Opinion ID: 1951521
Heading Depth: 1
Heading Rank: 2

Heading: Petition for Review of Agency Decision

Text: We will first cover the issues presented in the petition for review of the Agency decision, as distinguished from review of the trial court action, which we will discuss later.
The first issue for consideration in the Agency appeal is whether petitioners were denied statutorily mandated participation rights because they were not permitted to cross-examine witnesses at the Agency hearings. We conclude that because petitioners, at crucial instances in the proceedings, slept on whatever rights of cross-examination they may have had, their claim has no merit. The DISR published notice of the first set of hearings in early August 1997. Shortly thereafter, petitioners wrote to the DISR requesting the opportunity to present testimony at the Agency hearings and to examine and cross-examine witnesses pursuant to D.C.Code § 35-3703(g)(2), which appears to provide for such participation. [9] Following consultation with the DISR, however, petitioners agreed to await the second set of hearings to participate actively. On October 10, 1997, the DISR gave notice of the second set of hearings, scheduled for November 4 and 5. On October 22, petitioners submitted a petition to intervene in which they again asserted their right to obtain discovery, present evidence and examine and cross-examine witnesses. A subsequent letter from petitioners to the DISR asked if petitioners should prepare written statements and if there would be time limits on petitioners' presentation. On October 29, 1997, the Agency confirmed with petitioners that petitioners would be allotted twenty minutes of oral testimony, would be allowed to submit written testimony, and could submit written questions to be asked at the hearings by Agency staff. Petitioners did not register any complaint regarding this procedure. At the end of the first day of the second set of hearings, the Commissioner made the following comments: Now at this time, and I am going to tell you, tomorrow is going to be unusual, but when we finish tomorrow, I will allow anyone to say anything they want to say as long as it is directly related to this transaction. But are there any other matters to be taken up at this time related to this subject by anyone? ... Speak now or forever hold our [sic] peace because I will not ask anyone [from GHMSI] to return tomorrow.... Now, are there any other questions that anyone wants to ask of the participants sitting at the table at this moment? No questions? This hearing will be in recess.... Petitioners did not then assert their right to cross-examination and made no comments to the conditions being laid down by the Agency. The next day, petitioners submitted written questions to GHMSI and the DISR's financial consultant, Deloitte & Touche, and submitted written statements propounding their view of the proposed transaction. On the same day, both petitioner Newmyer and counsel for petitioners testified at the hearing, and petitioners' questions were asked by the DISR's special counsel. GHMSI stated that it would respond to the questions in writing. Petitioners did not object to this procedure. Near the end of that day of hearings, the Commissioner again made a general call for additional comments from the participants, All right. Is there anyone else anywhere in this room that has anything they want to say at this time before I render my final judgment today?; and again, at the very end of the proceedings, the Commissioner stated, Now, with that, is there anything else that anybody wants to say at this hearing? Hearing nothing, this hearing is now adjourned. Petitioners sat silent throughout and made no request for cross-examination. We have long held that we will not review a procedural claim that was not adequately raised at the agency level. Administrative and judicial efficiency require that all claims be first raised at the agency level to allow appropriate development and administrative response before judicial review. Hughes v. District of Columbia Dep't of Employment Servs., 498 A.2d 567, 570-71 (D.C. 1985) (and cases cited therein); Abolaji v. District of Columbia Taxicab Comm'n, 609 A.2d 671, 672 (D.C.1992) (citing Hughes, supra ). Failing to object at a time when an error complained of on appeal could be corrected below is sufficient to work a forfeit of that claim on appeal. Procedural objections to the action of an administrative agency or trial court must be timely made to give the tribunal an opportunity to correct the error, if error there be; such contentions cannot first be made on appeal. It is imperative to an efficient and fair administration of justice that a litigant may not withhold his objections, await the outcome, and then complain that he was denied his rights if he does not approve the resulting decision. Brotherhood of Railroad Trainmen v. Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 127 U.S.App. D.C. 58, 61-62, 380 F.2d 605, 608-09 (1967) (citing United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37, 73 S.Ct. 67, 97 L.Ed. 54 (1952) (Simple fairness ... requires as a general rule that courts should not topple over administrative decisions unless the administrative body not only has erred but has erred against objection made at the appropriate time under its practice.)). Although petitioners initially asserted a right to cross-examination of witnesses by requesting that such procedure be followed, they abandoned that asserted right by not objecting when a contrary procedure was announced and by remaining silent when the Commissioner asked if there were any more issues to be considered. Had petitioners responded at the hearing when the opportunity to do so was announced by the Agency, the Commissioner would have had an opportunity to rule upon any procedural right being asserted. [10] Because it is unnecessary to reach the merits of petitioners' procedural claim in this regard, we do not consider the question of what right to live cross-examination petitioners could have asserted under D.C.Code § 35-3703(g)(2).
Petitioners attack the merits of the DISR decision on two main grounds. Specifically, petitioners assert that (1) the DISR committed a clear error of law when it relied on the District of Columbia Hospital and Medical Services Corporation Regulatory Act (HMSCRA), D.C.Code §§ 35-4702 to -4724 (1997), to determine that the proposed transaction would not convert GHMSI into a for-profit institution, and as a result of that determination, abused its discretion and acted arbitrarily and capriciously in declining to decide whether GHMSI was a charitable institution subject to a charitable set-aside; and (2) the DISR's finding that there was no deficiency in the integrity of GHMSI officers was arbitrary, capricious and without substantial evidence. In reviewing an agency decision, we operate under a familiar set of deferential rules. We must assess: (1) whether the agency has made a finding of fact on each material contested issue of fact; (2) whether substantial evidence of record supports each finding; and (3) whether conclusions legally sufficient to support the decision flow rationally from the findings. Metropolitan Poultry v. District of Columbia Dep't of Employment Servs., 706 A.2d 33, 34 (D.C.1998) (citing Ferreira v. District of Columbia Dep't of Employment Servs., 667 A.2d 310, 312 (D.C.1995)). 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. Id. (citing Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938)). We will only set aside an agency ruling if we conclude that it was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Teal v. District of Columbia Dep't of Employment Servs., 580 A.2d 647, 650 (D.C. 1990); see D.C.Code § 1-1510(a)(3). This court has the statutory authority to decide all relevant questions of law. D.C.Code § 1-1510(a)(1).
Petitioners argue that, because it is undisputed that GHMSI is not regulated by the District of Columbia Hospital and Medical Services Corporation Regulatory Act, the DISR committed a clear error of law by relying on that Act to determine that it was premature to resolve the question of whether GHMSI is a charitable institution. Petitioners contend that the proposed transaction poses a threat to GHMSI's charitable assets and is therefore not in the public interest. We reject this challenge to the decision. In its decision and order, the Agency undertook a lengthy discussion centered on whether the proposed transaction would convert GHMSI into a for-profit corporation, a conversion that could jeopardize GHMSI's public assets. Although the transaction was not subject to HMSCRA at that point, GHMSI intended to become licensed under the Act as part of the transaction. As such, the DISR analyzed the transaction to determine if it would constitute a conversion under HMSCRA. The Agency determined that the transaction would not alter GHMSI's status as a non-profit corporation, and that there would be extensive and sufficient regulatory oversight to protect improper future corporate maneuvers. The Agency then concluded that any discussion of whether GHMSI was a charitable institution subject to a charitable set-aside was therefore premature. Furthermore, in order to ensure that no future conversion could occur without regulatory oversight, the Agency imposed several relevant conditions including: (1) requiring GHMSI to conduct its affairs pursuant to the requirements contained in its federal charter; (2) requiring GHMSI to retain a financial consultant to assist in valuing GHMSI's assets; and (3) requiring CareFirst to amend its articles of incorporation to expressly set forth an obligation to safeguard the assets of GHMSI and to preserve GHMSI's non-profit status. The Commissioner clearly considered petitioners' main contention regarding whether GHMSI's assets required protection after the transaction. In fact, the Agency decision noted that Because the issue of a `charitable set-aside' is central to the analysis of the entire Proposed Transaction, we will consider it first. Relying on the [s]ubstantial testimony presented on the issue, which included testimony by petitioners and documents submitted by the Office of Corporation Counsel, the DISR concluded that GHMSI would not be converted to a for-profit corporation and GHMSI's assets were therefore not at risk; accordingly, it ruled that the issue of whether or not GHMSI is a `charity' does not need to be determined at this time. In the light of this record, we cannot conclude that the DISR committed an error of law or an abuse of discretion, nor do we find that the DISR acted arbitrarily or capriciously. The order addressed petitioners' concerns squarely and thoroughly, and the outcome flowed rationally from findings based on substantial evidence.
Petitioners contend that issues relating to the structuring of executive compensation contracts placed the integrity of GHMSI's officers in question, and that the DISR acted arbitrarily and capriciously and without substantial evidence in affirming the competence, experience, and integrity of those persons who would control the operation of the insurer. D.C.Code § 35-3703(g)(1)(E); see note 7, supra. Petitioners also complain that the DISR issued its order without analyzing the executive compensation contracts firsthand. The contracts about which petitioners complain were those executive compensation contracts that provided for severance pay in case of a change in control of GHMSI. In the order, the Commissioner stated that No evidence or testimony was introduced that would give the DISR any reason to question the integrity of GHMSI's officers. While the record contains some evidence that GHMSI's officers may have placed themselves in a position to profit greatly from the transaction, there is also substantial evidence that the officers' integrity is beyond question. Unhelpful to petitioners' contention is petitioner Newmyer's own testimony which, though attacking GHMSI officers' management abilities and GHMSI policies, was complimentary to GHMSI officers' personal integrity: We have known several members of both boards [GHMSI and BCBSMD] for years. I have known Larry Glasscock [Chief Executive Officer of GHMSI] through civic activities and gotten to know Bill Jews [Chief Executive Officer of BCBSMD] more recently. While I doubt that this testimony will make us better friends, I don't think for a moment that these guys are bad people. The health care industry is riddled with bad actors.... We don't think that the Blues are riddled with bad actors. The Commissioner was aware of the severance pay provisions in the executive compensation contracts, and concluded that the provisions did not adversely affect the GHMSI officers' integrity. To some extent, petitioners' own testimony provided evidence for this conclusion. In addition, to avoid future impropriety, the Commissioner imposed important conditions on the funding of those contracts in order to ensure that the integrity of the officers would remain intact, see, e.g., note 14, infra, and reserved the right to disapprove of the contracts in the future if they were later found to be inappropriate. On this record, we conclude that the Commissioner properly addressed the issue of GHMSI officers' integrity and based his decision on substantial evidence.
Petitioners next claim that the DISR improperly modified its December 23 decision and order, following ex parte communications with representatives of GHMSI and BCBSMD and without notice to petitioners, by issuing the January 16 letter of clarification and interpretation. Because portions of the letter substantively altered the Agency's previous decision and order, we treat it as a separate order which petitioners have properly brought before us for review. We vacate the order because we conclude that it was entered without proper notice and opportunity for participants such as petitioners to be heard. [11] While the Agency is by no means precluded from amending its original decision, it may do so only in accordance with fair procedures. [12] As previously noted, the original Agency order imposed twenty-seven conditions on the consummation of the proposed business combination. Following the issuance of that order, the Agency engaged in ex parte discussions with GHMSI representatives that resulted in a five-page letter by the Agency purporting to be clarifications and/or interpretations relating to the Decision and Order. The letter addressed nine conditions of the order, and also provided a procedure for certain approvals required under the order. All of the proceedings leading up to the letter occurred without affording petitioners notice or participation. An agency is required to maintain an official record in every contested case, [13] and is prohibited from issuing any decision or order in such a case except upon consideration of such exclusive record. D.C.Code § 1-1509(c). This record-making requirement has the fundamental purpose ... to assure the parties an adequate opportunity, at the administrative proceeding, to challenge and respond to the evidence which forms the basis of the agency's decision. M.B.E. Inc. v. Minority Business Opportunity Comm'n, 485 A.2d 152, 159 (D.C.1984). It is basic to the notion of fairness in administrative proceedings that the mind of the decider should not be swayed by evidence which is not communicated to both parties and which they are not given an opportunity to controvert. Quick v. Department of Motor Vehicles, 331 A.2d 319, 323 (D.C.1975); see American Trucking Assn's v. Frisco Transp. Co., 358 U.S. 133, 145-46, 79 S.Ct. 170, 3 L.Ed.2d 172 (1958) (agency's power to correct inadvertent ministerial errors may not be used as a guise for changing previous decisions because the wisdom of those decisions appears doubtful in the light of changing policies); United States Lines, Inc. v. Federal Maritime Comm'n, 189 U.S.App. D.C. 361, 384-85, 584 F.2d 519, 541 (1978) (It is the obligation of the agency, consistent with its duty to afford a hearing and its responsibility to provide a record for judicial review, to guard against [ ex parte ] contacts.). In this case, portions of the Agency's January 16 letter sought to make substantive alterations to the Agency's December 23 decision and order. [14] This letter was precipitated by ex parte contacts between the Agency and GHMSI that were not made a part of the record or subject to adversarial attack, and we are therefore unable to conduct an appropriate review of the Agency's action. See D.C.Code § 1-1510(a)(3) (this court has power to set aside agency actions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law); United States Lines, supra, 189 U.S.App. D.C. at 383, 584 F.2d at 541 ( Ex parte contacts ... foreclose effective judicial review of the agency's final decision according to the arbitrary and capricious standard of the Administrative Procedure Act.). Treating the January 16 letter as a separate order, therefore, we vacate it. As before, intervenors are free to request substantive revisions of the December 23, 1997 decision and order, but such modifications may be entered by the DISR only after proper notice and opportunity for petitioners to be heard.