Gottschalk v. Hegg

• Decision Date: 02 May 1975
• Docket Number: No. 11301,11301
• Citation: 89 S.D. 89,228 N.W.2d 640
• Parties: Oliver A. GOTTSCHALK, Plaintiff and Appellant, v. Peter Paul HEGG et al., Defendants and Respondents.
• Court: South Dakota Supreme Court

Page 640

228 N.W.2d 640

89 S.D. 89

Oliver A. GOTTSCHALK, Plaintiff and Appellant, v. Peter Paul HEGG et al., Defendants and Respondents.

No. 11301.

Supreme Court of South Dakota.

May 2, 1975.

Lewayne M. Erickson, Brookings, for plaintiff and appellant.

David O. Carter and Galen Vaa, Asst. Attys. Gen., Pierre, for defendants and respondents; Kermit A. Sande, Atty. Gen., on the brief.

DUNN, Chief Justice.

In December 1970, an employee of the South Dakota Real Estate Commission made a routine audit of the Gottschalk Company, Inc., a licensed real estate firm operated by plaintiff Oliver Gottschalk. As a result of the auditor's report, on January 6, 1971, the Commission served plaintiff, a licensed real estate broker, with a notice of hearing in order to investigate certain irregularities in the handling of trust monies. On May 6, 1971, the Commission found that plaintiff had engaged in unprofessional conduct and determined that he be suspended as a real estate broker for six months from that date. The Commission also suspended the license issued to the Gottschalk Company, Inc., for six months.

The present controversy stems from a notice of hearing served on plaintiff by the Commission in January 1972. This proposed hearing, scheduled for February 3, 1972, would have dealt with plaintiff's alleged unprofessional conduct in his handling of certain 'Nelson-Severson' transactions on or about August 15, 1969. This hearing was never held.

Plaintiff filed a complaint on February 1, 1972, in which he prayed for a declaratory judgment, a permanent injunction enjoining the Commission from proceeding on matters which could have been or should have been determined in the prior proceeding and an order staying the pending hearing. Plaintiff obtained a temporary restraining order which continues in effect pending this appeal. In response to a motion to dismiss filed by defendants on March 1, 1972, a hearing was held soon thereafter, and the circuit court subsequently decided to dismiss the action. The trial court reasoned thusly:

'I must prospectively presume the regularity of the acts of a duly empowered administrative board as well as of its members. I believe this to be corollary to the proposition that judicial interference with the administrative process ought to be withheld except where ills cannot otherwise be remedied. In this light, I cannot support plaintiff's cause, which can more adequately and properly be raised on judicial review, following an administrative hearing.'

Plaintiff appeals from the order of dismissal and essentially raises these issues:

(1) Was plaintiff entitled to a declaratory judgment setting forth the rights, status and other legal relations of the plaintiff and defendants with regard to the rules and regulations of the Commission and the South Dakota Administrative Procedures Act?

(2) Will the plaintiff be denied due process of law if the Commission is not prevented from proceeding further against him?

(3) Should the present action be heard in order to determine if the prior administrative hearing is res judicata as to the 'Nelson-Severson' transactions?

Initially, it should be noted that the South Dakota Real Estate Commission is empowered under SDCL 36--21--42 to revoke a license upon proof of unprofessional conduct on the part of the holder. SDCL 36--21--43 requires that revocation proceedings must comply with the administrative procedures established by SDCL 1--26. Plaintiff asked the circuit court and now asks this court to interfere with the administrative process. We decline to do so, and affirm the trial court's similar refusal.

We hold that plaintiff is not now entitled to judicial resolution of his case and rest this decision on fundamental application of the related doctrines known as exhaustion of remedies, primary jurisdiction and ripeness. Drawn into question in this case is our recent decision in Mordhorst v. Egert, 1974, S.D., 223 N.W.2d 501. In Mordhorst we held that administrative remedies before the South Dakota State Board of Examiners in Optometry need not have been exhausted prior to judicial resolution of that controversy. That case does not signal an end to the administrative exhaustion doctrine in our state, nor is the factual situation before us drawn within its ambit.

As Mordhorst noted, exhaustion of remedies is broadly stated as the withholding of judicial relief on a claim or dispute cognizable by an administrative body until the administrative process has run its course. Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638, and Grosz v. Conser, 1951, 73 S.D. 553, 45 N.W.2d 734. The exhaustion principle divides largely into two doctrines, (1) exhaustion of administrative remedies and (2) primary jurisdiction. The distinction has been explained in this manner:

"Exhaustion' applies where a claim is cognizable in the first instance by an administrative agency alone; judicial interference is withheld until the administrative process has run its course. 'Primary jurisdiction,' on the other hand, applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views.' United States v. Western P.R. Co., 352 U.S. 59, 63--64, 77 S.Ct. 161, 165, 1 L.Ed.2d 126, 132.

As was the case in Mordhorst, both doctrines are involved here--primary jurisdiction because plaintiff raises both administrative issues dealing with unprofessional conduct and constitutional issues, and exhaustion of remedies because of the significant action already undertaken by the Commission. It should be stated that the subject matter jurisdiction of the circuit court is not doubted; rather, the question is one of priority or timing of judicial review. Apgar Travel Agency v. International Air Trans. Ass'n, 1952, S.D.N.Y., 107 F.Supp. 706; Davis, Administrative Law Treatise, § 20.01.

Where the legislature has created an administrative body empowered to deal with issues within its expertise, it is apparent that the courts must seek to harmonize their relations with these agencies. The exhaustion principle is the very cornerstone of that harmony. In the recent case of Delzer...