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Recent Appellate Decisions – August 24 to August 30, 2012

Selected summaries prepared by Commissioner James Verellen (ret.)

Washington Supreme Court

August 30, 2012

Automotive United Trades Organization v. Department of Licensing No. 85661-3

joinder – indispensable party – tribes – disbursements under fuel tax compacts

Under CR 19(b), whether a party is indispensable ultimately turns on whether “in equity and good conscience” the action may proceed without that party.

Pursuant to a Washington statute, the State entered into fuel tax compacts with various Indian tribes.  The agreements provide for a refund of 75% of state fuel taxes on fuel purchased by the tribes or tribal retailers.  A trade association of Washington gasoline and automotive service retailers (AUTO) sued the State, the Governor and the Director of the Department of Licensing on the theory that the compacts give the tribes an unfair competitive advantage and the statute authorizing the compacts is unconstitutional.  The tribes have not been joined in the litigation because of their sovereign immunity.  The trial court held that the tribes were indispensable and dismissed the lawsuit.

On direct review, the Washington Supreme Court (5-4) concluded the tribes are not indispensable and allowed the action to proceed without the tribes:

  • The three-step analysis for feasibility of joinder is: i) under CR 19(a), whether absent persons are necessary; ii) if necessary, whether joinder is feasible; and iii) under CR 19(b), if joining a necessary party is not feasible, whether “in equity and good conscience” that action should proceed.
  • Dismissal under CR 12(b)(7) for failure to join an indispensable party is a “drastic remedy” and should only be ordered where the defect cannot be cured and there will be significant prejudice to the absent person.
  • Under CR 19(a) an absent party is “necessary” if the party claims a legally protected interest in the action (a mere financial stake is inadequate) and the party’s ability to protect that interest will be impaired or impeded.
  • The tribes’ claims to receive payments under the compacts are at risk and those claims of a protectable interest are adequate.
  • Because the State has no special trust relationship with the tribes, and has an interest directly adverse to the tribes, the State cannot adequately represent the interests of the tribes.  The tribes’ interests will be impaired or impeded.
  • The tribes are necessary parties.
  • “Because there has been no waiver of [the tribes’] sovereign immunity, the tribes’ joinder is not feasible.”
  • A party is indispensable, if the case cannot proceed “in equity and good conscience” without the absent party in light of the four factors of CR 19(b): (1) the extent to which a judgment entered in the person’s absence might be prejudicial to the person or those already parties; (2) the extent to which the judgment can be shaped to lessen the prejudice; (3) the adequacy of a judgment entered without the absent party; and (4) the plaintiff’s lack of an adequate remedy if the action is dismissed.
  • “Under CR 19(a), the court conducts a threshold inquiry into the possibility of prejudice, while under CR 19(b), the court assesses the likelihood and significance of any prejudice.”  Although the tribes would not be bound by a judgment, as a practical matter the sovereign power of the tribes to negotiate compacts would be impaired by the ruling.  This factor strongly favors dismissal.
  • The proposed prejudice-lessening measure of joining tribal officials would not decrease the prejudice to the tribes.  This factor favors dismissal.
  • The adequacy of a judgment rendered without the absent tribes weakly supports dismissal.
  • “Because there appears to be no other judicial forum in which plaintiffs can seek relief, the plaintiff lacks an adequate remedy in the event of dismissal.”  Contrary to the position advocated by the dissent, the possibility of a legislative remedy is not a valid consideration and this factor strongly favors proceeding in the tribes’ absence.
  • “Where no other forum is available to the plaintiff, the balance tips in favor of allowing this suit to proceed without the tribes…. dismissal would have the effect of immunizing the State, not the tribes, from judicial review.”
  • This action can proceed without the tribes “in equity and good conscience.”  The tribes are not indispensable.

Division II Washington State Court of Appeals

August 28, 2012

Frizzell v. Murray No. 42265-4

foreclosure – failure to post bond required for pre-sale restraining order – not a waiver of post-sale relief

Failure to bring a lawsuit to restrain a foreclosure sale “may“ result in a waiver of any proper grounds for invalidating the Trustee’s sale if waiver is equitable under the circumstances.

F received a loan from M, secured by a deed of trust on F’s residence.  F failed to make payments.  M began a nonjudicial foreclosure.  Seven days before the trustee’s sale, F filed a lawsuit seeking an injunction barring a trustee’s sale.  Three days before the sale, F filed a motion to enjoin the sale.  The trial court entered an order restraining the sale, conditioned upon F depositing $15,000 in past due payments and a $10,000 bond.  F did not deposit the funds by the morning of the sale.  The sale proceeded and F was ejected from the property.   F sued M on several theories including F’s lack of capacity to contract, a Consumer Protection Act violation and a claim for monetary damages.  The trial court granted summary judgment dismissing all of F’s claims holding that F waived her right to post-sale relief because she failed “to obtain pre-sale injunctive relief.”

Division II reversed the trial court:

  • The Washington Deed of Trust Act (WDTA) “provides the only means by which a grantor may preclude a sale once foreclosure has begun.”
  • The failure to bring a pre-sale lawsuit to restrain a trustee’s sale  “may result in a waiver of any proper grounds for invalidating the Trustee’s sale.”  RCW 61.24.040(1)(f).
  • “The legislature’s use of ‘may’ in this statute neither requires nor intends us to strictly apply waiver rules; so under this statute, we apply waiver only where it is equitable under the circumstances and serves the WDTA’s goals.”
  • The WDTA’s waiver rule is not rigidly applied.  It is an equitable tool that applies where, for example, a party relinquished its rights by delaying or failing to assert an otherwise available adequate remedy.
  • Failing to timely seek a preliminary injunction or restraining order may waive post-sale claims, but F timely sought and obtained injunctive relief.   F failed to post the funds required as a condition of the pre-sale restraining order, but never intended or volunteered to relinquish her right to raise claims against M.
  • “[F] did not delay or fail to assert an available adequate remedy.  Accordingly, it would be inequitable to apply waiver under these facts.”

DSHS v Call No. 42085-6

collection – exemption – cash derived Social Security and Veteran’s Benefits – post death claims

Federal Statutes preclude creditors from reaching Social Security and Veteran’s benefits.  No Washington cases address whether those exemptions continue after the beneficiary’s death.

For several years, McPherson was committed to a DSHS institution.  His monthly income included Social Security and Veteran’s benefits.  McPherson died with no spouse and no dependents.  His estate includes cash derived from those payments and his former residence.  DSHS filed a creditor’s claim in his estate.  The personal representative rejected the claim as to the cash assets relying upon federal statutory exemptions, and as to the residence relying upon a state regulatory exemption of a patient’s home.  The superior court granted summary judgment in favor of DSHS both as to cash assets and the former residence.  The Estate appealed.

Division II affirmed the trial court:

  • Upon the death of a beneficiary with no dependents, the federal statutory exemptions no longer extend to cash assets derived from Social Security and Veteran’s benefit payments.
  • Because McPherson left no dependents when he died, McPherson’s cash assets derived from Social Security and Veteran’s benefit payments are not protected from his creditors.
  • The state exemption for a patient’s home applies only to a home currently being used as the principal dwelling or actual residence by the patient, the patient’s spouse or the patient’s dependents.  The exemption does not shield McPherson’s former residence from the DSHS claim.

Cost Management Services Inc. v. City of Lakewood No. 41509-7 and 41744-8

utility tax – refund – exhaustion of administrative remedies – concurrent jurisdiction – action for monies had and received – right to jury trial – writ of mandamus

Until a taxing authority denies a claim for a refund, there is no duty to exhaust administrative remedies.

The City of Lakewood imposes a utility tax on those who, within the City, engage in the business of selling, brokering or furnishing natural gas for domestic, business or industrial consumption.  CMS arranges for the purchase of natural gas by its customers from various suppliers.  CMS has two large customers in Lakewood, but CMS is located in Mercer Island.  Using software to remotely read their customer’s gas meters, CMS coordinates the delivery of natural gas to its customers.  Traditionally, CMS employees spent one-and-one half hours per year in Lakewood for an annual holiday visit and rare update meetings.  Believing it was paying a use tax that its Lakewood customers owed, CMS paid more than $715,000 to the City from 2004 to 2008.  In 2008, CMS stopped paying the tax and submitted a claim for a refund because it “does no business in the City of Lakewood.”  In 2009, an assistant city manger sent a Notice and Order/Demand For Tax Payment, demanding that CMS pay past due utility taxes for 2008 and 2009.  The notice made no mention of the CMS claim for a refund.

CMS sued the City for “money had and received” seeking a refund of excess taxes paid from 2004 to 2008.  The City asserted several affirmative defenses including the failure to exhaust administrative remedies, lack of jurisdiction, and the lack of timeliness.  The trial court initially denied cross motions for summary judgment, but later granted partial summary judgment to both, including a bar on any refund for 2004 or 2005 taxes.  The trial court granted a writ of mandamus requiring the City to take action on the request for a refund.  The trial court denied the City’s request for a jury trial.  After a two-day bench trial, the trial court concluded that CMS did not sell or furnish natural gas.  Even assuming that CMS did broker natural gas, the trial court found it did not do so in the City of Lakewood.  The trial court ordered a full refund from 2006 to 2008 and rejected the City’s argument that there were any post-2008 taxes owing.  The City appealed.

Division II affirmed the trial court.

  • Because the City did not take final action on the request for a refund of taxes, there was no final administrative decision that triggered a duty to exhaust an administrative appeal provided for in the City code.
  • “Ultimately, CMS’s claim was an action in equity for ‘money had and received’ and under both the Washington Constitution and state statute, the superior court properly maintained original jurisdiction to hear the equity claim.”
  • Because the primary claim is equitable and the trial court carefully applied the multi-factor test for mixed equitable and legal claims, the trial court did not abuse its discretion in denying the City’s request for a jury trial.
  • The issuance of a writ of mandamus was not manifestly unreasonable or exercised on untenable grounds or for untenable reasons.  A party must generally exhaust administrative remedies before seeking a writ of mandamus, but the 2009 notice was not a final agency determination triggering an obligation that CMS pursue administrative relief.  Additionally, the 2009 notice did not trigger an appeal time period, so the writ is not barred as untimely.

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