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

• Decision Date: 28 August 2012
• Docket Number: Nos. 41509–7–II, 41744–8–II.,s. 41509–7–II, 41744–8–II.
• Citation: 284 P.3d 785
• Court: Washington Court of Appeals
• Parties: COST MANAGEMENT SERVICES, INC., Respondent, v. CITY OF LAKEWOOD, a municipal corporation, and Choi Halladay, Assistant City Manager for Finance, Appellants. Cost Management Services, Inc., Respondent, v. City of Lakewood, a municipal corporation, Appellant.

284 P.3d 785

COST MANAGEMENT SERVICES, INC., Respondent,

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

Cost Management Services, Inc., Respondent,

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

Nos. 41509–7–II, 41744–8–II.

Court of Appeals of Washington, Division 2.

Aug. 28, 2012.

As Amended Aug. 28, 2012.

Michael L. McKenzie, City of Lakewood Legal Dept., Matthew S. Kaser, City of Lakewood, Lakewood, WA, for Appellant.

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

JOHANSON, J.

¶ 1 The City of Lakewood appeals a superior court decision that Cost Management Services (CMS) is not obligated to pay a utility tax for business conducted outside of Lakewood. Lakewood claims that the trial court (1) lacked jurisdiction because CMS failed to exhaust administrative remedies, (2) improperly denied Lakewood's request for a jury trial, (3) erred in issuing a writ of mandamus, and (4) entered erroneous findings of fact and conclusions of law. We affirm because (1) CMS was not required to exhaust administrative remedies when Lakewood did not issue a final order on CMS's refund claim, and the superior court maintained concurrent jurisdiction, (2) the trial court did not abuse its discretion in denying Lakewood's request for a jury trial, (3) the trial court properly issued the writ of mandamus, and (4) the trial court's findings of fact and conclusions of law are not erroneous.

FACTS

¶ 2 CMS is a Mercer Island business that arranges for the purchase of natural gas by its customers from various third parties. CMS acts as its customers' agent, and it monitors the natural gas market and informs its customers regarding natural gas prices. CMS has two Lakewood customers: Pierce Transit and Saint Clare Hospital.

¶ 3 Both of CMS's Lakewood customers obtain natural gas the same way. CMS works with a supplier ¹ that provides natural gas via pipeline, for delivery at the North Tacoma City Gate of the Northwest Pipeline Company, a site outside of Lakewood. These customers each separately contract with Puget Sound Energy (PSE) for transportation and delivery of their natural gas from the North Tacoma City Gate to their Lakewood business locations.

¶ 4 CMS performs almost all of its duties from its Mercer Island headquarters. Daily, CMS's account coordinators use software to remotely read their customers' gas meters to gauge how much gas PSE delivered the previous day. After reading the meter, these account coordinators notify both the supplier and PSE how much gas they should provide and deliver to the customer at the next delivery. On average, account coordinators spend a total of 20 minutes daily performing this task for its Lakewood customers.

¶ 5 Over the years, CMS has maintained a limited physical presence in Lakewood. Traditionally, CMS employees spent just one-and-a-half hours per year in Lakewood—for an annual holiday visit and a rare natural gas market update meeting. According to CMS, it has direct costs of $115 annually in Lakewood (for the annual holiday visit and occasional natural gas market update meeting) and zero indirect costs. In April 2010, CMS employees discontinued all Lakewood visits, and CMS's absence from Lakewood has not altered or affected its agency relationships or the administration of its contracts with either of its Lakewood customers.

¶ 6 In 1999, Lakewood passed Ordinance No. 215, codified at chapter 3.52 of the Lakewood Municipal Code (LMC), which levies a “utility” tax on:

everyone engaged in or carrying on the business of selling, brokering or furnishing [natural gas] for domestic, business or industrial consumption, a tax equal to 5.0 percent of the total gross income, not including the amount of the tax, from such business in the City during the-period for which the tax is due.

LMC 3.52.050(D); Clerk's Papers (CP) at 61.

¶ 7 Between January 1, 2004 and October 30, 2008, CMS remitted to Lakewood $715,940.05 under this tax. At the time, CMS believed it was paying a use tax that its Lakewood customers owed. To calculate its amount paid, CMS reported its Lakewood taxable revenues as 100 percent of the amounts Lakewood customers paid CMS. Then in 2008, CMS learned of a court case that raised doubts as to whether CMS actually owed this tax; so, CMS stopped paying it.

¶ 8 On November 6, 2008, CMS sent a letter to Lakewood claiming a refund on the excess taxes it paid between January 1, 2004 and September 30, 2008. The claim asserted that Lakewood owed CMS a refund because “the company does no business in the City of Lakewood” and that “the city does not impose any occupation tax but does impose utility taxes.” CP at 91.

¶ 9 On May 13, 2009, Choi Halladay, Lakewood's Assistant City Manager of Finance sent CMS a “ NOTICE AND ORDER/DEMAND FOR TAX PAYMENT ” (Notice and Order). The Notice and Order specified that (1) CMS last made utility tax payments in October 2008, for taxes accrued through September 2008; (2) CMS was delinquent in its taxes from October 2008 through the Notice and Order date; and (3) CMS must obtain a Lakewood business license to conduct its utility business within the City and to pay all past due and owing utility taxes, including interest and penalties. It also provided that CMS could appeal within 10 days and that failure to appeal would waive its rights to an administrative hearing and determination in. the matter. CMS applied for a business license as directed, but it did not appeal the Notice and Order.

¶ 10 In June 2009, CMS filed a complaint in Pierce County Superior Court raising two causes of action: (1) a state law action for “money had and received” seeking refund of amounts CMS paid in error to Lakewood and (2) an action under LMC 3.52.150 for refund of overpaid taxes.² CP at 1. Lakewood raised numerous affirmative defenses, including that the superior court lacked jurisdiction, that CMS failed to exercise its rights in a timely manner within the statute of limitations, and that CMS failed to exhaust administrative remedies before filing its superior court complaint. Lakewood also counterclaimed, arguing that CMS owed unpaid natural gas taxes under LMC 3.52 since CMS stopped paying the tax in the fall of 2008 and that Lakewood was entitled to injunctive relief prohibiting CMS from making natural gas transactions in Lakewood until it paid all its natural gas taxes.

¶ 11 Both parties sought summary judgment. In February 2010, the trial court denied Lakewood's motion for summary judgment. In May 2010, the trial court denied CMS's summary judgment motion.

¶ 12 Thereafter, both parties filed additional motions for partial summary judgment. Lakewood asserted that the statute of limitations barred CMS's claims accruing more than three years before commencement of the litigation—before June 24, 2006. CMS filed a motion requesting the court to determine that (1) CMS operates as an agent on behalf of customers; (2) the only tax that Lakewood alleges CMS owes is that imposed by LMC 3.52.050(D); (3) such a tax is imposed on the business of selling, brokering, or furnishing natural gas in Lakewood; (4) such tax is measured by CMS's gross income in Lakewood; (5) CMS's gross revenue from Lakewood was not greater than $582,328.84 between October 1, 2005, and September 30, 2008; (6) CMS paid $523,543.36 in tax over that same time period; and (7) the amount of tax CMS owed Lakewood during that period was not greater than $29,116.44, and thus, the trial court should award CMS partial summary judgment of $494,426.92.³

¶ 13 In September 2010, the trial court granted Lakewood's motion for partial summary judgment, barring CMS's claims for refunds on taxes paid before June 24, 2006. The court also dismissed CMS's claims under the LMC. The trial court granted CMS's motion for partial summary judgment, finding: (1) CMS operates as an agent on behalf of its customers; (2) the only tax Lakewood alleges CMS owes is imposed by LMC 3.52.050(D); (3) that tax is imposed on the business of selling, brokering or furnishing artificial, natural or mixed gas in Lakewood; (4) that tax is measured by CMS's Lakewood gross income; (5) CMS's Lakewood gross income was not greater than $460,113.72 between June 24, 2006, and September 30, 2008; (6) CMS paid $414,367.04 of tax for the time period after June 24, 2006; (7) the amount of tax CMS owed Lakewood for the relevant time period was not greater than $23,005.69.

¶ 14 Then, in October 2010, while CMS's lawsuit was pending in superior court, CMS filed a petition for writ of mandamus in Pierce County Superior Court against Lakewood and Halladay. It requested that they “take action on [CMS's refund] claim pending since November 6, 2008 for the refund of erroneously paid taxes.” CP at 735. Lakewood opposed the writ, but the trial court granted it on November 5, 2010, commanding Lakewood and Halladay to take action on CMS's tax refund claim by November 19, 2010. Lakewood complied with the writ, and after complying, Lakewood timely appealed the granting of the writ.⁴

¶ 15 Meanwhile, Lakewood requested that CMS's June 2009 complaint be resolved by jury trial. The trial court denied Lakewood's request, reasoning that CMS's claims “are primarily, if not exclusively, equitable in nature.” CP at 707. Accordingly, it ordered Lakewood's jury demand stricken.

¶ 16 The trial court held a two-day bench trial in December 2010. The trial court ultimately issued a written ruling, concluding that CMS did not “sell” natural gas: “The evidence at trial established that CMS did not own any natural gas—the natural gas was owned [by the suppliers]. These entities were the actual sellers of the gas.” CP at 710. The trial court also found that CMS did not furnish the natural gas:

Puget Sound Energy owned the distribution system for the gas and entered into separate contracts with [CMS customers] for transportation of the...