Anna Carlson v. Dept of Social & Health Services

FILED
MARCH 3, 2015
In the Office of the Clerk of Court
WA State Court of Appeals, Division III

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

DIVISION THREE

ANNA CARLSON, )
) No. 32309-9-III
Appellant, )
)
v. )
)
WASHINGTON STATE DEPARTMENT ) UNPUBLISHED OPINION
OF SOCIAL AND HEALTH SERVICES, )
)

Respondent. )

KORSMO, J. - Anna Carlson appeals from a decision remanding her

administrative action for hearing due to failure to exhaust remedies. We affirm.

FACTS
I
Ms. Carlson was appointed as attorney-in-fact for her parents. Both orders of

appointment allowed Ms. Carlson to give gifts to herself and expressly stated that any I
!
f-
gifts were not a breach of her fiduciary duties to her parents. Her mother lived in an I
f
assisted living center and her father had multiple sclerosis and was a Medicaid recipient.
f
The living center does not accept Medicaid payments. It costs $3,000 per month, while
I
r
the mother's income was less than $2,000 per month. To help cover the deficit, Ms. I{
Carlson signed a promissory note for her mother. The note was not paid, leading to a i
!
complaint by the care center.

I
No. 32309-9-III
Carlson v. D.S.HS.

Ms. Carlson transferred money from her parents' accounts totaling $8,075 in 2009,

$4,825 in 2010, and $4,825 in 2011, to herself. She explained that the payments were

reimbursements for bills paid on behalf of her parents, payment for her actions as

attorney-in-fact, or gifts from her parents. In late 2011, the Adult Protective Services

(APS) division of the Department of Social and Health Services (DSHS) notified Ms.

Carlson of the complaint and its belief that she had financially exploited a vulnerable

adult based on her actions in taking her mother's money for her own instead of paying the

assisted living center.

Ms. Carlson requested a hearing before the Office of Administrative Hearings and

marshalled her evidence to the allegation. Prior to the hearing, she moved for summary

judgment, arguing that as a matter of law gifting was permitted by the attorney

appointments and could not constitute elder abuse. The Administrative Law Judge (ALJ)

agreed with the argument and granted summary judgment, concluding as a matter of law

that there was no elder abuse because the appointment permitted the gifting.

DSHS appealed to the Board of Administrative Appeals (BOAA). The BOAA

reversed, concluding that an attorney-in-fact could financially exploit a vulnerable adult

even while acting within the scope of the appointment. The BOAA remanded the matter

for hearing to determine if Ms. Carlson had, in fact, exploited her parents. The remand

order carried boilerplate language advising Ms. Carlson that she had a right to seek

2

No. 32309-9-111
Carlson v. D.S.H.S.

reconsideration or appeal the decision to superior court. Ms. Carlson exercised the latter

option and sought review by the Kittitas County Superior Court.

DSHS moved to dismiss the petition for review, arguing that Ms. Carlson had

failed to exhaust her administrative remedies. After reviewing briefing and hearing oral

argument, the superior court agreed that exhaustion of remedies was required. It

dismissed the matter without prejudice and remanded for administrative hearing. Ms.

Carlson then timely appealed to this court.

ANALYSIS

Ms. Carlson argues that exhaustion was not required in this case, fairness and

practicality justify ignoring the exhaustion requirement, and that DSHS waived

exhaustion by advising her that she could seek superior court review. We address each of

those three arguments in the order stated.

Exhaustion Requirement

Ms. Carlson first argues that exhaustion of remedies is not required because she

presents solely an issue of law that can be decided by a court. However, administrative

hearings can resolve legal issues as well as factual ones, and administrative resolution of

the case would develop the record and could conceivably forestall the need for this court

to opine on the legal question.

The parties do not dispute the well understood standards governing this appeal, but

only the application of those standards to the facts of this case. When reviewing appeals

3

No. 32309-9-III
Carlson v. D.s'H.s'

from administrative agencies, the Court of Appeals "sits in the same position as the

superior court when reviewing an agency's decision." Hunter v. Univ. of Wash., 101 Wn.

App. 283, 288, 2 P.3d 1022 (2000). This court views "the evidence and any reasonable

inferences in the light most favorable to the party that prevailed in the highest forum

exercising fact-finding authority." Schofieldv. Spokane County, 96 Wn. App. 581,586,

980 P.2d 277 (1999). This court reviews alleged misinterpretations and misapplications

oflaw de novo. Bullseye Distrib. LLC v. Gambling Comm'n, 127 Wn. App. 231, 237,

110 PJd 1162 (2005).

It is a basic principle of administrative law that an aggrieved party must pursue all

administrative remedies before turning to the courts if the agency has the power to grant

the relief sought. CLEANv. City ofSpokane, 133 Wn.2d 455,465,947 P.2d 1169 (1997).

The Washington Administrative Procedure Act (APA) codifies the requirement by

mandating that judicial review is available "only after exhausting all administrative

remedies available within the agency whose action is being challenged, or available within

any other agency authorized to exercise administrative review ...." RCW 34.05.534.

This court reviews de novo the questions of whether administrative remedies need be, and

were in fact, exhausted. Cost Mgmt. Serv., Inc. v. City ofLakewood, 178 Wn.2d 635, 641,

310 P.3d 804 (2013).

A party exhausts administrative remedies when there is a final agency

determination. Rains v. Dep't ofFisheries, 89 Wn.2d 740, 744, 575 P.2d 1057 (1978).

4

No. 32309-9-III
Carlson v. D.S.HS.

WAC 388-71-0105-the Department of Social and Health Services chapter-defines

"final finding" as:

"Final finding" means the department's substantiated finding of
abandonment, abuse, financial exploitation or neglect is upheld through the
administrative appeal process specified in WAC 388-71-01205 through
388-71-01280, or is not timely appealed to the office of administrative
hearings. The alleged perpetrator can appeal a final finding to Superior
Court and the Court of Appeals under the Administrative Procedure Act,
chapter 34.05 RCW.

WAC 388-71-01275 describes when the Adult Protective Services substantiated

initial finding becomes a final finding:

A substantiated initial finding becomes a final finding when:
(1) The department gives the alleged perpetrator notice of the
substantiated initial finding pursuant to WAC 388-71-01210 and the
alleged perpetrator does not request an administrative hearing as set forth in
WAC 388-71-01240; or
(2) The ALJ dismisses the hearing following default or withdrawal by
the alleged perpetrator, or issues an initial order upholding the substantiated
finding and the alleged perpetrator fails to file a request for review of the
ALJ's initial decision with the department's board of appeals consistent with
the procedures contained in chapter 34.05 RCW and chapter 388-02 WAC;
or
(3) The board of appeals issues a final order upholding the substantiated
finding when a request for review to the department's board of appeals is
made consistent with the procedures contained in chapter 34.05 RCW and
chapter 388-02 WAC.
(4) The final finding will remain as substantiated in the department's
records unless the final finding is reversed after judicial review.

WAC 388-71-01275.

Under these definitions of finality, Ms. Carlson has not exhausted her

administrative remedies. Initially, she successfully sought summary judgment, but the

5

No. 32309-9-III
Carlson v. D.S.H8.

agency reversed itself, overturning the grant of summary judgment and remanding the

matter for hearing. In essence, she is in the same position as ifher motion for summary

judgment had been denied in the first place. There is no "final determination" that would

establish that Ms. Carlson has exhausted her administrative remedies under RCW

34.05.534 and WAC 388-71-01275.

Nonetheless, she argues that the exhaustion requirement should be excused

because her case presents (at this point) solely a legal issue. The APA provides for

limited exceptions to the exhaustion requirement. RCW 34.05.534 states in pertinent

part:

The court may relieve a petitioner of the requirement to exhaust any or all
administrative remedies upon a showing that:
(a) The remedies would be patently inadequate;
(b) The exhaustion of remedies would be futile; or
(c) The grave irreparable harm that would result from having to exhaust
administrative remedies would clearly outweigh the public policy requiring
exhaustion of administrative remedies.

As noted, whether a matter is an issue of law is not outlined as an exception to the

exhaustion requirement in this statute. Notwithstanding this, at least one Washington

case has recognized that a reviewing court may choose to resolve an issue that is purely

an issue oflaw, and that "failure to exhaust administrative remedies does not necessarily

preclude such resolution." Retail Store Emp. Union, Local 1001, et al. v. Wash.

Surveying & Rating Bureau, et al., 87 Wn.2d 887, 907 n.7, 558 P.2d 215 (1976)

6

No. 32309-9-II1
Carlson v. D.S.HS.

(declining to require exhaustion of one legal issue, while requiring exhaustion of other
•
claims).

Washington courts have identified several policy bases for the exhaustion rule:

(1) insure against premature interruption of the administrative process; (2)
allow the agency to develop the necessary factual background on which to
base a decision; (3) allow exercise of agency expertise in its area; (4)
provide for a more efficient process; and (5) protect the administrative
agency's autonomy by allowing it to correct its own errors and insuring that
individuals were not encouraged to ignore its procedures by resorting to the
courts.

Cost Mgmt. Serv., 178 Wn.2d at 642.

All of the policy bases for the rule requiring Ms. Carlson to exhaust her

administrative remedies listed above favor exhaustion here: (l) "insure against premature

interruption of the administrative process"-ifthe superior court had accepted the case at

the time Ms. Carlson had requested, it would have resulted in a premature interruption of

the administrative process-namely, the agency had not had the opportunity to conduct a

hearing; (2) "allow the agency to develop the necessary factual background on which to

base a decision"-this can only be done if a hearing is conducted; (3) "allow exercise of

agency expertise in its area"-the agency is in a position to interpret the financial

exploitation statute, particularly in providing guidance on when assets may be used for

other than the owner's personal care; (4) "provide for a more efficient process"-ifthe

superior court and this court were to rule against Ms. Carlson's interpretation, she would

have to participate in the agency hearing, at which point the agency might resolve the

7

No. 32309-9-III
Carlson v. D.S.HS.

case on factual grounds, possibly leading to another round of appeals; (5) "protect the

administrative agency's autonomy by allowing it to correct its own errors and insuring

that individuals were not encouraged to ignore its procedures by resorting to the

courts"-this is quite precisely what the agency in this case is attempting to do here:

correct its own error involving the summary judgment.

Notwithstanding the statutory requirements and the policy reasons, the primary

question in exhaustion cases remains "whether the relief sought can be obtained through

an available administrative remedy; if so, the party seeking relief must first seek relief

through the administrative process." Cost Mgmt. Serv., 178 Wn.2d at 642. In the present

case, the relief sought by Ms. Carlson can be obtained through an available

administrative remedy. She could very well prevail at the administrative hearing.

Additionally, policy reasons favor exhaustion in the present case. The exhaustion

rule "is founded upon the belief that the judiciary should give proper deference to that

body possessing expertise in areas outside the conventional expertise ofjudges." Citizens

for Mount Vernon v. City ofMount Vernon, 133 Wn.2d 861,866,947 P.2d 1208 (1997).

At its heart, this case presents the question of when, if ever, gifting is permissible when

an estate has less income than currently is needed for monthly expenses. Can gifting be

part of an estate plan even though assets also will be needed for anticipated care

expenses? Is it appropriate to make gifts when care bills remain unpaid? Competing

8

No. 32309-9-III
Carlson v. D.SH.S

interests must be balanced, requiring a financial analysis justifying the action. Agency

expertise can inform these decisions in the event ofjudicial review.

We conclude that that the trial court correctly determined that exhaustion of

administrative remedies was appropriate in this instance. The administrative process will

inform, if not obviate, future judicial review. This is not one of the very rare cases in

which the exhaustion requirement should be waived.

Fairness and Practicality

Ms. Carlson also argues that considerations of "fairness and practicality" require

that the exhaustion requirement not be applied to her case. Having progressed this far,

she sees no need to expend attorney fees at the administrative level only to return to the

courts for resolution of her legal claim. She also fears that she may continue to prevail

with the ALJ only to be remanded by the BOAA, condemning her, like Sisyphus, to

endless administrative toil.

Although we have carefully considered her claims, we need only briefly address

them because the previous analysis largely covers these concerns. As already noted, we

believe that this is a case appropriate for resolution by administrative hearing after

allowing DSHS to attempt to prove its case and allowing Ms. Carlson to defend that

9

No. 32309-9-III
Carlson v. D.S.H.S.

action and assert her authority under the appointment. I She can still present her argument

and any appeal would progress on a full record to the benefit of both parties.

Although the case has progressed to this point as a result of her own actions in

attempting to win by early knockout, she is not without remedy in the unlikely event the

case does fall into the repetitious pattern she fears. The first two exceptions to the

exhaustion requirement permit judicial review when the administrative remedies are

inadequate or exhaustion would be futile. RCW 34.05.534. A failure of the

administrative process to resolve an action would appear to satisfy one or both of these

exceptions. We do not believe she would be stuck in an infinite administrative loop.

Accordingly, Ms. Carlson's practicality and fairness argument does not trump the

statutory requirements set by the legislature.

Waiver

Finally, Ms. Carlson contends that DSHS waived the exhaustion requirement

when it notified her that she could seek further review in superior court. Notice of

statutory rights does not constitute a waiver of other statutory requirements.

The notice in question read:

1 While we do not express any opinion on the merits of her legal argument, we do
note that courts seldom adopt absolutist rules, particularly where those rules would be in
derogation of a statute. If the facts of this case had shown that Ms. Carlson paid herself
$10,000 per hour or had gifted all of her parents' assets to herself and paid none of their
expenses, we suspect that she would not be asserting this same position. We also highly
doubt that a court would accept the absolutist argument under those facts.

10

No. 32309-9-III
Carlson v. D.S.H.S.

If You Disagree with the Judge's Review Decision or Order and Want it
Changed, You Have the Right to:
(1) Ask the Review Judge to reconsider (rethink) the decision or order (10
day deadline):
(2) File a Petition for Judicial Review (start a Superior Court case) and ask
the Superior Court Judge to review the decision (30 day deadline).

Clerk's Papers at 19. Although the language does imply that Ms. Carlson may seek

review from the superior court, as is her statutory right, she does not explain how such

boilerplate language could waive the statutory requirement that administrative remedies

be exhausted.

Ms. Carlson cites Weinberger v. Salji, 422 U.S. 749, 763-67, 95 S. Ct. 2457, 45 L.

Ed. 2d 522 (1975) and Mathews v. Eldridge, 424 U.S. 319, 326-28, 96 S. Ct. 893,47 L.

Ed. 2d 18 (1976) to support her contention that an administrative agency can waive the

exhaustion of remedies requirement. Those cases do not aid her.

Salji was an action challenging the Social Security Act's duration-of-relationship

eligibility requirements for surviving wives and stepchildren of deceased wage earners.

The United States Supreme Court concluded that "final decision" was not defined by the

statute, and that whether a matter had reached a final decision was left to the discretion of

the secretary. Because the agency did not challenge the sufficiency of the allegations of

exhaustion in the widow's complaint, the court interpreted "this to be a determination by

him that for the purposes of this litigation the reconsideration determination is 'finaL'"

11

No. 32309-9-111
Carlson v. D.S.HS.

422 U.S. at 767. The court then concluded that the exhaustion requirement was satisfied.

Id.

In Eldridge, Mr. Eldridge did not exhaust the full set of internal-review procedures

provided, but asserted that the exhaustion requirement should be waived in his case

because he was raising a deprivation of benefits issue and that an erroneous termination

would damage him in a way not compensable through retroactive payments. The court

recognized that the secretary of the Social Security Department "may waive the

exhaustion requirement ifhe satisfies himself, at any stage of the administrative process,

that no further review is warranted either because the internal needs of the agency are

fulfilled or because the relief that is sought is beyond his power to confer." Id. at 330.

The court also recognized that other "cases may arise where a claimant's interest in

having a particular issue resolved promptly is so great that deference to the agency's

judgment is inappropriate." Id. at 330. The Eldridge court concluded the request for

benefits constituted a final decision for purposes of 42 U.S.C. § 405(g).

The present case is distinguishable from those cases on several grounds. First, it is

distinguishable because, as discussed above, WAC 388-71-01275 lays out several layers

of review before a substantiated finding becomes a final finding for purposes of review,

unlike the ambiguous language of 42 U.S.C. § 405(g), (h), which did not even define

"final decision." Additionally, in Sa/fi, the court found waiver where two levels of

review had been pursued and the agency did not challenge whether exhaustion was

12

No. 32309-9-111
Carlson v. D.S.HS.

satisfied. Here, DSHS does challenge Ms. Carlson's lack of exhaustion. Also, in both

Salfi and Eldridge the parties were challenging the constitutionality of the statutory

scheme or agency action, an issue not raised here. Further, Mr. Eldridge raised an issue

that demonstrated inadequate remedies and irreparable harm, both of which are

exceptions to the exhaustion requirement in Washington. RCW 34.05.534(3)(a) and (c).

We believe this case is more like Cunningham v. Railroad Retirement Board, 392

F.3d 567 (3d Cir. 2004). There the issue was whether Ms. Cunningham exhausted her

administrative remedies when she failed to timely file an administrative appeal from a

denial of benefits. She argued that the Railroad Retirement Board waived the exhaustion

requirement when a cover letter, sent along with a decision, inadvertently advised her that

she'" may seek judicial review of the Board's opinion by filing a petition for review with

an appropriate United States court of appeals.'" Id. at 578. The court declined to find

waiver in such a case asserting that it was "not in a position to ignore the jurisdictional

prerequisite of [the statute] on account of the cover letter mailed by the RRB." Id. at 579.

Similar to Cunningham, here RCW 34.05.534 requires a final agency

determination prior to judicial jurisdiction. WAC 388-71-01275 defines what is "final"

for purposes ofRCW 34.05.534. The cover letter here simply does not permit this court

to ignore the jurisdictional prerequisite ofRCW 34.05.534. The authority on which Ms.

Carlson relies is not apropos.

13
No. 32309-9-111
Carlson v. D.S.HS.

The judgment of the superior court is affirmed and the matter remanded for

administrative hearing.

A majority of the panel has determined this opinion will not be printed in the

Washington Appellate Reports, but it will be filed for public record pursuant to

RCW 2.06.040.

7 (fOfsmo, J.

WE CONCUR:

Lawrence-Berrey J.

14