Shoemaker v. Denke

                                          No. 02-573

               IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2004 MT 11



MAURICE SHOEMAKER,

              Petitioner and Appellant,

         v.

KATHY DENKE,

              Respondent and Respondent.



APPEAL FROM:         District Court of the Twentieth Judicial District,
                     In and For the County of Sanders, Cause No. DV 2002-47,
                     Honorable Deborah Kim Christopher, Presiding Judge


COUNSEL OF RECORD:

              For Appellant:

                     Edward A. Murphy, Datsopoulos, MacDonald & Lind, P.C.,
                     Missoula, Montana

              For Respondent:

                     Ann Moderie, Manley Law Office, Polson, Montana



                                                  Submitted on Briefs: December 19, 2002

                                                            Decided: January 27, 2004

Filed:

                     __________________________________________
                                       Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1     Appellant Maurice Shoemaker appeals from the order entered by the Twentieth

Judicial District Court, Sanders County, dismissing his petition for judicial review of a final

agency decision of the Human Rights Commission. We affirm.

¶2     The following issue is presented on appeal:

¶3     Did the District Court err in dismissing Shoemaker’s petition for judicial review for

failure to exhaust administrative remedies?

                  FACTUAL AND PROCEDURAL BACKGROUND

¶4     On March 3, 2000, Kathy Denke (Denke), City Clerk for the City of Thompson Falls

(City), filed a charge with the Human Rights Commission (HRC) alleging that Maurice

Shoemaker (Shoemaker), a city council member, and the City, retaliated against her because

she had previously filed a sexual harassment charge against the mayor of Thompson Falls.

A contested case hearing was conducted by a hearing examiner on December 20-21, 2000,

and the examiner issued his Final Agency Decision on November 16, 2001.

¶5     In October 1999, approximately five months prior to Denke’s filing of the subject

complaint, the city council, during a regular city council meeting, agreed to a settlement of

Denke’s original sexual harassment claim. The settlement agreement included clauses

prohibiting both discussion of the terms of the agreement and further discrimination or

retaliation by the mayor and city council.

¶6     In December 1999, Shoemaker requested to be added to the agenda for the next city

council meeting for the ostensible purpose of clarifying alleged rumors regarding the City’s


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settlement with Denke, but the mayor denied his request. In response, on January 6, 2000,

Shoemaker wrote a letter to the Sanders County Ledger, the local Thompson Falls

newspaper, stating that the City’s bookkeeping procedures under Denke’s control were so

poor that it was costing $50.00 per hour to have an accountant correct the situation; that

Shoemaker disapproved of Denke’s sexual harassment charge against the mayor; and that

both the mayor and Denke should resign. The Ledger printed an edited version of

Shoemaker’s letter followed by an editorial note indicating that the deleted portions of the

letter contained accusations that were either “unfair, unsubstantiated, a misrepresentation of

the facts or inappropriate given [Shoemaker’s] position on the council.” When the Ledger

refused to print the entire letter, Shoemaker made copies of the original letter available to

citizens of Thompson Falls and read the deleted portions of the letter to citizens who called

him and inquired about the letter and editorial comment in the newspaper.

¶7     Then, on January 19, 2000, Shoemaker wrote a second letter, copies of which were

distributed to community members along with petitions requesting that Shoemaker be added

to the agenda. This letter not only repeated Shoemaker’s dissatisfaction with not being

placed on the agenda and his call for the resignations of the mayor and Denke, but also

included accusations that Denke had colluded with the mayor regarding Denke’s sexual

harassment settlement. As a result of Shoemaker’s January 19th letter, and the petitions, the

mayor added Shoemaker to the agenda.

¶8     Because of the controversy and the size of the anticipated crowd, the February 14,

2000, city council meeting was convened at a larger facility. Approximately 75 people


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attended. Denke attended because she expected discussion regarding her discrimination

claim. At the opening of the meeting, the mayor resigned and walked out. A council

member inexperienced in conducting meetings was left in charge of the meeting.

¶9     During discussion of the first item of business, entitled “Human Rights Complaint,”

Shoemaker publicly discussed the rumors about the amount of Denke’s settlement.

Afterwards, a free-ranging discussion between the citizenry and council members occurred,

including specific comments which suggested Denke had been a willing participant in the

sexual harassment and that she had voluntarily engaged in sexual activity with the mayor

during working hours. Subsequently, radio stations as far away as Great Falls broadcast

reports of the meeting, and the Missoulian printed an extensive article reporting the public

comments made during the meeting.

¶10    Following the HRC’s contested case hearing, the hearing examiner entered findings

of fact, conclusions of law, and an order. First, the hearing examiner concluded Shoemaker

had illegally retaliated against Denke when he published, or caused to be published, letters

imputing that Denke caused the City unnecessary expense from poor accounting procedures,

and that she colluded with the mayor, her harasser, to obtain money improperly from the

City. The hearing examiner found that Shoemaker’s letters were published either with

reckless disregard for the truth or falsity of statements therein, or with statements having

provably false connotations about Denke.         Second, the hearing examiner concluded

Shoemaker, as a city council member, and the City were protected by legislative immunity

for comments made during the city council meeting. Third, the hearing examiner denied


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Denke’s claims that the City illegally retaliated against her and that the City was liable for

Shoemaker’s actions. The hearing examiner found that as a result of the meeting’s publicity

and the two statements in Shoemaker’s January 6th and January 19th letters, Denke suffered

physical, emotional, and mental harm including hospitalization for depression and suicide.

The hearing examiner awarded Denke $7,500.00 from Shoemaker for her severe emotional

distress and imposed injunctive relief prohibiting Shoemaker from making future retaliatory

statements.

¶11    On November 29, 2001, Denke appealed to the HRC the examiner’s denial of

Denke’s claim that Shoemaker and the City retaliated against her during the city council

meeting and that the City was liable for Shoemaker’s actions. On the same date, the HRC

issued an order establishing a briefing schedule with the following deadlines: appellant’s

(Denke’s) brief – February 7, 2002; answer brief – February 25, 2002; reply brief – March

3, 2002. On December 3, 2001, Shoemaker filed a notice of cross-appeal. On December

12, 2002, the HRC issued an order in response to Shoemaker’s cross-appeal establishing the

same briefing schedule. Thus, Shoemaker’s brief on appeal was also made due on February

7, 2002. Shoemaker neither objected to the briefing schedule nor requested more time.

¶12    On February 6, 2002, Denke filed her appellant’s brief with the HRC. Shoemaker

failed to file his cross-appellant’s brief by February 7, 2002, as ordered. On February 25,

2002, Shoemaker filed a brief entitled “Appellee’s and Cross-Appellant’s Brief” in which

he responded both to Denke’s appeal as well as raised a constitutional claim on cross-appeal.

Shoemaker’s constitutional claim asserted that the Final Agency Decision holding him liable


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for his statements in his January 6th and January 19th letters violated his right to freedom

of expression protected under both the United States and Montana Constitutions. Denke

moved to strike Shoemaker’s appeal on the grounds that he did not file an appellant’s brief

by February 7, 2002. The HRC granted Denke’s motion to strike on March 15, 2002,

dismissing Shoemaker’s appeal.

¶13    On May 24, 2002, Shoemaker filed a petition for judicial review in the District Court,

alleging the findings and conclusions of the hearing examiner were clearly erroneous,

arbitrary and capricious, and in violation of his freedom of expression protected by both the

United States and Montana Constitutions. Denke filed a motion to dismiss Shoemaker’s

petition on the basis that Shoemaker had failed to exhaust his administrative remedies with

the HRC. Shoemaker opposed Denke’s motion to dismiss asserting: (1) he had exhausted

his administrative remedies by raising the constitutional issue at the time of the contested

case hearing; and (2) his petition for judicial review was exempt from the exhaustion rule

because it is the duty of the courts, not administrative agencies, to decide constitutional

questions.

¶14    On July 30, 2002, the District Court granted Denke’s motion to dismiss Shoemaker’s

petition for judicial review on the basis Shoemaker failed to exhaust administrative remedies.

None of Denke’s claims are at issue in this appeal. Shoemaker appeals.

                               STANDARD OF REVIEW

¶15    We review a district court’s ruling on a motion to dismiss “to determine whether the

court abused its discretion.” Pickens v. Shelton-Thompson, 2000 MT 131, ¶ 7, 300 Mont.

16, ¶ 7, 3 P.3d 603, ¶ 7.


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                                       DISCUSSION

¶16 Did the District court err in dismissing Shoemaker’s petition for judicial review
for failure to exhaust administrative remedies?

¶17    Shoemaker asserts the District Court erred in dismissing his petition for judicial

review for failure to exhaust administrative remedies. He contends that the Final Agency

Decision of the hearing examiner imputing liability for his statements in his January 6th and

January 19th letters constituted a violation of his right to freedom of expression protected

under both the First Amendment of the United States Constitution and Article II, Section 7,

of the Montana Constitution. As such, Shoemaker argues that his petition for judicial review

presented a purely legal, constitutional question for the court to decide, placing it under an

exception to the requirement that a person must first exhaust administrative remedies.

¶18    The well-settled principle undergirding the exhaustion doctrine is that “no one is

entitled to judicial relief for a supposed or threatened injury until the prescribed

administrative remedy has been exhausted.” Myers v. Bethlehem Shipbuilding Corp. (1938),

303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638. The purpose of the exhaustion doctrine

is to “allow[] a governmental entity to make a factual record and to correct its own errors

within its specific expertise before a court interferes.” Bitterroot River Protection Ass’n v.

Bitterroot Conservation Dist., 2002 MT 66, ¶ 22, 309 Mont. 207, ¶ 22 , 45 P.3d 24, ¶ 22.

¶19    Section 2-4-702(1)(a), MCA, is the statutory embodiment of the exhaustion doctrine:

       A person who has exhausted all administrative remedies available within the
       agency and who is aggrieved by a final decision in a contested case is entitled
       to judicial review under this chapter.



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See also Grabow v. Mont. High Sch. Assn., 2002 MT 242, ¶ 35, 312 Mont. 92, ¶ 35, 59 P.3d

14, ¶ 35; Barnicoat v. Commr. of Dept. of Labor and Indus. (1982), 201 Mont. 221, 225, 653

P.2d 498, 500 (“It is a general principle that if an administrative remedy is provided by

statute, that relief must be sought from the administrative body and the statutory remedy

exhausted before relief can be obtained by judicial review.”).

¶20    Montana recognizes an exception to the exhaustion doctrine when a purely legal issue

is at the center of the dispute. In Keller v. Dept. of Revenue (1979), 182 Mont. 478, 597 P.2d

736, this Court established an exception to the exhaustion doctrine for purely legal questions,

as we later explained:

       In Keller, taxpayers sought to appeal a ruling by the Department of Revenue
       to the District Court. The District Court held that they must exhaust their
       remedies with the State Tax Appeal Board. We held that the particular
       Department of Revenue ruling was an interpretation of law that must be made
       by the judiciary, and thus, the exhaustion doctrine is inapplicable.

Taylor v. Dept. of Fish, Wildlife & Parks (1988), 205 Mont. 85, 94, 666 P.2d 1228, 1232

(emphasis added). Also, in Mitchell v. Town of West Yellowstone (1988), 235 Mont. 104,

765 P.2d 745, this Court stated:

       [T]he exhaustion doctrine does not apply to constitutional issues. (Citing
       authority.) . . . Constitutional questions are properly decided by a judicial
       body, not an administrative official, under the constitutional principle of
       separation of powers. Art. III, Section 1, 1972 Mont. Const.

Mitchell, 235 Mont. at 109, 765 P.2d at 748 (emphasis added) (citing Jarussi v. Board of

Trustees (1983), 204 Mont. 131, 135-36, 664 P.2d 316, 318).

¶21    Shoemaker argues that this exception to the exhaustion doctrine applies to his case

because he has raised an issue of constitutional dimension. In further support of this

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assertion, Shoemaker cites this Court’s decisions in Belknap Realty Co. v. Simineo (1923),

67 Mont. 359, 215 P. 659; Larson v. State (1975), 166 Mont. 449, 534 P.2d 854; Jarussi;

and Mitchell. In Belknap, a Montana corporation brought an action in district court against

the Yellowstone County Treasurer for taxes paid that the plaintiff alleged were improperly

assessed. This Court enunciated the “fundamentally wrong principle” exception to the

general rule requiring exhaustion of administrative remedies if the administrative agency

applied a fundamentally wrong principle in its method of assessing taxes. The Belknap court

concluded, however, that the plaintiff was required to exhaust administrative remedies before

petitioning the district court because of pending factual issues which were correctly reserved

for determination by the administrative agency. Belknap, 67 Mont. at 365, 215 P. at 662.

¶22    In Larson, the plaintiffs challenged a local tax appraisal system which had been

utilized prior to the statewide appraisal required under the 1972 Montana Constitution. This

Court determined that the State’s use of an unconstitutional and illegal appraisal was the kind

of “fundamentally wrong principle” for which specific exception was made in Belknap.

Thus, the Larson court held that the plaintiff did not have to exhaust administrative remedies

before the Tax Appeal Board because the appraisal system involved a purely legal,

constitutional issue, and not a question of fact requiring administrative determination.

Larson, 166 Mont. at 456-57, 534 P.2d at 858.

¶23    In Jarussi, the district court held the plaintiff was not required to exhaust

administrative remedies because the question before the court contained constitutional

implications arising out of a possible conflict between a decision of the school board and


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§ 2-3-203, MCA, Montana’s open meeting law. This Court noted that actions to enforce

Montana’s open meeting law fell within the jurisdiction of the district courts because it was

based on Article II, Section 9, of the Montana Constitution. Jarussi, 204 Mont. at 138, 664

P.2d at 319. Likewise, in Mitchell, the district court held the plaintiff was not required to

exhaust administrative remedies because the question involved an equal protection issue

arising under one of West Yellowstone’s town ordinances. In support of the principle that

the exhaustion doctrine does not apply to constitutional issues, this Court stated: “[t]he first

business of courts is to provide a forum in which the constitutional rights of all citizens may

be protected.” Mitchell, 235 Mont. at 110, 765 P.2d at 748.

¶24    In the Final Agency Decision, the hearing examiner found that statements about

Denke in Shoemaker’s letters were “false and unprivileged.” The hearing examiner further

found that Shoemaker had published his letters “with reckless disregard for the truth or

falsity of some pertinent statements they contained, knowing other pertinent statements to

be false.”

¶25    In his petition for judicial review, Shoemaker claimed as follows:

               3. Petitioner is aggrieved in that the Hearing Examiner awarded
       damages against him on account of two letters, one of which was published
       in the Sanders County Ledger, a newspaper of general circulation in Sanders
       County Montana. The other letter was not published in the newspaper but
       became public. Certain portions of said letters were found to be retaliatory
       against Denke for filing an earlier complaint with the Montana Human Rights
       Commission. Said finding violates Petitioner’s freedom of expression as
       protected by the First Amendment of the Constitution of the United States and
       Article II, Section 7 of the Montana Constitution.
               4. The portions of the letters relied on in finding liability against
       Petitioner were not false factual assertions.


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               5. The decision of the Hearings Examiner is in violation of
       constitutional provisions, in excess of agency authority, clearly erroneous, and
       arbitrary, capricious, and an abuse of discretion.

In paragraph 3 of his petition, Shoemaker presented his constitutional claim. In paragraph

4, however, Shoemaker presented a contested issue of fact, namely, that “portions of the

letters relied on in finding liability against Petitioner were not false factual assertions,”

contrary to the finding of the hearing examiner. (Emphasis added.) Further, in paragraph

5, Shoemaker asserted, inter alia, that the decision of the hearing examiner was “clearly

erroneous,” the standard of review used by courts in reviewing challenged findings of fact.

Thus, as Denke correctly notes, Shoemaker did not limit his petition for judicial review to

a purely legal question. Consequently, unlike Larson, Mitchell, and Jarussi, which did not

require exhaustion where the plaintiffs presented purely legal, constitutional questions,

Shoemaker, as in Belknap, raised issues of fact requiring exhaustion of administrative

remedies.

¶26    Because Shoemaker’s petition for judicial review presented a challenge to both

findings of fact and conclusions of law, it did not qualify under the exception to the

exhaustion doctrine. Thus, Shoemaker was required to exhaust available administrative

remedies through the HRC appeals process, and to argue both his factual issue and his

constitutional issue before the Human Rights Commission. Recently, in Great Falls

Tribune, et. al. v. Montana Public Service Commission, 2003 MT 359, 319 Mont. 38, ___

P.3d. ___, we reviewed the district court’s adjudication of factual and legal issues originally

raised before the Public Service Commission. We concluded that it was error for the district


                                              11
court to “make factual and legal determinations regarding whether specific documents or

certain categories of documents in MPC’s portfolio constituted property rights in the form

of trade secrets or other confidential proprietary information which are constitutionally

protected . . . without the benefit of the administrative agency developing a record and

making threshold determinations . . . .” Great Falls Tribune, ¶ 42. As in Great Falls

Tribune, the factual questions at issue here also required exhaustion of the administrative

process.

¶27    Since Shoemaker’s unresolved factual issue required that he present his case within

the administrative appeals process, the next inquiry involves an analysis of whether

Shoemaker complied with that process. After the hearing examiner issued his Final Agency

Decision on November 16, 2001, Denke filed a notice of appeal on November 29, 2001. On

that same day, the HRC issued a notice of consideration of Denke’s appeal establishing the

following briefing deadlines: appellant’s brief – February 7, 2002; answer brief – February

25, 2002; reply brief – March 3, 2002. In response to Denke’s appeal, Shoemaker filed a

cross-appeal on December 3, 2001. On December 12, 2001, the HRC issued a notice of

consideration of Shoemaker’s cross-appeal establishing the same briefing schedule.

¶28    When Shoemaker still had not filed an appeal brief by February 19, 2002, Denke

moved to “strike” his appeal pursuant to Rule 24.9.1717(7), ARM, the administrative rule

governing timeliness of appeals to the HRC. Rule 24.9.1717(7), ARM, “Appeal of Final

Orders of the Department,” states:




                                            12
       (7) If an appellant fails to file a brief in support of the appeal within the time
       provided by this rule, or within any extension of time granted, any opposing
       party may move to strike the appeal.

On February 25, 2002, Shoemaker filed a brief entitled “Appellee’s and Cross Appellant’s

Brief” in which he incorporated both his reply to Denke’s appeal and his brief in support of

his appeal. Since Shoemaker’s appeal brief was filed on February 25, instead of February

7, it was filed eighteen days after the filing deadline, and his appeal was dismissed by the

HRC. Shoemaker argues to this Court that the HRC briefing deadlines afforded him

approximately two weeks fewer than Denke to complete his briefing. However, at no time

did he object to the briefing deadlines or request an extension of time from the HRC as

permitted by Rule 24.9.1717(7), ARM.

¶29     Shoemaker’s factual contentions placed him, as respondent, squarely within the

administrative process. Thus, Shoemaker correctly participated in the process as it moved

toward exhaustion of the administrative remedies by pursuing his appeal of the Final Agency

Decision to the full Human Rights Commission. Shoemaker erred, however, when he missed

the February 7, 2002, deadline in the appeal process. At that point, the HRC, pursuant to

Rule 24.9.1717(7), ARM, properly exercised its discretion in granting Denke’s motion to

dismiss Shoemaker’s appeal.

¶30    For parties involved in the administrative process, the Montana Administrative

Procedure Act (MAPA) provides that access to judicial review of an agency decision can be

sought prior to exhaustion of the administrative process, if completion of that process would




                                              13
not provide for an adequate remedy. Section 2-4-701, MCA, “Judicial Review of Contested

Cases,” provides:

              Immediate review of agency action. A preliminary, procedural, or
       intermediate agency action or ruling is immediately reviewable if review of the
       final agency decision would not provide an adequate remedy.

Additionally, pursuant to § 2-4-704, MCA, MAPA, a court may reverse or modify a decision

by an administrative agency if the decision is violative of an appellant’s constitutional rights.

Section 2-4-704, MCA, states, in pertinent part, that the court may reverse or modify:

       [I]f substantial rights of the appellant have been prejudiced because:
               (a) the administrative findings, inferences, conclusions, or decisions
       are:
               (i) in violation of constitutional or statutory provisions[.]

Section 2-4-704(2)(a)(i), MCA. Although Shoemaker’s challenge to the hearing examiner’s

factual findings constrained him to exhaust his administrative remedies, including appeal to

the full Human Rights Commission, § 2-4-701, MCA, provides for interlocutory judicial

redress when the final agency decision will not provide an adequate remedy, including cases

involving a purely constitutional issue. See Gilpin v. State (1991), 249 Mont. 37, 39, 812

P.2d 1265, 1266-67 (court held plaintiffs were required to exhaust administrative remedies

where they had not made a showing, pursuant to § 2-4-701, MCA, that a review of the final

agency decision by the hearing examiner would not provide an adequate remedy to their

grievance which would justify an immediate review of the agency’s action by the district

court). Further, § 2-4-704, MCA, permits judicial reversal or modification of an agency’s

decision if the court concludes that a party’s substantial rights have been prejudiced by a

constitutional violation resulting from administrative action.

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¶31    Thus, the District Court did not abuse its discretion when it dismissed Shoemaker’s

petition for judicial review because he presented, in conjunction with his constitutional issue,

a challenge to the underlying factual determinations upon which his constitutional defense

rested. By his failure to meet the filing deadline established by the administrative agency,

Shoemaker failed to prosecute his claim in the administrative forum, requiring forfeiture of

his right to a review of the merits of his claim, and dismissal of his appeal.

¶32    Finally, we note that, because Shoemaker did not seek interlocutory judicial relief

pursuant to § 2-4-701, MCA, he was therefore required to file his petition for judicial review

in District Court within thirty days after the Commission’s dismissal of his appeal:

               Initiating judicial review of contested cases. . . . [P]roceedings for
       review must be instituted by filing a petition in district court within 30 days
       after service of the final decision of the agency . . . .

The HRC granted Denke’s motion to strike on March 15, 2002, with service on the same

date. However, Shoemaker did not file his petition for judicial review until May 24, 2002.

Thus, his petition was filed 70 days after the Final Agency Decision, and 40 days beyond the

filing deadline.

¶33    We affirm the decision of the District Court.



                                                   /S/ JIM RICE



We concur:

/S/ JAMES C. NELSON

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/S/ JIM REGNIER
/S/ W. WILLIAM LEAPHART




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