Court Opinion

ID: 4672498
Source: CourtListenerOpinion
Date Created: 2021-03-29 20:18:06.705206+00
Date Added: 2024-06-11T08:03:07.708971
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 MICHAEL E. COAKER and MARILEE                      )          No. 82060-5-I
 B. COAKER, and the marital community               )
 composed thereof,                                  )          DIVISION ONE
                                                    )
                         Appellants,                )          UNPUBLISHED OPINION
                                                    )
                 v.                                 )
                                                    )
 WASHINGTON STATE DEPARTMENT                        )
 OF LABOR AND INDUSTRIES,                           )
                                                    )
                         Respondent.                )
                                                    )

       HAZELRIGG, J. — Michael and Marilee Coaker seek reversal of a decision by

the Board of Industrial Insurance Appeals (BIIA) affirming personal liability for

unpaid premiums owed to the Department of Labor and Industries by their former

business, Mike’s Roofing, Inc. They challenge several of the BIIA’s findings of fact

and argue that the BIIA erred in interpreting the bankruptcy exception to personal

liability in RCW 51.48.055(4) to apply only after the bankruptcy proceeding is

completed. Because the plain language of RCW 51.48.055 supports the BIIA’s

interpretation and the BIIA’s findings of fact are supported by substantial evidence

in the record, we affirm.

  Citations and pinpoint citations are based on the Westlaw online version of the cited material.
No. 82060-5-I/2

                                            FACTS

         Michael and Marilee Coaker1 founded Mike’s Roofing, Inc. in 1988. Mike’s

Roofing performed roofing and other construction work on residential, commercial,

and public works projects. At all times, Michael owned at least fifty percent of the

company. When the company dissolved, Michael and Marilee each owned fifty

percent of the business and served as president and vice president, respectively.

Both spouses were responsible for paying industrial insurance premiums and

associated reporting to the Washington State Department of Labor and Industries.

Starting in 2007, Mike’s Roofing used a third party company to manage its payroll

and payment of industrial insurance premiums.

         Before 2012, Mike’s Roofing was audited by the Department three times for

the periods of 1997 to 1999, 2003 to 2005, and 2006 to 2007. In May 2012, three

months after the third audit became final, the Department audited Mike’s Roofing

regarding premiums owed from 2009 to 2012.                        Michael felt that it was

unreasonable that Mike’s Roofing was being audited again after such a short time.

Mike’s Roofing did not provide the Department with any records in response to the

audit.       Because the Department did not have the records, it estimated the

premiums due and concluded that Mike’s Roofing owed $480,474.61 in additional

premiums for that period.          The Department sent Mike’s Roofing a notice of

assessment on November 14, 2012 ordering it to pay the additional premiums plus

penalties and interest for a total of $700,161.95.                After reconsideration, the

Department reduced the assessment to $579,586.87.

         1
         For clarity, we will refer to the Coakers individually by their first names. We intend no
disrespect.

                                              -2-
No. 82060-5-I/3

      Mike’s Roofing appealed the assessment to the Board of Industrial

Insurance Appeals (BIIA). An Industrial Appeals Judge (IAJ) issued a proposed

decision and order affirming the Department’s assessment. Mike’s Roofing did not

petition for review from the proposed decision. The BIIA adopted the proposed

decision as its final decision on April 13, 2015. Mike’s Roofing did not appeal.

      After the BIIA’s decision became final, the Department assigned Jessica

Rubin, a revenue agent, to collect the monies that Mike’s Roofing owed to the

Department. Rubin contacted Michael in May 2015 and asked if he intended to

appeal the BIIA’s decision. He responded that he did not and informed Rubin that

he would be closing the business. Rubin contacted Michael again and asked if he

was interested in a payment plan that would give him more time to pay the

assessment. Michael responded, “[D]o you think I am going to pay this?” Rubin

took this to mean that he did not intend to pay the assessment. She then filed a

lien on Mike’s Roofing’s bank account and levied $377.63. Because Michael had

indicated that he would close the business and did not intend to pay the

assessment, the Department issued an order revoking Mike’s Roofing’s certificate

of industrial insurance, meaning that the company could no longer lawfully employ

workers. Mike’s Roofing did not challenge the revocation of the certificate.

      Rubin later learned that Michael had applied for a new business with the

Secretary of State. The application listed Michael as the only member of the new

company.    The Department issued an order charging the new business with

successor liability for Mike’s Roofing. Michael asserted that he had accidentally

listed himself as a member of the new company by signing the wrong line of the

                                       -3-
No. 82060-5-I/4

document. He explained that he was trying to help his mother start a new business

of which he was not a member. He filed an amended application with the Secretary

of State that did not list him as a member of the company. The Department

rescinded the order charging the new business with successor liability. Michael

performed work for the new business for a year and a half until he sustained an

injury.

          On January 22, 2016, the Department sent the Coakers a letter informing

them that they could be held personally liable for the unpaid premiums owed by

Mike’s Roofing. The letter requested that they pay the premiums or contact the

Department by January 31, 2016. The Coakers did not respond to the letter. The

Department then issued a notice of assessment on February 1, 2016 that found

the Coakers personally liable for the unpaid premiums, penalties, and interest

owed by Mike’s Roofing.       Through counsel, the Coakers sent a letter to the

Department challenging the assessment of personal liability. The Department

affirmed the assessment on June 16, 2016.            The Coakers appealed the

Department’s order to the BIIA the next month. Mike’s Roofing then filed for

Chapter 7 bankruptcy on March 9, 2017.

          On September 21, 2017, IAJ Marnie Sheeran heard testimony and

argument on the appeal. The Coakers argued that they always paid the premiums

they believed were owed, as calculated by the third party company, and therefore

did not willfully fail to pay any premiums. They also argued that the exception to

personal liability in RCW 51.48.055(4) applied because all of the assets of the

corporation had been applied to its debts through bankruptcy. Michael testified

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No. 82060-5-I/5

that he did not believe the Department should have audited him in 2012 and that

he disagreed with the audit’s findings.       He denied that he ever deliberately

underreported hours, misclassified staff, or underpaid premiums during the audit

period. He testified that he understood the BIIA’s decision on the 2012 audit to

mean that Mike’s Roofing owed the Department about $500,000 and that the BIIA’s

decision became final on April 13, 2015.

       On October 27, 2017, Judge Sheeran issued a proposed decision and order

finding that the Coakers did not deliberately fail to pay any assessment due,

underreport, or report incorrect risk classifications between July 2009 and June

2012. However, Judge Sheeran found that the Coakers had willfully failed to pay

premiums owed for the audit period because they made no attempt to pay the

assessment after the BIIA’s April 2015 order affirming the assessment. The IAJ

found that “willfulness is demonstrated” by the Coakers’ choice to stop seeking

work and close the company and by their refusal to discuss a payment plan with

the Department. The IAJ also rejected the Coakers’ bankruptcy argument, finding

that RCW 51.48.055(4) required the bankruptcy to be fully resolved for the

exception to apply.

       The Coakers petitioned for review of the proposed decision and order with

the BIIA.   They attached a declaration from their bankruptcy attorney dated

November 23, 2017 stating that the bankruptcy court had issued an order on

November 14, 2017 closing Mike’s Roofing’s bankruptcy based on a bankruptcy

trustee’s finding that there was no property available for distribution. The petition

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No. 82060-5-I/6

for review argued that the exception to personal liability in RCW 51.48.055(4) now

applied because the bankruptcy proceeding was finalized.

      The BIIA granted review and issued a final decision and order affirming the

assessment of personal liability against the Coakers. The BIIA declined to reopen

the record to include the bankruptcy attorney’s declaration, concluding that the

evidence would not affect its decision because it interpreted RCW 51.48.055(4) to

require completion of the bankruptcy proceeding before the Department issued the

notice of assessment. The BIIA entered findings of fact, including the following:

      4. At least as of April 13, 2015, there was no bona fide dispute
          between Mike’s Roofing and the Department concerning whether
          Mike’s Roofing owed a substantial amount of money in unpaid
          premiums, interest, and penalties.
      ...
      8. Mike’s Roofing ceased operations in April 2015 and dissolved as
          a corporation on November 9, 2015. The choice to cease
          operations was a conscious, intentional, and voluntary choice by
          Mr. and Mrs. Coaker.

      9. Between July 1, 2009, and April 2015, Mike’s Roofing had in its
         possession and control sufficient funds that could have been
         used to pay the amount owed to the Department in full.

      10. Michael Coaker and Marilee Coaker had actual knowledge of the
          debt owed to the Department and made an intentional,
          conscious, and voluntary choice to pay other obligations with the
          firm’s funds, and not pay the amount due to the Department for
          the assessment against Mike’s Roofing.
      ...
      12. Michael Coaker and Marilee Coaker’s failure to pay the
          assessment owed against Mike’s Roofing was willful.

      13. The completion of Mike’s Roofing’s Chapter 7 bankruptcy action
          did not occur prior to the Department’s assessment of personal
          liability, nor in conjunction with the dissolution of the corporation.

      The Coakers appealed the BIIA’s decision to the Thurston County Superior

Court. The court affirmed the BIIA’s decision, ruling that substantial evidence

                                        -6-
No. 82060-5-I/7

supported the BIIA’s findings and that it did not commit an error of law in

interpreting RCW 51.48.055. The Coakers appealed.

                                    ANALYSIS

I.     Determination of Personal Liability

       The Department may charge the officers of a company with personal liability

for unpaid premiums remaining after a business dissolves if the officers willfully

failed to pay the premiums. RCW 51.48.055(1). Failure to pay is willful if it is “the

result of an intentional, conscious, and voluntary course of action.” Id. The statute

also contains an exception: the officer “is not liable if all of the assets of the

corporation or limited liability company have been applied to its debts through

bankruptcy or receivership.” RCW 51.48.055(4). An individual can appeal a notice

of assessment imposing personal liability to the BIIA. RCW 51.48.055(5), .131.

The individual bears the burden of proof to show that the Department’s notice of

assessment is incorrect. RCW 51.48.131. The BIIA’s review of the issues raised

in the notice of appeal is de novo. RCW 51.52.100, .102.

       Further appeals from the final decision of the BIIA are governed by the

Administrative Procedure Act (APA).2 RCW 51.48.131; Probst v. Dep’t of Labor &

Indus., 155 Wn. App. 908, 915, 230 P.3d 271 (2010). Appellate courts review the

assessment based on the record before the BIIA. Probst, 155 Wn. App. at 915.

Under the APA, the party asserting that an agency action is invalid bears the

burden of demonstrating invalidity. RCW 34.05.570(1)(a). The reviewing court

shall grant relief from an agency order if it determines that the agency has

       2   Chap. 34.05 RCW.

                                        -7-
No. 82060-5-I/8

erroneously interpreted or applied the law or if the order is not supported by

evidence that is substantial when viewed in light of the whole record before the

court. RCW 34.05.570(3)(e).

       Courts review challenged findings of fact for substantial evidence, defined

as “‘a sufficient quantity of evidence to persuade a fair-minded person of the truth

or correctness of the order.’” King County v. Cent. Puget Sound Growth Mgmt.

Hr’g Bd., 142 Wn.2d 543, 553, 14 P.3d 133 (2000) (quoting Callecod v. Wash.

State Patrol, 84 Wn. App. 663, 673, 929 P.2d 510 (1997)). The court views the

evidence in the light most favorable to the party that prevailed before the BIIA.

Kittitas County v. Kittitas County Conserv., 176 Wn. App. 38, 48, 308 P.3d 745

(2013).   Accordingly, we do not reweigh the evidence, and we accept the

factfinder’s credibility determinations and assessment of the weight to be given to

reasonable but competing inferences. Id.

       We review the BIIA’s legal conclusions, such as construction of statutes, de

novo. Probst, 155 Wn. App. at 915. But we give substantial weight to the BIIA’s

interpretation of the statutes it administers. Id. When interpreting a statute, our

goal is to ascertain and carry out the legislature’s intent. Gorre v. City of Tacoma,

184 Wn.2d 30, 37, 357 P.3d 625 (2015). To do so, we begin with the plain

language of the statute. Id. at 36–37. We do not read individual terms in isolation:

               The meaning of words in a statute is not gleaned from those
       words alone but from “all the terms and provisions of the act in
       relation to the subject of the legislation, the nature of the act, the
       general object to be accomplished and consequences that would
       result from construing the particular statute in one way or another.”

                                        -8-
No. 82060-5-I/9

Burns v. City of Seattle, 161 Wn.2d 129, 146, 164 P.3d 475 (2007) (internal

quotation marks omitted) (quoting State v. Krall, 125 Wn.2d 146, 148, 881 P.2d

1040 (1994)).     We assume that the legislature does not intend to create

inconsistent statutes, and we read statutes together “to achieve a ‘harmonious total

statutory scheme . . . which maintains the integrity of the respective statutes.’” Filo

Foods, LLC v. City of SeaTac, 183 Wn.2d 770, 792–93, 357 P.3d 1040 (2015)

(alteration in original) (quoting Am. Legion Post No. 149 v. Dep’t of Health, 164

Wn.2d 570, 588, 192 P.3d 306 (2008)).

       A. Application of RCW 51.48.055

       The Coakers contend that the BIIA misinterpreted RCW 51.48.055.

Subsections (1), (2), and (4) of the statute set out the general principles governing

the imposition of personal liability for unpaid industrial insurance premiums:

       (1) Upon termination, dissolution, or abandonment of a corporate or
           limited liability company business, any officer, member,
           manager, or other person having control or supervision of
           payment and/or reporting of industrial insurance, or who is
           charged with the responsibility for the filing of returns, is
           personally liable for any unpaid premiums and interest and
           penalties on those premiums if such officer or other person
           willfully fails to pay or to cause to be paid any premiums due the
           department under chapter 51.16 RCW.

           For purposes of this subsection “willfully fails to pay or to cause
           to be paid” means that the failure was the result of an intentional,
           conscious, and voluntary course of action.

       (2) The officer, member, manager, or other person is liable only for
           premiums that became due during the period he or she had the
           control, supervision, responsibility, or duty to act for the
           corporation described in subsection (1) of this section, plus
           interest and penalties on those premiums.
       ...

                                         -9-
No. 82060-5-I/10

       (4) The officer, member, manager, or other person is not liable if all
           of the assets of the corporation or limited liability company have
           been applied to its debts through bankruptcy or receivership.

RCW 51.48.055.

       The parties disagree on the point in time at which the officer’s personal

liability is determined. The Coakers argue that the language of subsection (4)

stating that the officer “is not liable” if the company’s assets “have been applied to

its debts through bankruptcy” indicates that the bankruptcy exception applies if the

company’s assets have been distributed to creditors through a bankruptcy action

at the time the officer asserts the defense. The Department argues that the first

clause of subsection (1) indicates that “it is the corporation’s dissolution (or

abandonment or termination) that triggers the corporate officer having liability for

the corporation’s unpaid premiums, penalties, and interest.”

       Here, the plain language of the statute when read as a whole supports the

Department’s reading. The language of subsection (1) shows that an officer’s

personal liability for unpaid premiums is determined “[u]pon termination,

dissolution, or abandonment” of the company. Subsection (2) limits the officer’s

liability as described in subsection (1) by stating that the officer is responsible for

the premiums that became due under the officer’s tenure. Subsection (4) then

creates an exception to subsection (1), stating that the officer “is not liable” if the

company’s assets “have been applied” to its debts. Because this is an exception

to the general rule detailed in subsection (1), it follows that the officer’s liability, or

lack thereof, is assessed at the same time as specified in subsection (1): “[u]pon

termination, dissolution, or abandonment” of the company. The specification that

                                          - 10 -
No. 82060-5-I/11

this exception applies only if the company’s assets “have been applied to its debts”

indicates that this application of assets to debts must have already been completed

at the time the officer’s liability is assessed. Because the BIIA’s interpretation of

RCW 51.48.055 comports with the plain language of the statute and we give

substantial weight to this interpretation, the Coakers have not shown that the BIIA

erroneously interpreted the law.

       B. Findings of Fact

       The Coakers specifically assign error to six of the BIIA’s findings of fact.

First, they challenge the finding that the there was no bona fide dispute that Mike’s

Roofing owed a substantial amount in unpaid premiums, interest, and penalties as

of April 13, 2015. As the Department points out, the BIIA’s April 2015 decision was

final on the date of issue because the Coakers did not petition for review of the

proposed decision and order, therefore giving up their right to appeal the decision.

See RCW 51.48.055; RCW 51.48.131; RCW 51.52.104. The Coakers appear to

concede this point in their reply brief, stating:

              Although the Department is correct its assessment against
       Mike’s Roofing became final when the Board issued its April 13,
       2015, order adopting the unappealed proposed decision and order
       (Resp. Br. 36), both the Board and the Department treated the April
       13 decision as appealable. (See FF 2, CR 10 (noting “Mike’s Roofing
       did not appeal” the April 13 order); CR 555 (Department asked Mr.
       Coaker “on May 6, 2015. . . . if he [was] going to appeal the Board
       decision”))[.] In any event, a one-month difference in finality is
       immaterial given Mike’s Roofing could not have paid the nearly
       $600,000 assessment in either April or May of 2015.

The Coakers state that they “have always acknowledged that, as of April 2015,

Mike’s Roofing owed additional premiums.” Their argument appears to concern

                                         - 11 -
No. 82060-5-I/12

the BIIA’s willfulness conclusion rather than this finding of fact.     Substantial

evidence supports this finding.

       Next, they dispute the BIIA’s finding that Mike’s Roofing ceased operations

and dissolved on November 9, 2015 by the Coakers’ conscious, intentional, and

voluntary choice.   The Coakers argue that their decision was not voluntary

because they were unable to pay the assessment and knew that they would not

be able to continue operating.       Again, this argument goes to the court’s

determination of willfulness rather than a genuine dispute of fact. Despite their

assertion that they felt they had no other option, substantial evidence supports the

finding that the Coakers made the choice to wind down Mike’s Roofing.

       The Coakers also challenge the finding that Mike’s Roofing had sufficient

funds in its possession and control between July 1, 2009 and April 2015 to pay the

amount owed to the Department in full. The records submitted by the Department

showed substantial revenue from 2009 to early 2015. There is no indication that

Mike’s Roofing could not have paid the additional premiums required for that time

period. Although Michael testified that the company did not have cash reserves in

April 2015, the Coakers produced no accounting of the disposition of the

company’s revenue up to that point that would explain the lack of funds. There

was substantial evidence from which the BIIA could find that Mike’s Roofing could

have paid the Department.

       The Coakers assign error to the BIIA’s finding that they had actual

knowledge of the debt owed to the Department and made “an intentional,

conscious, and voluntary choice” to pay other obligations rather than the amount

                                       - 12 -
No. 82060-5-I/13

owed to the Department. Michael testified that he knew about the debt owed to

the Department.    Rubin testified that she had reviewed documents from the

Department of Revenue showing that Mike’s Roofing had income in 2015 and 2016

and indicating no outstanding balance due to the Department of Revenue and the

Employment Security Department, despite the outstanding premiums due to the

Department. Substantial evidence supports the finding that the Coakers knew of

the debt owed to the Department and chose to pay other obligations.

       Next, they challenge the BIIA’s finding that their failure to pay the

assessment owed to the Department by Mike’s Roofing was willful. As noted

above, willful failure to pay is defined in RCW 51.48.055(1) as “the result of an

intentional, conscious, and voluntary course of action.” The Coakers argue that

their failure to pay could not have been willful because they paid the premiums that

they believed were due at the time and did not have the funds to pay the

assessment in April 2015. However, this argument ignores the evidence from

Rubin that the Coakers made no attempt to pay any part of the assessment and

refused to discuss a payment plan for the additional premiums. Willful failure to

pay does not require malice or bad faith, only intentional, voluntary action.

Substantial evidence supports this finding.

       Finally, the Coakers dispute the BIIA’s finding that Mike’s Roofing’s Chapter

7 bankruptcy action was not completed before the Department’s assessment of

personal liability, nor did it occur in conjunction with the company’s dissolution.

Again, the facts of this timeline do not appear to be disputed, but rather the

interpretation of the point at which personal liability is assessed. In accordance

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No. 82060-5-I/14

with the conclusion above that the Department’s assessment of personal liability

is determined at the time of dissolution, substantial evidence supports the finding

that the bankruptcy action was not completed before the assessment or in

conjunction with the company’s dissolution.

II.   Attorney Fees on Appeal

      The Coakers request an award of attorney fees under the equal access to

justice act (EAJA), RCW 4.84.340-.360. The EAJA provides that “a court shall

award a qualified party that prevails in a judicial review of an agency action fees

and other expenses, including reasonable attorneys’ fees, unless the court finds

that the agency action was substantially justified or that circumstances make an

award unjust.” RCW 4.84.350(1). A party prevails if they obtained relief on a

significant issue that achieves some benefit that they sought. Id. Because the

Coakers have not prevailed in this action, we decline their request for an award of

attorney fees.

      Affirmed.

WE CONCUR:

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