Butler, Honnold, Vail v. The 13th Regional Corporation

SANDRA WESTERN BUTLER, LUCYLLE S. HONNOLD, and EDWIN F. VAIL III, Appellants,
v.
THE 13TH REGIONAL CORPORATION, a foreign corporation, Respondent.

No. 62567-5-I.Court of Appeals of Washington, Division One.

Filed: September 21, 2009.Counsel for Appellant(s), Scott Michael Kane, Attorney at Law, Po Box 7132, East Wenatchee, WA, 98802-0132.

Alex Fox, Lacy Kane, P.S., 455 6th St Ne, East Wenatchee, WA, 98802-4427.

Counsel for Respondent(s), David Duane Shaw, Attorney at Law, 520 Sw Yamhill St Ste 1015, Portland, OR, 97204-1335.

UNPUBLISHED OPINION

ELLINGTON, J.

Sandra Western Butler, Lucylle Honnold,^[1] and Edwin Vail III appeal from an order on summary judgment dismissing their claims for unpaid wages.

We affirm.

FACTS

The 13th Regional Corporation (13th) is an Alaska Native corporation created by the Alaska Native Claims Settlement Act to perform as a trustee administering compensation awarded to native shareholders in settlement of land claims.^[2] One of the ways 13th manages its funds is by investing in or purchasing companies that generate revenues, which are then distributed to its shareholders. During the time period relevant to this suit, the chief executive officer of 13th was Ken Krajewski.

Sandra Butler was the only member of a limited liability corporation known as B2B-GOV, LLC (B2B). In September 2003, B2B and Krajewski signed a business opportunity development agreement. B2B agreed to provide 13th with information regarding business opportunities, and 13th agreed to provide B2B with the opportunity to acquire an equity interest and/or provide management services for business opportunities that 13th agreed to invest in or acquire. The agreement specifically provided that B2B employees were not 13th employees and that any equity sharing or management service agreements had to be in writing. Honnold and Vail, who is Butler’s brother, became members of B2B.^[3] Butler, Honnold, and Vail performed services for 13th under this agreement, for which each received compensation of $5,000 per month.

None of the business opportunities that B2B identified were successful and there were never any written agreements allowing compensation to B2B under the equity sharing or management services provisions of the contract. B2B was administratively dissolved on March 1, 2005, and is not a party to this suit.

The 13th board of directors had reservations about the B2B contract and was unwilling to grant equity interests in any acquired businesses. According to Butler, Krajewski therefore hired Butler, Honnold and Vail as employees of the 13thin February 2004. For approximately the next six months, the three were paid a monthly salary of $5,000, the same amount they were paid under the B2B agreement, and were covered by 13th employee benefit plans.

Sometime after the three were made employees, Butler proposed written employment agreements for herself, Honnold and Vail, under which each would be employed by 13th for a three and a half year period with the title of executive vice president of business development, at an annual salary of $150,000, $90,000 of which would be deferred until July of each contractual year. However, Butler testified that no deferred compensation would be due in July 2004. The agreements would have entitled each to bonuses and other perquisites, including the opportunity to earn additional management fees as the chief executive officer of subsidiary companies.

The agreements would automatically renew if not terminated. Even without bonuses and/or management fees, this agreement would have paid Butler, Honnold and Vail more than the Krajewski’s salary of $108,000 per year.

Krajewski refused to sign the proposed agreements. Butler now asserts, however, that the three started working for 13th on the basis of Krajewski’s oral promise to pay them a salary of $12,500 per month, payable $5,000 per month with $7,500 per month deferred. Neither Honnold nor Vail ever discussed the issue with Krajewski and both relied on Butler for their information.

Krajewski assigned Butler and Honnold to manage AlaskaCatch, a fish processing venture. There was evidence that Krajewski and Butler committed $2.2 million to AlaskaCatch on terms very unfavorable to 13th and that Butler acted in Krajewski’s place while he was ill.

In July 2004, the Board discovered that 13th was in dire financial straits because of these commitments. The Board placed Krajewski on paid leave and terminated his services in mid July. On July 21, 2004, 13th also terminated the employment of Butler, Honnold and Vail. 13th later sued AlaskaCatch. Krajewski testified in this suit that Butler had no authority to make commitments to AlaskaCatch.

In February 2007, Butler, Honnold and Vail filed suit against 13th, alleging (1) they were employed by 13th from September 1, 2003 to July 2004, (2) they signed a business opportunity agreement under which they would gain a 15 percent equity position in each enterprise they initiated or acquired on behalf of 13th, (3) that 13th was unhappy with this agreement and in February 2004 entered negotiations with them for a salary of $150,000 as 13th employees, (4) beginning in February 2004 they were paid under this new agreement without having signed a contract, (5) they each were to earn $5,000 per month with a $90,000 payment deferred until July of every year, (6) they each were paid $5,000 per month from February 2004 until July 2004 when they were terminated, (7) they were never paid the balance owed under this new agreement, and (8) they were never given a 15 percent equity under the original agreement.

Butler, Honnold and Vail asserted one cause of action for breach of contract. In this cause, they asserted that they had a valid employment agreement with 13th; that if this new agreement was invalid under the statute of frauds, the B2B agreement remained in place and they were due compensation under that agreement; that if the new agreement was invalid, it was nevertheless enforceable under the doctrine of promissory estoppel; and that they relied on 13th’s promises to compensate them under the new agreement and forsook other business opportunities in exchange for compensation under the original agreement or the new agreement. They asserted a second cause of action for nonpayment of wages, alleging violations of chapters 49.46, 49.48 and 49.52 RCW. 13th answered, admitting that it employed Butler, Honnold and Vail from February 2004 to July 22, 2004 but denying all other allegations. In discovery, Butler, Honnold and Vail each claimed entitlement to damages of $815,000 for the full 3.5 year term of the proposed oral employment agreement, or, alternatively, damages of $1,490,000 under the B2B agreement.

13th moved for summary judgment. 13th agreed there was an implied in fact contract to pay Butler, Honnold and Vail $5,000 per month but argued that there was no issue of fact as to any other amount. Butler, Honnold and Vail conceded that the B2B agreement was not at issue because B2B was not a party, that the draft employment agreement was not enforceable under the statute of frauds, and that promissory estoppel did not defeat the statute of frauds. They argued, however, that they could recover based on a theory of unilateral contract, under which their work constituted an acceptance of 13th’s offer of a salary of $150,000 per year, or a theory of quantum meruit. The trial court granted the motion for summary judgment and dismissed the claims. We apply the usual standard of review on summary judgment.^[4]

DECISION

Issue I

Butler, Honnold and Vail contend the trial court erred in not finding the existence of an oral employment agreement. Because they conceded the B2B agreement does not apply and that any alleged oral agreement based on the proposed contract is not enforceable under the statute of frauds, they must rely on their contention that 13th offered to pay them $12,500 per month, $7,500 of which would be deferred, and that this was a unilateral contract which was accepted and executed when they began work for the corporation.

The essential elements of a contract are the subject matter, the parties, the promise, the terms and conditions, and the price or consideration.^[5] “Employment contracts are governed by the same rules as other contracts.”^[6] A contract may be oral or written, and may be implied with its existence depending on some act or conduct of the party sought to be charged.^[7] Because Washington follows the objective manifestation test for contracts, the parties must objectively manifest their mutual assent and the terms assented to must be sufficiently definite.^[8] The party asserting the existence of such a contract, whether express or implied, bears the burden of proving each essential element, including the existence of a mutual intention.^[9] Disputes over the existence of oral agreements are not usually decided on summary judgment,^[10] because the issue of whether parties manifested mutual assent to form a contract is generally a question of fact.^[11] “Nonetheless, the general rule still applies: bare assertions of ultimate facts and conclusions of fact are alone insufficient to defeat summary judgment.”^[12]

Plaintiffs’ argument that there was an agreement for a monthly salary fails for several reasons. First, there is no evidence as to when the $7,500 per month deferred compensation was to be paid and therefore no evidence establishing this term of the contract. Second, the evidence does not support the assertion that there was a contract for monthly compensation of $12,500, as opposed to yearly compensation of $150,000. This distinction makes a difference because Butler testified that no deferred compensation would be due in July 2004. Therefore, the first date any deferred compensation could have been paid was July 2005, meaning the alleged contract was not to have been performed within a year. Butler, Honnold and Vail submitted identical declarations indicating that they agreed to work for 13th beginning in February 2004 for an annual salary of $150,000, payable at the rate of $5,000 per month with $7,500 per month deferred. All the evidence was that the deferred compensation would be payable only at certain times. Plaintiffs’ present characterization of the alleged agreement as providing for a monthly salary contradicts the declarations and seems either a transparent attempt to avoid the statute of frauds, RCW 19.36.010, or a backhanded way of invoking part performance, which is barred as a theory of recovery for personal service contracts.^[13] Third, the existence of a promise depends on the understanding and intent of the parties, business custom, the nature of the employment, the situation of the parties, and the surrounding circumstances, and requires more than the employee’s subjective understanding.^[14] Other than Butler’s subjective understanding, there is no evidence of a promise by 13th to pay each of these employees $12,500 per month.

Finally, the general rule is that where it is understood that the terms of a proposed contract, though tentatively agreed upon, are to be reduced to writing and signed, there is no final contract until that is accomplished.^[15] In this case, 13th agrees that it employed plaintiffs, but only at the salary they were paid under the B2B agreement, $5,000 per month. Yet plaintiffs now argue that 13th was willing to orally offer a much higher salary. Given the context in which this alleged agreement occurred, this is not a reasonable inference from the evidence.

We find useful the framework used by the Idaho Supreme Court in Gray v. Tri-Way Const. Services, Inc.,^[16] which presents similar facts. Gray worked for another company but negotiated with Tri-Way for a position. Gray began working for Tri-Way and was paid a monthly salary but continued negotiating the terms of his employment. The parties never reached a written agreement and Gray resigned. Gray then sued, arguing, as do the plaintiffs here, that the conduct of the parties reflected their intent to contract regarding the terms of his compensation prior to memorializing the employment agreement. Addressing this claim, the court held as follows:

“The parties’ intent determines whether an oral contract was formed when the parties agree to reduce their agreement to a writing.” Thompson [v. Pike], 122 Idaho [690,] 696, 838 P.2d [293 (1992)]. If the parties view the written draft as merely a record, then the oral agreement is valid. Id. However, if the parties view the written draft a consummation of the negotiation, then the oral agreement is not valid. Id. The Court looks to the following factors in determining if the parties intended to have a written contract: (1) whether the subject matter of the contract is one usually put in writing, (2) whether the contract contains many details, (3) whether a large amount of money is involved, (4) whether the contract requires a writing for a full expression of the covenants and promises, and (5) whether the negotiations indicate that a written draft is contemplated as the final conclusion of the negotiations. Intermountain Forest Management, Inc. v. Louisiana Pacific Corp., 136 Idaho 233, 237, 31 P.3d 921, 925 (2001). “The burden of proof is on the party asserting that the contract was binding before the written draft was signed.” Id. “Where it is clear that one party has agreed that an oral agreement must be reduced to writing before it shall be binding, there is no contract until a formal document is executed.” Mitchell v. Siqueiros, 99 Idaho 396, 400, 582 P.2d 1074, 1078 (1978).^[17]

Butler, Honnold and Vail all agreed that they were employed because 13th was not happy with the B2B agreement and that their compensation was to replace that compensation that might have been available under the B2B agreement. But all the additional opportunities for compensation under the B2B agreement required prior separate agreements in writing. It is simply not reasonable to infer that 13th would have more than doubled what it was paying under the B2B agreement without a written agreement. Nor is the inference reasonable under the factors considered by the Gray court. The B2B agreement and the proposed employment agreement were both complex and covered a multitude of topics. This is usually the sort of agreement that is put in writing. Indeed, because the employment agreement was intended to cover more than a year’s employment, it would have to be in writing to satisfy the statute of frauds. The contract also involved large amounts of money, salaries that in fact exceeded that paid to the company’s chief executive officer, and there is no evidence that 13th would have agreed to the most expensive term in the contract, the salary, without a written agreement. Finally, Butler prepared and presented a written agreement, all the plaintiffs understood that the terms of the employment agreement were still under negotiation even after they began work, and Krajewski specifically rejected the written agreement. Under the circumstances, there is no reasonable inference that 13th would have entered an oral agreement to pay Butler, Honnold and Vail a salary of $12,500 per month.

Issue 2

Plaintiffs contend that quantum meruit does not apply in this case because there is an express oral contract that provides the terms of the agreement. But, they argue, if the court rejects the argument that there is an express contract, it may still consider a quantum meruit theory. Plaintiffs never pled a cause of action for quantum meruit. A party who fails to plead a cause of action or theory of recovery cannot finesse the issue by later contending it was in the case all along.^[18] Because quantum meruit was not pled as a theory of recovery, and plaintiffs agree that it does not apply, we do not consider it as an alternate ground for recovery.

Issue 3

Plaintiffs contend that 13th breached implied covenants of good faith and fair dealing and cannot evade its obligation to pay them by terminating their employment. They also claim violations of Washington’s wage laws. But these arguments depend on their ability to establish the existence of an enforceable contract to pay the amounts they claim. As there was no such contract, we need not consider these arguments.

Affirmed.

AGID and DWYER, JJ., concur.

[1] Honnold’s last name at the times relevant to her claims was Dorsey.

[2] There are 12 regional corporations administering funds paid to Alaska natives who reside in 12 geographic areas of the state. The 13th Regional Corporation administers funds paid to Alaska natives who no longer live in Alaska. It has approximately 5,000 shareholders.

[3] The corporate documents never reflected such a change, but whether Honnold and Vail were actually members of the LLC, as opposed to believing they were, is not relevant.

[4] We review summary judgment decisions de novo, viewing the facts and all reasonable inferences in the light most favorable to the nonmoving party. Anderson v. State Farm Mut. Ins. Co., 101 Wn. App. 323, 329, 2 P.3d 1029 (2000). Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, admissions, and affidavits show there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c).

[5] DePhillips v. Zolt Constr. Co., Inc., 136 Wn.2d 26, 31, 959 P.2d 1104 (1998) (quoting Family Med. Bldg., Inc. v. Dep’t of Soc. & Health Servs., 104 Wn.2d 105, 108, 702 P.2d 459 (1985)).

[6] Kloss v. Honeywell, Inc., 77 Wn. App. 294, 298, 890 P.2d 480 (1995).

[7] Hoglund v. Meeks, 139 Wn. App. 854, 870, 170 P.3d 37 (2007).

[8] Keystone Land & Development Co. v. Xerox Corp., 152 Wn.2d 171, 177-78, 94 P.3d 945 (2004).

[9] Hollenback v. Shriners Hospitals for Children, 149 Wn. App. 810, 829, 206 P.3d 337 (2009); Bogle and Gates, P.L.L.C. v. Holly Mountain Resources, 108 Wn. App. 557, 560, 32 P.3d 1002 (2001) (quoting Cahn v. Foster & Marshall, Inc., 33 Wn. App. 838, 840, 658 P.2d 42 (1983)).

[10] Duckworth v. Langland, 95 Wn. App. 1, 6-7, 988 P.2d 967 (1998); Crown Plaza v. Synapse Software, 87 Wn. App. 495, 500, 962 P.2d 824 (1997).

[11] Hoglund, 139 Wn. App. at 871.

[12] Saluteen-Maschersky v. Countrywide, 105 Wn. App. 846, 852, 22 P.3d 804 (2001).

[13] French v. Sabey Corp., 134 Wn.2d 547, 554, 951 P.2d 260 (1998).

[14] Goodpaster v. Pfizer, Inc., 35 Wn. App. 199, 202-03, 665 P.2d 414 (1983).

[15] Building Service Employees Intern. Union, Lodge No. 6 v. Seattle Hosp. Council, 18 Wn.2d 186, 194, 138 P.2d 891 (1943).

[16] 147 Idaho 378, 210 P.3d 63 (2009).