Lsi Logistic Service Et Al, Appellants V. Dept Of Labor & Industries, Respondent

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
LSI LOGISTIC SERVICE SOLUTIONS
LLC, a Washington limited liability
company; LABELING SERVICES, INC, an
inactive Washington corporation,
Appellant,
v.
STATE OF WASHINGTON,
DEPARTMENT OF LABOR AND
INDUSTRIES,
Respondent.
No. 74125-0-1
DIVISION ONE
UNPUBLISHED OPINION
FILED: September 26, 2016
Appelwick, 	J. 	— LSI 	applied 	to the 	Department to change 	its 	risk
classification for purposes of industrial insurance from freight handler service to
warehouse. The Department concluded that the freight handler classification was
correct. 	Both the Board of Industrial Insurance Appeals and the superior court
affirmed the Department. We affirm.
FACTS
Labeling Services, Inc. is now an inactive Washington corporation. 	When
it was in business, Labeling operated in a warehouse facility, employing about 15
employees. 	From the second quarter of 2010 through the first quarter of 2011,

No. 74125-0-1/2
most of its business involved receiving canned salmon from Alaska, labeling it,
storing it, and shipping it when requested.
LSI Logistic Service Solutions LLC is the successor company to Labeling.
LSI expanded the business to other products, including rice, sugar, salmon oil, and
laminate flooring. 	LSI's 	business consists 	of receiving 	inventory from other
companies, storing it, and shipping it out when requested.1
In 2013, LSI requested a change in classification for industrial insurance
premiums. 	The Department of Labor & Industries (Department) is responsible for
classifying industries for purposes of insurance premiums according to the hazards
involved in an occupation. RCW 51.16.035. LSI had previously been classified as
a freight handler service 	under WAC 296-17A-2002-13, and 	it sought to be
reclassified as a warehouse under WAC 296-17A-2102-00. 	LSI filed amended
reports with the Department for the period of April 1, 2010 through March 31, 2013.
Under its proposed classification, LSI sought a refund of $22,293.93.
In response to this request, the Department reviewed the appropriate risk
classification 	for 	LSI. 	Thomas 	Boyle, the 	account 	manager, 	conducted 	an
investigation and performed a site visit to observe LSI's business operations and
interview its employees. 	The 	Department concluded that the freight handling
classification was correct.
1 Below, the parties stipulated that Labeling and LSI performed the same
services during the time period at issue and that the Board's determination would
apply to both Labeling and LSI. For clarity, we refer to Labeling and LSI collectively
as LSI, except as necessary to distinguish between the two.

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LSI appealed the Department's decision to the Board of Industrial Insurance
Appeals. The Board held a hearing to determine whether the Department correctly
classified LSI as a freight handler service. 	Nic Klamke, co-owner and president of
LSI, testified at the hearing. 	He described LSI's business operations. 	Boyle
testified as well, providing the details of his investigation.
After the hearing, the industrial appeals judge (IAJ) issued a proposed
decision and order affirming the Department's decision. 	The IAJ found that LSI
employees unloaded, repackaged, and reloaded goods for shipping using pallet
jacks and forklifts. And, the IAJ found that the proper risk classification was freight
handling. 	The Board adopted the proposed decision and order.
LSI appealed to the superior court. 	After reviewing the record, the court
affirmed the decision of the Department. The court also found that LSI employees
unloaded, inspected, labeled, repackaged, and reloaded goods for shipping using
pallet jacks and forklifts. 	And, the court found that the proper classification for
Labeling during the second quarter of 2010 through the first quarter of 2011 and
for LSI during the second quarter of 2011 through the first quarter of 2013 was
freight handling. 	It concluded that the Board properly affirmed the Department's
order classifying LSI as such. 	LSI appeals.
BACKGROUND
The Industrial Insurance Act (IIA), title 51 	RCW, exists to mitigate the
suffering and economic loss arising from injuries and death occurring in the course
of employment. 	RCW 51.12.010. 	The IIA is to be liberally construed to achieve
the purpose of providing compensation to all covered employees injured in their

No. 74125-0-1/4
employment. 	Hubbard v. Dep't of Labor & Indus., 140 Wn.2d 35, 41, 992 P.2d
1002(2000).
To accomplish this purpose, the IIA tasks the Department with classifying
all industries by the degree of hazard and assigning premium rates accordingly.
RCW 51.16.035. 	By delegating this authority to the Department, the legislature
gave the Department broad discretion to create a system of risk classification. Di
Pietro Trucking Co. v. Dep't of Labor & Indus., 135 Wn. App. 693, 704, 145 P.3d
419(2006).
The Department's classification plan has over three hundred business or
industry classifications. 	WAC 	296-17-31011(4). 	The 	two at 	issue 	here—
warehouses of general merchandise and freight handling services—are set out in
WAC 296-17A-2102-00 and WAC 296-17A-2002-13.
WAC 296-17A-2102-00 is the classification for warehouses storing general
merchandise. 	It "[ajpplies to establishments operating as warehouses for general
merchandise. 	This merchandise belongs to a customer and is usually stored for
long 	periods of time." 	Id. 	Typically, 	warehouses store 	bulk, 	nonperishable
materials, such as coffee, dry cement, potatoes, or rice. Id 	Employees perform
duties such as maintaining the facility, 	moving merchandise within the facility,
recordkeeping, routine maintenance, and security. 	]d. 	The equipment they use
includes cleaning 	and 	recordkeeping supplies, forklifts, 	pallet jacks, 	and shop
vehicles. 	Id.
WAC 296-17A-2002-13 is the freight 	handler services classification. 	It
"[ajpplies 	to 	establishments 	engaged 	in 	packing, 	handling, 	shipping, 	or

No. 74125-0-1/5
repackaging merchandise or freight which is owned by others and is not covered
by another classification." Id 	These establishments handle general cargo, which
is usually in boxes, cartons, crates, bales, or bags. id. General cargo also includes
lumber, logs, steel, pipe, grains, produce, machinery, and vehicles, 	id. 	Freight
handler services are usually located at railroad yards, airports, or warehouses. 	Id
Their employees "perform duties such as, but not limited to, unloading, checking
in and weighing goods, sorting and repackaging goods, tiering (placing in a series
of rows one above the other), and reloading goods for shipment." 	id. 	They use
equipment such as "palletjacks, hand trucks, forklifts, boom trucks, mobile cranes
or overhead track cranes, and hand tools." id
The 	freight 	handler 	services 	classification 	excludes 	"establishments
engaged in warehousing operations for general merchandise which are to be
reported 	separately 	in 	classification 	[WAC 	296-17A-]2102[-00]." 	Under the
heading "Special notes," it clarifies the distinction between warehouses and freight
handlers:
Establishments engaged as freight handlers have the hazard of the
continual movement of goods, in contrast to warehousing operations
in classification 2102-00 that usually store goods for long periods of
time. In addition, freight handling services providers do not operate
warehouses and storage facilities as a general rule.
Id.

No. 74125-0-1/6
DISCUSSION
Appeals of proceedings under the IIA are governed by the ordinary civil
standard of review.2 	RCW 51.52.140. 	Therefore, this court reviews the superior
court's decision rather than the Board's decision.3 	Birgen v. Dep't of Labor &
Indus.. 186 Wn. App. 851, 855-56, 347 P.3d 503 (2015). 	We determine whether
substantial evidence supports the superior court's findings and whether those
findings support the court's conclusions of law. Id at 856. Conclusions of law are
reviewed de novo, 	id
LSI argues that under the APA we must reverse the Department's decision,
because it acted inconsistently by classifying LSI differently than LSI's competitors.
LSI relies only on evidence of those competitors' risk classifications that was
presented through Klamke's testimony.4 	However, the APA does not apply here.
The issue of whether LSI's competitors are correctly classified is not before this
court. 	We decline to review LSI's claims of inconsistent treatment. 	See Ramos
v. Dep't of Labor & Indus., 191 Wn. App. 36, 40-41, 361 P.3d 165 (2015) (noting
2As the Department correctly points out, the Administrative Procedure Act (APA),
chapter 34.05 RCW, does not govern this appeal. 	RCW 51.52.140 (stating that
the practice in civil cases applies to appeals under the IIA, unless otherwise
provided). The APA applies to an industrial insurance case if appeal is taken from
a 	decision concerning a 	notice of assessment. 	RCW 51.48.131. 	The term
"assessment" refers to taxes—money payments made by an employer or worker
for the accident fund, the medical aid fund, the supplemental pension fund, or any
other fund under the IIA. RCW 51.08.015. 	Because this case involves a request
for a reclassification rather than a notice that payments were due, the APA does
not apply.
3To the extent LSI assigns error to the Board's findings and conclusions,
we treat them as challenges to the superior court's findings and conclusions.
4 LSI offered exhibits showing the risk classifications of these competitors,
but the IAJ rejected them.

No. 74125-0-1/7
that whether self-serving testimony should be disregarded is a credibility issue for
the trial court).
The question 	before this court is whether the superior court erred 	in
classifying LSI as a freight handler service rather than a warehouse. LSI contends
that the findings 	of fact 	that LSI and 	Labeling 	were freight 	handler services
engaged in unloading, inspecting, labeling, repackaging, and reloading goods for
shipping are not supported by substantial evidence.
The evidence below shows that LSI certainly does perform some of the
functions of a warehouse. 	It operates within a warehouse and as such must
maintain the warehouse and the goods within it. It uses forklifts to move products
within the facility. 	And, it stores goods for at least one month at a time, with some
goods stored for two to three years.
But, the evidence also establishes that Labeling did and LSI does much
more 	than 	operate a 	warehouse. 	Klamke explained that 	Labeling's 	primary
function was to handle canned salmon. 	The product was shipped to Labeling's
facility from Alaska. 	The company then 	unloaded 	the 	pallets using forklifts.
Labeling ran the product through its production line. 	In the production line, the
product went through a machine with a magnet. 	It was inspected. 	Next, it was
labeled by a labeling machine and a casing machine. 	When this process was
complete, the product was then stored in the warehouse awaiting shipment. 	The
product was shipped out when Labeling's customer requested it.
Klamke testified that while 	LSI no 	longer handles the canned salmon
product, it now receives, stores, and ships products such as rice, sugar, and

No. 74125-0-1/8
laminate flooring. 	He stated that products are usually shipped to LSI on pallets.
Products are driven through the warehouse with forklifts or pallet jacks. 	Klamke
explained that sometimes, LSI employees have to unload products by hand and
stack them onto pallets. 	LSI has a pallet shrink wrap machine that it uses when
repalleting some of the freight. 	Klamke estimated that LSI uses the pallet shrink
wrap machine for around 25 percent of the floor loaded freight. 	LSI then puts the
product in the warehouse for storage until it receives an order to ship it out. 	Later,
LSI loads the product out of the warehouse and prepares it for shipment, based on
demand from retail customers.
Klamke gave the example of Unilin Flooring to explain how LSI operates.
He stated that Unilin Flooring sends LSI the product and LSI holds it. 	When
requested, LSI pulls the product, stages it, and loads it. 	Then, LSI sends the
product to Costco distribution centers on Unilin Flooring's behalf.
And, the IAJ admitted as exhibits several pages from LSI's website. 	This
website 	lists 	LSI's 	value-added 	services: 	"Labeling 	and 	Packaging"; 	"Bundle
Wrap"; "Pick and Pack"; "Shrink Wrap"; "Ticketing and 	Labeling"; "Routing and
Return Processing"; "FED EX" (Federal Express), "UPS" (United Parcel Service)
or 	customer 	choice; 	"Bundling"; 	"Repackaging"; 	"Special 	Handling"; 	"G.O.H.
(Garment on Hanger)." 	It specifies that these services promote "[f]ast, efficient
product conversion." 	Klamke acknowledged 	that 	LSI 	offers 	these 	services,
although 	he 	stated 	that 	customers 	rarely request them. 	LSI's website also
advertises LSI as able to serve customers needing large volume distribution of
8

No. 74125-0-1/9
goods and customers needing assistance in emergency situations, such as short
notice customer requests, product recalls, and high volume rollouts.
This evidence shows that during the relevant time frames, Labeling and LSI
employees unloaded, inspected, labeled, repackaged, and 	reloaded goods for
shipping. 	They used specialized machinery to accomplish these services. 	Thus,
substantial evidence supports the superior court's findings.
These findings clearly support the conclusion that Labeling and LSI are
properly classified 	as freight handler services rather than 	warehouses. 	The
purpose of these classifications is to weigh the hazards inherent in a business and
assess premiums accordingly. RCW 51.16.035. The hazards of LSI's line of work
are 	not those 	involved in simply maintaining 	a 	warehouse. 	Instead, 	LSI's
employees risk the hazards involved in the continual movement of goods. We hold
that the superior court did not err in concluding that Labeling and LSI were correctly
classified as freight handler services.
LSI requests attorney fees on appeal under RCW 4.84.350. 	Because LSI
has not prevailed on this appeal, we decline to award fees.
We affirm.
WE CONCUR:
f