NO. 94-278

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

MARY K. BEAN,

Petitioner and Appellant,

-vsSTATE 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 crossexamine 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

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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 de novo evidentiary hearing. W 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

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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

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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. -ISee 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.

A t 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

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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

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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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