Department of Labor and Industries v. Mitchell Bros. Truck Line, Inc.

• Citation: 54 P.3d 711,113 Wash. App. 700
• Decision Date: 27 September 2002
• Docket Number: No. 27503-1-II.,27503-1-II.
• Parties: WASHINGTON STATE DEPARTMENT OF LABOR AND INDUSTRIES, Appellant, v. MITCHELL BROTHERS TRUCK LINE, INC., Respondent.
• Court: Court of Appeals of Washington

54 P.3d 711

113 Wash. App. 700

WASHINGTON STATE DEPARTMENT OF LABOR AND INDUSTRIES, Appellant, v. MITCHELL BROTHERS TRUCK LINE, INC., Respondent.

No. 27503-1-II.

Court of Appeals of Washington, Division 2.

September 27, 2002.

Charles Robert Bush, Vandeberg Johnson Gandara, Seattle, WA, for Respondent.

James Stone Johnson, Atty Gen Ofc, Olympia, WA, for Appellant.

BRIDGEWATER, J.

We are asked to decide whether a truck driver is "operating a truck which he owns" when he leases a truck from a common carrier and must lease the truck back to the same common carrier. Br. of Appellant at 3. We hold that this kind of truck driver is an "owner" under Title 51 RCW and not a "worker" under RCW 51.08.180(1) because the driver is entitled to possess, use, and enjoy the truck under the specific terms of the lease. Thus, the common carrier need not pay industrial insurance premiums for these drivers. We affirm.

Mitchell Brothers Truck Line, Inc. (hereinafter Mitchell Bros.), is a trucking company in the business of hauling goods throughout the continental United States and Canada. Mitchell Bros. has an estimated 120 "tractors" (a "tractor" is the engine and cab portion of a semi-truck), all of which it leased from Portland Freightliner, which is owned by Mercedes-Benz. Mitchell Bros. employs 80 truckers to drive their trucks, and they also lease trucks from 24 individuals. This case concerns only the 24 individuals.

The plan that we address is not a scheme to avoid taxation. Rather, Mitchell Bros. created the plan because it needed drivers and devised an economic incentive to achieve that end. Under the scheme, Mitchell Bros. subleases its trucks to the 24 independent truck drivers for a 48-month term. At the end of this term, the independent truck driver (the lease-operator) has an option to purchase the leased truck for the truck's residual value. Typically, lease-operators cannot afford to buy their own tractors, and their credit is sub-par. Thus, the leasing arrangement offers an entrepreneurial advantage to the lease-operator: becoming the sole owner of a tractor.

Under the lease, the lease-operator, upon executing the above-described lease, immediately leases the same truck back to Mitchell Bros. (the "lease-back") for a term of one year, which term automatically renews on an annual basis unless the lease is terminated prior to such renewal. Under the lease-back agreement, the lease-operator is compensated at a rate of $.91 per loaded mile and $.40 per empty mile for all Mitchell Bros. loads hauled.¹ If the lease-operator opts to purchase the tractor at the end of the four year term, he is then free to contract with whomever he wishes.

On March 16, 1999, the Department of Labor and Industries (the Department) issued a notice and order of assessment of industrial insurance taxes, for the first through fourth quarter of 1998, against Mitchell Bros. in the amount of $259,579.16. The director of the Department affirmed the assessment order. Mitchell Bros.

I. Standard of Review

The Administrative Procedures Act (APA) governs judicial review of the Board's decision in an assessment case. RCW 51.48.131. We review the agency record rather than the trial court record. See Jefferson County v. Seattle Yacht Club, 73 Wash.App. 576, 588, 870 P.2d 987, review denied, 124 Wash.2d 1029, 883 P.2d 326 (1994). We review the Board's findings of fact for substantial evidence, sufficient to persuade a fair-minded person of the declared premise. Towle v. Wash. State Dep't of Fish and Wildlife, 94 Wash.App. 196, 204, 971 P.2d 591 (1999); Diehl v. Mason County, 94 Wash.App. 645, 652, 972 P.2d 543 (1999); see RCW 34.05.570(3)(e). We review the Board's legal conclusions de novo, but we give substantial weight to the agency's interpretation when the subject area falls within the agency's area of expertise. Towle, 94 Wash.App. at 204, 971 P.2d 591; Diehl, 94 Wash.App. at 652, 972 P.2d 543; Hamel v. Employment Sec. Dep't, 93 Wash.App. 140, 144-45, 966 P.2d 1282 (1998), review denied, 137 Wash.2d 1036, 980 P.2d 1283 (1999). The employer challenging the validity of the agency action bears the burden of proof before the Board to show that the premiums were assessed incorrectly. RCW 34.05.570(1)(a); Jamison v. Dep't of Labor & Indus., 65 Wash.App. 125, 133, 827 P.2d 1085 (1992). On appeal, "[t]he burden of proving that the agency action was invalid ... lies with the party challenging the action." Mader v. Health Care Auth., 109 Wash.App. 904, 911, 37 P.3d 1244, review granted, 146 Wash.2d 1021, 52 P.3d 520 (2002).

Here, although the industrial insurance judge characterized her determination that lease-operators are not "workers" as a "finding of fact," that determination was actually a conclusion of law as it was premised upon the legal conclusion that the operators "own" the vehicles they lease, as that term is used in RCW 51.08.180(1). We treat conclusions of law labeled as findings of fact as conclusions of law when challenged on appeal. Willener v. Sweeting, 107 Wash.2d 388, 394, 730 P.2d 45 (1986). As the assigned error in this case relates to statutory construction, de novo review is proper; and we construe the statute liberally in the workers' favor. Ochoa v. Dep't of Labor & Indus., 143 Wash.2d 422, 425-26, 20 P.3d 939 (2001).

II. Indicia of Ownership

There is no directly controlling authority, either case law or statute, that addresses whether lease-operators are "owners." Although we may use a dictionary in determining the ordinary meaning of a term, City of Redmond v. Burkhart, 99 Wash.App. 21, 24, 991 P.2d 717 (2000), the Black's Law Dictionary definition of "own" is not very helpful: "[t]o have or possess as property[.]" BLACK'S LAW DICTIONARY 1130 (7th ed.1999). As such, and because "owns" is not defined in Title 51 RCW or in Industrial Insurance case law, we employ the "indicia of ownership" inquiry as the relevant test on the issue of lease-operator ownership of the leased trucks.

In Wasser & Winters Co. v. Jefferson County, the court identified the "right to its possession, use and enjoyment and to sell or otherwise dispose of [the property] according to the will of the owner" as indicia of property ownership. Wasser & Winters Co. v. Jefferson County, 84 Wash.2d 597, 599, 528 P.2d 471 (1974). The court also stated: "we held that the person assessed need not have a perfect and unencumbered title to the property but only that he should be vested with the apparent legal title, or with the possession coupled with such claims and evidence of ownership as will justify the assumption that he is the owner." Wasser, 84 Wash.2d at 599, 528 P.2d 471. Wasser was a timber tax case, and the court referred to the risk of loss and an interest that could have been conveyed. The case did not hold that the right to sell the timber was the sine qua non of ownership that allowed this owner to be taxed; but it did allow that there was some interest that could have been conveyed. It is only moderately helpful.

The lease-operators had the following rights and responsibilities under the lease, lease-back arrangement. The lease term was 48 months. At the end of that term, lease-operators had an option to purchase the leased truck for the "residual value," plus any amount then owed to Mitchell Bros. During the term of this lease, the lease-operator was responsible for and bore the cost of "all necessary repairs, maintenance and replacement[.]" Exhibit 2, at 2. Also, the lease-operator bore the "cost, expenses, fees and charges incurred in the use and operation of the leased Equipment, including but not limited to fuel, oil, grease, repairs, maintenance, replacements, tires, storage, parking, tools, fines, registration and license fees and plates, and all taxes (including sales, use, personal property or occupation)." Exhibit 2, at 2. Lease-operators also had to maintain insurance on the trucks (with Mitchell Bros. as a named insured), and indemnify and hold Mitchell Bros. harmless.

Under the lease-back, Mitchell Bros. leased back the same truck from the operator that it leased under the initial lease. In effect, the arrangement obligated the lease-operator to haul Mitchell Bros.' loads. But, the lease-back agreement did not alter the lease-operator's responsibility for operating expenses, taxes, maintenance, repairs, etc., which were contracted for in the original lease. Additionally, although the lease-back agreement obligated the lease-operator to transport "such commodities as [Mitchell Bros.] may require," both Henry R. Patton, a lease-operator; and Gordon Cohoon, president of Mitchell Bros.; testified that lease-operators could turn down loads that Mitchell Bros. designated, and could hire other drivers to haul loads using the leased truck. Exhibit 3, at 2. The lease-back agreement also obligated lease-operators to carry, at their expense, "bobtail" insurance covering the equipment; the agreement also placed the risk of loss or damage to the equipment on the lease-operator. Exhibit 3, at 3, 4. As to the risk of loss on hauled cargo, lease-operators were strictly liable to Mitchell Bros. "for the full amount of any cargo loss or damage not paid by available insurance." Exhibit 3, at 4.

In contending that lease-operators do not "own" their leased trucks, the Department does not dispute that the lease-operators enjoy the rights to possess, use, and enjoy the trucks. The lease-operators' rights to use and possess the leased trucks cannot be seriously questioned, as the lease-back to Mitchell Bros. contemplated that the lease-operators, or someone they designated, would haul Mitchell Bros.' loads. "Enjoyment," in an economic sense, also cannot be seriously questioned, as the lease-operators drove the leased trucks for their own financial gain. Together with the allocations of risk of loss and operating expenses noted above (responsibilities that normally attend use, possession, and enjoyment of property), the fact that lease-operators...