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A Look Inside Washington's Prison Phone Bidding System

In an unpublished opinion, the Washington Court of Appeals held that the
Washington Department of Correction (DOC) properly rescinded a Request for
Proposals (RFP) to contract for prisoner telephone services.

In March 2004, DOC issued an RFP to solicit bids for the implementation
and operation of a new prisoner telecommunications system. AT&T had
operated the prisoner phone system since 1991. WDOC was seeking "a system
that charged prisoners the lowest possible rates and ensured that DOC
received commissions sufficient to fund its institutional welfare
betterment account."

On June 4, 2004, WDOC awarded the contract to Public Communications
Services, Inc. (PCS), with the final award being contingent upon the
signing of a mutually acceptable contract.

Subsequently, several unsuccessful bidders, including AT&T, asked to view
PCS's winning proposal. "On June 10, 2004, DOC received a letter from AT&T
protesting the selection of PCS's proposal ... On June 27, 2004, AT&T
forwarded a copy of its protest to the Department of Information Services
(DIS)."

"On July 27, 2004, DOC informed PCS ... that it was canceling the RFP,"
because "after it selected PCS's proposal, DIS had informed it that the
subject matter of the RFP 'fell under the exclusive authority' of DIS....
It was DOC and DIS's position that the RFP had to be cancelled because DOC
did not have the delegated authority to issue it."

PCS sued DOC and DIS in state court, seeking "to permanently enjoin the
Departments from reissuing the RFP and to compel award of the contract to
PCS." The court denied PCS's request for relief, concluding "that PCS had
no legal rights under RFP 6184 because the RFP specified that it could be
rescinded by DOC before contract formation."

The appellate court affirmed, agreeing with DOC and DIS that the "decision
to rescind can be reviewed only for fraud or manifest error." The court
noted that DOC's right to reject bids was absolute, and found that "there
[was] no evidence in the record which would support a finding that DOC's
decision to rescind RFP 6184 resulted from fraud or manifest error.... The
record does not reflect that DOC's decision to cancel the RFP resulted from
collusion, AT&T's influence, or the Departments' desire to harm PCS or
award the contract to AT&T." See: Public Communications Services, Inc. v
Department of Corrections, 128 Wash.App. 1002 (Wash.App. Div. 2, 2005),
2005 WL 1384566.

Related legal case

Public Communications Services, Inc. v Department

[U] Alaiyan v. Insightful Corp., 128 Wash.App. 1002 (Wash.App.Div.1 06/13/2005)

[1] IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE


[2] No. 53627-3-I


[3] 128 Wash.App. 1002


[4] June 13, 2005


[5] WAJIH ALAIYAN, AN INDIVIDUAL, APPELLANT,
v.
INSIGHTFUL CORPORATION, A DEL CORPORATION, RESPONDENT.


[6] SOURCE OF APPEAL: Appeal from Superior Court of King County Docket No: 02-2-35639-7 Judgment or order under review Date filed: 12/22/2003 Judge signing: Hon. Mary I Yu.


[7] Counsel OF Record:


[8] Counsel for Appellant(s) Philip Albert Talmadge Talmadge Law Group Pllc 18010 Southcenter Pkwy Tukwila, WA 98188-4630


[9] Counsel for Respondent(s) Joshua J. Preece Corr Cronin Michelson Baumgardner & Pree 1001 4th Ave Ste 3900 Seattle, WA 98154-1051


[10] The opinion of the court was delivered by: Kennedy, J.


[11] JUDGES: Concurring: H Joseph Coleman Mary Kay Becker


[12] UNPUBLISHED OPINION


[13] Appellant Wajih Alaiyan would have us pose the issue in this case very broadly: Is there a clear mandate of public policy against deceptive accounting practices at publicly traded companies? Respondent Insightful Corporation would have us pose the issue more narrowly: Is there a clear mandate of public policy that governs the timing of revenue recognition by a publicly traded software company so as to protect from retaliatory discharge an at-will employee who complains internally about such timing with respect to certain accounts that he believes will affect the profit and loss statement for his department and ultimately the computation of his bonus? Because the facts of this case do not require us to reach the broader issue, and because we must in any event address the narrower issue to resolve this appeal, we accept the respondent's statement of the issue.


[14] It is undisputed that revenue recognition rules regarding software companies are complex. Alaiyan has admitted that there is room for discretion in interpreting and applying revenue recognition rules. In its annual Form 10-K report to the Securities and Exchange Commission (SEC) dated December 31, 2002, Insightful described its revenue recognition policies, and noted that revenue recognition practices could vary from quarter to quarter and from client to client depending on such factors as the kind of software goods and services contracted for and yet to be delivered to a particular customer, whether the fee is fixed or determinable, whether there is an acceptance period following delivery, the customer's credit history, the customer's current financial statements, and the exercise of business judgment with respect to revenue estimates, cost estimates, and percentage of completion of the work on a particular account. Periodic revisions are made if circumstances change with respect to a given customer or account. Alaiyan's expert witness opined that the revenue recognition practices described in the Form 10-K report are appropriate and in accord with generally accepted accounting principles. He did opine that based on Alaiyan's declaration, it appeared that the company had not applied those accounting principles to five discreet projects.


[15] After both sides moved for summary judgment, the trial court concluded that Alaiyan had failed as a matter of law to establish the clarity element of a claim for wrongful discharge in violation of a clear mandate of public policy, granted Insightful's motion, denied Alaiyan's motion, and dismissed Alaiyan's complaint in its entirety.


[16] This appeal followed. We affirm.


[17] FACTS


[18] Wajih Alaiyan was hired by Insightful Corporation on August 13, 2001, to manage Insightful's consulting services division. He performed well, and by January 2002 he had been promoted to the position of director of professional services for North America. His new duties included oversight of domestic consulting, training, and educational services as well as oversight of department profit and loss statements and revenues and earnings from Insightful's North American operations. In this new position, Alaiyan reported directly to Shawn Javid, Insightful's Chairman, President and Chief Executive Officer (CEO). Javid abruptly fired Alaiyan on March 29, 2002. Alaiyan was an at-will employee during his entire period of employment.


[19] Insightful is a publicly traded software company listed on the NASDAQ exchange. Alaiyan claims that while employed at Insightful, he discovered that Insightful was recognizing revenue prematurely and mismanaging expenses on certain accounts specifically on five accounts that Alaiyan and his team were servicing. Alaiyan asserts that Insightful was recognizing revenue at least a quarter earlier than it should have, or, in some cases, quarters earlier or even years earlier. Specifically, Alaiyan asserted that dating back to 1999, Insightful recognized revenue from some projects before services were performed, or booked consulting fees for which payment was not received, and also failed to report project expenses when they occurred, contrary to statements contained in Insightful's SEC Form 10-K dated December 31, 2002. Alaiyan contends that this illustrated a pattern of misleading accounting practices that made the corporation appear more profitable to investors and creditors in quarters when revenue was prematurely recognized, especially if expenses had been incurred in connection with those projects that were not timely posted. At the same time, Alaiyan and his team were expected to complete work on accounts on which revenue had been recognized months or years earlier; thus his department would not, he believed, be given credit on the quarterly profit and loss statements for his department for revenues that should have been recognized as the work was done rather than earlier, before Alaiyan was hired. And sometimes the department was required to recognize expenses as the work was performed, with no offsetting revenue to balance the expenses out, on the quarterly balance sheet for the department. Alaiyan believed that this would result in lower merit bonuses for him and his team.


[20] Alaiyan first expressed concerns about these practices just prior to his promotion, during a few meetings with Bob Treder, the Vice President of Insightful's Professional Services Department, after Treder explained the financial aspects of Insightful's business. Alaiyan further expressed his concerns to Insightful's senior management during a meeting on January 29, 2002. He continued to communicate these concerns at weekly meetings with Insightful's management, and further discussed their effect on specific client accounts in at least three separate meetings with individual members of Insightful's management in February and March of 2002.


[21] On March 26, 2002, Javid informed Alaiyan by e-mail that he was worried about the performance of Insightful's consulting group and that he had expected the relationship between sales and consulting to improve under Alaiyan's leadership. Alaiyan contends this was the first time he had heard any complaints about his leadership in his new position, and that he had received consistent praise for his work performance. Javid and Alaiyan met on March 29, 2002, and Javid terminated Alaiyan's employment, allegedly for poor performance by the consulting group and Alaiyan's inability to work cooperatively with the sales group.


[22] Alaiyan believed that this was pretense and that he was actually discharged for objecting to what he claimed were deceptive accounting practices. He brought a complaint in King County Superior Court against Insightful on December 13, 2002, seeking damages for wrongful termination and asserting that his wrongful termination claim implicated a clear public policy against deceptive accounting practices. Insightful raised the affirmative defense that Alaiyan was fired for poor performance and inability to work cooperatively. Alaiyan responded that this was pretense.


[23] Alaiyan admitted during deposition that he was not an expert in generally accepted accounting principles and did not know whether Insightful's accounting practices violated a specific statute or law, and further admitted that a company has a certain amount of discretion in the manner in which it recognizes revenue and expenses from quarter to quarter. However, Alaiyan asserted that he believed that Insightful's revenue and expense recognition practices were inappropriate and that it was his duty as director of professional services to report his concerns to Insightful's management.


[24] Alaiyan moved for an order granting partial summary judgment that his wrongful termination claim implicated a clear public policy prohibiting deceptive accounting practices. Insightful also moved for summary judgment, asserting that Alaiyan had made an insufficient showing of a clear mandate of public policy applicable to the facts of this case. The court allowed Alaiyan leave to amend his complaint to further clarify the public policy that he alleged was violated by his termination. Alaiyan's amended complaint provided various bases for finding a mandate of public policy, including various Washington State and federal statutes that we will address.


[25] Thereafter, the trial court granted Insightful's summary judgment motion and denied Aliaya's motion for partial summary judgment. The court held that 'the clarity element {of Alaiyan's wrongful termination claim} has not been satisfied as a matter of law.' Clerk's Papers at 392. Alaiyan's motion for reconsideration was denied, and he appeals.


[26] DISCUSSION


[27] We review a grant of summary judgment de novo, viewing the evidence in a light most favorable to Alaiyan, the non-moving party. Pulcino v. Federal Express Corp., 141 Wn.2d 629, 639, 9 P.3d 787 (2000); Thompson v. St. Regis Paper Co., 102 Wn.2d 219, 221, 685 P.2d 1081 (1984).


[28] Employees in Washington are generally at will, and can be discharged without reason. However, a discharge of an at-will employee is wrongful if done in violation of a clearly articulated public policy. Thompson, 102 Wn.2d at 232. In order to establish a claim for wrongful discharge in violation of a public policy sufficient to avoid summary judgment, Alaiyan was required to establish each of three elements: (1) the existence of a clear public policy; (2) that discouraging the conduct in which he engaged complaining to his boss and management about the accounting practices relating to five specific accounts would jeopardize the public policy; and (3) that the public policy-linked conduct caused the dismissal. Insightful must not be able to show an 'overriding justification for the dismissal.'


[29] Gardner v. Loomis Armored, Inc., 128 Wn.2d 931, 941, 913 P.2d 377 (1996). The public policy exception to the at-will doctrine has been recognized by Washington courts in four situations: (1) employee fired for refusing to commit illegal act; (2) employee fired for performing public duty or obligation such as jury duty; (3) employee fired for exercising a legal right or privilege; or (4) employee fired in retaliation for reporting employer misconduct. See, e.g., Gardner, 128 Wn.2d at 936; Dicomes v. State, 113 Wn.2d 612, 618, 782 P.2d 1002 (1989); Thompson, 102 Wn.2d at 234. Alaiyan has the burden of proof in showing that a clear public policy exception to the general rule of at-will employment exists and applies here. Thompson, 102 Wn.2d at 232.


[30] Alaiyan claims that he was fired in retaliation for reporting internally that the company was improperly recognizing revenues and expenses relating to five specific accounts, and that his discharge violated the public policy articulated in various state and federal statutes against deceptive accounting practices. Insightful does not claim that Alaiyan did not complain about the accounting methods. Rather, Insightful reminds us that the public policy exception to the general terminable-at-will rule is cautiously applied by the courts and that the authorities Alaiyan cites provide insufficient support for the alleged public policy particularly as related to revenue recognition principles governing software companies. Alaiyan cites a number of Washington State and federal statutes, and one judicial decision, to illustrate what he perceives to be a clearly articulated public policy against deceptive accounting practices by publicly traded companies. Whether a particular statute contains a clear mandate of public policy is a question of law. Roberts v. Dudley, 140 Wn.2d 58, 65, 993 P.2d 901 (2000); Gardner, 128 Wn.2d at 937. In determining whether a clear mandate of public policy is violated, courts should inquire whether the employer's conduct contravenes the letter or purpose of a constitutional, statutory, or regulatory provision or scheme. Thompson, 102 Wn.2d at 232. Prior judicial decisions may also establish the relevant public policy, but 'courts should proceed cautiously if called upon to declare public policy absent some prior legislative or judicial expression on the subject.' Id.


[31] Alaiyan first cites RCW 9.24.050, which prohibits a corporation or its agents from filing or publishing 'any written prospectus, report, exhibit or statement of its affairs or pecuniary condition, containing any material statement that is false or exaggerated,' and makes any such act a class B felony. RCW 9.24.050 {2003 ch. 53 sec. 19, eff. July 1, 2004; 1992 ch. 7 sec. 7; 1909 ch. 249 sec. 390; RRS sec. 2642; formerly RCW 9.38.040}. Alaiyan does not argue that Insightful violated this statute. The case does not concern publication of a statement prohibited by RCW 9.24.050, but rather an internal verbal complaint about allegedly improper accounting practices. Thus, this statute does not provide a clear mandate of public policy protecting an employee who makes an internal complaint about a corporation's accounting practices.


[32] Alaiyan cites RCW 18.04.015, which sets forth the purpose of RCW 18.04 et seq., and which regulates the licensing and professional obligations of accountants in Washington. This particular statute provides in part: It is the policy of this state and the purpose of this chapter . . . {t}o promote the dependability of information which is used for guidance in financial transactions or for accounting for or assessing the status or performance of commercial and noncommercial enterprises, whether public, private or governmental{.}


[33] RCW 18.04.015(1)(a). {2001 ch. 294 sec. 1; 1992 ch. 103 sec. 1; 1983 ch. 234 sec. 2.} This statute simply provides the purpose of an entire regulatory scheme for professional accountants. Alaiyan was not an accountant during his employment with Insightful and his actions were not governed by RCW 18.04, et seq. On its face, this statute regulates accountants and provides no clear mandate of public policy protecting an employee who complains internally about a corporation's accounting practices.


[34] Alaiyan also cites two provisions of the Securities Act of Washington, RCW 21.20, et seq. The first makes it unlawful for any person, in connection with the offer, sale or purchase of a security to 'employ any device, scheme, or artifice to defraud,' to 'make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made . . . not misleading,' or to 'engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.' RCW 21.20.010(1), (2), (3). {1959 ch. 282 sec. 1.} The second cited provision makes it unlawful for any person to make or cause the filing of a false or misleading statement with the State Director of Financial Institutions. RCW 21.20.350.


[35] Neither RCW 21.20.010 nor RCW 21.20.350 addresses the situation presented here: an employee complaint to a boss about a corporation's accounting practices regarding timing of revenue and cost recognition. Although Alaiyan asserts the complained-of acts were fraudulent and misleading, there was no offer of sale or purchase of a security here. A clear mandate is required to establish a public policy exception to the general rule of at-will employment. These statutes do not provide a clear mandate of public policy protecting an employee who complains internally about perceived irregularities in a company's accounting methods, where the employee is not in charge of preparing the allegedly misleading documents and where the employee has not been asked to perform an illegal act. Alaiyan next cites the Washington Business Corporation Act, which requires a corporation to maintain 'appropriate accounting records.' RCW 23B.16.010(2). {2002 ch. 297 sec. 45; 1991 ch. 72 sec. 40; 1989 ch. 165 sec. 182.} Alaiyan also cites a provision of the Act that addresses a company's filing of financial statements for shareholders and provides in part:


[36] {E}ach corporation shall prepare (a) a balance sheet showing in reasonable detail the financial condition of the corporation as of the close of its fiscal year, and (b) an income statement showing the results of its operation during its fiscal year. Such statements may be consolidated or combined statements of the corporation and one or more of its subsidiaries, as appropriate. If financial statements are prepared by the corporation for any purpose on the basis of generally accepted accounting principles, the annual statements must also be prepared, and disclose that they are prepared, on that basis. If financial statements are prepared only on a basis other than generally accepted accounting principles, they must be prepared, and disclose that they are prepared, on the same basis as other reports and statements prepared by the corporation for the use of others.


[37] RCW 23B.16.200(1). {2002 ch. 297 sec. 47; 1989 ch. 165 sec. 186.} These sections of the Washington Business Corporation Act address the filing of annual balance sheets and income statements, none of which were reviewed by Alaiyan's expert witness. Alaiyan asserts that Insightful's Form 10-K failed to reflect Insightful's actual internal accounting practices with respect to five specific accounts. His accountant attested that if the actual accounting practices were as described in Alaiyan's declaration, Insightful may not have followed its own declared Form 10-K procedures with respect to the five accounts. In any event, the statute contains no clear statement of public policy that seems applicable here. Alaiyan does not argue that the Statements of Position and Accounting Research Bulletins that his accountants relied upon themselves articulate clear mandates of public policy.


[38] Alaiyan generally cites the Federal Securities Act of 1933, but provides no statutory citations or the specific statutory language it his brief. See, RAP 10.4(c). Thus, we need not consider his argument here. However, it should be noted that the Federal Securities Act of 1933 'was designed to protect purchasers of securities from deceptive practices in the offering or sale of securities{.}' Person v. New York Post Corp., 427 F. Supp. 1297, 1304 (E.D.N.Y. Feb 22, 1977) (NO. 76 C 1217) (because legislative purpose of Act was to protect investors, plaintiffs who were not purchasers had no claims under the act; even if a private right of action for fraud could be implied under the act, only defrauded purchasers of securities could seek a remedy). Alaiyan has not shown that the Federal Securities Act of 1933 contains a clear mandate of public policy that would provide him any remedy.


[39] Alaiyan cites a limited section of the Securities Exchange Act of 1934 which addresses the necessity for regulating securities exchanges and provides in part:


[40] For the reasons hereinafter enumerated, transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto, including transactions by officers, directors, and principal security holders, to require appropriate reports to remove impediments to and perfect the mechanisms of a national market system for securities and a national system for the clearance and settlement of securities transactions and the safeguarding of securities and funds related thereto, and to impose requirements necessary to make such regulation and control reasonably complete and effective, in order to protect interstate commerce, the national credit, the Federal taxing power, to protect and make more effective the national banking system and Federal Reserve System, and to insure the maintenance of fair and honest markets in such transactions:


[41] 15 U.S.C. sec. 78b. Alaiyan cites no other specific portions of the Securities Exchange Act of 1934.


[42] This section of the Securities Exchange Act of 1934 outlines the general policy that regulation of securities by the federal government is necessary 'to insure the maintenance of fair and honest markets' in securities transactions. 15 U.S.C. sec. 78b. However, this statute does not discuss internal reports of alleged accounting improprieties, the situation presented here. This statute also does not mention the duties of publicly traded corporations to provide correct financial accounts, the process for reporting them, the penalties for the failure to do so, or which persons might be protected by such requirements. Thus, 15 U.S.C. sec. 78b provides no clear mandate of public policy applicable to employees who internally complain about perceived irregularities in a company's accounting methods. Alaiyan also cites various sections of the Sarbanes-Oxley Act, enacted in 2002, and effective on July 30, 2002, four months after Alaiyan's termination. 15 U.S.C. sec. 7241(a). Alaiyan fails to show that this act applies retroactively to his situation. See, Gilmore v. Parametric Technology, Case No. 2003-SOX-0001 (U.S. Department of Labor, Feb. 6, 2003) (court found provisions of Sarbanes-Oxley could not be applied to employee's wrongful termination claim because employee was terminated on July 17, 2002, two weeks before the Act was enacted, and the Act contained no language indicating retroactivity), citing Landgraf v. USI Film Products, 511 U.S. 244 (1994) (strong presumption against retroactive application of laws unless clear intent by Congress that law be retroactive). Thus, any clear mandate of public policy this law may contain had not taken effect at the time Alaiyan was terminated.


[43] Alaiyan also asserts that the Sarbanes-Oxley Act provides for whistleblower protection of employees. See, 18 U.S.C. sec. 1514A. Alaiyan fails to provide the text of the statute upon which he relies, thus we need not address this statute on appeal. See, RAP 10.4(c). Moreover, this same provision requires that actions 'shall be commenced not later than 90 days after the date on which the violation occurs.' 18 U.S.C. sec. 1514A (b)(2)(D). Alaiyan brought his action nearly nine months after the claimed improper termination, and five months after the act was adopted. None of the authorities cited by Alaiyan provide a clear mandate of public policy of the type here at issue. None of the authorities address the specific accounting practices at issue here: decisions regarding the timing of recognition of revenue by a software company. None of them discuss complaints by employees regarding internal accounting practices.


[44] At the most, they articulate a general policy that accounting practices and financial reports of publicly trading companies should be truthful and not fraudulent and that purchasers of securities from these companies may have an action for fraudulent reporting. However, Alaiyan has not shown that this general policy translates into a clear mandate of a public policy protecting employees who claim that the accounting practices of their company are or might be improper.


[45] Alaiyan points to McGarrity v. Berlin Metals, Inc., 774 N.E.2d 71 (Ind. App. 2002), but that case is distinguishable. In McGarrity, the court addressed the wrongful termination claim of a company's new CFO who had discovered during a state property tax audit that the company had improperly classified its inventory, thereby reducing its overall tax burden. The CFO then informed the company that he would not participate in dishonesty to reduce the company's tax liability. McGarrity, 774 N.E.2d at 74-75. The CFO discovered during the next tax season that the company had created false inventories to make it appear as if inventory had been moved out of state, and that the company had paid at least $66,000 less in taxes than it actually owed. The CFO was determining how to correct the discrepancy when he was fired. McGarrity, 774 N.E.2d at 75.


[46] Indiana recognizes wrongful termination in violation of public policy where an employee who is fired for refusing to commit an illegal act would be personally liable for the act. McGarrity, 774 N.E.2d at 76, citing Haas Carriage, Inc. v. Berna, 651 N.E.2d 284, 288 (Ind. App. 1995). The CFO in McGarrity presented evidence to the court that the company had underreported its tax liability on previous returns, that state law required the company to maintain accurate and appropriate accounting and tax records, and that he would be personally liable for felony fraud, filing a fraudulent tax return, failing to perform a corporate responsibility, or a conspiracy to commit any of the former crimes, if he had signed the improper returns. McGarrity, 774 N.E.2d at 77-78. Thus, the trial court had erred in dismissing the claim on summary judgment.


[47] Washington courts recognize a similar public policy to that discussed in McGarrity, where an employee is fired for refusing to commit an illegal act. See, e.g., Gardner, 128 Wn.2d at 936. However, Alaiyan asserts that he was fired in retaliation for reporting employer misconduct internally, not for refusing to commit an illegal act. It is undisputed that Alaiyan was never asked to perform an illegal act. It is also clear that although Alaiyan had some responsibility for oversight of his department's profits and losses, he was not responsible for preparing balance sheets, income statements, forms 10-K, tax returns and the like. Thus, McGarrity is not apposite.


[48] In sum, none of the authorities presented by Alaiyan provide a clear mandate of public policy that would protect him from termination for complaining internally about the timing of recognition of revenue and expenses.


[49] This ruling renders the issues relating to pretense moot. And although we see no procedural barriers to Alaiyan's motion for reconsideration, the trial court did not abuse its discretion in refusing to reconsider the rulings on the cross-motions for summary judgment. Those rulings were legally correct.


[50] Although we think Alaiyan was treated harshly and perhaps unfairly, at-will employment carries that risk. We cannot provide a remedy in the absence of a clear mandate of public policy that applies to the termination at issue. Accordingly, we affirm.