Cost Mgmt. Servs., Inc. v. City of Lakewood

• Decision Date: 10 October 2013
• Docket Number: No. 87964–8.,87964–8.
• Citation: 178 Wash.2d 635,310 P.3d 804
• Parties: COST MANAGEMENT SERVICES, INC., Respondent, v. CITY OF LAKEWOOD, a municipal corporation, and Choi Halladay, Assistant City Manager for Finance, Petitioners. Cost Management Services, Inc., Respondent, v. City of Lakewood, a municipal corporation, Defendant.
• Court: Washington Supreme Court

178 Wash.2d 635

310 P.3d 804

COST MANAGEMENT SERVICES, INC., Respondent,

v.CITY OF LAKEWOOD, a municipal corporation, and Choi Halladay, Assistant City Manager for Finance, Petitioners.

Cost Management Services, Inc., Respondent,

v.City of Lakewood, a municipal corporation, Defendant.

No. 87964–8.

Supreme Court of Washington, En Banc.

Oct. 10, 2013.

Heidi Ann Wachter, Matthew S. Kaser, City of Lakewood, Lakewood, WA, for Petitioner.

Franklin G. Dinces, The Dinces Law Firm, Gig Harbor, WA, Geoffrey P. Knudsen, Attorney at Law, Seattle, WA, for Respondent.

Mark David Orthmann, Porter Foster Rorick LLP, Seattle, WA, for Amicus Curiae on behalf of Washington State Assoc. of Municipal Attorneys.

GORDON McCLOUD, J.

[178 Wash.2d 638]¶ 1 For many years, Cost Management Services Inc. (CMS) made a certain tax payment to the city of Lakewood. In late 2008, upon examining the relevant regulations, CMS decided that it did not in fact owe the tax that it had been paying. In November 2008, it stopped paying the tax and it submitted a claim to Lakewood for a refund of taxes it had previously paid from 2004 to September 2008.

¶ 2 Lakewood did not respond to the request for a refund of the 2004–2008 tax payments. But six months later, in May 2009, it issued a notice and order to CMS demanding payment of past due taxes for a different time period—October 2008 to May 2009. CMS did not respond to the notice and order from Lakewood.

¶ 3 Instead, CMS sued Lakewood in superior court on its refund claim, asserting a state common law claim of money had and received. The trial court held a bench trial on that state law claim. The trial court found in favor of CMS, ruling that CMS did not owe the taxes it had paid to Lakewood. In addition, in a separate action, the trial court granted CMS's petition for a writ of mandamus ordering Lakewood to respond to the refund claim.

¶ 4 The Court of Appeals affirmed in a partially published opinion. Cost Mgmt. Servs., Inc. v. City of Lakewood, 170 Wash.App. 260, 284 P.3d 785 (2012). It first addressed Lakewood's argument that the trial court should have dismissed CMS's claim because CMS failed to exhaust its administrative remedies. The Court of Appeals reasoned that since Lakewood had never actually responded to the refund claim, CMS had no further administrative steps available to it on the refund claim, and thus exhaustion was not required. The appellate court also ruled that the trial court had properly issued the writ of mandamus. Lakewood sought review of the Court of Appeals' decisions on the exhaustion and the mandamus issues, and we accepted review. Cost Mgmt. Servs., Inc. v. City of Lakewood, 176 Wash.2d 1011, 297 P.3d 706 (2013). We affirm the Court of Appeals as to the exhaustion issue, but we reverse the Court of Appeals as to the mandamus issue.

FACTS

¶ 5 CMS is an energy consulting firm that arranges the purchase and delivery of natural gas for its customers from its offices on Mercer Island. Some of its customers are in Lakewood. Between 2004 and 2008, CMS paid a tax to Lakewood that CMS labeled, in its tax returns, an “occupation” tax. Report of Proceedings (RP) 12/13/10 (a.m.) at 98–99. CMS paid the tax through September 2008. During that month, though, CMS discovered that Lakewood did not charge any occupation tax. CMS had instead been paying an amount that apparently corresponded to Lakewood's “utility” tax. RP 12/14/10 (a.m.) at 281–82. Liability for that utility tax depended on CMS having a business license in, and doing business in, Lakewood. CMS believed that it was not a business in, and did not do business in, Lakewood. It therefore stopped paying the tax and wrote to Lakewood in November 2008 requesting a refund for taxes mistakenly paid between January 2004 and September 2008.

¶ 6 Lakewood did not respond to CMS's request. Instead, in May 2009, over six months after CMS's refund request, Lakewood sent CMS a “NOTICE AND ORDER/DEMAND FOR TAX PAYMENT.” Def.'s Ex. 3. That notice and order asserted that CMS did business in Lakewood and therefore owed taxes from the time it had stopped paying in October 2008. It demanded payment of taxes “from October of 2008 to the present” and also ordered CMS to apply for and obtain a business license from Lakewood. Id.

¶ 7 In June 2009, CMS filed suit in Pierce County Superior Court alleging that Lakewood owed it a refund and had failed to respond to its refund claim. Lakewood sought summary judgment, claiming that CMS had failed to exhaust its administrative remedies. The trial court disagreed, eventually held a bench trial, and found that Lakewood owed CMS approximately $600,000.

[178 Wash.2d 640]¶ 8 CMS had initiated its suit on June 24, 2009. It asserted that Lakewood owed it a refund for taxes paid from January 2004 to September 2008. During the litigation, the trial court ruled that CMS's claim for a refund of taxes before June 24, 2006, was barred by the three year statute of limitations. Thus, even if CMS won at trial, its recovery would be limited to the period of June 24, 2006 to October 1, 2008. In an attempt to recover taxes it had paid before June 2006, CMS filed another, separate action in the Pierce County Superior Court seeking a writ of mandamus to compel Lakewood to respond to CMS's November 2008 refund request. The trial court consolidated that case with the first case CMS had filed and granted the writ. The bench trial concluded with a judgment in favor of CMS.¹Lakewood appealed that judgment and the order granting CMS's petition for a writ of mandamus. The Court of Appeals affirmed. Cost Mgmt. Servs., 170 Wash.App. 260, 284 P.3d 785. Lakewood sought review in this court of two specific issues: first, whether the Court of Appeals erred in concluding that exhaustion of administrative remedies was not required; and second, whether the Court of Appeals erred in affirming the order granting the petition for a writ of mandamus.

ANALYSIS

1. Whether CMS Was Required To Exhaust Administrative Remedies

a. Standard of Review

¶ 9 We have never directly stated the standard of review in this court of a lower court's determination regarding exhaustion of administrative remedies. We have, however, stated that “[t]he exhaustion issue is a question of law for the trial court to decide.” Sintra, Inc. v. City of Seattle, 119 Wash.2d 1, 19 n. 10, 829 P.2d 765 (1992) (citing Estate of Friedman v. Pierce County, 112 Wash.2d 68, 76, 768 P.2d 462 (1989)). We review questions of law de novo. Robb v. City of Seattle, 176 Wash.2d 427, 433, 295 P.3d 212 (2013). Therefore, we review de novo whether exhaustion of administrative remedies was required in this case.

b. Exhaustion Doctrine

¶ 10 This court has long applied “the general rule that when an adequate administrative remedy is provided, it must be exhausted before the courts will intervene.” Wright v. Woodard, 83 Wash.2d 378, 381, 518 P.2d 718 (1974) (citing State ex rel. Ass'n of Wash. Indus. v. Johnson, 56 Wash.2d 407, 353 P.2d 881 (1960)). To determine if the rule applies, we examine whether the party seeking relief “has an administrative remedy” and whether any “attempt has been made to pursue that remedy.” Id. at 382, 518 P.2d 718. If the party seeking relief has an administrative remedy, and did not pursue it before turning to the courts, then it is error for a trial court to entertain the action. Id.

¶ 11 The exhaustion rule “is founded upon the belief that the judiciary should give proper deference to that body possessing expertise in areas outside the conventional expertise of judges.” Citizens for Mount Vernon v. City of Mount Vernon, 133 Wash.2d 861, 866, 947 P.2d 1208 (1997)citing S. Hollywood Hills Citizens Ass'n for Pres. of Neighborhood Safety & Env't v. King County, 101 Wash.2d 68, 73, 677 P.2d 114 (1984)). We have identified several policy bases for the rule:

(1) insure against premature interruption of the administrative process;

(2) allow the agency to develop the necessary factual background on which to base a decision; (3) allow exercise of agency expertise in its area; (4) provide for a more efficient process; and (5) protect the administrative agency's autonomy by allowing it to correct its own errors and insuring that individuals were not encouraged to ignore its procedures by resorting to the courts.

Id. (citing McKart v. United States, 395 U.S. 185, 193–94, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969)). The primary question in exhaustion cases, however, is whether the relief sought can be obtained through an available administrative remedy; if so, the party seeking relief must first seek relief through the administrative process. See id.

c. Should Exhaustion Apply Where CMS Requested a Tax Refund, and Lakewood's Only Action Thereafter Was a Demand for Payment of Different Taxes, Not a Response to the Refund Request?

¶ 12 Lakewood asks us to review the Court of Appeals' conclusion “that superior courts and the local hearing examiners have ‘concurrent jurisdiction’ over municipal tax disputes on the theory that an equitable cause of action vitiates the requirement of exhaustion.” Pet. for Review at 7. Lakewood is concerned that the “import of the Court of Appeals' decision is to provide a license for litigants to evade exhaustion requirements.” Suppl. Br. of Pet'rs at 16. We disagree with Lakewood's interpretation of the Court of Appeals' holding; the Court of Appeals did not hold that an equitable cause of action vitiates the requirement of exhaustion. It held that Lakewood's inaction in response to CMS's refund request ended CMS's obligation to continue pursuing a remedy in that forum. Cost Mgmt. Servs., 170 Wash.App. at 272, 284 P.3d 785. Thus, Lakewood's concern is misplaced.

i. The Court of Appeals Correctly Held That Lakewood's Notice and Order Was Not a Response to CMS's Refund Claim

¶ 13 The Court of Appeals first held that there had been no final administrative decision by Lakewood: “CMS persuasively argues that this Notice and Order did not constitute a...