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Recent Appellate Decisions: June 29 – July 5, 2012

Selected summaries prepared by Commissioner James Verellen (ret.)

Division I  Washington State Court of Appeals

July 2, 2012

Behnke v. Ahrens,  No. 67459-5-I

Consumer Protection Act – public interest element – no wealth or sophistication exception – unfair or deceptive act or practice element – capacity to deceive a substantial portion of the public – potential for repetition –  attorney conflict of interest – disgorgement of fees

The Consumer Protection Act “unfair or deceptive act or practice” element requires a showing that the alleged act had the capacity to deceive a substantial portion of the public under an objective “reasonable” or “ordinary” consumer standard.  The “affecting the public interest” element requires a showing that the practices have the potential to affect the public interest, including whether there is a real and substantial potential for repetition.

Attorney Ahrens recommended a “752” tax shelter to his clients, the trustees of a multimillion dollar trust.  Ahrens arranged a meeting with Heritage Organization to discuss such a shelter.  Ahrens disclosed that he represents Heritage but did not disclose that: he works almost daily with Heritage; develops “752” plans marketed by Heritage; and receives substantial licensing fees from Heritage.

The trustees sued Ahrens after the IRS declared the trust’s “752” plan an abusive tax shelter.  The trial court granted summary judgment dismissing the trustees’  Consumer Protection Act claim.  The jury rejected their fraud claim, but found that Ahrens committed malpractice and breached a common law fiduciary duty.  In a special verdict form, the jury awarded damages limited to the fees that the trustees had paid Ahrens.  The trial court heard a separate claim for breach of fiduciary duty based on RPC 1.7(b) in a bench trial.  The trial court found Ahrens had a conflict of interest in violation of RPC 1.7(b) and ruled that disgorgement of his fees was the only permissible civil remedy.  The trial court denied the trustees’ request for additur.

Division I affirmed the trial court holding that:

  • Contrary to the holding of a federal case relied upon by the trial court, there is no wealth or sophistication exception to the public interest element of the CPA: “Anyone, regardless of wealth or sophistication, can fall victim to deception in trade or commerce.”
  • But t he trial court properly dismissed the CPA claim because the trustees did not meaningfully respond to the CPA issues on summary judgment, and the limited record before the trial court on summary judgment did not include evidence of a real and substantial potential for repetition.
  • Damages were properly limited to disgorgement of the fees paid to Ahrens: a breach of fiduciary duty is not an equitable claim; and an attorney’s violation of RPC 1.7 does not support an independent cause of action for malpractice, but may be considered in an action to recover attorney fees paid to that attorney.
  • The Trustees did not assign error supporting the argument that the jury should have been instructed on waiver of the conflict of interest (“we express no opinion” whether the conflict was waivable.”)
  • Additur was not warranted: “It was not contrary to the evidence for the jury to find that Ahrens’ own fee was the only damage proximately caused to the [trustees] by Ahrens’ breaches of duty.”

July 2, 2012

Roats v. Blakely Island Maintenance Comm.,  No. 66514-6-I

homeowners association – authority to operate marina – consideration of correlated documents – attorney fees

A homeowners association’s articles, by-laws, and covenants are “correlated documents” that are construed together to determine the authority of the association.

A private marina owner decided to stop operating the marina on an island accessible only by plane or boat and not serviced by a public ferry.  The Homeowner’s Association formed a limited liability company to enter into a lease to operate the marina, fuel dispensers and general store, the only amenities on the island. When the Association assessed fees to the homeowners regarding the marina, a homeowner disputed the authority of the Association to form the limited liability company, to operate the marina and to assess related fees to the homeowners.

The trial court granted summary judgment dismissing the homeowner’s claim that the Association lacked authority to operate marina facilities.  The trial court awarded the Association attorney fees under the by-law provision authorizing fees for litigation over unpaid assessments, limited to fees incurred before the parties stipulated to put the disputed amounts into the registry of the court.  The trial court also concluded that the Association violated the statutory open board meeting requirements (18 of the 28 alleged violations), but limited the relief to a declaration of the 18 violations.

Division I held that even though there was no mention of a marina in the Association articles of incorporation, the by-laws or the covenants, those correlated documents are to be read together to determine the authority of the Association.  The broad authority to execute legal documents to carry out its business interests, to finance and maintain improvements, to acquire and own real or personal property and to levy assessments for the related costs all support the authority of the Association to form the LLC to enter into a lease to operate the marina.

Division I also held that the opening meeting statute grants the trial court discretion to award attorney fees “in an appropriate case” and it was not an abuse of discretion to decline to award any fees.  The homeowner prevailed on only 18 or 28 alleged violations and the trial court declined to award any affirmative relief beyond a declaration of those 18 violations.

Division I also affirmed the award of attorney fees to the Association limited to the fees incurred prior to the stipulation to pay the disputed assessments into the registry of the court. The by-laws authorize fees because the Association was threatening to file a lien against the homeowner’s property, a form of collection of unpaid assessments.  The Covenant provision for fees does not apply because the Association did not commence litigation to secure compliance with the covenants.  The cutoff used by the trial court was appropriate because the enforcement of assessments was no longer at issue once the disputed amounts were paid into the registry of the court.

July 2, 2012

Marriage of Herridge,  No. 66525-1-I

Servicemembers Civil Relief Act (SCRA) – servicemember must provide specific information to obtain mandatory stay – discretionary stay on court’s own motion  – reviewed for abuse of discretion – motion to vacate final order of child support

Prior to 2003, the Soldier and Sailors Civil Relief Act provided for a mandatory stay upon a minimal showing.  Beginning in 2003, the Servicemembers Civil Relief Act (SCRA) requires that the servicemember  provide: the date when the servicemember will be available to appear; the manner in which duty requirements materially affect the ability to appear; and the commanding officer’s letter stating both that military duty prevents the servicemember’s appearance and that military leave is not authorized at the time of the letter. If the requirements for a mandatory stay are not satisfied, the court may grant a discretionary stay on its own motion.

After the father failed to respond to discovery for months, the mother set a petition to modify the order of child support for final hearing on November 16.  On November 6, the father requested a stay.  He filed his declaration that he would be unable to attend because he would be deployed overseas.  He attached a letter from his commanding officer that he will be deployed November to June.  His application did not include the date he would be available.  The commanding officer’s letter did not address whether military leave was available.  The father was deployed to Iraq on November 13. At the November 16 hearing, the trial court denied the request for a stay and entered a final child support order.  The father moved to vacate the final child support order.  The trial court denied the motion to vacate.

Division I affirmed the trial court’s denial of a mandatory stay under SCRA.  The father had not complied with the SCRA requirements that he state the time when he would be available and his commanding officer did not indicate that military leave would not be available during his deployment.   “As a result of the 2003 amendments, a servicemember must indicate his or her future availability for further proceedings and must provide actual proof that he or she is truly unavailable to defend or prosecute an action as a result of his or her military duties… a servicemember must fully comply with the express language of SCRA before a stay of proceedings is mandated.”

Division I also held that the trial court did not abuse its discretion by declining to grant a discretionary  stay on the court’s own motion because the father’s rights were not prejudiced by the entry of the final child support order in his absence.  The father had not requested oral evidence and he had adequate time to file declarations to be considered by the court on the motion to modify child support.

July 2, 2012

Lassek v. Jenbere,  No. 66569-3-I

attorney fees – mandatory arbitration –  trial de novo – CR 68 offer of judgment “inclusive of any and all attorney fees and cost”

J sued L for damages resulting from a car accident.  The arbitrator in mandatory arbitration awarded J $9,242.22.  L requested a trial de novo.  J made three offers of compromise up to $4,999.  L rejected all three offers.  Then L made a CR 68 offer of judgment in the amount of $5,500 “inclusive of any and all attorney fees and costs.”  J’s attorney inquired whether the offer meant only statutory attorney fees.  L’s attorney responded that the offer included all fees, not just statutory fees.  J accepted the offer.  Judgment was entered in favor of J for the principal amount of $5,300 and  statutory attorney fees of $200.  A satisfaction of judgment was filed.

Then J moved for attorney fees and costs under MAR 7.3 and RCW 7.06.060 arguing that L had not improved her position in the mandatory arbitration.  The trial court awarded the fees requested by J plus a multiplier for total fees and costs of $74,965.

Division I reversed the award of attorney fees holding:

  • CR 68 offer of judgment may be made inclusive of all attorney fees and costs.
  • The failure-to-improve-your-position attorney fees provisions of MAR 7.3 and RCW 7.06.060 do not prohibit parties “from entering into a settlement, whether via CR 68 or some other mechanism, that includes all attorney fees.”
  • The reference in the judgment summary to $200 in statutory attorney fees does not control.
  • J’s “position that MAR 7.3 attorney fees can never be included in settlement agreements or CR 68 offers of judgment would be at odds with the legislative purpose of the MARs by increasing court congestion.”

July 2, 2012

Fiore v. PPG Industries,  No. 66956-7-I

wage and hour – Washington Minimum Wage Act – administrative employee exemption – primary duty retail sales and manual labor – fluctuating workweek basis for computing overtime – willful withholding of wages – attorney fees – multiplier

Washington’s Minimum Wage Act (MWA) requires that workers be paid overtime for working more than 40 hours per week.  The overtime protections do not apply to employees who work in a “bona fide….administrative….capacity.”  The regulations interpreting the administrative employee exemption require that: (1) the employee is paid salary of at least $250 per week;  (2) the employee’s “primary duty consists of the performance of office or nonmanual work directly related to management policies or general business operations of” the employer or the employer’s customers; and (3) the employee’s work “includes work requiring the exercise of discretion and independent judgment.”  Administrative policies explain that “primary duty” depends on all the facts, but basing that determination on work performed for 50% of the employee’s time is a “good rule of thumb.”  The administrative policy also discusses administrative operations “distinguished from production or sales work in a retail or service establishment.”

Fiore was a “Territory Manager” for PPG, the manufacturer of Olympic paint and stain products.   Each “Territory Manager” was assigned responsibility for certain Lowe’s home improvement stores.  Fiore was responsible for 11 Lowe’s stores.   PPG required him to service two stores each day, for four hours at each store.   In a typical store visit, he would spend two hours managing the “chip rack” and another hour building displays of and stocking shelves with Olympic products.  Part of his job was to talk with customers and promote Olympic products to customers in the aisle.   He also worked at the contractor’s desk assisting contractors in finding products.  Territory managers were also members of a national sales team with the duties of training Lowe’s associates, engaging in retail sales, making contractor sales and servicing Olympic products including inventory management.  Fiore was compensated with a monthly salary.  He was not compensated for driving between different stores, checking and responding to e-mails from management, and submitting various reports.

After his employment was terminated, Fiore filed an overtime wage claim, alleging the amount in controversy was less than $50,000. PPG unsuccessfully attempted to remove to federal court arguing that potential attorney fees of $400,000 were at stake.  The federal court remanded to state court where PPG moved to transfer the case to mandatory arbitration.  The arbitrator found in favor of PPG.  Fiore requested a trial de novo.  On cross motions for summary judgment, the trial court concluded that PPG could not satisfy the requirements for the administrative employee exemption.  The parties stipulated to overtime of $12,203.10.  The trial court found the wages had willfully been withheld and doubled the amount to $24,406.20.  The trial court awarded attorney fees and costs of 596,559.47, including a .25 multiplier.

Division I affirmed the trial court with the exception of the .25 multiplier:

  • Fiore’s primary duty was not office or non-manual work.  He was not involved in administrative operations.  His work principally entailed manual labor and individual retail sales.
  • Contrary to PPG’s argument that his primary duty was the administrative function of “promoting sales,” the sales work that Fiore performed consisted of retail sales to individual customers, not of the promotion of sales generally.
  • PPG also cannot meet its burden of demonstrating that his work required the exercise of discretion and independent judgment.  Territory managers do not develop and cannot vary promotional materials.  They do not have the authority to formulate policy or operating procedures.  They have no authority to negotiate on behalf of or bind PPG on significant matters.
  • Because there was no clear understanding between PPG and Fiore that overtime would be calculated on a half time basis and Fiore had not been paid any overtime, the requirements for a “fluctuating workweek” half-time calculation of overtime were not satisfied.  The trial court properly computed overtime at one and one-half times the regular rate for hours worked in excess of 40 hours per week.
  • The trial court properly doubled damages for willful withholding of wages.  The record reflects that PPG acted volitionally in failing to pay overtime to Fiore and the record does not support PPG’s contention that a bona fide dispute existed.
  • The trial court did not abuse its discretion in calculating the lodestar amount for attorney fees: judicial estoppel does not apply to Fiore’s argument before the federal court that this would be a typical wage claim case of less than $75,000 in attorney fees; this became a test case for similar claims across the country and PPG acknowledged that this case had national implications; the amount of the recovery is a valid consideration, but not conclusive; extensive findings support the trial court’s conclusion that the rates and hours expended were reasonable; the court should discount time for unsuccessful claims, but Fiore brought a single overtime wage claim and segregation is not required:  a comparison of the rates charged and hours incurred by opposing counsel can be probative and it was not improper for the trial court to note that PPG had not provided its own attorney fees for comparison; PPG did not support its arguments that the trial court included fees for duplicative efforts and work at a partner’s rate that could have been completed by an associate or paralegal.
  • The .25 multiplier is reversed because the extensive and time-consuming nature of the litigation was encompassed in the loadstar calculation.  This was a straightforward wage and hour claim and not a “high risk” case involving risky trial strategies or novel problems of proof.  Additionally, because Fiore sought a trial de novo of a mandatory arbitration, allowing a multiplier runs counter to the legislative policy of discouraging appeals of mandatory arbitration awards.

Division II  Washington State Court of Appeals

June 29, 2012

Shoulberg and Haniford v. PUD No. 1 of Jefferson County,  No. 41545-3-II

tax – PUD taxes not for services duplicative of city utility services

RCW 54.04.030 precludes a Public Utility District from taxing property owners for duplicative services provided by any other municipal corporation. The statute does not preclude a PUD from keeping separate funds for non-duplicative services.

The county-wide PUD provides water and sewer services to those outside the City.  It is also developing electrical and telecommunication utilities for the entire county.  The City does not duplicate these services.  The PUD assessed a property tax on all property owners.  The PUD maintains a utility fund consisting of PUD utility customer fees, and a separate general fund that includes the PUD property tax.  The general fund is used for watershed planning, community involvement and education, general administrative costs, a portion of personnel costs and the cost of water and sewer studies.

Two city property owners brought a class action alleging that the PUD was using the property tax for “the provision of a water utility” duplicative of the water utility services provided by the City.   The trial court granted summary judgment in favor of the PUD.

Division II affirmed the trial court concluding that the aquifer-protection, watershed planning and conservation activities of the PUD did not duplicate any City utility functions.   

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