Opinion ID: 1430546
Heading Depth: 1
Heading Rank: 4

Heading: classification of legal expense

Text: The State must prove that the legal expenses charged to the Railroad Regulatory Fee Account are actually regulatory costs. Great Northern, supra at 162; RCW 4.92.170, 43.10.160 (reimbursement only from fund financing activity causing expense). The State first asserts that the evidence suggests that the tort costs arose because of the activities of the Commission. It then contends that as a matter of law these legal expenses must be considered costs of regulation. [4] The State offers as proof of the culpability of the Commission in the underlying tort cases the affidavits of two assistant attorneys general assigned to those cases. The affidavits reflect the opinions of these lawyers as to which agency should have been billed for their time, based on consideration of allegations in the original complaints against the State. These affidavits reflect legal conclusions not persuasive in establishing the appropriateness of reimbursement. Cf. CR 56(e) (affidavits to set forth facts). There is no evidence as to why the Railroad Regulatory Fee Account in particular should be charged nor any description of Commission activities opening the State to liability. Examination of two facets of these documents will demonstrate the State's failure to prove a rational relationship between the expenses and the Commission's regulatory activities. First, one affidavit reflects the assistant attorney general's view that the Highway Department and the Commission should split the cost of his services. Yet there is no indication that any fund other than the Railroad Regulatory Fee Account was charged for his services. The State wishes to rely on its lawyer's opinions in lieu of facts establishing the Commission's activities, but does not itself follow his billing advice. Second, the other affidavit relies on a file report to establish the Commission's liability, i.e., it reports that the Commission should have required the railroad and county to provide more adequate safeguards at the crossing... Although supervision of grade crossing protective devices is clearly an activity of the Commission, RCW 81.53, it is not funded by the Railroad Regulatory Fee Account of the Public Service Revolving Fund. The administrative costs of determining what grade crossing devices are to be placed and maintained at railroad crossings such as those giving rise to liability in the claims underlying these charges are to be paid from the separate Grade Crossing Protective Fund. RCW 81.53.281. This fund contains both federal funds and state moneys, partly from the Motor Vehicle Fund. But it is not funded by regulated industries through the Public Service Revolving Fund. Thus the State clearly has not shown that the Public Service Revolving Fund finances the activity causing liability. We wish to note here that, despite the fears expressed by the attorneys general at oral argument of this case, proof of departmental responsibility need not prevent prompt settlement of meritorious tort claims or expose the State to additional liability. The Office of Financial Management has specifically provided for an administrative hearing to determine the appropriateness of reimbursement from a particular fund should some question such as the one considered here arise. WAC 82-16-060. Such a procedure, established by the office itself, could expeditiously establish responsibility through factual evidence regarding the activity causing liability for legal expenses. See also WAC 82-16-100 (The director may direct agencies to maintain additional records to provide supporting information for administrative determinations...) Even if the State were able to show that Commission activity gave rise to the tort costs, this would not necessarily justify the charges against the Railroad Regulatory Fee Account. RCW 4.92.170 declares the payment of claims arising out of tortious conduct to be a normal cost of operating. Attorney's fees likewise seem logically to be an operational cost. RCW 43.10.160. RCW 80.01.080 provides that [a]ll expenses of operation of the Washington utilities and transportation commission shall be payable out of the public service revolving fund. Thus, the Commission's tort claim payments and legal fees would appear to be expenses of operation to be paid out of the Public Service Revolving Fund. The State goes on to argue, however, that because the Public Service Revolving Fund receives no legislative appropriation and is as a practical matter funded solely from industry-generated fees such as those in the Railroad Regulatory Fee Account, that tort costs must be a cost of regulation and supervision. We do not agree with the State's analysis. Although all costs of supervision and regulation may be expenses of operation, it does not necessarily follow that all expenses of operation are costs of supervision and regulation. Indeed, in Great Northern, the Supreme Court explicitly cited as an example of a nonregulatory cost not transferable to the railroads the legal expense of the State in appearing before the Interstate Commerce Commission and in judicially decreeing overcharge refunds. Great Northern, supra at 158. Although these were clearly expense of operation they were not regulatory costs. We need not decide whether the State's failure to regulate can ever be considered a regulatory function. Having already established that the State has not shown the liability-causing activity to be funded by the Public Service Revolving Fund, we merely note the analytical difficulties that may always preclude classification of legal expenditures benefiting a nonsupervised third party as regulatory costs chargeable to a regulated industry. Defense against tort claims and payment of tort judgments are not regulation. Although the Commission has a broad mandate to regulate in the public interest, RCW 80.01.040, and it does supervise a broad range of railroad activities, [1] the negligence alleged in the tort cases considered here was the State's failure to regulate. It may not be reasonable to expect the industry to reimburse the State for the State's failure to adequately govern the industry's actions, particularly in the absence of proof of Commission involvement, even though the industry might be compelled to pay for additional Commission regulation that might prevent the State's liability. Regardless of whether the industry could in some circumstances be forced to reimburse the State for the State's failure to regulate, the funds of the account are not in this instance available to benefit a third person not directly regulated and not included within the Commission's regulatory power. The allowable fee covers only reasonable regulatory costs. In this case the State has not demonstrated that its tort case expenses were a reasonable cost of regulation.