Court of Appeals Division II
State of Washington

Opinion Information Sheet

			

    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                       DIVISION  II

JOHN H. WRIGHT, a married man,                                    No.  40531-8-II

                      Appellant,

       v.
DAVE JOHNSON INSURANCE INC., a Washington                         UNPUBLISHED
Corporation, DAVID L. JOHNSON and BEVERLY M.                        OPINION
JOHNSON, husband and wife,

                      Respondents.

       Van Deren J.  --  David Johnson hired his son-in-law, John Wright, to help him run 

Johnson's new insurance agency.  When relations between the two soured, Wright quit and took 

with him Johnson's personal insurance policies that Johnson had given to Wright so Wright could 

use the proceeds from the policies to buy the insurance agency should Johnson die.  Johnson, with 

his wife and the agency (the Johnsons), sued Wright for return of the policies, and Wright 

counterclaimed for compensation from the agency that Johnson allegedly promised but did not  

No.  40531-8-II

pay.  Following a bench trial, the trial court ordered Wright to return the policies to 

Johnson and ordered Johnson to reimburse Wright for the premiums that Wright had paid 

thereon.  The trial court also awarded the Johnsons fees and costs for Wright's frivolous 

counterclaim and defense.  Wright appeals, arguing in part that the trial court improperly added a 

return provision to the parties' buy and sell agreement, applied an incorrect interest rate, and 

improperly awarded fees and costs to the Johnsons.  We hold that (1) the trial court did not err in 

ordering the return of the insurance policies to Johnson; (2) the trial court imposed an erroneous

interest rate on Johnson's reimbursement payments to Wright; and (3) the Johnsons are entitled to 

statutory costs and fees only.  We affirm in part, reverse in part, and remand.

                                            FACTS

       In Spring 1998, David Johnson hired his son-in-law, Wright, to help with Johnson's newly 

formed business enterprise, Dave Johnson Insurance, Inc., a Washington corporation located in 

Aberdeen.  Johnson had extensive insurance experience and, although Wright had no similar 

experience, Johnson believed that Wright could contribute needed bookkeeping, accounting, and 

computer skills.  Wright began his employment as the corporation's bookkeeper, but his job title 

changed to agency manager after he was properly licensed as an insurance agent.1  

       Johnson's intention in hiring his son-in-law was that Wright would ultimately become the 

agency's "perpetuation" or successor to the business.  Clerk's Papers (CP) at 104.  On August 

1 Wright worked for the corporation from April 1998 until June 2005, and the trial court found 
that Wright was "very well remunerated." Report of Proceedings (RP) (Nov. 5, 2009) at 315.  
Wright started with an agreed annual compensation in 1998 of $36,000; but his compensation 
grew to $40,000 the following year, to $85,000 by 2003 and to $106,000 by 2004.  

                                               2 

No.  40531-8-II

20, 2001, the corporation and its principal shareholders, David and Beverly Johnson, entered into 

a buy and sell agreement with Wright regarding the corporation.  This agreement provided Wright 

with a right of first refusal in the event of David Johnson's death or incompetency, and it also 

provided an express method of valuation for the business.  The agreement provided that Wright's 

purchase of the business could be funded by life insurance.  The agreement also provided that "if 

[Wright] shall cease employment with the corporation, this agreement shall become null and 

void." CP at 114.  

       Contemporaneous with the buy and sell agreement, Johnson transferred two personal life 

insurance policies providing payment of $100,00.00 each in the event of Johnson's death to 

Wright.  Johnson testified at trial why he did so, explaining that Wright was "continually 

complaining about not having any money," and, thus, Johnson believed that Wright lacked the 

financial means to execute the buy and sell agreement in the event of Johnson's death.2  Report of 

Proceedings (RP) (Nov. 3,2009) at 80.  Johnson said that he transferred his existing life insurance 

policies to Wright for the purpose of giving Wright the financial ability to execute the buy and sell 

agreement, if Johnson died; and that he specifically told Wright that was the reason for 

transferring the policies.  

       Johnson testified that he and Wright had "a clear understanding" that the transfer of 

Johnson's life insurance policies to Wright was for the purpose of funding the buy and sell 

2 Johnson explained that his existing personal life insurance policies had been purchased long 
before his health had deteriorated and that new policies insuring Johnson's life would be 
prohibitively expensive.  

                                               3 

No.  40531-8-II

agreement, and for that purpose only.  RP (Nov. 3, 2009) at 85.  Johnson vehemently rejected any 

suggestion that the transfer of the insurance policies to Wright was a gift, a "thank you," for 

Wright's efforts in building the agency.  RP (Nov. 3, 2009) at 82.  

       Wright testified that Johnson transferred the life insurance policies to him within a month 

of their execution of the agency buy and sell agreement, that the two policies were worth 

$100,000 each, and that "Mr. Johnson stated to me that these [policies] were his gift to me." RP 

(Nov. 4, 2009) at 109.  

       By the beginning of 2005, Johnson and Wright's relationship had deteriorated.  Johnson 

testified that Wright constantly complained that he was not being paid enough.  In March, Wright 

and Johnson got into an argument; Wright told Johnson that Johnson could no longer have any 

contact with Johnson's daughter or grandchildren (Wright's wife and children).  Johnson then 

demoted Wright from agency manager to an agency employee.  

       On March 29, the corporation and Wright entered into an employment agreement that 

provided for certain duties for Wright as a corporate agent.  This agreement provided that either 

party could terminate the agreement.  The agreement also required Wright, upon termination of 

                                               4 

No.  40531-8-II

employment, to return all confidential information belonging to the corporation.3

       Wright resigned on June 20, 2005.  Wright did not return the insurance policies when 

Johnson requested that he do so.  David and Beverly Johnson and the corporation (referred to 

collectively hereafter as the Johnsons) sued Wright to recover the insurance policies and some 

other items that Wright allegedly took from the business.4 The Johnsons' complaint sought in 

part a judgment declaring that the insurance policies were the property of the corporation and 

directing Wright to transfer ownership of the policies to the corporation.  Wright filed a 

counterclaim seeking damages, contending that Johnson fraudulently induced him to leave his 

home and job in another state and come to Washington to work for the corporation.5 Contending 

3 The employment agreement required the agent upon termination of employment to return all 
materials, documents, notes, manuals, and lists relating directly or indirectly to the business of 
Johnson Insurance.  

4 Wright allegedly failed to return corporate artwork and foreign language tapes, and used 
corporate vacation "points" without permission after his termination. Clerk's Papers (CP) at 3.  
Wright filed a partial summary judgment motion seeking dismissal of all the Johnsons' claims.  At 
the summary judgment hearing, the Johnsons' counsel acknowledged that the Johnsons' claims, 
except for the return of the insurance policies, were "de minimis," and that he had made no 
argument regarding those claims in response to Wright's summary judgment motion.  RP (Sept. 
28, 2009) at 31.  The trial court denied Wright's summary judgment motion thereby keeping the 
Johnsons' de minimis claims alive.  Nevertheless, the arguments in the Johnsons' subsequent trial 
memorandum focused exclusively on the insurance policies.  And, at the beginning of trial, 
Johnson's counsel advised the court that the trial was "about the insurance policies only." RP 
(Nov. 3, 2009) at 35.  Thus, the Johnsons appear to have ultimately abandoned their admittedly
de minimis claims during trial and the issues are not raised on appeal.  

5 Wright contended that Johnson promised to eventually sell him the agency, pay Wright's moving 
expenses, employ Wright as a business manager at no less than $50,000 per year, give Wright half 
of all profits, provide health benefits (medical, dental, and vision coverage), and give Wright half 
of all commissions on policies that Wright sold.  

                                               5 

No.  40531-8-II

that Johnson did not fully perform to the extent promised, Wright asserted claims for breach of 

contract, fraud, promissory estoppel, detrimental reliance, unjust enrichment, and quantum meruit.  

       During a three-day bench trial, Johnson and Wright testified as described above.  Johnson 

also testified that he and Wright never discussed what would happen to the insurance policies if 

Wright's employment terminated.  Johnson admitted that neither the buy and sell agreement nor 

the employment agreement expressly required Wright to transfer ownership of the insurance 

policies in the event that Wright's employment terminated.  

       The trial court made oral and written findings and conclusions.  Noting that the case 

turned on "credibility and the intent of the parties," the court ruled that Johnson's transfer of the 

insurance policies on his life was not a gift to Wright but, rather, the parties intended them to 

serve as a source of funds to enable Wright to purchase the agency in the event of Johnson's 

death.  RP (Nov. 5, 2009) at 310.  The court specifically ruled that Wright's testimony to the 

contrary was not credible.  

       The court also dismissed Wright's counterclaims as without merit, again noting that 

Wright's testimony was not credible.  The court ruled that the insurance policies at issue had been 

Johnson's personal policies, rather than corporate assets, and, thus, would be returned to 

Johnson.  The court ordered Wright to return the insurance policies to Johnson, and it ordered 

Johnson to reimburse Wright for any premiums that Wright had paid on the policies, with interest.  

       After the trial court entered judgment, the Johnsons moved for an award of costs and 

attorney fees under RCW 4.84.185.  The trial court found that Wright's defenses and allegations 

                                               6 

No.  40531-8-II

in his counterclaim were "frivolous and advanced without reasonable cause," and it awarded the 

Johnsons their attorney fees and costs as the prevailing party.  CP at 370.  Wright appeals.  

                                          ANALYSIS

                  I.  Return of Insurance Policies and Repayment of Premiums

       This case largely turns on the initial inquiry: Whether there was any agreement (written or 

oral) between the parties requiring Wright to return the insurance policies in question to Johnson 

in the event of Wright's employment termination.  For the reasons we discuss below, we affirm 

the trial court's order requiring Wright to return the insurance policies to Johnson and requiring 

Johnson to reimburse Wright for premiums paid on the policies while in his possession.  

       A.  The Written Agreements

       The touchstone of contract interpretation is the parties' intention, which we attempt to 

determine by focusing on the agreement's objective manifestations.  State v. R.J. Reynolds 

Tobacco Co., 151 Wn. App. 775, 783, 211 P.3d 448 (2009), review denied, 168 Wn.2d 1026 

(2010).  We give words their ordinary, usual, and popular meaning unless the entirety of the 

agreement evidences a contrary intent.  R.J. Reynolds Tobacco Co., 151 Wn. App. at 783.  If 

relevant for determining mutual intent, we may use surrounding circumstances and other extrinsic 

evidence to determine the meaning of specific words and terms used, but not to show an intention 

independent of the instrument or to vary, contradict, or modify the written word.  R.J. Reynolds 

Tobacco Co., 151 Wn. App. at 783.  When interpretation depends on factual determinations such 

as the credibility of extrinsic evidence or a choice among reasonable inferences to be drawn from 

                                               7 

No.  40531-8-II

extrinsic evidence, we review the fact finder's determinations of such matters for substantial 

evidence.  Berg v. Hudesman, 115 Wn.2d 657, 668, 801 P.2d 222 (1990); cf. Callecod v. Wash. 

State Patrol, 84 Wn. App. 663, 676 n.9, 929 P.2d 510 (1997) (findings of fact are reviewed to 

determine whether substantial evidence supports them; "review is deferential and entails 

acceptance of factfinder's views regarding credibility of witnesses and weight to be given 

reasonable but competing inferences").  Otherwise contract interpretation is a question of law, 

which we review de novo.  Berg, 115 Wn.2d at 668; Keystone Masonry, Inc. v. Garco Const., 

Inc,, 135 Wn. App. 927, 932, 147 P.3d 610 (2006) (absent disputed facts, the legal effect of a 

contract is a question of law we review de novo).

       Here, the Johnsons and Wright relied on extrinsic evidence at trial to support their view 

regarding the purpose and intent of the parties when Johnson transferred his life insurance policies 

to Wright.  As noted, Johnson testified that he and Wright had "a clear understanding" that the 

transfer was for the sole purpose of providing a vehicle for Wright to use to buy the business in 

the event of Johnson's death.  RP (Nov. 3, 2009) at 85.  Wright testified that Johnson told him 

the policies were a gift.  The trial court found Wright's testimony not credible.    

       Wright first contends that by ordering him to return the insurance policies to Johnson, the 

trial court improperly added a return provision to the parties' written agreements.  He cites 

Hearst Commc'n, Inc. v. Seattle Times Co., 154 Wn.2d 493, 115 P.3d 262 (2005), and Oliver v. 

Flow Intern. Corp., 137 Wn. App. 655, 155 P.3d 140 (2006), for the proposition that such 

additions to written agreements are improper.  In Hearst, our Supreme Court clarified confusion 

                                               8 

No.  40531-8-II

generated by its earlier decision in Berg, which adopted the "context rule" interpretation of 

contracts.  See Hearst, 154 Wn.2d at 502 (discussing Berg).  The Hearst court explained that,

despite the use of extrinsic evidence to determine the parties' mutual intent as authorized in Berg, 

"Washington continues to follow the objective manifestation theory of contracts."  Hearst, 154 

Wn.2d at 503.  

       The Oliver court applied Hearst, stating, "we 'impute an intention corresponding to the 

reasonable meaning of the words used,' and 'give words in a contract their ordinary, usual, and 

popular meaning unless the entirety of the agreement clearly demonstrates a contrary intent.'"  

Oliver, 137 Wn. App. at 659 (quoting Hearst, 154 Wn.2d at 503-504).  "'We do not interpret 

what was intended to be written but what was written.'"  Oliver, 137 Wn. App. at 659 (quoting 

Hearst, 154 Wn.2d at 504).  "To prove the intent of contracting parties, a party may offer 

extrinsic evidence of the context surrounding an instrument's execution."  Oliver, 137 Wn. App. 

at 660 (citing Berg, 115 Wn.2d at 667).  "But extrinsic evidence is relevant only to determine the 

meaning of specific words and terms used, not to show an intention independent of the instrument 

or to vary, contradict or modify the written word."  Oliver, 137 Wn. App. at 660 (citing Hearst, 

154 Wn.2d at 503).  

       Wright contends that Oliver is directly applicable here, in that the trial court imposed a 

term not found in either of the parties' agreements.  Wright is correct in that neither the 

employment agreement nor the buy and sell agreement contains a provision requiring Wright to 

deliver the insurance policies on Johnson's life to Johnson in the event of Wright's employment 

                                               9 

No.  40531-8-II

termination.  The only return provision available appears in the employment agreement, requiring

an agent to return the corporation's confidential information (materials, lists, etc.) to the 

corporation upon employment termination.  As noted, the trial court determined that the 

insurance policies at issue were Johnson's personal policies.  Accordingly, the employment 

agreement's provision for return of corporate confidential information does not apply here.  

Moreover, neither the buy and sell agreement nor the employment agreement mention the 

insurance policies' transfer, thus the trial court did not err in refusing to rely on the written 

agreements to resolve this dispute.

       B.  The Oral Agreement

       The Johnsons argue that the trial court's ruling recognizes that Wright and Johnson

entered into a separate oral agreement reflecting the purpose of the insurance policies' transfer 

from Johnson to Wright, which was solely to fund the buy and sell agreement.  The Johnsons rely

on Barber v. Rochester, 52 Wn.2d 691, 328 P.2d 711 (1958), which states: 

                                               10 

No.  40531-8-II

              People have the right to make their agreements partly oral and partly in 
       writing, or entirely oral or entirely in writing; and it is the court's duty to ascertain 
       from all relevant, extrinsic evidence, either oral or written, whether the entire 
       agreement has been incorporated in the writing or not. That is a question of fact.

Barber, 52 Wn.2d at 698.6  

       Here, the buy and sell agreement contains no integration clause.  And Johnson transferred 

the policies to Wright the same day that they signed the buy and sell agreement without further 

writing, thus, the parties' intent at the time the policies were transferred forms the basis of the 

agreement regarding the life insurance policy transfer to Wright.  "Whether the oral agreement is 

viewed conceptually as a separate collateral contract or as a partially integrated contract with one 

part oral and the other part written, the intent of the parties is the critical fact to be ascertained."  

6 Johnson also cites without discussion the following cases: Ban-Co Inv. Co. v. Loveless, 22 Wn. 
App. 122, 587 P.2d 567 (1978), Diel v. Beekman, 1 Wn. App. 874, 465 P.2d 212 (1970), Black 
v. Evergreen Land Developers, Inc., 75 Wn.2d 241, 450 P.2d 470 (1969), and Dix Steel Co. v. 
Miles Const., Inc., 74 Wn.2d 114, 443 P.2d 532 (1968).  All of these cases quote the noted 
passage from Barber, or cite to Barber.  See Black, 75 Wn.2d at 249; Dix, 74 Wn.2d at 119; Ban-
Co Inv. Co., 22 Wn. App. at 129-30; Diel, 1 Wn. App. at 879-80.  All address the parol evidence 
rule in the context of partial integration.  For instance, Black states: 
       The doctrine [of partial integration] recognizes the right of contracting parties to 
       reduce some provisions of their contract to written form and to leave others 
       unwritten, trusting the latter to oral expression only.  The provisions not in writing 
       may be proved by parol insofar as they are not inconsistent with the written 
       portion.  
75 Wn.2d at 249 (citing Barber).  Whether the agreement is partially integrated or fully 
integrated, the parol (extrinsic) evidence cannot contradict the written portion of the agreement.  
Black, 75 Wn.2d at 249.  Thornton v. Interstate Sec. Co., 35 Wn. App. 19, 30 n.2, 666 P.2d 370 
(1983) (parol evidence that contradicts the written instrument "cannot be given substantive 
effect").  See also Brogan & Anensen LLC v. Lamphiear, 165 Wn.2d 773, 775, 202 P.3d 960 
(2009) (parol evidence rule precludes the use of extrinsic evidence to add to, subtract from, 
modify, or contradict the terms of a fully integrated written contract; that is, a contract intended 
as a final expression of the terms of the agreement).  

                                               11 

No.  40531-8-II

Ban-Co Inv. Co v. Loveless, 22 Wn. App. 122, 130, 587 P.2d 567 (1978) (internal quotation 

marks and citations omitted).  

       Here, Johnson testified (1) he intended for Wright to use the proceeds from the policies to 

buy the agency should Johnson die; (2) he told Wright that providing funding so Wright could 

purchase the agency under the buy and sell agreement was the purpose of transferring the policies;

and (3) he and Wright had a "clear understanding" that the policy transfer was to fund the buy and 

sell agreement and was "for that need, and that need only[.]"  RP (Nov. 3, 2009) at 85. The trial 

court found Wright's contrary testimony to be not credible.  Thus, although Johnson admitted at 

trial that he and Wright never discussed what would happen to the insurance policies if Wright's 

employment terminated, because the intent and purpose of the transfer failed by Wright leaving 

the agency, the trial court did not err in concluding that the parties' purpose (intent) as articulated 

in Johnson's testimony controlled and the policies should be returned to Johnson.

       C.  Constructive Trust as Equitable Remedy for Unjust Enrichment

       At the March 1, 2010 hearing for entry of the written findings and conclusions, the court 

stated, "[M]y whole purpose in this thing was to be fair." RP (Mar. 1, 2010) at 322.  The 

Johnsons presented the trial court with an alternative theory of recovery under constructive trust 

as the evidence developed at trial.  The Johnsons' attorney raised the issue of constructive trust 

before Wright's testimony and again before the court's oral ruling.  

       We may sustain the trial court's judgment on any theory the pleadings establish and the 

proof supports.  Mountain Park Homeowners Ass'n, Inc. v. Tydings, 125 Wn.2d 337, 344, 883 

                                               12 

No.  40531-8-II

P.2d 1383 (1994).7  "'A constructive trust arises where a person holding title to property is 

subject to an equitable duty to convey it to another on the ground that he would be unjustly 

enriched if he were permitted to retain it.'"  Baker v. Leonard, 120 Wn.2d 538, 547-548, 843 

P.2d 1050 (1993) (quoting Proctor v. Forsythe, 4 Wn. App. 238, 242, 480 P.2d 511 (1971)).  

Unjust enrichment occurs when one retains money or benefits that in justice and equity belong to 

another.  Bailie Commc'ns, Ltd. v. Trend Bus. Sys., Inc., 61 Wn. App. 151, 160, 810 P.2d 12 

(1991).  The doctrine also applies to retention of property or benefits.  Bailie, 61 Wn. App. at 

160.  

       A court can impose a constructive trust arising in equity when clear, cogent, and 

convincing evidence serves as the basis for the decision.  Baker, 120 Wn.2d at 547.  Evidence is 

clear, cogent, and convincing if it shows that the ultimate fact in issue is highly probable.  In re 

Estate of Watlack, 88 Wn. App. 603, 610, 945 P.2d 1154 (1997).  Although constructive trusts 

are most appropriate in situations involving fraud, misrepresentation, or undue influence, courts 

can impose them in broader circumstances not involving wrongdoing.  Baker, 120 Wn.2d at 547.  

Our Supreme Court explicitly noted in Baker that in circumstances where fraud or wrongdoing 

are absent, courts must find an "equitable base" established by evidence of intent before imposing 

a constructive trust.  Baker, 120 Wn.2d at 548.

7 Although constructive trust was not mentioned in the Johnsons' complaint, that theory was 
presented at trial.  We note that while the Johnsons' attorney should have moved to amend the 
pleadings to conform to the evidence as developed at trial, that failing does not foreclose us from 
considering the constructive trust issue.  See CR 15(b) ("failure so to amend does not affect the 
result of the trial" regarding issues not formally raised in pleadings but resolved at trial).  

                                               13 

No.  40531-8-II

       Our supreme court outlined the lengthy history of disputed oral agreements giving rise to 

constructive trusts in Kausky v. Kosten, 27 Wn.2d 721, 179 P.2d 950 (1947).  It held that "[t]he 

rule adopted by this court is that constructive and resulting trusts may be established by evidence 

of oral agreements, but that express trusts cannot be so proved."  Kausky, 27 Wn.2d at 727.  

       In this case, the trial court found clear, cogent, and convincing evidence that the parties'

purpose (intent) in transferring the life insurance policies to Wright was to assist Wright in buying 

the agency should Johnson die; and that such transfer was not a gift.8  When Wright kept the 

policies after leaving the company and having a falling out with Johnson, Wright was unjustly 

enriched.  The Johnsons do not allege that Wright committed any fraud or wrongdoing, but assert 

that an equitable solution is warranted given Johnson's expressed intent and the parties'

understanding about the purpose behind the policies' transfer.  We agree.

       Based on the trial evidence, the trial court fashioned an equitable remedy intended to 

avoid unjust enrichment to either party, ordering Wright to return the personal life insurance 

policies to Johnson, and ordering Johnson to reimburse Wright for the premiums that Wright had 

paid on the policies while in his possession.  With regard to repayment of premiums that Wright 

paid to keep the policies in force, the trial court stated, "[I]t would be unjust enrichment to Mr. 

Johnson to receive [the policies] and deprive Mr. Wright of his income," which Wright had used 

to pay the premiums.  RP (Nov. 5, 2009) at 316.  

       Thus, we hold that the trial court did not err in providing an equitable remedy requiring 

8 The trial court based its findings on "the clear facts established at trial." CP at 277.  

                                               14 

No.  40531-8-II

Wright to return the life insurance policies to Johnson and requiring Johnson to reimburse Wright 

for premium payments.  

                                II.  Reimbursement Interest Rate

       Wright next contends that the trial court erred by not imposing the prejudgment statutory 

interest rate of 12 percent on Johnson's reimbursement payments.  We agree.  

       The Johnsons' attorney argued that the appropriate interest rate should reflect the interest 

rate available to Wright when Wright paid the insurance premiums.  Wright's attorney argued that 

Johnson should pay the statutory rate of 12 percent.  The trial court applied the interest as the 

Johnsons proposed, noting it was "fair." RP (Mar. 1, 2010) at 322.  

       We review a trial court's award of prejudgment interest for an abuse of discretion.  

Scoccolo Constr., Inc. ex rel. Curb One, Inc. v. City of Renton, 158 Wn.2d 506, 519, 145 P.3d 

371 (2006).  Such abuse occurs when the trial court takes a view no reasonable person would 

take, or applies the wrong legal standard to an issue.  Cox v. Spangler, 141 Wn.2d 431, 439, 5 

P.3d 1265, 22 P.3d 791 (2000).   

       In Schrom v. Bd. For Volunteer Fire Fighters, 153 Wn.2d 19, 36, 100 P.3d 814 (2004), 

our Supreme Court held that RCW 19.52.0109 mandates 12 percent prejudgment interest 

9 RCW 19.52.010(1) provides in relevant part, "Every loan or forbearance of money, goods, or 
thing in action shall bear interest at the rate of twelve percent per annum where no different rate is 
agreed to in writing between the parties."  

                                               15 

No.  40531-8-II

when the parties have not agreed on some other rate.10 In Schrom, parties who had paid annual 

fees for a pension plan but were later determined to be ineligible for the pension had to be 

reimbursed the amount of their payments plus interest.  153 Wn.2d at 22-24.  The pension board 

contended that while it would reimburse all payments, it was not required to also pay "the normal 

12 percent prejudgment statutory interest."  Schrom, 153 Wn.2d at 35.  Our Supreme Court 

rejected the board's contention noting that "such a view undercuts RCW 19.52.010, which 

mandates 12 percent interest is required when no other rate was agreed between the parties for 

'[e]very loan or forbearance of money, goods, or thing in action.'"  Schrom, 153 Wn.2d at 36.  In 

Schrom, the payors of the annual fees were "entitled to reimbursement of all coverage fees paid 

augmented by the 12 percent annual statutory rate of return."  Schrom, 153 Wn.2d at 36.  

       Here, there is no evidence of any agreed interest rate.  Thus, under Schrom, the correct 

prejudgment interest rate to be applied to the reimbursement payments was 12 percent.  The trial 

court did not apply the appropriate legal standard (Schrom) and thus abused its discretion and we 

10 That interest rate applies to any "liquidated" claim; defined as an amount capable of 
determination without recourse to opinion or discretion.  Austin v. U.S. Bank of Washington, 73 
Wn. App. 293, 312-13, 869 P.2d 404 (1994).  Even in the dissolution context, where the trial 
court is authorized to impose an interest rate below the 12 percent statutory rate, as the court in 
its discretion deems warranted, the court must state its reasons for doing so and the failure to 
provide such reasons is an abuse of discretion.  See In re Marriage of Davison, 112 Wn. App. 
251, 259, 48 P.3d 358 (2002); In re Marriage of Harrington, 85 Wn. App. 613, 630-31, 935 
P.2d 1357 (1997).  Simply declaring that a reduced rate (i.e. under the 12 percent statutory rate) 
imposed is "fair" is insufficient, and the trial court here stated no other reason for the interest rate 
imposed.  See Harrington, 85 Wn. App. at 632 ("We reject any notion that it is the task of an 
appellate court to search the record for any reasons which may or may not have justified the trial 
court's exercise of discretion.").  

                                               16 

No.  40531-8-II

reverse and remand for calculation of interest owed at 12 percent per annum under RCW

19.52.010(1).  

                                 III.  Discovery Interrogatories

       Wright next contends that the trial court erred in compelling him to answer certain 

interrogatories during pretrial discovery.  We disagree.

              Parties may obtain discovery regarding any matter, not privileged, which is 
       relevant to the subject matter involved in the pending action . . . It is not ground 
       for objection that the information sought will be inadmissible at the trial if the 
       information sought appears reasonably calculated to lead to the discovery of 
       admissible evidence.

Lurus v. Bristol Laboratories, Inc., 89 Wn.2d 632, 636, 574 P.2d 391 (1978) (quoting CR 

26(b)(1)).  Moreover, "'The trial court is given reasonable discretion in determining how far [a 

party] should be required to go in answering interrogatories.'"  Lurus, 89 Wn.2d at 636 (quoting 

Weber v. Biddle, 72 Wn.2d 22, 29, 431 P.2d 705 (1967)).  A reviewing court will not disturb the 

trial court's determination on the appropriate scope of interrogatory answers unless there has 

been an abuse of discretion and unless the error is prejudicial.  Weber, 72 Wn.2d at 29.  

       Here, the trial court went through each of the interrogatories to which Wright objected 

and ruled on each.  The trial court answered most of Wright's counsel's questions, clarified the 

scope of appropriate answers to the interrogatories, limiting some, and explained to Wright's 

counsel that he did not have to provide attorney work product.  Wright does not show that the 

trial court abused its discretion or that he suffered any resulting prejudice from the trial court's 

discovery rulings.  Accordingly, we hold that the trial court did not abuse its discretion with 

                                               17 

No.  40531-8-II

regard to the discovery issues.  

                           IV.  Challenged Findings and Conclusions

       Wright challenges the trial court's findings of fact 4 through 8, 11 and 12; and conclusions 

of law 2 through 8.  We review challenged findings for substantial evidence, defined as the 

quantum of evidence sufficient to persuade a rational fair-minded person the premise is true.  

Sunnyside Valley Irr. Dist. v. Dickie, 149 Wn.2d 873, 879, 73 P.3d 369 (2003).  Our review is 

deferential; we view the evidence and all reasonable inferences in the light most favorable to the 

prevailing party.  Korst v. McMahon, 136 Wn. App. 202, 206, 148 P.3d 1081 (2006).  When a 

trial court bases its findings of fact on conflicting evidence and there is substantial evidence to 

support the findings entered, we do not reweigh the evidence and substitute our judgment even 

though we might have resolved the factual dispute differently.  Callecod, 84 Wn. App. at 676 n.9; 

Brown v. Superior Underwriters, 30 Wn. App. 303, 305-06, 632 P.2d 887 (1980).  We review 

challenged conclusions of law de novo, considering whether the findings of fact support them.  

Hegwine v. Longview Fibre Co., Inc., 132 Wn. App. 546, 555, 132 P.3d 789 (2006).  We also 

review a conclusion of law, which a party has erroneously described as a finding of fact, as a 

conclusion of law; and we review a finding of fact, which a party has erroneously described as a 

conclusion of law, as a finding of fact.  See Willener v. Sweeting, 107 Wn.2d 388, 394, 730 P.2d 

45 (1986).  

       Finding 4 states that Wright's claims that he was tricked by Johnson's promises to come 

                                               18 

No.  40531-8-II

to Washington and that Wright did not receive what he was promised, are without factual basis.  

Wright points to his own testimony that Johnson offered him a $50,000 starting salary and other 

promises to induce Wright to come to Washington and that Johnson failed to deliver all that was 

promised.  But the trial court expressly ruled that Wright's testimony was not credible.  We must 

defer to that determination.  Callecod, 84 Wn. App. at 676 n.9.11  

       Finding 5 states that on August 20, 2001, all the parties entered into a buy and sell 

agreement that provided certain rights of succession to Wright in the event of Johnson's death or 

incompetence; the agreement could be funded by life insurance, and the agreement would be null 

and void if Wright ceased employment.  The text of the buy and sell agreement supports this 

finding.  

       Finding 6 states that on March 29, 2005, the corporation and Wright entered into an 

employment agreement that provided for certain duties of Wright as a corporate agent, either 

party could terminate the agreement, and the agreement required Wright to return "all property"

owned by the corporation after employment termination.  CP at 276.  The employment agreement 

text so reflects, except that it provides only that the corporation's confidential information and 

business materials be returned.12  Substantial evidence does not support the portion of finding 6 

11 Wright similarly relies on his own testimony to challenge findings 7 and 8.  But again we must 
defer to the trial court's determination that Wright's testimony was not credible.  Callecod, 84 
Wn. App. at 676 n.9.  

12 The employment agreement required the agent upon termination of employment to return to the 
corporation all materials, documents, notes, manuals, and lists relating directly or indirectly to the 
business of Johnson Insurance.  

                                               19 

No.  40531-8-II

stating that "all property" must be returned to the corporation.  

       Finding 7 states that Johnson transferred life insurance policies to Wright to fund the buy 

and sell agreement in the event of Johnson's death, the parties' purpose in transferring the policies 

was to enable Wright to buy the agency in the event of Johnson's death, and not to provide a gift 

to Wright.  Johnson testified to this fact and the trial court found Wright's contrary testimony not 

credible, thus, the evidence supports the trial court's finding.  

       Finding 8 states that Wright's position that the policies were a gift is illogical and 

contradicts the facts established at trial.  Johnson's testimony supports this finding.  

       Findings 11 and 12 state that the Johnsons' claims for return of the corporation's artwork 

and foreign language programs, as well as the claim for Wright's unauthorized use of vacation 

points after his resignation "have been resolved outside this lawsuit, and those claims are not 

before the [c]ourt." CP at 278.  Wright argues that these claims were not resolved as the findings 

indicate, but they were in fact abandoned at trial by the Johnsons.  Indeed, these claims are not 

argued in the Johnsons' trial brief.13  The Johnsons respond that "it was established at the outset 

of trial by both counsel that these issues were resolved." Br. of Resp't at 36 (emphasis omitted).  

But all of the Johnsons' claims other than return of the insurance policies indeed appear to have 

been abandoned.  The Johnsons' counsel stated that the unargued claims were "de minimis." RP 

(Sept. 28, 2009) at 31.  And at the beginning of trial, the Johnsons' counsel advised the court that 

13 The only possible reference to these claims appears in a line in the conclusion that states, "In 
addition, at trial, Defendant Wright should be ordered to return any other property owned by the 
Plaintiffs, including records of the business." CP at 238. 

                                               20 

No.  40531-8-II

the trial "is about the insurance policies only" and that the Johnsons' other claims "have been 

resolved one way or the other." RP (Nov. 3, 2009) at 35.  Wright's counsel responded that he 

was glad to hear that all of the Johnsons' other claims were gone.  Accordingly, all of the 

Johnsons' claims, other than the claim for return of the insurance policies, appear to have been 

abandoned.  In any event, whether the Johnsons' other claims were "resolved" or "abandoned,"

they were clearly "not before the court" as findings 11 and 12 correctly state. 

       As for the conclusions of law, conclusion of law 2 states that the parties' purpose in 

transferring the life insurance policies from Johnson to Wright was to enable Wright to buy the 

agency in the event of Johnson's death, and not to provide a gift to Wright.  Findings 5, 7, and 8 

support this conclusion.  

       Conclusion of law 3 states that the parties' purpose in transferring the life insurance 

policies from Johnson to Wright was not to make a gift to Wright, the claim that the transfer was 

a gift is without merit, and Wright's testimony to the contrary is not credible.  Finding 8 supports 

this conclusion.  

       Conclusion of law 4 states that Wright should return the policies and any related materials 

to Johnson and that Wright should execute all documents necessary to transfer ownership of the 

policies to Johnson.  Findings 5, 7, and 8 support this conclusion, along with the reasons we 

discussed in section I (addressing the return of the insurance policies).  

       Conclusion of law 5 states that Johnson should reimburse Wright for the premiums that 

Wright paid on the policies plus a reasonable rate of interest and, the Johnsons' proposed blended 

                                               21 

No.  40531-8-II

rate of interest is such reasonable rate.  The trial court abused its discretion in reaching this 

conclusion as discussed above (see section II) and we reverse the trial court's ruling on this issue 

and remand for recalculation of interest at the statutory rate.  

       Conclusion of law 6 states that Wright's counterclaims are without merit and should be 

dismissed with prejudice.  Finding 4 supports this conclusion.  

       Conclusion of law 7 states that taxable costs14 should be awarded to the Johnsons.  This 

conclusion is sustainable for the reasons we discuss below (see section V).15  

       We hold that substantial evidence supports challenged findings of fact 4, 5, 7, 8, 11, and 

12; and those findings support challenged conclusions of law 2, 3, 4, and 6.  But, as we noted, 

finding of fact 6 is not supported by the evidence, and conclusion of law 5 is erroneous for the 

reasons discussed in section II of this opinion.  But the lack of evidence supporting finding of fact 

6 has no bearing on our resolution of the disputed issues on appeal.

                             V.  Prevailing Party -- RCW 4.84.330

       Wright next contends that the trial court erred in determining that the Johnsons were the 

prevailing party for purposes of attorney fees under RCW 4.84.330.16 Although this suit began as 

14 Taxable costs do not include an award of reasonable attorney fees.  Hall v. Stolte, 24 Wn. App. 
423, 426, 601 P.2d 967 (1979).  

15 Conclusion 8 states that the court will sign a judgment in accordance with the findings and 
conclusions.  This conclusion is essentially an administrative directive.  
16 RCW 4.84.330 provides in relevant part:
       In any action on a contract . . . where such contract . . . specifically provides that 
       attorneys' fees and costs, which are incurred to enforce the provisions of such 
       contract  . . . shall be awarded to one of the parties, the prevailing party . . . shall 
       be entitled to reasonable attorneys' fees in addition to costs and necessary 

                                               22 

No.  40531-8-II

a contract enforcement action, when the Johnsons sued for return of the insurance policies as 

corporate property under the written employment agreement, the trial court (and this court) 

resolved the case on equitable grounds.  Accordingly, because the case is not resolved on the 

basis of enforcing a written contract provision, RCW 4.84.330, with its provision for reasonable 

attorney fees, has no application here.  Thus, for the reasons discussed below, we hold that while 

Johnson has substantially prevailed, he may recover only statutory fees and costs.  

       Whether a party is a "prevailing party" is a mixed question of law and fact that we review 

under an error of law standard.  Eagle Point Condo. Owners Ass'n v. Coy, 102 Wn. App. 697, 

706, 9 P.3d 898 (2000).  The question as to which party substantially prevailed is often subjective 

and difficult to assess.  Marassi v. Lau, 71 Wn. App. 912, 917, 859 P.2d 605 (1993), overruled 

on other grounds by Wachoria SBA Lending, Inc. v. Kraft, 165 Wn.2d 481, 490-92, 200 P.3d 

683 (2009).  As a rule, the prevailing party is one who receives an affirmative judgment in its 

favor.  Riss v. Angel, 131 Wn.2d 612, 633, 934 P.2d 669 (1997).  But if neither party wholly 

prevails, determining who is the substantially prevailing party depends on the extent of the relief 

accorded.  Transpac Dev., Inc. v. Oh, 132 Wn. App. 212, 217 -- 19, 130 P.3d 892 (2006); Marine 

Enters., Inc. v. Sec. Pac. Trading Corp., 50 Wn. App. 768, 772, 750 P.2d 1290 (1988).  In 

Marassi, the court concluded that where multiple and distinct claims were at issue, the trial court 

should take a "proportionality approach."  Marassi, 71 Wn. App. at 917.  But if both parties 

prevail on major issues, both parties bear their own costs and fees.  Phillips Bldg. Co. v. An, 81 

       disbursements . . . [and] . . . 'prevailing party' means the party in whose favor final 
       judgment is rendered. 

                                               23 

No.  40531-8-II

Wn. App. 696, 702, 915 P.2d 1146 (1996).

       Here, both the Johnsons and Wright have prevailed on issues.  The dual foci at trial were 

who would get the insurance policies under the Johnsons' declaratory judgment action and 

whether Wright would prevail on his counterclaims for salary never received. The trial court 

ordered Wright to return the insurance policies to Johnson, ordered Johnson to reimburse Wright 

for premium payments plus interest, and ruled against Wright on his counterclaims.  In this 

circumstance, we could direct that each party bear their own costs and fees.  See Phillips Bldg. 

Co., 81 Wn. App. at 702.  But given the extent of the relief accorded to Johnson, we hold that the 

Johnson's are the substantially prevailing party.  

       The next question is whether the Johnsons are entitled to actual fees.  Because 

Washington is an "American Rule" jurisdiction, and we affirm on equitable grounds, there is no 

basis to award the Johnsons their actual fees.  Under the American Rule, compensation for 

attorney fees and costs may be awarded only if authorized by contract, statute, or recognized 

ground in equity.  In re Impoundment of Chevrolet Truck, WA License # A00125A ex. rel. v. 

State, 148 Wn.2d 145, 160, 60 P.3d 53 (2002).17  

       Washington cases mention four recognized equitable grounds for awards of attorney fees: 

17 A trial court can award the prevailing party statutory costs and fees under RCW 4.84.010.  The 
statute narrowly defines the costs that a prevailing party may recover.  Items that are allowable as 
costs include filing fees, costs of service of process, notary fees, costs of reports and records as 
evidence, statutory attorney and witness fees, costs of transcription of depositions used at trial or 
arbitration and costs otherwise authorized by law.  RCW 4.84.010.  But absent a statute expressly 
permitting expanded cost recovery, plaintiffs are not entitled to costs beyond those enumerated in 
RCW 4.84.010.  Hume v. Am. Disposal Co., 124 Wn.2d 656, 674, 880 P.2d 988 (1994).  

                                               24 

No.  40531-8-II

bad faith conduct of the losing party, preservation of a common fund, protection of constitutional 

principles, and private attorney general actions.  Dempere v. Nelson, 76 Wn. App. 403, 407, 886 

P.2d 219 (1994), abrogated on other grounds by Burnet v. Spokane Ambulance, 131 Wn.2d 484, 

933 P.2d 1036 (1997).  There are three types of bad faith conduct that warrant attorney's fees: 

(1) prelitigation misconduct; (2) procedural bad faith; and (3) substantive bad faith.  Rogerson 

Hiller Corp. v. Port of Port Angeles, 96 Wn. App. 918, 927, 982 P.2d 131 (1999).  

       Prelitigation misconduct refers to obdurate or obstinate conduct that necessitates legal 

action to enforce a clearly valid claim or right.  Rogerson, 96 Wn. App. at 927.  Procedural bad 

faith is unrelated to the merits of the case and refers to vexatious conduct during the course of 

litigation, such as delaying or disrupting proceedings.  Rogerson, 96 Wn. App. at 928.  

Substantive bad faith occurs when a party intentionally brings a frivolous claim, counterclaim, or 

defense with improper motive.  Rogerson, 96 Wn. App. at 929.  In other words, simply bringing a 

frivolous claim is not enough, there must be evidence of an intentionally frivolous claim brought 

for the purpose of harassment.  Rogerson, 96 Wn. App. at 929.  None of these criteria 

are met here.  Accordingly, there is no basis for an equitable award of actual attorney fees to the 

Johnsons.  We hold that the Johnsons, as the prevailing party, are limited in this circumstance to 

statutory fees and costs as provided in RCW 4.84.010.  

             VI.  Award of Fees for Frivolous Action and Defense -- RCW 4.84.185

       Wright next contends that the trial court erred in granting the Johnsons costs and fees 

under RCW 4.84.185.18 We agree.  

                                               25 

No.  40531-8-II

       RCW 4.84.185 authorizes the trial court to award the prevailing party reasonable 

expenses, including attorney fees, incurred in opposing a frivolous action.  Bldg. Indus. Ass'n of 

Washington v. McCarthy, 152 Wn. App. 720, 745, 218 P.3d 196 (2009).  Such an award is 

available only when the action as a whole can be deemed frivolous.  McCarthy, 152 Wn. App. at 

746.  A lawsuit is frivolous if, when considering the action in its entirety, it cannot be supported 

by any rational argument based in fact or law.  Curhan v. Chelan County, 156 Wn. App. 30, 37, 

230 P.3d 1083 (2010); see also Loc Thien Truong v. Allstate Prop. and Cas. Ins. Co., 151 Wn. 

App. 195, 207-08, 211 P.3d 430 (2009) (award of fees under RCW 4.84.185 may be made 

against a party when the action, viewed in its entirety, cannot be supported by any rational 

argument on the law or facts); Goldmark v. McKenna, 172 Wn.2d 568, 582, 259 P.3d 1095 

(2011) (same).19  

       We review a trial court's award under RCW 4.84.185 for an abuse of discretion.  

18 RCW 4.84.185 provides in relevant part:
              In any civil action, the court having jurisdiction may, upon written findings 
       by the judge that the action, counterclaim, . . . or defense was frivolous and 
       advanced without reasonable cause, require the nonprevailing party to pay the 
       prevailing party the reasonable expenses, including fees of attorneys, incurred in 
       opposing such action, counterclaim, . . . or defense. . . . The judge shall consider 
       all evidence presented at the time of the motion to determine whether the position 
       of the nonprevailing party was frivolous and advanced without reasonable cause.  

19 Cf. Goad v. Hambridge, 85 Wn. App. 98, 105, 931 P.2d 200 (1997), stating:
              An appeal is frivolous only if no debatable issues are presented upon which 
       reasonable minds might differ, and it is so devoid of merit that no reasonable 
       possibility of reversal exists.  A party has a right to appeal, and an appeal is not 
       frivolous simply because the party's arguments are rejected.  The entire record 
       should be considered, and all doubts should be resolved in favor of the appellant. 
(Internal quotation marks and citations omitted.)

                                               26 

No.  40531-8-II

McCarthy, 152 Wn. App. at 746; see also State ex rel. Quick-Ruben v. Verharen, 136 Wn.2d 

888, 903, 969 P.2d 64 (1998).  Such abuse occurs when the trial court takes a view no reasonable 

person would take, or applies the wrong legal standard to an issue.  Cox, 141 Wn.2d at 439; see 

also Curhan, 156 Wn. App. at 37 (discretion is abused when it is exercised on untenable grounds 

or for untenable reasons).  

       Here, in defending against the Johnsons' suit for return of the insurance policies, Wright 

                                               27 

No.  40531-8-II

testified that the policies were a gift.  In asserting his counterclaim for unreceived compensation, 

Wright testified that Johnson made promises to him about compensation that Johnson never kept.  

The trial court found Wright's testimony not credible.  

       At the hearing on the Johnsons' post-judgment motion for fees under RCW 4.84.185, the 

trial court ruled that fees were warranted, analogizing to "the old basic discussion of, [w]hat is 

pornography  You know it when you see it." RP (Mar. 29, 2010) at 335.  The court opined, 

"What is a frivolous lawsuit [or] defense other than you know it when you see it." RP (Mar. 29, 

2010) at 335.  Referring to Wright's "deceitfulness," "dishonesty," and "basically false 

testimony," the trial court opined, "The statute [RCW 4.84.185] applies because a trial court 

judge observed it happening in that case and that courtroom.  And that's what I saw and that's 

what I heard." RP (Mar. 29, 2010) at 336.  This is not the appropriate legal standard.  

       As our Supreme Court explained in Quick-Ruben, "'The lawsuit, as a whole, that is in its 

entirety, must be determined to be frivolous and to have been advanced without reasonable cause 

before an award of attorneys' fees may be made under the statute [RCW 4.84.185].'" 136 Wn.2d 

at 903 (quoting Biggs v. Vail, 119 Wn.2d 129, 137, 830 P.2d 350 (1992)) (emphasis added).  

Accordingly, "if any claims advance to trial, a trial court's award of fees under RCW 4.84.185 

cannot be sustained."  Quick-Ruben, 136 Wn.2d at 904.  

       Here, even if we disregard Wright's testimony, as we must, based on the trial court's 

credibility determination, the evidence viewed in the light most favorable to Wright nevertheless 

shows a dispute was ongoing between Wright and Johnson over Wright's compensation.  Johnson 

                                               28 

No.  40531-8-II

testified that Wright was continually complaining about not having enough money.  Wright's 

counsel in part argued as much at the hearing on the Johnsons' post-judgment fee motion, 

correctly noting that Johnson admitted at trial that Wright was continually complaining about his 

compensation.  Wright's counterclaim advanced to trial and evidence other than Wright's 

testimony supported it.  Even though Wright's counterclaim ultimately failed, it cannot be said 

that it was entirely frivolous.  Accordingly, we hold that Wright's counterclaim was not entirely 

frivolous, the trial court applied the wrong legal standard, and thereby abused its discretion in 

awarding fees under RCW 4.84.185, and we reverse the award under RCW 4.84.185.  

                 VII.  Attorney Fees On Appeal -- RAP 18.1 and RCW 4.84.185

       The Johnsons request an award of attorney fees on appeal under RAP 18.1 and RCW 

4.84.185 for having to defend against Wright's allegedly frivolous appeal.  An appeal is frivolous 

if there are no debatable issues on which reasonable minds can differ and is so totally devoid of 

merit that there was no reasonable possibility of reversal.  In re Recall of City of Concrete Mayor 

Robin Feetham, 149 Wn.2d 860, 872, 72 P.3d 741 (2003).  But Wright prevails on appeal of the 

applicable interest rate and Wright's appeal presents debatable issues.  Accordingly, we deny the 

Johnsons' fee request. 

       In sum, we affirm the trial court's rulings that Wright must return the insurance policies to 

Johnson and that Johnson must reimburse Wright for the premiums he paid on the policies.  We 

reverse the trial court's order on the interest due on the premium payments from Johnson to 

Wright and remand for imposition of the statutory 12 percent interest rate.  We reverse the award 

                                               29 

No.  40531-8-II

of attorney fees to the Johnsons based on their claim that Wright's claims were frivolous and 

award them only statutory attorney fees and costs under RCW 4.84.010.  We deny both parties'

requests for further attorney fees on appeal.

       A majorityof 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 RCW 2.06.040, it is 

so ordered.  

                                         ______________________________
                                          VAN DEREN, J.

________________________________
PENOYAR, C.J.

________________________________
WORSWICK, J.

                                               30