Lewis v. Metropolitan Sav. and Loan Ass'n

• Decision Date: 09 March 1977
• Docket Number: No. B-5998,B-5998
• Citation: 550 S.W.2d 11
• Parties: W. Sale LEWIS, Savings and Loan Commissioner, et al., Petitioners, v. METROPOLITAN SAVINGS AND LOAN ASSOCIATION et al., Respondents.
• Court: Texas Supreme Court

Page 11

550 S.W.2d 11

W. Sale LEWIS, Savings and Loan Commissioner, et al., Petitioners, v. METROPOLITAN SAVINGS AND LOAN ASSOCIATION et al., Respondents.

No. B-5998.

Supreme Court of Texas.

March 9, 1977.

Rehearing Denied May 25, 1977.

John L. Hill, Atty. Gen., Tom M. Pollan, Asst. Atty. Gen., McKay & Wash, John J. McKay, Austin, Kenley, Boyland, Hawthorn, Starr & Coghlan, Herbert Boyland, Longview, for petitioners.

Heath, Davis & McCalla, Dudley D. McCalla, Austin, for respondents.

STEAKLEY, Justice.

This is an appeal from an order of the Savings and Loan Commissioner approving a charter for an additional savings and loan association in Longview, Gregg County, Texas. See Tex.Rev.Civ.Stat.Ann. art. 852a. The applicant, to be known as the Gregg County Savings and Loan Association, is a petitioner here. The application was opposed by three existing savings and loan associations in Gregg County, known as Metropolitan Savings and Loan Association, Kilgore Savings and Loan Association, and Longview Savings and Loan Association. The trial court sustained the approval order of the Commissioner, also a petitioner here, but this judgment was reversed by the Court of Civil Appeals and the proceeding was remanded to the Commissioner with instructions to deny the charter application. 535 S.W.2d 35. We modify the judgment of the Court of Civil Appeals to the extent of instructing the Commissioner to proceed in accordance with this opinion.

The Court of Civil Appeals determined that the contestants, respondents here, were denied due process by the hearing examiner in his exclusion from the administrative record of competent and material evidence proffered by the contestants. ¹ We granted writ of error to resolve the question of whether an approval order of the Savings and Loan Commission is invalid for arbitrariness when the contesting parties are denied due process of law in the conduct of the administrative hearing, notwithstanding that under the record as made, the order may be said to have reasonable factual support under the precepts of the substantial evidence rule. We now answer this question in the affirmative.

It is the basic contention of the Attorney General on behalf of the Commissioner, and of counsel for the applicant association, that the only test to be considered by the courts in determining the issue of arbitrariness vel non of an approval order of the Savings and Loan Commissioner is whether the order is supported by substantial evidence. The argument in effect is that a denial of due process in the administrative hearing becomes immaterial and beside the point if the order can be said to have reasonable evidentiary support in the administrative record.

Broadly speaking, the substantial evidence rule is a court review device to keep the courts out of the business of administering regulatory statutes enacted by the Legislature; but it remains the business of the courts to see that justice is administered to competing parties by governmental agencies. As stated by Professor Davis in his Administrative Law Treatise, Vol. 4, § 29.01: "Although the scope of judicial review of administrative action ranges from zero to one hundred per cent, that is, from complete unreviewability to complete substitution of judicial judgment on all questions, the dominant tendency in both state courts and federal courts is toward the middle position known as the substantial-evidence rule. Under this rule, the court decides questions of law but it limits itself to the test of reasonableness in reviewing findings of fact. Broadly, questions of law include not only common law, statutory interpretation, and constitutional law, but also questions of administrative jurisdiction, of fair administrative procedure, and of protection against arbitrary or capricious action or abuse of discretion."

In Texas, the substantial evidence rule had its origin in appeals from orders of administrative agencies under statutes requiring de novo review in court. In this type of appeal the evidence is heard anew by the court and the conduct of the administrative hearing, and the evidence heard by the agency, are of secondary, if any, importance. Trapp v. Shell Oil Company,145 Tex. 323, 198 S.W.2d 424 (1946); Cook Drilling Company v. Gulf Oil Corporation, 139 Tex. 80, 161 S.W.2d 1035 (1942); Shupee v. Railroad Commission of Texas, 123 Tex. 521, 73 S.W.2d 505 (1934). In practical result, it has not taken much evidence under our decisions to qualify as substantial. In fact, the evidence may be substantial and yet greatly preponderate the other way. Cf. Gerst v. Goldsbury, 434 S.W.2d 665 (Tex.1968). Moreover, most contested administrative decisions are made in the context of disputed facts with evidence of a substantial nature on both sides. Even so, the proceedings of an administrative agency must meet the requirements of due process of law. Miller v. Railroad Commission, 363 S.W.2d 244 (Tex.1962); Railroad Commission v. Alamo Express, 158 Tex. 68, 308 S.W.2d 843 (1958); Francisco v. Board of Dental Examiners, 149 S.W.2d 619 (Tex.Civ.App.1941, error ref'd).

We recognized in Gerst v. Nixon, 411 S.W.2d 350 (Tex.1966) that Article 852a § 11.12, relating to judicial review of an order of the Savings and Loan Commissioner, does not provide for the application of the test or procedures usually employed in determining the validity of an administrative order; and further, that a hearing before a hearing officer of the Savings and Loan Commissioner is a different proceeding from the informal hearing considered by this Court in Cook Drilling Company v. Gulf Oil Corporation, supra. We also said that the effect of Article 852a was to adopt the rule that the Commissioner's order is to stand or fall upon the evidence adduced and matters noticed at the Commissioner's hearing and not upon evidence originally produced at a subsequent trial de novo in court. However, the method of review, i. e., under the substantial evidence rule, is unchanged. Gerst v. Oak Cliff Savings and Loan Association, 432 S.W.2d 702 (Tex.1968). What occurs, then, at the administrative hearing becomes of paramount importance in the statutory procedures established by Article 852a. If there is evidence in an administrative record that can be said to qualify as substantial, the parties may yet have been denied due process and the rudiments of fair play in the conduct of the administrative hearing that produced the record upon which the agency acted. See Reavley, Substantial Evidence and Insubstantial Review in Texas, 23 S.W.L.J. 239 (1969); Berger, Administrative Arbitrariness and Judicial Review, 65 Colum.L.Rev. 55 (1965); Jaffe, The Right to Judicial Review, 71 Harv.L.Rev. 401 (1958).

As indicated earlier, our primary concern in granting writ of error was whether the parties opposing the charter application were denied due process by rulings of the hearing examiner that excluded competent and material evidence from the administrative record, thus precluding its consideration by the Commissioner in his decision process. This is particularly represented by the exclusion from the record of what is identified as Contestant's Exhibit 34, and for the reasons now to be stated we hold that the opposing parties were denied due process by this ruling.

The case of the applicant for a charter to establish a fourth savings and loan association in Longview, Gregg County, Texas, rested principally upon the testimony of Dr. Robert Branson of Bryan, Texas, as an economic-expert witness. It is evident from the approval order of the Commissioner that he was greatly influenced by the testimony of this witness in reaching his decision favorable to the application. It was shown that Dr. Branson had supported similar applications in prior proceedings and that in his testimony he had employed certain tests or standards in reaching his expert opinion regarding the need for additional savings and loan facilities. The methodology employed by Dr. Branson was demonstrated in Contestant's Exhibit 3 which was admitted into evidence by the hearing examiner for the purpose of showing "the procedure this expert witness has used in the past." Exhibit 3 contained a series of tables or ratios prepared by Dr. Branson in an earlier study in support of his testimony in a prior proceeding. Gregg County was utilized in this study as a comparable county.

The evidence identified as Contestant's Exhibit 34 was prepared by Dr. James R. Vinson, an expert witness for the contesting parties. The Exhibit was predicated upon the methodology of Dr. Branson as exhibited in Exhibit 3, with the economic information updated with respect to Gregg County, Texas. This information was displayed in the manner previously used by Dr. Branson and Exhibit 34 demonstrated that on the basis of the update, Gregg County, Texas was at the opposite end of the scale from the tests or standards previously utilized by Dr. Branson. This witness had previously found a need for a new association in the fact that the existing associations had a high buying income per association, whereas Gregg County was shown to have the lowest buying income per association. Similarly, Dr. Branson had previously found a need for a new association because of a low assets per capita figure, whereas Gregg County was shown to have the highest assets per capita. Finally, Dr. Branson had previously found need because of a high ratio of income to assets, whereas Gregg County was shown to have the lowest ratio of income to assets.

In our view, the evidence reflected in Exhibit 34 was clearly competent and relevant and the error in its exclusion required the reversal by the Court of Civil Appeals of the judgment of the trial court and the remand of the proceeding to the Commissioner. From our study of the record we do not consider that Exhibit 34 was offered by the Contestants for the purpose of establishing a norm or standard, or criterion, as argued by petitioners. Nor do we...