there is no time limit for recovery of over payments made to retro agencies.
On October 2, 2009, Senator Adam Kline and Representative Maralyn Chase sent separate emails to the Attorney General providing him with the State laws listed above and asking him to clarify why he had advised L & I that there was a three year time limit.
On October 9, 2009, the Attorney General’s office responded to Representative Chase’s request by stating that he would not answer her questions due to “attorney client” privilege. Such privilege does not exist because L & I has already publicly acknowledged the contents of the advice in numerous press releases.
Since this issue involved a huge amount of money and since the Attorney General’s advice is contrary to the above State laws, the public and the legislature are entitled to know the legal reasons for the Attorney General’s refusal to recover one billion dollars of the tax payers money.
On Friday, October 23, 2009, in order to figure out a solution to this problem, Senator Jim Kastama arranged for me to meet with Mac Nicholson, a non-partisan Senate attorney who helped draft Senate Bill 6035 (the Retro Reform bill) which passed the Senate in 2009 and also passed two House Committees, but is currently held up in the House Rules Committee.
At this meeting, I presented Mac with some proposed amendments aimed at reducing the chance of Retro over payments in the future. Mac agreed to consider the amendments and agreed that the Retro Program needed more disclosure and better transparency.
Legal Argument In Support of a Three Year Time Limit
Mac also discussed potential legal arguments that the Attorney General might use to support his claim that there is a three year time limit. Mac stated that the legal argument was likely related to the fact that legal orders issued by L & I are considered “final” if affected parties, such as retro agencies, do not file an appeal within 60 days. Since retro programs are subject to a final “adjustment” back to 45 months, L & I might only have a right to adjust contracts back to that final adjustment period.
For example, RCW 51.52.060 states:
… a worker, beneficiary, employer, health services provider, or other person aggrieved by an order, decision, or award of the department must, before he or she appeals to the courts, file with the board and the director, by mail or personally, within sixty days from the day on which a copy of the order, decision, or award was communicated to such person, a notice of appeal to the (Industrial Insurance Review) board.
In addition, RCW 51.16.190 (2) Limitation on (Workers Comp) collection actions, states:
Any action to collect any delinquent premium, assessment, contribution, penalty, or other sum due to the department from any employer subject to this title shall be brought within three years of the date any such sum became due.
Mac encouraged me to review the case law on these two statutes. On a surface level, the case law appears to support the 60 day final order argument and the three year time limit.
For example, in Kingery v Department of Labor and Industries (1997), 132 Wn.2d 162, 937 P.2d 565, our Supreme Court refused to re-open a widow’s claim for death benefits even though she had recently obtained new evidence that the original Order, issued 8 years earlier, had denied her death benefits based on mistakes made by L & I and the County Coroner.
In a split four to three decision, our Supreme Court overturned the trial court which had overturned the Industrial Review Board. The Supreme Court relied on Marley v. Department of Labor & Indus., 125 Wn.2d 533, 886 P.2d 189 (1994):
In Marley, the claimant sought to overturn an unappealed Department order six years after she was denied benefits, alleging an error of law in the decision. We held her failure to appeal within the required 60 days precluded her from raising the issue, even where the decision by the Department may have been wrong; an erroneous decision by the Department which was not timely appealed is final and binding on all parties, and cannot be reargued by a claimant. Marley, 125 Wn.2d at 542-43.
The Kingery Opinion went on to state: Under the system for handling industrial claims and the principles enunciated in Marley, the Department has exceedingly limited authority to set aside its own unappealed orders. …Mrs. Kingery points to no other basis for allowing the Department to exercise authority to set aside unappealed final orders.
Thus on the surface, it appears as if L & I and the tax payers are stuck with L & I’s final orders even if those Orders are based upon hundreds of millions of dollars in errors made by L & I.
Legal Argument that there is NOT a Three Year Time Limit
Thankfully for the tax payers, for several reasons discussed below, this is not even remotely the case. First, we need to look more closely at the Kingery case to see what really happened. First of all, the majority of our Supreme Court did NOT agree with the claim that unappealed Orders were final even when L & I made a mistake. In fact, only three members of the Supreme Court agreed with this Opinion.
There was also a dissenting, but majority Opinion written by Justice Alexander and supported by a total of four Supreme Court Justices, which agreed with the trial court that final unappealed Orders of L & I could be reviewed even beyond the time limits for review if such review was required by the “equitable power of the court.”
Justice Alexander’s Opinion was based upon Article 4, Section 6 of the Washington State Constitution which states:
“Superior courts and district courts have concurrent jurisdiction in cases in equity. The superior court shall have original jurisdiction in all cases at law which involve the title or possession of real property, or the legality of any tax, impost, assessment, toll, or municipal fine..”
Whenever there is a conflict between two statutes, the court must decide which of the two statutes is the “controlling” statute. Our State Constitution trumps all other State laws. Thus, as Justice Alexander pointed out in his Opinion, our Superior Court is always permitted to rule on cases of equity or fairness:
“In concluding that equitable considerations justified judicial intervention to reopen Kingery's claim, the trial court relied on this court's decision in Abraham v. Department of Labor & Indus., 178 Wash. 160, 34 P.2d 457 (1934). In Abraham, we discussed the finality of unappealed orders of the Department and said this court has long recognized that an unappealed Department order is final "unless fraud, or something of like nature, which equity recognizes as sufficient to vacate a judgment, has intervened." Abraham, 178 Wash. at 163. “
“Despite being faced with evidence which would have justified an award of benefits had it been presented in 1983, the Department and Board refused to allow her to reopen her claim. It was only then that she sought the intervention of the superior court. These facts cry out for the equitable relief that the trial court granted to her.”
Justice Alexander pointed out that there was a power differential between Mrs. Kingery and the Department of Labor ad Industries such that it was reasonable for Mrs. Kingery to assume the Department was correct which was what caused her to fail to appeal:
“In light of those circumstances and the additional fact that she was given information by officials of the government which pointed toward her not having a valid claim for widow's benefits her decision to not appeal is understandable. Despite these setbacks, she attempted to learn the facts and was rebuffed at every turn until she was finally able to obtain the necessary evidence through extra-judicial means.”
The deciding vote in Kingery was cast by Justice Madsen who wrote: “I agree with Justice Alexander that the court's equitable powers are not limited to cases where it is shown that the claimant is essentially incompetent… I agree with the majority, however, that the claimant in this case failed to diligently pursue her rights.”
Thus, this case was NOT decided on the basis that L & I cases are unappealable past the statute of limitations, but it was decided based upon the contention of the majority that Mrs. Kingery could have discovered the evidence of error by the County Coroner sooner.
In fact, because Justice Alexander’s Opinion was in the majority on the issue now in question, the case summary for this case states:
Order - Erroneous Decision - Equitable Relief - Grounds - Inability to Obtain Facts - Circumstances Beyond Claimant's Control. An unappealed, erroneous decision by the Department of Labor and Industries on a claim for industrial insurance benefits may be vacated, and the claim reargued, if the claimant's failure to seek timely review was the result of frustrated attempts to obtain the true facts of the case owing to circumstances largely beyond the claimant's control. [See concurring opinion of Madsen, J., and dissenting opinion of Alexander, J.]
A Recent Retro Case: The Fields Exception:
In 2002, a Retro employer appealed a decision by L & I (Fields Corp. v. Dep't of Labor & Indus. (2002) 112 Wn. App. 450) based on a claim filed in 1995. Fields had the right to appeal the order within 60 days. It did not, because it "had no information on which to do so."
Three years later, Fields received evidence from an expert witness proving that the 1995 L & I Order had been made in error. Fields therefore filed a petition for review with the Industrial Insurance Review Board. They denied his petition because the 1995 Order had become a final order when Fields failed to appeal it in 60 days. Fields appealed this decision to Superior Court claiming that “despite every effort of due diligence” Fields could not have known that the 1995 decision had been made in error. Thus, Fields asked for “equitable relief.”
The Court granted equitable relief for Fields stating: “The Department acknowledged that the "Washington State Constitution provides equity power to the courts," and that the Industrial Insurance Act "cannot and did not alter this power." Relying on Kingery v. Department of Labor & Industries, the Department then argues that this power "is extremely limited," and that it either cannot or should not be applied here.”
The Court disagreed with L & I. Instead, the Court found that Fields had “valid reasons” for not questioning the original final order. These “circumstances” justified granting Fields relief from the Statute of Limitations:
“ The parties have stipulated that "it was impossible" - not just difficult or impractical - for Fields to have known within the 60 days prescribed for appeal that Pierce's two claims were really only one claim. Thus, Fields cannot be faulted for not appealing by December 1, 1995. …Thus, to withhold relief would be to sanction the Department's collection, from a citizen of this State, an amount the Department knows is not due… Here, we hold that an employer should be permitted to litigate a claim that the Department does not dispute, and that the employer had valid reasons for not litigating earlier. Declining to endorse the Department's attempt to collect from a citizen of this State an amount the Department knows truth will not support, we conclude that the trial court did not err by granting equitable relief.”
This ruling, which discussed the Kingery ruling at length, has since become known in subsequent cases as the “Fields Exception” to the general rule that L & I final orders cannot be reviewed. Certainly if retro employers are entitled to re-open “final orders” based upon the fact that they could not have possibly known that they were being over charged, L & I should be able to re-open final orders based upon the fact that they could not have possibly known they were under-charging retro employers. To do otherwise is to sanction NOT collecting an amount the Department knows is due.
3 Year Statute of Limitations Applies only to “Collections” of Defaults
There is another case which supports the contention that there is no time limit on recovery of over payments owed the State. In FLOOR DECORATORS v. LABOR& INDUS. (1986) 44 Wn. App. 503, 722 P.2d 884, the employer claimed that they should not have to pay L & I because the amount owed was beyond the 3 year statute of limitations as specified in RCW 51.16.190 (2). The Court disagreed, pointing out that this three year time limit was only intended to apply to cases of “collections” which in turn are based upon employer “default.” Since the amount owed was not from a default, the three year time limit simply did not apply:
Industrial Insurance - Assessment for Default - Increased Premiums - Review.
A notification of an increase in premiums, issued under RCW 51.52, is not the equivalent of an assessment of default under RCW 51.48, I.E., it is not a claim by the Department of Labor and Industries that an employer had failed to pay or had omitted payment of industrial insurance premiums.
“The dispute centers upon the duty to pay, and is not related to the steps to be taken because of a refusal to pay…“The aforementioned (3 year) statute of limitations serves to limit the time in which the Department may bring an action to collect delinquent premiums. The proceeding before the Board, as we have already noted, was not a collection action. “ (emphasis added).
Similarly, an Order to recover over payments is not a collection action because Retro agencies are not in default. They are simply being required to return over payments to which they were not entitled to receive.
What are the Controlling Statutes in the Retro Over Payment Recovery Case?
Controlling Statute #1 The most controlling statute is Article 4, Section 6 of the Washington State Constitution which states: “Superior courts and district courts have concurrent jurisdiction in cases in equity. The superior court shall have original jurisdiction in all cases at law which involve the title or possession of real property, or the legality of any tax, impost, assessment, toll, or municipal fine..”
There are at least two reasons Article 4 Section 6 of our State Constitution applies:
First, there is the equity question. It would be extremely unfair to the tax payers and to non-retro employers if retro employers were not required to return the hundreds of millions of dollars in over payments. Failure to require return of over payments hurts the public because, the loss of hundreds of millions of dollars from the Accident Fund (a part of the State Treasury) must be made up by increased Workers Comp premiums, and possibly even other taxes, which will ultimately have to be paid by the public. Failure to require pay back of over payments would hurt non-retro employers even more. Not only would they be subjected to higher Workers Comp rates, but they would not be able to fairly compete with retro employers since retro employers would have hundreds of millions of tax payers dollars with which they could drive non-retro employers out of business by offering lower prices.
In Reed v. Cunningham, 126 Iowa 302, 101 N. W. 1055, the Court said: "…such refusal or neglect (of State officers to protect the public interest) is the very basis on which equity will take jurisdiction; for otherwise the taxpayer whose interest is indirect would be utterly without remedy. But for the right to invoke the aid of a court of equity, officers might plunder the public treasury with entire immunity so long as they, or others for them, continue in control of the governing body."
Second, the retro overpayment recovery issue involves the legality of a “tax” and/or “assessment.” This is because all premiums and payments to and from the Department of Labor and Industries are in fact taxes. The following is in the Introduction section of the Industrial Insurance (Workers Compensation Program) Act:
"Amount," "payment," "premium," "contribution," "assessment."
Wherever and whenever in any of the provisions of this title relating to any payments by an employer or worker the words "amount" and/or "amounts," "payment" and/or "payments," "premium" and/or "premiums," "contribution" and/or "contributions," and "assessment" and/or "assessments" appear said words shall be construed to mean taxes, which are the money payments by an employer or worker which are required by this title to be made to the state treasury for the accident fund, the medical aid fund, the supplemental pension fund, or any other fund created by this title.
Thus, the claim that L & I’s final Orders cannot be subject to equitable review is not supported either by Case Law or by our State Constitution.
Controlling Statute #2 RCW 4.16.160.
According to Senator Adam Kline, who is the Chair of the Senate Judiciary Committee and an attorney with more than 30 years of legal experience, Chapter 4.16 is the most important or “controlling statute” because it defines the Statutes of Limitations for all causes of action. The specific section which applies to this case is RCW 4.16.160 which states:
RCW 4.16.160 Application of limitations to actions by state, counties, municipalities.
The limitations prescribed in this chapter (RCW 4.16) shall apply to actions brought in the name or for the benefit of any county or other municipality or quasi-municipality of the state, in the same manner as to actions brought by private parties: PROVIDED, That, except as provided in RCW 4.16.310, (a statute which applies to defects in building construction) there shall be no limitation to actions brought in the name or for the benefit of the state, and no claim of right predicated upon the lapse of time shall ever be asserted against the state…
The most recent Supreme Court case deciding an issue related to RCW 4.16.160 was
Wash. State Major League Baseball Stadium Pub. Facil. Dist. v. Huber, Hunt & Nichols-Kiewit Constr., Co, et. al., Supreme Court Docket # 81029-0. The Opinion was filed on March 5, 2009. This case concluded that a State agency (in this case the State Public Facilities District or PFD) was entitled to collect more than $2.46 million dollars in damages involving SAFECO field repairs even though the normal Statute of Limitations had expired. The Supreme Court ruled that there was no Statute of Limitations on debts owed a State agency.
Justice Stephens, who wrote the Supreme Court Opinion then explains when and why there is not Statute of Limitations on debts owed a State agency:
“We have found an action to be “for the benefit of the state” under RCW 4.16.160 where it involves a duty and power inherent in the notion of sovereignty or embodied in the state constitution. WPPSS, 113 Wn.2d at 296. For example, in Bellevue School District No. 405 v. Brazier Construction Co., 103 Wn.2d 111, 115-16, 691 P.2d 178 (1984), we held that a school district could bring tort claims for design and construction defects 20 years after completion because in building schools the district was acting in its sovereign capacity.
Similarly, we have held that actions arising out of the sovereign power of taxation are not subject to the bar of a statute of limitations. Gustaveson v. Dwyer, 83 Wash. 303, 309-10, 145 P. 458 (1915); Commercial Waterway Dist. No. 1 v. King County, 10 Wn.2d 474, 479-80, 117 P.2d 189 (1941); City of Tacoma v. Hyster Co., 93 Wn.2d 815, 821, 613 P.2d 784 (1980); Allis-Chalmers Corp. v. City of North Bonneville, 113 Wn.2d 108, 112, 775 P.2d 953 (1989).
This court in Gustaveson stated: It is apparent from the doctrine of these authorities that a general statute of limitations has no application, whether the tax sought to be collected is to become the property of the state and payable directly into the state treasury, or whether it is to become the property of the particular county or municipality and payable into the municipal treasury to be expended for municipal purposes. In either case the tax has been imposed and collected for the express purpose of carrying on the functions of government. . . . All of the rights of the county here involved are traceable to and rest in the sovereign power of taxation. Gustaveson, 83 Wash. at 309-10.
Another relevant case was HERRMANN v. CISSNA et al., 82 Wn.2d 1, 507 P.2d 144 decided by the Washington State Supreme Court on March 1, 1973. This case is relevant because it involves the obligations of an insurance company (such as the Retro Insurance companies).
In this case, the State Insurance Commissioner brought an action in King County Superior Court against an insurance company. The Insurance Company filed a motion for partial summary judgment contending the State’s claim for $661,000 was time barred by the Statute of Limitations. King County Superior Court granted the insurance companies motion. In a unanimous Opinion, the Washington State Supreme Court found that there is no time limit to State claims and thus reversed the trial court.
Justice Rosellini writing for the Supreme Court noted:
“The respondents (Insurance company) suggest that this provision (RCW 4.16.160) is inapplicable because the action is not brought in the name of the state itself but rather in the name of the Insurance Commissioner. We held in Smith v. Hopkins, 10 Wash. 77, 38 P. 854 (1894), that it was immaterial whether an insurance commissioner's action to recover assets of the corporation was brought in his own name or in the name of the state…
The fourth relevant case was State v Vinther, just discussed by Justice Rosellini in which the Supreme Court found that the Workers Compensation Act was specifically in accordance with the “sovereign powers of the State.”
We discussed the public policy considerations which prompted the enactment of the workmen's compensation act and said of it: The act, as a whole, is the exercise of a governmental function in the fullest sense of the word, having its support in the police power of the state. 176 Wash. at 394.
In conclusion, recovery of claims by the Workers Comp program meets the tests of RCW 4.16.160 and thus is not time barred by the Statute of Limitations.
Controlling Statute #3 : RCW 51.48.260.
RCW 51.48.260 states: Liability of persons unintentionally obtaining erroneous payments. Any person, firm, corporation, partnership, association, agency, institution, or other legal entity, but not including an industrially injured recipient of health services, that, without intent to violate this chapter, obtains payments under Title 51 RCW to which such person or entity is not entitled, shall be liable for: (1) Any excess payments received; and (2) interest on the amount of excess payments at the rate of one percent each month for the period from the date upon which payment was made to the date upon which repayment is made to the state.
This statute is different from RCW 4.16.160 in that it applies specifically to cases involving payments received under Title 51 RCW (in other words to payments received under the Workers Compensation Act including over payments made to Retro agencies). RCW 51.48.260 requires repayment of “excess payments received” including interest - even when there was no intent to violate the Chapter.
There are only two citable cases regarding this statute. Both specifically concluded that claims owed the Workers Compensation program are NOT time barred.
The first case, decided by Division Two of the Court of Appeals on March 19, 1999 is Dept of Labor and Industries v. Kantor, (1999) 94 Wn. App. 764. The primary issues were what the words “entitled” and “excess payments” meant in RCW 51.48.260.
Division Two reversed the trial court and held that the Department of Labor and Industries has a statutory right under RCW 51.48.260 to recover “any excess payments.” Thus, when a payment has been later determined to be in excess of what the payee was “entitled to receive”, L & I (and the State’s tax payers) can recover the tax payers money back without limitation as to the reason the excess payment was made to the provider, even if there was no intention to violate the Workers Compensation Act.
In a unanimous Opinion, Division Two wrote: “If a health care provider, acting without intent to violate the Act, "obtains payments" to which he or she is not "entitled," the provider is liable for "any excess payments received" and any applicable interest on such excess payments. RCW 51.48.260.”
Here is how Division Two defines the word “entitled:”
“Neither the Industrial Insurance Act, the medical aid rules, nor case law defines "entitled" as that term is used in RCW 51.48.260. Nor does the legislative history provide guidance. Thus, we resort to extrinsic aids, such as dictionaries, to find the word's ordinary meaning. Brenner v. Leake, 46 Wn. App. 852, 854-55, 732 P.2d 1031 (1987).
A legal definition of "entitle" is "to give a right or legal title to" something. BLACK'S LAW DICTIONARY 477 (5th ed. 1979). A more common meaning is to "furnish with proper grounds for seeking or claiming something." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 758 (3d ed. 1969).
Here, Kantor did not have a legal right to payment… And the audit authorized by RCW 51.36.100 provides the basis for L&I to take "corrective action," including …recoupment of payments made to the provider, together with interest.
Because the Act authorized Kantor to bill L&I for proper and necessary treatment only, Kantor's bill for medically unnecessary treatment did not provide "proper grounds" for or a "right or legal title" to payment by L&I. Because Kantor was not "entitled" to receive payment for improper treatment, he is liable to L&I for those monies as "excess" payments. RCW 51.48.260.
RCW 51.48.260 focuses on the repayment of funds to which the payee was not entitled.«10» Because Kantor is a payee of funds to which he was not entitled, the statute authorized L&I to demand a refund.
Here is how Division Two defines the term “excess”:
Thus excess merely means more than what the payee was entitled to receive even if that amount in excess was determined after the payee had received the payment.
What is the correct process for getting the Attorney General to enforce State law?
The Attorney General has at least three affirmative duties. The first is a legal duty to enforce and comply with existing State laws. The second is a financial duty to minimize losses to the State Treasury. The third is a social duty to act in the public interest. In advising the Department of Labor and Industries that there was a three year time limit to recover over payments when in fact, under RCW 4.160.160 there was no time limit, the Attorney General failed to perform all three of the affirmative duties. First, the advice was clearly contrary to existing State law (RCW 4.16.160 among others). Second, the advice might cost the State Treasury more than one billion dollars. Third, the advice was not in the best interest of the public.
Paramount Duty of the Attorney General
The Attorney General’s letter to Representative Chase focuses on the Attorney General’s Duty to represent the Department of Labor and Industries – as if L & I were the Attorney General’s primary client. In fact, the Attorney General has a far greater duty to protect the public interest than to L & I.
In State ex rel. Dunbar v. State Bd. Of Equalization, 140 Wash. 433, 440, 249 P. 996 (1926), our Supreme Court stated: “(The Attorney General’s) paramount duty is the protection of the interest of the people of the state and, where he is cognizant of violations of the constitution or the statutes by a state officer, his duty is to obstruct and not to assist; and where the interests of the public are antagonistic to those of state officers, or where state officers may conflict among themselves, it is improper for the Attorney General to defend such state officers.”
Thus, where there is a conflict between protecting the public interest versus protecting the improper actions of employees of a State agency, the Attorney General has a higher duty to the pubic than to the employees of the State agency.
In Reiter v. Wallgren (1947), 28 Wn.2d 872, our Supreme Court discussed the possibility that an Attorney General might fail to protect the public interest: “The attorney general may be incompetent or corrupt, and may therefore refuse to institute proceedings to prevent actions however illegal, and the funds and property of the state be placed at the mercy of state officers, who, by corruption or incompetency, may produce or allow such a disposition of the property or funds of the state, during their term of office, and before they could be reached by the slow process of impeachment, as would practically ruin the state… We never have held that, in a proper case where the attorney general refused to act to protect the public interest, a taxpayer could not do so. We have not had occasion to pass upon such a question, and we trust we never shall. “
We are rapidly reaching the point where such a question might have to be asked. What can be done when the Attorney General refuses to act? Dunbar mentions the possibility of (the Governor) appointing a special prosecutor when the attorney general’s representation would conflict with the duty to represent and protect the interests of the people of the state. Dunbar (1926), 140 Wash. at 440-41.
Article III, Section 5 of Our State Constitution does charge the Governor with the responsibility to see that the laws are faithfully executed.
In Reiter v. Wallgren (1947), 28 Wn.2d 872, our Supreme Court stated:
"Under our form of government, it is the right and duty of the judicial department to interpret the law and declare its true meaning and intent. Equally, it is the right and duty of the executive department to see that the laws as thus interpreted are properly enforced. As the final right to determine the true intent and purpose of all laws is lodged in the supreme court of this state, so is the final determination as to their enforcement and execution lodged in the governor. “
Therefore, the proper course of action is to draft a Complaint to the Attorney General - pointing out the State laws which are not being enforced - and demanding that the Attorney General take action to enforce these laws. Hopefully, the Attorney General will then take the actions required by State law.
But if the Attorney General refuses to act within a reasonable time, such as 30 days, and fails to address the issues raised in the Complaint, then the next step would be to ask the Governor to appoint a special prosecutor to look in this matter. I realize this has never been done before. But we have never had an Attorney General refuse to act in a matter involving the recovery of over one billion tax payer dollars before.
As one final point, it is not merely the Attorney General’s duty to enforce State law and act in the public interest, it is also the duty of our Governor and every member of our legislature.
I therefore hope that we can work together to find a resolution to this problem which allows our State Treasury to recover the hundreds of millions of dollars in over payments which were improperly given to retro agencies.
Regards, David Spring M. Ed.
Director, Fair School Funding Coalition