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Dellen Wood Prods., Inc. v. Department of Labor & Indus.

Court of Appeals of Washington, Division 2

February 25, 2014

Dellen Wood Products, Inc., Appellant,
v.
The Department of Labor and Industries, Respondent

Oral Argument December 5, 2013.

Page 848

[Copyrighted Material Omitted]

Page 849

Appeal from Thurston Superior Court. Docket No: 11-2-01303-8. Date filed: 06/08/2012. Judge signing: Honorable H Christopher Wickham.

John F. Bury (of Winston & Cashatt ); and Howard M. Goodfriend and Ian C. Cairns (of Smith Goodfriend PS ), for appellant.

Robert W. Ferguson, Attorney General, and Steve Vinyard, Assistant, for respondent.

AUTHOR: J. Robin Hunt, J. We concur: Lisa Worswick, C.J., Joel Penoyar, J.

OPINION

Page 850

Hunt, J.

[179 Wn.App. 607] ¶ 1 Dellen Wood Products Inc. appeals the superior court's affirmance of the Board of Industrial Insurance Appeals' (Board) decision that Dellen defaulted on its obligations as a self-insured employer and thereby lost its right to its surety funds. Dellen's first argument presents an issue of first impression: whether the superior court erred in construing " default" under the Industrial Insurance Act [1] to mean a self-insured employer's failure to satisfy its legal obligations under the Act, instead of ruling that " default" means only a self-insured employer's failure to pay workers' compensation benefits. Dellen also argues that the superior court erred in ruling that (1) Dellen " defaulted" [2] under the Act even though it intended to " terminate" [3] its self-insured employer obligations under the Act; and (2) the Washington State Department of Labor and Industries (Department) did not violate Dellen's due process rights [4] in retaining the excess surety funds.

[179 Wn.App. 608] ¶ 2 We hold that as used in section RCW 51.14.020 of the Industrial Insurance Act, " default" means a self-insured employer's failure to satisfy any of its multiple legal obligations under the Act, not solely its failure to satisfy its single obligation to pay workers' compensation benefits. We further hold that substantial evidence supports the superior court's ruling that (1) Dellen defaulted as a self-insured employer when it stopped paying industrial insurance to its injured workers, ceased administering its injured workers' claims, turned over its claim files to the Department to administer, failed to file required reports, and failed to pay industrial insurance assessments; (2) Dellen has no right to recoup the remaining surety funds deposited with the Department; and (3) the Department did not violate Dellen's procedural due process rights because Dellen had (a) no property interest in the proceeds of its surety and (b) appropriate notice and an opportunity to be heard. We affirm.

FACTS

¶ 3 Beginning in 1986, Dellen Wood Products, Inc., operated as a self-insured employer under the Industrial Insurance Act; Dellen backed its obligation to pay its worker compensation claims directly to its injured employees [5] with a surety in an escrow account.

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In December 2001, Dellen ceased operations, sold its manufacturing equipment, and terminated its employees. From January 2002 to December 31, 2005, Dellen continued some operations with " leased" employees. Administrative Record (AR) at 95.

¶ 4 In January 2002, Dellen's Chief Financial Officer, Eugene Olsen, contacted Larry Wilkinson, the Department's [179 Wn.App. 609] self-insured certification manager, asking how the Department could take over the administration of Dellen's ongoing injured employee claims. Wilkinson told Olsen that the Department would take over administration of the claims only if Dellen " defaulted" ; Wilkinson advised Olsen to send a notice of " default." [6] Administrative Transcript (AT) at 44.

I. Dellen's Industrial Insurance Act Default

¶ 5 Soon thereafter, on January 18, 2002, Olsen sent the Department a letter (1) giving notice that Dellen was electing to " default" on payment of injured workers' claims under the Act's self-insured employer program,[7] and (2) asking the Department to take over administration of these claims.[8] AR at 111. Dellen provided the Department with a $422,853.81 surety deposit to cover these claims. In response, Wilkinson retrieved Dellen's injured employee claims files and turned them over to the Department. The Department administered these claims for almost two and a half years until the last Dellen employee claim closed in May 2004.

¶ 6 After Dellen's January 2002 default letter, (1) Dellen did not file quarterly or annual reports with the Department, (2) Dellen did not pay the Department any industrial insurance assessments, and (3) the Department paid Dellen's injured workers' claims. A year later, in January 2003, Wilkinson reported to Dellen that the Department had " assumed jurisdiction" over Dellen's workers' claims [179 Wn.App. 610] and that the surety bond's balance was $403,833.58. Administrative Record Exhibits (ARE) (Ex. 20).

¶ 7 A year later, in 2004, Dellen filed for bankruptcy. In connection with Dellen's bankruptcy proceeding, Wilkinson filed a declaration stating that (1) Dellen had surrendered its self-insurance certification to the Department on December 31, 2001; (2) Dellen had defaulted on its self-insurance obligations on January 31, 2002 (one month later); and (3) as a result of this default, Dellen has lost its right and title to any interest in and right to control its surety. ARE (Ex. 13).

¶ 8 Three years later, on June 19, 2008, Dellen sent the Department a letter requesting (1) the return of all but $20,000 of its remaining surety fund, and (2) treatment of its January 2002 letter as Dellen's written notice to terminate its status as a self-insurer under RCW 51.14.050 [9]. Dellen stated that the last day any employees had worked for Dellen had been December 31, 2001, and the last day Dellen had operated as a business had been September 30, 2005. The Department responded on July 28, stating that when Dellen sent its January 18, 2002 letter expressing intent to default on its self-insurance obligations, it lost all rights to the surety fund it had provided under RCW 51.14.020(2).

II. Procedure

¶ 9 On September 19, 2008, the Department issued an order reiterating its July 28

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decision that Dellen had lost all rights and interest to its surety fund when it defaulted in January 2002 and asked the Department to administer Dellen's injured employees' claims. Dellen appealed this Department order.

¶ 10 An Industrial Appeals Judge (IAJ) ruled that (1) Dellen had defaulted on its RCW 51.14.020(2) self-insured [179 Wn.App. 611] employer obligations and consequently lost its rights, title to, interest in, and any right to control the surety; (2) Dellen did not comply with WAC 296-15-121(8), which set forth requirements for a former self-insured employer that " terminates" its self-insurer status, instead of " defaults" on its obligations; and (3) therefore, Dellen had " defaulted" under WAC 296-15-125. The IAJ issued an order affirming the Department's September 19 2008 order and ruling that Dellen had forfeited all its interest in the surety fund. Dellen appealed the IAJ's decision to the Board.

¶ 11 The Board affirmed the IAJ's rulings and entered the following conclusions of law: (1) Dellen defaulted on its obligations as a self-insured employer under RCW 51.14.020(2) and, therefore, lost all right and title to, any interest in, and any right to control its surety; (2) Dellen had defaulted under WAC 296-15-125; and (3) Dellen did not comply with WAC 296-15-121(8) requirements for " terminating" its self-insurer workers' compensation program. The Board also affirmed the Department's September 19, 2008 order.

¶ 12 Dellen petitioned the superior court to review the Board's decision. The superior court made the following oral rulings: (1) " '[D]efault'" [10] under RCW 51.14.020(2)[11] means failure to fulfill a legal obligation, a broader definition than a self-insured employer's failure to pay claims; (2) Dellen defaulted on January 18, 2002 [12], when it submitted the letter electing to default and asking the Department to assume administration of workers' compensation payments to injured Dellen employees; (3) nevertheless, Dellen did not terminate its self-insurer status under RCW 51.14.050 [179 Wn.App. 612] because it did not comply with the statute's self-insurer notice of termination requirements and other obligations [13]; and (4) Dellen was entitled to a hearing on whether there had been a default, but after that hearing and a determination of default, there was no due process issue.

¶ 13 The superior court also affirmed the Board's September 18, 2008 order, entering the following findings of fact:

1.2 On December 31, 2001, Dellen [surrendered] its self-insurance certification because it was no longer a Washington employer and ceased to have any employees.
1.3 On January 18, 2002, Dellen's Chief Financial Officer, Eugene Olsen, sent a letter to the Department indicating that Dellen elected to default on its payment of claims under the self-insured program and requested the Department to take over the administration of its claims.
1.4 On January 31, 2002, Dellen stopped paying industrial insurance benefits to its injured workers and no longer administered its injured workers claims.
1.5 Dellen turned over its claim files to the Department for administration and payment of benefits. Dellen made no further payments or handled its claims after turning the claims over to the Department.
1.6 Since January 18, 2002, Dellen had not filed annual and quarterly reports as required by Title 51 ...

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