Opinion ID: 2542244
Heading Depth: 1
Heading Rank: 3

Heading: parties are entitled to make a written offer of proof even as to evidence excluded as wholly irrelevant

Text: Great Plains and Aquila are regulated utilities that, under section 393.190.1, must obtain approval from the PSC for their proposed merger. As noted, there are two components to this review, lawfulness and reasonableness. Praxair contends on appeal that the PSC's order was unreasonable. Reasonableness turns on the standard used to evaluate a merger subject to approval by the PSC, which is whether or not the merger would be `detrimental to the public.' State ex rel. AG Processing, 120 S.W.3d at 735. In the merger context, a PSC decision will be held unreasonable if the PSC erroneously ignores evidence that may have substantially impacted the weight of the evidence evaluated to approve the merger. Id. at 736. Here, Praxair contends that the PSC order was unreasonable because the PSC failed to consider evidence of Aquila's allegedly unreasonable gift and gratuity policy, evidence that Praxair says was improperly excluded from the appellate record because the regulatory law judge who acted as presiding officer at the PSC hearing refused to permit it to make an offer of proof, finding the proffered evidence was wholly irrelevant. The PSC's authority and the procedures it follows are set out principally in chapter 386. Section 386.410.1 states, All hearings before the commission or a commissioner shall be governed by rules to be adopted and prescribed by the commission. The PSC accordingly has adopted and prescribed numerous rules governing its operations, including 4 C.S.R. 240-2.130(1), which states that [i]n any hearing, these [PSC] rules supplement section 536.070, RSMo, governing offers of proof. Section 536.070 is a portion of the Missouri Administrative Procedure Act, or MAPA. To the extent that there are matters not addressed by the PSC statutes and the administrative rules adopted by the PSC pursuant to section 386.410, MAPA operates to fill gaps not addressed within the PSC statutes. State ex rel. A & G Commercial Trucking v. Public Serv. Comm'n, 168 S.W.3d 680, 682-83 (Mo.App.2005). In regard to offers of proof, however, both 4 C.S.R. 240-2.130(3), adopted by the PSC, and section 536.070.7 of MAPA are substantively identical. Section 536.070.7 states in relevant part: In any contested case: .... (7) Evidence to which an objection is sustained shall, at the request of the party seeking to introduce the same, or at the instance of the agency, nevertheless be heard and preserved in the record, together with any cross-examination with respect thereto and any rebuttal thereof, unless it is wholly irrelevant, repetitious, privileged, or unduly long. [4] The PSC construes the quoted language to mean that if the presiding officer finds that evidence as to which an objection is sustained is wholly irrelevant, repetitious, privileged or unduly long, then the PSC is authorized to refuse to permit any sort of offer of proof from being made. By its terms, however, the provision is far more limited. It simply says that unless the evidence is found to be wholly irrelevant, repetitious, privileged or unduly long, it must be heard and preserved in the record, together with any cross-examination with respect thereto and any rebuttal thereof. It does not address whether some more limited form of offer of proof must be permitted even when the presiding officer believes the offered evidence to be repetitious, too long or wholly irrelevant. That is not surprising in light of the dual purpose of offers of proof. One purpose of an offer of proof is to show the trial judge or officer what the rejected evidence would show, with the hope of convincing him or her to reconsider. State v. Ross, 292 S.W.3d 521, 526 (Mo.App. 2009) (The immediate goal of the offer of proof is to educate the trial judge as to the admissibility of the proffered testimony). In the circumstances set out in the statute, the presiding officer's belief that the evidence is wholly repetitious, unduly long, privileged or irrelevant would make the hope of changing the presiding officer's mind so minimal that it is outweighed by the need to move ahead with the case. There is a second purpose to an offer of proof, howeverto preserve for the appellate courts' review a record of what evidence was offered but rejected. Evans v. Wal-Mart Stores, Inc., 976 S.W.2d 582, 584 (Mo.App.1998) (an offer of proof preserve[s] the record for appeal so the appellate court understands the scope and effect of the questions and proposed answers in considering whether the trial judge's ruling was proper). Both purposes of an offer of proof can be served by a written offer of proof, the propriety of which is not addressed by section 536.070.7. Written offers of proof suffer none of the concerns about oral offers addressed by the statuteeven if a matter ultimately is deemed wholly irrelevant, or even if it is presented in a format that the presiding officer considers unduly long or repetitious of other testimony, or if it is deemed privileged, it can be placed in the written record without delaying or disrupting the trial proceeding, so that on review the appellate court can determine for itself whether it agrees with the presiding officer's assessment. Indeed, were the statute and comparable PSC regulation interpreted to wholly preclude even written offers of proof of excluded evidence, they would conflict with the Missouri Constitution's separation of powers provisions, which place the power of judicial review in the courts and preclude the other branches from exercising such powers. [5] In keeping with this separation of powers, Mo. Const. art. V, § 18 guarantees to Missouri's citizens the right to judicial review of all final decisions of an administrative agency. The PSC is a state agency established by the Missouri General Assembly to regulate public utilities operating within the state. State ex rel. Atmos Energy Corp., 103 S.W.3d at 756. Section 393.190.1 requires regulated public utilities to obtain approval from the PSC for merger transactions. [6] In evaluating whether to approve such transactions, interested parties are allowed to participate in a contested proceeding before the PSC with many of the trappings customarily associated with adjudications conducted by the courts. In this way, the PSC performs a function that is quasi-judicial in nature. For the quasi-judicial work of the PSC to comport with basic notions of separation of powers, its decisions must be capable of being tested by (and receiving the imprimatur of) the judicial branch of this state. This can be accomplished only by way of meaningful and unobstructed judicial review as provided in the Missouri Constitution. As this Court has noted: The quintessential power of the judiciary is the power to make final determinations of questions of law. Marbury v. Madison, 1 Cranch (5 U.S.) 137, 2 L.Ed. 60 (1803); Howlett v. Social Security Comm'n [347 Mo. 784], 149 S.W.2d 806, 810 (Mo. banc 1941); Lederer v. State Dept. of Social Servs., 825 S.W.2d 858, 863 (Mo.App.1992). This power is a non-delegable power resting exclusively with the judiciary. The legislature has no authority to create any other tribunal and invest it with judiciary power. State ex rel. Haughey v. Ryan, 182 Mo. 349, 81 S.W. 435, 436 (1904). Thus, while the legislature may allow for judicial or quasi-judicial decision-making by legislative or executive (administrative) agencies, it may not preclude judicial review of those decisions. Nor may the legislature alter the principal power of the judiciary to make the final review. Short of these two considerations, however, there will not customarily be found a violation of the separation of powers clause. Asbury v. Lombardi, 846 S.W.2d 196, 200 (Mo. banc 1993). In keeping with these principles, the legislature has made the right to judicial review concrete by establishing the procedure by which a party may petition for review of PSC decisions in the circuit courts. § 386.510. From there, a party may seek review by the court of appeals much as it could any other final judgment. § 512.020. The PSC's expansive reading of the statute would mean that any matter could be kept from the record, and so kept from review, if labeled as privileged, repetitive, unduly long, or wholly irrelevant. While it is not in question here that the presiding officer excluded the evidence because he believed it to be wholly irrelevant, such a rule could be used to exclude evidence that conflicts with or would call into question the PSC's decision, effectively precluding judicial review. Or, as is claimed to have occurred here, the presiding officer simply could be incorrect in his or her view that a particular piece of evidence was wholly irrelevant, privileged or repetitious. Yet, without an offer of proof in the record, that decision effectively would be unreviewable, and relevant and material evidence might be excluded from consideration by the trial or appellate courts in determining whether an appellant has met its burden of proof ... to show that the order or decision of the PSC is unlawful or unreasonable. AG Processing, 120 S.W.3d at 734. This would interfere with the courts' duty under section 386.510 to inquire[] into or determine[] the PSC decision's reasonableness or lawfulness and with its constitutional duty to review final agency action under Mo. Const. art. V, § 18. This Court, therefore, interprets section 536.070(7) as it is writtenit simply provides an exception to the duty the presiding officer otherwise has to allow evidence as to which objection is sustained to be placed in the record and subject to cross-examination and rebuttal. The Court will not read into the statute additional meaning that would call into question its constitutional validity. [7] The presiding officer is not entitled under this statute or the comparable PSC regulation to prohibit a written offer of proof from being placed in the record. Here, the PSC refused any offer of proofwritten or otherwiseas to Great Plains' and KCPL's gift and gratuities policies. This exceeded the PSC's authority under section 536.070.7 and 4 C.S.R. 240-2.130(3). In the absence of an offer of proof, this Court could not determine whether the PSC's refusal to admit evidence of the gift and gratuities policies substantially impacted the weight of the evidence evaluated to approve the merger. State ex rel. AG Processing, 120 S.W.3d at 736. This would render the decision unreasonable and subject to reversal to permit the taking of the excluded evidence. Rather than require this procedural delay, this Court directed appellants to file the written offer of proof it would have made and directed respondents to file any response they would have made. See Rule 81.12(f) (permitting court to direct supplementation of record with original documents and exhibits). In the offer, Praxair attaches excerpts from a number of depositions of Great Plains and KCPL employees. One excerpt quotes Great Plains' and KCPL's gift and gratuities policy as providing that: The occasional giving and receiving of modest gifts, meals, services or entertainment is an accepted practice for promoting good will and building and maintaining business relationships. However, they should be infrequent, reasonable, customary, legal and or modest value. It is inappropriate to accept meals, refreshments or entertainment on a regular basis or without returning the hospitality at business-related functions. Invitations to functions that involve travel or overnight stays and are in the best interest of the company will either be paid for by the company or be approved in advance by the president of the applicable company. Praxair offered testimony from certain Great Plains and KCPL employees stating that they interpreted this policy to permit them to accept gifts such as tickets to sporting events or meals from time to time from entities with which Great Plains and KCPL did business, such as law firms or insurance companies, so long as over time they then would reciprocate by, for example, providing a meal to individuals from these law firms or insurance companies. There is no evidence that Great Plains' employees sought these gifts or that they sought or obtained large or unreciprocated gifts. Praxair also attached deposition excerpts from Aquila personnel suggesting that Aquila's gift and gratuities policy was more restrictive and prohibited employees from accepting more than nominal gifts such as coffee mugs and pens. Praxair argues that Great Plains' gift policy is subject to abuse and could impose undue costs on taxpayers as its employees felt obligated to reciprocate with gifts of their own, for which they received reimbursement, and that the PSC should reject the merger rather than risk such a gift and gratuity policy being adopted by Aquila. In response, Great Plains counters that the gift and gratuities practices could not have entered into the detrimental to the public analysis because the PSC's `authority to regulate does not include the right to dictate the manner in which the company shall conduct its business.' State ex rel. Kansas City Transit, Inc. v. Public Serv. Comm'n, 406 S.W.2d 5, 11 (Mo. banc 1966), quoting, State ex rel. City of St. Joseph v. Public Serv. Comm'n, 325 Mo. 209, 30 S.W.2d 8, 14 (1930). While the PSC may not have the authority to regulate gift policies, it does have the authority to regulate mergers and to disapprove them if they are detrimental to the public. This Court agrees with Praxair that the presiding officer erred in holding that this evidence was wholly irrelevant to the issue of public detriment. While the material in Praxair's offer does may not move the dial very much, it presents a relevant consideration. State v. Anderson, 76 S.W.3d 275, 277 (Mo. banc 2002) (logical relevance has a very low threshold). It is entirely possible that a particular set of gift and gratuity practices could be relevant to the detrimental to the public standard were it to permit unethical conduct. Reckless gift giving also conceivably could increase a public utility's costs, resulting in a higher rate being passed through to the ratepayers. Taking such practices into consideration while evaluating a merger does not rise to the level of dictating the way in which a company should conduct its business. That said, Praxair falls far short of showing that disregarding the evidence of the gift and gratuities policy was unethical or could have substantially impacted the PSC's weighing of the evidence regarding the Aquila merger. The PSC reached its decision approving the merger after receiving volumes of competent evidence on a variety of subjects including Great Plains' and KCPL's creditworthiness, the ability of Great Plains and KCPL to complete certain power plant construction projects and the merger at the same time, and the ability of Great Plains, KCPL and Aquila to achieve merger synergies. The gift and gratuities policy evidence, in contrast, shows merely that Great Plains and KCPL approved the giving and receipt of modest gifts and entertainment to promote goodwill so long as the gifts were infrequent, customary and of modest value. Whether this was a good policy or whether it could be improved, and whether it was applied as intended, might well be subject to serious debate, but there is no evidence that the policy was used to conceal bribes or corruption, that it influenced decisions or that it produced costs sufficient to affect the setting of rates. The excluded evidence does not constitute substantial evidence, considered alone or in combination with the other evidence adduced below, that the merger would be detrimental to the public. As such, its exclusion did not substantially impact the weight of the evidence evaluated to approve the merger. State ex rel. AG Processing, 120 S.W.3d at 736.