Inadvertent Disclosure of Privileged Information – Flawed Balanced Approach

Sitterson v. Evergreen School Dist. No. 114, --- P.3d ---- (Wash.App. Div. 2 Nov 25, 2008) (NO. 36218-0-II)

Thousands of pages of documents are routinely produced in litigation. Normally, certain documents, like letters from attorneys to clients, are placed on the privilege log. Occasionally, a mistake is made and the privileged document is produced. The law has moved away from a strict waiver for inadvertent production toward a more liberal approach that allows the privilege to be reasserted in certain situations. This is known as the “Inadvertent Disclosure” Rule.

Sitterson is the first Washington case on the subject. Generally Washington follows the federal rules but has not yet adopted the most recent changes. In that situation, Washington courts properly refused to legislate the rule. See State v. Darden, 145 Wn.2d 612, 627, 41 P.3d 1189 (2002) (refusing to adopt a new privilege under ER 501 that was accepted by federal courts under Fed.R.Evid. 501 because federal rule is “entirely different” from Washington rule). However if there is no rule in place, the court has the freedom to adopt one.

As of September 19, 2008, Federal Rule of Evidence 502(b) provided that a disclosure made in a federal proceeding does not operate as a waiver if: (1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).

From a policy standpoint, the court must weigh two competing doctrines: 1) Full disclosure of all the facts – decisions of a court should be based on all the relevant facts; and 2) Right to counsel – clients and their attorneys must be able to speak freely in order to allow the advocacy system to work.

The Sitterson court examined four approaches and decided to follow Alldread v. City of Grenada, 988 F.2d. 1425 (1993), and adopted its five-part test: (1) the reasonableness of precautions taken to prevent disclosure, (2) the amount of time taken to remedy the error, (3) the scope of discovery, (4) the extent of the disclosure, and (5) the overriding issue of fairness.

Although taken at face value the Alldread test seems to promote fairness, in reality it is a flawed rule that leads to arbitrary decisions that make it appear that the court is merely giving lip service to the test.

Alldread is defective because it does not require proof that the disclosures were inadvertent. The Sitterson court criticized the parties and the trial court for not considering whether the disclosures were inadvertent but did not expressly add inadvertence to the Alldread factors. Instead it assumed the disclosures were inadvertent.

In applying the 5 Alldread factors, Division II ruled against the School District on issue 1 because no evidence was introduced showing what precautions taken to prevent disclosure. No doubt the District would reply that it did not know Division II would adopt Alldread. Division II ruled against the District on issue 2 because it did not discover the inadvertent disclosure until it prepared for trial 3 years after the disclosure. Division II ruled against the District on issue 3 by deciding that the production of 439 documents was not a large number. The court did not consider how many pages were included with each document. The court did not separately consider issue 4 because it is essentially the same as issue 3 (another defect in the Alldread decision). Finally it did not consider the disclosure unfair because only discredited the District’s lawyers in front of the jury. The reasoning is inexplicable.

Division II has done a disservice to the court system by adopting the flawed Alldread test and should have looked to rules more carefully crafted by skilled practitioners like the new federal rule.

Protecting Free Speech Against Government Retaliation

CarePartners, LLC v. Lashway, 545 F.3d 867, (9th Cir. Wash.), September 25, 2008, (NO. 07-35125)

A state boarding home, CarePartners, brought an action against several employees and representatives of the Washington State Department of Social and Health Services (“DSHS”) and the Washington State Fire Marshal's office (“fire marshal”) in their individual capacities (collectively, the “State employees”) claiming that the State employees engaged in retaliatory enforcement of state boarding home laws and regulations. CarePartners alleged that the State employees retaliated against its facilities, including revocation of one facility's license, in response to constitutionally protected speech and petition activities. An owner of CarePartners, Kilkelly, had given a critical public speech about DSHS and its interpretations of certain regulations, had lobbied for a license from DSHS, and had filed of an administrative appeal of one of DSHS's regulatory decisions. The State employees appeal the district court's denial of their motion for summary judgment on their defense of qualified immunity. Viewing the facts in a light most favorable to CarePartners, and based on circuit precedent, the Ninth Circuit ruled that the State employees were not entitled to qualified immunity.

In Soranno's Gasco Soranno's Gasco, Inc. v. Morgan, 874 F.2d 1310, 1314 (9th Cir.1989), the standard for evaluating whether a regulated entity has established a claim of retaliation based on the exercise of free speech and petition rights was decided: A “plaintiff alleging retaliation for the exercise of constitutionally protected rights must initially show that the protected conduct was a ‘substantial’ or ‘motivating’ factor in the defendant's decision.” If the plaintiff makes this initial showing, the “burden shifts to the defendant to establish that it would have reached the same decision even in the absence of the protected conduct.” To meet this burden, a defendant must show by a preponderance of the evidence that it would have reached the same decision; it is insufficient to show merely that it could have reached the same decision.”

The State employees argued that the Ninth Circuit should impose a requirement on CarePartners to plead and prove an “absence of probable cause” with respect to their enforcement decisions, relying on Hartman v. Moore, 547 U.S. 250, 126 S.Ct. 1695, 164 L.Ed.2d 441 (2006). The court held that Hartman's absence of probable cause element applies to “a particular subcategory of retaliation claims: retaliatory prosecution claims.”

The court decided that the Soranno’s Gasco case had a similar fact pattern. The plaintiffs in Soranno's Gasco were sellers and distributors of petroleum products that operated under certain bulk plant permits. Soranno, as owner of Sorrano's Gasco (“Gasco”), publicly challenged certain new regulations promulgated by the county and the air pollution district, speaking out at County Board of Supervisors meetings and initiating litigation to challenge the regulations. Subsequently, the air pollution district demanded certain documentation from Soranno, which Sorrano refused to provide on the grounds that the demand was an improper attempt at discovery related to a civil penalty action the county had filed against Gasco. The air pollution district then exercised its statutory authority and suspended Gasco's bulk plant permits, and a pollution control officer circulated a letter to Gasco's clients informing them of Gasco's permit suspension and of possible adverse impact on their own businesses.

Sorrano and Gasco brought an action under 42 U.S.C. § 1983 against the county, the air pollution district, and several officials on the grounds that the defendants suspended Gasco's petroleum bulk plant permits and discouraged its customers from doing business with Gasco in retaliation for Soranno's exercise of constitutionally protected speech and petition rights. We vacated the grant of summary judgment and held that: (1) the plaintiffs had protected rights in commenting on the conduct of government officials and in petitioning the government for redress of grievances, and (2) Soranno's protected expression was a substantial factor in the decision to suspend Gasco's permits. The Ninth Circuit based its finding that Sorrano's protected expression was a substantial factor in the air pollution district's decision on the timing of the district's suspension action and a phone call in which the pollution control officer intimated to Sorrano that he would “somehow get even” with Soranno for generating embarrassing publicity about the challenged regulations.

The court found four indications that the State employees had retaliated in the Care Partners case. First, the timing of the State employees' investigation of CarePartners and the summary suspension and revocation of its license were suspiciously close in time to the administrative hearing on the Meridian facility and Kilkelly's lobbying efforts regarding the Lakewood facility. Second, the existence of a retaliatory intent is supported by Dale's declaration indicating that DSHS officials were “quickly losing patience” with Kilkelly, and that the Assistant Attorney General told Dale that Kilkelly was “known to the department.” Third, the record, based on limited discovery, contains e-mails that suggest DSHS was planning to take action against Alderwood and Wenatchee before it conducted its follow-up inspections. Finally, the record indicates that DSHS may have been deliberately refusing to communicate with Kilkelly despite his expressed willingness to install a sprinkler system. In the context of an interlocutory appeal on qualified immunity, these facts indicate that CarePartners has demonstrated that Kilkelly's protected expression may well have been a substantial factor in the State employees' aggressive enforcement decisions.

The State employees attempted to insert two criteria applicable to the evaluation of a public employee's speech-based retaliation claims should apply generally to First Amendment retaliation claims by regulated entities: first, that the speech at issue address a matter of public concern; and, second, that even if that speech addresses a matter of public concern it survive what is known as the Pickering balancing test. They relied primarily on Tennessee Secondary School Athletic Association v. Brentwood Academy, --- U.S. ----, 127 S.Ct. 2489, 168 L.Ed.2d 166 (2007), which they argued held that the public concern requirement and Pickering balancing test apply generally to the regulated entity context. In Brentwood Academy, the Court held that a state-sponsored high school athletic league could impose conditions on its member schools' coaches' speech-aimed at “hard-sell recruiting” of middle school children to high school teams-that were necessary to managing an efficient and effective league.

The CarePartners court held that private citizens First Amendment freedom of speech rights were not limited by the limited protection provided to “employment at will” government employees. The government, acting as an employer, the government has some authority to impose conditions upon those who seek jobs, including conditions that limit the exercise of otherwise available constitutional rights. Second, “[w]hen someone who is paid a salary so that she will contribute to an agency's effective operation begins to do or say things that detract from the agency's effective operation, the government employer must have some power to restrain her.”

The CarePartners court agreed with the district court that the relevant law was clearly established at the time of the alleged violation. In Soranno's Gasco, the Ninth Circuit held that it is unlawful for the government to deliberately retaliate against a citizen for exercising his right to comment on (and publicly criticize) government officials' actions and his right to access the courts and administrative appeals process for redress of grievances.

The Ninth Circuit has upheld the right to freely criticize government without fear of retaliation.

Importer of Counterfeit Goods Liable

U.S. v. Able Time, Inc., 545 F.3d 824, 88 U.S.P.Q.2d 1510, (9th Cir. Cal.) Sep 25, 2008) (NO. 06-56033)

U.S. Customs filed civil penalty action against importer for importing counterfeit watches that bore trademark of a company that did not make watches. The District Court granted summary judgment for importer on the theory that the Tariff Act only covered counterfeit goods – not goods that merely misappropriated a trademark. U.S. Customs appealed.

The Ninth Circuit reversed holding that the Tariff Act was broad enough to cover misappropriated trademarks.

US Post Office Not Immune from Tort and Breach of Contract Claim

MB Financial Group, Inc. v. U.S. Postal Service, 545 F.3d 814 (9th Cir., CA, 2008), September 25, 2008.

The USPS, made a mistake and did not make a post office box available for the full term of the contractual lease. The rental fee was $50 for six months. MB Financial alleged it lost hundreds of thousands of dollars worth of business. MB Financial brought claims for breach of contract and negligence.

The Federal Tort Claims Act, 28 U.S.C. § 1346(b)(1) exempts from legal action, “[a]ny claim arising out of the loss, miscarriage, or negligent transmission of letters or postal matter.” The majority held that closing a post office box prematurely does not involve the “loss . . . of letters or postal matter.”

The dissent correctly pointed out the majority ignored congressional intent to immunize the Postal Service from liability arising out of consequential damages claims for failure to deliver mail:

As a society, we have entered into a social contract with the federal government. We pay taxes and receive certain services in return, some of which would never be provided unless the government steps in to correct what economists term a “market failure.” . . . . At bottom, market failure occurs when there is no incentive for private businesses to provide a service. Historically, the provision of national and international mail services at affordable prices has been among the market failures the government has rectified.

Everyone has reasons to sue the USPS but allowing these actions will destroy the Postal Service. The Ninth Circuit misread the statute in order to provide a remedy unintended by congress. MB Financial suffered the loss of its mail – precisely the type of claim protected by sovereign immunity.

Ninth Circuit “Taking” – When Does the Government Need to Pay?

McClung v. City of Sumner, 545 F.3d 803 (9th Cir.(Wash.) Sep 25, 2008) (NO. 07-35231)

Governments often make onerous or expensive requirements a condition for a building permit. The United States Constitution protects against a “taking” of perperty without compensation. When do these preconditions constitute a “taking” under the United States Constitution which the government must compensate?

The City of Sumner gave the McClungs the choice of either agreeing to install a 12-inch pipe and pay the usual fees, or install a 24-inch pipe and receive the fee waiver. The McClungs accepted the latter 24-inch pipe option. The McClungs claimed an unconstitutional compulsion by the city resulting in a “taking.”

The Ninth Circuit addressed for the first time whether a legislative, generally applicable development condition that does not require the owner to relinquish rights in the real property, as opposed to an adjudicative land-use exaction, should be addressed under the Penn Central or Nollan/Dolan framework. Other courts addressing this general issue have come to different conclusions.

A plaintiff seeking to challenge a government action as an uncompensated taking of private property may proceed under one of four theories: by alleging (1) a physical invasion of property, (2) that a regulation completely deprives a plaintiff of all economically beneficial use of property, (3) a general regulatory takings challenge pursuant to Penn Central, or (4) a land-use exaction violating the standards set forth in Nollan and Dolan. Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 548, 125 S.Ct. 2074, 161 L.Ed.2d 876 (2005). At issue here is application of the latter two doctrines.

In Penn Central, the New York City Landmarks Preservation Commission refused to approve plans to construct an office building over Grand Central Terminal due to its “landmark” status under the Landmarks Preservation Law. Penn Central, 438 U.S. at 116-17, 98 S.Ct. 2646. Penn Central recognized that “[a] ‘taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” Id. at 124, 98 S.Ct. 2646 (citation omitted); see also Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 322-23, 122 S.Ct. 1465, 152 L.Ed.2d 517 (2002) (distinguishing cases involving physical possession of property versus regulations that do not cause a categorical taking). Penn Central acknowledged that it was “unable to develop any ‘set formula’ ” for evaluating these types of claims, but identified relevant factors, such as the economic impact of the regulation on the claimant, the extent to which the regulation has interfered with distinct investment-backed expectations, and the character of the governmental action. Penn Central, 438 U.S. at 124, 98 S.Ct. 2646; see also Lingle, 544 U.S. at 538-39, 125 S.Ct. 2074 (discussing Penn Central ).

In comparison to Penn Central, “[b]oth Nollan and Dolan involved Fifth Amendment takings challenges to adjudicative land-use exactions-specifically, government demands that a landowner dedicate an easement allowing public access to her property as a condition of obtaining a development permit.” Lingle, 544 U.S. at 546, 125 S.Ct. 2074. In Nollan, the California Coastal Commission conditioned the grant of Nollan's development/rebuilding permit of his beachside home on Nollan's dedication of an easement on the property to the public. Nollan, 483 U.S. at 828, 107 S.Ct. 3141. In Dolan, the Oregon Land Use Board of Appeals conditioned the grant of Dolan's permit to expand a store and parking lot on Dolan's dedication of a portion of the relevant property as a “greenway” and bicycle/ pedestrian pathway. Dolan, 512 U.S. at 379-80, 114 S.Ct. 2309. The Supreme Court recently described the holdings of these cases as follows:

In each case, the Court began with the premise that, had the government simply appropriated the easement in question, this would have been a per se physical taking. The question was whether the government could, without paying the compensation that would otherwise be required upon effecting such a taking, demand the easement as a condition for granting a development permit the
government was entitled to deny. The Court in Nollan answered in the affirmative, provided that the exaction would substantially advance the same government interest that would furnish a valid ground for denial of the permit. [Nollan, 483 U.S. at 834-37, 107 S.Ct. 3141.] The Court further refined this requirement in Dolan, holding that an adjudicative exaction requiring dedication of private property must also be “‘rough[ly] proportiona[l]’ ... both in nature and extent to the impact of the proposed development.” [Dolan, 512 U.S. at 391,
114 S.Ct. 2309.]

In Nollan, the Court stuck down the condition as an unconstitutional taking because there was no logical connection (i.e., no “essential nexus”) between the adverse impacts of the development and the required easement. Nollan, 483 U.S. at 837, 107 S.Ct. 3141. In Dolan, the Court found the exactions unconstitutional because the City failed to show that the conditions were roughly proportional to the negative impacts caused by the development. Dolan, 512 U.S. at 394-95, 114 S.Ct. 2309.

The facts of Nollan and Dolan-involving adjudicative, individual determinations conditioning permit approval on the grant of property rights to the public-distinguish them from the line of cases upholding general land use regulations. Dolan, 512 U.S. at 384-85, 114 S.Ct. 2309. Unlike the facts of Dolan, cases questioning land use regulations “involve[ ] essentially legislative determinations classifying entire areas of the city” and placing limitations on the use owners may make of their property. Id. at 385, 114 S.Ct. 2309. In comparison to legislative land determinations, the Nollan/Dolan framework applies to adjudicative land-use exactions where the “government demands that a landowner dedicate an easement allowing public access to her property as a condition of obtaining a development permit.”

The court concluded that there was no “taking” by the City of Sumner because the McClungs were not compelled to install a 24-inch pipe, but voluntarily contracted with the City to do so.

Primer on Award of Attorney Fee Awards

Guillen v. Contreras, 195 P.3d 90 (Wash.App. Div. 3 Nov 04, 2008) (NO. 26432-7-III)

Many Washington State statutes allow attorney fees to the party who “prevails” or “substantially prevails.” Division III of the Washington Court of Appeals explained the rule in Guillen , which provided a review of existing law on the subject.

When the question is one of money damages, the party that obtains judgment is the prevailing party. Blair v. Wash. State Univ., 108 Wash.2d 558, 571, 740 P.2d 1379 (1987). When a monetary judgment is not the sole issue and both parties to the litigation prevail to some significant degree, neither is a prevailing party. For example, see Northwest Television Club, Inc. v. Gross Seattle, Inc., 96 Wash.2d 973, 634 P.2d 837, 640 P.2d 710 (1981) and Goedecke v. Viking Investment Corporation, 70 Wash.2d 504, 513, 424 P.2d 307 (1967).

If one party prevails on only a marginal issue, it is not a prevailing party. S. Kitsap Family Worship Ctr. v. Weir, 135 Wash.App. 900, 915, 146 P.3d 935 (2006) (party that won on claim of property ownership was substantially prevailing party even though opposing party won on claim that a contractual attorney fee provision did not apply to case). However, when there is one primary issue, the party prevailing on that issue is entitled to its costs and fees as the “prevailing party” even though the party lost on another issue. Osborn v. Grant County, 130 Wash.2d 615, 630, 926 P.2d 911 (1996).

In the case of contractual attorney fee awards under RCW 4.84.330 where both parties prevail on discrete contractual issues, the trial court is to award fees on a proportional basis. See Marassi v. Lau, 71 Wash.App. 912, 859 P.2d 605 (1993); Transpac Dev., Inc. v. Young Suk Oh, 132 Wash.App. 212, 130 P.3d 892 (2006); but see Hertz v. Riebe, 86 Wash.App. 102, 106, 936 P.2d 24 (1997) (declining to apply Marassi in situation of both contractual and non-contractual claims).

Ninth Circuit Bankruptcy Law Changes Course - Embezzler Prevented from Evading Repayment – BAP and bankruptcy court overruled

In re Laizure, --- F.3d ---, (9th Cir. Nov 17, 2008) (NO. 06-16857, BAP EC-06-1112-BMOS)

The Ninth Circuit Court of Appeals has been a sanctuary for fraudsters who wish to use the bankruptcy laws to escape justice. In re Scovis, 249 F.3d 975 (2001), allowed Chapter 13 debtors to omit creditors from their filing to stay under the jurisdictional limits so long as the creditor could not prove the omission was not in good faith. This is rarely possible because the debtor always has a reason that she “forgot” or “did not understand.” At the time In re Scovis was decided, fraud was dischargeable in Chapter 13 so fraudsters were able to use Chapter 13 to discharge debts when in reality they were not eligible to file a petition in Chapter 13. This was done over vigorous dissent. The 2005 amendments made fraud nondischargeable in Chapter 13 but left many of the loopholes in place.

Now it seems that the Ninth Circuit has changed course.

In Laizure, the debtor had embezzled money from his employer but agreed to repay the money after he was caught. The last payment to the employer was made within 90 days of the embezzler (Laizure) filing bankruptcy. The trustee demanded repayment of the money as a preferential payment made within 90 days of bankruptcy. The employer repaid the money and filed an adversary proceeding in bankruptcy to recover the embezzled money as a nondischargeable debt. The bankruptcy court and the Bankruptcy Appeals Panel dismissed the case. These dismissals required a narrow reading of the bankruptcy statute. The courts decided that since the debt had been paid as of the date of the filing, it did not exist as of the date of filing. Therefore the employer could not bring the adversary action and the embezzler could avoid repaying the money.

The Ninth Circuit reversed, holding that if the claim meets certain requirements the claimant can bring the claim as if it had arisen before filing the petition. In this case, the trustee avoided Laizure's final transfer to Busseto under 11 U.S.C. § 547 and recovered the $34,000 under § 550. According to the language of § 502(h), the trustee, through using this § 550 recovery ability, revived Busseto's claim to prepetition status. Consequently, Busseto has a claim against Laizure “the same as if ... [it] had arisen before the date of the filing of the petition.” 11 U.S.C. § 502(h).

We were encouraged by the following quote in Laizure:

. . . , this conclusion best advances the policies of our bankruptcy laws. As the Supreme Court has explained, “the Act limits the opportunity for a completely unencumbered new beginning to the honest but unfortunate debtor.” Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (citations and internal quotations omitted). The Court later stated that these “statutory provisions governing nondischargeability reflect a congressional decision to exclude from the general policy of discharge certain categories of
debts ... [including] liabilities for fraud.” Id. at 287. Here, allowing Laizure to avoid repaying the funds he embezzled from Busseto would contravene Congress' intent. A contrary conclusion would only encourage debtors to pay outstanding debts that are nondischargeable and later file for bankruptcy protection, thus avoiding the nondischargeability of their debt under the veil of our bankruptcy
laws.

Finally, the Ninth Circuit seems to be on course to assist rather than obstruct the fight against fraud.

Victim-Protecting “Discovery Rule” Properly Applied in Oregon – Unlike Washington

Kelly v. Lessner, --- P.3d ----, (Or.App. Nov 19, 2008) (NO. 060809121, A135003)

The courts and statutes in most states have created the “discovery rule” to prevent the statute of limitations from running where the defendant has concealed his misdeeds or has lulled the plaintiff into inaction. The discovery rule starts the time limit for filing an action when the plaintiff knew or should have known of the facts giving rise to the cause of action. Washington State courts, which generally favor the tortfeasor over the victim, have devised various interpretations to limit the protection the discovery rule provides. Washington law often does not require that all the elements of a cause of action be known, tends to ignore lulling, makes civil actions more difficult than criminal actions, and will look for any hint in the public record that could have put the victim on “discovery notice.”

In Kelly, the Oregon Court of Appeals was given the opportunity to follow Washington law and favor the tortfeasor. Instead it kept a robust discovery rule in place to protect victims.

Plaintiff Kelly invested $100,000 on the recommendation of the CPA for the company and was promised a fully secured interest in a home as collateral. Kelly could have learned that the trust deed did not protect her if she had checked the public records. Kelly waited more than two years (the period provided by the statute of limitations) to file her complaint after Defendant defaulted on the investment. The trial court dismissed the action, ruling the statute of limitations began to run when plaintiff became aware that defendant's representations regarding the stability of the Defendant’s business and the soundness of the investment were false. It also concluded that the statute of limitations on plaintiff's breach of fiduciary duty claim expired before plaintiff filed her complaint, reasoning that a reasonable person, in light of Defendant's default on the loan, would have investigated the priority of the trust deed.

The Court of Appeals reversed. It held that a jury could find that a reasonable person in Plaintiff Kelly's circumstances could believe, despite the default, the loan was fully secured and that no harm would arise from defendant's representations about the wisdom of the investment or the adequacy of the security.

Oregon is following a higher path than Washington in regards to the discovery rule. Courts should craft decisions regarding the discovery rule to protect victims whose primary “fault” is trusting someone else to tell the truth.

Consumer Protection Act Claims Assignable - No Exception for Fraud under Economic Loss Rule – Duty of Good Faith Does Not Create Warranty

Carlile v. Harbour Homes, Inc., --- Wa.App. ---, 194 P.3d 280 (Wash.App. Div. 1 Oct 20, 2008) (NO. 61419-3-I)

Homes are purchased by contract. Washington law denies the home purchaser the right to sue for torts like negligence under the “economic loss rule.” The rule limits the parties to their contract remedies because “tort law is not intended to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement.” Alejandre v. Bull, 159 Wash.2d 674, 681, 682, 153 P.3d 864 (2007). An exception to the rule was created for fraudulent concealment claims.

In Carlile, the court was asked to create an exception for intentional misrepresentation (common law fraud). The two tort claims have distinct elements. A claim for fraudulent concealment requires a plaintiff to show:
(1) [that] the residential dwelling has a concealed defect; (2) the vendor has knowledge of the defect; (3) the defect presents a danger to the property, health, or life of the purchaser; (4) the defect is unknown to the purchaser; and (5) the defect would not be disclosed by a careful, reasonable inspection by the purchaser.

The nine elements of intentional misrepresentation (common law fraud) are:
(1) representation of an existing fact; (2) materiality; (3) falsity; (4) the speaker's knowledge of its falsity; (5) intent of the speaker that it should be acted upon by the plaintiff; (6) plaintiff's ignorance of its falsity; (7) plaintiff's reliance on the truth of the representation; (8) plaintiff's right to rely upon the representation; and (9) damages suffered by the plaintiff. West Coast, Inc. v. Snohomish County, 112 Wash.App. 200, 206, 48 P.3d 997 (2002).
Without explanation, the Carlile court declined to make an exception from the economic loss rule for common law fraud, noting the elements to be proven were different.

Consumer Protection Act (“CPA”) Assignment

The court approved assignment of CPA claims from the initial purchaser to the new purchaser of the home. In order to maintain a private CPA action, a assignee must establish five elements: (1) an unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or property; and (5) a causal link between the unfair or deceptive acts and the injury suffered by the plaintiff. Hangman Ridge Training Stables, Inc. v, Safeco Title Ins. Co., 105 Wash.2d 778, 780, 719 P.2d 531 (1986); RCW 19.86.020.

The CPA does not define “unfair or deceptive act or practice.” Whether an alleged act is unfair or deceptive is a question of law. An unfair or deceptive act or practice need not be intended to deceive; it need only have the capacity to deceive a substantial portion of the public.

The assignees in Carlile contended that Harbour Homes engaged in unfair and deceptive practices by making affirmative representations of quality, workmanship, and construction in marketing materials and then failing to provide homes that met the standards as represented. They also contended that Harbour Homes's failure to disclose known defects in the homes constituted unfair or deceptive acts.

Harbour Homes provided marketing materials with affirmative representations of quality. It represented that in their homes, “maintenance is kept to a minimum for many years due to the high quality of material and workmanship included in every Harbour Home[ ]”; that “[o]ur goal is to provide each of our home buyers with a home of the highest quality and workmanship ... [ ]”; and that “[d]uring the course of construction, each of our homes is inspected several times by our quality control managers[,]” among others. The record showed that the homes contained numerous construction deficiencies and that the deficiencies have caused the homes to suffer from excessive deterioration and damage. The deficiencies amounted to the builder's failure to properly seal and protect the homes from weather and moisture, resulting in water intrusion, rot, and mold in the homes.

The assignee-homeowners also argued that Harbour Homes engaged in unfair or deceptive acts in failing to disclose known defects in the home. The court agreed.

A seller's failure to disclose material facts to the purchaser in a real estate transaction may support a CPA claim, even if the circumstances do not establish fraudulent concealment. There is a duty on the part of a seller to disclose facts material to a transaction when the facts are known to the seller but not easily discoverable by the buyer.

Breach of Contractual Duty of Good Faith

The duty of good faith and fair dealing is implied in every contract. Badgett v. Security State Bank, 116 Wash.2d 563, 569, 807 P.2d 356 (1991). This duty obligates the parties to cooperate with each other so that each may obtain the full benefit of performance. But the duty of good faith does not “inject substantive terms into the parties' contract.” Rather, “it requires only that the parties perform in good faith the obligations imposed by their agreement.” Washington’s Supreme Court has “consistently held there is no ‘free-floating’ duty of good faith and fair dealing that is unattached to an existing contract.” The duty exists only in relation to performance of a specific contract term. If there is no warranty duty in the contract, the duty of good faith does not create the term.

Although there was precedent that favored Harbour Homes, Division One signaled that it was willing to protect home buyers through the consumer protection act.

Loophole Created in Unemployment Law for Big Business to Save State Money

Verizon Northwest, Inc. v. Washington Employment Sec. Dept., --- W2d. --, 194 P.3d 255 (Wash. Oct 23, 2008) (NO. 81024-9)

If a small business downsizes and lays-off employees, it generally has no choice but to terminate specified employees. Big business can tell employees that they are within the class of employees being considered for lay-off and ask for voluntary participation in a force reduction program. The employment security commissioner has provide rules governing whether these “voluntary” participants qualify for unemployment benefits or have been separated for a disqualifying reason:

You will not be considered to have been separated from employment for a disqualifying reason when:
(a) Your employer takes the first action in the separation process by announcing in writing to its employees that:
(i) The employer plans to reduce its work force through a layoff or reduction in force, and
(ii) That employees can offer to be among those included in the layoff or reduction in force;
(b) You offer to be one of the employees included in the layoff or reduction in force; and
(c) Your employer takes the final action in the separation process by accepting your offer to be one of the employees included in the layoff or reduction in force, thereby ending your
employment relationship. WAC 192-150-100(1).

In this case, Verizon argued that it did not take the final step because it gave the employees the right to rescind their acceptance of the force reduction program. No employee exercise the right to rescind.

Justice J. Chambers, joined by Barbara A. Madsen, offered this dissent:

[We] fear the majority is ignoring the widely accepted realities of large company layoffs. The agreement to participate in a voluntary reduction in force program is not, meaningfully, a voluntary decision to leave a job without good cause. Our administrative rules recognize this. An employee is placed between the proverbial rock and a hard spot when her employer announces that the company is going to lay off a substantial number of employees and the employee is one of those at risk. She can close her eyes, hold her breath, and hope that she is not one of the employees fired. But if she is one of the unfortunate ones laid off, she risks losing the income stream necessary to pay her bills. Alternatively, she can choose to participate in a force reduction program. Reduction in force programs can be a comparatively humane and sensible way to mitigate some of the worst pain and uncertainty of a layoff. But rarely are either of these choices, the rock or the hard spot, nearly as desirous as continued employment with a company for whom the employee has established a work history and gained some seniority.

The dissent believed that Verizon had taken the “final action” under WAC 192-150-100(1) by accepting the offer to resign.

The Supreme Court had a choice – save the State of Washington money on unemployment costs or allow laid off workers to collect unemployment. It chose the State over the workers through a creative interpretation of the rules. While it is true that Washington’s unemployment laws need amending and that the legislature does not have the political courage to make the changes, the court does not have the constitutional mandate to usurp the legislative power.

Large Award for Hostile Work Environment and Gender Discrimination – Statute of Limitation Issues

Broyles v. Thurston County, --- P.3d ----, 2008 (Wash.App. Div. 2 Nov 12, 2008) (NO. 35950-2-II)

The plaintiffs sued on hostile work environment and retaliation claims. After a three-week trial, the jury found in favor of all three plaintiffs, awarding $599,000 to Broyles, $250,000 to Sargent, and $673,000 to Sackett-DanPullo. The plaintiffs then moved for an award of attorney fees under the Washington Law Against Discrimination, chapter 49.60 RCW, (WLAD), asking for fees for the work in both Broyles I and Broyles II. The court granted this motion, awarding $1,296,108 in attorney fees and $158,474.62 in costs. The trial court used a 1.5 lodestar multiplier in setting its attorney fees award.

Thurston County appealed asserting (1) it is not liable for the acts of the prosecuting attorney, Edward Holm; (2) the trial court erred in allowing evidence outside the statute of limitations, in not applying collateral estoppel, and in allowing marital discrimination evidence; (3) the trial court erred in not allowing evidence detailing a meeting in which the plaintiffs and another deputy prosecutor consulted an attorney; (4) the jury's verdict was excessive; and (5) the trial court abused its discretion in setting the plaintiffs' attorney fee award. The Court of Appeals, Division II (Spokane) affirmed.

To establish a claim for a hostile work environment, a plaintiff must file the claim within the applicable statute of limitations and must prove that harassment (1) was unwelcome, (2) was because she is a member of a protected class, (3) affected the terms and conditions of her employment, and (4) was imputable to her employer. Domingo v. Boeing Employees' Credit Union, 124 Wn.App. 71, 84, 98 P.3d 1222 (2004). To satisfy the third element, the harassment must be sufficiently pervasive so as to alter her employment conditions. Washington v. Boeing, 105 Wn.App. 1, 10, 19 P.3d 1041 (2000). It is not sufficient that the conduct is merely offensive. Adams v. Able Bldg. Supply, Inc., 114 Wn.App. 291, 296, 57 P.3d 280 (2002).

Statute of Limitations and Evidence Issues

“Discrimination claims must be brought within three years to satisfy the statute of limitations. Antonius v. King County, 153 Wn.2d 256, 261, 103 P.3d 729 (2004). Washington’s Supreme Court in Antonius adopted the United States Supreme Court's analysis in National Railroad Passenger Corp. v. Morgan, 536 U.S. 101, 122 S.Ct. 2061, 153 L.Ed.2d 106 (2002), to determine whether an employer is liable for hostile work environment conduct that occurred more than three years before the plaintiff filed suit. 153 Wn.2d at 258. The court held that hostile work claims can occur over a series of days or years and generally are not single, discreet acts. Antonius, 153 Wn.2d at 264 (citing Morgan, 536 U.S. at 115). It held that “ ‘[p]rovided that an act contributing to the claim occurs within the filing period, the entire time period of the hostile environment may be considered by a court for the purposes of determining liability.’" Antonius,
153 Wn.2d at 264 (alteration in original) (quoting Morgan, 536 U .S. at 117).”

Clarke v. State Attorney General's Office, 133 Wn.App. 767, 785-86, 138 P.3d 144 (2006).

The Court derived several principles from these cases. First, discrete discriminatory acts are not actionable if time barred, even when they are related to acts alleged in timely filed charges. Each discrete discriminatory act starts a new clock for filing charges alleging that act. The charge, therefore, must be filed within the 180- or 300-day time period after the discrete discriminatory act occurred. The existence of past acts and the employee's prior knowledge of their occurrence, however, does not bar employees from filing charges about related discrete acts so long as the acts are independently discriminatory and charges addressing those acts are themselves timely filed. Nor does the statute bar an employee from using the prior acts as background evidence in support of a timely claim.

A plaintiff with a hostile work environment claim may not use that claim to seek damages for a discrete discriminatory act that is time barred but, if otherwise admissible, may use that discrete act as background information if it tends to support a hostile work environment claim.

Landlord Not Liable After Tenant Assaults Another Tenant

Miller ex rel. Miller v. Tabor West Inv. Co., LLC, --- P.3d ----, 2008 (Or.App. Nov 12, 2008) (NO. A130947)

Plaintiff Miller was assaulted and seriously injured by a man named Homer Woods in a convenience store located adjacent to the apartment complex where Miller and Woods both lived. Woods had been convicted of a prior assault, had a history of mental illness, and was a problem tenant. Miller sued the owners of the apartment complex and their property managers for negligence and also for damages under ORS 124.100 (injury to senior citizen). Oregon precedent was strongly in favor of the landlord and the trial court dismissed the case on summary judgment. The Court of Appeals affirmed but in doing so left a twisted wreckage of negligence tort law behind.

In Park v. Hoffard, 315 Or 624, 847 P.2d 852 (1993), the landlord was sued for an attack by a tenant's dog allegedly resulting from the landlord's failure to evict the tenant or take measures to control the dog. The court adopted the Restatement (Second) of Torts § 379A (1965):

“That is, a landlord can be liable for such harm only if (1) the landlord, at the time of entering into a lease, at the time of renewing a lease or a periodic tenancy, or at any time during a tenancy at will or other tenancy that the landlord is able to terminate unilaterally, consents to such activity or knows that it will be carried on, and (2) the landlord knows or has reason to know that the activity will unavoidably involve an unreasonable risk of harm to persons off the rental property.”

The Miller Court, in a bizarre twist of logic, claimed this rule did not apply because Park involved a claim by a non-tenant against the landlord but the current case involved a claim by a tenant against the landlord. The court did not attempt to explain why this difference created a different standard of care. The court held the attack by Woods was not foreseeable as a matter of law, and therefore the question of foreseeability could not be decided by a jury.
The Court analyzed whether Miller could prevail under a “failure to warn” theory. It noted that Oregon law in Fuhrer v. Gearhart By The Sea, Inc., 306 Or 434, 760 P.2d 874 (1988) had rejected the Restatement (Second) of Torts § 314A rule that an innkeeper's or property owner’s to its guests or tenants was to warn only of nonobvious dangerous conditions on the premises. Instead it held (at 441):

“[i]nnkeepers and possessors of land have an affirmative duty to warn their paying guests and invitees of foreseeable unreasonable risks of physical harm; when the risk involves a dangerous condition off the premises, the trier of fact must decide the reasonableness of the failure to warn in all the circumstances.”

This meant that more cases would go to the jury, increasing claims against innkeepers and landlords.

The Miller court then struggled to find a way to save the trial court’s decision and not allow a jury to decide the case. To do so, it needed to find that the landlord could not have forseen that Woods would have attacked someone. In a clumsily worded decision, it apparently decided that the landlord did not know and had no reason to know that Woods was a danger specifically to Miller. Apparently knowing that Woods was a danger to someone is not enough to require the landlord to warn the tenants of the danger. The court decided the evidence that Wood’s behavior toward other tenants was irrational and that his mental condition was deteriorating did not indicate that Woods would become violent. Wood’s talking to himself and throwing things from his apartment on the lawn also did not suggest he might become violent. Wood’s push of Miller seen by the landlord suggests “general aggressiveness” but not “an inclination to commit a violent assault,” according to the court. It expressed its view in these words:

In sum, even recognizing that the concept of foreseeability refers to
“generalized risks of the type of incidents and injuries that occurred rather than predictability of the actual sequence of events,” Fazzolari, 303 Or at 21, in the absence of more specific knowledge of the risk of the type of harm that befell plaintiff, we conclude that defendants' conduct constituted “mere facilitation” of Woods's intervening criminal conduct. Thus, as a matter of law, Woods's attack on plaintiff was not a “reasonably foreseeable” consequence of defendants' failure to warn or otherwise protect plaintiff. Defendants cannot therefore be liable for damages based on that failure. Accordingly, the trial court did not err in granting summary judgment for defendants on plaintiff's negligence claim.”"

The court then decided that plaintiff's claim for damages under ORS 124.100 (2003) for “permitting” physical abuse against an elderly or incapacitated person. The court applied the foreseeability standard of negligence law and concluded that the landlord did not permit the abuse because it was unforeseeable.

This case is a good example of the way courts have botched their role in defining the law of negligence. The outcome of negligence cases is now unforeseeable. How can insurance companies determine the proper pricing of
policies? How can lawyers advise their clients when to evict a tenant? It is
clear that the courts are incapable of fixing negligence law.

The misguided efforts for tort reform have focused on not allowing victims to be fully compensated. Instead, they should focus on taking away the ability of courts to make ad hoc changes to negligence law. Portions of the Restatement of Torts should be codified.

Public Employee Whistleblower Protection Improved

Posey v. Lake Pend Oreille School Dist. No. 84, --- F.3d ---- (2008 C.A.9 -Idaho), October 15, 2008

A former high school employee filed § 1983 (Civil Rights Act) action against the school district claiming retaliation in violation of First and Fourteenth Amendments. His position as security specialist was eliminated and the district failed to rehire him in newly consolidated position after he sent a letter of complaint to district officials. He also had meeting to complain of both personal grievances and alleged inadequate safety and security policies at high school. United States District Court for the District of Idaho, Edward J. Lodge, J., granted district summary judgment based on the U.S. Supreme Court’s decision in Garcetti v. Ceballos, 547 U.S. 410, 126 S.Ct. 1951, 164 L.Ed.2d 689 (2006).

Ceballos, a district attorney, claimed he had been fired for a memo he had written alleging misrepresentations in a police affidavit supporting a search warrant. The Supreme Court held that when a public employee speaks pursuant to his or her official duties, as Ceballos did, the speech is not protected because any restriction on that speech “simply reflects the exercise of employer control over what the employer itself has commissioned or created.” The Court distinguished “work product” that “owes its existence to [an employee]'s professional responsibilities” from “contributions to the civic discourse,” which “retain the prospect of constitutional protection” for the speaker.
In Posey, The Ninth Circuit, held that the scope of the public employees duties was a question of fact for the jury if there is a genuine and material dispute as to the scope of the employees employment duties. The court stated the ruling:

“We conclude that, following Garcetti, the inquiry into whether a public employee's speech is protected by the First Amendment is no longer purely legal and presents a mixed question of fact and law. Summary judgment is therefore inappropriate where, as here, (1) plaintiff has spoken on a matter of public concern, (2) the state lacks an adequate justification for treating the employee differently from any other member of the general public, and (3) there is a genuine and material dispute as to the scope and content of plaintiff's
employment duties.”

The ruling in Posey will allow more public employee whistleblower cases to survive summary judgment. 95% or more of civil cases settle after a denial of summary judgment. Whistleblower rights are limited to cases where the employee has spoken on a subject of “public concern.”