FILED
COURT OF APPEALS
IN THE COURT OF APPEALS OF THE STATE OF1WMSWaGTON
2015 AUG 1 1 Ali 9: 0
DIVISION II
S TATE OF WASHINGTON
SCOTT B. OSBORNE, as Personal No. 4476 - II
Representative of the ESTATE OF BARBARA BY
DEP TY
MESDAG,
Respondent,
V.
THE DEPARTMENT OF REVENUE OF THE UNPUBLISHED OPINION
STATE OF WASHINGTON,
MELNICK, J. — The Department of Revenue ( Department) appealed a superior court order
requiring it to issue a refund of principal estate tax overpayment and interest to the Estate of
Barbara Mesdag ( Estate). That order relied on our Supreme Court' s opinion in In re Estate of
Bracken, 175 Wn.2d 549, 290 P. 3d 99 ( 2012). In response to Bracken, in 2013, the legislature
amended the Estate and Transfer Tax Act, chapter 8 3. 100 RCW, and made the change retroactive
to the estates of decedents, like Mesdag, who died on or after May 17, 2005.. Challenges to the
amendment were considered by the Supreme Court in In re Estate of.Hambleton, 181 Wn.2d 802,
809, 335 P. 3d 398 ( 2014), petition for cert. filed, No. 1471436 ( U. S. June 5, 2015). We stayed this
issued October 2, 2014. The Supreme Court
pending the Hambleton, decision,
appeal which on
upheld the validity of the 2013 amendment. Hambleton, 181 Wn.2d at 836.
The Department argues that the Hambleton opinion resolves this appeal in its favor and
that the superior court' s order should be reversed. The Estate argues that the Hambleton decision
does not apply to this case because the Estate had a final judgment for which no lawful basis to
appeal existed and because it had a vested right to its refund. In addition, the Estate argues that
even if it owes the disputed principal tax, the additional tax was not due until the legislature
44766 -5 -II
amended the law effective June 14, 2013; therefore, we should order the Department to .refund the
interest the Estate paid under protest, to pay interest on the interest paid under protest, and to pay
interest on the principal tax paid under protest from the payment date until the amendment.
We hold that the 2013 amendment applies. to the Estate because the Department' s appeal
of the superior court' s order was pending at the, time the amendment became effective and the
Estate did not have a vested right to its refund that would have been impaired by the retroactive
provisions of the. amended statute. Further, Washington' s Administrative Procedure Act (APA)'
requires us to remand to the Department for determination of the interest issues. We reverse the
superior court' s order in the Estate' s favor. We remand this case to the superior court with
instructions for it to enter a judgment in the Department' s favor on the principal tax issue and then
remand the case to the Department for determination of the additional issues.
FACTS
Barbara Mesdag died on July 4, 2007. On October 6, 2008, her Estate filed its Washington
Estate and Transfer Tax Return, which included a deduction for qualified terminable interest
property ( QTIP) 2 included in the Estate' s federal taxable estate. The Department disallowed the
Estate' s QTIP deduction and issued a deficiency notice for additional taxes owed on the value of
the QTIP property. On February 26, 2010, the Estate paid the additional tax plus interest under
Ch. 34. 05 RCW.
2 A QTIP trust is a testamentary trust that allows a deceased spouse to control the final disposition
of the trust property, while giving the surviving spouse a life estate in the income or use of the
trust property. Hambleton, 181 Wn.2d at 809, 811. The benefit of.QTIP trusts is that trust property
is not taxed when the first spouse dies; trust property is taxed only when the second spouse dies
and the remainder beneficiaries become present interest holders. Hambleton, 181 Wn.2d at 809,
811.
2
44766 -5 -II
protest. The Estate then applied for a tax refund. The Department denied the Estate' s refund
request with respect to the QTIP property.
The Estate petitioned the superior court for judicial review of the Department' s denial of
its refund. The parties jointly moved for a stay until the Supreme Court resolved Bracken. The
court granted the motion. On October 18, 2012, Bracken issued and the court ruled in favor of the
taxpayers. 175 Wn.2d at 575- 76. On February 15, 2013, the Estate moved for judgment on the
pleadings, and argued that Bracken resolved all issues in its favor. Three days later, legislation
was introduced that amended the definitions of " transfer" and " Washington taxable estate" to
decedent. See LAWS of
expressly include QTIP property in the Washington
taxable estate of a
2013, 2d Spec. Sess., ch. 2, § 2. The legislation contained an express retroactivity clause that
applied the amendment to estates of decedents, who died on or after May 17, 2005. See LAWS of
2013, 2d Spec. Sess., ch. 1, § 1.
The Department opposed the Estate' s motion for judgment on the pleadings and argued
that the superior court should continue to stay the action so the legislature could consider the fiscal
impact of Bracken, and because our Supreme. Court should overrule Bracken. The superior court
refused to stay the action and granted the Estate' s motion, ordering the Department to immediately
refund the Estate' s principal overpayment of estate tax and interest.
On April 19, 2013, the Department appealed the superior court' s order. The Estate
immediately moved to dismiss the appeal under RAP 18. 9( c), alleging that the appeal was
frivolous and filed solely for the purpose of delay. On May 29, our commissioner denied the
motion, and ruled that this court could not determine whether the appeal is " solely for the purpose
of delay" without being able to review the Department' s brief. Commissioner' s May 29, 2013
ruling. We subsequently denied the Estate' s motion to modify the commissioner' s ruling. When
3
44766 -5 - II
we ruled on the Estate' s motion to modify, the pending legislation had been signed into law. On
June 14, 2013, the amendment took effect. LAWS of 2013, 2d Spec. Sess., ch. 2, § 14.
Our Supreme Court considered challenges to the amendment in Hambleton, 181 Wn.2d
809. We stayed this case pending the Court' s ruling in Hambleton. Hambleton upheld the
retroactive application of the 2013 amendment. 181 Wn.2d at 836- 37. We lifted the- stay and
ordered the parties to file additional briefing on the applicability of the Hambleton decision. The
Department argues that the Hambleton opinion resolves this appeal in its favor. The Estate
disagrees and argues that the Hambleton decision does not apply to this case because the
Department had no lawful basis to appeal the superior court' s order and the Estate had a " vested
right" to a refund.
ANALYSIS
The Estate argues that the 2013 amendment to the Estate and Transfer Tax Act should not
apply to this case because the Estate had a final judgment not subject to appeal under existing law.
The Estate also argues that because its right to a refund had vested, retroactive application of the
2013 amendment would violate due process. We disagree.
In addition, the Estate argues that even if the amendment applies, the Estate did not owe
the disputed tax until the amendment became law. Therefore, the Estate urges us to order the
Department to refund the interest the Estate paid prior to the change in the law, and to order the
Department to pay interest on the collected interest and interest on the principal tax collected
before it was due. The APA requires us to remand the interest issues to the agency for
determination.
M
44766 -5 -II
I. STANDARD OF REVIEW
The superior court granted the Estate' s motion for judgment on the pleadings. In reviewing
such an order, we examine the pleadings " to determine whether the claimant can prove any set of
facts, consistent with the complaint, that would entitle the claimant to relief." Parrilla v. King
County, 138 Wn. App. 427, 431, 157 P. 3d 879 ( 2007). Here, the Department notes that the motion
should have been treated as one for summary judgment because the parties presented matters
outside the pleadings to the superior court, e. g., the pending legislation. Summary judgment is
appropriate where, viewing the evidence in the light most favorable to the nonmoving party, there
is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.
Loeffelholz v. Univ. of Wash., 175 Wn.2d 264, 271, 285 P. 3d 854 ( 2012).
Here, the superior court' s decision to grant judgment on the pleading rather than summary
judgment does not affect the outcome of this appeal. In a tax case, we review a superior court' s
legal conclusions de novo. Bracken, 175 Wn.2d at 562; Home Depot USA, Inc. v. Dept of
Revenue, 151 Wn. App. 909, 916, 215 P. 3d 222 ( 2009).
II. APPLICABILITY OF 2013 AMENDMENT
A. Final Judgment
The Estate argues that the retroactive amendment is inapplicable because the superior
court' s judgment ordering a refund was final. The Estate' s argument is predicated on its allegation
that it had a judgment for the refund amount that should have been final but for the Department' s
frivolous appeal filed solely for the purpose of delay.
Hambleton rejected a similar argument. 181 Wn.2d at 835- 36. The Hambleton Estate
argued that the superior court' s ruling was final at the time the legislature enacted the legislation,
and therefore, the amendment should not apply to it. Hambleton, 181 Wn.2d at 835. The
E
44766 -5 -II
Hambleton Estate arrived at this conclusion by arguing that the Department had no basis in law to
appeal the order granting summary judgment because the Department appealed the order before
the amendment was enacted. Hambleton, 181 Wn.2d at 835- 36. The Supreme Court found the
Hambleton Estate' s reasoning unpersuasive:
Generally, "[ w]hen a new law makes clear that it is retroactive, an appellate
court must apply that law in reviewing judgments still on appeal that were rendered
before the law was enacted, and must alter the outcome accordingly." [ Plaut v.
Spendthrift Farm, Inc., 514 U. S. 211, 226, 115 S. Ct. 1447, 131 L. Ed. 2d 328
1995)]. Therefore, despite the existence of a " final" trial court ruling, retroactive
amendments may apply to cases pending on appeal.
A party may appeal final trial court judgments. RAP 2. 2( a)( 1). However,
parties may not frivolously appeal or appeal simply fordelay. RAP
purposes of
18. 9( c). Appellate courts will, on motion from the opposing party, dismiss frivolous
appeals and appeals brought for purposes of delay. RAP 18. 9( c).
Here, the trial court entered its order granting summary judgment on April
19, 2013 and [the Department] filed a notice of appeal on May 16, 2013. The estate
of Hambleton did not move under RAP 18. 9( c) to dismiss the appeal, and the appeal
was still pending when the legislature enacted the 2013 amendment. Therefore, the
retroactive amendment applies to the case.
Hambleton, 181 Wn.2d at 836.
Here, the Estate acknowledges that the Supreme Court rejected a similar argument in
Hambleton, but it argues that this case is distinguishable on its facts from Hambleton. Unlike in
Hambleton, here the Estate moved to dismiss the Department' s appeal under RAP 18. 9( c). The
Estate argued that the appeal was frivolous and filed solely for the purpose of delay. Our
commissioner denied the Estate' s motion to dismiss. The Estate moved to modify the
commissioner' s ruling, but we denied that motion. The Estate argues that by filing the motion to
dismiss, it " satisfied its necessary procedural predicate to being able to now argue [ that the
Department] had no legitimate basis for its appeal when it was filed, rendering the refund judgment
0
44766 -5 - II
in the Estate' s favor final and not subject to [ the retroactive amendment]." Supp. Br. of Resp' t at
11.
RAP 18. 9( c) provides that we " will, on motion of a party, dismiss review of a case ... if
the application for review is frivolous, moot, or solely for the purpose of delay." An appeal is
frivolous if, considering the entire record, it presents no debatable issues upon which reasonable
minds might differ and it is so devoid of merit that there is no reasonable possibility of reversal.
In re Guardianship of Wells, 150 Wn. App. 491, 504, 208 P. 3d 1126 ( 2009).
The Estate argues that the Department' s appeal was solely for the purpose of delay because
its only aim was to prevent the judgment from becoming final before the legislature enacted the
amendment. The Department argues that its appeal was not frivolous because it had a good -faith
belief that Bracken was wrongly decided and should be overruled by the Supreme Court and that
the legislature would amend the controlling law based on pending legislation.
We agree with the Department that its appeal was not frivolous when filed because the
Department made a good -faith argument for overruling Bracken. The Department argued that
Bracken should be overruled at every opportunity. It also noted that it may request a transfer to
the Supreme Court under RAP 4.4. Furthermore, the Department anticipated " that the controlling
law may be retroactively amended by the Washington Legislature during the 2013 legislative
session." Department' s Opposition to Motion to Dismiss ( filed May 13, 2013) at 4. As noted in
its response to the motion to dismiss, legislation had already been introduced. Under these
circumstances, we conclude that the Department' s appeal was not frivolous or filed solely for the
purposes of delay.
The Estate urges us to hold that the judgment in this case should be deemed final as of the
date the superior court ordered the refund. But the Estate does not cite persuasive authority for
7
44766 -5 -II
decline its invitation. "` Where no authorities are cited in support of a
proposition3
this and we
proposition, the court is not required to search out authorities, but may assume that counsel, after
diligent search, has found none."' State v. Logan, 102 Wn. App. .907, 911 n. 1, 10 P. 3d 504 ( 2000)
quoting DeHeer v, Seattle Post—Intelligencer, 60 Wn.2d 122, 126,- 372 P. 2d 193 ( 1962)). We
cannot ignore the fact that because of the appeal, the judgment was not final. Accordingly, we
reject the Estate' s final judgment argument.
B. Due ProcessNested Right
The Estate argues that applying the retroactive amendment violates due process by
depriving the Estate of its vested right to a refund. We disagree.
A party alleging a due process violation must first establish a legitimate claim of
entitlement to the life, liberty, or property at issue. Willoughby v. Dep' t of Labor & Indust., 147
Wn.2d 725, 732, 57 P. 3d 611 ( 2002). "` A statute may not be applied retroactively to infringe a
vested right."' Hambleton, 181 Wn.2d at 828 ( quoting In re Pers. Restraint ofCarrier, 173 Wn.2d
791, 810, 272 P. 3d 209 ( 2012)).
This notion finds root in the due process clauses of the Fifth and Fourteenth
Amendments. While due process generally does not prevent new laws from going
into effect, it does prohibit changes to the law that retroactively affect rights which
vested under the prior law....
3 The Estate relies on Hambleton, but Hambleton does not support it. The Estate relies entirely on
the Supreme Court having mentioned that the Hambleton Estate did not file a motion to dismiss
the appeal. See Hambleton, 181 Wn.2d at 836. The Supreme Court referred to RAP 18. 9( c) to
explain that a mechanism exists for litigants to seek dismissal of frivolous appeals. The Hambleton
Estate did not take advantage of it, and thus, the appeal was still pending. Hambleton, 181 Wn.2d
at 836. Here, the Estate used RAP 18. 9( c), but it was not successful in having the appeal dismissed;
thus, the appeal was still pending. The dispositive fact in Hambleton was that the appeal was still
pending when the legislature amended the statute. And the same is true here.
3
44766 -5 -II
A] vested right, entitled to protection from legislation, must be
something more than a mere expectation based upon an anticipated
continuance of the existing law; it must have become a title, legal or
equitable, to the present or future enjoyment of property, a demand,
or a legal exemption from a demand by another."
Hambleton, 181 Wn.2d at 828- 29 ( second alteration in original) ( quoting Carrier, 173 Wn.2d at
811 ( quoting Godfrey v. State, 84 Wn.2d 959, 963, 530 P. 2d 630 ( 1975))). It is undisputed that
under the amended tax statutes, the QTIP property at issue must be included in the Estate' s taxable
estate. See RCW 83. 100. 020( 14), ( 15); Hambleton, 181 Wn.2d at 809. Therefore the Department
does not owe the Estate a refund for taxes it paid on the QTIP property. We reverse the superior
court's order and remand to the superior court for entry of judgment in the Department' s favor on
the principal tax issue.
III. INTEREST ISSUES
The Estate argues that even if it is not entitled to a refund of any of the principal estate tax
paid under protest, the tax attributable to the QTIP property was not due until the legislature
amended the law on June 14, 2013. Therefore, the Estate urges us to order the Department to
refund the interest paid under protest by the Estate, to pay interest on the interest paid under protest,
and to pay interest on the principal tax paid under protest from the payment date until the effective
date of the amendment. The Department argues that we should not address these interest issues
because they were not raised before the agency. We conclude that the Estate is entitled to raise
these new interest issues, but it must first present its arguments and requests for interest to the
Department for its consideration.
Generally, under the APA, issues not raised before the agency may not be raised on appeal.
RCW 34. 05. 554. However, a party may raise a new issue on appeal if "[t] he interest of justice
would be served by resolution of an issue arising from ... [ a] change in controlling law occurring
0
44766 -5 - II
after the agency action." RCW 34. 05. 554( 1)( d)( i). Under those circumstances, "[ t] he court shall
remand to the agency for determination." RCW 34. 05. 554( 2).
Here, the interest issues raised in the Estate' s supplemental brief were not presented to the
Department .4 But justice would be served by resolving the interest issues, which arose from a
retroactive change in law after the Department denied the Estate' s refund request. Therefore, once
the superior court enters judgment in favor of the Department on the principal tax issue, we instruct
the superior court to remand this case to the Department for determination of the interest issues
l
raised in the Estate' s supplemental brief.
IV. ATTORNEY FEES
The Estate requests reasonable attorney fees and costs under RAP 18. 9 and RCW 4. 84. 185
for defending a frivolous appeal. An action is frivolous if, considering the action in its entirety, it
cannot be supported by any rational argument based in fact or law. Dave Johnson Ins., Inc. v.
Wright, 167 Wn. App. 758, 785, 275 P. 3d 339 ( 2012). The Department successfully appealed the
superior court' s judgment ordering it to refund taxes paid on the Estate' s QTIP property.
Therefore, this action was not frivolous, and we deny the Estate' s attorney fee request.
We reverse the superior court's order in the Estate' s favor, and remand to the superior court
with instructions for it to enter a judgment in the Department' s favor on the principal tax issue and
then remand. the case to the Department for determination of the additional issues.
4 The Estate requested that the Department refund the tax and interest paid and that it pay interest
on those amounts, based on its argument that .the principal tax was not owed and would be
refunded. The Estate now requests the Department ( 1) refund the interest paid, ( 2) pay interest on
the interest paid, and ( 3) pay interest on the principal tax paid despite that the principal tax is owed
and will not be refunded. Because of the fundamentally different underlying bases for relief, the
interest issues the Estate raised on appeal constitute new issues that it must present to the
Department.
10
44766 -5 -II.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be. filed for public record in accordance with RCW 2. 06. 040,
it is so ordered.
Melnick, J.
7
We concur:
0Worswicic, J.
Johanson, C. J.
11