Opinion
No. 38475-9-I
February 12, 1999.
Appeal from the Superior Court for King County, No. 94-2-16784-7, Deborah D. Fleck and Mary Wicks Brucker, JJ., September 8, 1995 and, on March 15, 1996.
George W. Akers Jr., Montgomery Purdue Blankinship Austin, for appellant.
Walter G. Palmer Jr., Walter G. Palmer Inc. PS, Carol J. Molchior, Madden Crockett, Patricia E. Anderson, Peggy S. Juergens, Walter G. Palmer Inc. PS, for respondent.
Maeve Doolittle appeals the trial court's order on summary judgment of March 15, 1996, dismissing her claim against Small Tribes of Western Washington (STOWW) for wrongful termination of employment. Doolittle claims that she was terminated in violation of provisions of STOWW's personnel policy manual providing for termination for cause, assuring employees of reasonable job security and providing for a system of progressive discipline. The policy manual contains a procedure for modification of STOWW's personnel policies. A month before the termination of Doolittle's employment, STOWW issued a memorandum addressed to all employees notifying them that the progressive discipline procedures had been rescinded and that nothing in the personnel policies was intended to be a part of the employment relationship, or to amount to promises of specific treatment, or to be construed as a contract. STOWW concedes on appeal that it did not follow the procedure contained in the manual governing modification of personnel policies but argues that this is immaterial in that Doolittle admittedly received a copy of the memorandum and continued to work instead of resigning immediately. STOWW contends that under Washington case law, this ends the inquiry and that it is entitled to summary judgment as a matter of law. We disagree, and hold that under the facts contained in the record for this appeal, a rational, fair-minded trier of fact could determine that STOWW breached its employment contract with Doolittle by failing to follow the set procedure for amending its personnel policies. Accordingly, we reverse the dismissal of Doolittle's wrongful termination claim against STOWW and remand for such further proceedings as shall be consistent with this opinion.
The trial court also dismissed Doolittle's wrongful termination claim against the members of STOWW's board of directors. Doolittle has not assigned error to the dismissal of that claim, and has devoted no section of her opening or reply briefs to the dismissal of that claim. Accordingly, we summarily affirm that portion of the summary judgment order entered on March 15, 1996, dismissing the wrongful termination claim against the members of the board of directors.
Respondent/cross-appellant The Sells Group, P. S. (Sells), won dismissal of Doolittle's defamation claim by order of summary judgment entered on September 8, 1995, 6 months before the entry of final judgment. Sells did not file its cost bill in the time intervening between the dismissal of the defamation claim and entry of final judgment, nor within 10 days following entry of final judgment. Sells cross-appeals, arguing that it was precluded by law from filing its cost bill during the time intervening between its dismissal from the case and the entry of final judgment, and that the trial court erroneously denied Sells any opportunity to file a cost bill by failing to give Sells notice of entry of final judgment. We hold that Sells was not precluded from filing its cost bill during the time intervening between dismissal of Doolittle's claim against Sells and dismissal of Doolittle's claims against the remaining defendants and that the trial court was not required to give Sells notice of entry of final judgment.
Doolittle appeals the dismissal of her claim for defamation against Sells. We affirm the dismissal of this claim in the unpublished portion of this opinion.
The Sells Group also cross-appeals the trial court's refusal to grant sanctions against Doolittle under CR 11 for bringing the defamation claim. We affirm the trial court's denial of CR 11 sanctions in the unpublished portion of this opinion.
FACTS
STOWW is a non-profit corporation composed of Native American tribes organized to promote and enhance the principles of tribal self-determination and sovereignty. The record contains the following description of STOWW's function: "In a nutshell, STOWW writes grants and administers programs for small, member tribes who alone would not have the resources to do the same on an individual tribal basis." Clerk's Papers at 576. STOWW receives in excess of $100,000 in annual federal financial assistance; accordingly, it must periodically undergo independent audits to ensure compliance with federal regulations regarding the handling and expenditure of federal funds.
In May 1993, STOWW hired Maeve Doolittle to serve as its controller. In July 1993, STOWW retained Ronald Sells and The Sells Group, P.S., to perform an audit consistent with the requirements of OMB Circular A-133 for non-profit organizations receiving $100,000 or more of federal financial assistance. Sells' ensuing reports to STOWW criticized Doolittle's qualifications to serve as a controller for an organization receiving federal funding. Sells also criticized STOWW for failing to define its own missions and objectives, for failing to define the role and responsibilities of its executive director, and for failing to write a job description for its controller, before hiring Doolittle, that took into account the federal regulations and professional qualifications for a person holding that position.
The record reflects that Sells' criticism of STOWW was justified. Doolittle responded to an advertisement calling for a head bookkeeper, a position for which she was seemingly qualified by virtue of her previous experience; after she was hired she learned that her job title was actually that of a controller, a title she had never held and for which she had never applied, at STOWW or anywhere else. STOWW's former executive director and controller had each resigned simultaneously before Doolittle was hired. STOWW had two different acting executive directors during Doolittle's tenure. Doolittle received conflicting information with respect to the role of the acting executive director and her own role in dealing with the auditor. STOWW was changing from a manual system of accounts to a computerized system when Doolittle came on board. The process was made more difficult than would ordinarily be the case because ledgers had not been closed for many months before Doolittle was hired and bank accounts had not been reconciled. On two occasions, Doolittle was told she was being "laid off" only to be told, later the same day, that she was still on the job. Not surprisingly, given these chaotic working conditions, conflicts developed between Doolittle, the first of the two acting executive directors who served during her tenure, the chair of the board of directors, the assistant bookkeeper, and Ronald Sells, the independent auditor. It is fair to conclude from the evidence in the record that during the first several months of her employment, Doolittle became a thorn in the side of several influential people at STOWW.
Doolittle's relationship with her employer was already tenuous before Sells commenced the audit; after Sells' interim reports to the board, the relationship deteriorated further. According to Doolittle's testimony at deposition, the chair of STOWW's board of directors issued a written directive to the second of the two acting executive directors instructing him to fire Doolittle, based on Sells' report that Doolittle had failed to file a federal tax return that was already overdue when Doolittle was hired; Sells' report stated that Doolittle failed to file the return either because she was too busy or did not know how to prepare the return. Doolittle testified that the acting executive director declined to fire her; instead, he specifically requested her to remain on the job.
When Doolittle was hired, she was given STOWW's personnel policy manual that had been in effect since August 20, 1981, a period of some 12 years. The manual provides for an initial period of probation during which new employees may be terminated at will. After an employee completes probation, the manual provides for termination for cause and contains the following assurance: "Employees shall be assured reasonable job security so long as the requirements of the job are met, the employee's conduct is acceptable and the work or level of program funding is continued." Clerk's Papers at 604. Doolittle testified at deposition that she completed probation and was granted regular employment status by the second of STOWW's acting executive directors, at the end of August 1993.
The policy manual proclaims STOWW to be a Native American preference employer in accord with federal laws governing federal contracts with or grants to Native American organizations or for the benefit of Native Americans. Before its amendment, the manual also provided for a system of progressive discipline with penalties ranging from warning letters to immediate termination, depending upon the gravity of employee misconduct. This section of the manual, entitled "Guide to Disciplinary Action," contained a table of potential employee infractions and suggested penalties. Although numerous of the potential infractions are of the sort any employer might be required to address, read in the context of the policy manual as a whole and STOWW's purposes as described in the record, the "Guide to Disciplinary Action" appears to reflect STOWW's mission of promoting and enhancing the principles of tribal self-determination and sovereignty by providing its preferred class of employees with generous opportunity to cure any infractions and to comply with STOWW's stated directive, also contained in the policy manual, that "{e}ffort shall be made by all employees of STOWW, Inc., to encourage and maintain satisfactory employee-management relationships in order to achieve high productivity, and establish the highest possible level of employee efficiency and morale." Clerk's Papers at 603.
The policy manual sets forth the following procedure for modification of personnel policies:
When the need for a new or revised policy or procedure is indicated, it will be referred to the Personnel Committee. If it is decided by the Personnel Committee that such a policy or revision is desirable, the Committee will outline or suggest the principal points that should be covered. The staff will assist the Committee in preparing a preliminary draft of the policy and distribute it to members of the Board for their consideration.
The Board will review the draft and provide the appropriate direction for preparation to all tribes and all Board members in ample time to provide adequate study before being voted on by the Board. All member tribes and all staff members, to include all new employees, will be provided with an up-to-date copy of the Personnel Policies Manual, and all changes thereto.
Clerk's Papers at 580-81.
On March 2, 1994, STOWW issued a memorandum addressed to all STOWW employees, stating:
The following language is added to the first paragraph of the introduction on page one of the personnel policies:
Nothing contained in these personnel policies is intended to be part of the employment relationship and are simply general statements of company policy. These personnel policies do not amount to promises of specific treatment and are merely general statements of company policy and are not binding on STOWW. These policies are not to be construed as a contract or a legal document. STOWW reserves the right to amend, supplement or rescind any provisions of this handbook as it deems appropriate in its sole and absolute discretion.
In addition, paragraph H 5, "Guide to Disciplinary Action" beginning on page 38 and continuing through page 44 is omitted from the personnel policies manual.
Clerk's Papers at 629.
STOWW admitted at oral argument for this appeal that it did not follow the modification procedures set forth in the policy manual before adopting this amendment. Doolittle admitted at deposition that she received the memorandum on March 6, 1994, and that she signed the accompanying acknowledgment, but stated that she did not return the signed acknowledgment to STOWW because she did not agree with the memorandum. Doolittle continued working at STOWW until her employment ended a month later, on or about April 6, 1994.
The record does not affirmatively reflect that the board of directors formally adopted the amendment. However, Doolittle does not deny that the board did so; she only complains that the board failed to follow the procedures set down in the policy manual before adopting the amendment.
Still at issue between the parties is whether Doolittle resigned or was fired. STOWW claims that she resigned at STOWW's executive committee meeting on April 6, 1994. Doolittle denies she resigned at that meeting or at any other time. The record indicates that Doolittle received unemployment compensation following the termination of her employment. This being a review of an order of summary judgment, we will assume for the purposes of our ruling that Doolittle was fired, in accord with the usual standard of review of summary judgment proceedings.
On July 11, 1994, Doolittle brought suit against STOWW and its individual directors alleging wrongful termination. She also asserted a claim for defamation against STOWW and its directors and against The Sells Group for comments made about her during the course of Sells' audit. The defendants brought motions for summary judgment; on September 8, 1995, Judge Deborah Fleck entered summary judgment dismissing Doolittle's defamation claims against STOWW, the directors and Sells. On March 15, 1996, Judge Mary Brucker entered summary judgment dismissing Doolittle's wrongful termination claims against STOWW and its directors. This timely appeal and cross-appeal followed.
DISCUSSION I. Standard of Review
When reviewing an order granting summary judgment, an appellate court engages in the same inquiry as the trial court. Failor's Pharmacy v. D.S.H.S., 125 Wn.2d 488, 493, 886 P.2d 147 (1994); Fisher v. Aldi Tire, Inc., 78 Wn. App. 902, 906, 902 P.2d 166 (1995), review denied, 128 Wn.2d 1025 (1996). All facts and reasonable inferences must be considered in the light most favorable to the nonmoving party. Mountain Park Homeowners Ass'n, Inc. v. Tydings, 125 Wn.2d 337, 341, 883 P.2d 1383 (1994). This court will affirm an order granting summary judgment if there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. CR 56(c).
II. Wrongful Termination Claim
Doolittle contends that the trial court erred in ordering summary judgment dismissing her wrongful termination claim. She contends that when STOWW modified its personnel policies through a procedure different from that set forth in the manual, and when STOWW "ignored" the manual in its dealings with her, it breached its employment contract with her, entitling her to recovery. STOWW does not contend that Doolittle was discharged for cause, arguing instead that following the modification of its personnel policies Doolittle was subject to termination at will.
A. Effectiveness of Disclaimer/Rescission
STOWW does not deny Doolittle's contention on appeal that the policy manual at issue in this case, prior to the modification, created an atmosphere of job security and fair treatment with promises of specific treatment in specific situations. We have examined the manual and conclude that, at the very least, a rational, fair-minded trier of fact could find that the policies contained in the manual changed what would otherwise have been employment terminable at will to employment terminable for cause, upon completion of the initial period of probation. We also find sufficient evidence in the record from which a rational, fair-minded trier of fact could find that Doolittle accepted employment at STOWW and remained on the job, in spite of chaotic and hostile working conditions, in justifiable reliance upon the promises of job security contained in the manual, prior to its amendment.
It is well settled under Washington case law that an employer may unilaterally amend or revoke personnel policies or disciplinary procedures established in an employee handbook, and may disclaim the contractual nature of what might otherwise appear to be enforceable promises contained in such handbooks. E.g., Gaglidari v. Denny's Restaurants, Inc., 117 Wn.2d 426, 434, 815 P.2d 1362 (1991); Swanson v. Liquid Air Corp., 118 Wn.2d 512, 526, 826 P.2d 664 (1992). Any such disclaimer "must state in a conspicuous manner that nothing contained in the handbook, manual, or similar document is intended to be part of the employment relationship and that such statements are instead simply general statements of company policy." Swanson, 118 Wn.2d at 527 (citing Thompson v. St. Regis Paper Co., 102 Wn.2d 219, 230, 685 P.2d 1081 (1984)). "However, an employer's unilateral change in policy will not be effective until employees receive reasonable notice of the change." Gaglidari, 117 Wn.2d at 434 (citing Bankey v. Storer Broadcasting Co., 443 N.W.2d 112, 113 (Mich. 1989)). The employer need not reserve the right to unilaterally change its policy from one of discharge for cause to one of termination at will, so long as the employer gives affected employees reasonable notice of the change in policy. Id.
This being so, STOWW argues that because the record demonstrates that Doolittle received notice of the policy change and remained on the job despite her lack of agreement with the terms of the memorandum, and because the memorandum clearly and conspicuously revokes the system of progressive discipline and disclaims the enforceability of the provisions assuring reasonable job security and termination for cause, the inquiry should end, and this court should simply affirm the trial court's summary judgment without further analysis. In so arguing, STOWW overlooks an important distinction between the handbooks and underlying facts in the Washington cases cited above and the handbook and underlying facts in this case: STOWW's handbook contains a procedure for revising the policies and progressive discipline procedures contained in the handbook; moreover, STOWW admits it failed to follow the procedure.
A rational trier of fact could determine that STOWW effectively contracted itself out of the protections of Gaglidari, that is, a rational trier of fact could determine that the procedure for modifying personnel policies and procedures contained in STOWW's policy manual was intended to assure employees that STOWW would not arbitrarily amend the handbook to remove their job security and instead, that any such changes in policy would occur only after advance notification to STOWW's member tribes with ample opportunity for tribal feedback to the board of directors, in order to protect the interests of Native Americans who are given preference for employment at STOWW, and whose job security presumably is of great interest to STOWW's member tribes. Although Doolittle does not appear from the record to be Native American, to the extent that she relied upon the contractual promises contained in the handbook, she is entitled to the same protections as the Native American employees:
Although the record is less than crystal clear, it is also possible that the modification procedure may relate to STOWW's federal funding and be designed to ensure that no federal regulation is inadvertently violated by a change in personnel policies without adequate study. The record contains a sample grant application form that states, in pertinent part, that the applicant certifies that it: "{w}ill comply with the Intergovernmental Personnel Act of 1970 (42 U.S.C. § 4728-4763) relating to prescribed standards for merit systems for programs funded under one of the nineteen statutes or regulations specified in Appendix A of OPM's Standards for a Merit System of Personnel Administration (5 C.F.R. 900, Subpart F)." Clerk's Papers at 528. Although we are unable to determine from Doolittle's briefing with respect to the application form and the federal regulations to which it refers whether the purported disclaimer and revocation of certain of the personnel policies actually violated any applicable federal regulation governing applicants for federal funds, the fact that STOWW's grant application forms require it to certify that it has a merit system in place for its personnel demonstrates the importance of careful study before any changes to the personnel policies.
Doolittle claims that the sample application form provides evidence that STOWW's disclaimer was negated by its subsequent inconsistent representations and practices in continuing to apply for federal funds in support of its programs, using grant application forms such as the sample contained in the record. We reject this premise. No evidence in the record shows that the federal regulations referred to in the application form were communicated to the employees; moreover, no evidence shows that the employees relied upon representations made in the grant applications as part of their employment relationship. Thus, the representations are distinguishable from those in which courts have found disclaimers to have been negated by inconsistent employer representations. See Swanson, 118 Wn.2d 532-35.
"While an employer need not establish personnel policies or practices, where an employer chooses to establish such policies and practices and makes them known to its employees, the employment relationship is presumably enhanced. The employer secures an orderly, cooperative and loyal work force, and the employee the peace of mind associated with job security and the conviction that he will be treated fairly. . . . It is enough that the employer chooses, presumably in its own interest, to create an environment in which the employee believes that, whatever the personnel policies and practices . . . {the policies} established and official at any given time, purport to be fair, and are applied consistently and uniformly to each employee. The employer has then created a situation 'instinct with an obligation.'"
Thompson, 102 Wn.2d at 229-30 (quoting Toussaint v. Blue Cross Blue Shield, 292 N.W.2d 880, 892 (Mich. 1980); emphasis added by Thompson court)).
It is unnecessary for us to decide, in order to dispose of this appeal, whether an employer, once unilaterally but nevertheless contractually binding itself to a set procedure for modifying its employee handbook, may ever effectively modify the handbook without either following that set procedure or amending or rescinding the set procedure and giving its employees reasonable notice of that fact, in advance of making its desired changes in other personnel policies and procedures more directly affecting job security. Although any such requirement would seem to be reasonable, the parties' briefing does not address the issue and our ruling here is more narrow. In sum, we hold that where an employer issues an employee handbook that creates an atmosphere of job security and fair treatment with promises of specific treatment in specific situations, and expressly provides in that same handbook that changes in the employer's policies and procedures assuring job security will not be made without following a set procedure that in and of itself is designed to assure employees that changes affecting their job security will not be made arbitrarily but only after consultation with the employer's shareholders or other equivalent bodies, and the employer then unilaterally removes job security without following the prescribed procedure, a trier of fact can properly find a breach of the employment contract as to an employee who has justifiably relied on the promises made in the handbook in accepting or retaining employment.
Accordingly, we reverse the summary judgment order in favor of STOWW, reinstate Doolittle's wrongful termination claim against STOWW and remand for such further proceedings as shall be consistent with this opinion.
II. Costs and Reasonable Expenses
In its cross-appeal, Sells contends that by failing to give it notice of entry of the final judgment entered on March 15, 1996, the trial court erroneously denied it the right to file a cost bill under RCW 4.84.030 and to seek an award of reasonable expenses under RCW 4.84.185.
Under RCW 4.84.090, a cost bill must be served and filed within 10 days after the judgment. Citing Thompson v. Seattle Park Co., 94 Wn. 539, 162 P. 994 (1917), Sells contends that the term "judgment" refers to the time when final judgment has been entered in a case. Because final judgment was not entered in this case until March 15, 1996, and because the court failed to give it notice of entry of the final judgment, Sells contends that it was precluded from filing its cost bill within the time parameters of RCW 4.84.090.
Sells' argument is based on a faulty premise. In Thompson, the court was asked to decide whether the time limitation of Rem. Code sec. 482 (predecessor to RCW 4.84.090) began running upon the signing of the judgment by the judge or upon the filing of the judgment with the clerk. The court held that the filing of the judgment was the critical event. Contrary to Sells' assertion, Thompson does not stand for the proposition that the term "judgment" refers to the time when final judgment, within the meaning of CR 54(b), has been entered in a case. There appears to be no authority for such a proposition.
When a party, such as Sells, is dismissed on summary judgment while other parties remain in the case, and when the party's dismissal is not made "final" under CR 54, that party can file and serve a cost bill at any time during the time intervening between dismissal of the claim against him or her and the entry of final judgment, or wait and do so during the 10 days following entry of final judgment. In the latter event, however, it is not the responsibility of the court or the remaining parties to notify the dismissed party of entry of final judgment; he or she must conduct his or her own monitoring. We do not necessarily encourage multiple hearings on cost bills for dismissed parties before final judgment; there may be issues regarding the sharing of costs with parties who remain in the action, or the trial court may simply prefer to handle cost bills at the end of the case for reasons of judicial economy. But a party who desires to protect him or herself will either promptly file and serve a cost bill following dismissal or will monitor the case and do so within 10 days following entry of final judgment. Sells argues that the court's failure deprived it of a right. It was not the court's failure, it was Sells' own failure to either monitor the case or take the precaution of filing and serving the cost bill promptly after its own dismissal from the case.
Sells next argues that its lack of notice of entry of the final judgment also precluded it from seeking an award of reasonable expenses under RCW 4.84.185. This argument is also without merit. RCW 4.84.185 provides that a prevailing party may bring a motion for reasonable expenses for opposing a frivolous action "after a voluntary or involuntary order of dismissal, order on summary judgment, final judgment after trial, or other final order terminating the action as to the prevailing party. . . . In no event may such motion be filed more than thirty days after entry of the order." RCW 4.84.185 (emphasis added). Because Sells was required to bring its motion for reasonable expenses within 30 days following the court's entry of the order dismissing Doolittle's claims against it on September 8, 1995, its lack of notice of entry of the final order on summary judgment dismissing the remaining claims against STOWW, entered some 6 months later, was immaterial.
Reversed in part, affirmed in part.
A majority of the panel having determined that the remainder of this opinion lacks precedential value and will not be printed in the Washington Appellate Reports but will be filed for public record in accord with RCW 2.06.040, it is so ordered. In addition to the challenge addressed above, Doolittle also contends that the trial court erred in dismissing her claim against Sells for defamation. She argues that genuine issues of material fact exist with respect to the claim, and its dismissal on summary judgment was thus improper. In its cross-appeal, Sells contends that the trial court erred in denying its motion for sanctions under Civil Rule 11. We affirm both rulings.
ADDITIONAL FACTS
In July 1993, STOWW engaged Ronald Sells and The Sells Group to conduct an audit consistent with the requirements for non-profit organizations receiving $100,000 or more of federal financial assistance. Pursuant to the audit agreement, STOWW's interim executive director, George Ortez, was Sells' audit contact. In August of 1993, as part of the audit, Sells began several hours of on-site meetings with STOWW employees to review the organization's procedures and accomplishments. Among these employees were Ortez, Doolittle, and Helen Nagey, Doolittle's assistant. Sells testified that Nagey was introduced to him as "part of the financial management team", and that although she and Doolittle "appeared to share the responsibility for the STOWW's financial management", prior to Doolittle's employment, Nagey, alone, "shouldered that responsibility." Clerk's Papers at 391-92.
On August 9, 1993, Sells drafted an internal memorandum to Ortez relaying his initial observations about the progress of the audit. In particular, Sells noted that a "serious communication problem" existed between Doolittle and Nagey with respect to the reconciliation of STOWW's bank accounts. He stated:
While trying to determine why the miscommunication existed we learned that improper journal entries were causing problems throughout the accounting system. That led to the determination that {Doolittle's} education is in mathematics and physics and not in accounting. If her credentials check out, and we will check them as part of the audit, then {Doolittle} is clearly a very educated and intelligent person. She appears to have administrative skills and computer skills which STOWW can utilize, but having a Controller who apparently lacks accounting skills is a matter which must be addressed for the long term benefit of your organization. What was the Board's intention in hiring a person who did not have accounting experience for this position? Maybe we have misinterpreted something.
Clerk's Papers at 342.
Doolittle testified that after her first meeting with Sells, she learned, by reading the minutes of executive committee meetings, that Sells had made comments about her lack of knowledge of the details of her job. She further testified that during their second meeting, Sells told her, in Nagey's presence, that she did not know what she was doing. Doolittle stated that Nagey thereafter made comments to the tribes for whom she worked as bookkeeper that Doolittle "didn't know what {she} was doing" and that she "wasn't doing things right." Clerk's Papers at 163. Doolittle also testified that, at some point during the audit, Sells wrote a letter to the chair of STOWW's board of directors, stating that Doolittle had failed to file a 1992 Form 990 tax return either because she did not know how to file the return or was too busy to do so. Doolittle testified that based on the content of Sells' letter, the chair of the board instructed the acting executive director to fire her, but he declined to do so.
In October of 1993, Sells faxed its draft report to Robert Shorter, who had replaced Ortez as STOWW's acting executive director. Sells testified that the report was labeled "Discussion Draft Only", and that it expressly noted that the findings were "preliminary". In the report, Sells stated:
"In 1993 a high priority was placed on computerizing the accounting functions and removing them from third party processors. A noble objective. However, the result was the hiring of a "controller", knowledgeable in computers, with advanced degrees in physics and mathematics, but no accounting experience, no critical reconciliation experience, no management of internal controls experience. A computer and basic accounting software has been installed, however, the interim accounting solution has been the hiring of Account Temps, a per hour accounting service to make journal entries and reconcile accounts. Had an evaluation been made of the organization's personnel strengths and weaknesses it would have been clear that such a choice achieved short term results but would create a long term void in basic in-house accounting and reporting."
Clerk's Papers at 240.
Sells testified that only Shorter and Doolittle responded to the draft report, and based on their comments, he replaced the above paragraph with the following in his final report:
"Finally, the Board of Directors has not clearly defined the roles and responsibilities of the Executive Director and the Controller. . . . In 1993 a high priority was placed on computerizing the accounting functions and removing them from third party processors. However, the result was the hiring of a "controller" who met the standards and job description as defined at the time by the Board of Directors, however, those standards did not consider all the requirements anticipated in the federal regulations and the AICPA professional standards for an individual with that title. Following the understanding at the time of hiring, a computer and basic accounting software system has been installed. However, the interim solution to addressing certain accounting issues has been to engage Account Temps, a per hour accounting service, to make journal entries and reconcile accounts. Had the interim Executive Director in cooperation with the Board of Directors completed an evaluation of the organization's personnel strengths and weaknesses, certainly following the simultaneous resignations of the former Executive Director and the former controller, and compared the results of that evaluation with their own expectations and those of their funding agencies, then job descriptions should have been rewritten to fill voids and comply with regulatory and professional standards."
Clerk's Papers at 241-43.
On July 11, 1994, Doolittle brought suit against STOWW, its directors and Sells alleging defamation. The defendants brought motions for summary judgment; on September 8, 1995, the trial court entered summary judgment dismissing Doolittle's defamation claim against Sells, STOWW and the directors. Although Sells requested sanctions under Civil Rule 11, the trial court denied the motion on October 2, 1995. Doolittle appeals the dismissal of her defamation claim against Sells.
ADDITIONAL DISCUSSION III. Defamation Claim
Doolittle argues that she presented evidence from which a trier of fact could have found that each of the four elements of a defamation claim existed with respect to Sells' statements that: (1) she had no accounting experience, (2) temporary bookkeepers had to be hired to make journal entries and reconcile accounts, (3) she did not know what she was doing; and (4) she could not or would not file the 1992 Form 990 tax return. Sells responds that based on Doolittle's failure to raise a genuine issue of material fact with respect to any one of the elements of defamation, the trial court properly dismissed the claim on summary judgment. Doolittle presented evidence that she responded to STOWW's advertisement for a head bookkeeper; that after she commenced work she learned her job title was that of controller; and that she had 13 years of previous experience as a secretary, bookkeeper and office manager for various companies with responsibility for accounts payable and receivable, payroll and maintaining production records. Doolittle also presented evidence that she is not an accountant, that she clearly so informed STOWW during her intake interview, and that she had never applied for a position as a controller at STOWW or anywhere else. After she was hired, she learned that ledgers had not been closed for many months, and that bank accounts had not been reconciled, which made the process of converting to computerized accounting extremely difficult and time-consuming. She testified that her first knowledge that the tax return had not been filed was when she received a copy of a request for extension of time from the previous auditor before Sells. She indicated further that if Sells had ever talked to her about her education and background she would have explained that she had no degrees in physics and mathematics, although she had taken undergraduate courses in those fields, and that one of her problems with Sells was that it relied on rumors from others rather than speaking with her directly about her credentials, accomplishments and duties.
In Washington, a claim for defamation requires proof of the following four elements: (1) falsity; (2) an unprivileged communication; (3) fault; and (4) damages. LaMon v. Butler, 112 Wn.2d 193, 197, 770 P.2d 1027, cert. denied, 493 U.S. 814, 110 S. Ct. 61, 107 L. Ed. 2d 29 (1989); Ernst Home Ctr., Inc. v. United Food Commercial Workers Int'l Union, AFL-CIO, Local 1001, 77 Wn. App. 33, 42-43, 888 P.2d 1196 (1995). When a defendant in a defamation case moves for summary judgment, the plaintiff bears the burden of establishing a prima facie case on all four of the above elements. LaMon, 112 Wn.2d at 197; Mark v. Seattle Times, 96 Wn.2d 473, 486, 635 P.2d 1081 (1981), cert. denied, 457 U.S. 1124, 102 S.Ct. 2942, 73 L. Ed. 2d 1339 (1982). To survive a motion for summary judgment, the plaintiff's prima facie case must consist of "specific, material facts, rather than conclusory statements, that would allow a jury to find that each element of defamation exists." LaMon, 112 Wn.2d at 197.
In the present case, the trial court concluded that Doolittle failed to meet her burden of proving the existence of an unprivileged communication. In particular, the court determined that Sells had a qualified privilege to communicate with Doolittle's employer about her performance, and that there was no evidence that the privilege was abused. We agree.
A qualified privilege exists when a communication concerns a matter in which the publisher has an interest and when it is made to another whom it is reasonably believed has a corresponding interest. Messerly v. Asamera Minerals, Inc., 55 Wn. App. 811, 817-18, 780 P.2d 1327 (1989). The rationale behind the privilege is that the third-party recipient is in such a position that he or she is reasonably entitled to know the information. Hitter v. Bellevue Sch. Dist. 405, 66 Wn. App. 391, 400-01, 832 P.2d 130 (1992). Accordingly, the communication must be of a kind "reasonably calculated to protect and to further {the} common interest." 16 Washington Practice: Tort Law and Practice, sec. 12.17, at 293-94 (1993) (citing Restatement (Second) of Torts sec. 596). When there is no dispute that the communication was made, the question of whether a qualified privilege exists is one of law for the court. Gem Trading Co. v. Cudahy Corp., 92 Wn.2d 956, 960, 603 P.2d 828 (1979); Messerly, 55 Wn. App. at 818.
Here, Doolittle asserts that Sells' statement in Nagey's presence that Doolittle "didn't know what {she} was doing" was not protected by a qualified privilege because there was no common interest shared by Sells and Nagey. We disagree. Although Nagey was Doolittle's subordinate, Doolittle does not refute the evidence that Nagey was introduced to Sells as part of STOWW's financial management team. It is also unrefuted that it was Sells' understanding that Nagey and Doolittle shared the responsibility for the organization's financial management. As an independent auditor, one of Sells' obligations was to assess the strengths and weaknesses of STOWW's management team, and to ensure that it complied with regulatory and professional standards. This obligation would, of necessity, include an evaluation of the controller. Sells thus not only had an interest in, but also an obligation for, the disclosure of information regarding Doolittle's capabilities as controller. We conclude that it was reasonable for Sells to believe that another member of STOWW's financial management team one who he was told shared the responsibility for the organization's financial management had a corresponding interest in Doolittle's capabilities. Thus, because Sells' statement regarding Doolittle's capabilities was of a kind "reasonably calculated to protect and to further {the} common interest" shared by the auditor and the financial management team, we hold that the statement was protected by the qualified privilege. See Henderson v. Teamsters, Chauffeurs, Warehousemen Helpers Union, Local 313, 90 Wn.2d 666, 672, 585 P.2d 147, 100 A.L.R.3d 539 (1978) (holding that the common interest of labor union members supported the privilege of communications among themselves concerning the qualifications of officers and members of the union).
Doolittle does not appear to contest that a qualified privilege existed with respect to the other allegedly defamatory statements made in Sells' draft report to Shorter.
Doolittle nonetheless asserts that any qualified privilege enjoyed by Sells was abused and its protection accordingly lost. Although Doolittle contends that she need only establish Sells' negligence to defeat the qualified privilege, this contention is erroneous. "'The burden of establishing abuse of a qualified privilege rests on the defamed party, who must show by clear and convincing evidence the declarant's knowledge of the falsity, or his or her reckless disregard as to the falsity of the statement.'" Gilman v. MacDonald, 74 Wn. App. 733, 738, 875 P.2d 697 (1994) (quoting Story v. Shelter Bay Co., 52 Wn. App. 334, 341-42, 760 P.2d 368 (1988)). See also Lillig v. Becton-Dickinson, 105 Wn.2d 653, 658, 717 P.2d 1371 (1986); Hitter, 66 Wn. App. at 401. Doolittle has failed to meet this burden.
Although Doolittle asserts that Sells' statement regarding her lack of accounting experience was made "without even discussing with Doolittle her qualifications and background", she fails to recognize that Sells had other means by which he could verify her experience. Contrary to the implication suggested by Doolittle, the record reflects that Sells conducted a sufficient investigation to discover that Doolittle's education focused on mathematics and physics rather than accounting. Doolittle admitted during her testimony at deposition that in fact her education focused on science and mathematics rather than accounting. Moreover, through several on-site meetings, Sells was able to personally observe Doolittle's work product and accounting practices. Based on his review, Sells concluded that Doolittle had no accounting experience and that she was not qualified to serve as a controller in an organization relying upon federal funding. Even assuming these statements were false insofar as they are disputed by Doolittle, as we must when reviewing the order on summary judgment, there is no clear and convincing evidence in the record that Sells made the statements knowing they were false or with reckless disregard for their falsity.
Although Doolittle also asserts that Sells' statement regarding her failure to file the overdue tax return was knowingly false, the record does not support her assertion. It is undisputed that the tax return was overdue and that it had not been filed when Sells undertook the audit. Even if the initial blame for failure to file the return lay with the previous auditor as Doolittle contends, and even if Sells knew this at the time he made the statement, Doolittle does not deny that once she learned the tax return had not been filed it became her responsibility to see that it was filed. As for Sells' statement that temporary bookkeepers had to be hired to make journal entries and reconcile accounts, Doolittle does not claim that the statement itself is false. She argues instead that the statement falsely implied that her own bookkeeping skills were severely deficient. Such is not a fair inference from the statement. In context the statement reflects upon the failure of the acting executive directors to assess STOWW's personnel strengths and weaknesses following the simultaneous resignation of STOWW's former executive director and former controller, which predated Doolittle's date of hire, and thus cannot reasonably be viewed as reflecting upon Doolittle's bookkeeping skills. To the extent that any rational fair-minded trier of fact might conclude otherwise, Sells had opportunity to personally observe Doolittle's work and to form his own opinions which he was privileged to communicate to the acting director. We thus conclude that Doolittle did not make a sufficient showing to defeat the qualified privilege of Sells' communications. Because Doolittle failed to meet her burden of proving the existence of an unprivileged communication, we hold that the trial court properly dismissed her defamation claim on summary judgment. Because our holding is dispositive of this issue, we need not analyze the remaining elements of Doolittle's defamation claim. See LaMon, 112 Wn.2d at 197.
IV. Sanctions under CR 11
In its cross-appeal, Sells contends that the trial court abused its discretion in denying its motion for CR 11 sanctions, arguing that the undisputed evidence established that Doolittle's defamation complaint was signed without a reasonable inquiry as to whether it was well-grounded in fact and warranted by law.
CR 11 provides, in pertinent part:
Every pleading, motion, and legal memorandum of a party represented by an attorney shall be dated and signed by at least one attorney of record in the attorney's individual name, whose address and Washington State Bar Association membership number shall be stated. . . . The signature of a party or of an attorney constitutes a certificate by the party or attorney that the party or attorney has read the pleading, motion, or legal memorandum; that to the best of the party's or attorney's knowledge, information, and belief, formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that 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. . . . 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, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or legal memorandum, including a reasonable attorney fee.
CR 11 (emphasis added). The rule thus prohibits filings that lack legal or factual bases, and those that are interposed for an improper purpose. See Bryant v. Joseph Tree, Inc., 119 Wn.2d 210, 217, 829 P.2d 1099 (1992). At issue in this case is the former prohibition.
Under CR 11, a filing lacks a legal or factual basis if it is both "baseless" and signed without reasonable inquiry. Bryant, 119 Wn.2d at 219-20; Madden v. Foley, 83 Wn. App. 385, 389-90, 922 P.2d 1364 (1996). A baseless filing is one that is not well grounded in fact, or not warranted by existing law or a good faith argument for the alteration of existing law. Madden, 83 Wn. App. at 390. In determining whether an attorney conducted a reasonable inquiry, this court applies an objective standard, focusing on "'whether a reasonable attorney in like circumstances could believe his or her actions to be factually and legally justified.'" Madden, 83 Wn. App. at 390 (quoting Bryant, 119 Wn.2d at 220). The imposition or denial of CR 11 sanctions is reviewed for abuse of discretion. Biggs v. Vail, 124 Wn.2d 193, 197, 876 P.2d 448 (1994); Madden, 83 Wn. App. at 389.
In the present case, we conclude, contrary to Sells' assertions, that the trial court did not abuse its discretion denying sanctions. Doolittle's defamation claim was based on several statements made by Sells either in Doolittle's presence, or in documentation provided to her. The statements were directed at Doolittle's professional experience, or lack thereof, and her work practices at STOWW. These matters were peculiarly within Doolittle's personal knowledge, and her counsel was thus able to conduct a significant factual inquiry by speaking with her and reviewing her documents. Sells does not appear to contest that this was done. Moreover, at least one of Sells' statements that Doolittle had no accounting experience was, on its face, arguably inaccurate. Based on this statement, if none of the others, a reasonable attorney in similar circumstances could believe that the filing of a complaint for defamation was justified. Because the trial court had a tenable basis for its ruling, we find no abuse of discretion in the denial of Sells' motion for sanctions, even if another judge might have viewed the issue differently.
Reversed in part, affirmed in part.