LABOR READY, INC. v. MOOTHART, 120 Wn. App. 1048 (2004)

Michael Moothart and his labor staffing service, Everyday Staffing, appeal the trial court's verdict and damages award to Labor Ready, Inc. and Labor Ready Northwest, Inc. ("Labor Ready"), Moothart's former employer, with whom he had signed a contract not to compete. Moothart and Everyday Staffing argue that (1) the trial court erroneously interpreted the no-competition clause; (2) there was insufficient evidence to show breach of contract by Moothart; (3) the trial court erroneously entered a judgment against Everyday Staffing, which was not the same entity as Moothart; and (4) the evidence does not support the trial court's damage award for lost profits from a bankrupt, former Labor Ready customer that transferred its business to Everyday Staffing.

We hold that the evidence supports the trial court's finding that Moothart breached his Labor Ready contract not to compete, and we affirm the trial court's judgment against Moothart and its order denying reconsideration. We further hold that the evidence does not support the trial court's finding that "Moothart is Everyday Staffing" (Report of Proceedings (RP) (July 19, 2002) at 39), and we reverse the trial court's judgment against Everyday Staffing. Labor Ready provides temporary and permanent labor to small businesses, construction, and light industrial users. Since opening its first office in Kent in 1989, Labor Ready has expanded to approximately 750 branches nationwide, with 25 branches in Washington. In January 1997, Labor Ready hired Moothart as an account representative for its Bellingham branch. On January 2, 1997, Moothart signed his first employment agreement with Labor Ready, as required of all employees.

Labor Ready promoted Moothart to manager of its Bellingham branch. From June 1998, through September and October 1998, Moothart traveled between the Bellingham branch and a Labor Ready Canadian branch that he was assigned to assist.

Labor Ready branch managers are responsible for sales, dispatching temporary employees to the worksites, soliciting new business, contacting current customers to ensure customer satisfaction, and maintaining the overall profitability of the branch. Sturtz Painting, Western Pacific Lumber, and Trident Seafoods were Labor Ready customers while Moothart was a branch manager at Labor Ready's Bellingham branch. Sturtz Painting was a customer of Labor Ready's Bellingham branch from October 1998 until May 2001. During that time, Moothart authorized a "lockout code" to "unlock" Sturtz Painting's past due account and to extend Sturtz Painting's credit with Labor Ready. 3 RP at 265. Labor Ready would not service a past-due-account customer without such lockout code authorization. In authorizing the lockout code, Moothart enabled Sturtz Painting to continue receiving staff from Labor Ready in spite of its past due account. Western Pacific Lumber was another Labor Ready Bellingham branch customer from 1995 until August 2001. Moothart acknowledges, and his sales-call log shows, that he placed or attempted to place several telephone calls to Western Pacific Lumber in January 1997. He dispatched Candace Brandt to a job with Western Pacific Lumber. Moothart also took flowers to Western Pacific Lumber's receptionist and talked to her about obtaining a letter of recommendation. Trident Seafoods was also a Labor Ready customer at the Bellingham branch, beginning in 1996. Moothart repeatedly tried to contact Trident Seafoods' Carmen Bean and left numerous messages in his effort to provide Labor Ready staffing "service" to Trident Seafoods. In December 1998, Moothart began working at Labor Ready's Everett branch. Labor Ready officially transferred him to Everett the next month.

In May 2000, Moothart entered into a second Labor Ready employment agreement. By its terms, the second employment agreement superseded all prior agreements. This agreement contained the following pertinent provision:

15. You understand and agree that the methods employed in our business will place you in a close business and personal relationship with our customers. Thus, during the term of this Contract and for a period of one (1) year immediately following the termination of your employment, for any cause or without cause, so long as we continue to carry on the same business, you agree that you will not, for any reason whatsoever, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person(s), company, partnership, corporation or business entity, call upon, divert, influence, solicit, service or attempt to call upon, divert, influence, solicit or service any of our customers or potential customers (prospects) with whom you had direct or indirect contact or for whom you had responsibility during your tenure with us or otherwise assisted us in providing services to.

Clerk's Papers (CP) at 18-19.

This employment agreement also contained a geographic restriction (paragraph 16), prohibiting Moothart for one year following his termination from having any connection with any business similar to Labor Ready within a 10-mile radius of any Labor Ready branch for which Moothart had been responsible while in Labor Ready's employ. Labor Ready terminated Moothart's employment in March 2001. One month later, Moothart founded and opened a new business in Bellingham, Everyday Staffing, to provide temporary labor services to the local community. Although he was apparently one of several registered owners or partners,¹Moothart was head operator.

In less than one year after opening, Everyday Staffing's gross revenue from its Bellingham branch reached almost $2.1 million. Everyday Staffing generated approximately half of its first-year gross revenues from former Labor Ready customers Sturtz Painting, Western Pacific Lumber, and Trident Seafoods, as follows:

(1) Moothart successfully solicited Sturtz Painting to become an Everyday Staffing customer. In May 2001, Sturtz Painting transferred its business from Labor Ready to Everyday Staffing. Everyday Staffing earned almost $1 million from Sturtz Painting the first year.

(2) Western Pacific Lumber had been another Labor Ready customer at the Bellingham branch from 1995 until August 2001, when Everyday Staffing began servicing Western Pacific Lumber. Everyday Staffing earned $16,115 from Western Pacific Lumber.

(3) Everyday Staffing provided workers to former Labor Ready customer Trident Seafoods two days in August 2001, and two days in September 2001. Everyday Staffing earned approximately $7,300 from Trident Seafoods. Labor Ready sued Moothart for breach of contract, later adding Everyday Staffing as a co-defendant. Labor Ready asserted the following claims in its complaint: (a) against Moothart only — count one, breach of contract, count two, misappropriation of trade secrets, and count five, breach of fiduciary duty; (b) against Everyday Staffing only — count six, tortious interference with employment relations, and count seven, aiding and abetting breaches of fiduciary duty; and (c) against both Moothart and Everyday Staffing — count three, tortious interference with business relations, and count four, unfair competition. Labor Ready did not offer any derivative theories on Everyday Staffing's liability in its complaint. Moothart moved for summary judgment. The court granted partial summary judgment and dismissed the following claims in which Everyday Staffing and Moothart were both named as defendants: count four, unfair competition; count five, breach of fiduciary duty (and, implicitly, count seven, aiding and abetting breaches of fiduciary duty); and count six, tortious interference with employment relationship. At this point, the only claim remaining against both Everyday Staffing and Moothart was count three, tortious interference with business relations. Count one, breach of contract, and count two, misappropriation of trade secrets, remained as claims against Moothart only. A bench trial resolved the remaining claims. The trial court ruled that Moothart had breached his Labor Ready employment contract and awarded damages for Labor Ready's lost profits (and Everyday Staffing's unjust enrichment) as follows: $53,110 for the loss of Sturtz Painting's business, $6,660 for the loss of Western Pacific Lumber's business, and $1,391 for the loss of Trident Seafoods' business. The trial court calculated the Sturtz Painting award by multiplying Labor Ready's previous average monthly gross profit from Sturtz Painting ($4,425) by 12 (the number of months in which Moothart's Labor Ready employment contract prohibited him from servicing Sturtz Painting following his termination from Labor Ready).

Moothart argued that this calculation was inappropriate because Sturtz Painting had recently filed for bankruptcy, Sturtz Painting could not have paid its bills, and, therefore, Labor Ready would not have received any profits from its Sturtz Painting account even if Sturtz Painting had remained a Labor Ready customer. In moving for reconsideration, Moothart offered two declarations detailing Sturtz Painting's bankruptcy filing and showing that Sturtz Painting owed Labor Ready $13,500.

The trial court refused to consider the declarations because it viewed Sturtz Painting's bankruptcy's impact on its Labor Ready account irrelevant. Sturtz Painting had not filed for bankruptcy until 13 months after Labor Ready terminated Moothart, after the end of the period for which Moothart had agreed not to compete with Labor Ready.

Instead, the trial court focused on whether Sturtz Painting had remained in operation or whether it had "closed its doors" during this 12-month period. RP (August 2, 2002) at 14. Bolstering the trial court's decision to focus on Sturtz Painting's continued business operation, rather than on its later bankruptcy, was Moothart's own action in soliciting Sturtz Painting's account for Everyday Staffing, even though Moothart had previous knowledge of Sturtz Painting's overdrawn account with Labor Ready and subsequent bankruptcy potential. Because Sturtz Painting had continued its business, the trial court denied Moothart's motion for reconsideration. When Labor Ready included Everyday Staffing as a judgment debtor in its proposed order, Moothart and Everyday Staffing objected. They argued that (1) Labor Ready had not alleged a breach of contract claim against Everyday Staffing; (2) Everyday Staffing could not be liable for breach of Moothart's no-compete contract with Labor Ready because Everyday Staffing was not a party to the contract; (3) Labor Ready had not previously raised this issue and, therefore, Everyday Staffing had no opportunity to show that Moothart and Everyday Staffing were separate parties; and (4) the record did not support Labor Ready's assertion of respondeat superior, the sole legal theory that Labor Ready advanced for holding Everyday Staffing liable for Moothart's breach of contract. In rejecting these arguments, the trial court ruled that "Moothart is Everyday Staffing" and signed the order naming Everyday Staffing, in addition to Moothart, as a judgment debtor for the damages arising from Moothart's breach of his contract not to compete with Labor Ready. RP (July 19, 2002) at 39.

Moothart and Everyday Staffing appeal. We review "findings of fact entered in a bench trial to determine whether they are supported by substantial evidence and whether the findings support the court's conclusions of law."²Similarly, we review a damages award to determine whether substantial evidence supports the trial court's findings of fact and whether the findings of fact support the conclusions of law.³"Substantial evidence is evidence sufficient to persuade a fair-minded person of the truth of the declared premise."⁴We review the trial court's conclusions of law de novo.⁵ Paragraph 15 of Moothart's employment agreement with Labor Ready provided: You understand and agree that the methods employed in our business will place you in a close business and personal relationship with our customers. Thus, during the term of this Contract and for a period of one (1) year immediately following the termination of your employment, . . . you agree that you will not, for any reason whatsoever, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person(s), company, partnership, corporation or business entity, call upon, divert, influence, solicit, service or attempt to call upon, divert, influence, solicit or service any of our customers or potential customers (prospects) with whom you had direct or indirect contact or for whom you had responsibility during your tenure with us or otherwise assisted us in providing services to. CP at 18-19 (emphases added). Sufficient evidence supports the trial court's findings that while serving as a Labor Ready branch manager in Bellingham, Moothart had the requisite contact with, responsibility for, or assisted in servicing three Labor Ready customers such that he was in breach of his employment agreement with Labor Ready when he contacted those customers on Everyday Staffing's behalf within one year of his termination from Labor Ready. As a Labor Ready branch manager, Moothart had authorized the "unlocking" of Sturtz Painting's past due account, which resulted in extending credit terms for Sturtz Painting so that Labor Ready would continue servicing Sturtz Painting.

Moothart testified that customer contact was not necessary for him to authorize a lockout code. But Tammy Aversano testified to the contrary, outlining a process whereby the Labor Ready manager seeking the lockout code would (1) seek credit information to determine whether the named customer was likely to pay its outstanding account; and (2) determine whether Labor Ready wanted to continue doing business with the past-due customer. According to Aversano, these determinations included "a lot of communication and interaction with the branch," which had to take place before the corporate credit office "would even consider" giving a lockout code. 5 RP at 586.

Substantial evidence supports the trial court's findings (1) that Sturtz Painting was a longstanding Labor Ready customer; (2) that Moothart gave Sturtz Painting a lockout code, "which involved being apprised of Sturtz' credit standing and customer position with Labor Ready," CP at 450;⁶and (3) that Moothart "provided direct and/or indirect `services'" to Sturtz Painting, "for whom he had responsibility." CP at 450. Even if Moothart did not contact Sturtz directly in order to process its request for extended credit, Moothart's authorization of the lockout code was assistance in "providing services to" Sturtz Painting as set forth in Paragraph 15 of Moothart's employment agreement. CP at 19. The trial court found that (1) Labor Ready had a long-standing business relationship with Western Pacific Lumber; (2) Moothart had taken flowers to Western Pacific Lumber's receptionist and discussed a requested letter of recommendation with her; (3) Moothart had dispatched Labor Ready employee Brandt to work for Western Pacific Lumber; and (4) Moothart had a "direct and/or indirect business relationship with Western Pacific." CP at 448. Substantial evidence supports these findings. The trial court found (1) that Labor Ready had a long-standing business relationship with Trident Seafoods; (2) that Moothart admitted having attempted to contact Trident Seafoods' customer liason, Bean; and (3) Moothart "provided either direct or indirect `services'" to Trident Seafoods, "for whom he had responsibility." CP at 449. Moothart conceded that while working for Labor Ready, he had made phone calls to and had left voice messages for Bean in an attempt to service Western Pacific Lumber. This substantial evidence supports the trial court's finding that Moothart had "contact," direct or indirect, with Trident Seafoods.

The trial court's findings of fact, supported by substantial evidence, establish that while employed by Labor Ready, Moothart interacted with these three Labor Ready customers to assist in providing service, to take responsibility for the customer or its account, or to contact them, directly or indirectly, under the plain language of Paragraph 15. Accordingly, Sturtz Painting, Western Pacific Lumber, and Trident Seafoods were Labor Ready customers whom Moothart could not solicit for a competing business within one year of his termination from Labor Ready. Substantial evidence also supports the trial court's findings of fact that within one year of his termination from Labor Ready, Moothart solicited and serviced these three Labor Ready customers on Everyday Staffing's behalf.⁷The findings of fact, together with their supporting evidence, support the trial court's conclusion of law that Moothart breached his employment agreement with Labor Ready.

Having so held, we do not address Moothart's additional argument that the trial court erred in construing Paragraph 15 to apply to all other Labor Ready clients of the Bellingham branch. Damages must be proven with reasonable, but not absolute mathematical, certainty.⁸Evidence of damages is sufficient if it affords a reasonable basis for estimating loss and does not subject the trier of fact to mere speculation or conjecture.⁹ Labor Ready presented evidence of lost profits and revenues from Sturtz Painting, Trident Seafoods, and Western Pacific Lumber, the three Labor Ready customers that Moothart solicited and Everyday Staffing serviced. Labor Ready had grossed $1,478,962 in profits from Sturtz Painting from October 1998, to May 2001.¹⁰Based on a profit margin of 8.98 percent, Labor Ready's average monthly net profit¹¹from Sturtz Painting was $4,425.67. To reach a total of $53,110 in damages to Labor Ready, the trial court multiplied $4,425 by 12 (the number of months during which Moothart's no-compete contract was in effect following his termination from Labor Ready, but during which time he solicited Sturtz Painting's business for Everyday Staffing).

Moothart argues that this damages amount does not accurately reflect Labor Ready's expected net profit from Sturtz Painting because (1) by May 2001, Sturtz Painting had accumulated a $60,000 outstanding account receivable with Labor Ready; and (2) Labor Ready's staff could not say that Labor Ready had ever received payment from Sturtz Painting for this amount. We disagree.

Labor Ready's financial tracking evidence provided a sufficiently "reasonable basis" for the trial court's damages award based on a reasonable measure of Labor Ready's lost profits. Substantial evidence supports the trial court's finding¹²that Labor Ready lost profits in the amount of $53,110. This finding, in turn, supports the trial court's conclusion that Labor Ready is entitled to $53,110 in damages based on Moothart's breach of the employment contract. In connection with his challenge to the sufficiency of damages evidence,¹³Moothart assigns error to the trial court's refusal to consider evidence of Sturtz Painting's alleged bankruptcy that he presented with his motion for reconsideration.¹⁴Moothart argues that the damages award should be reduced because the $53,110 is uncollectible as a result of Sturtz Painting's bankruptcy or, alternatively, that Labor Ready would not have earned this amount because it would have terminated business with Sturtz Painting before 12 months had elapsed.

Labor Ready counters that (1) Moothart failed to allege Sturtz Painting's bankruptcy as an affirmative defense; (2) Labor Ready did not have an opportunity to examine all of Moothart's evidence submitted with his motion for reconsideration; and (3) none of the evidence was "newly discovered" because Moothart already had it at the time of trial.

We agree that Moothart untimely raised the Sturtz Painting bankruptcy issue. The record does not show that Moothart used reasonable diligence to obtain Sturtz Painting's bankruptcy information or that he was justified in waiting two months after the trial court's verdict to raise the issue and to present evidence. CR 59(a)(4) (Trial court has discretion to reconsider a decision based on "[n]ewly discovered evidence, material for the party making the application, which he could not with reasonable diligence have discovered and produced at the trial.) (emphasis added). On the contrary, the record shows that at trial, before the verdict, Moothart testified that he knew Sturtz Painting had filed for Chapter 7 bankruptcy, and he believed that Sturtz Painting had listed Labor Ready as a creditor in its bankruptcy petition.

Not only did Moothart raise the bankruptcy issue untimely, but he also provides no case law suggesting that the trial court's calculation, based on expected earnings rather than realistically collectible dollars, is an unreasonable analysis. Moreover, aside from Moothart's unsuccessful attempt to assert Sturtz Painting's bankruptcy, there is no evidence in the record to support his argument that the trial court erred in calculating the damage award in light of Sturtz Painting's alleged inability to pay. In the absence of such information and lacking case law to the contrary, the trial court's damages award was reasonable and supported by substantial evidence.¹⁵ Moothart similarly fails to support his claim that the trial court should have granted his motion to reconsider the damages amount because "substantial justice has not been done." Moreover, he failed to assign error on this ground. RAP 2.5(a). Accordingly, we do not address it.

We find no abuse of discretion in the trial court's refusal to consider Moothart's tardy submission of bankruptcy evidence with his motion for reconsideration of the damages award. Labor Ready prevailed only on its breach of contract claim against Moothart. Nonetheless, Labor Ready named Everyday Staffing in the proposed form judgment that it prepared and presented to the trial court. The only liability theory that Labor Ready advanced to the trial court was respondeat superior, which Labor Ready argued only in response to Moothart's and Everyday Staffing's objection to Labor Ready's attempt to name Everyday Staffing as a judgment debtor.

Labor Ready argued no other legal theory under which Everyday Staffing could be liable for Moothart's breach of contract and resultant damages. Yet the trial court ruled that Everyday Staffing was a proper judgment debtor for the damages award to Labor Ready because it viewed Moothart and Everyday Staffing as the same entity.

In arguing on appeal that we should affirm the trial court's designation of Everyday Staffing as a judgment debtor, Labor Ready offers several new theories for the first time, in addition to respondeat superior. Although Labor Ready has not properly preserved these theories of liability for our review,¹⁶we examine several of these theories. Moothart and Everyday Staffing respond that Labor Ready cannot recover under a respondeat superior theory because it applies only to an employee's tortious conduct, not to breach of contract.¹⁷We agree.

Asserting that this is a question of first impression in Washington, Moothart and Everyday Staffing cite two Minnesota cases. In Hagen v. Burmeister Assoc., Inc.,633 N.W.2d 497(Minn. 2001), the Minnesota Supreme Court held that the doctrine of respondeat superior does not apply to a breach of employment contract non-compete clause when there was no independent tortious conduct by the new employer. The Supreme Court refused to impose liability on the new employer.

Labor Ready offers no contrary authority justifying our state's departure from this well-established rule.¹⁸Accordingly, we adhere to the well-settled general rule that the respondeat superior theory of employer liability applies to its employee's tortious conduct: "A master is subject to liability for the torts of his servants committed while acting in the scope of their employment." Restatement (Second) of Agency sec. 219(1) (1958). We do not depart from this rule by extending it improvidently to an employee's breach of contract. See n. 22, infra. On appeal, Labor Ready contends for the first time that Everyday Staffing should be liable as Moothart's "alter ego," Br. of Respondent at 31, such that Moothart's actions as the corporation's officer are imputed to Everyday Staffing. See, e.g., Standard Fire Ins. Co. v. Blakeslee,54 Wn. App. 1,5,771 P.2d 1172, review denied,113 Wn.2d 1017(1989). But to be a corporation's alter ego, the individual must be the "sole or controlling owner of the corporation in question." Blakeslee,54 Wn. App. at 8(emphasis added). Such is not the case here.

Although the record shows that Moothart was the founder and "head operator" of Everyday Staffing, RP (April 30, 2002) at 50, it does not also show that he was the sole or controlling owner. Rather, the record suggests that Moothart is one of five equal partners who own Everyday Staffing. Furthermore, the trial court entered no findings of fact or conclusions of law that Moothart was Everyday Staffing's "sole and controlling owner." And the evidence does not support the trial court's oral statement that "Moothart is Everyday Staffing." RP (July 19, 2002) at 39. Thus, the evidence is insufficient to support Labor Ready's alter ego theory.¹⁹ Labor Ready also argues unjust enrichment for the first time on appeal. As Moothart correctly notes, Labor Ready failed to raise this theory to the trial court. Thus, it is not properly before us and we will not consider it.²⁰ Labor Ready further argues that we should "pierce the corporate veil" and hold Everyday Staffing liable for Moothart's breach-of-contract damages. A court pierces the corporate veil to find a corporate officer or individual stockholder personally liable for actions ostensibly taken by the corporation.²¹But there must be evidence of abuse of the corporate form. Rogerson Hiller Corp. v. Port of Port Angeles,96 Wn. App. 918,924,982 P.2d 131(1999).

Here, there is no evidence of abuse of Everyday Staffing's corporate form and no attempt by the trial court to hold Moothart liable for Everyday Staffing's actions by piercing the corporate veil. Rather, Labor Ready seeks to invert this doctrine in an attempt to make Everyday Staffing liable for Moothart's breach of contract with his former employer, Labor Ready. This is a factual impossibility.

Everyday Staffing was never a party to Moothart's employment contract with Labor Ready. Moreover, Everyday Staffing was not even in existence when Moothart entered into his Labor Ready employment contract. Moothart, not Everyday Staffing, breached this contract. Thus, piercing the corporate veil is not a valid ground for making Everyday Staffing liable for Moothart's breach of contract or a judgment debtor here. Labor Ready also advances for the first time on appeal several agency principles to support the trial court's making Everyday Staffing a judgment debtor: (1) Everyday Staffing is liable because a principal is liable for the acts of its agents; (2) Everyday Staffing is liable for breach of contract by its agents, namely Moothart; (3) Everyday Staffing is liable because Moothart acted with Everyday Staffing's knowledge; and (4) Everyday Staffing is liable for Moothart's breach under a ratification theory.

We agree with Moothart that these agency principles are inapplicable. Moothart did not enter into the Labor Ready employment contract as Everyday Staffing's agent. As we noted previously, Everyday Staffing was not even in existence at the time that Moothart signed the Labor Ready contract not to compete. Thus, Everyday Staffing is not liable under Moothart's pre-existing employment agreement with Labor Ready.

Labor Ready asserts that Everyday Staffing had "notice of Mr. Moothart's activities," but it does not explain how such knowledge supports a theory of liability. Moreover, liability does not arise from a principal's mere knowledge that its agent is in breach of a contract to which the principal is not a party.²²

Labor Ready's allusion to "wrongfully procured" contracts refers to Everyday Staffing's acquiring and serving former Labor Ready customers Sturtz Painting, Western Pacific Lumber, and Trident Seafoods. Any ratification of Moothart's actions by Everyday Staffing would bind Everyday Staffing, and make it liable only to Sturtz Painting, Western Pacific Lumber, and Trident Seafoods in their capacity as Everyday Staffing's labor service customers. These service contracts, however, have no bearing on whether Everyday Staffing ratified Moothart's breach of his previous employment agreement with Labor Ready.

On the record before us, we find neither a factual basis nor an applicable legal theory for holding Everyday Staffing liable for the damages resulting from Moothart's breach of his contract not to compete with Labor Ready.

Affirmed as to Moothart; reversed as to Everyday Staffing.

A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW2.06.040, it is so ordered.

MORGAN and QUINN-BRINTNALL, JJ., concur.Page 1049