Court Opinion

ID: 4545145
Source: CourtListenerOpinion
Date Created: 2020-06-30 15:13:01.528528+00
Date Added: 2024-06-11T08:51:58.398601
License: Public Domain

FILED
                                                                      JUNE 30, 2020
                                                              In the Office of the Clerk of Court
                                                             WA State Court of Appeals, Division III

         IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                            DIVISION THREE

DAVID CEBERT, an individual,            )
                                        )              No. 36468-2-III
                   Appellant,           )
                                        )
       v.                               )
                                        )
PATRICK KENNEDY and JANE DOE            )              UNPUBLISHED OPINION
KENNEDY, a marital community, JOHN )
KENNEDY and JANE DOE KENNEDY, )
a marital community, AXTEL              )
SCIENTIFIC, INC., a Nevada corporation, )
and MITIGATION OF DISEASE, INC., a )
Delaware corporation,                   )
                                        )
                   Respondent.          )

       KORSMO, J. — David Cebert appeals from the dismissal at summary judgment of

his claims against Mitigation of Disease, Inc. (MODI), et al., and subsequent jury verdicts

in favor of the defendants on their counterclaims against Cebert. We largely affirm and

grant the defendants attorney fees, but reverse portions of the summary judgment and

remand for further proceedings.
No. 36468-2-III
Cebert v. Kennedy

                                         FACTS

      John Kennedy is a scientist living in Maryland and his brother, Patrick Kennedy,

is a businessman living in Texas. Cebert lives in Spokane. Patrick1 once served as vice

president of a technology company started by Cebert. John developed a product that

treats diseases in plants and animals. It was incorporated into a cream for human use and

marketed under the brand name Accilion.

      MODI was incorporated in Delaware on February 7, 2006, but did not hold its first

board of directors meeting until February 14, 2012. John was elected president and

chairman of the board, Patrick was elected chief executive officer, and Robert Fritzges

was elected secretary and treasurer. The board’s second meeting was March 5, 2012.

Fritzges was appointed chief operating officer (COO). Cebert was in attendance at the

second meeting, but had not been present at the first. MODI holds the U.S. patent for

Accilion.

      Kennedy and Fritzges formed Axtel Scientific, Inc. in 2012, with the intent of

commercializing Accilion. MODI licensed the Accilion patent to Axtel. Les Hamasaki

created the JW Kennedy Foundation (Foundation) to provide Accilion to patients in need.

He funded the Foundation himself.

      1
       For clarity, we refer to the Kennedy brothers by their first names and use their
surname to refer to them collectively. We omit the honorific “Mr.” since all parties are
male.

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No. 36468-2-III
Cebert v. Kennedy

       In a telephone call in late December 2011 or early 2012, John orally promised the

presidency of MODI to Cebert.2 The offer was never reduced to writing and was

accepted in a January 2012 telephone conversation between the two men. The offer also

called for Cebert to receive 600,000 shares of MODI as well as a monthly salary that

would increase over time. However, the salary would not be paid until the company

started making money. Cebert never received a paycheck from the company.

       Cebert created a website, logo, and label for MODI. In August or September

2012, Cebert drafted a business plan that acknowledged that John was the president of

MODI. On March 29, 2013, John sent an e-mail to Fritzges, Kennedy, and Cebert in

which he referred to Cebert as president of MODI. On September 17, 2014, Cebert sent

John and Patrick an e-mail in which he acknowledged the end of his involvement with

Accilion, but expressed his willingness to repair the business relationship in the future.3

       While working with MODI, Cebert collected and stored data from patient trials of

Accilion in a database he created. John applied for a patent for Accilion in Russia. In

October 2014, the Russian patent office informed John that if he did not submit

       2
          Because this issue was resolved on summary judgment, we state the facts in the
light most favorable to plaintiff Cebert. Mohr v. Grantham, 172 Wn.2d 844, 859, 262
P.3d 490 (2011). Much of this information comes from the deposition of Cebert. John
testified in his deposition that he never intended Cebert to be president of MODI or be
paid.
        3
          Cebert treats September 17, 2014 as the last day of his employment with MODI.
Clerk’s Papers at 515.

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No. 36468-2-III
Cebert v. Kennedy

experimental data by November 7, 2014, his patent application would be deemed

abandoned. John in turn asked Cebert to provide him with the data Cebert had been

tracking. Cebert did not turn over any data. On November 2, John again requested that

Cebert provide him with the data. Cebert again failed to turn over any data. As a result,

the patent deadline was not met. Subsequently, Fritzges informed Cebert that the patent

application had been abandoned.

       Cebert introduced his friend Mike Noder to Patrick. Noder paid Axtel $19,000 for

a batch of Accilion. Noder then created Advanced Mineral Compounds, LLC (AMC),

whose purpose was to distribute Accilion. In January 2015, counsel for AMC and Noder

sent letters to Fritzges and Les Hamasaki. The letters asserted that AMC had exclusive

rights to market, sell, and distribute Accilion. The letters instructed MODI, Axtel, and

the Foundation to cease and desist from those activities. Cebert assisted Noder and his

counsel in preparing the letters.

       Cebert filed this lawsuit on February 16, 2016. He alleged fraud, breach of

contract, promissory estoppel,4 quantum meruit, and unlawful withholding of wages

under RCW 49.48.010. The defendants filed counterclaims against Plaintiffs for fraud,5

conversion, misappropriation of trade secrets, and tortious with business expectancy.

       4
           Cebert’s promissory estoppel claim is not at issue on appeal.
       5
           The court dismissed the fraud claim pursuant to CR 50.

                                               4
No. 36468-2-III
Cebert v. Kennedy

       The defendants eventually sought summary judgment on all of Cebert’s claims,

arguing that they were barred by the statute of limitations and the statute of frauds. The

court concluded that the claims had all accrued in 2012 and were barred by the three year

statute of limitations period. The case proceeded to jury trial on the defendant’s

counterclaims.

       The jury found Cebert liable for conversion, misappropriation of trade secrets, and

tortious interference with business expectancies. The jury also found that Cebert’s

misappropriation of trade secrets was willful and malicious. Pursuant to the verdicts, the

court awarded the defendants $428,500 in compensatory damages, $15,000 in exemplary

damages, and $191,582.50 in attorney fees.

       Cebert timely appealed to this court.6 A panel heard oral argument of the case.

                                        ANALYSIS

       Cebert challenges the dismissal of his claims at summary judgment as well as the

judgment entered against him. We address first the propriety of the summary judgment

before turning to his claims that the mandatory joinder ruling requires retrial of the

defendants’ case and his allegation that evidentiary errors also require a new trial.

       Due to Axtell filing for bankruptcy, Cebert’s appeal was stayed against Axtell.
       6

Our commissioner denied Cebert’s request to stay the remainder of the appeal. See
Comm’r’s Ruling (Mar. 25, 2019).

                                              5
No. 36468-2-III
Cebert v. Kennedy

       Summary Judgment

       Cebert argues that questions of material fact exist concerning the accrual of his

claims that require reversing the statute of limitations ruling. The defendants contend

that the statute of limitations barred all of Cebert’s claims and that the statute of frauds

also barred them. After discussing the standards of review, we will briefly address the

statute of frauds argument before turning to the individual causes of action.

       When considering an appeal from a summary judgment order of dismissal, an

appellate court will review the ruling de novo and consider the same evidence heard by

the trial court, viewing that evidence in a light most favorable to the party responding to

the summary judgment. Lybbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000).

If there is no genuine issue of material fact, summary judgment will be granted if the

moving party is entitled to judgment as a matter of law. Id.; Trimble v. Wash. State

Univ., 140 Wn.2d 88, 93, 993 P.2d 259 (2000); CR 56(c).

       A defendant moving for summary judgment on statute of limitations grounds must

show an absence of fact as to when the claims accrued. Malnar v. Carlson, 128 Wn.2d

521, 530, 910 P.2d 455 (1996); Niven v. E.J. Bartells Co., 97 Wn. App. 507, 514, 983

P.2d 1193 (1999). “A cause of action accrues when a party has a right to apply to a court

for relief.” Malnar, 128 Wn.2d at 529.

       RCW 4.16.080(3) provides a three year statute of limitations for claims based on

express or implied contracts. RCW 4.16.080(4) provides for a three year statute of

                                               6
No. 36468-2-III
Cebert v. Kennedy

limitations for claims based on fraud; the period does not begin to run until the fraud is

discovered, or should have been discovered. Both parties agree that each of Cebert’s

causes of action is subject to a three-year limitations period.

       Cebert’s claims revolve around three promises: (1) Cebert would be president of

MODI, (2) Cebert would receive shares of MODI, and (3) Cebert would receive a salary.

None of these promises were in writing.

       Defendants argue that because the agreement was expected to take more than one

year to be performed, the statute of frauds requires dismissal of all claims. A contract

that cannot be performed within one year is void unless in writing. RCW 19.36.010(1).

“A contract for continuing performance that fails to specify the intended duration is

terminable at will and is therefore outside of the statute of frauds.” Duncan v. Alaska

USA Fed. Credit Union, Inc., 148 Wn. App. 52, 73, 199 P.3d 991 (2008).

       Cebert’s allegations state a case of continuing performance rather than a specified

length of time in which to serve as company president. Accordingly, the statute of frauds

is inapplicable.

       The remaining question is when each cause of action accrued. We address the

contentions in the following order: (1) breach of contract, (2) fraud, (3) quantum meruit,

and (4) wage withholding.

       Breach of Contract. A cause of action for breach of contract accrues upon breach.

1000 Virginia Ltd. P’ship v. Vertecs Corp., 158 Wn.2d 566, 577-578, 146 P.3d 423

                                              7
No. 36468-2-III
Cebert v. Kennedy

(2006). The discovery rule does not generally apply. Id. at 578; Kelly v. Allianz Life Ins.

Co. of N. Am., 178 Wn. App. 395, 399, 314 P.3d 755 (2013).

       By the March 2012 board meeting, Cebert knew that MODI was up and running,

that John was serving as president, and that no shares of stock had been issued to him.

The contract had been breached. Cebert filed this action four years later. It was

untimely. The trial court correctly dismissed the breach of contract action.

       The failure of the breach of contract theory removes the presidency and stock

share issues from the case. The remaining theories all raise the question of whether

Cebert was employed by MODI.

       Fraud. A cause of action for fraud accrues when “the aggrieved party discovers or

could have discovered all elements of the claim.” Norris v. Church & Co., Inc., 115 Wn.

App. 511, 517, 63 P.3d 153 (2002). There are nine elements of a fraud claim:

       (1) a representation of existing fact, (2) that is material, (3) and false,
       (4) the speaker knows of its falsity, (5) intent to induce another to act,
       (6) ignorance of its falsity by the listener, (7) the latter’s reliance on the
       truth of the representation, (8) her right to rely on it, and (9) consequent
       damage.

Baker Boyer Nat’l Bank v. Foust, 6 Wn. App. 2d 375, 381 & n.4, 436 P.3d 382 (2018).

       In his 2017 deposition, John testified that he never intended to make Cebert

president or compensate him. Cebert now cites the discovery of that information as the

final piece of the puzzle that started the statute of limitations running. However, by then

Cebert had already filed in 2016 both the initial complaint and an amended complaint that

                                               8
No. 36468-2-III
Cebert v. Kennedy

each stated fraud as the first cause of action. He did not discover his basis for action at

the 2017 deposition.7 Instead, he had based it on the 2011 telephone promise and

subsequent failure to pay a monthly salary.8 The material misrepresentation that he

alleged was the basis for his fraud claim that occurred four years before he filed his first

fraud allegation.

       The fraud claim was untimely filed. The trial court correctly dismissed the

contention.

       Quantum Meruit. This “is the method of recovering the reasonable value of

services provided under a contract implied in fact.” Young v. Young, 164 Wn.2d 477,

485, 191 P.3d 1258 (2008). “[T]he elements of a contract implied in fact are: (1) the

defendant requests work, (2) the plaintiff expects payment for the work, and (3) the

defendant knows or should know the plaintiff expects payment for the work.” Id. at 486.

       We agree with Cebert that a question of fact exists concerning when this claim

accrued. Cebert alleges that he performed work for the defendants at their request,

expected to be paid for it, and defendants knew he expected to be paid. He was working

up to his departure in the fall of 2014, and even after he left Kennedy sought patient trial

information from him in support of the Russia patent application.

       7
        The deposition testimony is still useful information about Kennedy’s intent.
       8
        If he believed that payment was properly withheld until the company had a stable
income, he has not identified the date when that occurred. If that has not yet been achieved,
then payment is not even yet owing and the cause of action also fails for that reason.

                                              9
No. 36468-2-III
Cebert v. Kennedy

       Recovery under this cause of action depends upon work performed with

expectation of pay. The evidence supports the view that, within three years of bringing

his claim, Cebert performed work that both parties believed he would be paid for.

Accordingly, a factual question exists that should have prevented summary judgment.

       The trial court erred in dismissing this claim. We reverse.

       Wage Withholding. Washington law makes it unlawful for an employer to

withhold an employee’s wages.

       When any employee shall cease to work for an employer, whether by
       discharge or by voluntary withdrawal, the wages due him or her on account
       of his or her employment shall be paid to him or her at the end of the
       established pay period.

RCW 49.48.010.

       Under this statute, Cebert’s departure from the company in September 2013 meant

that the paycheck for that period was due on the normal payment date. This claim was

filed within three years of the termination of employment. Accordingly, the claim was

timely as to at least the final paycheck.9

       The trial court erred in granting summary judgment on this claim. Again, we

reverse.

       9
        The parties have not briefed the topic of whether monthly pay became due and
owing each month that it went unpaid. We therefore do not express any opinion
concerning the potential application of the statute of limitations to any earlier pay periods
under either of Cebert’s surviving theories.

                                             10
No. 36468-2-III
Cebert v. Kennedy

       Compulsory Counterclaims

       The first of the trial-related arguments concerns a contention that the defendants’

counterclaims need to be retried since some of the plaintiff’s claims now must go to trial.

He cites no relevant authority in support of the argument.

       CR 13(b) permits counterclaims that do not arise out of the same action as the

plaintiff’s claims to be pleaded and joined. In contrast, CR 13(a) requires a defendant to

assert a counterclaim arising from the same transaction or occurrence that is the subject

of plaintiff’s claims. A defendant who fails to do so is barred from bringing the claim in

a subsequent action. Schoeman v. New York Life Ins. Co., 106 Wn.2d 855, 863, 726 P.2d

1 (1986). “The considerations behind compulsory counterclaims include judicial

economy, fairness and convenience.” Id. at 866.

       CR 13 is a rule of pleading requirements, not of trial practice. Understandably, no

case law has been cited by the parties suggesting that the wrongful separation into

multiple trials of compulsorily joined claims requires a retrial. That is unsurprising since

compulsory counterclaims may be tried separately. CR 42(b). Even if the claims were

compulsory, a question we do not decide, they were not required to be heard together.10

       10
         While Cebert’s claims involved his time working for the defendants, their
claims against him involved his activities after he terminated his relationship with them.

                                             11
No. 36468-2-III
Cebert v. Kennedy

       Cebert might still prevail if he could demonstrate that the wrongful summary

judgment deprived him of the opportunity to fairly contest the counterclaims at trial.11

He has not identified any evidence that was erroneously excluded because of the

summary judgment nor made any effort to explain how he was prejudiced. He simply

has not shown error.

       This argument is without merit.

       Evidentiary Arguments

       Cebert next argues that the trial court twice erred in admitting evidence and also

that the defendants did not establish damages. These claims, too, are without merit.

After noting the standards governing review, we address each of the evidentiary

challenges before turning to the evidentiary sufficiency claim.

       This court reviews evidentiary rulings for abuse of discretion. Hoskins v. Reich,

142 Wn. App. 557, 566, 174 P.3d 1250 (2008). A court abuses its discretion when it

makes a decision that is manifestly unreasonable or based on untenable grounds. State ex

rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971).

       Harmless error is not grounds for reversal. Brown v. Spokane County Fire Prot.

Dist. No. 1, 100 Wn.2d 188, 196, 668 P.2d 571 (1983). Error is harmless unless it

       11
           Any effort to apply res judicata or collateral estoppel at a second trial will have
to carefully consider evidence that might not have been relevant at the first trial or that
plaintiff would not have had a fair opportunity to develop.

                                              12
No. 36468-2-III
Cebert v. Kennedy

affected the outcome of trial. Id. Improperly admitted evidence is harmless if it is

cumulative of other evidence. Reich, 142 Wn. App. at 570.

       Cease and Desist Letters. Cebert contends that the court erred in admitting the

cease and desist letters authored by AMC’s counsel. He argues that the letters were not

relevant and also constituted hearsay.

       Relevant evidence is admissible, while irrelevant evidence is not. ER 402.

Evidence is relevant if it makes a material fact more or less probable. ER 401. These

letters were relevant to show that AMC, assisted by Cebert, was interfering with MODI’s

efforts to market Accilion.

       Hearsay is an out of court statement offered to prove the truth of the matter

asserted. ER 801(a)-(c). Unless an exception applies, hearsay is inadmissible. ER 802.

       The letters were not hearsay because they were not offered to prove the truth of

the assertions therein (i.e., that AMC had exclusive rights to market Accilion). Instead,

they were offered to prove that the letters were sent. The letters did not constitute

hearsay. The alleged error also was not prejudicial. The exhibits duplicated testimony of

Cebert and other witnesses and could not have been prejudicial.

       The trial court did not abuse its discretion.

       Handwritten Notes. Cebert next argues that the court erred in admitting two notes

written in his own hand that referenced his claims against the defendants. He argues the

notes were not relevant because they related to his dismissed claims.

                                              13
No. 36468-2-III
Cebert v. Kennedy

       The exhibits were relevant to the defendants’ claim that Cebert was attempting to

extort money by withholding the patient data. Accordingly, they were properly admitted.

In addition, the notes were not prejudicial. The jury knew that Cebert’s claims had been

resolved and they were directed not to speculate. “Jurors are presumed to follow the

court’s instructions.” State v. Kalebaugh, 183 Wn.2d 578, 586, 355 P.3d 253 (2015).

Cebert was free to talk about the notes, but declined to do so.

       Once again, the court did not abuse its discretion in admitting the evidence. There

was no error.

       Proof of Damages. The final evidentiary challenge is to the sufficiency of

damages offered by the defendants. Cebert argues that there was no certainty that the

patent would have been granted. However, the claim sought to recover the costs of

duplicating the patient data and reapplying for the Russian patent. The evidence

supported that claim.

       “The purpose of tort damages is to place the plaintiff in the condition he would

have been in had the wrong not occurred.” Kim v. O’Sullivan, 133 Wn. App. 557, 564,

137 P.3d 61 (2006). Claimant must prove damages with reasonable certainty. Lewis

River Golf, Inc. v. O.M. Scott & Sons, 120 Wn.2d 712, 717, 845 P.2d 987 (1993).

“[O]nce the [plaintiff] establishes the fact of loss with certainty (by a preponderance of

the evidence), uncertainty regarding the amount of loss will not prevent recovery.” Mut.

of Enumclaw Ins. Co. v. Gregg Roofing, Inc., 178 Wn. App. 702, 715, 315 P.3d 1143

                                             14
No. 36468-2-III
Cebert v. Kennedy

(2013) (alteration in original) (quoting Lewis River, 120 Wn.2d at 717). Whether

plaintiff proved loss is a question of fact. Id.

       The defendants proved their loss with reasonable certainty. They presented the e-

mail from their patent attorneys explaining that their Russian patent application would be

deemed abandoned if they did not submit patient data by November 7, 2014. John

testified that they failed to meet that deadline. Cebert testified that Fritzges informed him

that the patent had been abandoned. This evidence was sufficient for the jury to find that

the defendants suffered a loss.

       They also presented sufficient evidence of the damages suffered by abandoning

the Russian patent application. John testified that he would have to spend years and

money on conducting studies, collecting data, and reapplying for the patent in order to

return the defendants to the position they were in when the patent was abandoned. They

proved the fact of damages; that they did not prove their damages with exactitude does

not bar recovery.

       The evidence supported the Russia patent claim.

       Attorney Fees

       The respondents seek attorney fees on appeal in accordance with RCW 19.108.040.

The statute permits an award of fees for willful and malicious misappropriation of trade

secrets. In response to the jury’s finding, the trial court awarded attorney fees to the

defendants.

                                              15
No. 36468-2-III
Cebert v. Kennedy

       A party prevailing in a trade secrets case is entitled to attorney fees both at trial

and on appeal. Eagle Group, Inc. v. Pullen, 114 Wn. App. 409, 424, 58 P.3d 292 (2002).

Here, the jury found that Cebert willfully and maliciously appropriated trade secrets. The

defendants are thus entitled to their attorney fees for the successful defense of that claim

on appeal. Thola v. Henschell, 140 Wn. App. 70, 90, 164 P.3d 524 (2007). However, the

trade secrets attorney fee statute does not purport to authorize a fee award for other

claims. We conclude that the defendants may recover only their attorney fees related to

the trade secrets issue.

       Our commissioner will consider a timely request for attorney fees. Any request

should relate to the briefing of the trial issues rather than those related to the summary

judgment proceedings.

       Affirmed in part and reversed in part.

       A majority of the panel has determined this opinion will not be printed in the

Washington Appellate Reports, but it will be filed for public record pursuant to RCW

2.06.040.

                                                _________________________________
                                                        Korsmo, A.C.J.
WE CONCUR:

_________________________________               _________________________________
      Fearing, J.                                       Lawrence-Berrey, J.

                                              16