Morgan v. Kingen
| Decision Date | 02 July 2009 |
| Docket Number | No. 81202-1.,81202-1. |
| Citation | 210 P.3d 995,166 Wn.2d 526 |
| Court | Washington Supreme Court |
| Parties | Eufemia "Emma" MORGAN, Nancy Pitchford and Daniel McGillivray, individually and behalf of all the members of the class of persons similarly situated, Respondents, v. Gerald KINGEN and Jane Doe Kingen, husband and wife and the marital community comprised thereof, Scott and Jane Doe Switzer, and the marital community comprised thereof, Petitioners. |
William Keller McInerney, Jr., WK McInerney PLLC, Seattle, for Petitioners.
Claudia Kilbreath, Short Cressman & Burgess PLLC, Seattle, for Respondents.
Kristopher Ian Tefft, Amicus Curiae on Behalf of Association of Washington Business; National Federation of Independent Business Legal Foundation; Recreational Gaming Association of Washington; Washington Contract Loggers Association; Washington Food Industry; Washington Restaurant Association; Washington Retail Association; Washington State Farm Bureau Federation.
¶ 1 This case asks us to determine whether financial status, specifically bankruptcy under chapter 7 liquidation, is a valid defense to negate the finding of a willful failure to pay wages owed to employees. RCW 49.52.050 and RCW 49.52.070 respectively set out the criminal and civil penalty mandated where any employer or officer, vice principal, or agent of any employer willfully and with intent deprives the employee of any part of his or her wages. In Schilling v. Radio Holdings, Inc., 136 Wash.2d 152, 961 P.2d 371 (1998), we held financial status does not negate a finding of willfulness. Neither this court nor the legislature has altered that interpretation or the statute. Here, consistent with our holding in Schilling, the trial court ruled financial status is not a defense to a finding of willfulness. In accord with RCW 49.52.070 (imposing civil liability), the trial court awarded exemplary damages, costs, and a reasonable sum for attorney fees. The class cross-appealed the award of attorney fees because, among other things, the trial court did not award a multiplier to the class. The Court of Appeals affirmed the trial court's ruling. We now affirm the Court of Appeals.
¶ 2 During the summer of 2001, Gerald Kingen and Scott Switzer established Funsters Grand Casino, Inc., a minicasino located in SeaTac, Washington. Kingen controlled a 31 percent interest in Funsters, and Switzer held 7 percent. As CEO (chief executive officer) and president, Kingen set compensation for senior employees and possessed authority to hire and fire employees. As CFO (chief financial officer) and general manager, Switzer managed, among other things, Funsters' finances. Both Kingen and Switzer controlled the payment of wages to employees, which included authority to prioritize payment of wages and other corporate obligations (e.g., creditor payments).
¶ 3 Though Funsters was in poor financial condition to begin with, Kingen and Switzer opened its doors for business in August 2001. One year later, Funsters voluntarily filed for protection under chapter 11 of the United States Bankruptcy Code. Under chapter 11, Kingen and Switzer continued to operate the minicasino as debtor-in-possession. Because of a continued decline in Funsters' financial viability, the United States trustee in the bankruptcy proceeding moved to convert or dismiss the chapter 11 proceeding. During the hearing on the motion, Kingen and Switzer made clear their unwillingness to inject additional capital sufficient to satisfy unpaid debts, including wages owed. In response, the bankruptcy court converted the matter to chapter 7 liquidation on April 7, 2003.
¶ 4 Prior to the conversion, Funsters' employees earned wages that went unpaid for two pay periods: March 10 to 23, 2003, and March 24 to April 6, 2003. The total unpaid wages for these pay periods exceeded $179,000. As part of the conversion to chapter 7, the bankruptcy trustee seized Funsters' assets. These assets included $85,823.23 in cash. The bankruptcy court did not permit the unpaid wages to be satisfied from the seized funds.
¶ 5 Following the conversion, Eufemia Morgan, Nancy Pitchford, and Daniel McGillivray (collectively "Morgan") filed this class action on their behalf and that of over 180 other former employees to recover the unpaid wages. Based on RCW 49.52.050 and RCW 49.52.070, they sought personal liability against Kingen and Switzer.
¶ 6 The trial court granted summary judgment to Funsters' employees holding Kingen and Switzer personally liable, and, pursuant to RCW 49.52.070, it awarded exemplary damages, costs, and reasonable attorney fees to the class. In awarding attorney fees, the trial court did not award a multiplier to the class. The Court of Appeals affirmed the summary judgment but remanded the case to the trial court with directions concerning the award of attorney fees below and on appeal. Kingen and Switzer's petition for review was granted. The class' petition for review of the cross appeal was also granted.
(i) Under RCW 49.52.070, is financial status (i.e., chapter 7 bankruptcy) a sufficient defense to avoid personal liability when a party responsible for the payment of wages failed to pay wages owed to its employees?
(ii) Was the trial court's refusal to award a multiplier to the class an abuse of discretion?
¶ 7 The grant of summary judgment is appropriate where there is "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." CR 56(c). "A material fact is one that affects the outcome of the litigation." Owen v. Burlington N. & Santa Fe R.R., 153 Wash.2d 780, 789, 108 P.3d 1220 (2005). Where no dispute as to the material facts exists, summary judgment is proper.
¶ 8 Here, the trial court granted summary judgment in favor of Morgan and the class of employees, holding Kingen and Switzer personally liable for the employees' unpaid wages under RCW 49.52.070. Kingen and Switzer contend they did not willfully fail to pay employee wages with the intent to deprive, under RCW 49.52.050 (referenced within RCW 49.52.070).
¶ 9 In an action for unpaid wages, it must be determined whether the failure to pay was willful and done with the intent to deprive the employee of wages owed. Schilling, 136 Wash.2d at 159, 961 P.2d 371. RCW 49.52.070 provides the civil remedy where the failure to pay wages owed was willful:
Any employer and any officer, vice principal or agent of any employer who shall violate any of the provisions of [RCW 49.52.050(1) and (2)] shall be liable in a civil action by the aggrieved employee or his assignee to judgment for twice the amount of the wages unlawfully rebated or withheld by way of exemplary damages, together with costs of suit and a reasonable sum for attorney's fees: PROVIDED, HOWEVER, That the benefits of this section shall not be available to any employee who has knowingly submitted to such violations.
¶ 10 RCW 49.52.050 provides that where
¶ 11 In Schilling, we had occasion to interpret these statutes. There, we held willfulness is found where 136 Wash.2d at 159-60, 961 P.2d 371 (internal quotation marks omitted) (quoting Brandt v. Impero, 1 Wash.App. 678, 681, 463 P.2d 197 (1969)). Where an employer fails to pay wages owed, our cases have thus far established two instances that negate a finding of willfulness: "the employer was careless or erred in failing to pay, or a `bona fide' dispute existed between the employer and employee regarding the payment of wages." Schilling, 136 Wash.2d at 160, 961 P.2d 371; see also Pope v. Univ. of Washington, 121 Wash.2d 479, 490, 852 P.2d 1055 (1993) ().
¶ 12 Here, neither party argues that any employee knowingly submitted to the alleged failure to pay wages owed, which would satisfy the legislative exception in RCW 49.52.050(2). Further, neither party argues that carelessness or a "bona fide" dispute caused the failure to pay wages owed. Instead, Kingen and Switzer argue that chapter 7 bankruptcy should be recognized as a defense to negate the finding of willfulness.
¶ 13 Specifically, Kingen and Switzer argue that the bankruptcy court's decision to convert Funsters' chapter 11 reorganization proceeding to a chapter 7 liquidation proceeding took away any choice they may have possessed and their (and Funsters') ability to be willful in failing to pay wages owed. But the statute and our cases do not support this claim.
¶ 14 In Schilling, Robert Bingham was the president and shareholder of Radio Holdings, Inc. The parties in Schilling did not dispute that Radio Holdings paid Schilling less than what it owed her or that Bingham was aware of the unpaid wages. Instead, Bingham argued he was financially unable to pay the wages. We rejected this argument noting the absence of any published case where a court held financial status is a means to negate a finding of willfulness. In Schilling, we held financial inability of an employer to pay wages owed is not a defense to avoid personal liability.
¶ 15 Here, despite its constant financial difficulties, Kingen and Switzer continued to operate Funsters before and during the chapter 11 proceedings. Under their control, Kingen and Switzer made payroll decisions and determined which bills and obligations would be paid and when. Before the conversion from chapter 11 to chapter 7, Kingen and Switzer allowed unpaid wages for...
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