WASHINGTON TRUCKING ASSOCIATIONS, a Washington nonprofit corporation; EAGLE SYSTEMS, INC., a Washington corporation, GORDON TRUCKING, INC., a Washington corporation; HANEY TRUCK LINE, INC., a Washington corporation; JASPER TRUCKING, INC., a Washington corporation; PSFL LEASING, INC., a Washington corporation; and SYSTEM TWT TRANSPORTATION d/b/a SYSTEM TWT, a Washington limited liability company, Respondents,
THE STATE OF WASHINGTON, EMPLOYMENT SECURITY DEPARTMENT; PAUL TRAUSE, individually and in his official capacity as the former Commissioner of the Employment Security Department, and JANE DOE TRAUSE, husband and wife and the marital community composed thereof; BILL WARD, individually and in his official capacity, and JANE DOE WARD, husband and wife and the marital community composed thereof; LAEL BYINGTON, individually and in his official capacity, and JANE DOE BYINGTON, husband and wife and the marital community composed thereof; JOY STEWART, a single individual, individually and in her official capacity; MELISSA HARTUNG, a single individual, individually and in her official capacity; ALICIA SWANGWAN, a single individual, individually and in her official capacity, Petitioners.
principal issue in this case is whether taxpayers may bring
federal or state tort claims to challenge tax assessments, or
instead must rely ' on the normal state tax appeals
process. The taxpayers here are trucking companies that were
assessed unemployment taxes after the Washington State
Employment Security Department audited and reclassified their
employment relationship with owner-operators who own and
lease out their own trucking equipment. The trucking
companies, joined by their trade organization, Washington
Trucking Associations, brought this suit in Thurston County
Superior Court, asserting a civil rights claim under 42
U.S.C. § 1983 and a state common law claim for tortious
interference with business expectancies.
The superior court dismissed the suit, holding that the
trucking companies must challenge the tax assessments through
the state tax appeals process. The Court of Appeals reversed
in part, holding that the comity principle precludes the
section 1983 claim only "to the extent that [Washington
Trucking Associations] and the [trucking companies] seek
damages based on the amounts of the assessments, but not to
the extent that they seek damages independent of the
assessment amounts." Wash. Trucking Ass'n v.
Emp't Sec. Dep't, 192 Wn.App. 621, 641, 369 P.3d
170 (2016). The appeals court further held that the exclusive
remedy provision of Washington's Employment Security Act,
RCW 50.32.180, bars the tort claim only "to the extent
that the claim is based on an allegation that the
reclassification of owner/operators as employees was
improper." Wash. Trucking Ass % 192 Wn.App. at
reverse the Court of Appeals and reinstate the superior
court's dismissal of both the federal and state claims.
FACTS AND PROCEDURAL HISTORY
Employment Security Act (ESA), Title 50 RCW, provides for the
"compulsory setting aside of unemployment reserves to be
used for the benefit of persons unemployed through no fault
of their own." RCW 50.01.010. Under the ESA,
"employers" pay '"contributions,
"' i.e. taxes, for persons engaged in
"employment, " i.e., employees. RCW 50.24.010; RCW
50.04.072, .100. Persons engaged in "employment"
include independent contractors so long as they perform
"personal services" under a contract and an
exemption does not apply. RCW 50.04.100, .140, .145.
Consistent with the statutory mandate for liberal
construction, RCW 50.01.010, courts construe exemptions to
the ESA narrowly. See Shoreline Cmty. Coll. Dist. No. 7
v. Emp't Sec. Dep't 120 Wn.2d 394, 406, 842 P.2d
authorizes the commissioner of the Washington State
Employment Security Department (Department) to administer the
State's unemployment compensation system, which includes
auditing employers. RCW 50.04.060; RCW 50.12.010; Clerk's
Papers (CP) at 220. Pursuant to that power, the Department
audited commercial trucking companies (Carriers) that lease
trucks from and secure the driving services of independent
contractors (owner-operators). The Department reclassified
the owner-operators as Carrier employees, resulting in
additional unemployment tax assessments on the Carriers. CP
at 222; see also RCW 50.24.070.
Carriers timely appealed the assessments to the Office of
Administrative Hearings pursuant to RCW 50.32.030. In that
tribunal, they filed a consolidated motion for summary
judgment, arguing that the owner-operators are independent
contractors or otherwise exempt from coverage; that federal
law preempts the ESA with respect to the owner-operators; and
that the tax assessments were based on biased, predetermined,
and politically motivated audits.
administrative law judge (ALJ) denied the Carriers'
motion, concluding I that the owner-operators are in
employment of the Carriers at least for their personal
driving services, and rejecting the Carriers' preemption
argument as a matter of law. The ALJ further stated that the
Carriers' challenges to the audits should be addressed at
a hearing on the merits. He subsequently remanded the matter
to the Department with instructions to reassess the
taxability of the payments attributable to (1) equipment
rental, (2) out-of-state driving services, and (3) corporate
services. CP at 299-301, 303-04; see also
RCW 50.04.110, .165, .320(2).
the ALJ's remand order, the Carriers and the Department
entered into settlement negotiations. Believing a settlement
had been reached, the Carriers brought a motion to enforce
the agreement before the ALJ. After the ALJ ruled he lacked
authority to enforce the agreement, the Carriers obtained an
ex parte show cause order from Pierce County Superior Court.
The superior court concluded that a settlement had been
reached and entered an order enforcing the agreement.
Department appealed that order to Division Two of the Court
of Appeals, and the Court of Appeals reversed on
jurisdictional grounds. Eagle Sys., Inc. v. Emp't
Sec. Dep't, 181 Wn.App. 455, 457, 326 P.3d 764
(2014). Neither party sought review of that decision.
after the Department filed its appeal of the Pierce County
order, the Carriers and Washington Trucking Associations
(WTA) filed the present action in Spokane County
Superior Court against the Department and six of its current
and former employees. Upon the Department's motion, the
case was transferred to Thurston County Superior Court. The
Carriers repeated the allegations raised in their
administrative appeals, and along with WTA asserted a section
1983 claim against named Department employees as well as a
claim against the Department for tortious interference with
contracts and business expectancies. WTA and the Carriers
requested compensatory damages under both claims, as well as
punitive damages and attorney fees under the section 1983
County Superior Court dismissed the action with prejudice on
the Department's motion under CR 12(b)(6), failure to
state a claim, and CR 12(c), judgment on the pleadings. That
court orally ruled that (1) the Carriers must exhaust
administrative remedies before challenging their tax
assessments, (2) WTA lacks standing to sue under section
1983, and (3) the elements of tortious interference are not
met as a matter of law. Verbatim Report of Proceedings (VRP)
(June 13, 2014) at 39-40.
the Carriers sought direct review, but this court denied the
request and instead transferred the case to Division Two of
the Court of Appeals. Order, Wash. Trucking Ass 'n v.
State, No. 90584-3 (Wash. June 3, 2015). At the Court of
Appeals, WTA and the Carriers challenged only the superior
court's dismissal of their section 1983 claim and their
tortious interference with business expectancies claim.
See Br. of Appellants at 1 n.2.
Court of Appeals reversed in part and remanded to the
superior court for further proceedings on the surviving
claims. Wash. Trucking Ass 'n, 192 Wn.App. at
630. That court stated four relevant holdings: First, comity
does not bar WTA's and the Carriers' section 1983
claim to the extent the damages sought are unrelated to the
amount of the unemployment tax assessments. Second, whether
WTA has associational standing to file a section 1983 claim
cannot be determined without further factual development.
Third, neither RCW 50.32.180 nor the doctrine of exhaustion
of administrative remedies bars the Carriers' claim for
tortious interference so long as the claim is based on
allegations that the Department had improper motives or used
improper means in imposing its assessments. Fourth, the
Carriers state a claim for tortious interference with
contracts and business expectancies.
Department and its current and former employees then filed a
petition for review in this court, which we granted.
Wash. Trucking Ass 'ns v. Emp't Sec.
Dep,'t 186 Wn.2d 1016, 380 P.3d 522 (2016).
review CR 12(b)(6) and CR 12(c) dismissals de novo.
FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp.
Holdings, Inc., 180 Wn.2d 954, 962, 331 P.3d 29 (2014);
P.E. Sys., LLC v. CPI Corp., 176 Wn.2d 198, 203, 289
P.3d 638 (2012). "We treat a CR 12(c) motion . . .
identically to a CR 12(b)(6) motion." P.E.
Sys., 176 Wn.2d at 203. Dismissal under either
subsection is "appropriate only when it appears beyond
doubt" that the plaintiff cannot prove any set of facts
that "would justify recovery." San Juan County
v. No New Gas Tax, 160 Wn.2d 141, 164, 157 P.3d 831
(2007); P.E. Sys., 176 Wn.2d at 210. On review, we
presume the truth of the allegations and may consider
hypothetical facts not included in the record.
FutureSelect, 180 Wn.2d at 962; P.E. Sys.,
176 Wn.2d at 211.
superior court dismissed WTA's and the Carriers'
section 1983 and tortious interference claims because they
failed to follow the procedures provided under the ESA and
the Administrative Procedure Act (APA), chapter 34.05 RCW. We
must decide whether these claims belong in court, and if so,
whether they have merit. We discuss each claim in turn.
WTA's and the Carriers' Section 1983 Claim Is Barred
under the Comity Principle
the Carriers assert a section 1983 claim against Department
employees in their individual capacities,  arguing that the
Department employees violated the Carriers'
constitutional rights when they targeted the trucking
industry and performed audits that were designed to find an
employment relationship and tax liability. CP at 221-22, 224.
The Department contends that the comity principle bars this
federal law claim because the state law process for
challenging tax assessments is adequate. Suppl. Br. of
Emp't Sec. Dep't at 4-5 (hereinafter Pet'rs'
Suppl. Br.). WTA and the Carriers respond that the comity
principle does not apply here, and even if it does apply
their claim survives because the state law process is
inadequate. Wash. Supreme Court oral argument, Wash.
Trucking Assocs. v. State, No. 93079-1 (Jan. 19, 2017),
at 25 min., 10 sec. through 26 min., 26 sec, recording
by TVW, Washington State's Public Affairs Network,
http://www.tvw.org; see also Resp'ts' Answer
to WSAMA Amicus Br. at 12-15. We believe the
Department has the better argument. In holding that comity
bars the section 1983 claim, we consider in what contexts
comity applies, how to measure the adequacy of a state law
remedy, and what remedy is provided under Washington
Comity Bars State Courts from Awarding Damages under Section
1983 in State Tax Cases When State Law Provides an Adequate
general, "the notion of 'comity'" refers to
the federal government's "proper respect for state
functions." Younger v. Harris, 401 U.S. 37, 44,
91 S.Ct. 746, 27 L.Ed.2d 669 (1971). Comity carries
"'peculiar force' in suits challenging the
constitutionality of state" taxes because of "the
important and sensitive nature of state tax systems."
Fair Assessment in Real Estate Ass'n, Inc. v.
McNary, 454 U.S. 100, 108, 102, 102 S.Ct. 177, 70
L.Ed.2d 271 (1981) (citation omitted) (quoting Matthews
v. Rodgers, 284 U.S. 521, 525, 52 S.Ct. 217, 76 L.Ed.
447 (1932)). Indeed, as a matter of federalism "Congress
and [the United States Supreme] Court repeatedly have shown
an aversion to federal interference with state tax
administration." Nat'l Private Truck Council,
Inc. v. Okla. Tax Comm'n, 515 U.S. 582, 586, 115
S.Ct. 2351, 132 L.Ed.2d 509 (1995). As early as 1871, the
Supreme Court explained
It is upon taxation that the several States chiefly rely to
obtain the means to carry on their respective governments,
and it is of the utmost importance to all of them that the
modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is devolved
of collecting the taxes, may derange the operations of
government, and thereby cause serious detriment to the
Dows v. City of Chicago, 78 U.S. (11 Wall.) 108,
110, 20 L.Ed. 65 (1871).
"federal-court restraint in state tax matters was
[originally] based upon the traditional doctrine that courts
of equity will stay their hand when remedies at law are
plain, adequate, and complete." Fair
Assessment, 454 U.S. at 108 (citing Matthews,284 U.S. 521). However, "Congress also recognized that
the autonomy and fiscal stability of the States survive best
when state tax systems are not subject to scrutiny in federal
courts." Id. at 102-03. In 1937, Congress
enacted the Tax Injunction Act (TIA), 28 U.S.C. § 1341,
which states, "The district courts shall not enjoin,
suspend or restrain the assessment, levy or collection of any
tax under State law where a plain, speedy and efficient
remedy may be had in the courts of such State."