NO. 94-278
IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
MARY K. BEAN,
Petitioner and Appellant,
-vs-
STATE OF MONTANA BOARD OF LABOR
APPEALS; MONTANA DEPARTMENT OF LABOR
AND INDUSTRY; and COMMUNITY NURSING,
INC., d/b/a VILLAGE HEALTH CARE CENTER,
Respondents and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable John W. Larson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Donald V. Snavely (argued); Snavely Law Offices
Missoula, Montana
For Respondents:
Maureen H. Lennon (argued) and Candace C. Fetscher;
Garlington, Lohn & Robinson, Missoula, Montana
Melanie Symons (argued), Department of Labor and
Industry, Helena, Montana
For Amicus:
Cary B. Lund, Special Ass't Attorney General,
of Social & Rehabilitation Services
ntana
Submitted: November 29, 1994
March 15, 1995
Justice Karla M. Gray delivered the Opinion of the Court.
Mary Bean (Bean) appeals from an opinion and order of the
Fourth Judicial District Court, Missoula County, denying her
petition for judicial review of a decision of the Board of Labor
Appeals (BOLA) finding that her employer discharged her for
misconduct and that she was not entitled to unemployment benefits.
We reverse and remand.
We restate the issues presented on appeal as follows:
1. Did the Department of Labor and Industry's telephonic
hearings procedure deprive Bean of her constitutional right to due
process of law by denying her the ability to confront and cross-
examine witnesses?
2. Did the appeals referee improperly exclude evidence offered
by Bean to controvert her employer's allegations of misconduct?
3. Is the BOLA's decision that Bean engaged in misconduct
supported by substantial evidence?
4 . Did the BOLA violate applicable procedural requirements in
making its findings and decision?
Because our resolution of issue four requires a remand to the BOLA
for redetermination, we do not address the other issues presented.
Bean's employment as a licensed practical nurse with Community
Nursing, Inc., doing business as Village Health Care Center
(Village Health), ended with her discharge on March 22, 1993,
allegedly for failure to improve her conduct and inappropriate
criticism of Village Health's operation. After her discharge, Bean
filed for unemployment insurance benefits with the Montana
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Department of Labor and Industry (Department). A Department deputy
twice denied Bean's claim on the basis that she was discharged for
misconduct and, as a result, was ineligible to receive benefits.
Bean appealed the decision to an appeals referee (referee).
A telephonic hearing was held on June 29, 1993; the parties
were at separate locations in Missoula and the referee was in
Helena. The referee subsequently issued written findings of fact
and a decision concluding that Bean was discharged for misconduct
and, thus, ineligible for unemployment benefits. Bean appealed to
the BOLA. The BOLA, following a fifteen minute telephonic argument
presented by Bean's counsel, issued a one-paragraph decision
adopting the referee's findings of fact and decision.
Bean petitioned the District Court for judicial review of the
BOLA's decision. The District Court denied her petition and
affirmed the BOLA's decision denying unemployment benefits. Bean
appeals.
Did the BOLA violate applicable procedural requirements
in making its findings and decision?
A person dissatisfied with a referee's decision may appeal to
the BOLA, which makes determinations related to unemployment
insurance benefits claims pursuant to the procedures contained in
Title 39, chapter 51, MCA. See § 39-51-2404, MCA; City of Billings
v. State Bd. of Labor App. (1983), 204 Mont. 38, 43, 663 P.2d 1167,
1171. Duly adopted administrative rules govern the BOLA's
determinations in such cases. See §§ 24.7.301 through 24.7.315,
ARM. On appeal to this Court, Bean contends that the District
3
Court erred in determining that the BOLA did not violate applicable
procedural rules.
A. Did the BOLA err in not conducting a de novo hearing
on Bean's appeal?
Bean argues first that the BOLA is required to conduct a &
m evidentiary hearing on an appeal from a referee. Neither the
applicable administrative rule nor this Court's decisional law
supports her position.
Pursuant to § 24.7.314(Z), ARM, the BOLA is authorized to
"affirm, modify, or set aside any decision of an appeal tribunal on
the basis of the evidence previously submitted in such case . .
!I The rule clarifies that the BOLA's decision ordinarily will be
based on the evidence presented to the referee. Moreover, while we
stated in City of Billinss, 663 P.Zd at 1171, that the BOLA "may
consider not only the record made before the appeals referee, but
new evidence produced at the board hearing," that statement does
not require the BOLA to allow the presentation of new evidence,
much less require it to conduct a W novo evidentiary hearing.
de e
conclude that the BOLA did not err in not conducting a de nova
hearing on Bean‘s appeal from the referee's decision.
B. Did the BOLA violate § 24.7.306(l), ARM, by not
considering a transcript or recording of the proceedings
before the referee?
Bean's second assertion of error regarding the BOLA's
procedures is that § 24.7.306(l), ARM, requires the BOLA to
consider a transcript or recording of the hearing before the
referee in making its decision on her unemployment insurance
benefits appeal. On this basis, she contends that the District
4
Court erred in concluding that the BOLA was not required to review
the evidence before the referee.
Section 24.7.306(l), ARM, requires that the BOLA "shall
include in the record and consider as evidence all records of the
department that are material to the issues." We generally apply
the same principles in construing administrative rules as are
applicable in interpreting statutes. Matter of Peila (1991), 249
Mont. 272, 278, 815 P.2d 139, 143. It is axiomatic that the proper
interpretation of statutes is first to be determined according to
the language therein. Norfolk Holdings v. Mont. Dep't of Revenue
(1991) I 249 Mont. 40, 43, 813 P.2d 460, 461. Thus, we look first
to the plain language of § 24.7.306(l), ARM, in resolving this
issue.
Section 24.7.306(l), ARM, begins by using the word "shall,"
which is understood to be compelling or mandatory in nature. See
Gaustad v. City of Columbus (1994), 265 Mont. 379, 381-82, 877 P.Zd
470, 471. Therefore, in considering an appeal from a referee's
decision, the BOLA must consider all Department records which are
material to the issues before it.
Moreover, it cannot be seriously disputed that a transcript or
recording of Bean's hearing before the referee is a record of the
Department. Section 39-51-2408, MCA, requires the Department to
maintain a "full and complete record . . . of all proceedings in a
contested case[; I” included in that mandate is a requirement that
"[al11 testimony at any hearing upon a disputed claim shall be
recorded . . .'I Given these statutory requirements, a transcript
or recording of the hearing before the referee is a Department
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record which, pursuant to the administrative rule, the BOLA must
consider if "material" to the issues before it.
"Material" records--whether from a common sense or legal
perspective--are those records which are relevant to, and necessary
for, the determination of issues presented to the BOLA. The issues
Bean presented to the BOLA related to her general assertion that
the BOLA should reject the referee's findings as erroneous. She
argued that the referee incorrectly interpreted the evidence of
record, inappropriately considered hearsay evidence, and rejected
relevant evidence she sought to introduce regarding Village
Health's alleged retaliatory discharge. It is clear that proper
resolution of each of these issues required the BOLA to review the
evidence previously submitted. Therefore, a recording or
transcript of the testimony introduced before the referee was
material.
As a quasi-judicial board, the BOLA is directed to evaluate
and pass on facts. Section 2-15-102(g), MCA. In this case, the
referee relied on the testimony of Village Health's witnesses for
its findings regarding the reason for Bean's termination; some of
this testimony was the very evidence Bean argued was inadmissible
hearsay. The referee did not specifically mention the evidence it
excluded as irrelevant and which Bean argued was erroneously
excluded by the referee. The BOLA could not properly determine
these issues without a review of the entire record, including a
transcript or recording of the hearing.
The BOLA argues that, as an administrative board vested with
quasi-judicial powers for purposes of § 24.7.306(l), ARM, it is
6
entitled to determine what is "material." Relying on this Court's
statement in City of Billings that the BOLA "may consider not only
the record made before the appeals referee, but new evidence
produced ant the board hearing;"-663 P.2d at 1171,~the BOLA suggests
that a review of the record is within its discretion. This
argument is not persuasive.
Insofar as is relevant here, City of Billings addressed
whether the Montana Administrative Procedure Act applied to the
BOLA and limited its power in reviewing unemployment insurance
cases appealed from a referee. We rejected those limitations,
noting that the BOLA is a quasi-judicial board performing an
adjudicatory function "involving the exercise of judgment and
discretion in making determinations in controversies." City of
Billings, 663 P.2d at 1171. In that regard, we stated that the
BOLA was authorized to consider new evidence presented to it, in
addition to the evidence presented to the referee. Our use of the
word "may" in addressing the BOLA's authority did not relate to any
discretion involving whether to consider the evidence from the
referee's hearing; it related only to the BOLA's authority to
consider new evidence. See Citv of Billinss, 663 P.2d at 1171.
We conclude that a recording or transcript of the hearing
before the referee was a Department record material to issues
raised by Bean under 5 24.7.306(l), ARM. Accordingly, the BOLA was
required to consider that material record.
Here, it is clear that the BOLA did not consider or review
the material record. While the BOLA decision recites that it
"reviewed the entire record." the BOLA's counsel controverted that
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recitation in the District Court: "If there's a question about the
facts, [the BOLA members] are certainly free to ask for a
transcript or to listen to the tapes, and the Board does that on
occasion. They did not do that in this case." On the basis of
this record, we conclude that the BOLA violated 5 24.7.306(l), ARM,
by failing to review a transcript or recording of the proceedings
before the referee in making its decision in Bean's case. As a
result, we hold that the District Court erred as a matter of law in
concluding that the BOLA was not required to review the evidence
before the referee.
C . Did the BOLA violate 5 24.7.306(l), ARM, by adopting
the referee's findings of fact without considering the
transcript or recording of the hearing before the
referee?
Bean's final argument is that the BOLA violated § 24.7.306(l),
ARM, by adopting the referee's findings rather than making
independent findings of fact and stating reasons for its decision.
The third sentence of 5 24.7.306(l), ARM, provides that " [als soon
as possible after the hearing, the board shall render a written
decision which shall state the findings of facts and the reasons
for the decisions." Here, the BOLA issued a one paragraph decision
stating that, after reviewing the record and hearing the argument
presented by Bean's counsel, it failed to find any evidence to
warrant modification of the referee's decision; the BOLA then
adopted the referee's findings of fact and decision as its own.
As was the case in our discussion of whether the BOLA was
required to review a transcript or recording of the hearing before
the referee, use of the word "shall" with regard to the BOLA's duty
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to state findings of fact renders that duty mandatory. See
Gaustad, 877 P.2d at 471. The BOLA's adoption of the referee's
findings as its own apparently is a routine practice. See
-I e.q.r
Ward v. Johnson (1990), 242 Mont. 225, 227, 790 P.2d 483, 484.
By its terms, § 24.7.306(l), ARM, neither authorizes nor
precludes such wholesale adoption of a referee's findings. While
the duty to state findings is clear, the manner in which the
findings are to be stated is not specified. Given our policy of
interpreting administrative rules using the same principles under
which we construe statutes (see Matter of Peila, 815 P.2d at 143),
we will not insert into § 24.7.306(l), ARM, either a requirement or
a prohibition not contained therein with regard to the manner in
which the BOLA must state its findings of fact. See § l-2-101,
MCA.
At the same time, however, the BOLA's role in the
determination of disputed unemployment insurance benefits claims is
that of a quasi-judicial board directed to exercise its judgment in
evaluating and passing on facts. Section 2-15-102(g), MCA. The
BOLA's--not the referee's--factual determinations are those which
are conclusive on reviewing courts if supported by evidence and in
the absence of fraud. Section 39-51-2410(5), MCA; Connolly v.
Mont. Bd. of Lab. Appeals (1987), 226 Mont. 201, 205, 734 P.2d
1211, 1214.
Here, as stated above, much of the controversy centered around
whether the BOLA should accept the referee's findings based on the
evidence of record. Given the BOLA's failure to consider the
entirety of the record before it, we cannot conclude that its
9
wholesale adoption of the referee's findings and decision reflected
the exercise of its independent judgment in determining the facts.
We conclude, therefore, that the BOLA's adoption of the referee's
findings and decision in this case violated § 24.7.306(l), ARM.
Reversed and remanded to the District Court for entry of an
order remanding the case to the BOLA for reconsideration and
redetermination of Bean's appeal. Any subsequent petition for
judicial review and, as appropriate or necessary, appeal to this
Court shall proceed under applicable statutes and rules.
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Justice James C. Nelson dissents as follows:
I respectfully dissent. Remanding this case to the BOLA for
review of a recording or transcript of a hearing that was deficient
in the first instance and for reconsideration of the appeal
referee's findings in light of such a record will not, in my view,
solve the problem.
All of the evidence in this case was introduced at a hearing
conducted via a telephone conference call with the appeals referee
situated in Helena, with Bean and her witnesses situated in her
counsel's office in Missoula and with the Employer and its
witnesses situated in its business premises in Missoula. Moreover,
the entirety of the critical evidence against Bean on the issue of
her l'willful misconduct" consisted of hearsay reports from persons
who were not present at the hearing and who were not, therefore,
subject to confrontation and cross-examination. Under such
circumstances, any decision of the appeal referee and any decision
of the BOLA based on that record and the referee's findings, was,
is and will be inherently flawed from the outset.
From statements made during the oral argument of this case, it
appears that the Department of Labor is unique among State agencies
in routinely holding contested hearings via telephone. Moreover,
it also appears that requesting an in-person hearing will not,
necessarily, guarantee that result nor will it guarantee that the
employer and its witnesses will be at the hearing, even if one is
allowed. In Niles v. Carl Weissman & Sons, Inc. (1990) 241 Mont.
230, 786 P.2d 662, without deciding the issue, we expressed concern
11
that Department of Labor telephonic hearings may not afford the
claimant the full right of cross-examination and may not comply
with judicial standards of substantive and procedural due process,
Niles, 786 P.2d at 666-67
More recently, in Bonamarte v. Bonamarte (1994), 263 Mont.
170, 866 P.2d 1132, we reversed the district court in a marital
dissolution case because one party was allowed to testify by
telephone over the objection of the other party. Bonamarte, 866
P.2d at 1137. While that case did not involve an administrative
proceeding, nevertheless, we stated that,
[rlequiring a witness to testify personally at trial
serves a number of important policies and purposes. A
witness' personal appearance in court:
1. assists the trier of fact in evaluating
the witness' credibility by allowing his or
her demeanor to be observed firsthand;
2. helps establish the identity of the
witness;
3. impresses upon the witness, the
seriousness of the occasion;
4. assures that the witness is not being
coached or influenced during testimony;
5. assures that the witness is not referring
to documents improperly; and
6. in cases where required, provides for the
right of confrontation of witnesses.
Bonamarte, 866 P.2d at 1134.
I conclude that those reasons are no less valid, important and
necessary to assure the integrity and fairness of contested
proceedings before an administrative agency where, as here, the
litigant's entitlement to state benefits hangs in the balance as a
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direct consequence of the hearings process.
Moreover, and to make matters worse, here, the crucial
evidence against Bean on the issue of willful misconduct was in the
form of hearsay reports and testimony that would not have been
admissible under the Rules of Evidence nor should even have been
admissible under a fair reading of the Department's own
administrative rule, which allows consideration of evidence upon
"which responsible persons are accustomed to rely in the conduct of
serious affairs." Rule 24.7.312(l), ARM. Since this Court does
not reach this issue, little will be gained here in detailing the
offending "evidence" or by engaging in an extended discussion of
the law regarding the use of hearsay in administrative proceedings.
Presumably that issue remains open for future resolution. Suffice
it to say that the record here does not contain sufficient
admissible, non-hearsay evidence upon which the appeal referee
could base a finding of willful misconduct.
That a claimant of unemployment compensation benefits is
entitled to substantive and procedural due process is not, in my
view, open to dispute. See, Goldberg v. Kelly (1970), 397 U.S.
254, 90 s.ct. 1011, 25 L.Ed.2d 287; and California Department of
Human Resources Development v. Java (1971), 402 U.S. 121, 91 S.Ct.
,1347, 28 L.Ed.2d 666. I am at a loss to understand how a claimant
has been afforded even minimal due process where she has been
denied her right of confrontation and cross-examination by being
required to litigate her case over a telephone, without crucial
adverse witnesses being required to testify and where the
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factfinder's ultimate decision is based on rank, inadmissible
hearsay.
If you put a teaspoon of sludge in a barrel of wine, you get
sludge. If you put a teaspoon of wine in a barrel of sludge, you
get sludge. Putting this case back in the barrel will not change,
much less improve, the contents. I dissent.
Justices Terry N. Trieweiler and William E. Hunt, Sr., join in the
foregoing dissent.
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