Affiliated Mental Health Programs, Inc. & Janice Becker, App.\x-resp. v. Joyce Burton, Resp.\x-app. ( 2013 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JOYCE LEATH BURTON,
No. 68434-5-1
Respondent/Cross Appellant,
DIVISION ONE
v.
UNPUBLISHED OPINION
JANICE BECKER, aka JANNY BECKER,
and the marital community of JANICE
BECKER and JOHN DOE BECKER; and
AFFILIATED MENTAL HEALTH
PROGRAMS, INC.,
ro
Appellants/Cross Respondents. FILED: August 12, 2013s.
KQ
Appelwick, J. — During the 60 day period between Burton's notice of termination
and the effective date of her termination, Burton provided mental health treatment to
former AMHP clients. AMHP withheld its severance payments based on Burton's
breach of her duty of loyalty. The trial court determined that Burton breached her duty
of loyalty, but nevertheless ordered AMHP to pay her salary, offset by payments she
received from clients and unemployment benefits. AMHP argues that salary forfeiture is
the exclusive remedy for an agent's breach of loyalty and that Burton tortiously
interfered with its business expectancies. Burton argues that the actions leading to her
breach of loyalty were justified by public policy considerations, that the trial court
miscalculated her damages, and that she should have been able to obtain double
damages and to pursue a claim against AMHP's president individually. The trial court
improperly offset Burton's salary by the amount of unemployment benefits she received
during her severance period. We otherwise affirm.
No. 68434-5-1/2
FACTS
Affiliated Mental Health Programs Inc. (AMHP) provides mental health
counseling services to individuals with chronic and serious mental health issues. Joyce
Burton worked for AMHP from 2004 to 2009. From January 2007 forward, she served
as AMHP's director. As director, Burton was responsible for the company's financial
performance and stability. She also maintained a counseling caseload.
When she accepted the director position, Burton signed an employment contract
that explained the procedure for termination:
AMHP may terminate this agreement with 60 days notice and with due
cause and upon payment of compensation due to the Director for services
rendered to the date of termination.
The agreement also included a noncompetition provision:
The Director promises not to approach or solicit from AMHP clients on
whose behalf Director has done any work pursuant to this contract for a
period of three years from the date of the Director's completion of the work
for the agency.
In July 2013, AMHP decided to terminate Burton on the basis of poor financial
performance, and a poor management style. It contended that she was insensitive to
staff members and communicated in a disrespectful manner. AMHP's owner and
president, Janice Becker, gave Burton notice of termination on July 13. In a termination
letter, she informed Burton that she would receive 60 days of pay and that she should
not work during those final days of her employment:
You will be paid as provided in the Agreement through your termination
date [September 11, 2009]. However, you will not be required to render
any services to AMHP during these final 60 days of your employment,
other than answering brief phone calls if we have questions about matters
you have handled or become familiar with during your employment here.
No. 68434-5-1/3
Becker also told Burton not to contact her existing clients. Nevertheless, Burton
had contact with at least three clients after she was given notice of termination,
beginning within one to two weeks of the termination letter.
On July 21, Becker warned Burton to stop talking to clients:
I am even more disturbed to learn that you have improperly been
contacting AMHP clients. Since we are not asking you to perform work
duties at this point, there is no valid reason for you to be contacting any
AMHP clients. You are no longer authorized to act on behalf of AMHP or
to suggest to anyone that you are doing so. But until your termination
date, you still have a duty of loyalty to AMHP, and it is unlawful for you to
divert clients away from the agency. You have also promised, in
Paragraph 10 of your Agreement for Professional Services, "not to
approach or solicit from AMHP clients on whose behalf Director has
done any work pursuant to this contract for a period of three years
from the date of the Director's completion of the work for the
agency." By contacting and approaching AMHP clients, you are
breaching your contract with AMHP.
You must immediately stop contacting AMHP clients. If you continue to do
so, AMHP will take legal action against you, and will seek all remedies
available to the agency under the contract and the law, including payment
of money damages based on any reduction in the agency's case load
resulting from your improper contacts with agency clients. In addition, if
you continue to approach agency clients, then you will be in material
breach of your contract, AMHP will no longer be obligated to continue
paying your salary and benefits through the termination date, and AMHP
will stop making those payments.
On July 24, AMHP's lawyer sent a letter to Burton's lawyer:
AMHP's position in this matter is straightforward. As an employee of
AMHP, Ms. Burton continues to have a duty of loyalty to the agency
through at least her termination date in September. In addition, the
Agreement for Professional Services she signed broadly states that she
cannot "approach or solicit" AMHP clients for a period of three years.
Nevertheless, since the day AMHP notified her of its intent to terminate
her employment, she has improperly contacted AMHP clients, including
Redacted who has now told AMHP that she will be seeing Ms. Burton
rather than AMHP. Please understand that AMHP is very serious about
taking legal action against Ms. Burton, as well as discontinuing payment of
her salary, if she continues to violate her legal obligations.
No. 68434-5-1/4
AMHP sent Burton another letter on August 11, informing her that she forfeited
any right to further salary or benefits:
In spite of my warning to you in [the July 21] letter, you have continued to
see AMHP clients on your own, and are diverting payments from those
clients to yourself for your own financial gain. . . . This is a breach of your
duty of loyalty to AMHP, as well as a breach of your Agreement for
Professional Services.
Because of these breaches, you have forfeited any right under that
agreement to payment of additional salary and benefits. You cannot take
AMHP's clients and pocket the proceeds, and still expect to continue
receiving a salary from AMHP.
AMHP sent checks for Burton's salary through July 13, plus a payout of accrued but
unused vacation. It informed her that it had paid for health and dental benefits through
July 31, and gave instructions for Burton to begin paying for her own benefits.
Burton contended she did some counseling for free during the 60 day period, but
also acknowledged she received and kept $1,125 from clients during that stretch. She
directed the clients to send payment directly to her instead of to AMHP. While
counseling the clients, she did not instruct them to formally terminate their relationship
with AMHP, even though she knew the clients had signed an agreement with AMHP
that required them to do so.
Burton sued AMHP and Becker personally, alleging that AMHP fired her without
due cause, that AMHP breached its duties to her by discontinuing her salary and
benefits, and that AMHP improperly used Burton's image on its website. AMHP denied
liability and counterclaimed for breach of the employment contract's noncompetition
provision, breach of the duty of loyalty, and tortious interference with a contractual or
business relationship. Before trial began, AMHP withdrew its claim for breach of the
No. 68434-5-1/5
noncompetition provision. During trial, the court dismissed Burton's claims against
Becker as an individual and her claim that AMHP improperly used her image.
The trial court concluded that AMHP had due cause to terminate Burton. But, it
found that all the clients Burton continued to see unilaterally sought her out, and she did
not solicit or approach them. It ordered AMHP to pay Burton her withheld salary. It
ultimately ordered AMHP to pay $6,259. That amount includes $10,500 for Burton's
salary, $962 in medical expenses she incurred while she did not have benefits, and
$230 in costs, but is offset against $3,558 she received in unemployment benefits,
$1,125 in payments she received from clients during the 60-day severance period, and
$750 in sanctions. As described more fully below, there is ambiguity in the trial court's
findings and conclusions concerning AMHP's counterclaims for breach of the duty of
loyalty and tortious interference. It appears that the trial court found Burton breached
her duty of loyalty, but did not commit tortious interference.
AMHP appeals and Burton cross appeals.
DISCUSSION
AMHP argues that Burton breached her duty of loyalty, that the mandatory
remedy for a breach is forfeiture of her entire salary, and that the trial court erred by not
concluding that Burton tortiously interfered with AMHP's business expectancies. Burton
claims on cross appeal that the trial court should have found that her breach was
excused by public policy considerations, that the trial court incorrectly calculated
damages, and that she is entitled to double damages and to pursue Becker personally
because AMHP willfully withheld wages.
No. 68434-5-1/6
I. Duty of Loyalty
Burton's employment contract contained a noncompetition provision that required
her not to "approach" or "solicit" any former clients for three years after leaving AMHP.
But, AMHP did not pursue a claim for breach of that provision. Indeed, it appears
Burton did not "approach" or "solicit" any former clients. Although Burton continued to
see a few former AMHP clients, the trial court found that those clients sought her out,
had a close and long-held relationship with Burton, were not interested in disrupting that
relationship, and would not have stayed with AMHP after Burton left.1 Thus, instead of
pursuing a claim for breach of the noncompetition provision, AMHP asserted a breach
of the common law duty of loyalty.
The specific duty AMHP relies upon stems from Kieburtz & Associates. Inc. v.
Rehn. 68 Wn. App. 260, 265-66, 842 P.2d 985 (1992). In that case, we concluded that
an implicit duty not to compete may exist even in the absence of a specific contractual
duty of noncompetition. ]d. In doing so, we outlined the rule provided by Restatement
(Second) Agency § 393 (1958). Id. at 265. Specifically, during the period of his or her
employment, an employee is not entitled to solicit customers for a rival business or to
act in direct competition with his or her employer's business. I<± In like manner, unless
otherwise agreed, an agent is subject to a duty not to compete with the principal
concerning the subject matter of his agency. Id.
Unlike Burton's contractual noncompetition duty, her duty of loyalty does not
extend beyond the period of employment. But, the duty itself is broader because
1 Although AMHP assigns error to that finding, it offers no argument that it is not
supported by substantial evidence. Nor does it argue that Burton did, in fact, approach
or solicit former AMHP clients.
No. 68434-5-1/7
"noncompetition" is not limited to approaching or soliciting former clients. Several key
facts are undisputed. Burton kept at least $1,125 in proceeds she received directly from
clients during the 60 days following her notice of termination. She directed the clients to
send payment directly to her instead of to AMHP. She did not instruct the clients to
formally terminate their relationship with AMHP even though she was aware the clients
had signed an agreement with AMHP that required them to do so. Thus, even though
the evidence does not establish that Burton breached her contractual noncompetition
duty, she did violate an independent common law duty.
II. Salary Forfeiture
Washington courts have adopted the language of Restatement (Second) Agency
§ 469, which provides:
An agent is entitled to no compensation for conduct which is disobedient
or is a breach of his duty of loyalty; if such conduct, constitutes a willful
and deliberate breach of his contract of services, he is not entitled to
compensation even for properly performed service for which no
compensation is apportioned.
See, e.g.. Coqan v. Kidden. Mathews & Seqner, Inc., 97 Wn.2d 658, 667, 648 P.2d 875(1982); Merklev v. MacPherson's. Inc., 69 Wn.2d 776, 778, 420 P.2d 205 (1966); Kane
v. Klos, 50 Wn.2d 778, 789, 314 P.2d 672 (1957). Thus, as a general proposition, an
agent or other fiduciary who is unfaithful may be denied compensation. Williams v.
Queen Fisheries. Inc.. 2 Wn. App. 691, 698, 469 P.2d 583 (1970). But, it is not an
inflexible rule and the decision to allow an unfaithful agent or fiduciary to receive
compensation rests within the discretion of the court. Jd. at 696 n.2, 698; Cogan. 97
Wn.2d at 667. The rationale for placing the decision within the discretion of the court is
No. 68434-5-1/8
that the mere fact of breach is not conclusive proof that the agent failed to earn his or
her salary or commission. See Williams. 2 Wn. App. at 697.
AMHP nevertheless argues that forfeiture of the agent's entire salary is the
mandatory and exclusive remedy. It claims that the court's discretion does not kick in
until the agent specifically requests apportionment and points to discrete job functions
that were properly performed. It further asserts that it was entitled to a mitigation offset
for the amount Burton received from clients even absent a breach ofthe duty of loyalty.2
Burton claims that her breach should be excused due to a public policy of allowing
clients to choose their providers, and that the trial court erred by not explicitly finding
that such a public policy exists.
Despite AMHP's insistence that forfeiture of Burton's entire salary is a mandatory
remedy, it can cite to no cases that state complete forfeiture is always required. AMHP
instead cites to cases where the court did, in fact, uphold or order complete forfeiture.
Those holdings do not conflict with the rule that the decision to award compensation is
within the court's discretion. In fact, in Williams we explicitly stated that even though an
agent who breaches a duty of loyalty does not have a right or entitlement to
compensation, the court may nevertheless exercise its discretion in granting
compensation. Id. at 698-99. That conclusion was not, as AMHP argues, limited to the
circumstance where an agent triggers the court's discretion by requesting
apportionment. Indeed, in Williams an agent was awarded compensation despite
2 AMHP also makes a cursory alternative argument that, even if forfeiture of
salary was not justified, its actions can be seen as rightfully terminating Burton's
contract early in response to her breach. But, its actions did not take that form. It
withheld her entire salary for the two month period.
8
No. 68434-5-1/9
breaching a duty of loyalty, and there is no suggestion that the agent explicitly
requested apportionment. ]d. at 699.
AMHP contends that, even if the court's discretion is triggered, apportionment
was improper here because Burton "performed no work at all for AMHP during that
period." AMHP also argues that the offset for amounts that Burton received from clients
had "nothing to do with punishing Burton for her breach of loyalty." The rationale for
forfeiture is that an agent is not entitled to compensation for conduct that is disobedient
or constitutes a breach of the duty of loyalty. Cogan. 97 Wn.2d at 667. Its purpose is
not to impose a penalty. See, e.g.. Williams. 2 Wn. App. at 697-98. AMHP and Burton
were parties to an employment contract that required AMHP to give 60 days notice of
termination. She had a contractual right to her salary during that period and no
obligation to perform job functions. In fact, AMHP explicitly instructed her not to perform
any job functions. In light of that explicit direction, it is disingenuous to now argue that
she could only earn her salary by affirmatively performing work for AMHP. Depriving
her of salary on these facts would only serve to punish.
Further, AMHP argues that it would have been entitled to an offset in the
absence of a breach of loyalty. It claims that in employment cases, such as
employment discrimination and wrongful termination cases, earnings from outside work
are deducted from the salary award. While that is true, Burton did not make an
employment discrimination claim and had no recovery on her claim for wrongful
termination on which to claim an offset. Had there been no breach of loyalty, AMHP
would have no claim for any offset because it would not have had a cause of action to
pursue. The nature of the outside income, resulting from the breach of loyalty, is the
No. 68434-5-1/10
only thing that allowed AMHP to obtain an offset. The terms of Burton's termination
required her to answer questions if asked, but not to otherwise perform any work for
AMHP. It imposed no obligation to remain completely unemployed. The forfeiture rule
does not make every type of employment during the termination period a violation of the
duty not to compete or of the duty of loyalty. AMHP cites no authority that would allow it
to offset wages Burton earned during the 60 days from employment which did not
violate the duty of loyalty or the noncompetition requirements. We disagree that AMHP
would have been entitled to the offset absent the breach of loyalty.
Moreover, the clients that Burton treated had already elected to leave AMHP.
The only evidence on the issue established that the clients independently elected to
leave AMHP when Burton was terminated, and AMHP does not challenge the trial
court's finding to that effect. Burton's activities did not violate the contractual
noncompetition clause and did not cause the harm to AMHP from loss of clients. This
mitigates the egregiousness of her breach. Under these circumstances, the trial court's
remedy of offsetting receipts from those clients against the salary she was owed was
not an abuse of discretion.
Burton argues that the trial court's remedy is also supported by public policy, and
that the trial court erred by not explicitly finding that her breach is excused by public
policy considerations. She claims that it is an established public policy that it is the
client's right to choose a provider. Whether Washington has established a clear
mandate of public policy is a question of law subject to de novo review. Danny v.
Laidlaw Transit Servs.. Inc.. 165 Wn.2d 200, 207, 193 P.3d 128 (2008). To determine
whether a clear public policy exists, we consider whether the policy is demonstrated in a
10
No. 68434-5-1/11
constitutional, statutory, or regulatory provision or scheme. jd at 207-08. Although
judicial decisions may establish public policy, we proceed cautiously if called upon to
declare public policy absent some prior legislative or judicial expression on the subject.
Ig\ at 208.
Here, Burton's entire argument is based on a brief statutory reference to the
client's responsibility to choose a provider:
A person licensed under this chapter must provide clients at the
commencement of any program of treatment with accurate disclosure
information concerning the practice, in accordance with rules adopted by
the department, including the right of clients to refuse treatment, the
responsibility of clients to choose the provider and treatment modality
which best suits their needs, and the extent of confidentiality provided by
this chapter. The disclosure information must also include the license
holder's professional education and training, the therapeutic orientation of
the practice, the proposed course of treatment where known, financial
requirements, and such other information as required by rule. The
disclosure must be acknowledged in writing by the client and the license
holder.
RCW 18.225.100 (emphasis added). From that brief reference, she asserts that she
had an obligation to accept her former clients.3 But, the client's "responsibility" to
choose a provider is not the same as the client's "right." Further, that provision merely
explains the disclosures that must be made by mental health counselors, marriage and
family therapists, and social workers, jd The disclosures imply a substantive legal
3 Burton also refers the court to the American Mental Health Counselors
Association Code of Ethics. But, the portion she cites merely says that she had an
ethical obligation not to abandon or neglect her clients, to setup a safety plan for her
clients, to refer her clients to appropriate resources, and to contact appropriate support
if necessary. Am. Mental Health Counselors Ass'n, AMHCA Code of Ethics § 1(B)(5)
(2010). Those directives did not require her to accept the clients herself or accept the
proceeds of treatment sessions while still employed by AMHP. jd And, this is a legal
dispute concerning an employer-employee relationship, not the scope of Burton's
ethical obligations.
11
No. 68434-5-1/12
obligation but do not expressly state one. More significantly, RCW 18.225.100 at best
speaks to the client's responsibility to choose a provider, not the provider's obligation to
accept clients. It does not follow that a provider must accept every client that chooses
it. Burton's policy argument is further weakened by the fact that Washington courts
have not held that restrictive covenants between physicians are unenforceable, a fact
that unquestionably infringes on clients' right to choose providers. See Emerick v.
Cardiac Study Ctr.. Inc. 170 Wn. App. 248, 259, 286 P.3d 689, review denied. 175
Wn.2d 1028, 291 P.3d 254 (2012).
The trial court correctly declined to find that Burton's conduct was excused by
public policy considerations and appropriately exercised its discretion in awarding
Burton her salary.
III. Tortious Interference
The elements of a claim for tortious interference with contractual or business
expectancies are (1) the existence of a valid contractual relationship or business
expectancy; (2) knowledge of the relationship or expectancy on the part of the interferon
(3) intentional interference, for an improper purpose or using improper means, inducing
or causing a breach or termination of the relationship or expectancy; and (4) resultant
damage to the party whose relationship or expectancy has been disrupted. Kieburtz. 68
Wn. App. at 267. The trial court concluded, "The first, second, and fourth elements are
easily satisfied by the evidence, and the third element is satisfied by Ms. Burton's
breach of her duty of loyalty." But, in the next conclusion of law it stated, "AMHP failed
to carry its burden of proof on tortious interference with the agency's contractual and
business relationships." Regardless of the confusion created by those conflicting
12
No. 68434-5-1/13
statements, the only conclusion supported by the trial court's findings of fact is that the
elements were not met.
Even assuming that Burton's breach of loyalty could constitute intentional
interference for an improper purpose or using improper means, there is no evidence
that the breach induced the termination of AMHP's relationship with any of the clients in
question, or that there was any resultant damage. To the contrary, the undisputed
evidence establishes that each of the clients Burton treated independently elected to
leave AMHP. Even if Burton should not have accepted the clients, she did not cause
the defections. AMHP argues that it clearly established damages, because it presented
evidence that Burton received payments from clients that previously provided AMHP
with between $4,500 and $10,000 in monthly income. But, the issue is not whether
AMHP lost income. It is whether that loss is attributable to Burton's actions. There is
no evidence that it is.
IV. Wage Calculations
The trial court based its award on a salary of $10,500 for the 60 day period of lost
income and included an offset for $3,558 Burton received in unemployment benefits.
Burton challenges both of those amounts.
First, she argues that the trial court miscalculated her salary:
If one divides the AMHP wages Burton received between January 1, 2009
and July 13, 2009, ($47,747.51) by the amount of calendar days
represented, (194), her earnings are $246.12 per calendar day, not per
workday. . . .
13
No. 68434-5-1/14
Burton calculates her gross lost wages amount as 60 days x
$246.12 per day for a total of $14,767.27.[4]
But, the amount of $47,747.52 is a vastly inflated salary, because it includes a one-time
payout of $7,653.83 for accrued but unused vacation time. That amount was paid, but
not all earned, during the January 1 - July 13 timeframe. Further, her calculations
include salary paid to Burton on January 15, 2009, which appears to have been earned
in December 2008. AMHP's earnings record for Burton states that her gross income
per month was $5,250. The trial court properly used that figure in calculating damages.
The award is supported by substantial evidence.
Second, Burton argues that the trial court erred by offsetting her award by the
unemployment benefits she received. She claims that the offset results in a windfall to
AMHP, because the money does not belong to AMHP, and if she was entitled to her
salary and thus not unemployed during the 60 day period, then the money does not
belong to her either.5 We agree. Absent a breach of loyalty, if Burton received her
salary during the 60 day period and simultaneously obtained unemployment benefits
that she was not entitled to, that is an issue between the state and Burton. See RCW
50.20.190 ("An individual who is paid any amount as benefits under this title to which he
or she is not entitled shall, unless otherwise relieved pursuant to this section, be liable
for repayment of the amount overpaid."). Receipt of those benefits is not a breach of
loyalty and AMHP would have no claim to the unemployment benefits. The result does
4 One of the exhibits Burton relies on for these figures is not part of the record on
appeal.
5 AMHP argues that Burton's argument is precluded by the invited error doctrine,
because she included an offset for unemployment benefits in her damages calculations.
Although Burton did include an offset in discovery responses and in an exhibit
containing lost wages calculations, she disputed the offset before the trial court entered
its judgment.
14
No. 68434-5-1/15
not change because of Burton's unrelated breach of loyalty or AMHP's decision to
withhold salary. The trial court erred by offsetting Burton's award by the unemployment
benefits she received.
V. Willful Withholding of Wages
In addition to recovering withheld wages, an employee is entitled to double
damages and reasonable attorney fees and costs when the wages are willfully withheld.
RCW 49.52.050; RCW 49.52.070. And, an officer who violates those provisions may be
held personally liable for the violations. RCW 49.52.070. Willful means that the
employer knows what it is doing and intends to do what it is doing. Schilling v. Radio
Holdings. Inc.. 136 Wn.2d 152, 159-60, 961 P.2d 371 (1998). Thus, an employer's
failure to pay wages is willful unless it was careless or it erred in failing to pay, or there
was a bona fide dispute regarding payment. ]d at 160. A bona fide dispute is a "'fairly
debatable' dispute over whether an employment relationship exists, or whether all or a
portion of the wages must be paid." jd at 161 (quoting Brandt v. Impero, 1 Wn. App.
678, 680-81, 463 P.2d 197 (1969)). Whether a bona fide dispute exists is a question of
fact that must be supported by substantial evidence. Lilllig v. Becton-Dickinson. 105
Wn.2d 653, 659-60, 717 P.2d 1371 (1986).
Burton argues that she is entitled to double damages for willfully withheld wages
and should be able to enforce her claim against Becker individually. AMHP argues that
Burton failed to make a timely request for double damages. It is apparent from minute
entries that the first time she raised the willful withholding issue below, the trial court
orally denied her request. But, there is no written ruling. After the trial court entered its
findings of fact and conclusions of law but before it entered its judgment, Burton again
15
No. 68434-5-1/16
requested double damages. The record does not establish whether the trial court made
any ruling on that request, oral or otherwise. The court made no factual finding of
willfulness. Failure to make a finding of fact where one is required is presumed to be a
negative finding. Fettig v. Dep't of Social & Health Servs.. 49 Wn. App. 466, 478, 744
P.2d 349 (1987). Consistent with this presumption, the judgment did not provide double
damages.
Even assuming Burton timely sought double damages below, the trial court did
not err in denying double damages on the merits. It was not in dispute that AMHP had
withheld wages based on an alleged breach of the duty of loyalty. The dispute was as
to the legal consequences of that fact. Before AMHP withheld Burton's wages, it
asserted a legal justification for doing so. We agree an agent who breaches her duty of
loyalty may forfeit her entitlement to some or all of her salary. Whether and how much
Burton should forfeit constituted a bona fide dispute, which rested within the discretion
of the trial court. AMHP did not willfully withhold wages.
We remand for the trial court to correct its judgment by removing the offset for
unemployment benefits. We otherwise affirm.
WE CONCUR:
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