Court Opinion

ID: 1048006
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:51:16.51641+00
Date Added: 2024-06-11T12:05:44.566197
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                 March 25, 2011 Session

 ADMINISTRATIVE RESOURCES, INC. v. TENNESSEE DEPARTMENT
              OF COMMERCE AND INSURANCE

                Appeal from the Chancery Court for Davidson County
                  No. 09-558-IV    Russell T. Perkins, Chancellor

                  No. M2010-01199-COA-R3-CV - Filed June 2, 2011

This case involves judicial review of the Tennessee Department of Commerce and
Insurance’s denial of a staff leasing company license. The trial court reviewed the denial of
the license under the common law writ of certiorari standard and upheld the decision.
Finding that the denial was unsupported by substantial and material evidence, we vacate the
decision of the trial court.

  Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Vacated
                                   and Remanded

R ICHARD H. D INKINS, J., delivered the opinion of the court, in which F RANK G. C LEMENT,
J R. and A NDY D. B ENNETT, JJ., joined.

Robert E. Boston, Mark W. Peters, and Michael T. Harmon, Nashville, Tennessee, and
Arthur M. Fowler, Jr., Johnson City, Tennessee, for the appellant, Administrative Resources,
Inc.

Robert E. Cooper, Jr., Attorney General and Reporter, Joseph F. Whalen, Associate Solicitor
General, and R. Mitchell Porcello, Assistant Attorney General, for the appellee, Tennessee
Department of Commerce and Insurance.

                                         OPINION

I. Facts and Procedural History

       In this certiorari proceeding, Administrative Resources, Inc. (“ARI”) appeals the trial
court’s decision to affirm the Tennessee Department of Commerce and Insurance’s (“DCI”)
denial of ARI’s application for an employee leasing group license. The DCI denied ARI’s
application on the basis of a letter from the Commissioner of the Tennessee Department of
Labor and Workforce Development (“DOL”) stating that ARI owed delinquent
unemployment taxes.

       A.        ARI’s History with the DOL

        From February 1997 until February 2003, Administrative Resources, Inc. (“ARI”) was
licensed as a staff leasing company.1 In the course of resolving unemployment insurance
benefits proceedings in 1999, 2000, and 2002, DOL stated that ARI was a temporary agency
rather than a staff leasing company.2 Due to DOL’s reference to and treatment of ARI as a
temporary agency, ARI allowed its staff leasing company license to lapse.

        DOL audited ARI for the period of July 13, 2004 to April 19, 2005 to determine
whether ARI was in compliance with payroll reporting standards under Tennessee’s
employment security laws. On April 19, 2005 DOL determined that ARI was not in
compliance and that ARI owed delinquent unemployment taxes over $500,000.00 plus
interest. According to ARI’s brief on appeal, DOL later issued a “Redetermination
Decision” in which DOL “took issue with, among other things, the fact that ARI was not
licensed in Tennessee as a [staff leasing company]. . .”, affirmed its assessment of delinquent
taxes, and requested that ARI become re-licensed.3 ARI disputed DOL’s decision and
initiated an appeal of the assessment.4

       1
           A staff leasing company is defined as:

       [an] individual or business that, under an agreement between the client company and the
       leasing company, and for a fee, places all or substantially all of the regular, full-time
       employees of the client company on the leasing company's payroll and leases them to the
       client company on an ongoing basis with no restriction or limitation on the duration of
       employment

Tenn. Code Ann. § 62-43-103(10).
       2
           An entity operating as a temporary agency does not require a staff leasing company license.
       3
           DOL’s Redetermination Decision is not part of the Technical Record of this appeal.
       4
            ARI’s appeal of DOL’s unemployment tax assessment was pending when ARI initiated the
certiorari action giving rise to the instant appeal.

                                                    -2-
        B.      Facts Leading to ARI’s Application for a Staff Leasing Group License

       In a letter dated May 7, 2004, DCI informed ARI that its staff leasing company license
had expired and advised ARI that if it was engaged in employee leasing in Tennessee, it was
“doing so without a valid license.” On June 7, 2004, ARI’s attorney sent a letter to DCI
requesting a copy of the rules and regulations defining a staff leasing company, and asking
which, if any, of four companies5 were licensed as staff leasing companies. On June 9, 2004,
DCI responded by letter to ARI’s attorney, stating that, although none of the four companies
had an active employee leasing license, “Administrative Resources, Inc. has an expired
license.”

      On June 1, 2006, before ARI applied for a staff leasing company license, James G.
Neeley, Commissioner of DOL, wrote an apparently unsolicited letter to Paula Flowers,
Commissioner of DCI, that read in its entirety, as follows:

        This is to request that your Department not reinstate the leasing company
        license of Administrative Resource Incorporated (ARI), or issue licenses to
        any of the names that company has used with our agency listed below:

        ARI/Electronic Components Division
        ARI Payroll Transfers Division
        Human Resources Services Inc.
        Management Resources
        South Gate Salon
        Staffing Solutions Inc.

        In addition, we have learned that the company has used these other names
        which are:

        Blue Ridge Management Services LLC
        Franks LLC
        Management Advisors LLC

        ARI and its related companies owe several hundred thousand dollars in unpaid
        unemployment insurance premiums (taxes), and should not be reinstated or
        licensed without a certificate of clearance from this agency.

        5
          The four companies referenced were: Administrative Resources, Inc., ARI, Inc., Staffing Solutions,
Inc., and Human Resources Services, Inc.

                                                    -3-
On June 7, 2006, DCI’s Assistant Commissioner wrote a letter to Commissioner Neeley
which read as follows:

        I appreciate your taking the time to notify Commissioner Flowers about the
        issues of Administrative Resources incorporated (ARI) as relayed in your letter
        dated June 1, 2006. Commissioner Flowers thanks you for bringing this matter
        to her attention and forwarded it to me for review and response.

        The Employee Leasing Board’s records were searched for the multiple entities
        listed in your correspondence. None of the agencies referenced in your letter
        are currently licensed by the Board. Administrative Resources Incorporated
        (ARI) of Johnson City, Tennessee did hold a license, but it expired in June of
        2003.

        At your convenience, please provide us documentation regarding the issues
        outlined in your letter for our records. We will consider this information if any
        of the named companies apply for licensure in the future. If you have
        documentation that these entities may be practicing without a license, then
        please provide those documents also.

        I hope you find this information useful. If you have any questions or concerns,
        please do not hesitate to contact me or any member of my staff.

DOL provided no documentation to DCI as requested in this letter.

        C.      ARI Applies to Become Relicensed as an Employee Leasing Group

       On April 3, 2007, ARI, Administrative Resources Inc.—Payroll Tranfer Division, and
Blue Ridge Management LLC, jointly applied for a license as a staff leasing group 6 in which
ARI indicated the companies would be “meeting the financial requirements on a consolidated
basis” and would “supply the financial statements and information with fifteen (15) days of
the date appearing on a notification that the applicant has met all other requirements to obtain
a license.” The entities submitted corporate documents from the Secretary of State’s office
and a “Staff Leasing Group Guaranty Agreement” where ARI pledged to “guaranty the debts
and obligations arising out of the operation of each staff leasing company in the group with

        6
         A “staff leasing group” is defined as “two (2) or more, but no more than (5), corporate staff leasing
companies each of which are majority owned by the same ultimate parent, entity, or person.” Tenn. Code
Ann. § 62-43-103(11).

                                                     -4-
respect to wages, employment taxes, insurance premiums and employee benefits of each
other staff leasing company within the group.”

       On or about May 22, 2007, ARI submitted its financial documentation; DCI, however,
was unable to accept the statements because they were not compiled according to general
accounting principles as required by Tenn. Code Ann. § 62-43-108. ARI was notified of the
discrepancy. On August 9, Commissioner Neeley sent a letter to Commissioner Newman of
DCI, stating: “This is to request that your Department not reinstate the leasing company
license of Administrative Resource Incorporated (ARI) . . . ARI and its related companies
owe several hundred thousand dollars in unpaid unemployment insurance premiums (taxes)
and should not be reinstated or licensed without a certificate of clearance from this agency.”
On August 20, ARI re-submitted a Statement of Assets, Liabilities and Stockholders’ Equity
in support of its application for the license.

       On August 24, 2007, Judy Elmore, an employee of DCI, sent a Memo to the Assistant
Commissioner of DCI with a subject line stating “Registration Approval: Administrative
Resources, Inc. / Administrative Resources Payroll Transfer Div.” The memo stated that
ARI “met the following minimum requirements[7 ] for registration as a Staff Leasing Group
in the State of Tennessee . . . [t]herefore I am making the recommendation for approval.”
The word “approval,” however, was marked through, and the word “denial” was hand-
written above it.8

       7
           The minimum requirements listed in Mrs. Elmore’s letter were as follows:

       1) A completed, signed and notarized application and required application fee of two-
       hundred-fifty dollars ($250). . . .
       2) An accounting net worth of at least twenty-five ($25,000) dollars or twenty ($20) dollars
       per leased employee not to exceed a total of fifty thousand ($50,000) dollars by providing
       the following:
                (a) Financial statement prepred in accordance with generally accepted accounting
                principles; and
                (b) At least a compilation report prepared by a CPA; and
                (c) Net worth must be established within six (6) months prior to the
                application date; and . . .
                (d) Financial statement shall be attested by the president, CFO and at least one (1)
                control person of the company. . . .
       ...
       4) A certificate of good standing from the Tennessee Secretary of State’s office. . . .
       5) Proof of Worker’s Compensation and Employer’s liability insurance with a current
       expiration date. . . .
       8
           The signature of “Don Trotter” appears under the handwritten modification to the memo. It is
                                                                                               (continued...)

                                                   -5-
       On September 12, 2007 DCI sent a letter denying ARI’s request for a staff leasing
group license on the ground that DOL “has stated this company owes several hundred
thousand dollars in unpaid unemployment insurance premiums (taxes).” The letter advised
ARI that it had sixty days to “submit proof that the reason for denial has been cured” and that
the Assistant Commissioner “would then make a decision as to whether or not the defect has
been cured and whether or not to issue the license.”

        On November 8, 2007, counsel for ARI wrote a letter to DCI seeking to “appeal” the
decision to deny ARI’s application for a staff leasing group license. In the letter, ARI
asserted that the denial was based on “erroneous information furnished [by the DOL]” and
that there was an ongoing administrative proceeding between ARI and DOL regarding the
delinquent taxes ARI allegedly owed. ARI requested “all written correspondence that you
have received from the [DOL] regarding this matter” and suggested that the DCI issue a
“conditional staff leasing license pending a final resolution of the dispute between [ARI and
the DOL].” DCI and ARI were unable to reach an agreement on the terms of a conditional
license. As a result, the DCI Assistant General Counsel informed counsel for ARI by letter
dated January 23, 2009, that DCI could not approve a permanent or conditional license
stating:

        I do not believe this Department can do anything other than to stand behind the
        September 12, 2007 denial decision, given that the reason for denial has still
        not been cured as of present. Under T.C.A. § 62-43-109(a)(5), the
        Commissioner is authorized to deny an application for licensure where a
        person is not of financial responsibility.

The letter further stated, “there is no available appeal or right to any hearing under the
contested case provisions of the Uniform Administrative Procedures Act . . . in the event a
license application is denied under T.C.A. § 62-43-109, and that it is solely the decision of
the Commissioner . . . .”

        D. Chancery Court Proceedings

       On March 24, 2009, ARI filed a Petition for Writ of Certiorari in the Chancery Court
for Davidson County requesting judicial review of the denial of the license under the
statutory writ of certiorari. Following the denial of a motion to dismiss the case, ARI filed
a Motion for Entry of Scheduling Order which requested the court to proceed under the
statutory writ of certiorari. DCI responded to ARI’s motion and contended that the review

        8
            (...continued)
unclear from the record who Don Trotter was or the position he held.

                                                  -6-
should be under the common law writ of certiorari because DCI was performing an
administrative function. The trial court determined that the case would proceed under the
common law writ of certiorari, Tenn. Code Ann. § 27-8-101; the court conducted its review
in accordance with Davidson County Local Rule 25, which governs judicial review of
administrative decisions.

        The trial court subsequently entered a Memorandum and Final Order affirming DCI’s
decision to deny ARI’s application for an employee leasing company license. Specifically,
the trial court found:

      DCI’s failure to specifically state that ARI was not of good financial
      responsibility in its September 12, 2007 notice does not constitute reversible
      error or prejudicial error under the common law writ of certiorari standard. .
      ..

      The Court determines that DCI could properly rely on Commissioner Neeley’s
      letter[] and that it was within the realm of DCI’s authority to consider a
      disputed determination of several hundred thousands of unpaid premiums or
      taxes as a basis for concluding that ARI was not of good financial
      responsibility for licensure purposes. . . .

      The Court concludes that DCI could rely on the DOL’s determination on the
      financial responsibility issue.

The court denied ARI’s request for attorneys fees and taxed court costs against ARI.

      ARI appeals raising the following issues for our review:

      1.     Whether the trial court erred in determining that the decision of the DCI
             denying ARI a staff leasing group license was supported by substantial
             and material evidence?
      2.     Whether the trial court erred in determining that the DCI’s decision was
             not arbitrary and capricious?
      3.     Whether the trial court erred in determining that the DCI followed the
             statutory requirements for denying the license?
      4.     Whether the trial court erred in refusing to hear the matter under the
             statutory writ of certiorari?

                                            -7-
II. Discussion

       At the outset, we address ARI’s contention that the trial court erred in reviewing this
case under the common law writ of certiorari. ARI posits that the statutory writ of certiorari
applies because DCI performed a “judicial” function when denying ARI’s application for a
license. DCI defends the trial court’s utilization of the common law writ of certiorari,
contending that, in denying ARI’s application, DCI was administering and enforcing laws
and did not decide a controversy arising under those laws.

       In Tennessee, there are two types of writs of certiorari: (1) the common law writ,
codified at Tenn. Code Ann. § 27-8-101 and (2) the statutory writ, codified at Tenn. Code
Ann. § 27-8-102. Our Supreme Court has recognized that determining “whether an appeal
of an administrative body’s decision falls within a common law or statutory writ of certiorari
can be a complex [question].” Tenn. Waste Movers, Inc. v. Loudon County, et al., 160
S.W.3d 517, 520 n.2 (Tenn. 2005). In the absence of a statute expressly granting review
under the statutory writ, review under Tenn. Code Ann. § 27-8-102 is available to review
an administrative agency’s decision only if the following three requirements are met: “(1) the
order of the administrative body of which review is sought is one for which no judicial
review is provided; (2) the function performed by the lower tribunal is essentially judicial in
nature; (3) the order for which review is sought finally determines the rights of the
petitioner.” Ben H. Cantrell, Review of Administrative Decisions by Writ of Certiorari in
Tennessee, 4 M EM. S T. U. L. R EV. 19, 27 (1973); see also Buford v. Tenn. Dept. of
Correction, No. M1998-00157-COA-R3-CV, 1999 WL 1015672, at *4 (Tenn. Ct. App.
November 10, 1999) (adopting the three-part test for the statutory writ of certiorari outlined
in Judge Cantrell’s article). Where an agency is performing an administrative function,
review under the common law writ is appropriate, since review under the statutory writ
would violate the doctrine of separation of powers. Cantrell, supra, at 21. Of necessity,
then, we consider the statutory framework of the decision at issue.

        Tenn. Code Ann. § 62-43-108 requires that a staff leasing company be licensed and
that an applicant meet certain minimum standards. Pursuant to Tenn. Code Ann. § 62-43-
109(a)(5), the Commissioner of DCI is authorized to deny an application for a staff leasing
company license “upon a finding that any person named in the application is not of good
moral character, business integrity or financial responsibility.” Where an applicant is denied
a license, § 62-43-109(b) provides that the applicant “shall have sixty (60) days . . . to submit
proof that the reason or reasons for denial have been cured . . . .” There is no opportunity for
the applicant to contest the basis of the denial decision or to otherwise show compliance with
the minimum standards unless the Commissioner requests additional information as
authorized at Tenn. Code Ann. § 62-43-108(b)(1)(G). Likewise, the decision for the
Commissioner, once any supplemental information has been provided, is “whether or not the

                                               -8-
defect or defects have been cured and whether or not to issue the license.” Tenn. Code Ann.
§ 62-43-109(b). Considering the foregoing, the function of the Commissioner is to receive
the application and make a determination of whether the applicant meets the minimum
qualifications. If the Commissioner denies the application, the applicant is allowed sixty
days to show that the reasons for the denial have been cured and, if the Commissioner
determines that further information is needed, the applicant is afforded the opportunity to
provide such information. The license application procedure, in form and substance, is
administrative, not judicial; consequently, review by common law writ of certiorari is
appropriate.

        Under the common law writ, the decision of the lower tribunal will only be set aside
if it “exceeded its jurisdiction or acted, illegally, fraudulently, or arbitrarily.” Leonard
Plating Co. v. Metro. Gov't of Nashville & Davidson County, 213 S.W.3d 898, 903 (Tenn.
Ct. App. 2006) (citing Turner v. Tenn. Bd. of Paroles, 993 S.W.2d 78, 80 (Tenn. Ct. App.
1999); Daniels v. Traughber, 984 S.W.2d 918, 924 (Tenn. Ct. App. 1998)). Review under
a common law writ “does not extend to a redetermination of the facts found by the board or
agency whose decision is being reviewed.” Id. Rather, the courts must review the record to
determine whether there is any material evidence to support the decision; “a decision without
evidentiary support is an arbitrary one.” Id. at 904 (citing Watts v. Civil Serv. Bd. for
Columbia, 606 S.W.2d 274, 276–77 (Tenn. 1980); Lewis v. Bedford County Bd. of Zoning
App., 174 S.W.3d 241, 246 (Tenn. Ct. App. 2004); Lafferty v. City of Winchester, 46 S.W.3d
752, 759 (Tenn. Ct. App. 2000); Sexton v. Anderson County, 587 S.W.2d 663, 667 (Tenn.
Ct. App. 1979)). For the purpose of this inquiry, “material evidence” is relevant evidence
that a reasonable person would accept as adequate to support a rational conclusion. Id. (citing
Lafferty v. City of Winchester, 46 S.W.3d at 759; Hedgepath v. Norton, 839 S.W.2d 416, 421
(Tenn. Ct. App. 1992); Pace v. Garbage Disposal Dist., 390 S.W.2d 461, 463 (Tenn. 1965)).
This Court employs the same limited standard of review used by the trial court. See Wright
v. Tenn. Peace Officer Standards & Training Comm'n, 277 S.W.3d 1, 8 (Tenn. Ct. App.2008)
(citing Ware v. Greene, 984 S.W.2d 610, 614 (Tenn. Ct. App.1998).

       ARI contends that Commissioner Neeley’s June 1, 2006 letter to DCI regarding ARI’s
allegedly unpaid unemployment insurance premiums was not substantial and material
evidence in support of the decision to deny the license.9 DCI asserts that its decision to deny
ARI’s application was not arbitrary because Commissioner Neeley’s letter was evidence of
ARI’s financial irresponsibility. We find that the letter was not substantial and material

        9
          The June 1, 2006 and August 9, 2007 letters from Commissioner Neeley were, in substance, the
same, and the letter to ARI advising of the denial of its application for a license does not reference the date
of the letter from Commissioner Neeley upon which the denial is based. The date of the letter is
inconsequential in light of our disposition of this appeal.

                                                     -9-
evidence upon which DCI could determine that ARI was not financially responsible, giving
due consideration to the provisions of Tenn. Code Ann. § 62-43-108(b)(1)(G).

        In response to Commissioner Neeley’s letter, the Assistant Commissioner of the DCI
requested “documentation regarding the issues outlined in [Commissioner Neeley’s] letter
for our records” in anticipation that the information would be considered in the event ARI
or its related companies would apply for a license in the future. DOL did not provide any
documentation to support Commissioner Neeley’s statement. We agree with DCI’s argument
that “it is not unreasonable for a state agency to rely upon the findings of another state
agency” and that the DCI could have considered proper documentation of the DOL’s
assessment in determining whether ARI was financially responsible. The record, however,
does not show that DCI ever received the documentation regarding the assessment of unpaid
unemployment insurance premiums or the findings upon which DOL based the assessment.
The mere assertion that ARI owed unpaid taxes does not, in and of itself, show lack of good
moral character, business integrity, or financial responsibility and the record lacks the
quantum of evidence necessary to support the denial of ARI’s application. See Leonard
Plating, 213 S.W.3d at 904 (“The amount of material evidence required to support a board's
or agency's decision must exceed a scintilla of evidence but may be less than a preponderance
of the evidence.”)

        Moreover, the decision to deny the license was made notwithstanding the
determination of Ms. Elmore that ARI met the minimum requirements for licensure and her
recommendation that the license be granted. Tenn. Code Ann. § 62-43-108(b)(1)(G)
provides that “[t]he applicant shall provide other information that the commissioner deems
necessary to show that the applicant and each controlling person is a person of good moral
character, business integrity and financial responsibility.” In administering the statute, the
Commissioner failed to afford ARI the opportunity to provide information relative to the
DOL assessment prior to making its determination that ARI was not financially responsible.10
In light of the Commissioner’s reliance on the DOL letter and the failure of DOL to provide
supporting information the decision to deny the license was arbitrary.

        We are mindful that we are not permitted to “(1) inquire into the intrinsic correctness
of the lower tribunal's decision, (2) reweigh the evidence, or (3) substitute their judgment for
that of the lower tribunal,” Leonard Plating. 213 S.W.3d 898 at 903; we hold only that the
evidence does not support the denial of the license on the record presented and was,

        10
          Under the facts and circumstances of this case, an appropriate consideration for the Commissioner
might be whether ARI meets the minimum standards in the event the DOL assessment is upheld in the
pending appeal.

                                                   -10-
therefore, arbitrary. ARI is entitled to a thorough review of its application, including
consideration of evidence which demonstrates its compliance or lack of compliance with the
standards set forth in the statute. For this reason, we vacate the decision of the trial court and
remand the case with instructions that it be remanded to DCI for reconsideration based on
the existing record and such other evidence of any defect in ARI’s application or
qualification for a license which the Commissioner deems worthy of consideration. In the
event the Commissioner deems it necessary that ARI provide further information to support
its application, such request should identify particular area(s) of concern with sufficient
specificity to allow ARI to comply with Tenn. Code Ann. § 62-43-108(b)(1)(G).

III. Conclusion

        For the foregoing reasons, the decision of the trial court is vacated and is remanded
to the trial court with instructions to return the case to the DCI for further action consistent
with this opinion.

                                                     _________________________________
                                                     RICHARD H. DINKINS, JUDGE

                                              -11-