Schmitz v. Iowa Dept. of Human Services

• Decision Date: 30 August 1990
• Docket Number: No. 89-1213,89-1213
• Citation: 461 N.W.2d 603
• Parties: Patti SCHMITZ, Appellant, v. IOWA DEPARTMENT OF HUMAN SERVICES, Appellee.
• Court: Iowa Court of Appeals

Page 603

461 N.W.2d 603

Patti SCHMITZ, Appellant, v. IOWA DEPARTMENT OF HUMAN SERVICES, Appellee.

No. 89-1213.

Court of Appeals of Iowa.

Aug. 30, 1990.

Kevin G. Magee of Legal Services Corp. of Iowa, Dubuque, for appellant.

Thomas J. Miller, Atty. Gen., Gordon E. Allen, Deputy Atty. Gen., and Stephen C. Robinson, Asst. Atty. Gen., for appellee.

Heard by SCHLEGEL, P.J., and HAYDEN and SACKETT, JJ., but decided en banc.

SCHLEGEL, Presiding Judge.

Petitioner-appellant Patti Schmitz appeals a decision of the district court affirming a decision by the Iowa Department of Human Services (DHS) that Schmitz had been overpaid Aid to Dependent Children (ADC) benefits and ordering a reduction in benefits to recover the overpayment. Appellant argues that DHS's decision is not supported by substantial evidence because it is grounded in a record composed solely of hearsay evidence. We agree, and therefore, reverse and remand.

Appellant and her two children receive ADC benefits. The benefits are calculated by the number of household members and the potential that an adult resident living with the recipient would be able to contribute to household expenses, thereby lowering the necessity of ADC benefits. Appellant also was receiving aid for housing through the Eastern Iowa Regional Housing Authority (EIRHA) under much the same criteria. Appellant was required to certify to both agencies the number of persons in the household.

Sheldon Ness is the father of one of appellant's two children. The couple had an on-again off-again relationship. Appellant claims it has been mostly off since January 1985. Based on unsworn statements that she had lived with Ness and an anonymous letter indicating she had lived with Craig Rettenmaier, the father of appellant's other child, EIRHA twice investigated appellant's living arrangements. In 1985, EIRHA decided to continue benefits, but strongly warned appellant that it would discontinue benefits if it heard any further complaints about her. In 1987, EIRHA terminated assistance to appellant.

DHS learned of EIRHA's action and the allegation that Ness had lived with appellant through the administrative grapevine. It ordered appellant to appear and obtained information releases from her. DHS conducted an investigation into whether Ness had lived with appellant from January 1985 through October 1986 as alleged in the unsworn statement of appellant's former apartment manager, a felon convicted of attempting to burn a judge's house. Based on many of the same unsworn, anonymous, and self-interested statements that EIRHA had used, EIRHA's reports, and a memo from the assistant county attorney in charge of the child support recovery unit, DHS issued an order requiring appellant to pay back $1309 ADC benefits allegedly overpaid.

Appellant challenged the decision, maintaining that Ness had not been living with her during that time. An administrative hearing was conducted by telephone. Schmitz testified on her own behalf. Throughout the proceedings, appellant has contended that failed relationships and custody battles with her children's fathers motivated the reports and much of the evidence used against her. DHS presented no witnesses, but instead read into evidence its investigation and findings. The hearing officer concluded that Ness had been living with Schmitz during the disputed period. Appellant exhausted all administrative remedies and now appeals a decision of the district court affirming DHS's findings and order.

Noting that DHS's decision rests solely on hearsay, appellant argues that the decision cannot stand because it is not supported by substantial evidence. Appellant also argues that the administrative law judge erred by failing to make specific findings regarding the respective parties' credibility.

This appeal results from a contested case state agency proceeding. See Iowa Code § 17A.2(2) (1989). In contested case proceedings, the agency, rather than the district court, is empowered to hear evidence and make findings of fact. Iowa Code § 17A.19(7) (1989). The district court, when exercising the power of judicial review over agency action, is functioning in an appellate capacity to correct errors at law. Iowa Code § 17A.19(8) (1989). Kohorst v. Iowa State Commerce Comm'n, 348 N.W.2d 619, 621 (Iowa 1984). Our review of the district court's decision is limited to correction of errors at law. Roberts v. Iowa Dep't of Job Serv., 356 N.W.2d 218, 221 (Iowa 1984). We, like the district court, are bound by the agency's fact findings if those findings are supported by substantial evidence.

We considered the problem of relying solely on hearsay evidence recently in Nieman v. Iowa Department of Transportation, 452 N.W.2d 203 (Iowa App.1989). In that case, the arresting officer failed to appear at an administrative hearing challenging revocation of a driver's license. Id. at 204. The administrative law judge took notice of the officer's signed certification on a preprinted form stating that he had had reasonable grounds to believe that the driver had been operating a vehicle while intoxicated. Id. at 205.

We noted a split in authority as to whether the court should demand corroboration for hearsay or should simply require the hearsay to contain "sufficient probative force." Id. We reserved a choice between these competing lines of authority for another day, id. at 206, because we held that the hearsay relied upon did not have sufficient probative force to meet either test. Id. In particular, we noted that the hearsay failed to show why the officer had reasonable grounds to believe the driver had operated his car while intoxicated. Id. We also felt that to rely on such evidence would be to allow peace officers to state conclusively that they had complied with statutory requirements. Id.

Initially, we must look to the Iowa Administrative Procedure Act (IAPA), Iowa Code chapter 17A, for guidance. The IAPA is designed, among other things, "to simplify government by assuring a uniform minimum procedure to which all agencies will be held in the conduct of their most important functions; ... to increase fairness of agencies in their conduct of contested case proceedings; and to simplify the process of judicial review of agency action as well as increase its ease and availability." Iowa Code § 17A.1 (1989).

Our review of contested case proceedings is regulated by statute. We may "not ... hear any further evidence with respect to those issues of fact whose determination was entrusted by Constitution or statute to the agency." Id. § 17A.19(7). The IAPA states, in pertinent part, that we may take appropriate action

if substantial rights of the petitioner have been prejudiced because the agency action is:

a. In violation of constitutional or statutory provisions;

. . . . .

e. Affected by other error of law;

f. In a contested case, unsupported by substantial evidence in the record made before the agency when that record is viewed as a whole; or

g. Unreasonable, arbitrary or capricious or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion.

Id. § 17A.19(8).

In reaching its decision, an agency must base its findings "upon the kind of evidence on which reasonably prudent persons are accustomed to rely for the conduct of their serious affairs," although that evidence need not be admissible in a jury trial. Id. § 17A.14(1). The agency may use its "experience, technical competence, and specialized knowledge ... in the evaluation of the evidence." Id. § 17A.14(5).

Iowa courts have indicated, at least implicitly, that "substantial evidence" in contested case proceedings, in the words of section 17A.14(1), requires "the kind of evidence on which reasonably prudent persons are accustomed to rely for the conduct of their serious affairs." See McConnell v. Iowa Dep't of Job Serv., 327 N.W.2d 234, 236 (Iowa 1982) ("Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion."); City of Davenport v. Public Employment Relations Bd., 264 N.W.2d 307, 311 (Iowa 1978) (same); Grant v. Fritz, 201 N.W.2d 188, 197 (Iowa 1972) ("evidence which, if true, has probative force upon the issues and from which the trier of fact can reasonably decide the case on the fact issues, or evidence favoring facts on which reasonable men may differ" (citations omitted)); cf. Baty v. Binns, 354 N.W.2d 777, 780 (Iowa 1984) ("Evidence is substantial for purposes of sustaining a finding by a trier of fact when a reasonable mind would accept it as adequate to reach a conclusion." (citing Hawk v. Jim Hawk Chevrolet-Buick, Inc., 282 N.W.2d 84, 87 (Iowa 1979))); Henry v. Iowa Dep't of Job Serv., 391 N.W.2d 731, 734 (Iowa App.1986) (same). This is much like the definition of substantial evidence used in the federal courts. See Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217, 83 L.Ed. 126 (1938) ("such relevant evidence as a reasonable mind might accept as adequate to support a conclusion"); see also Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971) (quoting Consolidated Edison); NLRB v. Remington Rand, Inc., 94 F.2d 862, 873 (2d Cir.) (Judge Hand noted hearsay may support a finding "if in the end the finding is supported by the kind of evidence on which responsible persons are accustomed to rely in serious affairs."), cert. denied, 304 U.S. 576, 58 S.Ct. 1046, 82 L.Ed. 1540 (1938).

The question we seek to answer, therefore, is whether hearsay is "the kind of evidence on which reasonably prudent persons are accustomed to rely for the conduct of their serious affairs," especially when the decision is supported solely by hearsay. As one commentator noted, "[E]ach of us constantly relies on hearsay evidence in making important decisions," and all aspects of commerce and government would come to a grinding halt without it. McCormick on Evidence § 353, at 1013 (E. Cleary 3d ed. 1984) [hereinafter McCormick]....