Article by Erik Smith. Published on Friday, October 01, 2010 EST.

Judge Finds Accounting Violations, But Awards No Damages – Suit Aimed to Squelch Conservative Voice

 


By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Oct. 1.—A lawsuit that aimed to break the political power of the Building Industry Association of Washington ended in a big fizzle Thursday, with a ruling that found a few accounting violations but awarded not a penny in damages.

            Thurston County Superior Court Judge Carol Murphy rejected a claim for damages from attorney Knoll Lowney that ran as high as $98 million.

            In her ruling, Murphy decided that Lowney was correct in his allegation that proper accounting procedures had not been followed. But she found that no money from the association’s “retro” trust fund was missing or had been improperly diverted to the association’s political programs.

             The ruling left both sides claiming the win, but it seemed clear that BIAW fared the better. Where once its survival was at stake, its greatest risk now appears to be a claim for attorney’s fees. An appeal also is possible.

            “This is a huge victory,” said BIAW executive vice president Tom McCabe. “Lowney sought $98 million and lost.”

            A Political Case

            While the case dealt with technical issues regarding management of BIAW trust funds, there was little doubt that the association’s politics was the real issue. BIAW is one of the most prominent groups in Washington politics, as active on the right as the Washington Education Association is on the left. Notable political efforts include its support in 2004 and 2008 for Republican Dino Rossi in his campaigns for governor, and this year’s effort to pass Initiative 1082, a measure that would allow private competition for the state worker’s compensation program.

            Political opponents have used the courts as a venue for attack, claiming that the association has misused money from the state retrospective rating program to finance political campaigns. The state program refunds a portion of worker’s compensation premiums to trade association members with better than average claims history. BIAW operates the largest such program in the state, keeping a 10 percent management fee and rebating another 10 percent to local homebuilders associations.

            Lowney, whose clients include some of the most prominent liberal and progressive organizations in the state, filed the suit on behalf of five member contractors. He claimed BIAW illegally kept interest from the retro fund, calling it an illegal “skimming” of funds that rightly belonged to members.

            Although Lowney claimed $98 million in damages when he filed the suit in 2007, the actual amount at stake for the five contractors was far less. BIAW argued that the actual amount was about $350. And it contended it was entitled to the interest earnings.

            Ruling Finds Violations

            In her ruling, Murphy said BIAW should not have kept the interest, which totaled about $400,000. But she did not order the association to pay it back. She said the damages to the five contractors “are not in significant amounts,” and said BIAW’s trustees exercised sound discretion and performed their duties appropriately.

            She noted that the five contractors were a small percentage of the participants in the BIAW program, who number in the thousands, and she also noted that a dozen others had urged the court to reject the suit.

            The main result of the ruling will be to change BIAW’s accounting practices. It must provide an annual statement to beneficiaries. It also must establish procedures to prevent co-mingling of funds between the trust fund and the corporation it uses to manage the trust fund. If the corporation wishes to use interest money, it has to send a formal bill to the trust.

            As far as BIAW is concerned, those are minor matters, essentially requiring BIAW to establish separate bank accounts. But Lowney hailed it as a major win. He told the Publicola website in Seattle, “It’s a victory. The judge ruled that they breached the trust by taking about half a million and co-mingling it with their own money – and treating it as their own.”

            Tied BIAW in Knots

            When one considers the actual amount of money at stake, the time and resources devoted to it seems staggering. Lowney compelled BIAW to produce 70,000 documents and claimed at one point that his “audit” had cost $3 million. BIAW reports it spent millions fighting the lawsuit.

            In an email, McCabe said, “The past three years have been an ordeal for BIAW leaders, BIAW attorneys, BIAW staff and their families. They were put through hell by a vindictive, malignant trial attorney whose goal is to destroy BIAW. These hardworking volunteers, lawyers and staff spent three years responding to Lowney’s demands for documents, fighting Lowney’s frequent motions, being deposed, testifying in court, enduring cross-examinations, reading Lowney’s regular quips demeaning BIAW and its leaders, etc.

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