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Washington Supreme Court Decides Morgan v. Kingen – Bankruptcy is No Defense

By Jim Shore on July 2, 2009
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The Washington Supreme Court issued a decision today in Morgan v. Kingen, holding that bankruptcy is not a valid defense to a willful withholding of wages under RCW 49.52.070.  The plaintiffs in this case worked at Funsters Grand Casino in SeaTac, Washington.  The casino was not a success and the owners voluntarily filed for Chapter 11 bankruptcy after only one year in business.  After it became clear that the owners were not going to inject badly needed capital, the bankruptcy court converted the proceedings to a complete liquidation under Chapter 7.  After the conversion, the owners couldn’t have paid their employees even if they had wanted to (at least from the seized Funster assets).

The plaintiffs brought a class action lawsuit on behalf of over 180 employees to recover unpaid wages.  The owners of the bankrupt casino argued that while the wages were admittedly owed, the withholding was not willful because the assets were seized in bankruptcy.  This distinction is crucially important because willful withholding of wages allows a plaintiff to recover double damages, attorneys’ fees and exposes the withholder to personal liability.  The owners of the bankrupt casino were thus personally liable for twice the amount of all the unpaid wages plus attorneys’ fees unless they could assert a bankruptcy defense.  They tried.  They failed at the trial level, the appellate level, and as of today, at the Washington Supreme Court as well.  Justice Sanders dissented, noting that the owners could not have paid as their assets were seized and unavailable.  He was joined by Justice Johnson and Justice Sweeney, pro tem.

The bottom line for businesses in Washington remains unchanged by this decision.  A financial inability to pay wages does not constitute a defense to a willful withholding of wages.  Today’s decision establishes that even a complete liquidation in bankruptcy is no defense.  The lesson?  If your business is failing and it looks like there may not be enough assets to satisfy all the looming creditors, you might want to seriously consider paying wages before anything else.      

Photo of Jim Shore Jim Shore

Jim Shore helps employers and entrepreneurs in a variety of industries address their business needs and toughest labor and employment law challenges. His practice includes employment litigation and trial work; labor-management relations; advice and litigation assistance involving trade secrets, restrictive covenants, data theft…

Jim Shore helps employers and entrepreneurs in a variety of industries address their business needs and toughest labor and employment law challenges. His practice includes employment litigation and trial work; labor-management relations; advice and litigation assistance involving trade secrets, restrictive covenants, data theft and other areas where employment and intellectual property issues intersect; business transactions and reorganizations; and daily human resources and labor advice. Jim also manages sensitive internal investigations for clients. Jim is inducted as a Fellow in the College of Labor and Employment Lawyers for his sustained outstanding performance in the profession.

Click here for Jim Shore’s full bio.

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  • Posted in:
    Employment & Labor
  • Blog:
    World of Employment
  • Organization:
    Stoel Rives LLP
  • Article: View Original Source

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