). And it is
settled in New Mexico that punitive damages are available for breaches of fiduciary duties
owed by and between shareholders in close corporations. Walta, 2002-NMCA-015, ¶¶ 55-
58. The most salient question to be considered in any case in which punitive damages are

                                             20
requested is whether the actor acted with a culpable mental state. Id. ¶¶ 57-58.

{66} Here, the district court made a number of relevant factual findings concerning
overpayments of bonuses to Appellant that Appellant does not challenge. The district court
found that Appellant maintained control of the financial aspects of NNMOC at least until the
beginning of 2010. Thus, Appellant alone determined the bonuses to be paid to shareholders
of NNMOC. His decisions were not subject to review by NNMOC’s external accountant
because of limitations he placed on her. Appellant provided a single shareholder allocation
sheet at meetings with the other shareholders, and the single sheet was always retrieved by
Appellant after the meeting. The shareholder allocation sheets were not kept as part of the
financial records of NNMOC. Although the sheets were prepared in part by the NNMOC
accountant, Appellant adjusted the entries to and sometimes changed the format of the sheets
without input from her. These sheets were often inaccurate and misleading.

{67} In 2008 and 2009 Appellant gave himself bonuses that were in excess of and not
related to the amounts he had billed and collected from services provided. The excess
bonuses totaled approximately $370,000 by the end of 2009. The bonuses were not
approved by the other shareholders. In fact, the excess bonuses were not discovered until
Appellees’ forensic accounting expert found them during the litigation.

{68} It is reasonable to infer from those findings of fact that Appellant knowingly overpaid
himself; that he used his control of corporate finances to do so; that he intentionally and
successfully hid the overpayments from his fellow shareholders and NNMOC’s accountant;
and that he was aware the overpayments were detrimental to the economic health of
NNMOC and his fellow shareholders. The district court came to the same conclusion as
evidenced by its findings and conclusions of law. The picture painted by the Appellant’s
self-dealing with regard to his excess bonuses supports the district court’s conclusions that:

       13.     The actions of [Appellant] in regard to each of Jones, Bair[,] and
               Schulhofer after becoming shareholders in [NNMOC] constitute
               continuing fraud by [Appellant] on each of them and [NNMOC].

       14.     The actions of [Appellant] subsequent to Jones, Bair[,] and
               Schulhofer becoming shareholders in [NNMOC] constitute a breach
               of fiduciary duty by [Appellant] to each of them and [NNMOC].

       ....

       17.     [Appellant’s] misrepresentations to . . . Jones, Bair[,] and Schulhofer
               constitute knowing misrepresentations to them and [NNMOC].

       ....

       19.     [Appellant] committed fraud and continuing fraud against . . . Jones,

                                             21
               Bair[,] and Schulhofer and [NNMOC].

       20.     [Appellant] breached his [f]iduciary duty to act with loyalty, utmost
               good faith, and inherent fairness towards his fellow shareholders and
               [NNMOC].

       ....

       24.     [NNMOC] is a close corporation and the [s]hareholders owe each
               other a fiduciary duty higher than the duty of good faith and fair
               dealing imposed on all contractual relationships, which fiduciary duty
               was breached by [Appellant].

       25.     The fiduciary duty between [s]hareholders of a close corporation to
               each other and to [NNMOC] is one of loyalty, good faith, . . .
               inherent fairness[,] and the obligation not to profit at the expense of
               [NNMOC], which fiduciary duty was breached by [Appellant].

These conclusions of law and their supporting factual findings obviously carry with them
the culpable mental state required to support an award of punitive damages.

{69} In addition, money damages are not the only remedy for fraud. Here, Appellees
requested declaratory judgment as to the deferred compensation clause. Specifically,
Appellees sought a statement that the deferred compensation clause in Appellant’s
shareholder employment agreement has no effect to the extent that it differs from the
deferred compensation clause in Appellees’ agreements. Thus, Appellees’ request was not
so much for a declaration of their “rights, status[,] and other legal relations” but rather for
modification of Appellant’s deferred compensation clause to match theirs. See NMSA 1978,
§ 44-6-2 (1975). We conclude that the remedy sought was an equitable one. A declaratory
judgment action may sound in either law or equity.

               An action for a declaratory judgment is sui generis, and whether an
       action is to be treated as one at law or one in equity is to be determined by
       the nature of the dispute. . . . [D]eclaratory judgment actions, being statutory
       creatures, are neither inherently legal nor inherently equitable but may
       depend upon equitable considerations. The legal or equitable nature of a
       declaratory judgment proceeding is to be determined by the pleadings, the
       relief sought, and the nature of each case.

22A Am. Jur. 2d Declaratory Judgments § 2 (2004) (footnotes omitted). Because Appellees
sought not to avoid the obligations of Appellant’s agreement altogether but to make his
agreement congruent with theirs, their request falls squarely within the definition of contract
reformation, which is “[a]n equitable remedy by which a court will modify a written
agreement to reflect the actual intent of the parties, usu[ally] to correct fraud or mutual

                                              22
mistake in the writing[.]” Black’s Law Dictionary 1394 (9th ed. 2009). Reformation is a
remedy for fraud. See Chromo Mountain Ranch P’ship v. Gonzales, 1984-NMSC-058, ¶¶
6, 9, 101 N.M. 298, 681 P.2d 724 (stating that “reformation is the proper remedy for
constructive fraud regarding a land sale contract” and citing the Restatement (Second) of
Contracts § 166 (1979)); Buck v. Mountain States Inv. Corp., 1966-NMSC-090, ¶ 7, 76 N.M.
261, 414 P.2d 491 (“[A] court of equity may grant reformation of a contract
where . . . through mistake on the part of one party and fraud . . . on the part of the other
party, the written instrument drafted to evidence a contract fails to express the real
agreement and intentions of the parties.”); Pacheco v. Martinez, 1981-NMCA-116, ¶ 32, 97
N.M. 37, 636 P.2d 308 (stating that reformation is an equitable remedy); Restatement
(Second) of Contracts § 166 (1981) (“If a party’s manifestation of assent is induced by the
other party’s fraudulent misrepresentation as to the contents or effect of a writing evidencing
. . . an agreement, the court . . . may reform the writing to express the terms of the agreement
as asserted . . . if the recipient was justified in relying on the misrepresentation[.]”). The
district court granted Appellees’ request in the final judgment.

{70} Having concluded that Appellees were granted equitable relief, we next address
whether such relief may form the basis for an award of punitive damages and conclude that
it can. In Madrid v. Marquez, Mr. and Mrs. Madrid, an elderly couple, agreed to transfer
their home to their neighbor, Marquez, in exchange for his promise to care for them and to
let them live in the home rent free for the rest of their lives. 2001-NMCA-087, ¶ 2, 131
N.M. 132, 33 P.3d 683. After Marquez obtained the deed to the Madrids’ home, he “began
harassing, threatening, and intimidating the elderly and ill couple and ultimately attempted
to force the Madrids from their home.” Id. After a bench trial, the district court ordered the
deed rescinded or reformed such that the Madrids would retain a life estate in the home with
a remainder interest in Marquez. Id. ¶ 1. It also awarded $20,000 in punitive damages. Id.

{71} On appeal, Marquez made the same argument that Appellant makes here, that
“punitive damages cannot be recovered without recovery of compensatory or nominal
damages.” Id. ¶ 3. While this Court agreed that “Marquez correctly state[d] the general law
of New Mexico regarding punitive damages,” it nevertheless held that “justice is better
served by allowing the award of punitive damages in those equity cases where the conduct
of the wrongdoer warrants [such] damages in order to deter clearly unacceptable behavior.”
Id. Under this so-called “modern approach . . . [r]equiring an award of compensatory
damages as a prerequisite to an award for punitive damages is a technical rule that should
not be applied blindly[.]” Id. ¶ 8. Noting that the purpose of the rule requiring
compensatory or nominal damages “is that it first insures that some legally protected interest
has been invaded [and] prevents the assessment of punitive damages against one who may
have caused damage without legal injury[,]” this Court held that “[t]here is no reason why
an award of equitable relief may not fulfill this same function[.]” Id. (internal quotation
marks and citation omitted). Thus, where “[a] plaintiff [has] establish[ed] a cause of action
in equity and the wrongdoer’s misconduct [is] willful, wanton, malicious, reckless, . . . or
fraudulent and in bad faith” punitive damages are allowable to “do[] complete justice.” Id.
(internal quotation marks and citation omitted).

                                              23
{72} Here, in awarding the equitable remedy of modification of Appellant’s deferred
compensation clause, the district court acknowledged the legal injury to Appellees due to
Appellant’s fraudulent misrepresentation. The next inquiry is whether the evidence supports
the district court’s findings that Appellant had a culpable state of mind related to the fraud,
which Appellant challenges. In addition to the evidence discussed above related to
Appellees’ reliance on Appellant’s representations, the evidence supports an inference that
Appellant not only knew about, but actively engineered a better deferred compensation
clause for himself than for the other shareholders. For instance, there were several email
exchanges in September 2007 between Appellant and the NNMOC attorney, who was also
Appellant’s personal attorney, in which the attorney highlighted the differences between
Appellant’s shareholder employment agreement and Jones’s agreement. The fact that
Appellant told Bair that he did not intend to enforce the deferred compensation clause, but
included it in his agreement in case Appellees formed a different company without him
indicates that he was aware of the differences in the agreements at the time they were
drafted. The evidence also supports an inference that Appellant acted to hide the differences
in the deferred compensation clauses from Appellees. For example, although Schulhofer and
Bair asked Appellant about the terms of the agreements, Appellant did not tell them about
the deferred compensation clause in his agreement. Several people testified that Appellant
kept the corporate documents, including the shareholders’ agreements, in his possession and
that no corporate documents were kept at the NNMOC offices. This evidence is sufficient
to support the district court’s findings to the effect that Appellant knowingly and
intentionally misled Appellees about the shareholder employment agreements.

{73} We conclude that, under Madrid, the equitable remedy provides an independent basis
supporting the award of punitive damages. The final judgment acknowledged that Appellees
established a cause of action in equity and the evidence supports a finding of a culpable state
of mind. Together, these elements are sufficient to support an award of punitive damages.
See id. Consequently, we affirm on this issue.

CONCLUSION

{74} We affirm the district court’s judgment with two exceptions. For the reasons stated
above, the finding of a prima facie tort is reversed. As to the amount of compensatory
damages due to NNMOC, we affirm the district court’s findings as to calculations of the
damages in all respects except for the calculation and allocation of non-shareholder
employee revenue generated by Jones before he became an NNMOC shareholder. We
remand for recalculation of this amount.

{75}   IT IS SO ORDERED.

                                               _____________________________________
                                               MICHAEL D. BUSTAMANTE, Judge

WE CONCUR:

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_____________________________________
RODERICK T. KENNEDY, Chief Judge

_____________________________________
LINDA M. VANZI, Judge




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