Filed Washington State Court of Appeals Division Two
May 1, 2018
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II KEVIN DOLAN and a class of similarly No. 49876-6-II situated individuals,
Respondents,
v. UNPUBLISHED OPINION KING COUNTY, a political subdivision of the State of Washington,
Respondent,
DEPARTMENT OF RETIREMENT SYSTEMS,
Appellant.
MAXA, C.J. – This appeal involves the remedies phase of a class action lawsuit in which a
class of public defenders employed by organizations with which King County contracted alleged
that the County had been obligated to enroll them in Washington’s Public Employees’
Retirement System (PERS). The Supreme Court held that the County had such an obligation,
and remanded for the trial court to address remedies. The Department of Retirement Systems
(DRS) later intervened to address various remedy issues.
After more litigation and a second appeal, the class members and the County reached a
settlement in which the County agreed that the class members would be retroactively eligible for
PERS service credit dating back to 1978. The County also agreed to pay the full amount of No. 49876-6-II
retroactive contributions into PERS relating to the class members. Left unresolved was whether
the County also would be required to pay approximately $64 million in interest on the retroactive
contributions to replace lost investment returns or whether that amount would be “socialized” –
spread out among existing PERS participants – through an increase of contributions from
existing PERS participants.
While litigation regarding the interest issue was pending, DRS issued a letter informing
the County that DRS had decided under authority granted in RCW 41.50.125 to charge the
County the full amount of the interest on the retroactive contributions. DRS subsequently argued
that because the County did not seek review of this decision under the Administrative Procedure
Act (APA), chapter 34.05 RCW, the trial court did not have jurisdiction to address the interest
issue. The trial court ruled that it had jurisdiction. After an evidentiary hearing, the court ruled
based on equitable principles that the County would be required to pay only a portion of the
interest, $10.5 million, on the retroactive contributions.
DRS appeals the trial court’s order, arguing that (1) the trial court erred in ruling on the
County’s interest obligation because the County did not seek review of DRS’s interest decision
under the APA; (2) the trial court erred in applying equitable principles to determine the
County’s interest obligation when RCW 41.50.125 authorized DRS to make interest decisions;
and (3) even if the trial court properly addressed the interest issue, the court erred because equity
does not support imposing only a portion of the interest obligation on the County.
We hold that (1) because the trial court obtained original subject matter jurisdiction
regarding the interest matter before DRS’s interest decision, under the “priority of action” rule
the trial court had exclusive authority to decide the County’s interest obligation; (2) the trial
court did not err in exercising its equitable authority despite DRS’s interest decision because
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RCW 41.50.125’s authorization to DRS to charge interest on late PERS payments was not
mandatory or exclusive; and (3) the trial court did not err in ruling based on equitable principles
that the County was required to pay only a portion of the interest on the retroactive PERS
contributions.
Accordingly, we affirm the trial court’s interest order and judgment.
FACTS
County’s Liability
In 2006, Kevin Dolan filed a class action lawsuit against the County on behalf of all
employees of public defender agencies with which the County had contracted to provide legal
defense services. The complaint alleged that the class members were entitled to membership and
benefits in PERS, but that the County had improperly failed to report their services to DRS or
made retirement contributions on their behalf. The class members requested declaratory and
injunctive relief concerning the County’s obligation to provide PERS benefits and an order
requiring the County to make all contributions needed to fund those benefits.
The parties agreed to divide the trial into separate phases to determine liability and, if
necessary, remedies. In the liability phase, the trial court ruled after a bench trial that the class
members should be considered public employees for purposes of coverage under PERS. Based
on its decision, in April 2009 the court issued a permanent injunction requiring the County to
enroll class members in PERS. The court reserved decision on all other issues.
The County appealed to the Supreme Court. Dolan v. King County, 172 Wn.2d 299, 310,
258 P.3d 20 (2011) (Dolan I). In its opinion, the court recounted events between the mid-1980s
through 2005 in which the County exercised increasing control over the defender organizations.
Id. at 303-08. The court concluded that the County had “gradually extended its right of control
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over the defender organizations until they indeed have become vassal agencies of the county.”
Id. at 318-19. As a result, the court affirmed the trial court, held that the plaintiffs were County
employees for purposes of PERS and were entitled to be enrolled in PERS, and remanded for
further proceedings regarding remedies. Id. at 301, 322.
On remand, the trial court entered an order modifying its permanent injunction and
ordering that the County enroll all currently employed class members in PERS. The County
complied in April 2012. The trial court’s order did not address the extent to which class
members were entitled to retroactive service credit and how retroactive benefits would be
funded.
Initial Settlement Agreement and Trial Court Approval
In December 2012, the County and the class entered into a tentative settlement agreement
that was contingent on court approval. The County agreed to pay PERS contributions for
retroactive PERS-eligible service back to 1978. The agreement stated that the County’s PERS
contributions would total approximately $30 million, which accounted for both employer and
employee contributions. The settlement agreement was expressly conditioned on the County not
having to pay interest on the retroactive contributions.
As part of the settlement agreement, the class released a variety of potential claims,
including for other non-PERS benefits and denial of wages. The County agreed not to pursue a
statute of limitations defense that, if successful, would have limited service credit for any time
period more than three years before the lawsuit was filed. The County also agreed not to seek
reimbursement from class members for the employee shares of the retroactive contributions.
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The County and the class filed a joint motion for preliminary approval of the settlement
agreement. The trial court preliminarily approved the settlement agreement in an order in March
2013. The preliminary approval order allowed DRS to submit objections to the settlement.
Shortly after the court’s preliminary approval, DRS moved to intervene. The trial court
issued a ruling denying DRS full intervention. But the court allowed DRS limited intervention to
object to the settlement agreement and to have the right to appeal. In addition, the court stated
that DRS would be subject to the court’s orders, if any, requiring implementation of the
settlement agreement.
In June 2013, the trial court entered an order granting final approval of the settlement
agreement. The court ruled that DRS had no legal authority to charge the County interest and
added that, even if DRS had such authority, charging interest would be unfair, inequitable, and
arbitrary and capricious. The court retained jurisdiction over the matter and stated that the
parties, as well as DRS, were subject to and were required to comply with the order.
Settlement Agreement Appeal
DRS appealed the trial court’s approval order to this court. Dolan v. King County, No.
44982-0-II (Wash. Ct. App. Nov. 18, 2014) (unpublished), http://www.courts.wa.gov/opinions/
(Dolan II). DRS argued that the APA removed the trial court’s original subject matter
jurisdiction for matters affecting PERS, that the court erred in ruling that its final approval bound
DRS, and that the court erred in denying DRS’s motion to intervene as a full party. Id. at 1.
On jurisdiction, this court noted that the superior court had original jurisdiction except
where exclusive jurisdiction was vested in another court. Id. at 10. The court stated that where
the APA applies, it divests superior courts of original jurisdiction. Id. But under RCW
34.05.510, the limit on a superior court’s original jurisdiction applies only where there has been
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an “agency action.” Dolan II, slip op. at 10. The court determined that DRS had taken no
specific agency action and as a result, the APA had not removed the trial court’s original subject
matter jurisdiction. Id. at 10-11.
On the other two issues, the court agreed with DRS. First, the court held that DRS could
not be bound by the trial court’s final approval order because it was not a party to the settlement
agreement. Id. at 11-12. Second, the court held that the trial court had erred in granting DRS
only partial intervention. Id. at 14. The court reversed the trial court’s final approval order,
reversed the trial court’s partial intervention order, and remanded for further proceedings. Id. at
14-15.
Modification of Settlement Agreement
On remand, DRS was allowed to intervene as a full party. The class subsequently moved
to modify the trial court’s April 2009 permanent injunction to clarify issues of service credit for
class members. The class and the County also submitted a stipulation reaffirming the prior
settlement agreement and clarifying certain issues. The stipulation stated that the County would
pay any interest required by agreement between the County and DRS or by court order. DRS
filed an opposition to the motion to modify.
On June 5, 2015, the trial court entered an Order Modifying Permanent Injunction. The
order stated, “DRS initially opposed the motion [to modify], but now has agreed to the entry of
this Order in the interests of partially settling this long dispute and obtaining a workable structure
for the complexities of establishing the extensive retroactive service credit involved in this
litigation.” Clerk’s Papers (CP) at 425. DRS signed the order as approved for entry.
The modification order stated that the class was entitled to receive retroactive PERS
service credit for work as county employees between January 1, 1978 and March 31, 2012. The
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County would be required to pay DRS retroactive employer and employee contributions of
approximately $32 million. The order stated that the County and DRS did not agree on whether
DRS could assess interest on retroactive service credit contributions, and that the order did not
resolve that issue. Finally, the order stated that the statute of limitations defense would not be
asserted as a defense.
The trial court scheduled a hearing to address payment of interest for October 2015.
DRS Decision on Interest
On September 17, 2015, DRS Director Marcie Frost sent a letter to the County stating
that she had decided that it was appropriate to charge the County full interest on the retroactive
PERS contributions for class members. Frost stated that she had discretionary authority under
RCW 41.50.125 to charge interest to compensate for lost investment returns caused by late
contribution payments. The letter stated that DRS had calculated the amount owed for employer
and employee pension contributions to be $29,260,592.29 and had calculated the amount of
interest owed to be $65,704,577.60. Frost later corrected the interest calculation to
$64,422,596.55.
Frost stated that she had decided to charge interest after considering a report from the
Office of the State Actuary (OSA). The OSA report concluded that the total liability as a result
of the County’s settlement was $96.1 million as of May 2015. If the County paid only the
retroactive contributions and no interest, future PERS employer and employee contribution rates
would need to increase by four or five basis points. A basis point equals one one-hundredth of a
percent.
Frost also stated that she had consulted with interested groups and individuals about the
proper action for DRS to take. The comments she received primarily were that pension costs
7 No. 49876-6-II
should be paid by the employers and employees that generate those costs, not by other PERS
members.
The letter stated that if the County disagreed with DRS’s calculation of contributions or
assessment of interest, the County could file a petition for review under chapter 415-04 WAC
within 120 days of the decision.
The County did not seek administrative review of the DRS decision stated in Frost’s
letter. Instead, the County took the position that the letter had no legal effect. The County stated
that the amount the County was required to pay had to be resolved by agreement between the
parties or by court order and that DRS lacked the authority to make unilateral decisions
concerning PERS contributions and interest or other charges.
Trial Court Hearing
The trial court continued the hearing to determine the County’s interest obligation from
October 2015 to May 2016.
In a prehearing brief, DRS argued that it had made an administrative decision regarding
assessment of interest, and that the exclusive means of obtaining appellate review of that
decision was under the APA. Further, DRS argued that a person aggrieved by an administrative
decision must exhaust all administrative remedies before obtaining judicial review. DRS
emphasized that the County had not followed the proper administrative process for challenging
the interest decision.
At the outset of the interest hearing, DRS argued that the trial court did not have
jurisdiction over the interest issue because the County had not exhausted its administrative
remedies. The court ruled that it had jurisdiction because the case arose from a lawsuit, not an
administrative action. The court stated that the Supreme Court had recognized the trial court’s
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jurisdiction by affirming the trial court’s original decision. In addition, the court declined to
adopt the APA standard of proof and stated that it would decide the case based on equity
jurisdiction.
Each party then called two witnesses to testify. The County called Dwight Dively,
director of the County’s office responsible for budgeting and financial management. Dively
testified that in his experience, changes in the costs of a pension system should be socialized
through an increase or decrease in the contribution rates for employers and employees
throughout the system. He stated that having a separate payment stream from King County alone
would be inconsistent with his understanding of how retirement system costs are socialized.
Further, Dively testified that in prior communications, DRS had conveyed that it did not plan to
charge interest, consistent with the County’s prior experience.1
Dively also testified that the County did not have the money in its general fund to pay the
entire interest payment. To cover its liability for the retroactive payment, the County had
planned ahead after the trial court’s initial ruling by cutting other budgets. But to fund the larger
interest payment the County would probably have to issue bonds. Dively estimated that the
County would service the bonds for 10 years, paying at least $7.5 million each year. He added
that the County already faced a $50 million deficit for the next biennium, to which interest
payments on the debt service would add $15 million. To cover this amount, the County would
be required to reduce employees and services.
The County also called an expert actuarial witness, Ethan Kra, who reviewed the state
actuary’s impact analysis on enrolling the plaintiff class in PERS. Kra testified that pension
1 In two prior class actions in the 1990s, with a combined total of approximately $5.2 million in retroactive contributions, DRS had not charged the County interest for retroactive PERS contributions.
9 No. 49876-6-II
plans typically socialize costs across the system. Impacts such as changes in the covered group,
changes in the definition of compensation or service, or recognition of additional past service
could affect contribution rates in a manner that is typically uniform across all employers in the
plan.
For DRS, Frost testified that DRS could pay for retroactive liabilities either by socializing
the cost or by having the responsible party pay. She agreed that DRS had not previously charged
interest to an employer or conducted a liability analysis, but she stated that earlier cases were
significantly smaller than this one and would not have triggered a general rate increase. Frost
testified that because of how unique the County’s situation was, DRS did not have guidelines or
published regulations giving PERS employers notice of when they might be charged interest.
And she denied that DRS had promised not to charge interest.
DRS also called deputy state actuary Lisa Won. Won testified about the OSA report and
the impact of enrolling the class in PERS on system-wide contribution rates. She stated that for
every $7 million increase in liabilities, there is a single basis point increase for employees and
employers. Regarding how PERS is funded, Won stated that demographic changes do not get
charged to a specific employer, but rather are socialized among all contributors for future
service. Single PERS employers are never required to pay a specialized or segregated
contribution rate. Won also testified about the practical impact of an increase in contribution
rates, stating that for an employer with a $500,000 payroll, a five basis point increase would
amount to $250 per year.
Trial Court Ruling
After the hearing, the trial court entered a written decision on both jurisdiction and the
interest payment owed by the County.
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Regarding jurisdiction, the trial court stated that this court in Dolan II had affirmed the
trial court’s subject matter jurisdiction and at no point indicated that the trial court lacked
jurisdiction to decide DRS’s objections to the settlement. In addition, the court rejected DRS’s
argument that the APA applied.
Regarding interest, the trial court concluded that it could exercise its equitable authority
and that no statutory authority or case law limited the court in ordering a fair and equitable
remedy. The court determined that some of the interest payments should be socialized, with the
County assuming a somewhat greater burden than other PERS participants:
This Court holds that socializing the cost of the lost interest income among the PERS participants is not unreasonable. No one government entity should bear the full burden of this cost when it was imposed as a judicial remedy that was opposed by that same government entity. What makes this unique is not requiring King County to bear some part of the cost, but the sheer magnitude of the amount DRS is requesting . . . .
However, to offset the costs to PERS members, King County should assume some greater burden for the total amount requested by DRS. This decision acknowledges many of the arguments made by DRS in representing PERS members state wide. This balancing process is an attempt to recognize the equities presented by both parties in a difficult case.
CP at 2160-61.
The trial court concluded that it was equitable to assess the County interest in the amount
of $10.5 million or a 1.5 basis point decrease in the total interest balance to all PERS employers
and employees, whichever was less. The remaining interest would be socialized among PERS
employers and employees. The parties subsequently agreed that King County would pay the
$10.5 million amount.
Consistent with this decision, the trial court entered an order on jurisdiction and
assessment of interest and entered a final judgment. The order outlined the equitable
11 No. 49876-6-II
considerations favoring each party. After balancing those equities, the court determined that it
was equitable for the County to pay $10.5 million in interest into PERS.
DRS appeals the trial court’s order and judgment.2
ANALYSIS
A. SUPERIOR COURT JURISDICTION
DRS argues that the trial court erred in addressing the interest issue. DRS asserts that
once it issued an administrative decision charging the County interest on the retroactive PERS
contributions, the trial court could exercise only appellate jurisdiction over the interest issue and
only if the County complied with the APA’s procedural requirements. DRS claims that because
the County did not follow the procedures under the APA for obtaining judicial review of DRS’s
interest decision, the County could not invoke the trial court’s jurisdiction.
We apply the priority of action rule and hold that because the trial court obtained
jurisdiction over injunction remedies long before DRS issued its interest decision, the trial court
had exclusive authority to resolve the interest issue. As a result, we hold that the APA did not
limit the trial court’s ability to determine the amount of interest the County should pay into
PERS.
1. Legal Background
Article IV, section 6 of the Washington Constitution states that superior courts shall have
original jurisdiction “in all cases and of all proceedings in which jurisdiction shall not have been
by law vested exclusively in some other court.” See also RCW 2.08.010 (stating that the
superior court has original jurisdiction in all cases in equity and all cases at law where the
2 Dolan is a party to this appeal, but our decision does not affect the benefits payable to the class members.
12 No. 49876-6-II
amount in controversy amounts to $300). Article IV, section 6 applies to both original trial
jurisdiction and original appellate jurisdiction. James v. Kitsap County, 154 Wn.2d 574, 588,
115 P.3d 286 (2005). Whether a court has subject matter jurisdiction is a question of law that we
review de novo. Pruczinski v. Ashby, 185 Wn.2d 492, 499, 374 P.3d 102 (2016).
“[A] judicial power vested in courts by the constitution may not be abrogated by statute.”
James, 154 Wn.2d at 588. However, the constitution does not prevent the legislature from
establishing procedural requirements for the resolution of particular types of disputes. Id.
“[W]here statutes prescribe procedures for the resolution of a particular type of dispute, state
courts have required substantial compliance or satisfaction of the spirit of the procedural
requirements before they will exercise jurisdiction over the matter.” Id.
James involved the Land Use Petition Act (LUPA), chapter 36.70C RCW. Id. at 587-89.
The legislature established that LUPA is the “exclusive means of judicial review of land use
decisions.” RCW 36.70C.030(1). The court in James stated,
[A] LUPA action may invoke the original appellate jurisdiction of the superior court, but congruent with the explicit objectives of the legislature in enacting LUPA, parties must substantially comply with procedural requirements before a superior court will exercise its original jurisdiction.
154 Wn.2d at 588-89.
Like LUPA, the APA provides procedural requirements for the invocation of a superior
court’s original appellate jurisdiction regarding administrative decisions. Wells Fargo Bank, NA
v. Dep’t of Revenue, 166 Wn. App. 342, 360, 271 P.3d 268 (2012). RCW 34.05.510 states that
the APA “establishes the exclusive means of judicial review of agency action.” Therefore,
“before a challenge to agency action may invoke the superior court’s original appellate
jurisdiction, parties must substantially comply with the APA’s procedural requirements.” Wells
Fargo, 166 Wn. App. at 360. And RCW 34.05.534 provides that “[a] person may file a petition
13 No. 49876-6-II
for judicial review under [the APA] only after exhausting all administrative remedies available
within the agency.”
2. Agency Action
Under RCW 34.05.510, the APA applies only to an “agency action.” RCW 34.05.010(3)
defines agency action to include “the implementation or enforcement of a statute.”
DRS made its September 2015 decision assessing interest against the County pursuant to
RCW 41.50.125, which states that DRS may charge interest on “member or employer
contributions owing” to PERS. See also WAC 415-114-100 (stating that RCW 41.50.125
provides DRS with “the authority to assess interest on the overdue unpaid balance of a
receivable”). As a result, that decision involved the implementation of a statute and constituted
agency action under RCW 34.05.010(3).3
Therefore, the APA established the exclusive means of judicial review of DRS’s interest
decision under RCW 34.05.510 unless some other principle supersedes application of the APA.
3. Application of Priority of Action Rule
The County argues that because the trial court obtained jurisdiction over the County’s
interest obligation before DRS issued its interest decision, the court retained exclusive authority
to resolve the matter.4 We agree.
3 This court in Dolan II stated that the APA’s limits on the trial court’s jurisdiction did not apply because at that point there had been no agency action as defined in RCW 34.05.010(3). Slip op. at 10-11. But that holding is inapplicable here because DRS did subsequently issue a decision that qualified as an agency action. 4 DRS argues that the County cannot argue that the priority of action rule applies because the County did not raise that argument below. However, “we may affirm the trial court on any basis supported by the briefing and record below.” Huff v. Wyman, 184 Wn.2d 643, 648, 361 P.3d 727 (2015). In addition, although the trial court’s decision did not specifically reference the priority of action rule, it was based in part on the principle underlying the rule: that the interest issue derived from a preexisting lawsuit over which the trial court had assumed jurisdiction.
14 No. 49876-6-II
a. Legal Principles
Under the priority of action rule, the forum that first gains jurisdiction of a matter retains
exclusive authority until the controversy is resolved. City of Yakima v. Int’l Ass’n of Fire
Fighters, 117 Wn.2d 655, 675, 818 P.2d 1076 (1991); Bunch v. Nationwide Mut. Ins. Co., 180
Wn. App. 37, 41, 321 P.3d 266 (2014). The rule generally applies when the two actions are
identical as to three elements: subject matter, parties, and relief. Bunch, 180 Wn. App. at 41.
The identity must be sufficient to make a decision in one forum binding under res judicata or
collateral estoppel as to proceedings in the other forum. Id. at 42-43. We do not apply the rule
inflexibly, but rather attempt to carry out its underlying purpose. Id. at 41.
The priority of action rule applies to determine authority between the superior court and
an administrative agency. Int’l Ass’n of Fire Fighters, 117 Wn.2d at 675. Whether the priority
of action rule applies is a legal question that we review de novo. Bunch, 180 Wn. App. at 41.
b. Analysis
Here, each of the three identity elements is present. First, the subject matter of the trial
court action and DRS’s decision was the same. The Supreme Court expressly remanded the case
to the trial court for further proceedings regarding remedies. Dolan I, 172 Wn.2d at 301, 322.
One of the issues the trial court expressly addressed in the original settlement approval was
whether DRS could assess interest against the County on its retroactive PERS contributions.
DRS’s decision also involved the County’s obligation to pay interest on its retroactive PERS
Second, the trial court action and the DRS interest decision involved the same parties.
The County was a party in the trial court action and DRS intervened as a full party in that action.
15 No. 49876-6-II
They were the only two parties with a direct stake in the interest issue. DRS’s interest decision
was directed to the County.
Third, the relief at issue was the same. In both forums, the issue was the amount of
interest the County owed on its retroactive PERS contributions.
Further, the identity of subject matter, parties, and relief means that any trial court ruling
on the interest issue would have collateral estoppel effect on both the County and DRS.
Collateral estoppel applies when (1) the issue decided in the prior action is identical with the one
presented in the current action, (2) the prior action ended in a final judgment on the merits, (3)
the party against whom the doctrine is asserted was a party or in privity with a party in the earlier
proceeding,5 and (4) application of collateral estoppel will not cause an injustice against the
estopped party. Dot Foods, Inc. v. Dep’t of Revenue, 185 Wn.2d 239, 254, 372 P.3d 747 (2016),
cert. denied 137 S. Ct. 2156 (2017). All these elements would apply to a trial court ruling on the
County’s interest obligation.
Because the priority of action elements are present regarding the trial court action and the
DRS decision, the forum that first obtained jurisdiction retained exclusive authority until the
dispute is resolved. Bunch, 180 Wn. App. at 41. There is no question here that the trial court
obtained jurisdiction first. The class filed its complaint in 2006, invoking the trial court’s equity
jurisdiction by requesting an injunction. See Emerick v. Cardiac Study Ctr., Inc., P.S., 189 Wn.
App. 711, 731-32, 357 P.3d 696 (2015). The Supreme Court remanded for further proceedings
regarding remedies in 2011, Dolan I, 172 Wn.2d at 301, 322; the trial court approved the
settlement that did not allow assessment of interest against the County in 2013; this court held in
5 An intervener is treated as a party. Wash. Rest. Ass’n v. Liquor Control Bd., 200 Wn. App. 119, 134, 401 P.3d 428 (2017).
16 No. 49876-6-II
Dolan II in 2014 that the trial court had original subject matter jurisdiction, slip op. at 10-11; and
after remand the trial court in June 2015 set a hearing to address the interest issue. Only after all
of these events had occurred, in September 2015, did DRS issue its interest decision. As a result,
under the priority of action rule the trial court retained exclusive authority to resolve the
DRS argues that the priority of action rule does not apply because the trial court did not
have concurrent original jurisdiction with DRS. DRS claims that it had exclusive jurisdiction
under RCW 34.05.510. But as this court recognized in Dolan II, RCW 34.05.510 was
inapplicable and the trial court had original subject matter jurisdiction until DRS engaged in an
agency action. Slip op. at 10-11. Therefore, the trial court had jurisdiction before September
2015 and that jurisdiction was concurrent with DRS’s jurisdiction when DRS made its interest
decision.
DRS also argues that applying the priority of action rule is inconsistent with this court’s
opinion in Wells Fargo, 166 Wn. App. 342. But that case concerned a different issue – whether
an agency’s letter constituted a final agency action and thereby implicated the APA’s procedural
requirements. Id. at 350. The court held that the APA applied, and therefore that Wells Fargo
could not later bring a separate action in superior court challenging the agency’s decision. Id.
Wells Fargo did not address whether an agency has the authority to make a decision that resolves
a dispute subject to ongoing litigation.
Accordingly, we hold under the priority of action rule that the trial court had exclusive
authority to resolve the County’s interest obligation regarding its retroactive PERS contributions
and that DRS lacked authority to decide the issue.
17 No. 49876-6-II
B. TRIAL COURT’S EXERCISE OF EQUITABLE AUTHORITY
DRS argues that the trial court erred in exercising its equitable authority to determine the
County’s interest obligation because exercising that authority was inconsistent with RCW
41.50.125’s grant of authority to DRS to charge interest on late PERS contributions. We
disagree.
Article IV, section 6 of the Washington Constitution gives trial courts authority to fashion
equitable remedies. Bowcutt v. Delta N. Star Corp., 95 Wn. App. 311, 319, 976 P.2d 643 (1999).
An injunction is a form of equitable relief. Nw. Props. Brokers Network, Inc. v. Early Dawn
Estates Homeowners’ Ass’n, 173 Wn. App. 778, 789, 295 P.3d 314 (2013). A trial court’s
equitable power is “inherently flexible and fact-specific.” Proctor v. Huntington, 169 Wn.2d
491, 503, 238 P.3d 1117 (2010).
However, the general rule is that “an equitable remedy is an extraordinary, not ordinary,
form of relief,” available “only when there is a showing that a party is entitled to a remedy and
the remedy at law is inadequate.” Sorenson v. Pyeatt, 158 Wn.2d 523, 531, 146 P.3d 1172
(2006). Equitable relief is unavailable when a statute provides the method for obtaining relief.
See Longview Fibre Co. v. Cowlitz County, 114 Wn.2d 691, 699, 790 P.2d 149 (1990); Coluccio
v. King County, 82 Wn. App. 45, 51-53, 917 P.2d 145 (1996).
More specifically, “we will not give relief on equitable grounds in contravention of a
statutory requirement.” Longview Fibre, 114 Wn.2d at 699. “ ‘Equitable principles cannot be
asserted to establish equitable relief in derogation of statutory mandates.’ ” Rhoad v. McLean
Trucking Co., 102 Wn.2d 422, 427, 686 P.2d 483 (1984) (quoting Dep’t of Labor & Indus. v.
Dillon, 28 Wn. App. 853, 855, 626 P.2d 1004 (1981)). Equity “follows the law and cannot
18 No. 49876-6-II
provide a remedy where legislation expressly denies it.” Stephanus v. Anderson, 26 Wn. App.
326, 334, 613 P.2d 533 (1980); see also Ocwen Loan Servicing, LLC v. Bauman, 195 Wn. App.
763, 764-65, 383 P.3d 524 (2016) (holding that the trial court could not order equitable relief that
went beyond the statutory relief).
On the other hand, the existence of a statutory remedy does not necessarily preclude an
equitable remedy unless the legislature intended the statutory remedy to be exclusive or the two
remedies are so inconsistent that they cannot simultaneously apply. See King County v. Vinci
Constr. Grands Projets/Parsons RCI/Frontier-Kemper, JV, 188 Wn.2d 618, 625-28, 398 P.3d
1093 (2017) (addressing whether a statutory attorney fee provision abrogated a common law
equitable rule).
A trial court’s authority to order equitable relief is a question of law that we review de
novo. Kave v. McIntosh Ridge Primary Rd. Ass’n, 198 Wn. App. 812, 819, 394 P.3d 446 (2017).
2. Equitable Authority in Light of RCW 41.50.125
DRS argues that the trial court’s exercise of equitable authority was improper because it
rendered RCW 41.50.125 ineffective. As noted above, RCW 41.50.125 provides DRS with the
authority to charge interest on late PERS contributions:
The department may charge interest, as determined by the director, on member or employer contributions owing to [PERS]. The department’s authority to charge interest shall extend to all optional and mandatory billings for contributions where member or employer contributions are paid other than immediately after service is rendered.
When the legislature enacted RCW 41.50.125, it also enacted a statement of findings:
Whenever employer or member contributions are not made at the time service is rendered, the state retirement system trust funds lose investment income which is a major source of pension funding. The department of retirement systems has broad authority to charge interest to compensate for the loss to the trust funds, subject only to explicit statutory provisions to the contrary.
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LAWS OF 1994, ch. 177, § 1.
Equitable relief might be unavailable if RCW 41.50.125 provided an express requirement
that interest be charged on late PERS contributions. When a statute expressly provides a process
or remedy, courts cannot ignore that requirement and apply principles of equity. See Longview
Fibre, 114 Wn.2d at 696-99 (upholding technical protest requirement as prerequisite for taxpayer
refund); Rhoad, 102 Wn.2d at 425-27 (upholding Department of Labor and Industry’s statutory
right to a portion of a worker’s recovery in workers’ compensation lawsuit against a third party).
But the statute here does not provide such a requirement. RCW 41.50.125 gives DRS only the
option to charge interest, stating that DRS “may” charge interest. DRS’s argument that the
legislature intended for interest to always be charged to the employer who caused lost investment
returns by making late PERS contributions is inconsistent with the statutory language.
Similarly, equitable relief might be unavailable if RCW 41.50.125 expressly stated that
DRS had exclusive authority to decide whether to charge interest on late PERS contributions. In
that situation, application of equitable principles again would contravene a statutory requirement.
See Vinci Constr., 188 Wn.2d at 627-28 (holding that the court must find that the legislature
explicitly intended a statutory remedy to be exclusive to negate a common law equitable
remedy); Stephanus, 26 Wn. App. at 329-34 (rejecting equitable defense over contrary statute).
But the statute does not provide such exclusive authority. RCW 41.50.125 states only that DRS
“may charge interest” and notes DRS’s “authority to charge interest” without addressing
exclusivity. And although the legislative finding associated with RCW 41.50.125 states that
DRS has broad authority “subject only to explicit statutory provisions to the contrary,” LAWS OF
1994, ch. 177, § 1, the finding does not state that DRS has exclusive authority.
20 No. 49876-6-II
Because RCW 41.50.125 does not state a requirement that interest must be charged and
does not expressly grant DRS exclusive authority over the interest decision, the trial court
retained authority to address the interest issue based on equitable principles.6 Both the trial court
and DRS initially had authority to rule on the interest issue. But the trial court had exclusive
authority under the priority of action rule because the court obtained jurisdiction first. Bunch,
180 Wn. App. at 41.
The Supreme Court applied a similar analysis in International Association of Fire
Fighters to determine whether the trial court or the Public Employment Relations Commission
(PERC) had authority to address unfair labor practice complaints. 117 Wn.2d at 674-75. Former
RCW 41.56.160 (1994) provided that PERC “is empowered and directed to prevent any unfair
labor practice and to issue appropriate remedial orders.” The court ruled that this statute and a
statutory recognition of PERC’s expertise in this area did not prevent superior courts from
resolving unfair labor practice complaints. Int’l Ass’n of Fire Fighters, 117 Wn.2d at 674-75.
Instead, the court recognized that both PERC and the superior court had authority to resolve the
question presented. Id. at 675. The court then applied the priority of action doctrine to
determine that PERC had exclusive authority in that case because it had obtained jurisdiction
before the superior court. Id. at 675-76.
We hold that the trial court did not err in exercising its equitable authority to address
whether the County should be charged interest on the retroactive PERS contributions.
6 DRS cites three cases to support its position: Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365, 110 S. Ct. 680, 107 L. Ed. 2d 782 (1990); Mulhausen v. Bates, 9 Wn.2d 264, 114 P.2d 995 (1941); and Boronat v. Boronat, 13 Wn. App. 671, 537 P.2d 1050 (1975). These cases clearly are inapplicable and do not compel a different result.
21 No. 49876-6-II
C. TRIAL COURT’S INTEREST RULING
DRS argues that even if the trial court had the authority to rule on the interest issue, the
court erred by ordering the County to pay only a portion of the interest on its retroactive PERS
contributions. We disagree.
1. Legal Principles
The trial court has broad discretion to fashion an equitable remedy. Arzola v. Name
Intelligence, Inc., 188 Wn. App. 588, 596, 355 P.3d 286 (2015). We review the trial court’s
consideration of the equities to determine whether the court abused its discretion. Id. A trial
court abuses its discretion if its decision is based on untenable grounds, is manifestly
unreasonable, or is arbitrary. Hoover v. Warner, 189 Wn. App. 509, 528, 358 P.3d 1174 (2015).
We review a trial court’s findings of fact for substantial evidence. City of Puyallup v.
Hogan, 168 Wn. App. 406, 418, 277 P.3d 49 (2012). A finding is supported by substantial
evidence if the evidence is sufficient to persuade a fair-minded person of the finding’s truth. Id.
In addition, unchallenged findings are verities on appeal. Martin v. Smith, 192 Wn. App. 527,
532, 368 P.3d 227, review denied, 186 Wn.2d 1011 (2016).
2. Trial Court’s Findings
In its final order on assessment of interest, the trial court stated that several equities
weighed against imposing the entire cost of retroactive service credit on the County. These
equities included:
a. Prior to the Supreme Court’s decision [in Dolan I], King County and DRS were both opposed to the Dolan class members receiving any PERS benefits. . . . [N]either DRS nor King County considered the public defense personnel to be King County employees for purposes of enrollment in PERS.
b. Prior to February 1, 2012 [the date of the Supreme Court mandate], the interpretation of PERS enrollment rules applied by DRS and all PERS employers
22 No. 49876-6-II
was that the Dolan class members were not employees of King County eligible for enrollment in PERS.
c. . . . King County negotiated in good faith to reach a settlement and avoid further litigation.
d. Awarding the amount of interest requested by DRS would have a substantial negative budgeting impact on King County and its programs. . . . The magnitude of this expense is substantially burdensome on King County. . . .
e. It is unlikely that PERS will face a class action like Dolan in the future due to the legislative fix that was passed shortly after the Supreme Court decision.[7] Considering the unprecedented nature of this case, exceptional remedies are in order.
CP at 2173-74.
The court also expressly adopted the equitable arguments asserted by the County in its
post-hearing response brief. These arguments included that multi-employer plans like PERS are
designed to socialize pension needs through contribution rates; DRS had never published
regulations or guidelines for when interest would be imposed; DRS had never before sought to
recover interest from a single employer; DRS’s solicitation for input into its interest decision was
misleading; since the Dolan I decision employer contribution rates have increased more than 400
basis points, while socializing the County’s interest costs would cause only a four or five basis
point increase; and socializing the County’s interest costs would cause only minimal increases in
both employer and employee contributions.
The trial court concluded that socializing some portion of the cost of the lost investment
income would be reasonable.
7 The “fix” attempts to clarify that employees of government contractors are not eligible for membership in state retirement programs. LAWS OF 2012, ch. 236, § 1(3). It includes a provision stating that for purposes of PERS eligibility, government contractors are not qualifying employers. LAWS OF 2012, ch. 236, § 2(14)(c); see RCW 41.26.030(14)(c). The law expressly does not impact the Supreme Court’s decision in Dolan I. LAWS OF 2012, ch. 236, § 1(6).
23 No. 49876-6-II
3. Analysis
Here, several of the trial court’s considerations support its equitable ruling that the
County should be obligated to pay only a portion of the interest on the retroactive PERS
contributions. Three considerations appear to be most significant.
First, the testimony of all four of the parties’ witnesses established that multi-employer
plans are designed to socialize pension costs. For the County, Dively testified that in his
experience, changes in the costs of pension systems are socialized through system-wide increases
or decreases in contribution rates. The County’s expert Kra also testified that pension plans
typically socialize costs across the system. DRS Director Frost testified that DRS paid for
retroactive liabilities either by socializing the cost or by having the responsible party pay. She
also stated that DRS had not previously charged interest to an employer. State actuary Won
testified that typically demographic changes are socialized rather than charged to a specific
employer, and that with respect to contribution rates, single employers are never required to pay
a specialized or segregated rate.
Second, the evidence showed that requiring PERS to absorb most of the interest
obligation would have a limited impact on contribution rates, particularly relative to other recent
increases. In its interest decision, DRS stated that socializing the interest would require future
PERS employer and employee contribution rates to increase by four or five basis points. Won
testified that for an employer with a $500,000 payroll, a five basis point increase would amount
to $250 per year. By contrast, Dively testified that between April 2012 and May 2016,
contribution rates had increased by 410 basis points. Over a slightly longer period, between July
2009 and July 2015, Kra testified that the employer contribution rate increased by almost 600
basis points and the employee contribution rate increased by over 220 basis points.
24 No. 49876-6-II
Third, the evidence showed that imposing the entire interest obligation of approximately
$64 million on the County would have a substantial negative impact on the County and its
programs. As Dively testified, the County would be required to issue bonds at a likely cost of
$7.5 million per year for 10 years. It was undisputed that the additional cost would add to the
County’s current general fund deficit, requiring the County to reduce some combination of
employees and services.
DRS argues that the trial court’s considerations do not provide a legitimate equitable
basis for shifting most of the interest cost from the County to innocent PERS participants.8
Initially, DRS argues that equity does not favor the County because the County’s
voluntary conduct in settling with the class members caused the obligation to pay late pension
contributions and related interest. DRS claims that no court ordered the County to provide a
retroactive service credit back to 1978 – the County agreed to that remedy in the settlement
agreement in exchange for the release of various non-pension claims. Further, DRS points out
that the County relinquished an argument that the three-year statute of limitations should limit
any retroactive benefits. DRS argues that PERS participants should not be required to subsidize
the County’s settlement. DRS relies on a rule of equity that “he who makes a loss possible
should suffer the loss.” German American Bank of Seattle v. Wright, 85 Wash. 460, 471, 148 P.
769 (1915).
However, as the County emphasizes, DRS intervened as a full party before the trial court
approved the class action settlement. The County emphasizes that DRS agreed to the trial
court’s entry of the order modifying the injunction, which established the retroactive service
credit and waived the statute of limitations defense. According to the County, DRS made a
8 DRS does not argue that substantial evidence did not support the trial court’s considerations.
25 No. 49876-6-II
tactical decision not to seek a ruling on the statute of limitations defense or otherwise contest the
amount of the retroactive service credit.
DRS also specifically challenges the trial court’s enumerated considerations as well as
several of the incorporated considerations. First, DRS argues that it is immaterial that the
County and DRS both originally took the position that the class members were not eligible for
PERS. But this fact shows that it was not solely the County’s “fault” that the class members
were not enrolled in PERS. DRS also interpreted the PERS rules as denying the class members
PERS eligibility.
Second, DRS argues that the trial court’s finding that the County negotiated the class
action settlement in good faith does not provide a basis for equitable relief. But the court
apparently was noting that the County’s tentative settlement represented a genuine attempt to
resolve the liability imposed in Dolan I rather than an attempt to transfer any responsibility to
PERS. And DRS ultimately agreed to the settlement terms when it approved the order
modifying the injunction.
Third, DRS argues that the amount of money at issue and the burden on the County are
not relevant considerations. But when a trial court exercises its equitable authority, it attempts to
balance the relative interests of the parties. Nw. Gas Ass’n v. Wash. Utils. & Transp. Comm’n,
141 Wn. App. 98, 122, 168 P.3d 443 (2007). DRS’s stated position shows that the amount of
money at issue is relevant. By charging interest because the County’s pension liability exceeds
$7 million, DRS determined that changes in pension liability should be socialized only when the
system is burdened below a certain level.
Fourth, DRS argues that the novelty of this case has no bearing on the application of
equity. But DRS itself highlighted the unique size of the County’s settlement as a reason to
26 No. 49876-6-II
exercise its discretion and charge interest, despite DRS’s decision not to do so in previous cases.
DRS’s decision is consistent with the court’s explanation, that given the “unprecedented nature
of this case, exceptional remedies are in order.” CP at 2160. And the court apparently
recognized that because this situation was so unusual, its ruling would not have any significant
precedential effect that might negatively affect PERS in the future.
Finally, DRS argues that several other miscellaneous considerations do not support the
application of equity. The County responds that a number of the considerations support the trial
court’s ruling. We note without specifically examining each of these considerations that some or
all of them properly factored into the trial court’s exercise of its discretion.
Significantly, DRS does not address two of the most important considerations that the
trial court incorporated by reference: that multi-employer plans like PERS are designed to
socialize pension needs through contribution rates and that socializing the County’s interest costs
would cause only minimal, relatively insignificant increases in both employer and employee
The trial court’s three primary considerations are supported by the record and support the
trial court’s ruling that some of the lost investment income should be socialized. Requiring the
County to be solely responsible would be very burdensome, and would result in it reducing
services and incurring debt in addition to its current budget deficit. By contrast, socializing the
cost would be consistent with the typical practice, and would result in an increase in contribution
rates that is substantially smaller than other increases over the previous few years. And although
some of DRS challenges to other considerations may have merit, the trial court had broad
discretion in the exercise of its equitable authority and there is no requirement that all the
considerations support the court’s ruling.
27 No. 49876-6-II
Accordingly, we hold that the trial court did not abuse its discretion by exercising its
equitable authority to rule that the County was required to pay only a portion of the interest
obligation.
CONCLUSION
We affirm the trial court’s interest order and judgment.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW
2.06.040, it is so ordered.
MAXA, C.J.
We concur:
JOHANSON, J.
MELNICK, J.