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Utter ex rel. State v. Building Industry Association of Washington

Court of Appeals of Washington, Division 1

September 16, 2013

Robert Utter et al., in the Name of the State of Washington, Appellants,
Building Industry Association of Washington, Respondent

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[Copyrighted Material Omitted]

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Superior Court County: King. Superior Court Cause No: 08-2-34270-1 SEA. Date filed in Superior Court: December 1, 2010. Superior Court Judge Signing: Hon. Michael Heavey.

Eric D. "Knoll" Lowney (of Smith & Lowney PLLC ) and Michael E. Withey (of Law Offices of Michael Withey ), for appellants.

Harry J.F. Korrell III, Robert J. Maguire, and Matthew D. Clark (of Davis Wright Tremaine LLP ), for respondent.

Written by: Acting Chief Judge Spearman. Concurred by: Judge Cox, Judge Grosse.


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Spearman, A.C.J.

[176 Wn.App. 649] ¶ 1 Under the Fair Campaign Practices Act (FCPA), chapter 42.17A RCW,[1] political committees are subject to certain registration and reporting requirements. An organization is considered a political committee [176 Wn.App. 650] " by either (1) expecting to receive or receiving contributions, or (2) expecting to make or making expenditures to further electoral political goals." Evergreen Freedom Found. v. Wash. Educ. Ass'n, 111 Wn.App. 586, 599, 49 P.3d 894 (2002) ( EFF ). These alternative means are the contribution prong and the expenditure prong, respectively. Id. at 598. In 2008, Robert Utter and Faith Ireland brought a citizen's action against the Building Industry Association of Washington (BIAW), asserting that it met the definition of a " political committee" under the contribution prong and the expenditure prong through its support for Dino Rossi's 2008 gubernatorial campaign. Therefore, Utter and Ireland claimed, BIAW violated the FCPA by failing to register and report as a political committee. Before filing their lawsuit against BIAW, Utter and Ireland sent a notice of intent to the Washington State Attorney General's office (AG), stating that they would file a lawsuit against BIAW and BIAW Member Services Corporation (BIAW-MSC) for violations of the FCPA if the State did not. The AG referred the allegations to the Public Disclosure Commission (PDC) for investigation. Based on the PDC's conclusions, the AG filed a lawsuit against BIAW-MSC but did not file a lawsuit against BIAW.

¶ 2 On BIAW's motion for summary judgment, the trial court found there was no genuine issue of material fact in dispute and dismissed Utter and Ireland's lawsuit. It denied BIAW's request for attorney's fees. Utter and Ireland appeal from summary judgment and BIAW cross appeals the denial of attorney's fees. We conclude that while the evidence creates an issue of material fact that BIAW was a political committee under the expenditure prong, Utter and Ireland's claim is barred by RCW 42.17A.765(4), where the AG caused their allegations to be investigated, determined BIAW was not a political committee, and did not file a lawsuit. Accordingly, we affirm. We also affirm the trial court's denial of attorney's fees to BIAW and do not award fees on appeal.

[176 Wn.App. 651]FACTS

¶ 3 BIAW is a nonprofit affiliate of the National Association of Home Builders (NAHB), whose mission is to promote the common interests of Washington's building industry. It has approximately 13,500 members, primarily home builders. Members first join and pay dues to one of BIAW's 15 local associations throughout the state, then automatically become members of BIAW and NAHB. Among other activities, BIAW does advocacy work in all branches of government, helps local associations recruit new members, runs an educational program, and organizes conferences. BIAW's sources of revenue include membership dues, income from interest and investments, health insurance fees, and fees from educational programs.

¶ 4 In 1993, BIAW created a wholly owned, for-profit subsidiary, BIAW-MSC, to provide certain services to BIAW members. BIAW-MSC's primary function is to administer a worker's compensation insurance retrospective rating program (retro program) pursuant to Department of Labor and Industries' rules.[2] BIAW-MSC generates revenue from the retro program from an up-front enrollment fee and from a back-end incentive fee of 10 percent of any refund earned by the program in a given year, referred to as a " Marketing Assistance Fee" (MAF). BIAW-MSC also runs other programs such as health insurance, life insurance, and educational

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seminars. It contributes a portion of its revenues to independent expenditures and to political action committees (PACs), such as ChangePAC. BIAW and BIAW-MSC share the same leadership and staff, with staff salaries allocated between the entities based on the type of work performed. BIAW-MSC itself does not have any members.

¶ 5 [176 Wn.App. 652] By spring 2007, one of BIAW's main efforts was supporting Rossi's 2008 gubernatorial campaign. As part of this effort, BIAW senior officers requested the local associations to pledge excess MAF funds from their retro programs to support the campaign. Senior officers drafted a " Rossi-lution" that stated:

WHEREAS BIAW is committing 100% of excess retro dollars to the 2008 gubernatorial election,
WHEREAS, participation of local associations is necessary for success,
The following local associations pledge that all Retro Marketing Assistance funds received in 2007, beyond the amount budgeted for the year, will be sent to the BIAW and placed in the BIAW 2008 gubernatorial election account, to be used for efforts in the 2008 gubernatorial race.

Eleven of the 15 local associations agreed to participate in this effort, which ultimately raised $584,527.53.

¶ 6 On July 25, 2008 and September 9, 2008, in accordance with RCW 42.17A.765(4), Utter and Ireland sent notices of intent to the AG, stating that they would file a lawsuit against BIAW and BIAW-MSC for violations of the FCPA if the State did not. They claimed BIAW was legally responsible for violations of the FCPA, even though the independent expenditures in question were handled through the accounts of BIAW-MSC.

¶ 7 The AG referred Utter and Ireland's allegations to the PDC, which completed an investigation and issued a report. The PDC determined that BIAW-MSC requested permission from the local associations to withhold a portion of the MAF funds and handled those portions of the withheld funds. On August 20, 2008, BIAW-MSC contributed from its general treasury fund $584,527.53--the amount raised from the MAF funds--to ChangePAC and provided ChangePAC a list of the 11 local associations and the amount contributed by each association. The next day, ChangePAC [176 Wn.App. 653] reported the receipt of the contributions as coming from the local associations.

¶ 8 The PDC report concluded:

While [PDC] staff maintains the entire BIAW-MSC general fund would not be considered a political committee, the solicitation, receipt, and retention of local association Retro program refunds by BIAW-MSC in the amount of $584,527.53 qualifies that discrete portion of BIAW-MSC funds as a political committee pursuant to [RCW 42.17A.005(37)].

Based on the report, the PDC advised the AG that BIAW-MSC committed " multiple apparent violations of [chapter 42.17A RCW] by failing to register as a political committee and report the contributions it solicited, received and retained from its local associations in 2007, and by failing to report expenditures to ChangePAC in 2008 with the contributions received." The report concluded that BIAW was not a political committee under RCW 42.17A.005(37). It found that during 2006 to June 2008, BIAW did not solicit or receive contributions to support or oppose candidates or ballot propositions, contribute to candidates or political committees, or use its general treasury for other campaign-related expenditures. Accordingly, the report did not recommend action against BIAW.

¶ 9 On September 19, 2008, the AG filed a lawsuit against BIAW-MSC in superior court, alleging that BIAW-MSC was required to register as a political committee with respect to the MAF funds and to file PDC reports. The AG alleged that BIAW-MSC conducted an illegal fundraising campaign and violated RCW 42.17A.435 by concealing its solicitation and receipt of $584,527.53 in campaign contributions toward 2008 electoral activities. BIAW-MSC and the AG settled the lawsuit. As part of the settlement, BIAW-MSC agreed to file a political

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committee registration form and campaign finance disclosure reports with the PDC.

¶ 10 The AG did not file a lawsuit against BIAW. Utter and Ireland filed a lawsuit against BIAW on October 6, [176 Wn.App. 654] 2008 and filed an amended complaint on October 13. They claimed BIAW itself qualified as a political committee and was therefore required to register and report.[3] They asserted that although the transfers and expenditures at issue were processed through BIAW-MSC accounts, the evidence showed that BIAW " orchestrated the entire violation, made all decisions, and the parties making the illegal donations believed they were donating to the BIAW." They argued that the funds belonged to BIAW and/or its members and that BIAW-MSC was a " mere conduit" for them.

¶ 11 The BIAW filed a motion for summary judgment. The trial court granted BIAW's motion, finding there was no genuine issue of material fact in dispute and BIAW was entitled to judgment as a matter of law. Utter and Ireland appeal.


¶ 12 Utter and Ireland contend the evidence creates a genuine issue of material fact that BIAW was a political committee under the contribution prong and the expenditure prong. BIAW responds that the entire activity forming the basis of Utter and Ireland's claims was conducted by BIAW-MSC. We agree with Utter and Ireland that the evidence creates an issue of fact under the expenditure prong. However, we conclude the AG's actions preclude Utter and Ireland's citizen action.[4]

Summary Judgment

¶ 13 We review summary judgment decisions de novo, engaging in the same inquiry as the trial court. Michak v. Transnation Title Ins. Co., 148 Wn.2d 788, 794-95, 64 P.3d [176 Wn.App. 655] 22 (2003). Summary judgment is proper if the pleadings, depositions, answers, and admissions, together with the affidavits, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c). " When ruling on a summary judgment motion, the court is to view all facts and reasonable inferences therefrom most favorably toward the nonmoving party." Lybbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000) (citing Weyerhaeuser Co. v. Aetna Cas. & Sur. Co., 123 Wn.2d 891, 897, 874 P.2d 142 (1994)).

¶ 14 Under RCW 42.17A.005(37), " political committee" includes any organization that has " the expectation of receiving contributions or making expenditures in support of, or opposition to, any candidate or any ballot proposition." This definition contains two alternative prongs under which an entity is considered a political committee: (1) the contribution prong and (2) the expenditure prong. EFF, 111 Wn.App. at 599.

Contribution prong

¶ 15 Under the contribution prong, an organization is considered a political committee if it expects to receive or receives contributions toward electoral goals. EFF, 111 Wn.App. at 599. Utter and Ireland contend contemporaneous documents show that BIAW solicited and received pledges, in the form of MAF funds, from the local associations. For example, the " Rossi-lution" signed by heads of the local associations refers to " BIAW" throughout. Documents from the local associations refer to " BIAW" in discussing the local associations' participation in the MAF fundraising effort and their decisions to pledge funds. Other documents show that throughout the fundraising effort, senior officers represented themselves as " BIAW senior officers" and BIAW president Daimon Doyle signed correspondence seeking pledges as " BIAW President." Utter and Ireland contend that BIAW was required to register within two

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weeks of [176 Wn.App. 656] having the expectation of receiving the pledges for MAF funds from the local associations and was required to report the pledges when received.

¶ 16 BIAW does not dispute that pledges are treated as contributions under the FCPA; rather, it disputes that it was the entity that expected to receive the contributions at issue. It contends that BIAW-MSC received the withheld MAF funds from the local associations and BIAW-MSC donated to ChangePAC. It points out that the MAF funds are generated from a BIAW-MSC program and are revenue to BIAW-MSC, not BIAW. As for the use of " BIAW" in the contemporaneous documents, BIAW contends that while BIAW and BIAW-MSC are legally separate entities with different functions, both are referred to internally as " BIAW." It explains that when its board of directors or any officers direct actions by " BIAW," BIAW and/or BIAW-MSC staff ensures that the appropriate entity--whether BIAW or BIAW-MSC--actually carries them out to comply with regulatory and tax obligations.

¶ 17 We conclude the evidence does not create a genuine issue of material fact as to the contribution prong. The issue is whether BIAW or BIAW-MSC expected to receive and ultimately did receive the MAF funds from the local associations. The evidence shows that BIAW-MSC administered the retro program from which the funds were generated and was formed in part to run the program, BIAW-MSC actually received the fees from the local associations and then contributed them to ChangePAC, and these transactions were made through BIAW-MSC's accounts. BIAW submitted evidence that " BIAW" was ...

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