INTHE COURT OF APPEALS OF THE STATE OF WASHINGTON LLOYD HARA, an individual, Appellant,

v. o O coo CJ1 •P' TMn C_ HI, cr m No. 71767-7-1 "3C ro ~'V, '•• ro cr^or1 DIVISION ONE 2* c/>rnU 2C ^Cj> "•--i UNPUBLISHED OPINION?

— o— KUNATH, KARREN, RINNE, &ATKIN LLC, a Washington limited liability company, 

### Respondent. FILED: June 22, 2015 

### Appelwick, J. — Hara appeals the trial court's dismissal of his action to enforce a
severance agreementagainst his formeremployer, KKRA. The trial courtconcluded that the severance agreementwas illegal and, therefore, unenforceable under both state and federal law. We affirm. FACTS 

### Kunath, Karren, Rinne, &Atkin LLC (KKRA) is an investment adviser registered withthe United States Securities and Exchange Commission (SEC). KKRA is subjectto regulation by both the SEC and the Washington Department of Financial Institutions (DFI). KKRAhas about one billiondollars under its management. KKRAhired Lloyd Hara in 1996. The parties dispute the reason why KKRA hired Hara. Hara claims he joined KKRA after KKRA approached him about joining as a separate consulting arm ofthefirm. KKRAclaims itwanted Harato join thefirm, because Hara knew a lot ofpeople locally and regionally and KKRAwanted Hara's help insecuring his contacts as clients. The parties did not execute a written employment contract when Hara joined 

### KKRA. Pursuant to an oral agreement, KKRA paid Hara a salary of about $5,000 aNo. 71767-7-1/2


### month. KKRA claims the oral agreement also included compensation for commissions. Specifically, KKRA contends that the oral agreement provided that Hara would receive percentages ofthe accountsfor any new clients he broughtin—three percentfor the first year, two percentforthe next year, and one percentforthe third year. 

### Ned Karren, a partner at KKRA, and Hara met with several prospective clients together. Specifically, they traveled to a Native American conference in Alaska and 

### visited withseveral tribes and corporations. During their trip to Alaska, Hara introduced 

### KKRAto the Northwest Arctic Borough (NAB). Hara had a relationship with NAB prior to joiningKKRA, because he did consulting work forNAB previously. Together, Karren and Hara successfully visited with NAB and NAB became a KKRA client for investment management services. Hara also received creditfor helping to secure the Muckleshoot 

### Indian Tribe (MIT) as a client. During Hara's employmentwith KKRA, and while he was meeting with these prospective clients, he was not registered with the SEC or the DFI. 

### KKRA never asked Hara to registerwith eitheragency or told Hara that he needed to do

so. 

### After Hara had worked at KKRA for about a year, KKRAindicated that he should be spending less time doing consulting and more time introducing KKRA to potential clients. At KKRA's urging, Hara sent out form letters to contacts in his Rolodex list 

### informing them that KKRA had an investment arm ifthey needed services in that area. None ofthese letters resulted in new clientsjoining KKRA. KKRA eventually told Hara that it wanted him to focus primarily on marketing instead of consulting. Hara told KKRAthat his strengths were in consulting and that heNo. 71767-7-1/3 

### did not want to focus on marketing. At that point, KKRA asked Hara to resign. Hara submitted a letterofresignation on September5, 1997. 

### Hara and KKRA then began negotiating a "Severance Agreement." Hara consulted with an attorney during the draftingprocess. The parties did notfully execute the Severance Agreement until January 15, 1998. The Severance Agreement had several provisions. First, KKRA acknowledged that Hara was interested in pursuing his
own consulting business, and it offered to help him withthe transition process. KKRA 

### also agreed to provide additional benefits to Hara in exchange for his promise not to pursue unemployment benefits. These additional benefits included vacation days, additional salary, start-up materials for his consulting business, medical insurance, and "a percentage commission of new investment management business at the rate he has been paid inpastperiods, forthe quarterending September30, 1997." Additionally, paragraph 5 ofthe SeveranceAgreement indicated that KKRAwould pay Hara his "share ofthe collected managementfees on those accounts listed in Exhibit 'B' at percentages originallyestablished (3-2-1%), foras long as KKRA retainsthe client." 

### There is no evidence exhibit B ever existed or that any accounts were listed init. But, Hara testified that NAB and MIT were the only two clients he introduced to KKRA who actuallyjoined KKRA. Paragraph 5 ofthe Severance Agreement also indicated that Hara would receive 

### three percentofthe payments on NAB and MIT billings. Inexchangeforthese payments, Hara agreed not to accept employmentwith a competing firm. Both parties agreed to a nondisparagement clause found in a separate paragraph of the Severance Agreement.No. 71767-7-1/4


### Another provision of the Severance Agreement indicated that the contract was fully integrated. 

### After Hara's employment ended, KKRA paid Hara three percent ofthe NAB and 

### MITreceipts as provided for inparagraph 5 ofthe SeveranceAgreement. The Severance Agreement provided for these three percent payments to continue in perpetuity for as 

### long as KKRA retained NAB and MIT as clients. This was the case even though Hara's oral employment agreement provided that the percentages Hara was paid on those 

### accounts would drop to two percentthe second year and one percentthe third year had 

### he remained employed with KKRA.1 Copies of checks KKRA gave to Hara and the correspondingfee invoices indicatethat KKRApaid Haracommissions representing three 

### percentofthe receiptsfor NAB and MITduring Hara's employmentin 1996—thefirstyear of his employment. The checks were labeled "Wages: Marketing: Commissions." From 1998through 2009, KKRApaid Hara pursuantto theterms ofthe Severance Agreement. The checks and the Internal Revenue Service form 1099 for the payments stated that the monetary amounts represented commissions. Hara classified the payments from KKRA as commissions on a public disclosure form. KKRA stopped making payments to Hara in January 2010. When Hara asked 

### KKRAwhy he did not receive his regularpayment, KKRA attempted to pay Hara $17,000 inexchangeforvoidingthe SeveranceAgreement. Hararefusedthe paymentand sought to keep collecting on the Severance Agreement. KKRAlater indicated that it would not continue to pay Hara, because he had breached the SeveranceAgreement by making a


### 1KKRAclaimsthatHarawas inthefirstyearofthecommission schedule, receiving three percent commissions when he resigned.No. 71767-7-1/5 

### disparaging remark about KKRA and because he was engaging in influence peddling. Theparties could notreach a resolution and Hara filed a complaintforbreach ofcontract
on August 13, 2012. 

### KKRA originally defended againstthe lawsuitbased on several theories including estoppel and breach ofcontractual duties. On October 18, 2013, Hara moved for partial summaryjudgment. KKRA also movedforsummaryjudgmentand defended onthebasis 

### that the Severance Agreement violated both state and federal licensing law. The trial
court denied both motions. 

### The case proceeded to a bench trial. At trial, KKRA argued that the Severance 

### Agreementwas illegal, because itprovides forthe continuation ofcommission payments that Hara received illegally during his employment with KKRA. KKRA contended that it could not legally pay Hara the commissions under paragraph 5 of the Severance Agreement, because Hara was not registered with the DFI as an investment adviser representative and because Hara did not fall within an exemption to a federal regulation 

### forbidding KKRA from paying him for solicitation activities. The trial court ruled orally in favor of KKRA on February 12, 2014. The trial court issued findings of fact and conclusions of law on March 11, 2014. Itconcluded thatthe SeveranceAgreementwas unenforceable under both state and federal law. Itentered judgment infavor of KKRA and dismissed Hara's claims with prejudice. Hara appeals. DISCUSSION Hara first contends that the trial court made two evidentiary errors at trial. Hara argues that the trial court erred when it denied his motion in limine and improperly admitted parol evidence. He then asserts that the trial court erred when it admittedNo. 71767-7-1/6
evidence and testimony about KKRA's payment records, because the evidence was not properly authenticated or listed on thejointstatement ofevidence. Hara also claims that the SeveranceAgreement is legal and enforceable underboth federal and state law. I. Standard of Review Inan appeal from a benchtrial, this court's review is limited to determining whether substantial evidence supports the findings offact and, ifso, whether the findings offact 

### in turn support the trial court's conclusions of law and judgment. Ridgeview Props, v. Starbuck, 96 Wn.2d 716, 719, 638 P.2d 1231 (1982). Substantial evidence is evidence in sufficient quantum to persuade a fair-minded person of the declared premise. ]d. Unchallenged findings offact areverities on appeal. Robel v. Roundup Corp., 148Wn.2d 35, 42, 59 P.3d 611 (2002). We review challenges to the trial court's conclusions of law de novo.2 Id at 42-43. II. Evidentiary Challenges Hara makes two evidentiary challenges that he contends affected the trial court's ruling. A. Motion in Limine

- Parol Evidence Hara contends that the trial court erred when it denied his motion in limine and 

### improperly admitted parol evidence. In his motion in limine, Hara asked the trial courtto exclude "[a]ny evidence extrinsic to the written agreement, exceptas itpertains to issues

2 Hara contends that we should review the trial court's dismissal of his motion for 

### summaryjudgment. He does so ostensibly to argue that the standard of review should be de novo. But, the trial court's orderdenying summaryjudgment is not an appealable order. Where a denial of summary judgment is based on the presence of material, 

### disputed facts, itwill not be reviewed when raised after a trial on the merits. Weiss v. Lonnquist, 173 Wn. App. 344, 354, 293 P.3d 1264 (2013).No. 71767-7-1/7
ofperformance or breach of itsterms." (Boldface and capitalization omitted.) The motion
was broad and would have resulted in exclusion of all evidence ofthe type ofwork Hara did while employed at KKRA. Hara contends that the trial court erred when it admitted the parol evidence, because KKRA used the evidence to show illegal intent independent ofthe Severance Agreement. This court reviews a denial of a motion in limine for abuse of discretion. 

### Fenimore v. Donald M. Drake Constr. Co.. 87 Wn.2d 85, 91, 549 P.2d 483 (1976). Underthe parol evidence rule: 

### "[Pjarol orextrinsicevidence is not admissibleto add to, subtractfrom, vary, or contradict written instruments which are contractual in nature and which are valid, complete, unambiguous, and not affected by accident, fraud, or mistake." Berg v. Hudesman, 115 Wn.2d 657, 670, 801 P.2d 222 (1990) (alteration in original) (quoting St. Yves v. Mid State Bank, 111 Wn.2d 374, 377, 757 P.2d 1384 (1988)). Evidence of Hara's oral employment agreement and the type of work Hara was doing is not parol evidence, because itwas not admitted to vary or contradict a specific written term in the contract. Even assuming the evidence of Hara's oral employment agreement and activities while at KKRA constitutes parol evidence, the parol evidence rule does not exclude parol evidence to establish illegality. City of Redmond v. Kezner, 

### 10 Wn. App. 332, 340, 517 P.2d 625 (1973). The rule forbidding the introduction of parol evidence to contradict, add to, or vary a written instrument does not extend to evidence offered to show that a contract was made in furtherance of objects forbidden by statute, 

### by common law, or by the general policy ofthe law. Auve v. Fagnant, 16 Wn.2d 669,No. 71767-7-1/8
677, 134 P.2d 454 (1943). Therefore, the trial court did not abuse its discretion when it denied Hara's motion in limine. B. Admission ofExhibit 13 Hara also claims that the trial court erred when it admitted evidence—KKRA's payment records (Exhibit 13) and Karren's testimony about Exhibit 13—to show that KKRA considered the payments it made to Hara commissions. Exhibit 13 is one of KKRA's paymentrecords including a column listing Hara's commissionsfrom 1996-2010. Hara contends that admission ofthe evidence was improper, because the evidence was not submitted by either party as a trial exhibit and itwas not listed on thejoint statement ofevidence. He further contends that itwas not properly authenticated. At trial, on February 11, 2014, counsel for KKRA stated that he sent the payment record to Hara's counsel on November 7, 2013—the day that he received it. KKRA's 

### counsel stated that he did not produce the document on thejoint statementofevidence, because he did not know that whether Hara received commissions was going to be an 

### issue. Itwas his understanding that that fact had been established. He argued that, alternatively, he could submit the exhibit to impeach Hara's testimony that he did not remember receiving commissions while working at KKRA. 

### Admission of evidence lies largely within the sound discretion of the trial court. Davis v. Globe Mach. Mfg. Co.. 102 Wn.2d 68, 76-77, 684 P.2d 692 (1984). Absent abuse ofthatdiscretion there is no error, jd. KCLR 4(k) provides that all parties shall file 

### a joint statement of evidence no later than five court days before the scheduled trial 

### including a list of exhibits each party expects to offer at trial. Hara provides no authorityNo. 71767-7-1/9


### for the assertion that a trial court may not allow the admission of an exhibit not provided inthejoint statement ofevidence. 

### The trial court allowed Karren to testifyaboutthedocument, reasoning that Hara's counsel had previously received a copy ofthe documentand that ithad no reason not to believe KKRA's counsel's belief that the commission issue would not be raised at trial. 

### And,thetrial court admitted Exhibit 13, reasoning that Karrenwas a propercustodianfor authentication purposes, because he saw Exhibit 13 previously, saw the checks and invoices used to generate Exhibit 13, and is aware of how KKRA's business records are maintained. 

### Similarly, this court reviews a trialcourt's decision regarding the authenticity of an exhibit underan abuse ofdiscretion standard. State v.Williams, 136 Wn. App. 486, 499, 150 P.3d 111 (2007). ER 901 requires the proponent ofthe evidence to make a prima facie showing thatthe evidence is authentic—itiswhatitpurports to be. Ricev. Offshore 

### Svs., Inc., 167 Wn. App. 77, 86, 272 P. 3d 865 (2012). Under ER 901(b)(1) authenticity may be established based on testimony of a witness with knowledge who claims thatthe

a matter is what it is claimed to be. Karren testified that he was familiar with KKRA's 

### business records and that he had previously seen the checks used to generate Exhibit 13. We conclude that the trial court did not abuse its discretion when it determined that Exhibit 13 was properly authenticated, when it admitted the exhibit or when it allowed Karren to testify about it. III. Challenged Findings ofFact Hara argues that the trial court did not have substantial evidence to support the finding offact that Hara's original employment contract was oral. It is unclear whetherNo. 71767-7-1/10


### Hara is challenging the finding that an employment contract existed or that itwas oral. 

### But,eitherway, both Hara and Karren testified at trial that Hara's employmentwith KKRA
was governed by an oral agreement. There was substantial evidence in the record to supportthis finding. 

### Hara also challenges the finding that Hara's work at KKRA included both consulting and soliciting new clients. But, there was substantial evidence inthe record 

### that Hara both consulted and worked to solicitclients. Haratestified thathe was brought on to join as a separate consulting arm of KKRA. Hara testified that he billed for his 

### consulting practice while with KKRA. Specifically, he testified that he consulted for NAB and MIT after they became KKRA clients. Regarding solicitations, Karren testified that he and Hara traveled to Alaska to solicit prospective clients. Hara testified that he sent 

### letters to his contacts informing them that KKRA had an investment arm ifthey needed services in that area. Hara introduced KKRA to NAB and received credit for helping to
secure MIT as a client. Hara testified that he introduced KKRA to MIT, because he had been doing consulting work for MIT. There was substantial evidence in the record to support the finding that Hara was both consulting and soliciting clients while working at KKRA.Hara also challenges the trial court's finding offactthat he was paid both a salary and commissions while working for KKRAand thatthe commissions were for clients that Hara participated in procuring for KKRA. Both Hara and Karren testified that KKRApaid Hara a fixed salary. At trial, Karren testified that KKRA also paid Hara commissions starting at a three percent rate for the first year, two percent the next year, and one 

### percent for the third year for any new client he brought into the firm. Moreover, the

10No. 71767-7-1/11
Severance Agreement states that KKRAwould pay Hara "a percentage commission of
new investment management business at the rate he has been paid in past periods"— implying that he had previously been paid commissions for generating investment managementbusiness. Karren testified thatcopies ofchecks KKRApaidto Hara marked
as "commissions" match three percent of the NAB and MITfees for the corresponding quarter. There was substantial evidence inthe record to supportthis finding. Finally, Hara challenges the trial court's findings of fact that Hara successfully solicited NAB, had some involvement with obtaining MIT as a client, and solicited a numberofotherentities on behalfof KKRA. Hara testified that he had a relationship with NAB prior to joining KKRA, because he consulted for them. He further testified that he introduced KKRA to NAB. Karren testified that Hara received creditfor helping to secure 

### MIT as a client. Hara testified that he had a relationship withMIT prior to joiningKKRA.3 Karren testified that he and Hara solicited several prospective clients on a trip to Alaska. Hara sent out letters to several of his contacts informing them about KKRA's investment services. There was substantial evidence inthe record to support this finding. IV. Illegality Hara claims that the trial court erred when it concluded that the Severance Agreementwas illegal under both federal and state law.



### 3 Hara emphasizes that Karren testified that someone else solicited the MIT account. But, Hara testified that he introduced KKRAand MIT. And, this courtdefers to 

### the trier of fact for purposes of resolving conflicting testimony and evaluating the persuasivenessoftheevidenceand credibility ofthewitnesses. Lodis v. Corbis Holdings, Inc., 172 Wn. App. 835, 861, 292 P.3d 779 (2013).
11No. 71767-7-1/12

A. Illegality of Payments Under Federal Law Underfederal law, investmentadvisers4with morethan $25 million inassets under management must registerwith the SEC. 15 U.S.C. §§ 80b-3(a), 80b-3a(a)(1)(A). And, 

### 15 U.S.C. § 80b-3a(b)(1)(A) preempts most state regulation of investment advisers. 

### Federal law restricts KKRA's ability to pay money for solicitation activities. Specifically, "[i]t shall be unlawful for any investment adviser required to be registered pursuant to section 203 ofthe [Investment Advisor] Act to pay a cash fee, directly or indirectly to a solicitor with respect to solicitation activities" unless an exemption applies. 17 C.F.R. 

### 275.206(4)-3 (emphasis added). A "solicitor" is "any person who, directly or indirectly, solicits anyclientfor, orrefers anyclientto, an investmentadviser." 17 C.F.R. 275.206(4)- 3(d)(1). KKRA is an investment adviser registered with the SEC and is thus regulated by the SEC underfederal law. Thetrial courtfound that Hara solicited new clientsfor KKRA, and that KKRA paid Hara commissions for clients that Hara helped solicit. After Hara resigned, the Severance Agreement provided that Hara would receive compensation measured as a percentage ofthe on-going fees earned by KKRA in managing the NAB and MITaccounts—accounts that Hara helped solicit. Tbhe trial court concluded that it would be unlawful under federal law for KKRA to pay Hara, either directly or indirectly, with respectto solicitation activities. Hara argues thatfederal law is not relevant orapplicable, because no allegation was made and no inference can be drawn based on the language of the Severance 

### 4An "investment adviser" means any person who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. 15 U.S.C. § 80b-2.
12No. 71767-7-1/13 Agreement that Hara is required to engage in solicitation or investment representative activities upon signing the Severance Agreement. In making this argument, Hara
assumes both that the illegality can be based on only his actions and that the compensation provided in the Severance Agreement is not connected to the illegal compensation Hara received for his solicitation activities while he was employed with KKRA. Neither assumption is supported by legal authority. Continuation of solicitation activity after signing the Severance Agreement is not necessary to establish a violation of the federal law. It is enough that the payments are being made with respect to solicitations thatwere illegal when made. Hara contends thateven ifthe payments during his employmentwerewith respect 

### to solicitation activities, they were not illegal underthe employee exemption in 17 C.F.R. 275.206(4)-3(a)(2)(ii). Theexemption statesthata cashfee can be paid to a solicitorwho is an employeeofthe investmentadviserprovidedthattheemployee's status as a solicitor ofthe investment adviser is disclosed to the client atthe time ofthe solicitation or referral. ]d. There is no evidence inthe record that any such required disclosures were made to NAB or MIT. And, the trial court concluded that no evidence was introduced attrial that
an exemption applied. Because the Severance Agreement required KKRA to compensate Hara directly 

### or indirectly withrespectto solicitation activities and becausethere is no evidencethatan exemption applies, the trial court properly concluded thatthe SeveranceAgreementwas illegal underfederal law.

13No. 71767-7-1/14

B. Illegality ofthe Contract Under State Law While federal law regulates investment advisers, state law regulates "investment adviser representatives," defined as: 

### [A]ny partner, officer, director, or a person occupying similar status or performing similar functions, or other individual, who is employed by or 

### associated with an investment adviser, and who does any ofthefollowing: (a) Makes any recommendations or otherwise renders advice regarding rsecurities;
. . . (d) Solicits, offers or negotiates for the sale of or sells investment advisory services. RCW 21.20.005(9). It is unlawful for any person to transact business as an investment adviser or investment adviser representative unless the person is registered or exempt. RCW21.20.040(3). Hara contends that the trial court erred when it concluded that he was an 

### investment adviser representative while he was employed by KKRA. Consequently, he contends that the trial court erred when itconcluded that the oral employment contract 

### violated RCW 21.20.040(3), because it required KKRA to pay Hara for services as an investment adviser representative when he was not registered. However, Hara's work with KKRA included both consulting and soliciting new 

### clients for KKRA. The trial courtcorrectlyfound that Hara was working as an investment adviser representative and that KKRA was compensating Hara for that work. Hara was 

### not registered withthe DFI. And, Hara does not challenge the trialcourt's conclusion of law that he does not meet the requirements for any exemption to RCW 21.20.040(3).

14No. 71767-7-1/15 Therefore, the trial court properly concluded that the oral employment contract violated RCW 21.20.040(3). Hara then claims that he was not an investment adviser representative when the 

### Severance Agreement was executed, because he was not employed by or associated with KKRA at that time. Hara contends that the illegality of the oral employment agreement does not affect the legality of the Severance Agreement, because the 

### Severance Agreement is only incidentally orindirectly connected to the oral employment agreement, ifatall. Specifically he claims thatthe SeveranceAgreementis supported by valid, independent consideration. Indetermining whetherthe SeveranceAgreement is severablefrom the illegal oral 

### employment agreement, we engage in the three-part test established by the court in Sherwood & Roberts-Yakima, Inc. v. Cohan, 2 Wn. App. 703, 713-15, 469 P.2d 574 

### (1970). We consider(1)whetheror nottheSeveranceAgreementisseparateand distinct from the antecedent illegal solicitation payments in the oral employment agreement (2) whether there is independent legal consideration to support the Severance Agreement 

### and (3)whetherthe SeveranceAgreementprovisions sued upon are sufficiently remote, collateral, or severable from the antecedent illegal solicitations so that the enforcement ofthe SeveranceAgreement does not result insanction ofthe original illegalcontractor conflictwith the policy against enforcing illegal contracts, jd. 

### In Cohan, an electronics sales corporation (Lifetone) sold radios and fire alarm 

### systemstoconsumers. ]d. at704-05. Inexchange, the consumerswould furnish Lifetone with a list ofprospective purchasers. Id. at 705. For each sale Lifetone made based on
a consumer's referral, the consumerwould receive a $100 commission. Id. The Lifetone

15No. 71767-7-1/16


### salesman would assure the consumerthatthe commissions would be adequate to cover the purchase price. Sherwood &Roberts-Yakima, Inc. v. Leach, 67 Wn.2d 630, 632, 409 

### P.2d 160 (1965). Lifetoneencouraged consumers tofinance the originalpurchase price of the item through Sherwood & Roberts. Cohan, 2 Wn. App. at 705. Sherwood & 

### Roberts then bought Lifetone's conditional sales contracts pursuant to financing requirements, which included Lifetone's warranty that the sales transactions between Lifetone and the consumer were valid, genuine, and enforceable, id. at 705-06. The 

### individual Lifetone promoters also personally guaranteed the accuracy ofthe warranties from Lifetone to Sherwood &Roberts, id. at706. Shortly after the parties made these arrangements, the Supreme Court in Leach, 

### ruled that the referral selling scheme between Lifetone and the consumers was illegal. 67 Wn.2d at 636-37. In light ofthe decision in Leach, the parties in Cohan stipulated that 

### all of the contracts assigned by Lifetone to Sherwood & Roberts were unenforceable. Cohan, 2 Wn. App. at 706. Sherwood & Roberts then sued Lifetone and its promoters 

### for breach of their agreement warranting the assigned contracts to be valid and enforceable, id. at 704. Lifetone defended based on illegality and claimed that the warranties were unenforceable. ]d The Court of Appeals reversed the trial court and 

### held that the warranty contracts were severable and that Sherwood & Roberts could
recover on them. id. at 717. i. Separate and Distinct The first part of the severability analysis is whether the two agreements are separate and distinct—whether the Severance Agreement is separate and distinct from 

### the illegal oral employment agreement, id. at 713. InCohan, the court reasoned that it

16No. 71767-7-1/17

was important that the only illegal transactions were the transactions between Lifetone and the consumers—differentparties than the parties inthe case before it. id. at 713-14. In concluding that the warranty and guarantee agreements were collateral to the illegal contracts, the court stated that itwas apparent that neither the assignments containing the warranties northe personal guarantees were substantially identical to the underlying sales contracts even though the agreements were casually related to each other, id. By contrast, here, the parties involved in the oral employment agreement and the Severance Agreement are identical. Moreover, the SeveranceAgreementprovides that Hara will receive commissions based on accounts that he illegally solicited while employed underthe oral employment agreementwith KKRA. We conclude that the two agreements are not separate and distinct. ii. New and Independent Consideration 

### The second partofthe analysis requires us to determine whetherthe Severance 

### Agreementis supported byindependentconsideration, id. at 714. An agreementwill be enforced when collaterally related to an illegal transaction, so long as there is an 

### independent consideration or if the plaintiff does not require the aid of the illegal transaction to make out his case. id. Thetrial courtconcluded thatthe considerationfor 

### the Severance Agreement flowed directly from the illegal employment relationship. It 

### concluded that the three percent offees Hara was to receive under paragraph 5 of the Severance Agreement was measured by income from clients Hara never should have solicited. 

### Haracontendsthatthis partofthe severabilityanalysis is satisfied as long asthere is some new or additional consideration. Hara argues that there was consideration

17No. 71767-7-1/18


### distinct from the alleged misconduct during employment and that the independent consideration does not rely on anything from his term ofemployment. Hara cites to the 

### Severance Agreement's requirements that Hara not seek employment at a competing firm and that he not seek unemploymentbenefits. He claimsthat itwas logical for KKRA to tie the payments to NAB and MIT, not because Hara solicited them, but because Hara 

### had an ongoing relationships withthem and theywere the clients Hara could mosteasily persuade to leave KKRA. But, even ifthis were true, itdoes not mean thatthe funds he
was to receive underthe SeveranceAgreement were not tied in partto, orderived from, the illegal solicitation activities. Moreover, the Cohan court concluded that the consideration in that case was independent, because the consideration for the assignment and the warranties received by Sherwood & Roberts consisted solely of the cash Lifetone received and was 

### independent from and not related to the illegal promises made by Lifetone to its customers, id. Itopined that the illegal promises between Lifetone and the consumers constituted no part ofthe consideration for the warranties. Jd. Here, by contrast, even if the consideration flowing from Hara to KKRA was a valid noncompete promise, the 

### consideration specified in the noncompete paragraph, flowing from KKRA to Hara, was payments specificallytied to fees paid by NABand MIT. These were the only two clients the court found Hara successfully, and illegally, solicited for KKRA while working in an investment adviser representative capacity. Hara contends that even ifthe payments were tied to the illegal employment 

### agreement, once the employment agreement ceased, the Severance Agreement could stand alone. Hara cites to McDonald v. Lund, 13 Wash. 412, 43 P. 348 (1896), for this

18No. 71767-7-1/19


### assertion. In McDonald, partners organized an illegal gambling game together. kL at 413-14. One partnerwas to run the games and the others were to collect a share ofthe 

### proceeds, id. When the partnership ceased organizingthegames, one partnerowedthe other money, representing that partner's percentage of the gambling proceeds, id. at 

### 414. The McDonald court concluded that because the underlying illegal contract governing running the games had been fully executed, it would enforce the contract 

### regarding distribution ofthe gambling funds, id. at416. Here, Hara argues that because his employment agreementhad ended, the court
can enforce the independent Severance Agreement. But, unlike in McDonald, the payments in the Severance Agreement were generated from funds KKRAcontinued to 

### receive as a resultof illegal solicitations. As such, the underlying illegalityhad notended. Therefore, we conclude that the consideration is not sufficiently independent to allow the Severance Agreementto stand alone. iii. Sufficiently Remote The final factor under the severability analysis is whether the oral employment 

### agreement is sufficiently remote, or collateral, or severable from the antecedent illegal transaction such that the enforcement of the agreement sued upon does not result in 

### sanction ofthe original illegal contract, or conflict withthe policy against enforcing illegal contracts. Cohan, 2 Wn. App. at 714. 

### Hara argues that he is not seeking to enforce payment for delivering clients to 

### KKRA, but is instead seeking to enforce payments according to the terms of the 

### Agreement. But,the SeveranceAgreementprovides Hara compensationwithrespectto client accounts that he illegallysolicited while he was an employee at KKRA. Therefore,

19No. 71767-7-1/20

not only does the Severance Agreement sanction the commission scheme under the 

### original illegal oral employment contract, but it also perpetuates it by continuing to compensate Harafrom client accounts that he illegally solicited. Therefore, we conclude that the trial court did not err when it concluded that the compensation provisions inthe SeveranceAgreementare notseverablefrom the original illegal oral employmentagreement. Hara's suitis thus barred understate law. See RCW 21.20.430(5) ("No person who has made or engaged inthe performance ofany contract in violation of any provision of this chapter
. . . may base any suit on the contract."). 

### Agreements in violation of state securities law are unenforceable. See Cellular Eng'g, Ltd. V. O'Neill, 118 Wn.2d 16, 19, 820 P.2d 941 (1991) (holding a contract to be unenforceable, because it was made in violation of the Securities Act of Washington's 

### registration requirementeven though one ofthe parties had already performed underthe contract). In an actionto recoveron an illegalcontract, this courtleavesthe partieswhere itfinds them whether or not the situation is unequal as to the parties. Leach, 67 Wn.2d
at 637.On these facts, the trial court did not err when it concluded that the Severance 

### Agreementwas illegalunderfederal lawbecause it required KKRA to pay Hara, directly
or indirectly, for his solicitation activities while he was employed with KKRA. Similarly, the trial court did not err when itconcluded that the Severance Agreement was illegal under state law because it required KKRA to pay Hara for services as an investment adviser representative when he was not registered.

20No. 71767-7-1/21
V. Attorney Fees Hara argues thathe is entitled to attorneyfees incurred both attrial and on appeal, 

### because the Severance Agreement provides for payment of attorney fees. A contract that provides for attorney fees at trial also supports such an award on appeal. Atlas Supply, Inc. v. Realm, Inc., 170Wn. App. 234, 241, 287 P.3d 606 (2012). Paragraph 12 of the Severance Agreement states that the prevailing party in a legal proceeding shall be entitled to reimbursementfor its reasonable costs and attorney fees incurred. As Hara is notthe prevailing party on appeal, he is notentitled to attorney fees either attrial or on appeal. We affirm.

WE CONCUR:



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