Eagle Systems, Inc., Resp/cross-app v. Employment Security, App/cross-resp

Citation: Not availableDocket: 44635-9

Court: Court of Appeals of Washington; May 28, 2014; Washington; State Appellate Court

Original Court Document: View Document

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A typographical error in the name of a respondent/cross-appellant was corrected in the Court of Appeals of Washington on June 3, 2014. The case involves Eagle Systems, Inc., and other trucking companies against the State of Washington Employment Security Department, which is appealing a superior court ruling that deemed e-mails sufficient to form a settlement agreement regarding unpaid unemployment insurance taxes assessed against the carriers. The carriers, who believed they reached a settlement during negotiations, faced a breakdown before formalizing the agreement. They sought to enforce the purported settlement through an ex parte show cause order, but the Administrative Law Judge (ALJ) ruled he lacked the authority to enforce it.

The Department contended that the superior court had no personal jurisdiction and that no valid settlement agreement existed. In contrast, the carriers cross-appealed, asserting the need for sanctions against the Department and characterizing the appeal as frivolous. Ultimately, the Court reversed the superior court’s enforcement of the settlement agreement due to lack of jurisdiction, affirmed the denial of sanctions against the Department, and denied the carriers’ request for appeal fees. The context also includes the Department's assertion that the owner/operator truck drivers were employees under the Employment Security Act, which the carriers countered by claiming federal law preemption. The ALJ had previously denied the carriers' summary judgment motion and ordered a review of the assessments, prompting continued settlement negotiations that led to the dispute over whether an agreement was reached.

An ex parte show cause order was obtained by carriers from the Pierce County Superior Court to compel the Department to explain why a settlement agreement should be enforced. The carriers argued for sanctions against the Department for not issuing revised assessments as ordered by an Administrative Law Judge (ALJ). However, the carriers did not file or serve a summons and complaint. The Department learned of the hearing through counsel's emails containing the show cause order. In response to the carriers' motion, the Department contended that the court lacked personal jurisdiction due to the improper initiation of the action and argued that the settlement agreement was unenforceable. 

The superior court ruled it had jurisdiction under its general authority to hear contract disputes and ancillary jurisdiction per RCW 34.05.510(2). It deemed the show cause proceeding appropriate since the ALJ had indicated he could not enforce the settlement agreement, and both parties had an opportunity to present their arguments. The court found that the parties had indeed reached an agreement and enforced it but denied the carriers' request for sanctions.

On appeal, the Department maintained that the superior court lacked personal jurisdiction, citing that the carriers improperly sought enforcement through a show cause motion instead of properly commencing a lawsuit as required by court rules (CR 3), which necessitate the service of a summons and complaint. The Department argued that due process mandates adequate notice and the opportunity to be heard, which was not afforded in this case. The carriers' assertion that jurisdiction could be acquired through the show cause proceeding was dismissed, as RCW 2.28.150 presupposes that personal jurisdiction must exist prior, and there are established procedures for filing contract claims that the carriers did not follow. The Department also distinguished the case from precedents that allowed commencement through show cause hearings.

In Burleigh, a Minnesota court issued a child support order against the defendant, which was enforced in Washington under the Uniform Reciprocal Enforcement of Support Act (URESA). The Washington court served the defendant a show cause order regarding the child support obligation. The defendant moved to dismiss, claiming that jurisdiction could not be established through a show cause order instead of a summons and petition. The superior court denied the motion, and the appellate court affirmed, concluding that the superior court had jurisdiction due to the existing valid Minnesota order, though the enforcement procedures were not explicitly defined.

The appellate court noted that a show cause hearing is consistent with URESA's goals, facilitating quick resolution of support disputes while adhering to due process. However, in the present case, the superior court lacked jurisdiction because there was no properly filed lawsuit for enforcement or breach of contract, rendering RCW 2.28.150 inapplicable. The carriers' attempt to use a show cause order without an existing action was improper, leading to a reversal of the superior court's decision.

The carriers cross-appealed, claiming the superior court erred by not sanctioning the Department for procedural bad faith. However, since the superior court lacked personal jurisdiction, any judgment on sanctions would be void, resulting in the failure of the cross-appeal. The carriers also sought attorney fees for a supposedly frivolous appeal, which was denied as the appeal was not without merit, given the Department's successful argument regarding jurisdiction. The appellate court reversed the superior court's assertion of jurisdiction, upheld the denial of sanctions against the Department, and denied the carriers' request for appeal fees.