Vol. 83, No. 7, July 2010
Many Wisconsin individuals and families rely on benefits, licenses, and permits to maintain an income. Administrative decisions to deny or terminate those governmental benefits are important decisions that can severely affect our clients’ lives. Because of their import and the protected-property interests that are often implicated, many initial agency decisions are subject to review by hearing officers, review boards, or administrative law judges (ALJs). Those decisions, in turn, are subject to judicial review. Circuit court and appellate court judges will not substitute their judgment for an administrative body’s findings but will determine if the agency findings are supported by substantial evidence and whether the agency correctly applied the law.1 An important aspect of administrative law is the legal-residuum rule.
The legal-residuum rule holds that uncorroborated hearsay evidence alone does not constitute substantial evidence to support an administrative hearing decision. Administrative hearing officers might mistakenly overlook this rule because agencies tend to rely on hearsay evidence (such as forms, letters, court Web sites, other agencies’ Web sites, and workers’ notes) when making initial eligibility determinations. In 2005, in Gehin v. Wisconsin Group Insurance Board,2 the Wisconsin Supreme Court recognized Wisconsin’s long history of requiring agencies to apply the legal-residuum rule. In 2010, the Wisconsin Court of Appeals reaffirmed Wisconsin’s commitment to this rule, in Williams v. Housing Authority of City of Milwaukee.3
This article discusses agency reliance on hearsay evidence in an administrative hearing when an essential agency finding is disputed. An equally important side issue also is addressed: whether an agency can rely on a municipal-ordinance default judgment as evidence or admission of the allegations in the underlying citation.
The Legal-residuum Rule in Wisconsin
Wisconsin courts first adopted the legal-residuum rule in 1939 in Folding Furniture Works v. Wisconsin Labor Relations Board.4 In that case, the Wisconsin Supreme Court was disturbed by the hearsay evidence relied on by the Wisconsin Labor Relations Board and, relying on the U.S. Supreme Court decision in Consolidated Edison Co. v. NLRB, the Wisconsin court held that “mere uncorroborated hearsay or rumor does not constitute substantial evidence.”5 Until recently, Wisconsin courts have followed Folding Furniture without question and have consistently upheld the application of the legal-residuum rule requiring administrative agencies to base essential findings on more than uncorroborated hearsay.6
In Gehin v. Wisconsin Group Insurance Board, the Wisconsin Supreme Court was asked to revisit the legal-residuum rule. To understand why the rule was questioned, one must review the U.S. Supreme Court’s 1971 decision in Richardson v. Perales.7
Richardson v. Perales. In Perales, the Court held that the Social Security Administration’s (SSA’s) ALJs could rely solely on hearsay medical reports in making eligibility determinations for disability benefits. The Perales Court weighed several factors and found that the medical reports relied on by the SSA had sufficient indicia of reliability to collectively make them probative and substantial evidence. The factors relied on by the Perales Court included the assumed lack of bias of the medical personnel creating the reports, the first-hand knowledge of the medical personnel creating the reports obtained by examining the disability applicant, the applicant’s right to subpoena the report’s author, the fact that the reports (by different authors) corroborated each other, and the fact that certified medical reports usually are admissible in courts as exceptions to the hearsay rules. The Court also considered the vastness of the Social Security disability program when it held that the SSA could rely on hearsay medical reports in making eligibility determinations for benefits.
Gehin v. Wisconsin Group Insurance Board. Following Perales, the Wisconsin Supreme Court was asked to reevaluate the application of the legal-residuum rule to medical records in the context of terminating income-continuation benefits.8 In 1992, Luann Gehin injured her back while working as a housekeeper at the U.W. Hospital in Madison. After going on medical leave, she filed a claim for long-term income-continuation benefits. Her claim was initially granted, but her benefits were terminated in 1998 after the Wisconsin Group Insurance Board determined that she was able to work. In 2005, Gehin sought review of an unpublished decision of the court of appeals affirming the Wisconsin Group Insurance Board’s decision to terminate her income-continuation benefits. The court of appeals, relying on Perales, had upheld the board’s findings regarding the extent of Gehin’s disability and her ability to work full time. Those findings were based solely on uncorroborated hearsay medical reports.
On review, the Wisconsin Supreme Court reversed the court of appeals and rejected the Perales standard for Wisconsin state agencies. The supreme court reaffirmed Wisconsin’s commitment to the legal-residuum rule, stating “[u]pon 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.”9 The Gehin court did not preclude the possibility that a case could arise in the future to convince the court to create an exception to the legal-residuum rule, but the court held that Gehin was not such a case.
Despite what appears to be a clear affirmation of the legal-residuum rule, a 2005 Wisconsin Lawyer article entitled “Hearsay in Administrative Hearings” argued that under the Wisconsin Supreme Court decision in Gehin, Wisconsin administrative agencies are not required to strictly apply the legal-residuum rule.10 The author stated that Gehin should not be read as an endorsement of the legal-residuum rule because the Gehin decision was fact specific and included the statement that “corroboration of hearsay is not always required in administrative proceedings.” Further, the author argued that the lengthy rendition of the facts in Gehin created a new, albeit undefined, weighing methodology to determine whether corroboration of hearsay evidence is necessary. Stating that a post-Gehin legal-residuum rule is at best “fuzzy, loosely applied, and subject to exceptions,” the article concluded that the legal-residuum rule will probably not be applied to all uncorroborated hearsay, and that if it were applied, agency proceedings would become inaccessible and unaffordable.
Williams v. Housing Authority of City of Milwaukee. Some attorneys disagreed with the above analysis of Gehin. For them, Gehin had clearly confirmed the application of the legal-residuum rule by rejecting the option of making an exception to the rule for medical reports, despite those reports’ traditional indicia of reliability. Gehin specifically holds that decisions cannot be based on uncorroborated hearsay, even if that hearsay would be admissible in court as an exception to the hearsay rule.11 Further, the Gehin court’s statement that corroboration is not always required is made out of concern for pro se claimants, not agencies, and is followed by the court’s suggestions that parties use stipulations of fact and agreements to permit reliance on hearsay, not by comments concerning disputable exceptions to the rule.
That reading of Gehin formed the basis for the plaintiff’s argument in Williams v. Housing Authority of City of Milwaukee. In 2007, Williams applied for rent assistance through the city of Milwaukee’s Housing Choice Voucher Program.12 Her application was denied following a criminal background check. The grounds for the denial were two 2004 municipal court default convictions for disorderly conduct and assault and battery.
Williams requested an informal hearing to contest the denial, and the hearing was held before the housing authority’s hearing officer. The housing authority offered two pieces of evidence – the print-outs from the municipal court’s Web site showing default judgments for disorderly conduct and for assault and battery.
The citations were issued to Williams following a 2004 incident at the Milwaukee restaurant where she worked.13 On the back of the citations, the issuing officer recorded Williams’ manager’s statement regarding the incident. The manager said that Williams had shouted profanities, struck her with a phone, slapped her in the face, and knocked items off the countertop. Williams left the restaurant before the officer arrived, and the officer did not speak with Williams before issuing the citations.
Williams went to municipal court to contest the citations, but the complainant, her former manager, did not appear. The matter was adjourned. Williams did not appear at the second court date because she had lost her job, was homeless, and was living in a shelter. There is no record of whether the former manager appeared for the second court date. When Williams failed to appear, the municipal court entered a no-contest plea and found her guilty upon default judgment.
April Hartman, U.W. 2007, is a staff attorney in Legal Action of Wisconsin’s Milwaukee office. Legal Action of Wisconsin represented the plaintiff in Williams v. Housing Authority of City of Milwaukee in the circuit court and court of appeals.
Williams’ testimony at the rent-assistance hearing contraverted the police officer’s notes on the back of the citations. Williams testified that while she was calling for a ride home after being fired, her former manager came back and hung up the phone. According to Williams, her manager started grabbing her, pulling her, and yelling at her to get out and then blocked Williams’ exit. Williams denied slapping, hitting, or pushing her manager. She also implicitly denied yelling profanities and threatening her manager, when she stated that she asked her manager to “please get [her] hands off of me.”
In October 2007, the housing authority issued a written decision upholding Williams’ rent-assistance denial. Specifically, the housing authority found the following:
“[Williams] displayed extremely disturbing behavior in a public place, distressing the customers. She also made threats of bodily harm to the restaurant manager and hit her with the telephone, per the citation. [Williams] claimed that she did not become violent towards the manager; however, [Williams] did not appear in court to dispute it. As such, the denial shall be upheld.”
Williams filed a complaint for certiorari review in circuit court, arguing that the decision was based entirely on the uncorroborated hearsay allegations in the citations. The circuit court reversed the housing authority’s decision. Thereafter, the housing authority appealed.
In a published opinion issued on Dec. 22, 2009, the District I Wisconsin Court of Appeals affirmed the circuit court’s reversal, holding that the housing authority lacked sufficient evidence to support its decision because it relied solely on uncorroborated hearsay. The court of appeals also held that a default judgment on a municipal ordinance violation is not relevant to, and therefore not evidence of, the allegations stated in the municipal ticket.
Applying Gehin, the court of appeals in Williams clearly held that the legal-residuum rule should be strictly applied by Wisconsin administrative agencies. The Williams court held, without qualification, that “uncorroborated hearsay evidence, even if admissible, does not by itself constitute substantial evidence.”14 In its decision, the Williams court, citing Gehin extensively, noted the inherent unreliability of hearsay evidence. The court held that even if the hearing officer had found Williams’ testimony not credible, the responding officer’s written recollection of what a witness told him Williams said was not, by itself, sufficient evidence.
The court noted that the Gehin holding may be read as limited to controverted evidence, and the court specifically found that Williams’ testimony disputed the hearsay allegations in the citations. Later in the Williams decision, however, when the court discussed the housing authority’s claim that Gehin applies only to medical records, the court noted Wisconsin’s long-standing history of applying the legal-residuum rule, concluding that the Gehin decision did not create the legal-residuum rule, but instead applied the rule to medical records in a state agency context. The Gehin and Williams decisions left open the questions of whether uncorroborated hearsay is sufficient evidence if it is not controverted by live testimony, and whether the live, controverting-testimony requirement applies only to medical records and other hearsay that has traditional indicia of reliability.
Default Judgments in Municipal Court are Not Corroborating Evidence
Another significant issue in the Williams case was whether Williams’ failure to appear for her second municipal court date was an admission to the behaviors alleged in the citation. The court reviewed the issue de novo and held that Williams’ municipal default judgments for disorderly conduct and assault and battery did not amount to admissions of guilt.15
In Wisconsin, when a defendant fails to appear for a municipal court date, the court may enter a no-contest plea on behalf of the defendant. By law, a no-contest plea is not evidence of guilt and is not an admission. Therefore, default convictions of municipal-ordinance violations (and, by analogy, municipal convictions based on a defendant’s no-contest plea) cannot be used by administrative agencies as proof of the allegations stated in the citations.
This holding is significant for benefit recipients and applicants, particularly in the subsidized housing context. No-contest pleas in municipal cases involving allegations of disorderly conduct are used routinely as the basis for denying or terminating housing benefits. This reliance on default judgments, however, disregards reality. Defendants in municipal cases fail to appear for a myriad of reasons, and when they do appear they often are told that if they enter a no-contest plea, the fine will be lowered and the conviction will not appear on their “records.” Defendants in municipal cases are not informed of the potential collateral consequences of municipal civil convictions. Most defendants would not imagine that entering a no-contest plea to a citation or failing to appear would cause a subsidized housing provider to deny their families benefits years later. The Williams court recognized this reality and prohibited reliance on municipal-ordinance-violation default judgments as proof of the underlying allegations.
It seems that the main objection agencies have to applying the legal-residuum rule is that it is time consuming and requires agencies to expend limited resources. Wisconsin agencies are extremely busy and strapped for resources. (For example, between the end of 2008 and the end of 2009, the number of families enrolled in Wisconsin’s FoodShare program increased by 40 percent.16 In October 2009, 11,500 former employees of large businesses applied for jobless benefits.17 Many Wisconsin homeowners are facing a foreclosure crisis, and an increasing number of families that rent housing are facing evictions and homelessness.)
Although the legal-residuum rule must be applied in every case, spending time and resources to obtain third-party corroboration of hearsay will probably not be necessary in all, or even most, agency cases. Many benefit applicants and participants will corroborate hearsay with their own admissions, especially if a hearing officer asks well-crafted and pointed questions. Many will not even ask for a review of the agency decision if the underlying allegations are true and meaningful. If an applicant or participant takes the time, however, to request a hearing, shows up for the hearing, takes an oath that he or she will be honest, and disputes the agency’s initial finding, in many cases an agency could presume that the person’s testimony is more credible than hearsay evidence and therefore not spend agency resources trying to corroborate hearsay allegations. If the person making the allegation is not willing to voluntarily appear to testify at an administrative hearing, his or her allegations should be easily dismissed.
Corroboration also will not be necessary when an agency has a substantial issue-preclusion argument. Examples include someone who has entered a guilty plea to a crime, or someone who has been found guilty of a crime by a judge or jury, or when a civil case involving the issue was actually litigated.
More important, the time and resources spent corroborating hearsay are time and resources that are well spent. Today’s troubled economy highlights the importance of sound agency decisions based on reliable evidence. The wrongful denial or termination of benefits, licenses, certifications, or permits can have a devastating effect on Wisconsin families, individuals, and businesses. It should not be easy to deny or terminate a benefit, license, certification, or permit. Requiring corroboration of hearsay evidence protects against agency mistakes and arbitrary decisions. Applicants, licensees, and program participants should have the opportunity to confront their accusers before losing income-maintaining benefits. A process that does not include cross-examination and only permits one-sided credibility determinations is fundamentally unfair.
The Williams decision reminds agency decision-makers that the relaxed evidentiary rules for administrative hearings are not meant to permit decisions based solely on unreliable evidence, such as unsubstantiated allegations and default municipal convictions.18 The Williams decision requires adherence to the legal-residuum rule and holds that no-contest pleas in municipal proceedings are not admissions or evidence of guilt. Wisconsin agencies must ensure they have substantial evidence to support their decisions.