Jones v. Wash. State Dep't of Labor & Indus.

17 Wash.App.2d 437

486 P.3d 949

Chris and Katrina JONES dba Dream Team Construction, a sole proprietorship (UBI 603224356), Appellants,

v.WASHINGTON STATE DEPARTMENT OF LABOR AND INDUSTRIES, Respondent.

No. 52031-1-II

Court of Appeals of Washington, Division 2.

Filed May 11, 2021

Lana Vladimirovna Ku Rich, Attorney at Law, 11004 Ne 11th St. Ste. 119, Bellevue, WA, 98004-4580, for Appellants.

Steve Vinyard, Labor & Ind. A.g. Office, Attorney at Law, 7141 Cleanwater Lane Sw, P. O. Box 40121, Olympia, WA, 98504-0121, for Respondent.

PUBLISHED OPINION

Veljacic, J. ¶1 Chris and Katrina Jones challenge the superior court's dismissal of their appeal of an industrial insurance assessment from the Department of Labor and Industries. The superior court dismissed the Joneses’ appeal because they had not prepaid the assessment amount and did not show undue hardship under RCW 51.52.112. The Joneses argue that the superior court applied the incorrect standard in assessing their claim of undue hardship. We conclude the superior court applied an incorrect standard insofar as it determined that a showing of indigency under GR 34 was insufficient to show undue hardship for the Joneses’ sole proprietorship under the statute. Because the superior court used the wrong legal standard, we reverse the trial court's order dismissing the appeal, and remand for a determination of undue hardship consistent with this opinion.

FACTS

¶2 Chris Jones was the owner of Dream Team Construction, a sole proprietorship. Katrina Jones, Chris's wife,¹ also worked for Dream Team.

¶3 In 2014, the Department performed an audit to determine if the Joneses had paid the correct amount of industrial insurance premiums. The Joneses failed to produce sufficient records of the hours worked by Dream Team's employees, so the Department used invoices billed to Dream Team's clients to estimate the hours worked to calculate the assessment amount. The Department assessed Dream Team $106,843.51 in premiums and penalties.

¶4 The Joneses appealed the assessment to the Board of Industrial Insurance Appeals (the Board). The Board affirmed the assessment, finding that the estimate was reasonable based on the evidence presented and the Joneses’ failure to provide an alternative estimate.

¶5 The Joneses appealed the Board's decision to the superior court. RCW 51.52.112 requires an employer, prior to obtaining review of a board decision from superior court, to prepay the assessed taxes or obtain a finding of undue hardship from the court. The Joneses paid $21,742.87 of the assessed amount but made no further payments. The Joneses requested a waiver of the prepayment requirement due to undue hardship, asserting that they did not have the funds to pay the entire assessment. They also asserted that Dream Team was no longer operating or earning income because the Department had suspended Chris's contractor's license.²

¶6 The Department moved to dismiss the appeal because the Joneses had not prepaid the full amount of the assessment and failed to support their request for a finding of undue hardship with any evidence. The Joneses opposed the motion and submitted declarations contending that Dream Team would suffer undue hardship if required to prepay the assessment. Chris asserted that he was not working, and that Katrina was working but earning, "on average, less than $1,000 per month." Clerk's Papers (CP) at 68. Chris also asserted that his family was experiencing severe financial hardship, that Katrina's income was insufficient to pay basic living expenses or their home's mortgage, and that Dream Team owned no assets of value that he could sell to pay the assessment.

¶7 The Joneses’ declarations also asserted the following: the family home was in foreclosure; the motorhome that the Joneses lived in while on a work site, and that they would live in if they lost their home, belonged to Chris's mother; the smaller construction tools owned by Dream Team were old and had no significant value; the forklift and crane truck used by Dream Team were old and broken; the crane truck was owned by Chris's brother; and the Joneses’ adult sons, who lived with them, were paying for the family's basic necessities like food and utilities.

¶8 The Joneses submitted the following evidence in support of their assertions: a screen capture of the Department's website showing that Chris no longer held a contractor's license, letters from Wells Fargo Bank indicating that Chris's personal bank account was closed due to a prolonged overdrawn status, the business's bank account statement showing a balance of under $40, a notice of foreclosure and trustee sale of the Joneses’ home, a credit report showing in part that the Internal Revenue Service (IRS) had filed a federal tax lien against the Joneses, notices from the IRS of the balance due, titles for construction equipment used by Dream Team showing that it did not own the equipment, and a paystub and bank statements belonging to Katrina.

¶9 At a hearing on the motion to dismiss, the superior court commented that both the Department and the Joneses had cited to outdated caselaw about proceeding in forma pauperis in a civil case.³ It explained that for individuals, courts now looked to GR 34 when determining indigency for waiving filing fees in a civil case.⁴ The court then discussed how it believed the standard in RCW 51.52.112 might be different than the standard in GR 34 and noted that RCW 51.12.112 focuses on undue hardship of "employers." Report of Proceedings (RP) at 9. The court reasoned that when analyzing whether an employer is experiencing undue hardship, a court should consider hardship factors beyond those of the individual owners.

¶10 Consistent with this reasoning, the court then considered not just whether the Joneses themselves would face undue hardship, but also whether their employees, customers, or other third parties would face undue hardship. It ruled that the Joneses "failed to meet [their] burden of proof that paying the assessment in full before proceeding with [the] appeal would place an undue hardship on the firm such that the payment required by RCW 51.52.112 should be waived." CP at 124. The court further ruled that it would dismiss the appeal with prejudice unless the Joneses paid the remaining balance of the assessment. The Joneses did not pay the remaining amount owed, and the superior court dismissed the appeal with prejudice. The Joneses appeal.

ANALYSIS

I. STATUTORY CONTEXT

¶11 The Industrial Insurance Act, title 51 RCW, is meant to provide workers and employees who suffer workplace injuries with timely and adequate relief. RCW 51.04.010. To this end, the Act requires an employer subject to the Act either to pay into a state fund insurance scheme or to qualify as a self-insurer. RCW 51.14.010. If an employer insures its employees with the state fund, the Act requires the employer to pay premiums, which are defined as a tax. RCW 51.16.035 ; RCW 51.08.015. The industrial insurance premiums paid by employers fund the program that provides benefits to injured workers. State v. Clausen , 65 Wash. 156, 203, 117 P. 1101 (1911).

¶12 If an employer insured by the State fails or refuses to pay premiums (taxes), the Department has authority to collect them, along with penalties and interest. RCW 51.48.210 ; RCW 51.16.155. The Department provides the employer with a notice of assessment that certifies the total amount due. RCW 51.48.120. An employer may appeal this assessment to the Board, and, once administrative remedies are exhausted, the employer may appeal to the superior court. RCW 51.48.131 ; RCW 51.52.104, .106, .110. However, in order to obtain review of the notice of assessment in superior court, the employer must first satisfy RCW 51.52.112, which states in relevant part:

All taxes, penalties, and interest shall be paid in full before any action may be instituted in any court to contest all or any part of such taxes, penalties, or interest unless the court determines that there would be an undue hardship to the employer .

(Emphasis added.)

II. STANDARD OF REVIEW

¶13 We review a superior court's decision to waive court costs for indigent parties for abuse of discretion. O'Connor v. Matzdorff , 76 Wash.2d 589, 600, 458 P.2d 154 (1969). We will reverse a superior court's decision under this standard if the decision applies the wrong legal standard, relies on unsupported facts, or adopts a view that no reasonable person would take. Mayer v. Sto Indus., Inc. , 156 Wash.2d 677, 684, 132 P.3d 115 (2006).

III. THE MEANING OF UNDUE HARDSHIP

¶14 The Joneses argue that the superior court erred by determining that the undue hardship standard under RCW 51.52.112 requires a showing of hardship to third parties, rather than the employers who are responsible for prepaying the tax assessment. They contend that the superior court erred when it interpreted undue hardship to mean something different than the individual standard of indigency defined in GR 34. They assert that where a business is a sole proprietorship, a showing that the owners have become indigent under GR 34 is sufficient for a showing of undue hardship under the statute.

¶15 The Department argues that the Joneses misinterpret the superior court's statements. It contends that the court did not reject the GR 34 standard entirely, but instead looked at indigency under GR 34 as well as possible hardship to third parties. The Department asserts that the court properly considered both GR 34 and considerations specific to the Joneses’ status as employers, like hardship to employees or customers. We agree with the Joneses.

A. Plain Meaning Analysis

¶16 As a preliminary matter, neither party suggests a definition of undue hardship. The Department argues the superior court used the correct standard, and the Joneses argue that whatever undue hardship is, it at least includes individual indigency for a sole proprietorship. Likewise, the Act does not define undue hardship, and there are no...