Opinion
No. 29753-1-II.
Filed: April 27, 2004. UNPUBLISHED OPINION
Appeal from Superior Court of Pierce County. Docket No: 02-2-10510-1. Judgment or order under review. Date filed: 12/06/2002. Judge signing: Hon. Brian Maynard Tollefson.
Counsel for Appellant(s), Zanetta Lehua Fontes, Warren Barber Fontes PS, 100 So. 2nd, PO Box 626, Renton, WA 98057-0626.
David Ira Matlick, Atty Gen Ofc, 1019 Pacific Ave Fl 3, Tacoma, WA 98402-4488.
Counsel for Respondent(s), Joel Phillip Nichols, Deno Millikan Dale et al PLLC, 3411 Colby Ave, Everett, WA 98201-4709.
The City of Renton fired Tracy Thomas after she failed to reimburse the City for personal expenses charged to the City's credit card. Because Thomas was terminated for misconduct, the Employment Security Department (ESD) denied her unemployment benefits. Thomas appealed the denial of benefits to the Pierce County Superior Court, which reversed.
The City and ESD appeal asking that we reinstate ESD's decision denying Thomas unemployment benefits. Because substantial evidence supports ESD's findings that Thomas committed misconduct by willfully misusing her employer's financial resources and causing it harm as a result, we reverse the superior court and reinstate the order denying Thomas unemployment benefits.
FACTS
Thomas worked for the City as a Victim's Advocate beginning in November 1996. In April and May 2001, Thomas made numerous personal calls on the City's cellular phone. But as late as September 2001, Thomas had not reimbursed the City for the cost of these calls.
On October 2, 2001, Thomas and two other City employees went to Hawaii to attend a conference. The City authorized the employees' attendance. The conference took place between Wednesday, October 3, 2001, and Friday, October 5, 2001. But Thomas and another City employee, Stephanie Dikeakos, extended their stay through the following weekend.
Thomas and Dikeakos agreed with one another that each of them would pay for one night at the hotel. Thomas put the hotel, meal, and car rental charges, including those for the weekend, on the City's credit card. The City's policy allowed employees to place personal charges on City credit cards but required prompt reimbursement. For travel expenses, the City required the employee to reimburse within seven working days of returning from the trip. Non-travel expenses were not authorized on City credit cards, but employees were required to submit receipts for official purchases within 21 calendar days. Shortly after their return to Washington on Sunday, October 7, 2001, Dikeakos paid her portion of the weekend charges directly to Thomas.
Thomas filed her expense report 12 days after returning from Hawaii, on October 19, 2001. She did not report the hotel charges for October 5 and 6, as personal charges, but she did report the meals and car rental. Thomas also cashed the check from Dikeakos but did not give the money to the City. Thomas claimed that she intended to give Dikeakos's money to the City but that she had the cash in her wallet at the time it was stolen on November 6, 2001. To cover their loss, the City deducted $548.18 from Thomas's paycheck on November 20, 2001, nearly six weeks after the Hawaii trip.
On November 29, 2001, the City's community services administrator sent Thomas a Notice of Intent to Terminate. The notice cited the dollar amount, Thomas's failure to inform her supervisors of the personal charges, the time delay in reimbursing the City, and the eventual involuntary nature of repayment as reasons justifying termination. Thomas responded on December 3, 2001, claiming that she mistakenly believed that she had 21 days and not seven days to make reimbursement and that her non-payment was unintentional and not the result of dishonesty. The City terminated Thomas's employment on December 5, 2001.
Because Thomas was terminated for misconduct, ESD denied Thomas unemployment benefits. The Administrative Law Judge (ALJ) and the ESD Commissioner both affirmed the denial. Thomas appealed and the Pierce County Superior Court reversed the denial stating that it was doing so `because [ESD] either erroneously interpreted or applied the law, or because it [was] not supported by substantial evidence.' Clerk's Papers (CP) at 68. Both ESD and the City appeal.
ANALYSIS Standard of Review
When the superior court reverses an agency's decision, we sit in the same position as the superior court and apply the standards of the Administrative Procedure Act (APA) to the record before the agency. Hertzke v. Dep't of Ret. Sys., 104 Wn. App. 920, 926, 18 P.3d 588 (2001). We review an agency's findings of fact for substantial evidence and its conclusions of law de novo. Hertzke, 104 Wn. App. at 926-27. Here, we directly review the ESD decision that the superior court reversed. Under the APA, a reviewing court may reverse an agency's decision when: (i) the agency erroneously interpreted or applied the law; (ii) substantial evidence does not support the agency's decision; or (iii) the agency's ruling is arbitrary or capricious. Hertzke, 104 Wn. App. at 926. See also RCW 34.05.570(3). Although its ruling is somewhat unclear, it appears that the superior court ruled that ESD erroneously interpreted or applied the law or that substantial evidence did not support its findings. But our de novo review of ESD's decision under APA standards does not support this result.
RCW 34.05.570(3) states:
The court shall grant relief from an agency order in an adjudicative proceeding only if it determines that:
(a) The order, or the statute or rule on which the order is based, is in violation of constitutional provisions on its face or as applied;
(b) The order is outside the statutory authority or jurisdiction of the agency conferred by any provision of law;
(c) The agency has engaged in unlawful procedure or decision-making process, or has failed to follow a prescribed procedure;
(d) The agency has erroneously interpreted or applied the law;
(e) The order is not supported by evidence that is substantial when viewed in light of the whole record before the court, which includes the agency record for judicial review, supplemented by any additional evidence received by the court under this chapter;
(f) The agency has not decided all issues requiring resolution by the agency;
(g) A motion for disqualification under RCW 34.05.425 or 34.12.050 was made and was improperly denied or, if no motion was made, facts are shown to support the grant of such a motion that were not known and were not reasonably discoverable by the challenging party at the appropriate time for making such a motion;
(h) The order is inconsistent with a rule of the agency unless the agency explains the inconsistency by stating facts and reasons to demonstrate a rational basis for inconsistency; or
(i) The order is arbitrary or capricious.
Agency Interpretation and Application of the Law
The Employment Security Act (ESA) provides that an employee is disqualified from receiving unemployment benefits if he or she is `discharged or suspended for misconduct connected with his or her work.' RCW 50.20.060. Whether an employee has committed misconduct is a mixed question of law and fact. Dermond v. Employment Sec. Dep't, 89 Wn. App. 128, 132, 947 P.2d 1271 (1997). To resolve a mixed question of law and fact, we first establish the relevant facts, then determine the applicable law, and apply the law to the facts. Tapper v. State Employment Sec. Dep't, 122 Wn.2d 397, 403, 858 P.2d 494 (1993). We give deference to an agency's factual findings. Dermond, 89 Wn. App. at 132. But we review the agency's application of the law de novo. Dermond, 89 Wn. App. at 132.
Here, certain facts are undisputed. Thomas attended an authorized conference in Hawaii from October 3-5, 2001. Thomas and another employee extended their stay for the weekend after the conference and used the City's credit card for the hotel and meal expenses incurred during that time. The City's policy allowed such charges but required that the employee reimburse the City for personal travel expenses within seven working days of returning. Thomas did not reimburse the City for the expenses she charged.
The City recovered its loss by withholding the money from Thomas's November 20, 2001 paycheck, well after both the 7-and her erroneously assumed 21-day deadlines had expired. Thus, the parties' dispute is not factual. Rather, they dispute whether Thomas's failure to timely repay the City for her personal expenditures is misconduct sufficient to deprive her of unemployment benefits.
Misconduct is `[1] an employee's act or failure to act in willful disregard of his or her employer's interest [2] where the effect of the employee's act or failure to act is to harm the employer's business.' Hamel v. Employment Sec. Dep't, 93 Wn. App. 140, 145, 966 P.2d 1282 (1998), review denied, 137 Wn.2d 1036 (1999) (quoting RCW 50.04.293) (numbers added). See also RCW 50.04.293. We have previously held that to justify withholding unemployment benefits, the employee's conduct must be both `willful' and `harmful.' Hamel, 93 Wn. App. at 145. Moreover, `[m]ere incompetence, inefficiency, erroneous judgment, or ordinary negligence does not constitute misconduct for purposes of denying unemployment compensation.' Dermond, 89 Wn. App. at 133.
A. Was the Employee's Conduct Intentional, Grossly Negligent, or Continuous?
To constitute misconduct, the employee's violation must have been `intentional, grossly negligent, or continu[ous] . . . after notice or warnings.' Dermond, 89 Wn. App. at 133 (quoting Wilson v. Employment Sec. Dep't, 87 Wn. App. 197, 202, 940 P.2d 269 (1997)). The employee need not have an intent to harm her employer, but must act in voluntary or willful disregard of the employer's interest. See Hamel, 93 Wn. App. at 146. Because `willful' modifies the word `disregard,' the employee must have voluntarily disregarded the employer's interest but the employee's specific motivations are not relevant. Hamel, 93 Wn. App. at 146. To act in `willful disregard,' the employee must have (1) been aware of the employer's interest; (2) known or should have known that certain conduct jeopardizes that interest; and (3) nonetheless performed the act, willfully disregarding its probable consequences. Hamel, 93 Wn. App. at 146-47.
Here, Thomas acknowledged that she knew she was responsible for the personal charges assessed against the City's credit card. She contends that she intended to pay the charges and did not willfully disregard the consequences to the City of nonpayment. But the City need not prove that Thomas intended to harm the City in order to prove Thomas's misconduct. The City's policy required that Thomas reimburse it within seven working days of returning from the trip. Thomas claimed that she mistakenly believed that the policy required repayment within 21 calendar days. But it is undisputed that Thomas did not reimburse the City within 7 days or 21 days. In addition, according to Thomas, she cashed Dikeakos's check sometime before November 6, 2001, but she did not immediately reimburse the City for Dikeakos's share. Thomas's failure to pay the money owed was willful and disregarded the City's interest in timely reimbursement.
Moreover, the record established that Thomas never voluntarily reimbursed the City. The City had to dock her November 20, 2001 paycheck to obtain the money owed. In addition, Thomas continued to fail to reimburse the City on the unrelated cellular phone expenses incurred in April and May, 2001, despite an email warning from her supervisor. Thomas's failure to honor her responsibility to reimburse the City for other personal expenses demonstrates a pattern of conduct and undermines her claim that she did not intend to deprive the City of the money owed. Thomas claims that she was never warned or disciplined for her cellular phone usage, although she acknowledged she was `counseled,' and that therefore termination was unjustified. But nothing requires an employer to issue formal warnings as Thomas appears to suggest. The record established that Thomas did not reimburse the City for her personal expenses even after being counseled and reminded by her supervisor to pay the money owed.
B. The City's Harm
Thomas claims that the City was not harmed by her non-payments and that, therefore, it failed to prove her misconduct sufficient to deny her unemployment benefits. The City claims that it was harmed by having to divert resources to investigating Thomas as well as by a loss of trust toward Thomas.
Thomas disagrees. Thomas claims that because her failure to pay was not because of dishonesty, there could be no reasonable loss of trust and her work as a victim advocate was unaffected by her non-payment of personal expenses. She also asserts that the small amount of the non-payment did not impede the City's operations nor cause a financial loss, and it was not a breach of the City's fiduciary duty to the taxpayers.
The legislature added the harm requirement to proof of employee misconduct in 1993 when it enacted RCW 50.04.293. Dermond, 89 Wn. App. at 133. Our Supreme Court has held that harm exists when the employee's conduct `resulted in some harm to the employer's interest.' Nelson v. Dep't of Employment Sec., 98 Wn.2d 370, 374-75, 655 P.2d 242 (1982). Even though the statute was passed after Nelson, there is no `meaningful difference' between the current statutory standard and the prior standard in Nelson. Dermond, 89 Wn. App. at 134.
Thus, to show that misconduct resulted in harm to the employer, `actual detriment to the employer's operations must be objectively demonstrated.' Leibbrand v. Employment Sec. Dep't, 107 Wn. App. 411, 426, 27 P.3d 1186 (2001) (quoting Haney v. Employment Sec. Dep't, 96 Wn. App. 129, 141, 978 P.2d 543 (1999)). While the harm need not be `tangible nor economic,' it must be more than `imaginary or theoretical.' Leibbrand, 107 Wn. App. at 426 (quoting Haney, 96 Wn. App. at 141). We examine each case on its own facts. Leibbrand, 107 Wn. App. at 426.
Here, at minimum, the City had an interest in receiving prompt reimbursement for personal charges made on the City's credit card. Thomas's failure to reimburse the City directly harmed this interest by requiring the City to divert taxpayer funds to pay Thomas's personal credit card charges. Thomas's failure to reimburse the City caused harm between October 16, 2001, the date of the seven-day deadline, and November 20, 2001, the date that the City withheld the funds from Thomas's paycheck. This is a tangible financial harm that clearly satisfies the Leibbrand standard. Moreover, the record established that Thomas never voluntarily reimbursed the City. The City was able to avoid permanent loss only by withholding money from Thomas's paycheck.
ESD properly interpreted and applied appropriate law in finding that Thomas's actions in failing to reimburse the City for her personal expenditures was misconduct.
ESD's Findings are Supported by Substantial Evidence
Thomas also claims that substantial evidence does not support ESD's findings that Thomas willfully misused the City's resources and that the City suffered harm. Agency findings of fact are upheld if substantial evidence viewed in light of the whole record before the court, supports them. William Dickson Co. v. Puget Sound Air Pollution Control Agency, 81 Wn. App. 403, 411, 914 P.2d 750 (1996). Substantial evidence is evidence of a sufficient quantum to persuade a fair-minded rational person the truth of the declared premise. William Dickson, 81 Wn. App. at 411. We give deference to factual decisions and view the findings of fact in the light most favorable to the prevailing party in the forum of the highest fact-finding authority, here ESD. William Dickson, 81 Wn. App. at 411. Whether the claimant engaged in willful misconduct that actually harmed the claimant's employer is a factual question. Haney, 96 Wn. App. at 139. Here, the facts are not disputed, and substantial evidence supports ESD's findings of fact.
ESD's Decision Was Not Arbitrary or Capricious
The City also argues that the ALJ's decision was neither arbitrary nor capricious. An agency's decision is arbitrary and capricious if it is `willfully unreasonable, without consideration and in disregard of facts or circumstances.' Western Ports Transp., Inc. v. Employment Sec. Dep't, 110 Wn. App. 440, 450, 41 P.3d 510 (2002). If the decision is the result of honesty and due consideration, it is not arbitrary and capricious even if reasonable minds could disagree with the result. Western Ports, 110 Wn. App. at 450. Here, substantial evidence supports the ALJ's decision and the decision applies the correct legal standard. The ALJ's decision is neither arbitrary nor capricious and is, hereby, reinstated. The superior court's decision is reversed.
Thomas's Request for Attorney Fees
Thomas seeks attorney fees from the unemployment compensation fund under RCW 50.32.160. That statute provides that `if the decision of the commissioner shall be reversed or modified, such fee and the costs shall be payable out of the unemployment compensation administration fund.' But ESD claims that if it prevails, as we have ruled it should, it is entitled to a refund of attorney fees paid from the unemployment compensation fund. We agree.
Analyzing nearly identical language in In re Persons Employed at St. Paul Tacoma Lumber Co., 7 Wn.2d 580, 601, 110 P.2d 877 (1941), our Supreme Court held that:
The court allowed attorneys' fees, payable out of the unemployment compensation administration fund, to those claimants who prevailed in the superior court. The allowance was made in compliance with the provisions of subd. (i) of Rem. Rev. Stat. (Sup.), sec. 9998-106, which provides that, if the decision of the commissioner shall be reversed and modified, a reasonable attorney's fee, fixed by the court, shall be payable out of the fund.
With our disposition of the case it is obvious that attorney's fees cannot be allowed out of the fund for any of the claimants except Schilling, whose claim was the only one which was improperly denied by the commissioner.
The judgment is reversed, with instructions to fix a reasonable amount as attorney's fee for the case of Chris Schilling, and to enter a decree in conformity with this opinion.
St. Paul, 7 Wn.2d at 601. ESD's ruling is reinstated and Thomas is ordered to reimburse the employment security fund for such sums as were advanced for prosecution of her appeal in the superior court only. No other attorney fees are awarded either party.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
BRIDGEWATER, and ARMSTRONG, JJ., concur.