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 ...