Allyis, Inc., App. v. Simplicity Consulting, Inc., Res. ( 2017 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
ALLYIS, INC., a Washington corporation, )
) No. 74511-5-1
Appellant, )
) DIVISION ONE
v. )
) UNPUBLISHED OPINION
)
)
JEREMY AND NICOLE SCHRODER, ) C.r)
C=1
) >
Defendants, )
)
SIMPLICITY CONSULTING INC., a )
Washington corporation, ) CI)1..71
:C
)
Respondent, )
IN)
)
MATTHEW F. DAVIS, attorney for Allyis, )
Inc., )
)
Appellant. ) FILED: February 27, 2017
)
APPELWICK, J. — Allyis sued its former employee and his new employer,
Simplicity, for breach of a noncompete agreement. The court dismissed Allyis's
case with prejudice. It awarded attorney fees and costs under RCW 4.84.185 for
a frivolous case and CR 11 sanctions for Allyis's failure to perform a reasonable
inquiry before filing the complaint. Allyis and its counsel appeal. We affirm.
No. 74511-5-1/2
FACTS
Allyis Inc. is a Washington company that was originally formed as Essential
Web Design & Consulting Inc. Its business began as internet design and
consulting, and it expanded to providing contract workers to technology
companies.
Jeremy Schroder was hired by Allyis in 2002, when it was still doing
business as Essential Web Design. He was provided an employee handbook,
which contained a noncompete agreement and a confidentiality agreement.
Schroder ended his employment with Allyis on May 7,2014. Prior to leaving
Allyis, Schroder expressed an interest in working for Simplicity Consulting Inc.
Simplicity is a marketing talent agency that provides consultants to other
companies. Simplicity offered Schroder a position as an account manager on April
21, 2014. Schroder accepted.
After Schroder began working with Simplicity, Allyis became concerned that
Schroder was soliciting Allyis employees to join him at Simplicity. Through its
attorney, Allyis asked Schroder to stop inducing Allyis employees to leave Allyis.
On September 22, 2014, Allyis filed a complaint against Schroder, his wife,
and Simplicity. It alleged that Schroder had breached the terms of his noncompete
and confidentiality agreements. And, it alleged that Simplicity tortiously interfered
with these agreements, violated the Consumer Protection Act(CPA),1
I Chapter 19.86 RCW.
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No. 74511-5-1/3
communicated false and injurious information about Allyis to other persons, and
violated the Uniform Trade Secrets Act(UTSA).2
On March 10, 2015, Allyis filed an amended complaint. This complaint
withdrew the four claims previously asserted against Simplicity, replacing them
with an unjust enrichment claim.
Simplicity served discovery requests on Allyis on March 16, 2015. By July
9, 2015, Allyis had not produced any discovery, despite Simplicity's multiple
requests, so Simplicity filed a motion to compel discovery. On July 17, 2015, the
trial court granted the motion. Simplicity scheduled depositions of two Allyis
executives to take place on July 23, 2015. But, counsel for Allyis, Matthew Davis,
failed to appear with the witnesses. And, Allyis still failed to respond to discovery
requests. On August 14, 2015, the court entered a second order, holding Allyis
and Davis in contempt of the July 17 order.
Simplicity moved for summary judgment on August 7, 2015. The motion
was set for a hearing on September 4, 2015. But, on September 3, 2015, Allyis
moved to voluntarily dismiss the case. Simplicity in turn moved for a dismissal with
prejudice.
The trial court granted Simplicity's motion to dismiss with prejudice. It found
that Allyis and its counsel had willfully disregarded two of the court's orders and
engaged in discovery abuse. And, it found that any lesser sanction was unlikely
to deter Allyis from engaging in further discovery abuse or contempt of court.
2 Chapter 19.108 RCW.
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No. 74511-5-1/4
Simplicity moved for fees and costs for opposing a frivolous action. It
argued that fees were warranted under RCW 4.84.185, because Allyis recognized
its original four claims lacked merit by dropping them and it knew or should have
known that its unjust enrichment claim was frivolous. Alternatively, Allyis argued
that the court should award CR 11 sanctions.
The trial court granted Simplicity's motion for fees and costs. It found that
Allyis's claims were frivolous and that Davis violated CR 11 by pursuing the claims
against Simplicity. After Allyis moved for reconsideration, the trial court amended
the order and entered additional findings. Allyis and its attorney Davis appeal.
DISCUSSION
Allyis challenges both the CR 11 sanctions and the award offees and costs
under RCW 4.84.185. It challenges a number of the trial court's findings of fact as
lacking substantial evidence. We address the challenged findings in the context
of the CR 11 sanctions and the RCW 4.84.185 attorney fees.
I. CR 11 Sanctions
We review a trial court's decision to impose or deny CR 11 sanctions for an
abuse of discretion. Bldg. Indus. Ass'n. v. McCarthy, 152 Wash. App. 720, 745, 218
P.3d 196 (2009). The court abuses its discretion where its conclusion was the
result of an exercise of discretion that was manifestly unreasonable or based on
untenable grounds or reasons. Skimming v. Boxer, 119 Wash. App. 748, 754, 82
P.3d 707(2004).
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CR 11 relates to the signing of pleadings, motions, and legal memoranda.
It states,
The signature of a party or of an attorney constitutes a certificate by
that party or attorney that the party or attorney has read the pleading,
motion, or legal memorandum, and that to the best of the party's or
attorney's knowledge, information, and belief,formed after an inquiry
reasonable under the circumstances:(1) it is well grounded in fact;
(2) it is warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law or the
establishment of new law; (3) it is not interposed for any improper
purpose, such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation; and (4) the denials of
factual contentions are warranted on the evidence or, if specifically
so identified, are reasonably based on a lack of information or belief.
CR 11(a). Where a party or an attorney violates this rule, the court may impose
appropriate sanctions upon the party or person who signed the pleading, motion,
or legal memorandum, or both. Id.
CR 11 envisions two violations of the rule: filings that are not well grounded
in fact and warranted by law, and filings that are made for an improper purpose.
Bryant v. Joseph Tree, Inc., 119 Wash. 2d 210, 217, 829 P.2d 1099 (1992). Before
imposing CR 11 sanctions for a baseless filing, the court mustfind that the attorney
failed to conduct a reasonable inquiry into the factual and legal basis of the claim.
Id. at 220. Courts use an objective standard in determining whether the attorney
engaged in an appropriate inquiry. Stiles v. Kearney, 168 Wash. App. 250, 261-62,
277 P.3d 9 (2012). The court must make findings that specify the actionable
conduct to impose CR 11 sanctions for a baseless complaint. Id. at 262. Namely,
the court must make a finding that either (1)the claim was not grounded in fact or
law and the attorney failed to perform a reasonable inquiry into the law or facts, or
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No. 74511-5-1/6
(2) the filing was made for an improper purpose. Biggs v. Vail, 124 Wash. 2d 193,
201, 876 P.2d 448 (1994).
In this case, the trial court found that Allyis and Davis violated CR 11 and
therefore imposed CR 11 sanctions jointly and severally against Allyis and Davis.
It did so after finding that neither the unjust enrichment claim nor the original four
claims were well grounded in fact or warranted by existing law or a good faith
argument to modify the law. Consequently, it found that Allyis and Davis failed to
perform a reasonable inquiry prior to filing the original complaint and the amended
complaint. The court noted that Davis's conduct throughout the lawsuit was not
consistent with a claim filed in good faith. And, it inferred that Allyis and Davis filed
the original and amended complaints for an improper purpose: to bring and keep
Simplicity's presumably deep pockets into the litigation.
Allyis contends that the trial court erred by sanctioning both it and its
attorney, failing to enter the required findings, and entering findings that were not
supported by the record. As discussed below, we conclude that the trial court did
not abuse its discretion in imposing CR 11 sanctions.
A. Joint and Several Liability
Allyis argues that the trial court erred in entering CR 11 sanctions jointly and
severally against it and its attorney. It suggests that CR 11 sanctions can be
imposed against only the attorney, not the client. But, CR 11(a)specifically states,
"If a pleading, motion, or legal memorandum is signed in violation of this rule, the
court, upon motion or upon its own initiative, may impose upon the person who
signed it, a represented party, or both, an appropriate sanction." The rule gives
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No. 74511-5-1/7
broad discretion for the trial court to determine who should be sanctioned. In re
Cooke, 93 Wash. App. 526, 529, 969 P.2d 127(1999). Sanctions directly on a party
are permissible where the party is responsible for the frivolous filing. Id. at 529-
30. Here, counsel for Allyis signed the original complaint and the amended
complaint. Allyis's chief financial officer, Rakesh Garg, signed the verification
attached to the original complaint, verifying that its contents were accurate. Thus,
both Allyis itself and its counsel were responsible for the filing, and could be
sanctioned under CR 11.
B. Necessary Findings
Allyis contends that the trial court failed to enter the required findings to
support CR 11 sanctions. And, it argues that the findings that were entered do not
support the judgment. We disagree. The trial court made not one, but both Biggs
findings: that the claims were not grounded in fact or law and Allyis and Davis failed
to perform a reasonable inquiry before filing the original and amended complaints,
and that the claims were filed for the improper purpose of bringing Simplicity's deep
pockets into the litigation. Further, as discussed below, we conclude that the
court's findings on all of Allyis's claims support the CR 11 sanctions.
1. Unjust Enrichment
In its amended complaint, Allyis argued that Schroder's breach of the
noncompete and confidentiality agreements conferred a financial benefit on
Simplicity: namely, profits from employees and clients who were wrongfully
recruited from Allyis. Allyis contended that Simplicity was aware of the benefit it
would obtain from Schroder's actions and intended to obtain it. And, it asserted
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No. 74511-5-1/8
that Schroder breached the noncompete and confidentiality agreements on behalf
of Simplicity and as Simplicity's agent. During the course of litigation, Allyis did not
comply with Simplicity's discovery requests to obtain more information about this
claim.
On appeal, Allyis and Simplicity continue to dispute the correct legal
standard for an unjust enrichment claim under Young v. Young, 164 Wash. 2d 477,
191 P.3d 1258 (2008).3 Allyis argues that under Young, unjust enrichment
requires only that the defendant received a benefit at the plaintiffs expense.
Simplicity argues that Young requires that the plaintiff conferred a benefit on the
defendant.
In Young, the plaintiff sued for quiet title of property. 164 Wash. 2d at 480.
The defendants counterclaimed, arguing that the plaintiff had been unjustly
enriched by improvements they made to the property. Id. The trial court awarded
the defendants the market value of the improvements, but subtracted general
contractor's costs. Id. at 482.
The only issue on appeal was the appropriate measure of recovery. Id. at
483, 487. To answer this question, the court had to resolve whether the measure
of recovery was unjust enrichment or quantum meruit. Id. at 483. It defined unjust
enrichment as,"the method of recovery for the value of the benefit retained absent
any contractual relationship because notions of fairness and justice require it." Id.
3 In Simplicity's motion for fees and costs pursuant to RCW 4.84.185, it
argued that Allyis's unjust enrichment claim was advanced without reasonable
cause, because Allyis never conferred any benefit on Simplicity. Allyis responded
that Simplicity's interpretation of the doctrine of unjust enrichment was too narrow,
and that Simplicity misinterpreted Young.
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No. 74511-5-1/9
at 484. Quoting a Court of Appeals case, the court listed the elements of unjust
enrichment: " 'a benefit conferred upon the defendant by the plaintiff; an
appreciation or knowledge by the defendant of the benefit; and the acceptance or
retention by the defendant of the benefit under such circumstances as to make it
inequitable for the defendant to retain the benefit without the payment of its
value.'" Id. at 484(emphasis added)(quoting Baile Commc'ns, Ltd. v. Trend Bus.
Sys., Inc., 61 Wash. App. 151, 159-60,810 P.2d 12,814 P.2d 699(1991)). The court
then put these elements in its own words:"(1)the defendant receives a benefit,(2)
the received benefit is at the plaintiffs expense, and (3) the circumstances make
it unjust for the defendant to retain the benefit without payment." Id. at 484-85
(emphasis added).
Allyis claims that the trial court erroneously interpreted Young as requiring
the plaintiff to directly confer a benefit on the defendant for an unjust enrichment
claim to succeed. It argues that the Young court did not approve this element, and
instead required the defendant to receive a benefit at the plaintiffs expense.
Since Young, Washington courts have clarified the first element of unjust
enrichment. See, e.g., Austin v. Ettl, 171 Wash. App. 82, 92, 286 P.3d 85(2012)("a
plaintiff conferred a benefit upon the defendant"); Nat'l Sur. Corp. v. lmmunex
Corp., 162 Wash. App. 762, 778 n.11, 256 P.3d 439 (2011)("a party must show a
benefit conferred upon the defendant by the plaintiff), affd, 176 Wash. 2d 872, 297
P.2d 688(2013); Cox v. O'Brien, 150 Wash. App. 24, 37, 206 P.3d 682(2009)("one
party must have conferred a benefit to the other"). But, Allyis argues that
Washington courts have still not clarified this element. It cites Norcon Builders,
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No. 74511-5-1/10
LLC v. GMP Homes VG, LLC, 161 Wn. App.474, 254 P.3d 835(2011)to contend
that this court has adopted the defendant must receive a benefit test, not the
plaintiff conferred a benefit test.
Norcon phrased the first element of unjust enrichment as "the defendant
receives a benefit." Id. at 490. However, the court also specifically noted, "The
mere fact that a defendant has received a benefit from the plaintiff is insufficient
alone to justify recovery. The doctrine of unjust enrichment applies only if the
circumstances of the benefits received or retained make it unjust for the defendant
to keep the benefit without paying." Id. Thus, we disagree with Allyis's reading of
that case. Norcon is consistent with a requirement that the plaintiff confers a
benefit to the defendant. That courts have phrased this requirement in different
ways does not create two competing tests, but a single test explained in several
ways.
Considering that other courts have applied the same elements of unjust
enrichment as the trial court did here, we conclude that the court did not apply an
incorrect legal standard. Therefore, the trial court did not err in finding that the
unjust enrichment claim is not warranted by existing law or a good faith argument
to modify the law.4
Allyis further argues that the trial court's findings of fact regarding the unjust
enrichment claim are not supported by substantial evidence. It challenges finding
of fact 7, which stated, "At no point did Allyis present evidence showing that it
never argued that the rule announced in Young should be extended,
4 Allyis
modified, or reversed—instead, it argued for an interpretation of the case that is
not supported by the law.
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No. 74511-5-1/11
conferred a benefit on Simplicity, nor did plaintiff present compelling or persuasive
argument suggesting that the law as articulated in Young and its progeny did not
apply here. Thus, Allyis's unjust enrichment claim was not well grounded in fact
or warranted by existing law." It also challenges findings of fact 25 and 26, that
the unjust enrichment claim was not well grounded in fact or warranted by either
existing law or an argument to modify the law.
We review findings of fact for substantial evidence. Robinson v. Safeway
Stores, Inc., 113 Wash. 2d 154, 157-58, 776 P.2d 676 (1989). Substantial evidence
is evidence in sufficient quantum to persuade a fair-minded person of the truth of
the premise. Id. If substantial evidence supports the findings, we review whether
the findings support the trial court's conclusions of law and judgment. Id.
Under Young, Allyis had to show that it conferred a benefit on Simplicity,
and the circumstances made it unjust for Simplicity to retain the benefit without
paying. 164 Wash. 2d at 484-85. Allyis never argued that it conferred a benefit on
Simplicity, contending instead that Schroder improperly bestowed profits from
Allyis employees and clients on Simplicity. Given these allegations, we conclude
that substantial evidence supports the trial court's findings that Allyis's unjust
enrichment claim was not well grounded in fact or warranted by existing law or a
good faith argument to modify the law.
2. Tortious Interference
Allyis contends that its tortious interference claim was supported by current
Washington law. It argues that while an issue existed as to consideration, the
claim was at least arguable. In its original complaint, Allyis alleged that Simplicity
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No. 74511-5-1/12
knowingly interfered with the noncompete and confidentiality agreements between
Allyis and Schroder. It contended that Simplicity used improper means to solicit
and encourage a breach of these agreements.
Relying on Goodyear Tire & Rubber Co. v. Whiteman Tire, Inc., 86 Wash. App.
732, 935 P.2d 628 (1997), Allyis argues that this tortious interference claim was
supported by the law. Goodyear set out the elements of tortious interference: "(1)
the existence of a valid business expectancy; (2) defendant's knowledge of that
expectancy; (3) defendant's intentional interference with that expectancy; (4)
defendant's improper purpose or use of improper means in so interfering; and (5)
the plaintiffs resultant damages." Id. at 745.
Allyis rests its argument on the first element, whether a valid business
expectancy existed. But, Allyis never elicited evidence that could establish the
other four elements of tortious interference. It did not produce any evidence that
Simplicity intentionally induced a breach of these agreements, that it did so for an
improper purpose or utilized improper means, and that Allyis had resulting
damages. See Goodyear, 86 Wn. App.at 745. Even if the first element was met,
the remaining elements were not.
Nor are we persuaded by Allyis's argument that a valid business expectancy
existed here. For Allyis to have had a potential claim on this theory, it needed to
show the existence of a valid contract. See Newton Ins. Agency & Brokerage, Inc.
v. Caledonian Ins. Grp., Inc., 114 Wash. App. 151, 158,52 P.3d 30(2002)("A valid
business expectancy includes any prospective contractual or business relationship
that would be of pecuniary value."). A noncompete agreement may be enforceable
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No. 74511-5-1/13
if it is validly formed and reasonable. Labriola v. Pollard Grp., Inc., 152 Wash. 2d 828,
833, 100 P.3d 791 (2004). Generally, consideration for such an agreement exists
if the employee enters into the noncompete agreement when he or she is first
hired. Id. at 834. A noncompete agreement entered into after the employee begins
employment will be enforced only if supported by independent consideration. Id.
Independent consideration means that the parties make additional promises or
take on additional obligations. Id. For example, the employee may receive
additional wages, a promotion, or a bonus in exchange for signing the agreement.
Id.
Allyis asserted that two agreements originally contained in its employee
handbook, the noncompete agreement and the confidentiality agreement,
established a contract between Allyis and Schroder. The noncompete agreement
provides that Schroder would not"engage in a business similar to or in competition
with the business of [Allyis]" during his employment or for a period of five years
afterward. The confidentiality agreement provides that Schroder would not
disclose any confidential information for three years after the term of the
agreement. Both agreements were signed by Schroder on July 23, 2002.
Schroder had already begun his employment with Allyis by that time. He
was hired on May 10, 2002. Therefore, these agreements lacked consideration,
unless Schroder received an additional benefit in exchange for his promises. See
Labriola, 152 Wash. 2d at 834. Allyis suggests that there was a debatable issue as
to consideration, because Schroder continued to be employed with Allyis and was
promoted from an entry position to management.
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No. 74511-5-1/14
But, the Labriola court rejected a similar argument. There, the employee
sought a declaratory judgment that the noncompete agreement was null and void.
152 Wash. 2d at 832. The employer argued that continued employment served as
consideration for the noncompete agreement, which was signed after the
employee began work for the employer. Id. at 835-36. The court held that because
the employer did not incur any additional duties or obligations from the
noncompete agreement, continued employment did not serve as consideration.
Id. at 836. The employer also argued that training received after the employee
signed the noncompete agreement functioned as consideration. Id. The court
rejected this argument as well, noting that the noncompete agreement did not
mention any additional training that would serve as consideration for the
employee's promise not to compete. Id. at 836-37.
Here, nothing in the noncompete agreement or Schroder's circumstances
of employment suggests that he continued to be employed or that he was
promoted as a result of his promise not to compete. Labriola makes clear that later
training and continued employment alone are not sufficient to constitute
independent consideration. Nothing in the record would support an inference, let
alone a conclusion, that Schroder's later promotion was given as consideration for
a noncompete agreement. Thus, Allyis never alleged any facts that would support
an inference of independent consideration. Without a valid noncompete
agreement, there can be no basis for the tortious interference claim as pleaded.
There was no legal or factual basis for Allyis's tortious interference claim.
Consequently, the trial court did not err in finding that this claim was not well
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No. 74511-5-1/15
grounded in fact or warranted by existing law or a good faith argument to modify
the law.
3. Injurious Falsehood
Allyis asserts that its injurious falsehood claim was supported by the law
and the facts. In the original complaint, Allyis stated that Schroder conveyed false
and misleading information about Allyis's status and business plans to Allyis
employees. And, it stated that this false and misleading information was conveyed
to and used by Simplicity in an attempt to harm Allyis. On appeal, Allyis argues
that while this claim was based on hearsay statements, a lawsuit may be based
on hearsay evidence.
Allyis argues that Washington recognizes the tort of injurious falsehood. It
cites the Restatement (Second) of Torts § 623A (Am. Law Inst. 1977) for the
elements of injurious falsehood, recognizing that it has not been adopted in
Washington. Those elements are:
One who publishes a false statement harmful to the interests of
another is subject to liability for pecuniary loss resulting to the other
if
(a) he intends for publication of the statement to result in
harm to interests of the other having a pecuniary value, or either
recognizes or should recognize that it is likely to do so, and
(b) he knows that the statement is false or acts in reckless
disregard of its truth or falsity.
Id.
Even assuming that Washington law supports a claim of injurious falsehood,
Allyis has not alleged any action by Simplicity that would meet the elements. While
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No. 74511-5-1/16
Allyis asserted that Simplicity used false information to harm Allyis, Allyis never
specified what false information Schroder gave to other Allyis employees. Nor did
it specify how Simplicity used this information. Allyis did not file any declarations
or provide any information via discovery to clarify the factual basis for this claim
prior to withdrawing it.5 We conclude that the trial court did not err in finding that
Allyis's injurious falsehood claim was not well grounded in fact or warranted by law
or a good faith argument to modify existing law.
4. Uniform Trade Secrets Act
Allyis also argues that the trial court had no basis to find its UTSA claim to
be frivolous. In its original complaint, Allyis alleged that Simplicity and Schroder
had violated the UTSA. It claimed that Allyis's employee and compensation
information were trade secrets that Simplicity had acquired through Schroder.
And, it stated that Schroder and Simplicity used this confidential information to
recruit Allyis employees for Simplicity. Allyis alleged that Simplicity knew or had
reason to know that these trade secrets were acquired by improper means.
Under the UTSA, actual or threatened misappropriation of trade secrets
may be enjoined, or a complainant may recover damages for actual loss caused
by misappropriation. RCW 19.108.020(1), .030(1). Misappropriation means the
acquisition of a trade secret by a person who knows or has reason to know that it
was acquired by improper means, or disclosure or use of another's trade secret
5 Simplicity attempted to elicit information about this claim in its discovery
requests. But, shortly before Simplicity served its discovery requests on Allyis,
Allyis amended its complaint to withdraw its original claims against Simplicity,
replacing them with the unjust enrichment claim.
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No. 74511-5-1/17
without express or implied consent, where the person used improper means to
learn of the trade secret. RCW 19.108.010(2). A trade secret is information that
derives independent economic value from not being generally known and that is
protected by reasonable efforts to maintain secrecy. RCW 19.108.010(4).
Before it withdrew this claim, Allyis did not provide any additional
information in declarations or through discovery that would support its allegation
that Simplicity used confidential information to recruit Allyis employees. Given the
lack of a factual basis for this claim, the trial court did not err in finding that Allyis's
UTSA claim was not well grounded in fact or warranted by existing law or a good
faith argument to modify the law.
5. Consumer Protection Act
Allyis argues that it stated a claim for a CPA violation due to its tortious
interference claim. In the original complaint, Allyis alleged that Simplicity's and
Schroder's actions constituted unfair and deceptive acts and practices in the
conduct of trade or commerce.
RCW 19.86.020 provides that unfair methods of competition and unfair or
deceptive acts in trade or commerce are unlawful. Allyis's CPA claim rested on
the alleged actions that constituted its other claims, discussed above. Because
we conclude that these claims were not well grounded in fact or warranted by
existing law or a good faith argument to modify the law, it follows that the same is
true for Allyis's CPA claim.
None of the claims Allyis brought against Simplicity were well grounded in
fact or existing law or a good faith argument to modify the law. From this, we infer
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No. 74511-5-1/18
that Davis did not perform a reasonable inquiry before filing the original or
amended complaint—otherwise, he would have discovered that these claims were
not supported by the law or facts. The trial court's findings of fact relating to CR
11 sanctions6 are supported by substantial evidence in the record. Therefore, we
conclude that the trial court did not abuse its discretion in ordering CR 11 sanctions
jointly and severally against Allyis and Davis.
II. RCW 4.84.185 Attorney Fees
Allyis also challenges the trial court's award of attorney fees and costs
under RCW 4.84.185. It contends that the court's findings underlying this award—
findings of fact 4, 7, 9, 22, 31, and 33—are not supported by substantial evidence.
The decision to award attorney fees under RCW 4.84.185 is within the trial
court's discretion. Timson v. Pierce County Fire Dist. No. 15, 136 Wash. App. 376,
386, 149 P.3d 427(2006). This court will not disturb such an award absent a clear
showing of abuse. Highland Sch. Dist. No. 203 v. Racy, 149 Wash. App. 307, 312,
202 P.3d 1024 (2009). Thus, we must ask whether the trial court exercised its
discretion in a manner that was manifestly unreasonable or based on untenable
grounds or reasons. Tiger Oil Corp. v. Dep't of Licensing, 88 Wash. App. 925, 938,
946 P.2d 1235 (1997).
RCW 4.84.185 permits the trial court to require the nonprevailing party to
pay the prevailing party's reasonable expenses incurred in opposing a claim that
was frivolous and advanced without reasonable cause. A frivolous action is one
that cannot be supported by any rational argument on the law or facts. Goldmark
6 Specifically, findings 7, 8, 10, 23, 24, 25, 26, 27, 28, and 29.
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No. 74511-5-1/19
v. McKenna, 172 Wash. 2d 568, 582, 259 P.3d 1095 (2011). Before fees may be
awarded under this statute, the trial court must enter findings that the action in its
entirety is frivolous. Biggs v. Vail, 119 Wash. 2d 129, 131, 830 P.2d 350(1992).
As a preliminary matter, Allyis challenges finding of fact 4, which found that
counsel for Simplicity told Davis that Allyis's claims against Simplicity were
frivolous on multiple occasions. Allyis argues that this finding treated the
statements of counsel as proof that the claims were frivolous. But, nothing in the
finding states that the court was drawing such an inference. Rather, it appears to
be a correct statement of the facts from the record: counsel for Simplicity told
counsel for Allyis on multiple occasions that he believed the claims were frivolous.
This finding is supported by substantial evidence.
The trial court's findings on RCW 4.84.185 treated the unjust enrichment
claim individually and the original four claims collectively. Given the detailed
analysis of the original four claims in section 1, this section treats those claims as
a collective.
A. Uniust Enrichment
Allyis argues that the unjust enrichment claim was not frivolous or advanced
without reasonable cause. It challenges the trial court's finding of fact 7, finding
that this claim was frivolous in part because Allyis has never had any interaction
with Simplicity outside of this lawsuit. It argues that Simplicity interacted with Allyis
via Schroder when Schroder solicited an Allyis employee with Simplicity's
permission and on its behalf.
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No. 74511-5-1/20
During the deposition of Simplicity representative Annie Gleason, Allyis
asked whether Schroder ever contacted his former co-workers at Allyis to recruit
them for Simplicity. Gleason responded that Schroder did contact one person to
recruit her for Simplicity. But, that person's contract was ending and she was
looking for new work. Schroder told Gleason that this person was looking for a
new role and had a skill set that Simplicity needed. Gleason stated that she did
not tell Schroder to do anything to recruit this person, but responded along the
lines of," 10]h, okay. Great.'"
Allyis's unjust enrichment claim was based on Schroder's wrongful
recruitment of Allyis employees and clients7 for Simplicity. Allyis appears to argue
that this claim was not frivolous, because Gleason's deposition shows that
Schroder, acting as Simplicity's agent, recruited at least one Allyis employee to
work for Simplicity. However, even assuming that this Allyis employee was
ultimately hired by Simplicity, Allyis does not dispute that Gleason stated that this
employee's contract was about to expire.8 Nor does it challenge Simplicity's
assertion that the employee was looking for work elsewhere before her contract
expired or that she started work for Simplicity after her contract expired. Nor does
it assert that it wished to retain this employee. This evidence supports the trial
court's finding that Allyis did not confer a benefit on Simplicity.
7 Although Allyis claimed that Schroder recruited Allyis employees to work
for Simplicity and bring their clients with them, it never identified any clients that
Simplicity gained from Allyis.
8 At oral argument, Allyis contended that while Gleason said this, that does
not necessarily make it true.
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No. 74511-5-1/21
As discussed in section I.A.1, Allyis's unjust enrichment claim was not
grounded in fact or warranted by the law. Consequently, we conclude that Allyis's
unjust enrichment claim cannot be supported by a rational argument on the law or
facts and thus is frivolous.
B. Original Claims
Allyis also argues that the four claims in its original complaint were not
frivolous or advanced without reasonable cause. It challenges the trial court's
findings of fact 9 and 22, which found that these claims were frivolous and inferred
that Allyis filed them to bring Simplicity into the lawsuit and drive a settlement.
Allyis suggests it was illogical for the trial court to infer that Allyis filed the
original claims because it believed Simplicity would pay a settlement. But, given
the dearth of evidence that Simplicity took any actions that merited being sued,
this inference is not illogical. Davis's constant refusals to engage in discovery
combined with his requests that Simplicity compromise could be read as
supporting the trial court's inference—that Davis did not believe he had a case
against Simplicity and wanted to push for a settlement.
Because Allyis failed to ever specify the conduct supporting its unjust
enrichment, tortious interference, injurious falsehood, UTSA, or CPA claims, there
was substantial evidence that these claims were frivolous and advanced without
reasonable cause. The trial court's findings of fact 4, 7, 9, and 22 are supported
by substantial evidence.
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No. 74511-5-1/22
III. Amended Order
After Allyis moved for reconsideration of the trial court's initial order
awarding attorney fees and CR 11 sanctions, the court entered an amended order.
The amended order contained additional findings, including several that addressed
the propriety of the original order. Finding of fact 31 provides that the evidence
and reasonable inferences therefrom support the original order. Finding of fact 33
states that due to Allyis's and its attorney's conduct throughout litigation, including
filing frivolous claims, the original order did substantial justice in compensating
Simplicity for having to defend against these claims.
Allyis challenges these findings, arguing that there was no evidence to
support finding of fact 31, and that finding of fact 33 demonstrates that the trial
court was motivated by something other than the record.9 Both findings are better
construed as conclusions of law, and we treat them accordingly. See Grundy v.
Brack Family Trust, 151 Wash. App. 557, 567, 213 P.3d 619 (2009)("We review
conclusions of law mislabeled as findings of fact de novo as conclusions of law.").
The trial court's findings pertaining to CR 11 sanctions and RCW 4.84.185 support
both conclusions. Because Allyis's claims were not well grounded in fact or law or
a good faith argument to modify existing law, and they were advanced without
reasonable cause, the trial court's original order imposing CR 11 sanctions and
awarding attorney fees under ROW 4.84.185 was justified. The trial court did not
err in entering findings of fact 31 and 33 in its amended order.
9 We note that Allyis challenges whether any sanctions should have been
imposed, not the amount of the sanctions.
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IV. Attorney Fees on Appeal
Simplicity argues that it is entitled to attorney fees on appeal, because the
appeal was necessary to recover paymentfrom Allyis and because the appeal was
frivolous. This court may award attorney fees for a frivolous appeal. RAP 18.1;
RAP 18.9(a). An appeal is frivolous where it presents no debatable issues or
legitimate arguments for an extension of law. Harrington v. Pailthorp, 67 Wash. App.
901, 913, 841 P.2d 1258 (1992). Here, Allyis pursued claims against Simplicity
that were not supported by the facts or the law. It has not presented any debatable
issues on appeal. We conclude that Simplicity is entitled to attorney fees and costs
on appeal.
We affirm.
WE CONCUR:
cKe-K
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