Chism v. Tri-State Constr., Inc.

• Decision Date: 09 May 2016
• Docket Number: No. 72844–0–I.,72844–0–I.
• Citation: 374 P.3d 193,193 Wash.App. 818
• Court: Washington Court of Appeals
• Parties: Geoffrey CHISM, Appellant/Cross–Respondent, v. TRI–STATE CONSTRUCTION, INC., and Larry Agostino, Respondents/Cross–Appellants

193 Wash.App. 818

374 P.3d 193

Geoffrey CHISM, Appellant/Cross–Respondent

v.TRI–STATE CONSTRUCTION, INC., and Larry Agostino, Respondents/Cross–Appellants

No. 72844–0–I.

Court of Appeals of Washington, Division 1.

May 9, 2016.

Lindsay L. Halm, Thomas James Breen, Schroeter Goldmark Bender, Philip Albert Talmadge, Talmadge/Fitzpatrick/Tribe, Seattle, WA, for Appellant/Cross–Respondent.

Jillian Barron, Tina Marie Aiken, Sebris Busto James, Bellevue, WA, John Stephen Riper, Sarah Cox, Ashbaugh Beal LLP, Seattle, WA, for Respondents/Cross–Appellants.

Steven P. Caplow, Davis Wright Tremaine LLP, Seattle, WA, Amicus Curiae on behalf of Association of Corporate Counsel.

DWYER, J.

Following a month-long jury trial, attorney Geoffrey Chism was awarded $750,000 for breach of two compensation contracts by his former employer, Tri–State Construction, Inc., and exemplary damages for unlawful wage withholding. The trial court then dramatically reduced Chism's recovery, premised on findings that Chism violated Washington's Rules of Professional Conduct (RPCs) during his time as Tri–State's in-house general counsel. By ordering disgorgement of Chism's wages based on novel interpretations of several RPCs, the trial court exceeded the disciplinary authority delegated to it by our Supreme Court. Moreover, the trial court disregarded the strong legislative policy preference in favor of payment of earned wages by failing to even acknowledge that, unsupported by precedent, it was ordering disgorgement of an attorney's wages, as opposed to an attorney's fee. Accordingly, we reverse the trial court's challenged rulings and remand the cause for entry of judgment consistent with the jury's verdict.

I

1. Background¹

¶ 2 Tri–State Construction, Inc. (Tri–State) is a closely held construction firm that provides general contractor services. Ron, Tom, and Larry Agostino² are the current owners and corporate directors of Tri–State. Their father, Joe, formed the company in the late 1950s and eventually turned the company over to his sons, appointing Ron, the middle son, as president in 1996. Larry and Tom joined Ron as members of Tri–State's board of directors (Board) sometime in the mid–2000s. Findings of Fact 1, 3.

¶ 3 Chism began working with Tri–State as outside counsel in the early 1980s. Over the next three decades, Chism developed relationships of mutual trust and loyalty with Joe and Ron. During that time, Chism became Tri–State's primary attorney, performed the majority of the company's general legal work, and was perceived by himself and Tri–State as the company's general counsel. He initially reported to Joe, and later reported to Ron when Ron became president. Finding of Fact 2.

2. Chism represents Tri–State as outside counsel

¶ 4 Chism's financial arrangement with Tri–State changed several times over his long relationship with the company. Finding of Fact 4. For the first two decades, Chism billed Tri–State for legal services on an hourly basis under a conventional billing arrangement. Finding of Fact 5. In late 2002, Chism began charging a flat monthly fee for non-litigation matters while continuing to bill litigation matters separately on an hourly basis. Finding of Fact 6.

¶ 5 Chism memorialized this new arrangement in a December 2002 letter to Ron. Therein, Chism set forth the parties' understanding that the non-litigation matters, which were characterized as “General Counsel” (GC) services, were expected to be “far-reaching and broadly encompassing” and included “all of [Mr. Chism's] personal time on all matters ... other than matters that are in formal dispute resolution.” Finding of Fact 6. Consistent therewith, Chism repeatedly testified at trial to his understanding that, under the GC arrangement, he would “do whatever it took” and “whatever Tri–State asked” under the flat monthly fee billing arrangement. Findings of Fact 7, 17.

The December 2002 letter did not refer to Chism's hourly rate or indicate whether his services under the retainer were expected to be limited to a specified number of hours or in any other way, other than that they would not include litigation and other matters in formal dispute resolution, for which Chism would continue to bill by the hour.³ Finding of Fact 8. Despite Chism's trial testimony that the monthly retainers were based on an understanding that Chism would spend an average of approximately 1.5 hours per day on Tri–State matters, the trial court found that “[t]here was no credible or persuasive evidence that Mr. Chism's flat monthly fee arrangement was ever tied to him working an average number of hours per day, week, or month.”⁴ Finding of Fact 17.

¶ 7 Chism's flat fee began at $10,000 per month in November 2002. Finding of Fact 8. In January 2005, Chism increased the monthly GC retainer to $12,000 per month. Finding of Fact 12. By July 2007, Chism also began charging a separate monthly flat fee for “Joint Venture/Design Build/405” (JV) GC services. The fees for those were $2,000 per month, as of July 2007, and $5,000 per month, as of October 2007. Thus, as of October 2007, Chism's total flat monthly fee was $17,000, comprised of $12,000 for GC services and $5,000 for JV GC services. Finding of Fact 14. During this time, Chism's hourly rate for Tri–State litigation matters increased from $325 in November 2002 to $500 in June 2008. Findings of Fact 8, 15.

Chism did not create any documentation similar to the December 2002 letter regarding the increases in his GC retainer, the initiation of the JV retainer, or the increase in that retainer. He testified that the scope of his work under both retainers was always that he would do whatever it took and whatever he was asked to do. In addition, Chism testified that all the retainer amounts since 2002 were intended to be a good deal for Tri–State—that is, they were supposed to cover more hours than a simple division of the retainer by Chism's hourly rate. Finding of Fact 16.

3. Chism moves in-house at Tri–State

¶ 9 Sometime in 2008, Chism told Ron that he was planning to leave his law firm and work for a few existing clients out of his home. Chism proposed that he become a Tri–State employee and provide his services to the company as in-house GC. Chism preferred becoming an employee as opposed to continuing as outside counsel because he wanted healthcare coverage and did not want to deal with obtaining coverage on his own. He also considered it important that he not be required to keep timesheets. Finding of Fact 22.

¶ 10 Chism proposed that Tri–State pay him an annual salary of $190,000. He testified that he came up with that number by multiplying $17,000, the monthly total of his two retainers, by 12, then reducing the $204,000 annual total by $14,000 to reflect the extra costs of healthcare and taxes that he estimated the company would have to pay as a result of his becoming its employee. Finding of Fact 23. Similar to his work as outside counsel, Chism's employment arrangement with Tri–State did not provide for or otherwise contemplate the payment of any bonuses to him, annual or otherwise. Finding of Fact 28.

¶ 11 At the time of Chism's hiring, the parties did not discuss the number of hours that he would be expected to work. Finding of Fact 25. Chism assured Ron that he would continue to do “whatever it t[ook],” other than litigation work, for which Tri–State would need to hire outside counsel. Chism and Ron understood that there would be no significant changes in the general parameters of the arrangement established in the December 2002 letter, other than that Chism would now be an employee and be paid a salary and basic benefits rather than monthly retainers. Finding of Fact 26.

¶ 12 Ron informed Tri–State's controller, Kristi MacMillan, that Chism was becoming a full-time Tri–State employee. MacMillan understood that to mean that Chism generally would be working 40 hours per week, and she enrolled him to receive Tri–State healthcare coverage, showing him as working 40 hours per week. Tri–State's health plan required employees to work at least 32 hours per week to be eligible. MacMillan testified that she would not have enrolled Chism for healthcare benefits or have shown him as working 40 hours per week if she had known that he was expected to work only part time. Finding of Fact 27.

¶ 13 Once he moved in-house, Chism did not track or record the matters he worked on or the time he spent on them because his salary covered all of his work—litigation and non-litigation tasks, legal and non-legal tasks, and paralegal or associate and partner-level tasks. Findings of Fact 29–30. He did not work a regular schedule. For the first couple of years as an employee, Chism worked primarily from his home or other locations, and he continued to do so throughout his employment with Tri–State. Finding of Fact 30.

4. Tri–State agrees to modify Chism's compensation structure and awards him a $310,000 bonus for fiscal year (FY) 2010.

¶ 14 In September 2010, after serving as an in-house lawyer for approximately 20 months, Chism proposed a new salary arrangement. Pursuant to this proposal, retroactive to January 1, 2010, in addition to his base salary and benefits, Chism would be eligible for a discretionary bonus. Chism testified that he presented the proposed arrangement to Ron as being more beneficial to Tri–State than simply raising his salary because he would be paid for only the time he actually worked, he would be paid for any extra hours only at the end of the fiscal year, and the amount of any bonus would be solely within Ron's discretion. Finding of Fact 38.

¶ 15 Ron agreed to the new arrangement. Chism drafted their agreement and e-mailed it to Ron (September 2010 memo). Ron initialed a copy. Finding of Fact 39.

¶ 16 The September 2010 memo began by stating that Chism's $190,000 annual salary was based on working part-time at 1.5 hours per day, not full-time.

My current compensation, which believe it or not we originally set over ten years ago, is based on me

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