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Appellants, ) UNPUBLISHED OPINION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.
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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
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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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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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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
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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.
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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.”
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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.
...
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(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
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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
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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
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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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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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