Case Name: Luann Gehin, Petitioner-Respondent-Petitioner, v. Wisconsin Group Insurance Board, Respondent-Appellant
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 2005-02-23
Citations: 278 Wis. 2d 111
Docket Number: No. 03-0226
Parties: Luann Gehin, Petitioner-Respondent-Petitioner, v. Wisconsin Group Insurance Board, Respondent-Appellant.
Judges: 
Reporter: Wisconsin Reports Second
Volume: 278
Pages: 111–215

Head Matter:
Luann Gehin, Petitioner-Respondent-Petitioner, v. Wisconsin Group Insurance Board, Respondent-Appellant.
Supreme Court
No. 03-0226.
Oral argument September 9, 2004.
Decided February 23, 2005.
2005 WI 16
(Also reported in 692 N.W.2d 572.)
For the petitioner-respondent-petitioner there were briefs by Bruce F. Ehlke and Shneidman, Hawks & Ehlke, S.C., Madison, and oral argument by Bruce F. Ehlke.
For the respondent-appellant the cause was argued by Charlotte Gibson, assistant attorney general, with whom on the brief was Peggy A. Lautenschlager, attorney general.

Opinion:
SHIRLEY S. ABRAHAMSON, C. J.
¶ 1. Luann Ge-hin, the claimant, seeks review of an unpublished decision of the court of appeals reversing an order of the Circuit Court for Dane County, Moria Krueger, Judge. The circuit court had set aside the Wisconsin Group Insurance Board's termination of Luann Gehin's income continuation insurance benefits.
¶ 2. Relying on Richardson v. Perales, 402 U.S. 389 (1971), the court of appeals concluded that although the written medical reports the Group Insurance Board relied on were hearsay, they constituted substantial evidence upon which the Group Insurance Board could base its findings and decision.
¶ 3. The following issue is presented: Does uncorroborated written hearsay evidence alone (that is controverted by in-person testimony) constitute substantial evidence to support the Group Insurance Board's factual findings, which in turn form the basis for its conclusion of law, i.e., that the claimant's benefits should be terminated as of April 30, 1997?
¶ 4. We conclude that the uncorroborated written hearsay medical reports alone (that are controverted by in-person testimony) did not constitute substantial evidence to support the Group Insurance Board's factual findings and decision to terminate the claimant's benefits. Accordingly, we reverse the decision of the court of appeals and affirm the order of the circuit court reversing the decision of the Group Insurance Board.
HH
¶ 5. This court reviews the decision of the Group Insurance Board, not the circuit court's order or court of appeals' decision. We review the decision of the Group Insurance Board to terminate the claimant's benefits pursuant to Wis. Stat. § 40.08(12) (2001-02), which provides that decisions of the Wisconsin Group Insurance Board are "reviewable only by an action for certiorari in the circuit court for Dane County."
¶ 6. In this certiorari review, the issue presented requires us to review the sufficiency of the evidence upon which the Group Insurance Board relied in reaching its decision. The sufficiency of the evidence on certiorari review is identical to the substantial evidence test used for the review of administrative determinations under chapter 227 of the statutes.
¶ 7. Wisconsin Stat. § 227.57(6) provides that "the court shall not substitute its judgment for that of the agency as to the weight of the evidence on any disputed finding of fact. The court shall, however, set aside agency's action or remand the case to the agency if it finds that the agency's action depends on any finding of fact that is not supported by substantial evidence." This case involves the meaning of the words "substantial evidence," as used in § 227.57(6).
¶ 8. To determine whether substantial evidence supports the Group Insurance Board's factual findings and decision to terminate the claimant's benefits, we shall first examine the Group Insurance Board's findings of fact. We next review the evidence upon which the Group Insurance Board relied in its findings of fact. We then explore the legal basis for the long-standing rule adopted in Folding Furniture Works, Inc. v. Wisconsin Labor Relations Board, 232 Wis. 170, 189, 285 N.W. 851 (1939), that uncorroborated hearsay evidence alone does not constitute substantial evidence. Upon analyzing the hearsay evidence and live testimony, we conclude that we should not deviate in the instant case from the long-standing rule in Wisconsin that uncorroborated hearsay alone does not constitute substantial evidence. Finally, we examine and do not accept the Group Insurance Board's arguments, based on Richardson v. Perales, 402 U.S. 389 (1971), that we should abandon the rule long used in this state that uncorroborated hearsay evidence alone does not constitute substantial evidence.
II
¶ 9. In order to test whether the Group Insurance Board's findings of fact and conclusions of law are supported by the substantial evidence, we first state the Group Insurance Board's "Findings of Fact" set forth in its April 16, 2002, Final Decision and Order. We then examine the record for evidence supporting these findings of fact.
¶ 10. The critical findings of fact in the present case relate to the nature and extent of the claimant's disability, the claimant's ability to work full time and the claimant's ability to earn at least $979.37 per month. The nature and extent of disability and the ability to work full time may be the subject of expert opinion.
¶ 11. The Group Insurance Board's findings of fact are as follows.
¶ 12. The claimant began work at University of Wisconsin Hospital in Madison, Wisconsin, in 1986 and began regular, full-time employment as a housekeeper in 1991. On May 15,1992, the claimant injured her back at work at the hospital. Due to gradually worsening pain, the claimant went on medical leave 11 days later; her last day of work at the hospital was April 16, 1993.
¶ 13. The claimant filed a claim form to collect long-term income continuation benefits in April 1993. Long-term income continuation insurance benefits are paid after the first year of a claimant's disability. The claimant had income continuation insurance coverage at all times material during her appeal.
¶ 14. Claimants may receive benefits "if by reason of any medically determinable physical or mental impairment" they are unable "to engage in any substantial gainful activity for which the employee is reasonably qualified with due regard to the employee's education, training and experience, and prior economic status." An activity is considered a substantial gainful activity if the earnings from the activity would be at least equal to the income continuation benefits at the time those benefits were terminated. (In its Final Decision and Order the Group Insurance Board sometimes refers to satisfying the contractual phrase "inability to engage in a substantial gainful activity" as "totally disabled.")
¶ 15. According to the Group Insurance Board's findings, to be considered "gainfully employed" under the contract, the claimant in the instant case "would have to be capable of earning $979.37 per month, or $5.63 per hour in a full-time position."
¶ 16. The United Wisconsin Group, the company then in charge of administering the income continuation insurance program, determined that the claimant's disability began on May 3, 1993, and approved her for income continuation insurance benefits in June 1993.
¶ 17. In late September 1993, Dr. John Whiffen performed spinal fusion surgery on the claimant's back. From the following September through spring 1997, the claimant was "involved in a job retraining program through the State of Wisconsin Division of Vocational Rehabilitation." Vocational Rehabilitation assigned the claimant, on an unpaid basis, to the Mendota Mental Health Institute in Madison, where, according to a letter from the Institute, her duties included "typing on both a typewriter and a computer, filing, answering the telephone and other clerical duties." Due to pain and fatigue, the claimant fell short of the scheduled 40 hours per week, and according to the Group Insurance Board's finding, "generally worked between 24 and 30 hours per week... ." Nevertheless, the claimant received a positive job performance assessment. In referring to this report, the Group Insurance Board accepted that in her only job experience since being injured, she was not able to work full time.
¶ 18. At the request of United Wisconsin Group, Dr. Whiffen provided a written update of the claimant's condition as of January 30, 1997. Dr. Whiffen's February 7,1997, written update concluded that the claimant "could work up to full-time with restrictions, including a need to change position every 45-60 minutes for five minutes." Then on March 11, 1997, Dr. Whiffen stated that the claimant could return to her former job, with restrictions. It is not clear from the record whether the "former job" was the claimant's job training program at Mendota Mental Health Institute or her work as a housekeeper at the University.
¶ 19. In early May 1997, United Wisconsin Group determined that the claimant no longer met the criteria for benefits under the applicable section of the contract. Specifically, United Wisconsin Group wrote to the claimant, "The medical documentation that we have obtained does not support that you are incapable of engaging in any gainful occupation. Information from DVR [Division of Vocational Rehabilitation] indicates that you have been performing in a full time position at Mendota Health Institute. Therefore, benefits beyond April 30,1997 are not payable." (This statement is not correct. According to the Finding of Fact #7 and the Mendota Mental Health Institute, the claimant was not performing in a full-time position at the Institute.)
¶ 20. In mid-August 1997 the claimant saw Mer-iter Hospital physical therapist Michael Miller. Mr. Miller conducted a functional capacity evaluation and "concluded that '[biased on the client's lack of ability to squat, lift, stand, walk and carry anything but negligible loads, she does not appear employable in her current condition.' " The Group Insurance Board discounted and disparaged Mr. Miller's evaluation, stating that "it does not appear from the record that Mr. Miller had the benefit of the contract definition." The following month, United Wisconsin Group asked Dr. Kenneth Redlin to review the claimant's files, including Miller's report.
¶ 21. The claimant asked United Wisconsin Group to reconsider its termination decision, and on December 3, 1997, Dr. Richard Lemon saw the claimant. Unlike Mr. Miller, Dr. Lemon had available, according to the Group Insurance Board, the contractual language defining "substantial gainful activity." The Group Insurance Board concluded that "Dr. Lemon concluded that [the claimant] did not meet the contractual long-term benefit definition," quoting Dr. Lemon's report as follows:
Because of [low back pain] symptoms I believe that Ms. Gehin needs to be under permanent work restrictions. I believe that she is capable of working 8 hours a day where she can alternate between sitting and standing every 30 minutes. I believe that she needs to be lifting no more than 5 pounds. She also needs to avoid any stooping, bending or twisting. I believe that Ms. Gehin could easily be employed in a position such as a receptionist where she is able to stand or sit using a telephone headset for comfort. Certainly, Ms. Gehin could also do some light paperwork or computer work. I find it hard to believe that Ms. Gehin at only 53 years of age is totally unemployable.
¶ 22. In quoting Dr. Lemon's report the Wisconsin Group Insurance Board obviously accepted Dr. Lemon's expert medical opinion that the claimant was permanently disabled and that she could work full time with permanent work restrictions, namely that she must alternate between sitting and standing every 30 minutes; that she may lift no more than 5 pounds; that she must avoid stooping, bending or twisting; that that she was capable of grasping, fine manipulation, firm grasping and use of her feet for intermittent repetitive movements.
¶ 23. On January 6, 1998, United Wisconsin Group upheld its termination of the claimant's benefits.
¶ 24. A month later, the claimant asked the Department of Employee Trust Funds to review the termination of her benefits. On July 9, 1998, the Department affirmed the termination of benefits, and the claimant timely appealed.
¶ 25. According to the Group Insurance Board's Findings of Fact, both the United Wisconsin Group and the Department's determinations "relied substantially on the medical opinions and evaluations of Ms. Gehin's condition by Dr. John Whiffen, Ms. Gehin's treating physician, and Dr. Richard Lemon, an independent medical consultant retained by UWG [United Wisconsin Group]." The Group Insurance Board found that Drs. Lemon and Redlin both "believed the functional capacity evaluation conducted by Mr. Miller may have been incomplete or invalid."
¶ 26. The Group Insurance Board conducted an evidentiary hearing on October 2, 2001, before Examiner Barry Stern. According to the Pre-Hearing Conference Memorandum, the sole issue on appeal was: "Did the [Department of Employee Trust Funds] err in its . . . determination to terminate the [claimant's long-term income continuation insurance benefits] beyond April 30, 1997, under Section 5.14 - 4.b. of the contract effective January 1, 1995, between United Wisconsin Group (UWG) and the [Group Insurance] Board?"
¶ 27. The claimant retained Dr. William Shannon to testify at the hearing. He had examined the claimant in 1999 and had also reviewed her medical records, including the reports by the United Wisconsin Group doctors and consultants. Dr. Shannon gave his expert opinion that the claimant met the definition of not being able to engage in substantial gainful activity under the contract, that is, that she was "totally disabled" as defined by the contract.
¶ 28. In the "Conclusions of Law" section of its Final Decision and Order, the Group Insurance Board pointed out that the claimant had the burden of satisfying the definition of " 'totally disabled'" under the contract. The Group Insurance Board concluded that in determining "that the claimant was not disabled within the meaning of the contract, [United Wisconsin Group] and the [Department of Employee Trust Funds] reasonably accepted the opinions of [the claimant's] treating physician [Dr. Whiffen] and of [United Wisconsin Group's] expert over that of [Mr. Miller], who did not have the benefit of the contractual definition, and of a non-contemporaneous opinion by [the claimant's] expert [Dr. Shannon]."
HH HH HH
¶ 29. We next turn to an examination of the evidence upon which the Group Insurance Board relied in its Findings of Fact. As is evident from the Findings of Fact and the references to the record in the Findings, the Group Insurance Board based its Findings of Facts on the written medical reports submitted by three doctors. The Group Insurance Board apparently relied on the doctors' reports to provide expert medical opinions about the claimant's physical work restrictions, her ability to work full time, and the type of work she could do. No evidence is in the record about the claimant's earning ability in either a full or part time job that would meet the physical restrictions imposed on the claimant in the hearsay medical reports.
¶ 30. The parties agree, and so do we, that the three written medical reports that formed the basis of the Group Insurance Board Findings of Fact were hearsay. None of the three doctors testified at the hearing.
¶ 31. Three witnesses testified at the hearing: Dr. Shannon, the claimant's expert witness, the claimant, and Diane Bass, a staff person employed by the Department of Employee Trust Funds.
¶ 32. In their oral testimony at the hearing, Dr. Shannon and the claimant consistently disagreed with the written hearsay reports of Dr. Whiffen, Dr. Lemon, and Dr. Redlin that had been submitted by the Department of Employee Trust Funds about the claimant's physical abilities.
¶ 33. Dr. Shannon testified that the claimant's pain and dysfunction prevented her from engaging in "any kind of gainful employment," either in 1997 or 1999. Although Dr. Shannon did not have the contractual definition of "totally disabled" (that is, the inability to engage in substantial gainful activity) at his 1999 examination of the claimant, when he was shown the contractual definition during his testimony at the hearing he opined that she certainly fit the definition, an opinion consistent with Mr. Miller's report.
¶ 34. Dr. Shannon also examined a functional capacity evaluation of the claimant and concluded that there had been no change since Mr. Miller's 1997 written evaluation. Dr. Shannon's oral testimony at the hearing corroborated Mr. Miller's written hearsay report, as well as Mr. Miller's conclusion about the claimant's disability.
¶ 35. The Group Insurance Board disregarded Dr. Shannon's expert opinion testimony, stating that Dr. Shannon did not treat or examine the claimant in 1997, the relevant time period. Similarly the Group Insurance Board disregarded the hearsay written evaluation report of Mr. Miller.
¶ 36. The claimant's testimony disagreed with Dr. Whiffen's and Dr. Lemon's reports about the amount of rest she needed and her ability to work full-time. The Group Insurance Board for all intents and purposes ignored the claimant's own testimony about her physical ability.
¶ 37. Although "Dr. Whiffen opined on February 7, 1997, that [the claimant] could work up to full-time with restrictions, including a need to change position every 45-60 minutes for five minutes," the claimant claimed she was incapable of sitting for more than 30 minutes at a time and that her rests often needed to be more than an hour — far longer than the five minutes suggested in Dr. Whiffen's written report. The claimant also disagreed with Dr. Lemon's assessment of her physical condition.
¶ 38. With regard to her unpaid vocational rehabilitation program at Mendota Mental Health Institute (described in a hearsay letter from that program), the claimant testified that she performed the described clerical tasks while taking rests. She testified that she had pain throughout this program, and the Group Insurance Board found as a fact that due to pain and fatigue, the claimant fell short of the scheduled 40 hours per week, "generally working between 24 and 30 hours per week... ."
¶ 39. The claimant expressly corroborated the letter's description of the clerical types of tasks she performed in the job-training program. Neither party has controverted the matters stated in the letter by live testimony or otherwise. The letter described the claimant's clerical tasks as "low level." The letter explains that the claimant must "test up" to be considered for a clerical job within the state system; "[a]ny clerical position, within the state system, is at a higher 'range' than that of the typical DVR on-the-job retraining candidate. [The claimant] (and all past DVR placements), must 'test' up to be considered for a clerical job within the state system. The entire process can take considerable time and be problematic in its self [sic]." Thus the claimant's clerical tasks at the job training program did not qualify the claimant for a clerical position in state employment.
¶ 40. The claimant reported that she was unable to complete the program because of her pain and was unable to complete courses at the technical college because they were too difficult. She testified that her supervisor in the program advised her that given the level of pain, it was best if the claimant stopped participation in the program. The claimant thus corroborated the letter that she was not able to be at the job training program more than 24 to 30 hours a week (sometimes less), that she was in pain, and that she was unable to remain in one position (standing or sitting) for any length of time.
¶ 41. Nothing in the letter about the claimant's unpaid job training at Mendota Mental Health Institute reaches any conclusion about whether the claimant could engage in substantial gainful activity under the contract. Nothing in the letter describes what kind of jobs the claimant was able to work and what sums of money the claimant was able to earn in 1997 had she been able to work 24 hours a week. Assuming the claimant was able to work 24-30 hours per week, we calculate on the basis of the record that she would have had to earn between $8-$10 per hour at 1997 salary rates to earn $979.37 per month. The federal minimum wage in the spring of 1997 was $4.75 per hour.
¶ 42. The Department of Employee Trust Funds failed to present a single live witness to corroborate the contents of the written medical reports about the claimant's ability to work full time and their version of her physical work restrictions. The Group Insurance Board relied solely on these medical reports in its Conclusions of Law that the claimant could work full time with permanent work restrictions.
¶ 43. Although the Group Insurance Board calculated the minimum amount the claimant would have had to earn in the spring of 1997 to be engaging in substantial gainful activity, none of its findings (and none of the evidence) states that a job was available which fit the claimant's permanent work restrictions and would enable her to earn $979.37 per month on either a full or part time basis. The Group Insurance Board merely quoted as a finding of fact Dr. Lemon's hearsay medical report stating that the claimant "could easily be employed as a receptionist where she is able to stand or sit using a telephone headset for comfort.. . [or] could do some light paperwork or computer work. I find it hard to believe that Ms. Gehin at only 53 years of age is totally unemployable."
¶ 44. Bass's testimony, the only live testimony presented by the Department of Employee Trust Funds, was primarily about the terms of the income continuation insurance contract and the steps in the administrative proceedings.
¶ 45. An examination of the Board's Final Decision and Order and the record reveals that a number of the underlying facts (such as the events leading up to the back injury, the surgery, the insurance contract, and a history of the administrative procedure) were either undisputed or supported by live testimony. At best, the hearsay medical reports declared that the claimant is able to work full time with restrictions, namely a job in which she could alternate between sitting and standing, in which she need not lift more than 5 pounds, in which she need not do any carrying, and in which she must avoid stooping, bending or twisting. The written hearsay medical reports about the claimant's physical restrictions or ability to work full time, upon which the Group Insurance Board based its Findings of Fact and its decision to terminate the claimant's benefits, are uncorroborated and in fact were contradicted by live testimony.
¶ 46. The claimant's testimony and witnesses presented a prima facie case that she was not able to engage in substantial gainful activity under the terms of the contract. She could not work full time, if at all. She could not stand or sit for any length of time and needed long rest periods. When the claimant was injured she was a housekeeper who bent, twisted and lifted. The claimant had limited education (10th grade), and her job experience before her injury was housekeeping. Her unpaid job training program at Mendota Mental Health Institute trained her for tasks that were below the standard for state clerical jobs, and she was at the job training program a maximum of 24-30 hours a week. She was not able to continue at the Institute because of her pain.
¶ 47. Therefore, if the uncorroborated written hearsay medical reports are eliminated from consideration, no evidence exists in the record to support the findings that the claimant was able to work full time with the permanent physical work restrictions described by the doctors or the Board's conclusion of law that the claimant did not meet the contractual requirements.
IV
¶ 48. We next examine whether uncorroborated hearsay medical reports constitute "substantial evidence" as that phrase is used in both certiorari and Wis. Stat. § 227.57(6). Substantial evidence has been defined in the case law as "that quantity and quality of evidence which a reasonable man could accept as ad equate to support a conclusion." Cases state that substantial evidence is more than "a mere scintilla" of evidence and more than "conjecture and speculation."
¶ 49. As to admissibility of evidence, an agency or hearing examiner is not ordinarily bound by common law or statutory rules of evidence. The statute governing admission of evidence in contested cases before administrative agencies, Wis. Stat. § 227.45(1), explicitly states,
[A]n agency or hearing examiner shall not be bound by common law or statutory rules of evidence. The agency or hearing examiner shall admit all testimony having reasonable probative value, but shall exclude immaterial, irrelevant or unduly repetitive testimony . Basic principles of relevancy, materiality and probative force shall govern the proof of all questions of fact.
¶ 50. Accordingly, written hearsay medical reports are admissible as evidence in proceedings before the Group Insurance Board and such reports were properly admitted in the present case.
¶ 51. Although the admission of hearsay evidence makes administrative agency procedures simpler for both the litigants (who are frequently unrepresented) and the agency personnel, the relaxed evidentiary standard is not meant to allow the proceedings to degenerate to the point where an administrative agency relies only on unreliable evidence. The courts are required, under Wis. Stat. § 227.57(6), to "set aside agency action or remand the case to the agency if it finds that the agency's action depends on any finding of fact that is not supported by substantial evidence."
¶ 52. Properly admitted evidence may not necessarily constitute substantial evidence.
¶ 53. In defining substantial evidence more than 65 years ago, the Wisconsin Supreme Court declared in Folding Furniture Works, Inc. v. Wisconsin Labor Relations Board that "[m]ere uncorroborated hearsay . . . does not constitute substantial evidence."
¶ 54. The Folding Furniture court declared that the purpose of allowing the admission of hearsay evidence is to free administrative agencies from technical evidentiary rules, but at the same time this flexibility does not go so far as to justify administrative findings that are not based on evidence having rational probative force. Thus the Folding Furniture court adopted the language from the U.S. Supreme Court case Consolidated Edison Co. v. NLRB, 305 U.S. 197 (1938), that mere uncorroborated hearsay or rumor does not constitute substantial evidence.
¶ 55. This or similar language can be found in other Wisconsin cases. In Village of Menomonee Falls,
for example, the court reiterated that "administrative bodies should never ground administrative findings upon uncorroborated hearsay."
¶ 56. The rule that uncorroborated hearsay alone does not constitute substantial evidence allows an agency to utilize hearsay evidence while not nullifying the relaxed rules of evidence in administrative hearings. The rule prohibits an administrative agency from relying solely on uncorroborated hearsay in reaching its decision. This rule defining substantial evidence has been followed in Wisconsin since Folding Furniture was decided in 1939. There has been no suggestion that this rule has hindered the operation of state administrative agencies.
¶ 57. The rules governing proceedings before the Group Insurance Board apparently define substantial evidence as non-hearsay evidence. The rule states that "[n]o finding of fact may be based on hearsay." The Group Insurance Board is exempt from having to publish or retain permanently its own decisions. We therefore do not know how the Group Insurance Board has interpreted the ETF rule that no finding of fact may be based on hearsay. Nothing in the record explains why the Group Insurance Board deviated from this rule and case law defining substantial evidence to prohibit reliance solely on hearsay.
¶ 58. The substantial evidence rule proscribing an administrative agency's relying solely on uncorroborated hearsay is sometimes called the legal residuum rule. This rule is based in part on the reasoning that "since hearsay, due to its second hand nature, is inherently suspect, a determination based solely on hearsay can never be more than conjecture."
¶ 59. The legal residuum rule is supported by the notion that the courts should act as a check on the agencies by reviewing the decisions for fundamental fairness. The rule "gives to the reviewing court as the natural guardian of the public's legal rights, an addi tional device to retain control over administrative determinations, which due to the informalities of proceeding may easily go astray."
¶ 60. The legal residuum rule has been criticized by commentators because the rule produces "a hybrid situation in which commissioners could freely hear all the incompetent evidence they pleased, but could make no legal use of it." Professor Davis argues that an alternative to the legal residuum rule is not to allow administrative agencies to use unreliable evidence, but to grant them discretion to determine what evidence is reliable and then if circumstances warrant, to allow the agency to rely on it. The basic criticism of the legal residuum rule is that it ignores the reliability of evidence incompetent under the hearsay rule.
¶ 61. Departure from the legal residuum rule has also been criticized. In 1981 in Unemployment Compensation Board of Review v. Ceja, 427 A.2d 631 (Pa. 1981), in a single justice's opinion not joined by any other member of the court, the Pennsylvania Supreme Court appeared to reject the legal residuum rule in favor of a reliability of the hearsay evidence rule. Several members of the court wrote separately, concluding that the new guidelines the single justice's opinion set forth on the reliability of the hearsay escape comprehension, invited confusion, and lacked uniformity in the conduct of administrative hearings. In 1985 the Pennsylvania Supreme Court explicitly stated that the Ceja case does not represent the law of Pennsylvania.
¶ 62. While Perales may have affected the legal residuum rule in federal social security cases, many states continue to operate under rules that function like the legal residuum rule.
¶ 63. The court of appeals concluded in the instant case that it should follow Richardson v. Perales, 402 U.S. 389 (1971), rather than Folding Furniture. In Perales, the United States Supreme Court concluded that hearsay evidence is substantial evidence under the social security statute and that the agency's reliance on hearsay evidence to support its legal conclusion did not violate due process. The social security statute in issue in Perales stated: "The findings of the Secretary as to any fact, if supported by substantial evidence, shall be conclusive."
¶ 64. Perales casts doubt on the continued viability of Consolidated Edison, upon which Folding Furniture relied. The Perales court explained away the Consolidated Edison language that "mere uncorroborated hearsay" is not substantial evidence as follows:
Although the reports are hearsay in the technical sense, because their content is not produced live before the hearing examiner, we feel that the claimant and the Court of Appeals read too much into the single sentence from Consolidated Edison. The contrast the Chief Justice was drawing, at the very page cited, was not with material that would be deemed formally inadmissible in judicial proceedings but with material "without a basis in evidence having rational probative force." This was not a blanket rejection by the Court of administrative reliance on hearsay irrespective of reliability and probative value. The opposite was the case.
¶ 65. One commentator has written that Perales has not been interpreted as "a blanket rejection of the residuum rule. The rule bars not 'administrative reliance on hearsay,' but administrative reliance on hearsay alone." Another commentator has concluded that "it is doubtful that Perales can be viewed as having discarded the Hearsay Rule in agency adjudications. In effect, medical reports constitute a class exception, at least in Social Security disability cases."
¶ 66. Perales must be examined in context and is not applicable to the present case. The Perales discussion must be understood against the backdrop that an applicant was denied social security benefits (rather than having benefits terminated); that the Social Security Administration considers more than one million disability applications a year; that most claimants are not represented by counsel; and that procedures must be kept as simple and inexpensive as possible for the system to work.
¶ 67. Furthermore, in Perales the doctors' written reports were corroborated by in-person testimony. The evidence in Perales consisted of written medical reports harmful to Perales' claim, two witnesses' testimony that controverted the written reports, and a government-paid doctor's testimony that corroborated the substance of the written hearsay reports.
¶ 68. Courts that follow Perales conclude that hearsay can be substantial evidence if the evidence has sufficient probative force for a reasonable person to accept it as adequate support of the agency's conclusion.
¶ 69. Medical reports arguably have indicia of reliability and therefore seem to have probative force; they are furnished by independent, impartial experts and are arguably admissible as exceptions to the hearsay rule.
¶ 70. Nevertheless, the reliability and probative force of the written medical reports in the present case are suspect. As noted by the Supreme Court of Mississippi in examining hearsay medical reports in the workmen's compensation context,
It is quite likely that the bench and bar would be scandalized if this Court should approve the receiving in evidence of ex parte, unsworn statements of persons other than doctors, even in Workmen's Compensation cases.
While doctors occupy an important role in our scheme of things, they are, after all, merely human, and may not be considered wholly free from the frailties that beset the rest of us. There is nothing, therefore, in the fact that a witness may be a member of the medical profession that reasonably may be said to justify his exemption from the requirements and restriction which would apply to others giving testimony in an adversary proceeding. The admission of the reports constitutes reversible error.
¶ 71. One report was written by Dr. Lemon who was retained by United Wisconsin Group specifically to evaluate the claimant in connection with her claim. Although Dr. Lemon was provided with the contractual definition of "substantial gainful activity" and the $979.37 per month earnings figure, the form he was asked to complete did not ask for his opinion whether the claimant fit the contract definition.
¶ 72. Dr. Lemon never rendered an opinion whether the claimant was able to engage in substantial gainful activity under the contract. Dr. Lemon remarked that he could not believe she was "totally unemployable." This remark is not responsive or relevant to the issue of substantial gainful activity under the contract; under the contract a person may he employable but the earning capacity is less than that specified under the contractual definition.
¶ 73. Dr. Lemon's remark about his disbelief that the claimant is "totally unemployable," which the Group Insurance Board incorporated in its Findings of Fact, is inconsistent with the Group Insurance Board's finding of fact that "Dr. Lemon concluded that Gehin did not meet the contractual long-term benefit definition."
¶ 74. Dr. Whiffen completed a form dated November 27, 1996, asking whether the patient is totally disabled. His markings on the form are internally inconsistent. In response to the question on the printed form whether patient is now totally disabled from the patient's job, Dr. Whiffen checked the "Yes" box clearly. (Although another of his responses might be interpreted that the claimant could return to her former job). He also checked the "No" box, but somewhat less clearly. He checked another box "No" in response to the question of whether the claimant was totally disabled for any other work. Dr. Whiffen's opinion about whether the claimant was totally disabled for any other work consisted of check marks in boxes on a printed form presented to him.
¶ 75. Nothing in the form refers to the contractual definition of "totally disabled," that is that the claimant cannot engage in substantial gainful activity. Therefore we do not know what definition of totally disabled Dr. Whiffen was using.
¶ 76. In response to the question what duties the claimant is incapable of performing the doctor wrote "bending twisting heavy lifting." Checking the boxes, Dr. Whiffen restricted lifting to 11-24 pounds and restricted bending to a "maximum of 0-2 times per hour."
¶ 77. In January 1997, after completing the 1996 form, Dr. Whiffen was advised of the contract definition of substantial gainful activity but was not advised that the claimant would be disqualified only if she were able to earn at least $979.37 per month. In the form presented in January 1997, Dr. Whiffen was never asked and never answered whether the claimant was totally disabled under the contract and never gave an opinion on that matter. Dr. Whiffen wrote that the claimant could work up to full time, was experiencing pain after prolonged sitting, and "must be able to change position every 45-60 min for 5 min."
¶ 78. In May 1997 Dr. Whiffen appears to have had second thoughts about the claimant's ability and the record shows he called for a functional capacity evaluation. Dr. Whiffen retired soon thereafter.
¶ 79. Without Dr. Whiffen's and Dr. Lemon's testimony about what they meant by their responses, their reports are not reliable as a basis for the Group Insurance Board's findings of fact about her permanent physical work restrictions and her ability to work full-time or the Board's conclusions of law that the claimant was not totally disabled under the contract.
¶ 80. Weighing the nature of the doctors' responses, the importance of the facts sought to be proved by the hearsay medical reports to the outcome of the proceedings and considerations of economy; the evidence opposing the hearsay reports; the lack of any corroborative evidence supporting the hearsay reports; the failure of the Department of Employee Trust Funds to call the doctors to testify; and the outcome for each party, our conclusion that the Group Insurance Board should not have relied solely on the hearsay evidence is appropriate in the instant case, even under Perales.
¶ 81. We see no reason to deviate in the instant case from the long-standing rule in Wisconsin as announced in Folding Furniture and consistently followed for 65 years in subsequent cases that uncorroborated hearsay alone does not constitute substantial evidence in administrative hearings. The rule balances competing concerns about administrative expediency and fundamental fairness.
¶ 82. Fairness requires that in the face of contrary in-person testimony, if the Group Insurance Board seeks to terminate a claimant's benefits, it should be required to corroborate hearsay evidence if that evidence is to form the sole basis for its decision. The harm to claimants in having their income continuation insurance benefits terminated on the basis of controverted written hearsay medical reports, without an opportunity to cross-examine the authors of the reports, exceeds the burden on the Group Insurance Board to call a witness to corroborate those hearsay medical reports. Accordingly we do not adopt the Perales rule in the present case.
V
¶ 83. The court of appeals offered three reasons why the Perales reasoning should be adopted and why the legal residuum rule should not be applied in the present case. We are not convinced by any of them.
¶ 84. First, the court of appeals concluded that the legal residuum rule should not apply when the opposing party could have subpoenaed the author of a hearsay report to controvert or challenge the written report. Thus the court of appeals placed the onus on the claimant to subpoena the Group Insurance Board's expert witnesses. The claimant's ability to subpoena expert witnesses may be "more theoretical than real." We are therefore not persuaded that the burden should be placed on a claimant to furnish witnesses who will correct the deficiencies in the evidence produced by the Department of Employee Trust Funds.
¶ 85. Second, the court of appeals concluded that the legal residuum rule does not apply when the hearsay is a document admissible as an exception to the hearsay rule. The legal residuum rule, asserts the courts of appeals, is based on the notion that hearsay evidence is unreliable only when it does not fall within a hearsay exception. The court of appeals' position that hearsay evidence that is admissible as an exception to the rule does not fall within the legal residuum rule has been adopted in some cases and recommended by some commentators.
¶ 86. The parties agree, as do we, that the medical records were properly admitted under the relaxed evi-dentiary rules applicable to administrative hearings. The parties dispute whether the evidence is admissible as an exception to hearsay under either Wis. Stat. § 908.03(6), as documents made in the course of regu larly conducted business, or Wis. Stat. § 908.03(6m), as health care provider records. Dr. Lemon did not provide health care; he examined the claimant to render an opinion for purposes of this dispute about coverage.
¶ 87. The admissibility of these reports as exceptions to the hearsay rule is not clear-cut. Before a record is admissible under Wis. Stat. § 908.03(6), a custodian or qualified witness must testify. No such testimony was presented here. Before a record is admissible under Wis. Stat. § 908.03(6m), a qualified witness need not testify but the party offering health care provider records must serve or give notice to the other party.
¶ 88. Moreover, the admission of the doctors' reports as an exception to hearsay is not automatic; admission is a discretionary decision. "A medical record containing a diagnosis or opinion . . . may be excluded in the trial judge's discretion if the entry requires explanation or a detailed statement of the judgmental factors upon which the diagnosis or opinion is based." This exercise of discretion especially comes into play with documents that have been prepared in anticipation of litigation. The record does not show that anyone admitted the reports as exceptions to the hear say rule or exercised any discretion in concluding that the hearsay reports should be admitted as exceptions to the hearsay rule. We have previously addressed the reliability of the reports.
¶ 89. Without deciding whether all or any parts of the written medical reports in the present case are admissible under a hearsay exception, we conclude that the court of appeals' reasoning that hearsay evidence is unreliable only when it does not fall within a hearsay exception confuses the admissibility of hearsay with the issue of the probative force to be accorded the hearsay evidence by an administrative agency decision-maker. Hearsay that is subject to an exception is still hearsay, and therefore the substantial evidence rule applies even to evidence admitted as an exception to the hearsay rule.
¶ 90. The dilemma, however, is that if hearsay is admissible in court as an exception to the hearsay rule and a fact-finder in a judicial proceeding may base its decision on admissible hearsay, why then apply what appears to be a more restrictive rule barring an administrative agency from basing its decision on uncorroborated hearsay that falls within a hearsay exception? The primary reason is that in administrative hearings the claimants are often not represented by counsel and decision-makers are often not attorneys. Requiring decision-makers to determine whether hearsay evidence falls within a hearsay exception defeats the reasons for relaxed standards for the admissibility of evidence in administrative agencies. The protection for the parties lies in the requirement that hearsay evidence must be corroborated if an agency is to rely on it as the sole evidence.
¶ 91. The Group Insurance Board is in effect arguing that the legal residuum rule is not needed in the present case because medical reports are reliable evidence. Even though medical reports generally may be viewed as reliable, our review of the record raises significant questions about the reliability of these controverted reports and about the need for clarification of the reports by live testimony. Therefore, without corroboration they alone would not satisfy the requirements of the substantial evidence standard as probative, reliable evidence.
¶ 92. Third, the court of appeals concluded that when more than one written hearsay report contains essentially the same information, each hearsay report is corroborated by the other. If the agency is permitted to bootstrap uncorroborated hearsay with other uncorroborated hearsay, the result would be the evisceration of the requirement that there, be corroboration of hearsay in order for the hearsay evidence to form the basis of an agency's findings of fact. Requiring corroboration of hearsay by non-hearsay evidence ensures that the evidence is properly tested, thereby ensuring the fundamental fairness of administrative proceedings. We therefore conclude that in the present case hearsay evidence cannot corroborate hearsay evidence.
¶ 93. The interpretation of the corroboration requirement in the present case should be compared with the interpretation of the corroboration requirement in other circumstances.
¶ 94. For example, Wis. Stat. § (Rule) 908.045, a rule governing admission of evidence (rather than governing the probative force of admitted evidence) requires corroboration of certain hearsay evidence. Section 908.045 provides: "A statement tending to expose the declarant to criminal liability and offered to exculpate the accused is not admissible unless corroborated."
¶ 95. The supreme court interpreted corroboration in Wis. Stat. § 908.045 to mean the presentation of other evidence "sufficient to permit a reasonable person to conclude, in light of all the facts and circumstances, that the statements could be true . . . ," The court then allowed multiple hearsay statements that were against the declarant's penal interest and were offered to exculpate the accused to corroborate each other when the statements were identical in nature and had been made to multiple third parties. Thus, the court interpreted multiple hearsay statements against penal interest as corroborating each other.
¶ 96. The cases interpreting the corroboration requirement in Wis. Stat. § (Rule) 908.045 are based on the legal system's special concerns about wrongful convictions and a defendant's constitutional right to present a defense: "The critical need for hearsay evidence, in particular statements against penal interests, is especially apparent in criminal trials where the exclusion of a statement [against the declarant's penal interest] exculpating an accused could result in an erroneous conviction."
¶ 97. These constitutional considerations about an accused's right to present a defense are not applicable in the instant case. Several records containing similar medical opinions from different doctors do not raise the same evidentiary or constitutional considerations as a declarant's oft-repeated statements that tend to expose that individual to criminal prosecution and thereby exculpate an accused.
¶ 98. The requirement of corroboration has also been interpreted in the context of newly discovered recantation evidence. The court has required that when newly discovered evidence is a witness's recantation, the recantation must be corroborated by other newly discovered evidence. Corroboration is required because recantation is inherently unreliable; the recanting witness is admitting he or she lied under oath. Either the original testimony or the recantation is false.
¶ 99. The court recognized that "requiring a defendant to redress a false allegation with significant independent corroboration of the falsity would place an impossible burden upon a wrongly accused defendant." The court concluded that the degree and extent of corroboration required in recantation circumstances varies from case to case. In one case the court held that corroboration may be achieved when a feasible motive for the initial false statement exists and circumstantial guarantees of trustworthiness of the recantation exist.
¶ 100. The present case differs from recantation cases. Requiring the Department of Employee Trust Funds to produce a doctor who examined the claimant or her records can hardly be said to present the same burden as requiring independent corroboration of the falsity of an original statement in recantation cases.
¶ 101. The present case is thus not governed by the corroboration requirements set forth in cases involving recantation or a statement against penal interest.
VI
¶ 102. The Group Insurance Board raises two arguments in support of the decision of the court of appeals. First, it argues that if this court adopts the claimant's position, claimants who may not be able to afford expert witnesses to corroborate medical reports are placed at a serious disadvantage in proceedings such as this one. Yet in the present case, it was the Group Insurance Board, not the claimant, that introduced the hearsay evidence.
¶ 103. We recognize the importance of allowing claimants to present their position as simply and inexpensively as possible, including by means of written medical reports without having to present the testimony of the author of the reports. This decision should not be read to require corroboration by non-hearsay evidence in all instances.
¶ 104. Corroboration of hearsay is not always required in administrative proceedings. For example, the parties may stipulate to some or all of the facts or to the submission of and reliance upon the contents of written hearsay reports. The parties may also agree that the agency may base its findings of fact solely on uncorroborated hearsay. As the circuit court pointed out in the present case, the legal residuum rule does not prevent parties from stipulating to factual findings.
¶ 105. Requiring corroboration of controverted hearsay evidence upon which the Group Insurance Board bases its findings of fact is not as burdensome as the Group Insurance Board suggests. Apparently numerous administrative agencies conduct their business adhering to the rule that findings of fact cannot be based solely on uncorroborated hearsay evidence. For example, the Labor and Industry Review Commission routinely cites and adheres to the rule that uncorroborated hearsay may not form the sole basis for resolution of an issue.
¶ 106. Second, the Group Insurance Board argues that the claimant and her attorney failed to object to the admission and use of the uncorroborated hearsay reports and therefore waived the right to challenge the Board's reliance on the reports when offered, or on appeal.
¶ 107. When the medical reports were admitted, the claimant's objection to admissibility on the ground of hearsay would have been futile. Arguably the claimant had an opportunity to object to the Findings of Fact being based on uncorroborated hearsay evidence when the Proposed Findings of Fact and Conclusions of Law were released. The circuit court ruled that the claimant was not required to object and that the claimant therefore did not waive her objections.
¶ 108. "[W]hether [this court] should review an issue raised here for the first time depends upon the facts and circumstances disclosed by the particular record. The question is one of administration, not power." The general rule is that an appellate court will not "consider issues beyond those properly raised before the administrative agency, and a failure to raise an issue generally constitutes a waiver of the right to raise the issue before a reviewing court." As with most rules, however, there are exceptions.
¶ 109. We need not decide whether the claimant waived her right in the present case to challenge the bases of the Findings of Fact. We address the issue presented here because the parties have had an opportunity to brief the substantial evidence issue and because the application of the legal rule announced in Folding Furniture presents an issue of importance. Additionally, unpublished decisions of the court of appeals take different views of the applicability of Folding Furniture and Perales.
¶ 110. For the reasons stated, we conclude that the uncorroborated written hearsay medical reports alone that were controverted by in-person testimony did not constitute substantial evidence to support the Group Insurance Board's Findings of Fact and decision to terminate the claimant's benefits. As correctly pointed out by the circuit court in the present case, because most of the medical testimony is uncorroborated hearsay evidence, the Group Insurance Board's Conclusions of Law #17 and #18 that the claimant was not "totally disabled" within the contract are without support. Accordingly, we reverse the decision of the court of appeals and affirm the order of the circuit court reversing the decision of the Group Insurance Board.
By the Court. — The decision of the court of appeals is reversed.
Gehin v. Wis. Group Ins. Bd., No. 03-0226, unpublished slip op. (Wis. Ct. App. Oct. 2, 2003).
This court "[does] not deal directly with the correctness of the court of appeals decision brought to us on review, nor do we owe that decision any deference." West Bend Co. v. Labor & Indus. Review Comm'n, 149 Wis. 2d 110, 117, 438 N.W.2d 823 (1989); City of Oak Creek v. DNR, 185 Wis. 2d 424, 446, 518 N.W.2d 276 (Ct. App. 1994).
All references to the Wisconsin Statutes are to the 2001-02 version unless otherwise noted.
Wisconsin Stat. § 40.08(12) provides as follows:
Notwithstanding s. 227.52, any action, decision or determination of the board, the Wisconsin retirement board, the teachers retirement board, the group insurance hoard or the deferred compensation board in an administrative proceeding shall be reviewable only by an action for certiorari in the circuit court for Dane County that is commenced by any party to the administrative proceeding, including the department, within 30 days after the date on which notice of the action, decision or determination is mailed to that party, and any party to the certiorari proceedings may appeal the decision of that court.
In a certiorari review, the scope of review is generally limited to whether the agency (1) kept within its jurisdiction; (2) proceeded on the correct theory of law; (3) was arbitrary, oppressive, or unreasonable and represented its will and not its judgment; or (4) might reasonably have made the order or finding based on the evidence. Kraus v. City of Waukesha Police & Fire Comm'n, 2003 WI 51, ¶ 10, 261 Wis. 2d 485, 662 N.W.2d 294; Schmidt v. Wis. Employe Trust Funds Bd., 153 Wis. 2d 35, 40, 449 N.W.2d 268 (1990).
The issue of the sufficiency of the evidence falls within the third and fourth standards. State ex rel. Harris v. Annuity & Pension Bd., 87 Wis. 2d 646, 652, 275 N.W.2d 668 (1979).
Harris, 87 Wis. 2d at 652; Stacy v. Ashland County Dep't of Pub. Welfare, 39 Wis. 2d 595, 602, 159 N.W2d 630 (1969); Teriaca v. Milwaukee Employees' Ret. Sys./Annuity & Pension Bd., 2003 WI App 145, ¶ 30, 265 Wis. 2d 829, 667 N.W.2d 791.
Wisconsin Stat. § 227.57(6) reads as follows:
If the agency's action depends on any fact found by the agency in a contested case proceeding, the court shall not substitute its judgment for that of the agency as to the weight of the evidence on any disputed finding of fact. The court shall, however, set aside agency action or remand the case to the agency if it finds that the agency's action depends on any finding of fact that is not support by substantial evidence in the record.
Wisconsin Stat. § 227.57(5) provides:
The court shall set aside or modify the agency action if it finds that the agency has erroneously interpreted a provision of law and a correct interpretation compels a particular action, or it shall remand the case to the agency for further action under a correct interpretation of the provision of law.
Finding of Fact #15 calculates what the claimant would have had to earn in this case: "The record appears to indicate that Ms. Gehin's gross ICI benefits at the time those benefits were terminated were $979.37 per month. Therefore, in order to be considered gainfully employed for purposes of section 5.14 - 4.b. of the ICI contract, she would have to be capable of earning $979.37 per month, or $5.63 per hour in a full-time position."
Giant Grip Mfg. Co. v. Indus. Comm'n, 271 Wis. 583, 585, 74 N.W2d 182 (1956).
Finding of Fact #4.
Id.
Finding of Fact #5.
Id.
Finding of Fact #6.
Finding of Fact #14.
Finding of Fact #6.
Finding of Fact #14.
The claimant must meet the contractual definition of "substantial gainful activity" provided in Section 5.LL-4.b of the contract, which states as follows:
After the first 12 months, the EMPLOYE'S complete inability by reason of any medically determinable, physical or mental impairment, to engage in any substantial gainful activity for which the EMPLOYE is reasonably qualified with due regard to the EMPLOYE'S education, training, experience, and prior economic status. An activity is considered a substantial gainful activity if the earnings from that activity would be at least equal to the gross Income Continuation benefit for the same period of time.
Finding of Fact #14.
See, e.g., Conclusion of Law #16.
Finding of Fact #15.
Finding of Fact #6.
Finding of Fact #5.
Finding of Fact #7.
Finding of Fact #7.
Id.
Id.
Finding of Fact #10.
Id.
Id.
Finding of Fact #8.
Id.
Finding of Fact #12.
Id.
Id
Id.
Finding of Fact #8.
Finding of Fact #11.
Id.
Finding of Fact #8.
The Department of Employee Trust Funds and the Wisconsin Group Insurance Board (which is attached to the Department of Employee Trust Funds) are charged with administering the income continuation insurance plan. Wis. Stat. § 40.03(2)(ig), 40.03(6)(a)l, 40.62(1). See also State - Income Continuation Insurance Fact Sheet 2004 (available online at http://etf.wi.gov/publications/et8918.pdf).
Finding of Fact #9.
Finding of Fact #10.
Finding of Fact #12.
Finding of Fact #2.
Finding of Fact #3.
Finding of Fact #13.
Conclusion of Law #16.
Conclusion of Law #17.
Hearsay is a "statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Wis. Stat. § 908.01(3). "A 'statement' is (a) an oral or written assertion ." Wis. Stat. § 908.01(1).
Finding of Fact #13.
Finding of Fact #12.
Finding of Fact #7. The letter describing the program stated that sometimes the claimant worked less than 24 hours a week and equated the total time worked out of three years to be no more than half that because of her limited ability to work due to pain and a variety of medical leaves not necessarily connected with her injury.
Exh. 22.
Id.
Finding of Fact #11.
For a discussion of the history of the concept of substantial evidence in American administrative law, see E. Blythe Stason, "Substantial Evidence" in Administrative Law, 89 U. Pa. L. Rev. 1026 (1940-41).
DeGayner & Co. v. DNR, 70 Wis. 2d 936, 940, 236 N.W.2d 217 (1975). See also Village of Menomonee Falls v. DNR, 140 Wis. 2d 579, 594, 412 N.W.2d 505 (1987); Gilbert v. State Med. Examining Bd., 119 Wis. 2d 168, 195, 349 N.W.2d 86 (1984); Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).
Folding Furniture Works, Inc. v. Wis. Labor Relations Bd., 232 Wis. 170, 189, 285 N.W. 851 (1939) (quoting Consol. Edison, 305 U.S. at 229).
Princess House, Inc. v. DILHR, 111 Wis. 2d 46, 53-54, 330 N.W.2d 169 (1983) (interpreting "substantial evidence" in the worker's compensation statute).
Wisconsin Stat. § 227.57(6) reads:
If the agency's action depends on any fact found by the agency in a contested case proceeding, the court shall not substitute its judgment for that of the agency as to the weight of the evidence on any disputed finding of fact. The court shall, however, set aside agency action or remand the case to the agency if it finds that the agency's action depends on any finding of fact that is not supported by substantial evidence in the record.
Folding Furniture, 232 Wis. at 189 (quoting Consol. Edison, 305 U.S. at 235).
Indeed, it appears that the concept that hearsay, standing alone, cannot support a factual finding in an administrative setting has even earlier roots in Wisconsin. See A. Breslauer Co. v. Indus. Comm'n, 167 Wis. 202, 204 (1918).
This rule can be traced to the New York case, Carrol v. Knickerbocker Ice Co., 113 N.E. 507 (1916).
Folding Furniture, 232 Wis. at 189 (quoting Consol. Edison, 305 U.S. at 229). The U.S. Supreme Court stated:
The obvious purpose of this and similar provisions is to free administrative hoards from the compulsion of technical rules so that the mere admission of matter which would be deemed incompetent in judicial proceedings would not invalidate the administrative order. But this assurance of a desirable flexibility in administrative procedure does not go so far as to justify orders without a basis in evidence having rational probative force. Mere uncorroborated hearsay or rumor does not constitute substantial evidence.... Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (citations omitted).
Consol. Edison, 305 U.S. at 229.
Folding Furniture, 232 Wis. at 189.
See, e.g., Outagamie County v. Town of Brooklyn, 18 Wis. 2d 303, 313, 118 N.W.2d 201 (1962); Wis. Tel. Co. v. Indus. Comm'n, 263 Wis. 380, 387, 57 N.W.2d 334 (1953); A. Breslauer Co., 167 Wis. at 204.
See also Ralph M. Hoyt, The Wisconsin Administrative Procedure Act, 1944 Wis. L. Rev. 214 ("[C]ourts have never permitted these [administrative] bodies to ground their find ings upon testimony which violatefs] fundamental principles of probative force — for instance, upon uncorroborated hearsay or rumor.").
The legislature has placed limits on the weight hearsay may be given in small claims proceedings. Wisconsin Stat. § 799.209(2) provides: "The proceedings shall not be governed by the common law or statutory rules of evidence except those relating to privileges under ch. 905 [e.g., lawyer-client, physician-patient, spousal] or to admissibility under s. 901.05 [HIV tests]. The court or circuit court commissioner shall admit all other evidence having reasonable probative value, but may exclude irrelevant or repetitious evidence or arguments. An essential finding of fact may not be based solely on a declarant's oral hearsay statement unless it would be admissible under the rules of evidence" (emphasis added). At least one published decision in Wisconsin has read this statute to require corroborative evidence of an oral hearsay statement in order to form the basis of an essential finding. Scholten Pattern Works, Inc. v. Roadway Express, Inc., 152 Wis. 2d 253, 257, 448 N.W.2d 670 (Ct. App. 1989).
Village of Menomonee Falls, 140 Wis. 2d at 610.
Wis. Admin. Code § ETF 11.12(2)(b) (Jan. 2004).
Other administrative agencies have rules governing the admissibility and weight of hearsay evidence. See, e.g., Wis. Admin. Code § INS 5.39(5)(a)l (Feb. 1999) ("The administrative law judge may admit hearsay evidence and shall accord it as much weight as the administrative law judge considers warranted by the circumstances.); Wis. Admin. Code PC 5.03(5) (Jan. 2003) (Hearsay evidence may be admitted into the record at the discretion of the hearing examiner or commission and accorded such weight as the hearing examiner or commission deems warranted by the circumstances.); Wis. Admin. Code TCS 12.10(4)(e) (July 2002) (Unless objected to by the board, any summary of testimony of a witness for the person who requested the hearing shall be made part of the record in lieu of the testimony of that witness as an exception to the hearsay rule and shall be considered by the board for whatever probative value that testimony has in making its decision.); Wis. Admin. Code DWD 140.16(1) (Sept. 2000) (Hearsay evidence is admissible if it has reasonable probative value but no issue may be decided solely on hearsay evidence unless the hearsay evidence is admissible under ch. 908, Stats, [rules of evidence]).
Wis. Stat. § 40.07; Wis. Admin. Code § ETF 11.13(2) (Jan. 2004).
Whether called the residuum rule or the substantial evidence test, in Wisconsin the substantial evidence rule has functionally operated like the residuum rule. See John Wig-more, 1 Wigmore on Evidence § 4b at 122-24 (Tillers Rev. 1983) ("The residuum rule generally has been abandoned. It has been replaced by the 'substantial evidence1 standard. . . Some courts, however, have effectively subverted the original purpose of the substantial evidence standard by holding that hearsay evidence in and of itself cannot constitute 'substantial evidence.' ") (footnotes omitted).
Leonard M. Simon, The Weight To Be Given Hearsay Evidence By Administrative Agencies: The "Legal Residuum" Rule, 26 Brook. L. Rev. 265, 267 (1959-60).
See, e.g., Daniel R. Schuckers, The "Legal Residuum Rule" Should Be Abolished in Pennsylvania, 75 Pa. Bar Ass'n Q. 1, 3 (Jan. 2004), John L. Gedid, The "Legal Residuum" Rule Should Be Retained in Pennsylvania Because of Us Function To Insure Fundamental Fairness and Due Process, lb Pa. Bar Ass'n Q. 7 (Jan. 2004); E. Blythe Stason, "Substantial Evidence" in Administrative Law, 89 U. Pa. L. Rev. 1026, 1029 (1940-41); Bernard Schwartz, Administrative Law § 7.4 at 376 (3d ed. 1991).
Simon, supra note 68, at 268.
Schwartz, supra note 69, § 7.4 at 376 (quoting 2 Arthur Larson, The Law of Workmen's Compensation § 79.30 (1981)); 7 Larson's Workers' Compensation Law § 127.02 (2004) (discussing the use of the legal residuum rule in the workers' compensation setting as follows: "[T]he 'residuum rule' has been followed in the majority of jurisdictions, although it has been under constant attack ever since it was announced.")
See Kenneth Culp Davis, Hearsay in Administrative Hearings, 32 Geo. Wash. L. Rev. 689, 697 (1964) (criticizing the rule); Ernest Gellhorn, Rules of Evidence and Official Notice in Formal Administrative Hearings, 1971 Duke L.J. 1,24 ("[I]t has been severely criticized by scholars, and its application has strained judicial reasoning."); Wigmore, supra note 67, § 4b ("The residuum rule generally has been abandoned [citing federal, Kansas and New York cases for this proposition, but then citing California and New Mexico cases for the contrary position]. It has been replaced by the substantial evidence standard.... Some courts, however, have effectively subverted the original purpose of the substantial evidence standard by holding that hearsay evidence in and of itself cannot constitute substantial evidence [citing federal, New Mexico and New York cases] (internal quotations and footnotes omitted).).
But see 1 Cooper, State Administrative Law 410-412 (1965):
On the other hand, it is urged that the existence of the rule has accomplished considerable good, because the fear that it may be invoked has led agencies to insist on careful presentation and detailed examination of the evidence offered in contested cases; and because it has had the effect of inducing agencies to apply the rules of evidence in much the same fashion as they are applied by judges sitting in non-jury trial civil cases.
Davis, supra note 71, at 697; Kenneth Culp Davis, The Residuum Rule in Administrative Law, 28 Rocky Mt. L. Rev. 1, 4-6 (1955).
Ford v. Unemployment Comp. Bd. of Review, 498 A.2d 449, 451 (Pa. 1985).
Unemployment Comp. Bd. of Review v. Ceja, 427 A.2d 631, 645 (Pa. 1981).
Ford, 498 A.2d at 451. See also Ridley School Dist. v. Unemployment Comp. Bd. of Review, 637 A.2d 749, 752 (1994) (a finding of fact based solely on hearsay cannot stand).
See Schwartz, supra note 69, § 7.4 at 377.
Many states apply some form of the legal residuum rule. See, e.g., Ala. Admin. Code r. 482-l-065-.04(9)(b) (2004) (hearsay is "not sufficient to prove any material fact" unless that hearsay would be admissible under a court-recognized exception); Libby, McNeill & Libby v. Alaska Indus. Bd., 12 Alaska 584, 588 (1950) ("Undoubtedly an award based solely on hearsay cannot stand...."); Black Mountain Spruce, Inc. v. Johnson, 670 E2d 1241, 1243 (Colo. App. 1983) ("[I]t is not error for an administrative agency to admit hearsay evidence, as long as it is not the sole support for the agency's findings...."); Application of Citizens Utils. Co., 351 E2d 487, 490 (Idaho I960) ("[The agency] cannot make a finding based upon hearsay."); 11 Ky. Admin. Regs. 3:100, Section 3(4)(a)(3) (2004) ("The hearing officer may receive evidence deemed reliable and relevant, including evidence that would be considered hearsay if presented in court, except that hearsay evidence shall not be sufficient in itself to support the hearing officer's decision."); Credit v. Whitfield, 488 So. 2d 1064, 1066 (La. 1986) ("The jurisprudence firmly establishes that the [agency] may not base its decision solely on hearsay. Reliance on hearsay and nothing more shatters the competence and sufficiency of the evidence and undermines the employer's burden of proof.... [W]e reiterate the jurisprudence that the employer may not base its entire case on hearsay when the claimant offers direct, contradictory evidence." (citations omitted)); Minnesota Rules, part 5601.3145, subp. 3 (2003) ("Hearsay evidence may be used for the purpose of supplementing or explaining any direct evidence but is not sufficient in itself to support a finding unless it would be admissible over objection in civil actions"); Code Miss. R. 06 000 038, Section 7(c) (2004) ("However, hearsay evidence (if presented) shall not be the sole basis for the determination of facts by the review officer"); Mont. Admin. R. 24.9.312 (2004) ("Hearsay evidence may be received and considered to supple ment other evidence, but such hearsay evidence may not be considered to support a finding unless it would otherwise be admissible over objection in civil actions or under the Montana Rules of Evidence."); In re Toth, 418 A.2d 272, 277 (N.J. Super. Ct. App. Div. 1980) "[TJhe rule in this State is that a factfinding or legal determination cannot be based on hearsay alone. Hearsay may be employed to corroborate competent proof, or competent proof may be supported or given added probative force by hearsay testimony."); Trujillo v. Employment Sec. Comm'n, 610 E2d 747, 748 (N.M. 1980) ("[UJnemployment compensation [is] a substantial right as a matter of public policy. The benefits in this case may not be denied on the basis of controverted hearsay alone. Controverted hearsay under these facts does not qualify as substantial evidence."); Bermudez v. Blum, 423 N.Y.S.2d 11, 12 (App. Div. 1979) ("While an administrative determination, after fair hearing, may be supported by hearsay, it may not he based entirely thereon."); Utah Admin. R. 51-2-12 C. ("Hearsay evidence may be used for the purpose of supplementing or explaining other evidence, but it shall not be sufficient in itself to support a finding unless it would be admissible in a judicial proceeding."); Wis. Admin. Code § DWD 140.16 ("Hearsay evidence is admissible if it has reasonable probative value but no issue may be decided solely on hearsay evidence unless the hearsay evidence is admissible under ch. 908, Stats."). See also Ernest H. Schopler, Comment Note — Hearsay Evidence in Proceedings Before State Administrative Agencies, 36 A.L.R.3d 12 (2004) (including a number of the cases listed above).
Perales, 402 U.S. at 390.
See Kenneth Culp Davis, Administrative Law Text 282 (3d ed. 1972); Kenneth Culp Davis, Administrative Law of the Seventies § 14.11 at 339-42 (1976).
Perales, 402 U.S. at 402-03.
Schwartz, supra note 69, § 7.6 at 381.
James L. Rose, Hearsay in Administrative Adjudications, 6 Admin. L. J. Am. U. 459, 475 (1992).
Rose, supra note 81, at 475.
Perales, 402 U.S. at 395-96. See State v. Watson, 227 Wis. 2d 167, 172, 191, 595 N.W.2d 403 (1999) (holding that the testimony of an expert witnesses who relies on inadmissible hearsay is itself admissible in evidence).
Schwartz, supra note 69, § 7.6 at 382.
Georgia-Pacific Corp. v. McLaurin, 370 So. 2d 1359, 1362 (Miss. 1979).
Finding of Fact #11.
For a discussion of these factors by a court that rejected the legal residuum rule, see Reguero v. Teacher Standards & Practices Comm'n, 822 E2d 1171 (Or. 1991).
In analyzing Perales, Professor Bernard Schwartz notes:
In addition, the right of the claimant to subpoena examining physicians is more theoretical than real in the vast majority of. . cases where claimants are unrepresented by counsel. Even when there is counsel, the right to subpoena is one that is almost never exercised. The realities of law practice and fee limits . normally mean that the lawyer for the claimant is not able to give the time needed to examine the agency file until the hearing. Asking for subpoenas at that time means a continuance, with the need for the lawyer to give up the time needed to appear for the hearing a second time.
Schwartz, supra note 69, § 7.6 at 382.
For discussions of subpoenas of experts, see Glenn v. Plante, 2004 WI 24, ¶ 2, 269 Wis. 2d 575, 676 N.W.2d 413; In re Imposition of Sanctions in Alt v. Cline, 224 Wis. 2d 72, 86, 589 N.W.2d 21 (1999).
See, e.g., Bransford v. State Taxation & Revenue Dep't, 960 E2d 827, 832 (N.M. App. 1998) (admissible hearsay may satisfy the legal residuum rule); Morgenstern v. Dep't of Motor Vehicles, 111 Cal. App. 4th 366, 372 (4th Dist. 2003) (officer's report was admissible under the employee business records exception to the hearsay rule and will support the department's findings); Elliot B. Glicksman, The Modern Hearsay Rule Should Find Administrative Law Application, 78 Neb. L. Rev. 135, 140 (1999) ("The residuum rule is not a satisfactory substitute for the exclusion of all hearsay proofs. Instead, a liberal reading of the modern hearsay rule and its defined exceptions and exclusions would better satisfy credibility critics while preserving and promoting the idealism behind the administrative law process.").
See Daniel D. Blinka, 7 Wisconsin Practice: Wisconsin Evidence 620-29 (2d ed. 2001).
Blinka, supra note 90, at 630-33.
Noland v. Mut. of Omaha Ins. Co., 57 Wis. 2d 633, 641-42, 205 N.W.2d 388 (1973); Pophal v. Siverhus, 168 Wis. 2d 533, 560, 484 N.W.2d 555 (Ct App. 1992). See also Blinka, supra note 90, at 632.
Blinka, supra note 90, at 627-28.
State v. Anderson, 141 Wis. 2d 653, 662, 416 N.W.2d 276 (1987).
See State v. Guerard, 2004 WI 85, ¶ 5, 273 Wis. 2d 250, 682 N.W.2d 12; Anderson, 141 Wis. 2d at 668.
Anderson, 141 Wis. 2d at 662 (citing Chambers v. Mississippi, 410 U.S. 284 (1973), for the proposition that "[f]ew rights are more fundamental than that of an accused to present witnesses in his own defense.").
State v. McCollum, 208 Wis. 2d 463, 473-74, 476, 561 N.W.2d 707 (1997).
Id. at 477.
Id. at 478.
Merta v. Johnson Controls, Inc., ERD Case No. CR200000928 (LIRC Oct. 30, 2003) (crucial finding of fact may not be based solely on uncorroborated hearsay evidence relying on Village of Menomonee Falls, 140 Wis. 2d 579)); T-N-T Express LLC v. TNT Express Delivery, UI Dec. Hearing No. S9700385 (LIRC Feb. 22,2000) (citing Wis. Admin. Code § DWD 140.16 that subject to some exceptions, uncorroborated testimony is not a sufficient basis upon which to decide an issue); Loberger v. Alex Logan Wholesale Flooring, UI Dec. Hearing No. S9800050MD (LIRC June 30,1999) (same). These decisions are available online in searchable format at http://www.dwd .state.wi.us/lirc.
The circuit court relied on Wis. Admin. Code § ETF 11.09(3), which provides as follows:
(3) OBJECTIONS. Any party aggrieved by the proposed decision may file a written objection to the proposed decision within 20 days of the date of the notice of the proposed decision. The aggrieved party shall specify, in detail, the following:
(a) Each provision of the proposed decision to which the party objects and the basis for each objection.
(b) Each change the party requests the board to make in the proposed decision and the legal grounds for the change. If minor, the requested change may be described as a specific edit to the proposed decision. If extensive or major changes are requested, the party may attach a draft proposed decision, clearly marked as that party's draft, to that party's objections (emphasis added).
State ex rel. Gen. Motors Corp. v. City of Oak Creek, 49 Wis. 2d 299, 319, 182 N.W.2d 481 (1971).
State v. Outagamie County Bd. of Adjustment, 2001 WI 78, ¶ 55, 244 Wis. 2d 613, 628 N.W.2d 376.
One exception is that "if all the facts are of record and the issue is a legal one of great importance" we will overlook any waiver issues. Outagamie County, 244 Wis. 2d 613, ¶ 56; State ex rel. Gen. Motors Corp. v. City of Oak Creek, 49. Wis. 2d 299, 319-20, 182 N.W.2d 481 (1971); Bunker v. LIRC, 2002 WI App 216, ¶ 15-16, 257 Wis. 2d 255, 650 N.W.2d 864.
See, e.g., Delgado v. Milwaukee Employees' Ret. Sys., No. 03-0758, unpublished slip op. (Wis. Ct. App. Nov. 18, 2003) (adopting Perales); Local 1901-F v. Wis. Employment Relations Comm'n, No. 01-1360, unpublished slip op. (Wis. Ct. App. Jan. 29, 2002) (adopting Folding Furniture); Kennow v. Racine County, No. 89-2220, unpublished slip op. (Wis. Ct. App. Oct. 17, 1990) (adopting Folding Furniture).
Conclusion of Law #17:
[United Wisconsin Group] and the [Department of Employee Trust Funds] correctly applied the requirements of the ICI con tract to the documented facts pertinent to the appellant's ICI claim. In determining that the appellant was not disabled within the meaning of the contract, UWG and the DETF reasonably-accepted the opinions of appellant's treating physician and of UWG's expert over that of the physical therapist, who did not have the benefit of the contractual definition, and of non-contemporaneous opinion by appellant's expert. The Board concludes that the appellant was not disabled within the requirements of the ICI contract after April 30, 1997.
Conclusion of Law #18:
In accordance with the above Findings of Fact and Conclusions of Law, the Board concludes that the DETF did not err in its July 9, 1998, determination to terminate the appellant's [income continuation insurance] benefits beyond April 30, 1997, under Section 5.14 - 4.b. of the contract effective January 1,1995, between UWG and the Board.