Administrative Challenges to State Government Actions
The movie actor John Wayne once said: “Out here, due process is a bullet!” Fortunately, businesses and individuals facing regulatory disciplinary actions by state government have better due process.
An insurance agent or insurer is alleged to have sold unsuitable policies. A physician is alleged to have crossed the boundaries of professional conduct with a patient. A real estate broker is alleged to have conspired with a seller to conceal significant defects in a home. In each of these cases, the company or professional is entitled to a “contested case proceeding” before an administrative law judge before state government can impose discipline.
A contested case proceeding is an important tool for companies and individuals to challenge the actions of state government in regulatory disciplinary cases. But it is not always the right step.
Administrative Law 101
Contested case proceedings are decided by administrative law judges who are employed by the Office of Administrative Hearings (OAH). The Chief Administrative Law Judge is appointed by the Governor. The Chief Judge appoints the other administrative law judges. The proceedings are governed by the Minnesota Administrative Procedures Act (APA) and by rules promulgated by the OAH. The state is represented at these proceedings by lawyers from the Minnesota Attorney General’s Office.
Purpose of a Contested Case
Contested case proceedings are meant to provide constitutionally required due process before state government deprives a person of property or liberty. A professional or business license generally gives rise to a property interest such that discipline may not be imposed without a hearing.
As a result, before the Commerce Department can discipline an insurance agent or company, a real estate broker, a mortgage professional, or other licensee, or before the Minnesota Board of Medical Practice can discipline a physician, a contested case hearing is required.
A contested case is started when the government agency serves a notice of and order for hearing. Minn. Stat. § 14.58; Minn. Rule 1400.5600, subp. 1. Among other things, the document must notify the party of the date, time and place for the hearing or prehearing conference, describe the agency’s authority to take the proposed action, and provide a statement of the allegations or issues to be determined and citations to the statutes or rules allegedly violated.
The Government Still Makes the Final Call
In a court case, a judge’s decision is binding on the parties, unless appealed. Not so for most licensing proceedings. In these proceedings, the ALJ issues findings of fact, conclusions, and recommendation(s) to the state agency (called a “report”), but the agency may reject the ALJ report in favor of its own decision.
This is an important consideration. Since the agency will ultimately make the final decision anyway—and in a licensing disciplinary case will determine the sanctions to be imposed—it often makes sense for licensees to try to reach a settlement with the government agency before commencement of a formal contested case proceeding. On the other hand, sometimes government agencies are heavy-handed or unreasonable in their settlement demands, or pursue cases based on unreliable witnesses, shoddy investigations, flimsy evidence, or a misguided interpretation of a statute. In those cases, a contested case hearing may provide a forum for a licensee to assert its rights. A contested case hearing may also introduce into the mix other players, including the ALJ, which can often make the agency more realistic in its approach.
A state agency cannot make its final decision until the ALJ report has been made available to the parties for at least 10 days and they have been given an opportunity to file “exceptions” to the report and present arguments. Minn. Stat. § 14.61, subd. 1.
The agency then must make a final written decision. Minn. Stat. § 14.62, subd. 1. Its decision must be based on the record and include its findings of fact and conclusions on all material issues. Id. A final agency decision that rejects or modifies a finding of fact, conclusion, or recommendation of the ALJ must include the reasons for the rejection or modification. Id. An agency may use its experience, technical competence, and specialized knowledge in its evaluation of the evidence in the hearing record. Minn. Stat. 14.60, subd. 4. If the agency fails to act within 90 days on a licensing case, the ALJ then imposes the disciplinary action. Id., subd. 2.
Pre-Hearing Procedures
A party has the right to legal representation in an administrative proceeding. It is wise for litigants in contested cases to have legal counsel, especially since, as noted above, the agency will be represented in the proceeding by an attorney from the Minnesota Attorney General’s Office.
Discovery. There are two types of discovery in contested case proceedings: discovery as a matter of and permissible discovery. Each party must disclose their witnesses, relevant statements, and hearing exhibits within ten (10) days of a written demand by the other side. Minn. Rule 1400.6700, subp. 1. Failure to do so subject a party to sanctions. The parties may also pursue other types of discovery (i.e., depositions, interrogatories, etc.) available in state district court. If the receiving party objects, the party seeking the discovery may bring a motion to compel before the ALJ and must show that the discovery is needed for the proper presentation of the party’s case, not for purposes of delay, and that the issues or amounts in controversy are significant enough to warrant the discovery. Id., subp. 2. The ALJ has wide discretion to determine whether to allow or deny discovery upon such a motion. See Surf & Sand Nursing Home v. DHS, 422 N.W.2d 513, 520 (Minn. Ct. App. 1988).
Requests for Admission. A party may also serve requests for admission of relevant facts or opinions or the application of law to relevant facts or opinions at least 15 days before the hearing. Minn. Rule 1400.6800. These must be answered within 10 days of receipt or they are deemed admitted. Practitioners should note that this time period is much shorter than in district court.
Protective Orders. A party may seek a protective order to protect trade secret or “not public” data. Minn. Rule 1400.6700, subd. 4. This is not a typographical error. “Private data” is different than “not public” data under the Minnesota Government Data Practices Act, which governs the classification of data held by state government. Minn. Stat. §13.02, Subd. 12 & 13.
Motion practice. There is also an opportunity to bring appropriate motions before the ALJ. A “summary disposition” motion is similar to a “summary judgment” motion in district court and follows similar standards. Minn. Rule 1400.5500(K). Motions to dismiss are not as common, but may be appropriate in certain situations, such as if a case has become moot.
Settlement Is Always An Option
Some litigants are like Rocky Balboa: they “just wanna go the distance.” But there are usually various opportunities to settle a contested case. A contested case may be settled by an agreed settlement or consent order. Minn. Stat. § 14.59; Minn. Rule 1400.5900. Prior to the initiation of a contested case proceeding, an agency may file a request for mediation services with the chief ALJ. Minn. Rule 1400.5950. If licensees reach an impasse in settlement negotiations with an agency, they may want to suggest mediation before OAH.
After commencement of a contested case, any party (i.e., the state or the private litigant) or the ALJ may propose that the case be mediated by filing a request with the chief ALJ. If there is no objection, the chief ALJ will appoint a different ALJ than the one hearing the case to act as a mediator. Id. The prehearing conference, which takes place early in the case, provides another opportunity for settlement. Minn. Rule 1400.6500. Moreover, upon the request of any, the chief judge will also assign the case to another judge for purposes of conducting a settlement conference. Minn. Rule 1400.6550. If the government refuses to mediate, requesting a settlement conference may get more pragmatic government decisionmakers to the table.
The law firm of Swanson Hatch, P.A. represents businesses and individuals in licensing disciplinary cases involving state government—including clients in the insurance, real estate, mortgage, health and medical, health occupational (e.g., physicians), and human services industries. Former Minnesota Attorneys General Lori Swanson and Mike Hatch have decades of legal experience in the Minnesota Attorney General’s Office, which represents state government in these cases. Swanson and Hatch assist businesses and individuals in minimizing the legal, financial, and reputational risk from such proceedings. Mike Hatch previously served as Commissioner of the Minnesota Department of Commerce for eight years. Prior to her twelve years as Minnesota Attorney General, Lori Swanson previously served as Solicitor General and Deputy Attorney General of the State of Minnesota and chaired the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com.
Hearing Procedures.
One of the biggest differences between an OAH case and a district court case relates to the admissibility of evidence. Unlike in district court, ALJs may “admit and give probative effect to evidence which possesses probative value commonly accepted by reasonable prudent persons in the conduct of their affairs.” Minn. Stat. § 14.60, subd. 1.
The OAH rules state that this may include hearsay, “if it is the type of evidence on which reasonable, prudent persons are accustomed to rely in the conduct of their serious affairs.” Minn. Rule 1400.7300, subp. 1. But the Minnesota Supreme Court has made clear that the hearsay evidence must have “probative quality.” In re Wang, 441 N.W.2d 488, 495 (Minn. 1989). Litigants may have good arguments on appeal if a proceeding is decided solely on hearsay.
In many other respects, hearing procedures are similar to district court:
Burden of Proof. The party proposing that an action be taken must generally prove the fact at issue by a preponderance of the evidence. Minn. Rule 1400.7300, subp. 5.
Witnesses. Each party to a contested case may cross-examine witnesses who testify and submit rebuttal evidence. Minn. Stat. § 14.60, subd. 3. Parties may make written application to the ALJ for subpoenas for the attendance of witnesses or the production of documents by providing a brief statement demonstrating the relevance of the testimony or evidence. Minn. Rule 1400.7000.
Other Considerations.
Cost. An important consideration for deciding whether to “go the distance” in a contested case proceeding relates to costs. In some cases, state statutes may permit a licensing board or agency to seek recoupment of its costs related to the contested case proceeding. A litigant should review the particular statutes under which the proceeding is brought to determine if this is likely to be a factor.
Constitutional Considerations. An ALJ generally cannot declare a statute or administrative regulation facially unconstitutional, a power reserved to the judicial branch. A litigant who believes that a statute or rule under which disciplinary action is sought is unconstitutional may wish to pursue a declaratory judgment action in district court.
Conclusion.
A government licensing action exposes the licensee to significant financial, legal, and reputational harm. Knowing when and how to use contested case proceedings to challenge the actions of state government requires strategic thinking and a careful approach. Licensees should seek legal advice if confronting such a challenge.
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www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
The movie actor John Wayne once said: “Out here, due process is a bullet!” Fortunately, businesses and individuals facing regulatory disciplinary actions by state government have better due process.
An insurance agent or insurer is alleged to have sold unsuitable policies. A physician is alleged to have crossed the boundaries of professional conduct with a patient. A real estate broker is alleged to have conspired with a seller to conceal significant defects in a home. In each of these cases, the company or professional is entitled to a “contested case proceeding” before an administrative law judge before state government can impose discipline.
A contested case proceeding is an important tool for companies and individuals to challenge the actions of state government in regulatory disciplinary cases. But it is not always the right step.
Contested case proceedings are decided by administrative law judges who are employed by the Office of Administrative Hearings (OAH). The Chief Administrative Law Judge is appointed by the Governor. The Chief Judge appoints the other administrative law judges. The proceedings are governed by the Minnesota Administrative Procedures Act (APA) and by rules promulgated by the OAH. The state is represented at these proceedings by lawyers from the Minnesota Attorney General’s Office.
Contested case proceedings are meant to provide constitutionally required due process before state government deprives a person of property or liberty. A professional or business license generally gives rise to a property interest such that discipline may not be imposed without a hearing.
As a result, before the Commerce Department can discipline an insurance agent or company, a real estate broker, a mortgage professional, or other licensee, or before the Minnesota Board of Medical Practice can discipline a physician, a contested case hearing is required.
A contested case is started when the government agency serves a notice of and order for hearing. Minn. Stat. § 14.58; Minn. Rule 1400.5600, subp. 1. Among other things, the document must notify the party of the date, time and place for the hearing or prehearing conference, describe the agency’s authority to take the proposed action, and provide a statement of the allegations or issues to be determined and citations to the statutes or rules allegedly violated.
In a court case, a judge’s decision is binding on the parties, unless appealed. Not so for most licensing proceedings. In these proceedings, the ALJ issues findings of fact, conclusions, and recommendation(s) to the state agency (called a “report”), but the agency may reject the ALJ report in favor of its own decision.
This is an important consideration. Since the agency will ultimately make the final decision anyway—and in a licensing disciplinary case will determine the sanctions to be imposed—it often makes sense for licensees to try to reach a settlement with the government agency before commencement of a formal contested case proceeding. On the other hand, sometimes government agencies are heavy-handed or unreasonable in their settlement demands, or pursue cases based on unreliable witnesses, shoddy investigations, flimsy evidence, or a misguided interpretation of a statute. In those cases, a contested case hearing may provide a forum for a licensee to assert its rights. A contested case hearing may also introduce into the mix other players, including the ALJ, which can often make the agency more realistic in its approach.
A state agency cannot make its final decision until the ALJ report has been made available to the parties for at least 10 days and they have been given an opportunity to file “exceptions” to the report and present arguments. Minn. Stat. § 14.61, subd. 1.
The agency then must make a final written decision. Minn. Stat. § 14.62, subd. 1. Its decision must be based on the record and include its findings of fact and conclusions on all material issues. Id. A final agency decision that rejects or modifies a finding of fact, conclusion, or recommendation of the ALJ must include the reasons for the rejection or modification. Id. An agency may use its experience, technical competence, and specialized knowledge in its evaluation of the evidence in the hearing record. Minn. Stat. 14.60, subd. 4. If the agency fails to act within 90 days on a licensing case, the ALJ then imposes the disciplinary action. Id., subd. 2.
A party has the right to legal representation in an administrative proceeding. It is wise for litigants in contested cases to have legal counsel, especially since, as noted above, the agency will be represented in the proceeding by an attorney from the Minnesota Attorney General’s Office.
Some litigants are like Rocky Balboa: they “just wanna go the distance.” But there are usually various opportunities to settle a contested case. A contested case may be settled by an agreed settlement or consent order. Minn. Stat. § 14.59; Minn. Rule 1400.5900. Prior to the initiation of a contested case proceeding, an agency may file a request for mediation services with the chief ALJ. Minn. Rule 1400.5950. If licensees reach an impasse in settlement negotiations with an agency, they may want to suggest mediation before OAH.
After commencement of a contested case, any party (i.e., the state or the private litigant) or the ALJ may propose that the case be mediated by filing a request with the chief ALJ. If there is no objection, the chief ALJ will appoint a different ALJ than the one hearing the case to act as a mediator. Id. The prehearing conference, which takes place early in the case, provides another opportunity for settlement. Minn. Rule 1400.6500. Moreover, upon the request of any, the chief judge will also assign the case to another judge for purposes of conducting a settlement conference. Minn. Rule 1400.6550. If the government refuses to mediate, requesting a settlement conference may get more pragmatic government decisionmakers to the table.
One of the biggest differences between an OAH case and a district court case relates to the admissibility of evidence. Unlike in district court, ALJs may “admit and give probative effect to evidence which possesses probative value commonly accepted by reasonable prudent persons in the conduct of their affairs.” Minn. Stat. § 14.60, subd. 1.
The OAH rules state that this may include hearsay, “if it is the type of evidence on which reasonable, prudent persons are accustomed to rely in the conduct of their serious affairs.” Minn. Rule 1400.7300, subp. 1. But the Minnesota Supreme Court has made clear that the hearsay evidence must have “probative quality.” In re Wang, 441 N.W.2d 488, 495 (Minn. 1989). Litigants may have good arguments on appeal if a proceeding is decided solely on hearsay.
In many other respects, hearing procedures are similar to district court:
A government licensing action exposes the licensee to significant financial, legal, and reputational harm. Knowing when and how to use contested case proceedings to challenge the actions of state government requires strategic thinking and a careful approach. Licensees should seek legal advice if confronting such a challenge.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com