Court Opinion

ID: 9898331
Source: CourtListenerOpinion
Date Created: 2023-11-14 19:30:00.154706+00
Date Added: 2024-06-11T09:16:16.484012
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 RICHARD L. DAUENHAUER, a                      No. 84105-0-I
 Resident of the State of Washington,
 and CLIFFORD HANSEN, a Resident               DIVISION ONE
 of the State of Washington,

                          Appellants,          UNPUBLISHED OPINION
               v.

 DAVID SANDERS, a Resident of
 Washington d/b/a THC LAW FIRM,

                          Respondent.

       SMITH, C.J. — Richard Dauenhauer and Clifford Hansen co-owned CMJ

Growers, LLC, a marijuana grow business, with Chris Ellis. CMJ and its owners

were sued by two employees for withholding wages. David Sanders, the

defendants’ attorney, failed to file an answer, respond to discovery requests, or

respond to a motion for default judgment, which was granted by the court. The

defendants hired new counsel and settled shortly thereafter. Dauenhauer and

Hansen then began this lawsuit against Sanders, alleging malpractice. They

appeal the size of the trial court’s judgment in their favor following a bench trial,

asserting that it is too low. Because substantial evidence supports the trial

court’s findings and conclusions that Dauenhauer and Hansen failed to meet

their burden to demonstrate several of their theories of damages, we affirm.
No. 84105-0-I/2

                                      FACTS

      CMJ Growers, LLC, a marijuana grow business, was owned by Chris Ellis,

Clifford Hansen, and Richard Dauenhauer. Ellis owned 51 percent. Hansen

initially owned the remaining 49 percent, but sold five percent to Dauenhauer.

      Operations of the business were troubled and animosity grew between

Ellis, who was its nominal manager, and Dauenhauer and Hansen. Though the

precise facts are disputed, Hansen indicated that he was sometimes involved in

certain operational matters, and Ellis at times sent both Dauenhauer and Hansen

payroll information. Hansen and Ellis occasionally interacted with regulators and

contracted for services, including opening lines of credit, in their own names

rather than as company representatives. Ellis eventually accused Hansen of

improper recordkeeping and embezzlement. Hansen accused Ellis of writing

fraudulent checks. Dauenhauer, reflecting on these circumstances a year later,

wrote of Ellis’s management that “these decisions . . . in most part occurred

without our knowledge, but in many cases in spite of our awareness and

vehement disagreement.” Disagreements grew until Ellis’s resignation in

December 2018, at which point Hansen took over day-to-day management.

Hansen discovered that CMJ’s bank account was nearly empty and that Ellis had

failed to pay various bills owed, including employee wages. Hansen reports that

this left the company without sufficient funds to reliably pay employees.

      On May 29, 2019, two CMJ employees sued CMJ, Ellis, Hansen, and

Dauenhauer for unpaid wages. This lawsuit—which is separate from the case

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No. 84105-0-I/3

now on appeal—is referred to throughout the record as the Behnke1 litigation.

CMJ’s owners contacted David Sanders, their attorney, to defend against the

suit. Sanders entered a notice of appearance on behalf of all three individuals

and CMJ itself. Sanders’s law practice was primarily transactional, focusing on

real estate, and the purpose behind his entry of appearance was apparently to

allow the defendants to find their own litigation counsel. Due to a series of

personal tragedies, however, he did nothing more, failing to respond to discovery

or file an answer. Ellis sought alternative counsel in August 2019. Dauenhauer

and Hansen, however, were concerned about conflicts of interest that could arise

if they were jointly represented with Ellis, and continued to rely on Sanders. In

early September, the plaintiff-employees moved for default against all

defendants. Sanders again failed to respond and the trial court granted the

motion on September 23, 2019.

       At this point, Ellis, represented by the law firm Littler Mendelson, filed an

answer on his own behalf and on behalf of CMJ. In October, the plaintiff-

employees filed for a motion for entry of default judgment against Hansen and

Dauenhauer. Sanders again failed to respond and judgment was entered on

October 16; Dauenhauer and Hansen were ordered to pay $123,778.28.

       The judgment prompted Dauenhauer and Hansen to obtain separate

representation. Dauenhauer managed to vacate the default against him in short

order; Hansen held off on vacating his default, preserving the threat of a motion

       1 Behnke v. CMJ Growers, LLC, No. 19-2-14257-0 (King County Super.

Ct., Wash. Oct. 16, 2019).

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No. 84105-0-I/4

to vacate in order to gain leverage in negotiations with the plaintiffs. Negotiations

resulted in an $80,000 settlement, which was finalized in late January, 2020.

Despite ongoing disagreements about who had the authority to settle on behalf of

CMJ, this settlement seems to have encompassed CMJ’s liability as well as

Dauenhauer and Hansen’s, though not Ellis’s. The default judgment against

Hansen was vacated by the trial court as a part of the settlement agreement.

        CMJ, no longer solvent and with its owners bitterly at odds, had already

begun selling off most of its remaining assets and initiated corporate dissolution

proceedings. A declaration from Hansen supporting appointment of a general

receiver indicates that CMJ’s debts stood at roughly three quarters of a million

dollars, while it possessed only a third of that amount in liquid assets.

        Meanwhile, Dauenhauer and Hansen sued David Sanders, initiating the

present case. They brought causes of legal malpractice and breach of fiduciary

duty, asserting that Sanders’s failure to timely respond in the Behnke litigation

had led them to suffer significant damages. The trial court concluded at

summary judgment that Sanders had committed malpractice, but left for trial the

determination of the extent of damages and his liability for breach of fiduciary

duty.

        At a bench trial, Dauenhauer and Hansen argued several theories of

damages that are relevant on appeal. First, they requested damages for the

attorney fees they had incurred for replacement counsel. Second, they

requested damages for the $80,000 settlement. Third, they requested damages

for the lost value of CMJ’s cannabis growing business license, which they

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No. 84105-0-I/5

asserted they had sold in a rush to cover settlement costs. Finally, Hansen

asked for damages related to the sale of his home in Colorado, which he alleged

he had rushed in order to pay the settlement and which had been sold below

market value as a result. The trial court awarded the plaintiffs the attorney fees

for replacement counsel through to the time of the settlement, but denied

damages based on the other theories.

       Dauenhauer and Hansen appeal.
                                     ANALYSIS
                                Standard of Review

        Appellate courts “reviewing a trial court’s decision following a bench trial

. . . ask whether substantial evidence supports the trial court’s findings of fact and

whether those findings support the conclusions of law.” Real Carriage Door Co.

v. Rees, 17 Wn. App. 2d 449, 457, 486 P.3d 955 (2021). We do not defer to the

trial court’s characterization of a challenged decision as factual or legal in nature,

but instead analyze it for what it is. Allen v. Dan & Bill's RV Park, 6 Wn. App. 2d

349, 365, 428 P.3d 376 (2018).

       Substantial evidence exists to support a finding of fact if the evidence,

when viewed in the light most favorable to the prevailing party, is “sufficient to

persuade a rational, fair-minded person that the declared premise is true.” Rees,

17 Wn. App. 2d at 457. If this standard is met, we will not substitute our

judgment for that of the trial court even though we may have resolved a factual

dispute differently. Sunnyside Valley Irrig. Dist. v. Dickie, 149 Wn.2d 873, 879-

80, 73 P.3d 369 (2003). Unchallenged findings are verities on appeal, and we do

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No. 84105-0-I/6

not review the trial court’s credibility determinations. Columbia State Bank v.

Invicta Law Grp. PLLC, 199 Wn. App. 306, 319, 402 P.3d 330 (2017).

Conclusions of law are reviewed de novo. Dickie, 149 Wn.2d at 880.

                             Legal Malpractice Generally

       A brief overview of the structure of legal malpractice claims is useful.

Plaintiffs must prove four elements to prevail in a legal malpractice action: (1) the

existence of an attorney-client relationship giving rise to a duty of care on the

party of the attorney toward the client; (2) an act or omission by the attorney

breaching that duty; (3) damage to the client; and (4) that the duty’s breach

proximately caused the damage. Hizey v. Carpenter, 119 Wn.2d 251, 260-61,

830 P.2d 646 (1992). If a legal malpractice claim makes it to trial, the “ ‘trier of

fact will be asked to decide what a reasonable jury or fact finder [in the

underlying trial or “trial within the trial”] would have done but for the attorney’s

negligence.’ ” Ang v. Martin, 154 Wn.2d 477, 482, 114 P.3d 637, 640 (2005)

(alteration in original) (quoting Daugert v. Pappas, 104 Wn.2d 254, 258, 704 P.2d

600 (1985)). Here, the first two elements of Dauenhauer and Hansen’s

malpractice claim were established at summary judgment, leaving for trial

determination of the extent of damages Dauenhauer and Hansen suffered as a

result of Sanders’s breach of his duty.

       By its nature, malpractice can at times blur the line between factual and

legal questions. For instance, causation and damages are typically factual

questions to be decided by the fact finder. Brust v. Newton, 70 Wn. App. 286,

292-93, 852 P.2d 1092 (1993). In Daugert, though, “questions bearing legal

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No. 84105-0-I/7

analysis” underlaid the inquiry of whether a reviewing court would have accepted

review, and a judge was in a better position than a jury to make the relevant

factual determination. 104 Wn.2d at 258-59. Daugert represents a departure

from the standard practice, which still puts questions of causation and damages

to the jury absent the existence of a comparable need to engage in legal

analysis. Brust, 70 Wn. App. at 292.

      But Daugert’s reasoning has been relied on to determine whether

causation concerning damages resulting from an attorney’s alleged negligence at

summary judgment, rather than trial, is a question of fact or law in subsequent

malpractice litigation. Spencer v. Badgley Mullins Turner, PLLC, 6 Wn. App. 2d

762, 778, 432 P.3d 821 (2018). There, “when evaluating whether a lawyer has

presented sufficient admissible evidence on summary judgment to warrant

specific performance . . . the cause in fact determination is most appropriately

decided by a judge,” rather than by the fact finder. Spencer, 6 Wn. App. 2d

at 778. The procedural posture of the case on a particular issue therefore

informs the standard of review.

                                  Finding of Fact 26

      Dauenhauer and Hansen first challenge the trial court’s finding of fact 26.

The court found “that [Dauenhauer and Hansen] did not establish that they would

have prevailed in the Behnk[e] Litigation” and the court therefore denied them

recovery of $80,000 in settlement damages. Dauenhauer and Hansen assert

that we should review this finding de novo rather than for substantial evidence,

arguing that they could not have been found liable for wage withholding as a

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No. 84105-0-I/8

matter of law. We review this issue for substantial evidence because there is a

material dispute of fact concerning whether Dauenhauer and Hansen could have

been liable for wage withholding. And we conclude that that even though

evidence may allow room for more than one interpretation, substantial evidence

supports finding number 26 because Dauenhauer and Hansen did not meet their

burden to establish that they would have prevailed.

       We begin by addressing Dauenhauer and Hansen’s threshold argument:

that we should review this finding de novo rather than for substantial evidence.

They acknowledge that causation and damages are typically factual questions,

but assert that here, a determinative subsidiary question of law lies at the center

of our analysis. They contend that they could not have been liable to the Behnke

plaintiffs under the statutory provisions that give rise to the relevant cause of

action: withholding wages.

       RCW 49.52.070 creates civil liability where employers withhold wages.

Specifically, it says that
              [a]ny employer and any officer, vice principal or agent of any
       employer who shall violate any of the provisions of RCW 49.52.050
       (1) and (2) shall be liable in a civil action by the aggrieved
       employee or his or her assignee to judgment for twice the amount
       of the wages unlawfully rebated or withheld.

The referenced subsection RCW 49.52.050(2) prohibits employers from “willfully

and with intent to deprive the employee of any part of his or her wages . . .

[paying] any employee a lower wage than the wage the employer is obligated to

pay such employee by any statute, ordinance, or contract.”

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No. 84105-0-I/9

       Dauenhauer and Hansen raise two related concerns under this statute.

First, the corporate structure of limited liability companies such as CMJ protects

members from being held personally liable for the company’s liabilities if they are

being sued purely in their capacity as members. RCW 25.15.126(1). The wage

withholding statute, though, permits liability against “officer[s]” and “agent[s]” of

employers. RCW 49.52.070. Here, then, for Dauenhauer and Hansen to bear

personal liability, it must be because they were acting as agents or officers of

CMJ. See Jumamil v. Lakeside Casino, LLC, 179 Wn. App. 665, 684, 319 P.3d

868 (2014) (member-manager of LLC was liable through his managerial role).

Second, because of the willfulness element of the wage withholding statute, “the

employer must have knowledge of any wage withholding policies and fail to

correct any improper wage withholding to be liable.” Jumamil, 179 Wn. App.

at 684.

       These two concerns are related insofar as evidence indicates that

members were operating in a managerial capacity. Evidence of a managerial

role tends to support liability on two bases: (1) because the member-managers

were acting as “officers” or “agents” of the LLC and (2) because managerial

involvement may indicate knowledge and willfulness of wage withholding.

       Dauenhauer and Hansen claim that undisputed evidence indicated that

they were not managers of CMJ, and were therefore neither employers liable

under RCW 49.52.070, nor knowledgeable of the wage withholding such that

they could have acted willfully. The evidence, they assert, indicated that neither

of them operated in a managerial role in the company, and that they did not learn

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No. 84105-0-I/10

of the wage withholding claims until they were served with the Behnke lawsuit.

As a result, they contend that the trial court erred as a matter of law in making

finding 26. In essence, they claim that there was no material dispute of fact

regarding their degree of involvement with CMJ’s day to day operations, meaning

that the issue of their liability could have been decided at summary judgment as

a matter of law and should now be reviewed de novo.

       However, this is not an accurate characterization of the evidence, which

demonstrated a clear dispute of fact regarding whether Dauenhauer and Hansen

operated in a managerial role. Dauenhauer and Hansen point to the operating

agreement governing CMJ’s affairs, which states that “[a]ll of the business and

affairs of the Company shall be managed by a manager of the Company.” They

also assert, correctly, that Chris Ellis was CMJ’s manager under the operating

agreement’s terms. And Dauenhauer testified that he first learned of the wage

withholding issue when the Behnke litigation began. Beyond this, they do not

engage with the evidence brought forward at trial, instead resting on the

formalistic logic that because Ellis was legally the only manager, only he could

have been personally liable.

       But this ignores a wealth of other evidence introduced at trial that casts

doubt on Hansen and Dauenhauer’s purportedly nonmanagerial role at CMJ.

Though Ellis’s involvement with CMJ is straightforward on paper, it is far from

clear that the company’s day-to-day operations matched its nominal assignment

of powers and duties. Dauenhauer and Hansen knew enough of Ellis’s

management for a growing rift and considerable anger to grow between them.

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No. 84105-0-I/11

Even before he took over Ellis’s managerial role, Hansen seems to have been

involved in day to day operations, extending credit to the company and

transacting on its behalf. And once he took over for Ellis, Hansen attempted to

pay the aggrieved employees for at least some of their unpaid wages, and was

clearly operating in a straightforwardly managerial role.

       Additionally, Dauenhauer and Hansen endorsed the theory that they had

assumed managerial powers during the settlement process of the Behnke

litigation. Concerned that Ellis might use his managerial position to block their

proposed settlement, they “concluded Mr. Ellis resigned his position as a

manager of the LLC[,] . . . [after which,] under Washington’s LLC Act, the

company became member-managed, meaning Mr. Hansen and Mr. Dauenhauer

had authority to settle the plaintiffs’ claims against CMJ.” While this alone does

not go to whether they in fact exercised managerial powers, it certainly indicates

that Ellis was not CMJ’s sole manager at that time.

       In combination with the Behnke complaint, this evidence creates a dispute

of fact about RCW 49.52.050(2)’s willfulness element. The plaintiffs in Behnke

asserted that they had not received wages “throughout” the course of their

employment and that they left on March 24, 2019 because they “had not been

paid their full wages despite numerous requests.” At least some of this time

overlaps with Ellis’s absence from the company. And even before his absence, it

is far from clear that he was exclusively managing the business.

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No. 84105-0-I/12

       We do not, therefore, review finding of fact 26 de novo. A dispute of fact

existed concerning Hansen and Dauenhauer’s managerial role. This dispute

placed the question of their liability into the hands of the finder of fact.

       The question becomes whether substantial evidence supports the trial

court’s conclusion that Dauenhauer and Hansen failed to meet their burden of

proof to demonstrate that they would have prevailed in the underlying action. It

does, and our analysis hinges on Dauenhauer and Hansen’s burden at trial.

Though it is far from certain that Dauenhauer and Hansen in fact exercised

managerial control over the relevant decisions not to pay their employees, the

record supports the finding by the court that they did. Despite bearing the burden

to demonstrate that they did not exercise such control, Dauenhauer and Hansen

do no more than rest on their own statements supporting that proposition,

demurring from engagement with the larger body of evidence. Crucially, it is for

the trial court to determine credibility and weigh and evidence. Here, the

evidence presented to the trial court was disputed, but would allow a reasonable

fact-finder to conclude that the plaintiffs did not meet their burden to demonstrate

that they would have prevailed on this issue. We affirm finding 26 for this

reason.2

       2 Additionally, Dauenhauer and Hansen’s arguments about finding 26

appear to support their request for $80,000 in damages for the cost of the
settlement. But neither Dauenhauer nor Hansen bore that expense. Hansen
loaned CMJ $25,000 towards a first payment, and the balance was funded by the
sale of CMJ’s grow license. That same sale repaid Hansen his loan. The cost of
the settlement was entirely paid by CMJ, not Hansen or Dauenhauer personally.

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No. 84105-0-I/13

                                 Finding of Fact 29

       Dauenhauer and Hansen next challenge finding 29: “The Court denies

Plaintiffs’ claims for other consequential damages for lack of sufficient,

competent evidence.” The consequential damage theories to which the court

was referencing were the rushed sales of CMJ’s grow license and Hansen’s

condominium at below market prices in order to fund the settlement. We affirm

this finding. Substantial evidence supports the notion that Dauenhauer and

Hansen did not meet their burden to show that Sanders’s breach of his duty

caused their alleged damages.

       First, substantial evidence supports the trial court’s finding as it concerns

the sale of CMJ’s grow license. Hansen testified, based on his understanding of

the cannabis industry, that CMJ’s license would have sold for over half a million

dollars under normal market circumstances. Instead, the license was sold in

what Hansen characterized as rushed circumstances for $349,000.

       But Dauenhauer and Hansen do not sufficiently connect this potential loss,

which is based on no more than Hansen’s uncorroborated testimony about

market rates, with Sanders’s malpractice. Ample evidence indicates that CMJ

was facing financial troubles even before the Behnke litigation began, going back

to at least late 2018, when Ellis resigned. Dauenhauer testified that they had

considered either closing the business or selling the license even before the

default judgment was entered against them. Sanders testified that the license

had been put up for sale in April 2019, before the Behnke litigation began.

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No. 84105-0-I/14

       Given this, it is far from clear that the Behnke litigation, or Sanders’s

failure to contest default, had anything to do with the sale of the license. The

record instead supports that CMJ’s need to sell its license was caused by its

insolvency and longstanding mismanagement. Dauenhauer and Hansen do little

more than assert that the default forced them to sell the license more quickly

than they otherwise would have. They do not provide any real insight into the

sales process or what alternatives they considered. We therefore conclude that

the trial court’s finding was supported by substantial evidence when it comes to

whether the plaintiffs met their burden to demonstrate that Sanders’s malpractice

led to their damages.

       Substantial evidence also supports the trial court’s finding regarding

Hansen’s sale of his property in Colorado. Hansen asserted that he sold the

property to ensure that he had funds available for settlement. He listed it in July

2019 and sold it in September—around the time of the default judgment—for

$122,000. He asserts that an unrushed sale on the open market would have

resulted in a sale price of closer to $160,000. He claims the difference between

the potential and actual sale prices as damages.

       Hansen’s claims about his property’s potential value, though, are

supported by no more than his own testimony and a comparison of the sales of

similar properties assembled by his real estate agent. While it is true that

property owners may testify about their property’s value, they must testify on the

basis of “ ‘relevant and competent methods of ascertaining value.’ ” Port of

Seattle v. Equitable Capital Grp., Inc., 127 Wn.2d 202, 211, 898 P.2d 275 (1995)

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No. 84105-0-I/15

(quoting State v. Wilson, 6 Wn. App. 443, 451, 493 P.2d 1252 (1972)). Hansen’s

valuation of his property relied in large part on the market comparison prepared

by his real estate agent in September 2019. That comparison, though, appears

to have looked at only three similar properties, does not describe the

methodology by which the properties were selected, and was not admitted by the

trial court as substantive evidence. Without that comparison to rely on, Hansen’s

valuation testimony is supported by little more than speculation, and the trial

court was entitled to weigh it accordingly.

         Additionally, the timing of the listing suggests that similar problems in this

argument as were present in Dauenhauer and Hansen’s argument about CMJ’s

grow license. The property was listed months before the default motion was filed

and only shortly after the Behnke litigation began. If its sale was a response to

concerns about settlement or judgment, they were distant and speculative

concerns.

         Meanwhile, the timeline of the property’s sale is uncertain. Hansen

testified that it was sold in September 2019, but also that it was sold after the

default judgment, which was entered in mid-October. Given this uncertainty, it is

difficult to know under what circumstances Hansen felt he must sell, and

reasonable for the finder of fact to find that Hansen had not met his burden to

demonstrate causation. Hansen’s failure to meet his burden is compounded by

the timing of the settlement, which was not finalized until January 2020, as well

as by his tactical decision not to seek the default’s vacation until the settlement’s

entry.

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No. 84105-0-I/16

       As a result, we conclude that substantial evidence supports the trial

court’s finding of fact 29.

       We affirm.

WE CONCUR:

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