Re Sources for Sustainable Cmty. v. Bldg. Indus. Ass'n of Wash. (In re Wash. Builders Benefit Trust)

• Decision Date: 23 January 2013
• Docket Number: No. 41677–8–II.,41677–8–II.
• Citation: 293 P.3d 1206
• Court: Washington Court of Appeals
• Parties: In the Matter of the WASHINGTON BUILDERS BENEFIT TRUST. Re Sources For Sustainable Communities, A–1 Builders, SF McKinnon Company Inc., Cabinetworks, Living Space, and all others similarly situated, Appellants/Cross–Respondents, v. Building Industry Association Of Washington, BIAW Member Services Corporation, Master Builders Association of King and Snohomish Counties, Washington Builders Benefit Trust, Dave Baker, John Miller, Dick Rokes, Rob Stewart, Jerry Sturgill, Steve Thosath, Russ Tye, Paul Nolan, Paul Abenroth, Randy Gold, Gary Cronce, Dick Lowell, John Piazza, Jenni Stack, Cathy Gingrow, Rick Tremaine, Ted Clifton, Cathy Sanders, Mark Smith, Jerry Clark, Mark Shaffer, and Does 1–40, Respondents/Cross–Appellants.

293 P.3d 1206

In the Matter of the WASHINGTON BUILDERS BENEFIT TRUST.Re Sources For Sustainable Communities, A–1 Builders, SF McKinnon Company Inc., Cabinetworks, Living Space, and all others similarly situated, Appellants/Cross–Respondents,

v.Building Industry Association Of Washington, BIAW Member Services Corporation, Master Builders Association of King and Snohomish Counties, Washington Builders Benefit Trust, Dave Baker, John Miller, Dick Rokes, Rob Stewart, Jerry Sturgill, Steve Thosath, Russ Tye, Paul Nolan, Paul Abenroth, Randy Gold, Gary Cronce, Dick Lowell, John Piazza, Jenni Stack, Cathy Gingrow, Rick Tremaine, Ted Clifton, Cathy Sanders, Mark Smith, Jerry Clark, Mark Shaffer, and Does 1–40, Respondents/Cross–Appellants.

No. 41677–8–II.

Court of Appeals of Washington, Division 2.

Jan. 23, 2013.

Eric D. ‘Knoll’ Lowney, Smith & Lowney PLLC, Michael E. Withey, Law Offices of Michael Withey, Howard Mark Goodfriend, Ian Christopher Cairns, Catherine Wright Smith, Smith Goodfriend PS, Seattle, WA, Tonna K. Farrar, Friedman & Balint, P.C., San Diego, CA, Andrew S. Friedman, Friedman & Balint, P.C., Phoenix, AZ, for Appellants/Cross–Respondents.

Harry J.F. Korrell III, Robert J. Maguire, David C. Tarshes, Davis Wright Tremaine LLP, Gwendolyn C. Payton, Ryan P. McBride, Lane Powell PC, Seattle, WA, Matthew D. Clark, Faegre Baker Daniels LLP, Boulder, CO, for Respondents/Cross–Appellants.

VAN DEREN, J.

¶ 1 Re Sources for Sustainable Communities, A–1 Builders, SF McKinnon Company Inc., Cabinetworks, and Living Space (collectively, “Participants”) appeal the trial court's September 13, 2010, partial summary judgment order and letter opinion dismissing some of their claims against the Building Industry Association of Washington (BIAW), BIAW–Member Services Corporation, the Washington Builders Benefit Trust, and individual Washington Builders Benefit trustees, (collectively Trustees).¹ This appeal concerns a dispute over the Trustees' handling of revenue generated though the operation of its retrospective rating program for employers' industrial insurance premiums under chapter 51.18 RCW, which allows the Washington State Department of Labor and Industries (Department) to rebate a portion of employers' industrial insurance premiums.

¶ 2 The Participants argue on appeal that the trial court erred in granting summary judgment to the Trustees in ruling that (1) the Trustees' flat marketing assistance fee did not breach the terms of the trust, (2) the Trustees were not required to spend revenue generated from the marketing assistance fees on marketing, and (3) the timing of the Trustees' marketing assistance fee payments to BIAW and local associations did not violate trust duties.

¶ 3 The Participants also appeal the trial court's September 10, 2010, order dismissing their claims against Master Builders Association of King and Snohomish Counties, based on the Master Builders Association's CR 12(c) motion for judgment on the pleadings. Specifically, the Participants argue that the trial court erred in dismissing their claims against the Master Builders Association because there were genuine issues of material fact regarding whether the Master Builders Association owed fiduciary duties to the Participants. Additionally, the Participants appeal the trial court's March 3, 2011, final judgment and order, arguing that the trial court erred by refusing to require the Trustees to disgorge funds those defendants improperly retained through breach of their fiduciary duties to the Participants.

¶ 4 Finally, the Participants appeal the trial court's March 4, 2011, order denying their motions for attorney fees at trial. The Participants also request attorney fees on appeal.

¶ 5 The Trustees cross-appeal the trial court's September 13, 2010, partial summary judgment order and letter opinion, arguing that the trial court erred in granting summary judgment to the Participants and finding that (1) the employer participants' enrollment agreements imposed trust duties on the Trustees and (2) the Trustees' retention of interest breached fiduciary duties it owed to the Participants.

¶ 6 The Trustees also appeal the trial court's March 3, 2011, final judgment and order and the trial court's March 4, 2011, order denying their motion for attorney fees, arguing that the trial court erred by failing to give effect to exculpatory and attorney fees provisions in the employer participants' enrollment agreements. The Trustees also request attorney fees on appeal.

¶ 7 The Master Builders Association also cross-appeals the trial court's order denying its motion for attorney fees and it requests attorney fees on appeal.

¶ 8 We affirm in part and reverse in part. We affirm the trial court's determination that the Trustees violated their fiduciary duties under the enrollment agreement by retaining interest earned on deposited funds, commingling funds, and failing to provide statutorily required accountings. We affirm other rulings as well, but we reverse the trial court for failing to require the Trustees to disgorge approximately $400,000 in interest they wrongfully retained. We also reverse the trial court's ruling that the Trustees were entitled to summary judgment on the Participants' claim that genuine issues of material fact exist regarding whether the Trustees violated their fiduciary duties under the trust agreement in expending funds earmarked for marketing and promotion of the plan, and we remand to the trial court for further proceedings on that issue. We also award attorney fees and costs to the Participants for issues on which they prevailed at trial, as well as fees and costs for those issues on which the Participants prevailed on appeal. We deny the Master Builders Association's request for attorney fees.²

FACTS

Department of Labor and Industries Retrospective Rating Program

¶ 9 Chapter 51.18 RCW allows the Department to rebate a portion of employers' industrial insurance premiums if employers are enrolled in a retrospective rating program, which is “a voluntary financial incentive program offered by the [Department] to encourage improvements in workplace safety.” WAC 296–17B–010. In general, retrospective rating program participants earn rebates “by preventing workplace illnesses and injuries, and helping injured workers return to work.” WAC 296–17B–010. “However, participation involves risk: [p]articipants not successful in controlling losses can be assessed additional premiums.” WAC 296–17B–010.

¶ 10 Employers may participate in the Department's retrospective rating program individually or through a sponsored group. WAC 296–17B–010. Under former WAC 296–17–90445 (2003), the Department paid “[a]ll retro group refunds ... directly to the sponsoring organization” and “[i]t [wa]s the responsibility of the sponsoring organization to distribute any refund to the group members.”

¶ 11 At the close of a plan year, the Department reviews a retro group's three-year claims history to retrospectively adjust the group's premium for that plan year. If the Department determines that a retro group is eligible for a return on their premium, the Department tenders a primary adjustment payment to the group sponsor, which typically occurs in May following the plan year. The Department may subsequently increase the total adjustment amount and tender additional payments to a group sponsor. On the other hand, the Department may also decrease the total adjustment amount to resolve a dispute or to account for changes in the estimated total refund. Until the Department issues its final adjustment in the third year following the plan year, it may reduce or retract a previously granted retro refund or issue a penalty.

Parties to This Case

I. The Trustees

¶ 12 BIAW is a not-for-profit trade association that sponsors a retrospective rating program. BIAW calls its retrospective rating program the return on industrial insurance (ROII). In 1990, the BIAW and the Master Builders Association ³ established the Washington Builders Benefit Trust (WBB Trust). BIAW created the WBB Trust to hold and invest ROII refunds from the time that BIAW receives rebates from the Department until it distributes the rebates to ROII employer participants. The BIAW president appoints seven BIAW members to serve as named trustees of the WBB Trust. The named trustees are volunteers who are not directly compensated for their services.

¶ 13 In 1993, the named trustees and BIAW formed the BIAW–Member Services Corporation, a wholly-owned for-profit subsidiary of BIAW. BIAW and the BIAW–Member Services Corporation share offices and staff; for example, the executive vice president and the accountant act in the same capacity for both BIAW and the BIAW–Member Services Corporation. BIAW and the BIAW–Member Services Corporation also have a consolidated budget that allocates staff members' salaries between BIAW and the BIAW–Member Services Corporation. Additionally, each BIAW–Member Services Corporation executive committee member serves on BIAW's executive committee and each BIAW board member serves on the BIAW–Member Services Corporation's board of directors, although some BIAW board members and executive committee members were not aware that they also served on the BIAW–Member Services Corporation's board of directors and executive committee.

¶ 14 Originally, the named trustees and BIAW staff served as the BIAW–Member Services Corporation's board of directors. The WBB Trust does not employ any staff; it too relies on BIAW's or BIAW–Member Services Corporation's staff. The BIAW–Master Services Corporation performs services for the WBB Trust that include “administrative support for meetings, calculation of refunds, processing refunds, responding to inquires, and administration of appeals for reconsideration of the application of the trust's underwriting criteria for certain employer participants.” Clerk's Papers (CP) at 7151. Although the BIAW–Master Services Corporation performs...