In The News

Recent Appellate Decisions – August 31 to September 6, 2012

Selected summaries prepared by Commissioner James Verellen (ret.)

Division I Washington State Court of Appeals

September 4, 2012

Litchfield v. KPMG, LLP. No. 65372-5

http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=653725MAJ

wage and hour – professional employee exemption – audit associates not certified public accountants

Professional employees are exempt from overtime requirements of Washington’s Minimum Wage Act (MWA).  The Department of Labor and Industries has adopted policies recognizing that accountants who are not certified public accountants may be exempt as professional employees if they meet the general standards for professional employees.

KPMG did not pay Litchfield overtime even though he worked more than 40 hours per week as an audit associate.  KPMG hires audit associates at entry-level positions in its audit practice.  KPMG requires that audit associates possess a college degree with an accounting concentration.  It does not require that the audit associates be certified public accountants (CPA), nor that they possess the qualifications to apply to be a CPA.

Litchfield filed a class action lawsuit seeking overtime pay and penalties under the MWA.  The trial court certified the class.  On March 1, the trial court ruled that: “It is possible for an unlicensed accountant performing work to assist licensed auditors to qualify for the professional exemption if they have the requisite educational background and the work they actually perform satisfies the elements of the exemption.”  On April 22, the trial court reconsidered and ruled that to be an exempt professional, an audit associate must have the education and experience required to apply for a license under the Public Accountancy Act (PAA).

The trial court certified two issues for discretionary review under RAP 2.3(b)(4): (1) whether audit associates working for KPMG in Washington must hold a CPA license before they are professionals exempt from overtime pay under Washington law, and (2) whether audit associates working for KPMG in Washington must satisfy the PAA’s experience and education requirements to qualify as professionals exempt from overtime pay under Washington law.   The Court of Appeals accepted the certification.

Division I reversed the trial court’s April 22 ruling on reconsideration that the audit associates were not exempt unless they have the education and experience required to apply for a license under the PAA and affirmed the March 1 ruling that the audit associates may qualify as professional employees:

  • The MWA requires the payment of overtime unless an exemption applies; the exemptions are construed narrowly.
  • The legislature expressly deferred to the Department of Labor and Industries to adopt regulations defining and delimiting the executive, administrative and professional employee exemptions.
  • Regulations provide that an individual is exempt as a professional employee if (1) they earn more than $250 per week; (2) their primary duty is work requiring ‘knowledge of an advanced type in a field of science or learning;’ and (3) their primary duty includes ‘work requiring the consistent exercise of discretion and judgment.’
  • A Department policy recognizes that “knowledge of an advanced type” means more than a general academic education, and generally cannot be attained at the high school level.
  • A Department policy recognizes that accountants who are not CPAs may also be exempt as professional employees “if they actually perform work that requires the consistent exercise of discretion and judgment and otherwise meet the tests prescribed in the definition of professional employee.”
  • “Given the Department’s interpretation, the trial court did not err it its March 1 order when it decided it ‘possible for an unlicensed accountant performing work to assist licensed auditors…to qualify for the professional exemption if they have the requisite educational background and the work they actually perform satisfies the elements of the exemption.”
  • The trial court’s April 22 ruling on reconsideration ignores the express delegation of authority to the Department to define the terms of the professional employee exemption.
  • The PAA licensed auditor requirements have no bearing on the MWA exemption for professional employees.  The April 22 ruling is reversed.
  • Unresolved fact questions are whether KPMG audit associates perform work using advance knowledge acquired through a prolonged course of intellectual study and whether, in carrying out their duties, audit associates consistently exercise discretion.
  • “Audit associates may qualify for the professional exemption from overtime even if they are not licensed as CPAs, have not completed 2,000 hours of on-the-job training, and do not possess a bachelor’s degree meeting the PAA’s requirements.”

DIVISION II

September 5, 2012

Myles V. Clark County No. 41915-7

http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=419157MAJ

non-claim statute – 2009 substantial compliance statutory amendment – effective date governs application of the substantial compliance amendment

In October 2008, Myles filed a presuit notice of tort claim against Clark County, but mistakenly served the County risk manager rather than the county clerk. In January 2009, Myles filed her lawsuit.

In October 2009, the County filed a motion for summary judgment arguing that Myles failed to strictly comply with the preclaim notice, the statute of limitations had run, and Myles’s complaint must be dismissed

But in 2009, the legislature amended the statutes governing presuit claim requirements (both for local governments RCW 4.96.020(5) and state government RCW 4.92.100(3)). Caselaw allowed substantial compliance with the content requirements but required strict compliance with the procedural requirements. The 2009 amendments make it clear that substantial compliance applies both to the content and procedural requirements. The legislature made the 2009 amendments effective July 26, 2009.

In August 2010, the superior court granted summary judgment to the County, concluding that Myles failed to strictly comply with the presuit claim procedural requirements and that the 2009 statutory amendments do not apply retroactively.

Division II held:

  • There is no separation of powers problem with the legislature setting requirements to file a lawsuit; the notice requirements of RCW 4.96.020(4) are constitutional.
  • Retroactive application of the 2009 amendments is not at issue here.
  • “A statute applies ‘when the precipitating event for the application of the statute occurs after the effective date of the statue, even though the precipitating event had its origin in a situation existing prior to the enactment of the statute.'”
  • “…although the origin of the precipitating event requiring application of the statute – Myles filing her tort claim on January 20, 2009 – occurred before the July 26, 2009 enactment of the statutory amendments directing liberal compliance review for substantial compliance, the trial court’s application of the statute occurred after the effective date of the amendment when it granted summary judgment on August 10, 2010. Thus, the trial court was required to apply the legislative amendments and determine whether Myles had substantially (rather than strictly) satisfied the notice provisions of ch. 4.96 RCW.”
  • When issuing its August 2010 summary judgment ruling, the trial court should have applied the substantial compliance standard adopted effective July 26, 2009.

DIVISION III

September 6, 2012

Estate of Vance Brownfield v. Bank of America No. 29846-9

http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=298469MAJ

http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=298469DIS

payable on death “POD” accounts – secondary evidence of required written contract of deposit

B had accounts at five different banks and credit unions.  On September 25, B took his niece to one of the credit unions for the purpose of naming the niece a POD beneficiary on one of his two accounts at the credit union.  A service representative at the credit union knew B well, and recalls that B knew and understood precisely what he wanted to accomplish by setting up the payable on death account.  The credit union had the signed documentation naming the niece a POD beneficiary.

That same day, B and his niece went from the credit union to a bank, where B told the teller he wanted to change two of his five accounts at the bank to name the niece as a POD beneficiary.  The teller made copies of the niece’s driver’s license and Social Security card, and then changed the bank’s computerized records transforming the two accounts into POD accounts identifying the niece as the beneficiary.  Subsequent bank statements identified those two accounts as POD accounts with the niece as the beneficiary.  The teller did not recall meeting B or the niece, but would not have made those changes to the computerized records, unless B had signed the Change of Authorization form and a new signature card with the POD designation.

After B died, the bank was not able to locate the Change of Authorization form or new signature card.  The only signature card the bank could locate was signed before September 25, and indicated single ownership.  That signature card was not marked “superseded,” the normal practice when a new signature card has been signed.   The bank disbursed the funds in the two POD accounts to the niece.  The personal representative sued the bank and the niece, arguing that the bank was bound to comply with the most recent (single ownership) signature card located in the bank’s files.  The estate also argued that the existence of any other written contract of deposit could not be proved by secondary evidence.  On cross motions for summary judgment, the trial court granted summary judgment in favor of the bank and the niece and dismissed the Estate’s claims.  The Estate appealed.

In a 2-1 split decision, Division III remanded for a trial:

  • The statutory requirement of a written contract of deposit may not be overcome by an account owner’s perceived intent to make changes to the account.
  • But no statute suggests “that a properly-prepared and signed contract ceases to control the rights of the parties if misplaced, misfiled, or even inadvertently discarded by a bank.”
  • Under the Statute of Frauds, “[i]n case of loss or destruction, the contents of a memorandum may be shown by an unsigned copy or by oral evidence.”
  • ER 1004(a) provides that if all originals of a document are lost or have been destroyed, then other evidence of a document’s contents is admissible.  ER 1008 makes clear that this is true even when an issue is raised whether the writing ever existed.
  • “…a bank cannot disregard the form of account and terms of deposit reflected in its most recently updated records – here, its electronic records, supported by its employees’ belief that a POD designation was effectively made but misplaced – in deference to physical files it has reason to believe are incomplete.”
  • Undisputed evidence establishes that B instructed the bank teller to change his two accounts to POD accounts with the niece as beneficiary and the teller “took at least some of the steps necessary to do so.”
  • An issue of fact exists whether the new contracts of deposit were signed, and a trial is required to resolve that fact question.

« Back to Article List