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Certification From United States District Court for Western District of Washington In Michael Allen v. Dameron

Supreme Court of Washington, En Banc

February 2, 2017

CERTIFICATION FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON IN MICHAEL ALLEN, Plaintiff,
v.
ZECHARIAH CLIFTON DAMERON IV, DANIEL STANDEN, JOHN RIGAS and DAVID M. McGRANE, Defendants, ZECHARIAH CLIFTON DAMERON IV, DANIEL STANDEN, JOHN RIGAS, Third-Party Plaintiffs, STEVEN KALMANOVITZ aka STEVEN KALMAN, Third-Party Defendant,

          WIGGINS, J.

         The United States District Court for the Western District of Washington asks us to answer two certified questions about the application of RCW 49.52.050, the wage rebate act (WRA), in circumstances of chapter 7 bankruptcy:

Is an officer, vice principal, or agent of an employer liable for a deprivation of wages under RCW 49.52.050 when his or her employment with the employer (and his or her ability to control the payment decision) was terminated before the wages became due and owing? Does an officer, vice principal, or agent's participation in the decision to file the Chapter 7 bankruptcy petition that effectively terminated his or her employment and ability to control payment decisions alter the analysis? If so, how?

Order Vacating J. & Certifying Questions to Wash. Supreme Ct, Allen v. Dameron, No. C14-1263RSL, at 3-4 (W.D. Wash. Apr. 28, 2016).

         We answer both the certified questions in the affirmative. First, officers, vice principals, or agents may be held personally liable under the WRA, even if the payday date for those wages came after the employer filed for chapter 7 bankruptcy. Second, an officer's participation in the decision to file the chapter 7 bankruptcy petition tends to show a willful withholding of wages-the second element required by the WRA.

         FACTS

         I. Factual History

         Michael Allen accepted a job as interim chief financial officer (CFO) for Advanced Interactive Systems Inc. (AIS)[1] and transferred to Seattle from the United Kingdom where he worked for one of AIS's subsidiaries. AIS was profitable only twice in its company history and repeatedly defaulted on loans from its senior secured lender, Anderson Mezzanine Partners (KAMP).[2] KAMP initially excused those defaults by renewing its agreements with AIS from 2010 until early 2013. However, on February 14, 2013, AIS received a notice of default from KAMP, and KAMP seized control of AIS's United States bank accounts.

         After it received the notice of default from KAMP, the AIS board tried to save AIS from its impending bankruptcy. At that time, there were five board members: Zechariah Clifton Dameron IV and Daniel Standen (the defendants in this action), as well as John Rigas, David McGrane, [3] and Steven Kalmanovitz (aka Steven Kalman). Unfortunately, the board was unsuccessful and AIS filed for bankruptcy on March 14, 2013. The intervening events were as follows.

         On February 15, 2013, the board wrote a letter asking KAMP to release the funds necessary for AIS to meet its payroll. Five days later, the board wrote to inform KAMP that should it fail to release the funds, AIS would have to terminate all of its employees. That letter informed KAMP that failure to release the funds would incur liability for withheld wages under chapter 49.52 RCW. KAMP responded, lifting its hold on AIS's bank accounts. As a result, the board now authorized every payment AIS made. However, the existing funds were insufficient to meet AIS's financial obligations, and the board requested additional funding[4] from KAMP.

         Given the dire financial state of AIS, Dameron proposed that AIS make preparations to file for chapter 7 bankruptcy[5] should KAMP decline to provide additional funding to AIS. Standen seconded Dameron's proposal, and the board approved the proposal. Specifically, Dameron and Standen were "empowered" to file a chapter 7 bankruptcy petition after approval from the board of directors. Immediately following that meeting, Rigas resigned.

         KAMP rejected all of the board's funding requests. In light of KAMP's rejection, Dameron proposed that AIS file for chapter 7 bankruptcy as soon as possible, terminate all AIS employees, except for those necessary to prepare the chapter 7 filings, and cease operations of AIS and its subsidiaries. The board unanimously approved the proposal. McGrane resigned after that meeting, leaving AIS without a chief executive officer (CEO) and only Dameron, Standen, and Kalman as the remaining members of the board.

         Pursuant to the board's action, Allen sent a termination letter to AIS's employees on March 4. The termination letter informed the employees of the chapter 7 filing and acknowledged that they would receive their final paycheck, including accrued vacation, on March 15, their regular payday date. Allen's employment was not terminated at this time since he was one of the employees the board deemed necessary to prepare the chapter 7 filing.

         At the next board meeting, the board decided that upon filing for chapter 7 bankruptcy, the remaining company funds would be allocated for retained employees, payroll taxes, state sales taxes, and employees, while holding $25, 000 for insurance. Shortly thereafter, the board paid $19, 837.08 for AIS's April general insurance premiums, $13, 953.00 for directors' and officers' insurance, and $7, 853.96 in payroll advance for retained employees.

         On March 14, 2013, the board authorized the filing of AIS's chapter 7 bankruptcy petition.[6] Minutes prior to the filing, the board adopted a resolution to use its remaining assets for employees' wages, The board paid approximately $16, 000.00 to employees' 401K plans and $31, 423.72 to payroll. That amount was not sufficient to cover all wages that AIS owed to its employees, which amounted to $322, 615.02, and none of that money was paid to Allen.

         II. Procedural History

         After AIS filed chapter 7 bankruptcy, three former employees filed a class action suit on behalf of all terminated AIS employees against all former AIS board members, including Dameron and Standen (hereafter referred to as the defendants), for willful withholding of wages under RCW 49.52.050, the Washington Rebate Act (WRA). That case settled, and the defendants and Rigas agreed to pay the class $356, 500. However, the terms of the settlement offer excluded Allen as a member of that class.

         Thereafter, Allen filed this civil suit in the United States District Court for the Western District of Washington, alleging that the defendants willfully withheld wages in violation of the WRA.[7] See Allen v. Dameron, No. C14-1263RSL, 2016 WL 827168, at *1 (W.D. Wash. Mar. 3, 2016) (court order), vacated on recons., 2016 WL 4772484 (Apr. 22, 2016) (court order). Allen claimed that he was owed three months' severance pay, unused vacation pay, and wages earned during two pay periods: wages with a payday date one day after the bankruptcy petition was filed and one week's worth of wages with a payday date 15 days after the filing.[8] The defendants moved for summary judgment, and the district court granted that motion, reasoning that (1) the defendants did not have the authority to pay Allen's wages on the dates they became due and that (2) the defendants did not willfully withhold wages from Allen. See id. at *4.

         Allen timely filed a motion asking the district court to vacate its judgment and reconsider the defendants' motion for summary judgment. Allen argued that the district court should have certified the relevant questions of state law to this court. Over the defendants' opposition, the district court granted Allen's motion to vacate the summary judgment. The district court then certified two questions to this court:

[(1)] Is an officer, vice principal, or agent of an employer liable for a deprivation of wages under RCW 49.52.050 when his or her employment with the employer (and his or her ability to control the payment decision) was terminated before the wages became due and owing?
[(2)] Does an officer, vice principal, or agent's participation in the decision to file the chapter 7 bankruptcy petition that effectively terminated his or her employment and ability to control payment decisions alter the analysis? If so, how?

         We granted review pursuant to RCW 2.60.020.[9]

          STANDARD OF REVIEW

         We treat certified questions as "questions of law that we review de novo." Carlsen v. Glob. Client Sols., LLC, 171 Wn.2d 486, 493, 256 P.3d 321 (2011). In addition, "[w]e consider the legal issues not in the abstract but based on the certified record provided by the federal court." Id. For cases such as this, where the questions "pertain to a motion for summary judgment, we perform the same inquiry as the district court." Saucedo v. John Hancock Life & Health Ins. Co., 185 Wn.2d 171, 178, 369 P.3d 150 (2016). ANALYSIS

         We reject the defendants' invitation to reformulate the certified questions and answer both certified questions in the affirmative. First, we hold that an officer, vice principal, or agent may be personally liable for the failure to pay wages under the WRA, even when the payday date for such wages comes after the filing of chapter 7 bankruptcy. Second, an officer, vice principal, or agent's participation in the decision to file for chapter 7 bankruptcy tends to show a willful withholding of wages under the WRA. I. We Decline the Invitation To Reformulate the Certified Questions

         We have the authority to reformulate certified questions. Danny v. Laidlaw Transit Servs., Inc., 165 Wn.2d 200, 205, 193 P.3d 128 (2008). However, we decline to do so here.

         The defendants' request to reformulate the certified questions is actually a request for the court to answer a completely different question. The defendants ask us to answer whether they, as members of the board of directors, may be held liable under the WRA. The certified questions, on the other hand, ask us to clarify our law regarding the application of the WRA in circumstances of chapter 7 bankruptcy. The district court's certified questions already assume the existence of individuals who are liable under the WRA. The WRA states that an individual can be personally liable if they are an "officer, vice principal, or agent."[10] RCW ...


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