DA 12
- 0158



### IN THE SUPREME COURT OF THE STATE OF MONTANA 20 12MT 219
GARY & LEO’S FRESH FOODS, INC., Petitioner and Appellee,
v. STATE OF MONTANA, DEPARTMENT OF LABOR AND INDUSTRY, Respondent and Appellant.

APPEAL FROM: District Court of the First Judicial District,

In and For the County of Lewis and Clark, Cause No. CDV 2011

- 701 Honorable Kathy Seeley, Presiding Judge
COUNSEL OF RECORD:

For Appellant: Patricia L. Bik, Special Assistant Attorney General; Helena, Montana For Appellee : Amy D. Christensen, Kate McGrath Ellis; Hughes, Kellner, Sullivan & Alke, PLLP; Helena, Montana
Submitted on Briefs: August 29, 2012 Decided: October 9, 2012
Filed:

__________________________________________ Clerk October 9 20122

Justice Jim Rice delivered the Opinion of the Court. ¶1 The Montana Department of Labor & Industry (the Department) appeals from the First Judicial District Court’s order r eversing the Board of Labor Appeals’ (the Board ) award of unemployment benefits to Kaylee Reed (Reed). We affirm the District Court and address the issues: ¶2 1. Did the Department properly preserve its evidentiary arguments for appeal? ¶3 2. Did the District Court err byc oncluding that Reed’s conduct constituted mi sconduct under the “carelessness s tandard” of Admin. R. M. 24.11.460(1)(d)?

**FACTUAL AND PROCEDURAL BACKGROUND** ¶4 Reedworked as a deli clerk for Gary & Leo’s Fresh Food, Inc. (Gary & Leo’s) , a Havre grocery

store , f rom February 22, 2009 , until October 16, 201 0
. Reed ’s job consisted of f

ill ing shoppers’ orders for d eli items , such as sliced meats , salads, sandwiches, fried food, and coffee

. Gary & Leo’s terminated Reed ’s employmento n October 16, 2010 , after receiving c omplaints from shoppers regarding poor s ervice and use of inappropriate language by Reed. ¶5 Reed appliedf

or unemployment insurance benefits

. The Departmentinitially determined that Reed was eligible for benefits , but after Gary & Leo ’s requested a redetermination, it concludedt hat Reed was n ot qualified for benefits because she had been discharged for misconduct. Reed appealed and a hearing was conducted by a hearing officer on April 14, 201 1. ¶6 At the hearing, G ary & Leo’s manager Tracy Job t estified that he had been prompted to fire Reed bec ause of multiple customer complaints, a number o f which were3

me morialized in her personnel file as reports. The first report was dated March 14, 2009, and was signed by a customer who saidtha t Reed acted rudely toward her. The second and third reports, dated March 14 , 2010 , a nd May 1, 2010, documented similar complaints from other customers. The fourth report, dated October 12, 2010, documented a “very upset” customer who complained after Reed “was swearing and saying she didn’t know how to make a meat and cheese tray.” The fifth report, also dated October 12, 2010, documented a customer complaint that Reed was “extremely rude” and “obviously didn’t want to help her in any way

. ” Reed saidtha t she had no objection to these reports , and the hearing offi cer admitted them into evidence. 1 Reed testified and denied the allegations contained in the reports. W hile Reed admitted to using p rofane language at work, she testified that she did so out of earshot of customers. ¶7 The hearing officer f ound that five cu stomer complaints regarding Reed’s service had been made in her year - and

- a - half employmentwith Gary & Leo’s
. However, the hearing officer concluded t hat Reed hadnot intentionally act edr udely toward customers. Citing Admin. R. M. 24.11.460(1)(a)

– (b), the hearing officer notedthat misconduct was defined as the “deliberate disregard of the em ployer’s rights and interests or the deliberate disregard of employee standards of behavior the employer had the right to expect.” W

hile Reed had been issued writte n warnings reg arding h er r ude behavior

1 Reed object edto one report written by a fellow employee on the ground that he had not worked the day of the incident. T he hearing officer

d id not adopt as fact any of the information contained in that report.4

toward or in front of customers, the hearing officer c oncluded thatReed had not been deliberately rudeand reinstated benefits

. ¶8 Gary & Leo’s appeal edt o the Board , arguing that the hearing officer e rred by fa iling to apply an alternat e d efinition of misconduct contained in subsection (d) of the Admin. R. M. 24.11.460(1) , which provides that misconduct also includes: “carelessness
or negligence of such degree or reoccurrence to show an intentional or substantial disr eg ard of the employer’s interest” (hereinafter “carelessness standard”). The Board affirmed, reasoning that the hearing officer was in the best position to judge the credibility of the parties and had“ correctly applied the law to the facts.”The Board b riefly mentioned the carelessness standardb ut its analysis of the misconduct issue focused on adifferentdefinition of misconduct under the regulations

. ¶9 Gary & Leo’s petitioned for judicial review , arg uing the Board had erred by fa iling to address Reed’ s conduct under the carelessness standard. The Department and the Board filed a joint n otice of n on - p articipation indicating they would not be participating in the proceeding but reserv ing the right to intervene if issues arose pertaining to them

. In add ition, the n otice addressed the standards of rev iew and their application to the case . Reed did not participate in the proceeding. Gary & Leo’s filed an opening brief

, serving Reed and the Department, and likewise filed and served a reply brief after Ree d ’sand the Department’s response time expired

. ¶10 The District Courtr eversed the Board’s decision, holding that Reed’s conducta s established by the hearing officer ’s findings of fact constituted misconduct as a matter of law under the carelessness standard :5

[A] pplying the law to the facts as determined by the hearing officer , the substantial evidence in the record establishes that Reed acted with a careless or negligent disregard of the employer’s interest. The legal conclusions o f the hearings officer andthe [Board] c onstitute an error of law. The court reasoned that Reed fail edto correct behavior for which she was on noticeand which related to the employer’s interests : The administrative record demonstrates repeated warnings to Reed about her inapprop riate behavior to or around customers with no demonstrated effort to correct it after the warnings. Reed admitted to an ong oing ang er problem. H er em

ployer is a customer service business

—em ployee misconduct toward customers is a legitimate concern of thee mployer.

. . . Reed was discharged for misconduct. Following this ruling, the Department and the Board fil ed a joint motion to alter the court’s judgment , arguing the District Court had cited to the wrong statute in applying the standard of rev

iew

. Gary & Leo’s ag

reed and the District Court revised its order to cite to the correct statute
. This revision did not changethe outcome as a substantially similar standard of review isprov ided under both statute s . 2 ¶11 The Departmentappeal s the District Court ’sruling. **STANDARD OF REVIEW** ¶12 In unemployment insurance cases , t his Court reviews the factual findings to determine if they are supported by substantial evidence. W heelsmith Fabrication v.

2 The standard of review used by Gary & Leo’s in its briefing and adopted by the District Court in it s in itial

decision was taken fromt he Montana Administrative ProcedureAct, which permits courts to determine whether an agency’s interpretation of law is correct. See e.g. Steer, Inc. v. Dept. of Rev. , 245 Mont. 470, 474, 803 P.2d 601, 603 ( 1990). For unemployment insurance matters , § 39

– 51

– 2410(5), MCA, governs and p rovides that legal conclusions are reviewed for correctness. See e.g. Phoenix Physical Therapy v. Unemployment Ins. Div. , 284 Mont. 95, 100, 943 P.2d 523, 526(1997).6

Mont. De pt. of Lab . &I

ndus. , 2000 MT 27, ¶ 8 , 298 Mont. 187 , 993 P. 2d 713 . “With reg ard to questions of law, however, our task is to determine whether the agency’s interpretation of the law is correct.” Wheelsmith , ¶ 8. W hether an employee’s conduct constitutesm

isconduct is a question of law w hich this Court review sf or correctness. Mont. Dept. of Corrections v. Dept. of Lab . & Indus. , 2006 MT 298, ¶ 14 , 334 Mont. 425 , 148 P.3d 619 ( citing Hafner v. Mont. Dept. of Lab. & Indus. , 280 Mont. 95, 100, 929 P.2d 233, 236(1996)). **DISCUSSION** ¶13 1. Did the Department properly p reserve its evidentiary arguments for appeal? ¶14 The Department offers that the h earing officer and the Board gave no weight to the five customer complaints ag ainst Reed because the

c omplaintsc onstituted “inadmissible hearsay.” The Department arg ues that the District Court erred by considering this
ev idence, and that the court thus impermissibly r e - weighed the evidence in determining that Reed’s actions constituted misconduct. ¶15 Gary & Leo’s urg es the Court to reject the Department’s arguments as untimely and not properly before the Court. It arg ues that, b ecause the Department notif iedthe D istrict C ourt that it would not participate in the proceedings and did not answer the briefing, the Department failed to preserve the issues raised in its appeal. The Departmentcounters that it preserved the issues by way of the discussion provided in its noticeo f non -participation , reservation of the right to re - enter the case, and motion to alter or amend the judgment

.7

¶16 “ In Montana, the general rule is that an issue wh ich is presented for the first time to the Supreme Court is untimely and cannot be considered on appeal .” Day v. Payne , 280 Mont. 273, 276

–77, 929 P.2d 864, 866 (1997). This rule is applie d in unemployment insurance proceedings , Wheelsmith , ¶ 12 , and is rootedin fundamental fairness to the parties and to the trial court , Day , 280 Mont. at 276

– 77, 929 P.2d at 688
. Similarly, motions to a lter or amend a judgment “cannot be used to raise arguments which could, and should, have been made before judgment issued. ” Nelson v. Driscoll, 285 Mont. 355, 360

– 61, 948 P.2d 256, 259 (1997) (citations omitted); accord Lee v. USAA Casualty Ins. , 2001 MT 59, ¶ 76 , 304 Mont. 356 , 22 P.3d 631 ; C ook v. Hartman , 2003 MT 251, ¶ 24 , 317 Mont. 343 , 77 P.3d 231

. ¶17 While addressing

the issue of substantial evidence generally, the Department did not makethe inadmissible hearsay arg ument in its n otice of n on - p articipation

. T o the extent that the D epartment attempted to raise thehearsay argumentin its motion to alter
or amend, that attemptf alls squarely within the prohibition statedin Nelson , Lee , and Cook

. I n sum, the Department failed to properly raise and preserve its inadmissible hearsay arg

ument in the District Court
. Thus, its arg ument that the five reports of customer com

plaints , thoug

h admitted by the hearing officer , were inadmissible hearsay and not to be considered, are not properly before this Court , and t he reports remain a part of the record.8

¶18 2

. Did the District Court err by determining that the evidence found by t he Department constituted misconduct as a matter of law

under the “careless ness standard” of Admin. R. M. 24 .11.460(1)(d) ? ¶19 The Department arg ues that the District Court erred in concluding that Reed had been discharged for misconduct. Giving the Departme nt the benefit of the doubt that this issue was preserved by the substantial evidence discussion which accompanied its n otice of n on -p articipation, 3 t

he Department’s argument nonetheless assumesthat the customer complaint reports were inadmissible and could not be considered

. I t argues that “no credible, admissible evidence substantiates any alleged customer complaints about Reed’s job performance.” H owever, as we concluded under the first issue, the admissibility of the customer complaints was not an is sue which was preserved. ¶20 The he aring o fficer entered findings of f act thatG ary & Leo’s received five complaints reg

arding poor

c ustomer servicep rovided by Reed during her employment

. The Board affirmed these findings of fact as supported by the evidence

. As noted above,

w hether these facts constitutem isconduct as definedb y Admin. R. M. 24.11.460 is a question of law. Further, we apply a deferential review of the Board’s interpretation of its regulations in light of its “considerable expertise” in the se matters. Somont Oil Co. v

. Ki ng, 2012 MT 207, ¶ 18 , ___ Mont. ___, ___ P.3d ___. ¶21 However, the Board ga ve little attention to Gary & Leo’s argument aboutt he carelessness standard of misconduct , ev en thoug h that was the only issue Gary & Leo’s

3 The Board’s notic e stated that“ [d]espite Petitioner’s assertions, it is improper for the Court to re - weigh the evidence in this matter. . . . On judicial review, the findings of the [ Board ] as to the facts, if supported by the evidence and in the absence of fraud, shall be conclusive and the jurisdiction of the court shall be confined to questions of law (citations omitted)

. ”9

counsel argued to the Board

. Like the analysis prov ided by the hearing officer , the Board’s citation to the go verning reg ulations includedonly an alternate definition of misconduct. The Board brief ly referencedthe carelessness standard in its order but did not offer an analysis reg

arding why the findings of f act regarding Reed’s actions did not constitute misconduct under the carelessness standard. ¶22 The findings of

f act established that there were multiple complaints about Reed’s
use of language and poor customer service , five which had been reduced to written reports, culminating in two complaints from customers on the same day

. Reed had been repeatedly

warn edin writing

. We affirm the District Court’s conclusion of law that Reed’s conduct as established by the f indings constitute dc arelessness or negligence in disregard of

G ary & Leo’s interest in providing service t o its retail customers under Admin. R. M. 24.11.460(1)(d), and that the Board erred in its legal conclusion. ¶23 This case differs from Somont Oil Co. , w here we affirmed the Board’s determination that an employee’s conduct did not rise to the level of misconduct. Somont Oil Co. , ¶¶ 20

–

21. We noted that the Board “cited evidence in its written opinion and during its hearing” to support its conclusion th at the employee’s conduct “amounted, at most, to isolated negligence.” Somont Oil Co. , ¶ 20. The record in Somont Oil Co. supported the Board’s determination that the employee was terminated for “isolated” behavior. Somont Oil Co. , ¶ 20. I n this case, the record indicates that Reed’s conduct was recurring, even after she was repeatedly warned in writing. Further, while the Board cited evidence to support its conclusion in Somont Oil Co ., here the Board failed to10

analyze the evidence of Reed’s conduct under the carelessness standard found in Admin. R. M . 24.11.460(1)(d). ¶24 Affirmed.
/S/ JIM RICE
We concur: /S/ PATRICIA COTTER /S/ JAMES C. NELSON /S/ MICHAEL E WHEAT /S/ BETH BAKER