Industrial Claims Appeals Office v. Flower Stop Marketing Corp.

• Decision Date: 30 October 1989
• Docket Number: No. 88SC370,88SC370
• Citation: 782 P.2d 13
• Parties: INDUSTRIAL CLAIMS APPEALS OFFICE, Petitioner, and William B. Kilgore, Claimant, v. FLOWER STOP MARKETING CORPORATION, Respondent.
• Court: Colorado Supreme Court

Page 13

782 P.2d 13

INDUSTRIAL CLAIMS APPEALS OFFICE, Petitioner and William B. Kilgore, Claimant, v. FLOWER STOP MARKETING CORPORATION, Respondent.

No. 88SC370.

Supreme Court of Colorado En Banc.

Oct. 30, 1989.

Duane Woodard, Atty. Gen., Charles B. Howe, Chief Deputy Atty. Gen., Richard H. Forman, Sol. Gen., and Karen E. Leather, Asst. Atty. Gen., Denver, for petitioner.

Gregory John Hock, Colorado Springs, for respondent.

Justice MULLARKEY delivered the Opinion of the Court.

The Industrial Claims Appeals Office (panel) determined that claimant William Kilgore had been improperly denied unemployment compensation benefits because the decision of the referee was based solely on hearsay evidence contrary to Sims v. Industrial Commission, 627 P.2d 1107 (Colo.1981). The claimant's employer, Flower Stop Marketing Corporation (Flower Stop), appealed and the court of appeals in Flower Stop Marketing Corporation v. Kilgore, 762 P.2d 747 (Colo.Ct.App.1988), held that Sims was no longer applicable to unemployment compensation cases. The court set aside the panel's order and remanded the case to the panel for further proceedings consistent with this court's opinion in Colorado Department of Revenue v. Kirke, 743 P.2d 16 (Colo.1987), which allowed the use of hearsay statements alone to establish an element of a case for revocation of a driver's license.

We granted certiorari to determine whether the court of appeals erred in ruling that this court's opinion in Kirke overruled Sims with regard to unemployment compensation cases and whether the court should have remanded the case for further factual determination. We affirm the appeals court's application of the Kirke standard to unemployment compensation cases. We reject its order remanding the case to the panel for further proceedings. Because the hearsay evidence lacked any indicia of reliability and trustworthiness and no other competent evidence supported the denial of benefits, the panel properly ordered the award of benefits to the claimant.

I.

The claimant Kilgore, a delivery man for Flower Stop, was fired after the company received complaints concerning his driving. After his job was terminated, Kilgore applied for unemployment insurance benefits. The deputy concluded that Kilgore was entitled to a full award of benefits pursuant to section 8-73-108(4), 3B C.R.S. (1986) because the claimant denied the employer's allegations of reckless driving and because there was evidence that the claimant was a good driver. Flower Stop appealed the deputy's decision. At the subsequent hearing, the referee found that Kilgore was at fault in his separation from employment and reversed the deputy's award of benefits. The referee's decision was based solely on hearsay statements of unidentified individuals who had complained to the employer; these statements were not written, signed, or sworn, and the individuals did not appear at the hearing. Rather, the statements came into evidence through the testimony of a Flower Stop employee.

On appeal, the panel reversed the referee's decision. The panel concluded that the referee's decision had been based purely on hearsay statements and that the claimant had denied the accuracy of the statements. Therefore, pursuant to Sims, the panel held that unemployment insurance benefits could not be denied solely on the basis of hearsay evidence.

The court of appeals reversed the panel's final order. The court held that Kirke overruled Sims and thus, hearsay evidence alone could be the basis for a decision in an unemployment compensation case if the hearsay evidence satisfied certain criteria. The court remanded the case for a determination of whether the admitted hearsay was trustworthy and reliable and whether the hearsay was of such weight as to support the hearing officer's decision.

II.

The underlying issue in this case is whether anonymous complaints concerning the claimant's driving can constitute substantial evidence supporting the denial of unemployment compensation benefits pursuant to section 8-73-108(5)(e)(XX), 3B C.R.S. (1986). Prior to Kirke, this court applied the residuum rule in reviewing administrative decisions. ¹ The residuum rule, adopted by this court in Sims, 627 P.2d 1107, required that any administrative determination be based on some non-hearsay evidence regardless of the reliability of the hearsay evidence admitted to support the administrative determination. Sims, 627 P.2d at 1111.

Sims was also an unemployment compensation case involving an employee who was alleged to be a poor driver. Sims' job termination was based upon the alleged decision by his employer's liability insurance carrier not to continue coverage for Sims or to assume any liability for damages resulting from Sims' actions while driving company vehicles. However, at the hearing before the referee, the only evidence of the carrier's action was the employer's testimony summarizing a telephone conversation between a representative of the employer and a nonappearing agent of the carrier.

This court held in Sims that the evidence was insufficient to deny unemployment compensation benefits to the employee. It noted that none of the rules of evidence would allow receipt of such evidence and concluded that: "Although there may be situations in which it is proper for hearsay testimony to be presented during a hearing before a referee, such hearsay evidence alone cannot support a determination reducing or denying an award of unemployment benefits." Sims, 627 P.2d at 1111 (emphasis added). In Kirke, we overruled our holding in Sims "[t]o the extent that Sims might be interpreted to hold that any administrative determination must be based on some nonhearsay evidence, regardless of the reliability of hearsay evidence that has been admitted." Kirke, 743 P.2d at 22 (emphasis in original). Thus, we held that the residuum rule need not be applied to drivers' license revocation hearings under section 42-2-122.1, 17 C.R.S. (1984), due to the "unique nature" of such hearings.

In reaching our conclusion in Kirke, we determined that the Colorado Administrative Procedure Act (APA), section 24-4-105(7) was the controlling norm. ² Based on the language of the APA and due process principles we held that "the use of only hearsay evidence to establish a revocation element does not deny the licensee due process, as long as the hearsay is sufficiently reliable and trustworthy, and as long as the evidence possesses probative value commonly accepted by reasonable and prudent persons in the conduct of affairs." Kirke, 743 P.2d at 21. Therefore, the APA provision specifically authorizes the hearing officer to receive evidence which ordinarily is not admissible under the rules of evidence. The evidence in Kirke consisted of testimony by a fellow police officer as to the contents of another officer's report and was sufficient to satisfy the standards required by the APA.

In this case, the court of appeals determined that "[w]hile the provisions of the APA are not applicable to hearings involving unemployment compensation benefits, the Employment Security Act itself contains provisions identical to the APA provisions referred to in Kirke." Flower Stop Marketing Corp., 762 P.2d at 749. Section 8-74-106(1)(f)(II), 3B C.R.S. (1986) of the Employment Security Act provides that a hearing officer may receive otherwise inadmissible evidence, "if such evidence possesses probative value commonly accepted by reasonable and prudent men in the conduct of their affairs." Thus, the court could discern no substantial difference between the statutory standard to be applied in driver's license revocation proceedings and the standard required for unemployment compensation cases. Consequently, the court held that the residuum rule was not applicable to unemployment compensation cases, and that Sims was necessarily overruled for such cases.

It is now well settled that hearsay evidence alone may be used to establish an element at a driver's license revocation hearing. See Kirke, 743 P.2d 16 (Colo.1987); Colo. Div. of Revenue v. Lounsbury, 743 P.2d 23 (Colo.1987); Charnes v Lobato, 743 P.2d 27 (Colo.1987); Heller v. Velasquez, 743 P.2d 34 (Colo.1987). However, we have not addressed the applicability of this proposition to other administrative hearings.

In Schaffer v. Colorado Department of Social Services, 759 P.2d 837 (Colo.Ct.App.1988), the court of appeals applied the Kirke standard of review to the Department of Social Services' decision to terminate a recipient's nursing home Medicaid benefits. The evidence in Schaffer consisted of reports prepared by two registered nurses and the data underlying the assessments were of the kind customarily relied upon by medical professionals. Furthermore, the recipient had the right to present contrary evidence and to subpoena the nurses for cross-examination concerning the contents of their reports.

The court in Schaffer found support for its holding in Kirke and in Richardson v. Perales, 402 U.S. 389, 91 S.Ct. 1420, 28 L.Ed.2d 842 (1971). In Perales, the Court upheld the use of hearsay reports prepared by physicians in social security disability hearings. The court found that the reports of five medical specialists contained strong indicia of reliability because the physicians were disinterested witnesses who routinely prepared such reports, and the reliability of medical reports historically has been accepted in judicial proceedings. Furthermore, although the medical reports were available to the claimant prior to the hearing, the claimant did not subpoena any of the physicians. The Court summarized its holding, stating:

We conclude that a written report by a licensed physician who has examined the claimant and who sets forth in his report his medical findings in his area of competence may be received as evidence in a disability hearing and, despite its hearsay character and in absence of cross-examination, and despite the presence of opposing...