The ?defendants ?in? this ?case ?were ?the owners/officers? of? Funster?s? Casino.?? ?At? some point, the Casino filed for Chapter 11 bankruptcy. The debtors remained in possession of its assets under?? Chapter?? 11?? and?? continued?? to?? run?? the business. ?Because of the owners? refusal to infuse additional cash, the United States Bankruptcy Trustee successfully moved to convert the bankruptcy to a liquidation under Chapter 7. ?Once a case is converted to Chapter 7, the former owners lose all control over the company and the trustee makes all decisions.? ?The bankruptcy trustee declined to pay the former employees their back wages.
The former employees sued the two former owners for the unpaid wages. ?The wages were for two pay periods.?? As to the first, the regular pay date had passed before the conversion of the bankruptcy to Chapter 7.? ?As to the second, the work was performed before the conversion, but the pay date was not until after. ?The defendants argued that the conversion of the case to Chapter 7 rendered their failure to pay the wages for both pay periods non- willful.
Writing for a majority of six, Justice Charles Johnson disagreed. ?The Court held that a business? insolvency is irrelevant is to the liability of individual officers and managing agents under RCW?? 49.52.???? ?RCW? ?49.52? ?literally? ?provides liability for the willful withholding of wages due under a statute, ordinance or contract. ?The wages for the second pay period did not become contractually due until after the conversion of the bankruptcy to Chapter 7, by which point the defendants had no legal ability to pay them. ?The majority held that this too was irrelevant since the owners had required their employees to perform work while they still ran the company and made the business decisions that led to the conversion to Chapter 7.
The initial version of the opinion described the owners and ?directors? and broke new ground in allowing? director? liability? under? RCW? 49.52. The Court subsequently issued an amended opinion that converted all references from ?directors? to ?officers.?
Justices Jim Johnson, Sanders, and Sweeney (Pro Tem.) dissented and would have held no liability for any of the payments. ?The dissent argued that the real question was whether the defendants had the legal ability to pay the wages following the conversion to Chapter 7.?? The dissent correctly stated that the defendants did not.? ?However, under the dissent?s own analysis, the defendants had the legal ability to pay the first set of wages when they became contractually due.?Morgan v. Kingen, 166 Wn.2d 526, 210 P.3d 955 (July 2, 2009).