Hirata v. EVERGREEN STATE LTD. PARTNERSHIP

• Decision Date: 13 December 2004
• Docket Number: No. 52481-0-I.,52481-0-I.
• Citation: 124 Wash.App. 631,103 P.3d 812
• Court: Washington Court of Appeals
• Parties: Lynda M. HIRATA, a Washington individual; Melissa K. Volz, a Washington individual, Respondents, v. EVERGREEN STATE LIMITED PARTNERSHIP NO. 5, Evergreen State Limited Partnership No. 6, Evergreen State Restaurant Corporation, and E-D Joint Venture, Appellants.

103 P.3d 812

124 Wash.App. 631

Lynda M. HIRATA, a Washington individual; Melissa K. Volz, a Washington individual, Respondents, v. EVERGREEN STATE LIMITED PARTNERSHIP NO. 5, Evergreen State Limited Partnership No. 6, Evergreen State Restaurant Corporation, and E-D Joint Venture, Appellants.

No. 52481-0-I.

Court of Appeals of Washington, Division 1.

December 13, 2004.

Bryan Patrick Coluccio, Cable Langenbach Kinerk & Bauer, LLP, Seattle, for Appellants.

Scott C. Breneman, Breneman Law Firm, Paul-Stephen Aita, Ricci Grube Aita, PLLC, Seattle, for Respondents.

SCHINDLER, J.

The Washington State Supreme Court in Blaney v. International Association of Machinists and Aerospace Workers, 151 Wash.2d 203, 87 P.3d 757 (2004), held that Washington's Law Against Discrimination (WLAD), chapter 49.60 RCW, authorizes a trial court to grant equitable relief and award a prevailing plaintiff an offset for tax consequences resulting from a jury's verdict and an attorneys' fees and cost award. A jury found in favor of Lynda Hirata and Melissa Volz for discrimination and sexual harassment under WLAD and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000, et seq. (Title VII). The trial court entered a judgment on the jury verdict against the employer and awarded Hirata and Volz attorneys' fees and costs. The trial court then granted Hirata and Volz's motion to award an offset against the employer for adverse tax consequences. We reject the employer's arguments that Hirata and Volz's motion for an offset was untimely, that the request violated the employer's right to a jury trial and to due process or that it was barred by res judicata and collateral estoppel. We affirm the trial court's decision to award Hirata and Volz an offset for tax consequences.

FACTS

Lynda Hirata and Melissa Volz worked at Outback Steakhouse restaurants in Everett and Kirkland. Hirata and Volz sued Evergreen State Limited Partnership No. 5, Evergreen State Limited Partnership No. 6, Evergreen State Restaurant Corporation and E-D Joint Venture (collectively, "Outback"), the franchise owners of the Outback Steakhouse restaurants, for sex discrimination and sexual harassment. Hirata and Volz each alleged that Outback engaged in sex discrimination and sexual harassment in violation of WLAD, Title VII, the Fair Labor Standards Act, 29 U.S.C. 201 et seq. and Washington's Wage and Hours Acts, RCW 49.46, 49.48 and 49.52. Hirata and Volz sought an award of damages including back pay, front pay, lost wages and compensatory damages, and requested the court award attorneys' fees and costs and "any additional or further relief that the Court finds appropriate, equitable, or just."¹

After a month-long trial, the jury returned verdicts in favor of Hirata and Volz. The jury found Outback discriminated against Hirata in violation of Title VII and WLAD, and awarded Hirata $50,000 in back pay and $75,000 in general damages. The jury found in favor of Volz on her sexual harassment claim under Title VII and WLAD, and awarded her $1570.80 in back pay and $75,000 in general damages. The jury also found Volz established Outback violated the wage and hour laws and awarded her $6368. The trial court entered judgment on the jury verdicts against Outback on November 18, 2002.

On November 27, Hirata and Volz filed a motion for an award of reasonable attorneys' fees and costs. On January 6, 2003, the trial court entered a supplemental judgment against Outback and awarded Hirata and Volz reasonable attorneys' fees of $271,230 and costs of $36,420.28.

Relying on the recent decision in Blaney v. International Association of Machinists and Aerospace Workers Dist. No. 160, 114 Wash.App. 80, 55 P.3d 1208 (2002), which allowed a trial court to award an offset for adverse tax consequences to the prevailing plaintiff in a discrimination lawsuit, Hirata and Volz filed a motion for a second supplemental judgment ten days after entry of the attorneys' fee award. Hirata and Volz submitted the declaration of certified public accountant Donald Kurth in support of their request to offset the adverse tax consequences resulting from the judgment on the verdict and the attorneys' fee award. In his declaration, Kurth explained the adverse tax consequences of payment of the judgment and the award of attorneys' fees to Hirata and Volz. In opposition, Outback argued that Hirata and Volz's claim for adverse tax consequences did not comply with the civil rules, was barred by res judicata and collateral estoppel, and was waived. The trial court disagreed and scheduled a hearing to allow Outback the opportunity to engage in additional discovery and respond to the request for an offset. The court also asked Hirata to provide additional authority about whether she was entitled to compensation for all of the tax consequences related to the back pay award or only those resulting from the lump sum payment.

At the hearing, Hirata and Volz relied on Kurth's declaration and his opinions and conclusions. Kurth concluded that the additional income from the payment of the judgments meant Hirata and Volz were taxed at a higher rate and were each subject to the alternative minimum tax because of the attorneys' fees and costs award.² According to Kurth, the adverse tax liability was $91,673 for Hirata and $84,581 for Volz. Outback did not contest Kurth's opinions and conclusions or present any contrary evidence.

On May 30, 2003, the trial court entered a second supplemental judgment of $192,549.82 for the adverse tax consequences to Hirata and Volz.³ Outback appeals.⁴

ANALYSIS

After Outback filed its appeal, the Washington State Supreme Court decided Blaney v. International Association of Machinists and Aerospace Workers, 151 Wash.2d 203, 87 P.3d 757. The Court held that WLAD authorizes a trial court to award equitable relief to offset the federal income tax consequences of a judgment and an attorneys' fee award entered in favor of a plaintiff who prevails in a discrimination lawsuit. In Blaney, after the trial court entered judgment on the jury verdict awarding the plaintiff back pay, front pay and compensation for emotional distress, the court awarded reasonable attorneys' fees and costs. Following entry of the judgments, the plaintiff requested a supplemental judgment to offset adverse federal income tax consequences and submitted expert testimony establishing the tax consequences resulting from payment of the judgment and the award of attorneys' fees and costs. On appeal, this court held the plaintiff was entitled to an offset for the adverse income tax consequences. Blaney, 114 Wash.App. at 101, 55 P.3d 1208. The State Supreme Court affirmed the award of additional relief for adverse tax consequences but on a different basis. Blaney, 151 Wash.2d at 217, 87 P.3d 757. The Court relied on and followed federal law that provides an equitable remedy in discrimination lawsuits to offset additional federal tax consequences resulting from the jury verdict and attorneys' fees and costs award. The Court held WLAD authorizes the trial court to grant equitable relief for adverse tax consequences as "any other appropriate remedy" under RCW 49.60.030(2).⁵ Blaney, 151 Wash.2d at 215-16, 87 P.3d 757.

In their discrimination lawsuit, Hirata and Volz requested that the court award "any additional or further relief that the Court finds appropriate, equitable, or just."⁶ Hirata and Volz also followed the exact same procedure as the plaintiff in Blaney in requesting an offset. After entry of the judgment on the jury verdict and the supplemental judgment awarding attorneys' fees and costs, Hirata and Volz requested a second supplemental judgment to offset the adverse federal income tax consequences resulting from the jury verdict and award of attorneys' fees. In support of their request, Hirata and Volz submitted a declaration from an expert witness establishing the adverse tax consequences.

Outback challenges the trial court's decision to grant Hirata and Volz's request for an offset of the tax consequences on several procedural grounds. The facts are undisputed and the only issues are questions of law, which we review de novo. Wallace Real Estate Inv., Inc. v. Groves, 72 Wash.App. 759, 766, 868 P.2d 149 (1994).⁷

First, Outback contends that an offset for tax consequences under WLAD must be specifically pleaded under CR 9(g) as special damages. CR 9(g) provides: "When items of special damage are claimed, they shall be specifically stated." "Special damages," are those that arise from the special circumstances of the case; they are the natural, but not the necessary, result of an injury and are not implied in law. Jensen v. Torr, 44 Wash.App. 207, 214, 721 P.2d 992 (1986). An offset for adverse tax consequences does not need to be specifically pleaded under CR 9(g). An offset is an equitable remedy that allows the trial court to "`make persons whole for injuries suffered on account of the unlawful employment discrimination.'" Blaney, 151 Wash.2d at 215,87 P.3d 757 (quoting Albemarle Paper Co. v. Moody, 422 U.S. 405, 418, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975)). The adverse income tax consequences to plaintiffs in discrimination lawsuits are not the result of the discrimination but the result of the tax laws. Blaney, 151 Wash.2d at 216,87 P.3d 757.⁸

Outback next argues Hirata and Volz's motion was not timely under CR 59(h) because it was filed more than ten days after entry of judgment on the jury verdict.⁹ Hirata and Volz filed their motion for a second supplemental judgment within the ten days after the award of attorneys' fees and costs. CR 59(h) provides: "A motion to alter or amend the judgment shall be served not later than 10 days after entry of the judgment."

We conclude CR 59(h) does not apply to a motion for an offset of adverse federal income tax consequences in a discrimination lawsuit. A request for an offset of adverse tax consequences is analogous to a request for attorneys' fees. In White v. New...