Anderson v. Employment Sec. Dept. of State

• Decision Date: 07 November 2006
• Docket Number: No. 33284-1-II.,33284-1-II.
• Citation: 135 Wn. App. 887,146 P.3d 475
• Court: Washington Court of Appeals
• Parties: Carl A. ANDERSON, Appellant, v. EMPLOYMENT SECURITY DEPARTMENT OF the STATE of Washington, Respondent.

146 P.3d 475

135 Wn. App. 887

Carl A. ANDERSON, Appellant, v. EMPLOYMENT SECURITY DEPARTMENT OF the STATE of Washington, Respondent.

No. 33284-1-II.

Court of Appeals of Washington, Division 2.

November 7, 2006.

Stephen Michael Hansen, Attorney at Law, Tacoma, WA, for Appellant.

David Ira Matlick, Attorney Generals Office, Tacoma, WA, for Respondent.

ARMSTRONG, J.

¶ 1 Carl A. Anderson appeals the Employment Security Department's denial of unemployment compensation benefits to him based on work-related misconduct. Anderson argues that the Department's findings of fact do not support a conclusion that he willfully disregarded his employer's interest or that his misconduct harmed his employer. Because substantial evidence supports the Department's decision that Anderson intentionally and willfully disregarded his employer's interest, which created a conflict of interest that harmed his employer, we affirm.

FACTS

¶ 2 King County employed Carl Anderson as a program manager or property analyst from 1996 to 1998, as a temporary employee, and from 1998 to 2003, as a permanent employee. In 1996, the County appointed Anderson project manager for the sale of a county-owned building known as the Washington Center Building (WCB).¹ Anderson was responsible for gathering information on the property, preparing and issuing a request for proposals to the public, negotiating sale terms and completing the sale, and overseeing post-sale compliance with the sale's contract.

¶ 3 After Anderson issued the request for proposals and the County received bids, Anderson told his superiors that he knew and had worked with the bidders from Washington Center Building Properties, LLC (WCB Properties), Ginger Marshall and Vera Taylor. To avoid the appearance of a conflict of interest, the County made Anderson a non-voting member of the review board and removed him from direct negotiations with WCB Properties after the County chose it as the successful bidder.²

¶ 4 In 2000, the County investigated allegations that Anderson had a conflict of interest in the WCB sale centering on his relationship to WCB Properties and its principals. Anderson was "minimally cooperative" with the investigation; after supplying some information, he refused to answer questions about his relationship to Marshall, Taylor, and WCB Properties. Commissioner's Record (CR) at 852. Because Anderson refused to answer some questions, the investigating supervisor reached a "qualified" decision that Anderson did not have a conflict of interest. CR at 852. The supervisor also opined that Anderson's management of the WCB sale had not harmed the County.

¶ 5 In 2001, WCB Properties, Marshall, and Taylor sued Anderson; Anderson counter-claimed, alleging that since 1997, he had been a partner in WCB Properties and that he and his partners intended to jointly finance, develop, and operate the WCB property for profit. He demanded that Marshall and Taylor recognize him as a partner in WCB Properties, pay him one-third of the development fee obtained by WCB Properties, reimburse him for expenses he incurred on behalf of WCB Properties, and admit him as a member in WCB Properties.

¶ 6 In a deposition, Anderson testified that he helped prepare WCB Properties' bid in response to the request for proposals he had prepared,³ that he was on the review board that looked at the bid he prepared, although he was a non-voting member, and that he did not disclose his involvement with WCB Properties to the County. Anderson explained that he and Marshall agreed that Anderson would be a "secret" partner until it was appropriate for him to "come out of the closet" and that the reason for this secrecy was the "potential" conflict of interest with his county job. CR at 853. He asserted that he paid one-third of the costs of buying the WCB from the County.

¶ 7 The County's ethics code required Anderson to make yearly disclosures of finances and potential or actual conflicts of interests. It also required him to disclose in writing any conflict of interest he believed existed, regardless of the yearly filings. Anderson received a summary of the County's ethics code, including information on how to obtain a complete copy of the code on two occasions.

¶ 8 Anderson did not inform the County of his interest in WCB Properties at any time during his employment. And when his supervisors asked him about his connection with WCB Properties, Anderson either denied any interest in WCB Properties or refused to answer his supervisors' questions. The Administrative Law Judge (ALJ) found that Anderson purposely hid his business and financial involvement with WCB Properties from the County, a finding Anderson does not contest.

¶ 9 After learning of Anderson's lawsuit with WCB Properties, the County again investigated Anderson's conflict of interest and ultimately discharged him in May 2003.

¶ 10 The Department denied Anderson's claim for unemployment compensation benefits, finding that the County discharged him for work-related misconduct. An ALJ affirmed the Department's decision. The Department's commissioner affirmed the ALJ's decision, adopting and expanding on the ALJ's findings of fact and conclusions of law. The commissioner found that Anderson engaged in misconduct by willfully disregarding the County's interests and that his misconduct harmed the County. The Pierce County Superior Court affirmed the commissioner's decision.

¶ 11 The principal issues on appeal are whether the evidence supports the commissioner's findings that Anderson acted in willful disregard of the County's interests and, if so, whether the misconduct harmed the County.

ANALYSIS

I. STANDARD OF REVIEW

¶ 12 In reviewing an administrative action, we review the commissioner's decision, applying the Administrative Procedure Act (APA) standards directly to the agency's administrative record. Superior Asphalt Concrete Co. v. Dep't of Labor Indus., 112 Wash. App. 291, 296, 49 P.3d 135 (2002) (citing Tapper v. Employment Sec. Dep't, 122 Wash.2d 397, 402, 858 P.2d 494 (1993)).

¶ 13 We consider a commissioner's decision to be prima facie correct and the "burden of demonstrating the invalidity of agency action is on the party asserting invalidity." RCW 34.05.570(1)(a). The APA allows a reviewing court to reverse an agency decision when, among other things, (1) the administrative decision is based on an error of law, (2) the decision is not based on substantial evidence, or (3) the decision is arbitrary or capricious. RCW 34.05.570(3); Tapper, 122 Wash.2d at 402, 858 P.2d 494.

¶ 14 We review questions of law de novo, giving substantial weight to the agency's interpretation of the statutes it administers. Superior Asphalt, 112 Wash.App. at 296, 49 P.3d 135 (citing Everett Concrete Prods., Inc. v. Dep't of Labor & Indus., 109 Wash.2d 819, 823, 748 P.2d 1112 (1988)). Where, as here, the commissioner's findings of fact are unchallenged,⁴ we treat the findings as verities on appeal. Fuller v. Dep't of Employment Sec., 52 Wash.App. 603, 606, 762 P.2d 367 (1988). Whether an employee's behavior constitutes misconduct is a mixed question of law and fact. Tapper, 122 Wash.2d at 403, 858 P.2d 494.

II. DISQUALIFYING MISCONDUCT

¶ 15 For claims arising before January 4, 2004, the Employment Security Act provides that an employee who was discharged or suspended for misconduct connected with the employee's work is disqualified from receiving unemployment compensation benefits. RCW 50.20.060. As used in RCW 50.20.060, "misconduct" exists where an employee acts or fails to act in willful disregard of the employer's interest, thereby harming the employer's business. RCW 50.04.293.⁵

A. Willfull Disregard of Employer's Interests

¶ 16 An employee acts in "willful disregard" of the employer's interest when the employee (1) is aware of the employer's interest, and (2) knows or should know that certain conduct jeopardizes that interest, but (3) nonetheless intentionally performs the act, willfully disregarding its probable consequences. Hamel v. Employment Sec. Dep't, 93 Wash.App. 140, 146-47, 966 P.2d 1282 (1998). Misconduct involves more than "mere incompetence, inefficiency, erroneous judgment, or ordinary negligence." Dermond v. Employment Sec. Dep't, 89 Wash. App. 128, 133, 947 P.2d 1271 (1997) (citing Wilson v. Employment Sec. Dep't, 87 Wash. App. 197, 202, 940 P.2d 269 (1997)). The commissioner found that Anderson's actions met all three elements and thus constituted willful disregard of the County's interests.

¶ 17 Anderson does not dispute that he was aware of the County's ethical rules concerning disclosure of actual and potential conflicts of interest. He received a summary of the County's ethics code in 1996, and again in 1998, and he signed an acknowledgement of receipt each time. He also filed financial disclosure forms for the years 1997 through 2001. But Anderson contends that there was no evidence that he knew his conduct jeopardized the County's position in selling the WCB property or that he intended to jeopardize the County's position in selling the property.

¶ 18 As an initial matter, the commissioner found that Anderson harmed the County's interest in preventing conflicts of interest, not its interest in selling the WCB property.⁶ The ALJ's unchallenged findings of fact support the conclusion that Anderson knew or should have known that acting as project manager for the WCB sale jeopardized the County's interest in eliminating conflicts of interest from the bidding process. Anderson was aware of the County's ethics rules and should have been aware that acting on both sides of a transaction with the County was a violation.⁷ In fact, he testified that he was a "secret" partner of WCB Properties because of his concerns about a conflict of interest between his financial interest in WCB Properties and his job with the County. Anderson also refused to answer his supervisors' questions about his relationship with WCB Properties, Marshall,...