High court reaffirms ‘legal residuum rule’

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“Fairness requires that in the face of contrary in-person testimony, if the Group Insurance Board seeks to terminate a claimant’s benefits, it should be required to corroborate hearsay evidence if that evidence is to form the sole basis for its decision." Hon. Shirley S. Abrahamson Wisconsin Supreme Court

The Wisconsin Supreme Court on Feb. 23 held that uncorroborated written hearsay evidence alone is insufficient to constitute substantial evidence to support an administrative agency’s findings.

In so holding, the court upheld the continuing vitality of its decision in Folding Furniture Works, Inc. v. Wisconsin Labor Relations Board, 232 Wis. 170, 285 N.W. 851 (1939), and the legal residuum rule.

In 1986, Luann Gehin began work as a housekeeper at University of Wisconsin Hospital. In 1992, she injured her back at work, and went on medical leave. In 1993, she filed for, and was awarded, long-term disability benefits by the United Wisconsin Group.

From 1994 to 1997, she participated in a retraining program, where she received positive assessments, but was unable to work full-time.

A 1997 written update by Dr. John Whiffen concluded that Gehin could return to her former job, with restrictions, and the Group determined she no longer met the criteria for benefits.

Gehin then saw Michael Miller, a physical therapist, who concluded that she was not employable because of her condition. She then asked the Group to reconsider the termination decision.

Gehin was then seen by Dr. Richard Lemon, who concluded that she did not meet the criteria for disability benefits.

After a hearing, the Wisconsin Group Insurance Board accepted the findings of Drs. Lemon and Whiffen, and upheld the Group’s termination of benefits. Three witnesses testified at the evidentiary hearing: Dr. William Shannon, an expert witness retained by Gehin who testified she was disabled, Gehin herself, and Diane Bass, an employee of the Department of Employee Trust Funds (EFT).

No witnesses testified to corroborate the written medical reports by Lemon and Whiffen about Gehin’s ability to work full time, and the Board relied solely on the written medical reports in terminating benefits.

Gehin appealed, and Dane County Circuit Court Judge Moria Krueger vacated the Board’s termination of benefits. The board appealed, and the court of appeals reversed, in an unpublished decision.

The Supreme Court accepted review, and reversed the court of appeals, in a decision by Chief Justice Shirley S. Abrahamson. Justice Louis B. Butler wrote a concurring opinion, and Justices Jon P. Wilcox, David T. Prosser, and Patience D. Roggensack each wrote a dissent.

Majority

The court concluded that the uncorroborated medical reports are not “substantial evidence” under sec. 227.57(6).

The court acknowledged that, pursuant to sec. 227.45(1), administrative agencies are not by bound the rules of evidence. Thus, the hearsay medical reports are admissible evidence.

However, properly admitted evidence may not necessarily constitute “substantial evidence.” The court quoted its decision in Folding Furniture, and the U.S. Supreme Court in Consolidated Edison Co. v. NLRB, 305 U.S. 197 (1938), that, “[m]ere uncorroborated hearsay … does not constitute substantial evidence.”

The court wrote, “The rule that uncorroborated hearsay alone does not constitute substantial evidence allows an agency to utilize hearsay evidence while not nullifying the relaxed rules of evidence in administrative hearings. The rule prohibits an administrative agency from relying solely on uncorroborated hearsay in reaching its decision. This rule defining substantial evidence has been followed in Wisconsin since Folding Furniture was decided in 1939. There has been no suggestion that this rule has hindered the operation of state administrative agencies.”

The court added, “The substantial evidence rule proscribing an administrative agency’s relying solely on uncorroborated hearsay is sometimes called the legal residuum rule. This rule is based in part on the reasoning that ‘since hearsay, due to its second hand nature, is inherently suspect, a determination based solely on hearsay can never be more than conjecture’”

The court reviewed commentary that has been critical of the legal residuum rule, and acknowledged that it may no longer be valid law in federal courts, pursuant to Richardson v. Perales, 402 U.S. 389 (1971). In Perales, the U.S. Supreme Court concluded that hearsay evidence is substantial evidence under the social security statute and that the agency’s reliance on hearsay evidence to support its legal conclusion did not violate due process.

The court found Perales inapplicable, however, reasoning, “The Perales discussion must be understood against the backdrop that an applicant was denied social security benefits (rather than having benefits terminated); that the Social Security Administration considers more than one million disability applications a year; that most claimants are not represented by counsel; and that procedures must be kept as simple and inexpensive as possible for the system to work.”

The court added, “Furthermore, in Perales the doctors’ written reports were corroborated by in-person testimony. The evidence in Perales consisted of written medical reports harmful to Perales’ claim, two witnesses’ testimony that controverted the written reports, and a government-paid doctor’s testimony that corroborated the substance of the written hearsay reports.”

Declining to hold that hearsay alone can be substantial evidence if the evidence has sufficient probative force for a reasonable person to accept it as adequate support of the agency’s conclusion, the court quoted at length from the Supreme Court of Mississippi as follows: “It is quite likely that the bench and bar would be scandalized if this Court should approve the receiving in evidence of ex parte, unsworn statements of persons other than doctors, even in Workmen’s Compensation cases. While doctors occupy an important role in our scheme of things, they are, after all, merely human, and may not be considered wholly free from the frailties that beset the rest of us. There is nothing, therefore, in the fact that a witness may be a member of the medical profession that reasonably may be said to justify his exemption from the requirements and restriction which would apply to others giving testimony in an adversary proceeding. The admission of the reports constitutes reversible error.”

Georgia-Pacific Corp. v McLaurin, 370 So.2d 1359, 1362 (Miss.1979).

After reviewing the contents of the medical reports, the court concluded, “Without Dr. Whiffen’s and Dr. Lemon’s testimony about what they meant by their responses, their reports are not reliable as a basis for the Group Insurance Board’s findings of fact about her permanent physical work restrictions and her ability to work full-time or the Board’s conclusions of law that the claimant was not totally disabled under the contract.”

Although the court added that, even if it were applying Perales, it would conclude the uncorroborated evidence is insufficient to deny benefits, the court wrote, “We see no reason to deviate in the instant case from the long-standing rule in Wisconsin as announced in Folding Furniture and consistently followed for 65 years in subsequent cases that uncorroborated hearsay alone does not constitute substantial evidence in administrative hearings. The rule balances competing concerns about administrative expediency and fundamental fairness.”

The court reasoned, “Fairness requires that in the face of contrary in-person testimony, if the Group Insurance Board seeks to terminate a claimant’s benefits, it should be required to corroborate hearsay evidence if that evidence is to form the sole basis for its decision. The harm to claimants in having their income continuation insurance benefits terminated on the basis of controverted written hearsay medical reports, without an opportunity to cross-examine the authors of the reports, exceeds the burden on the Group Insurance Board to call a witness to corroborate those hearsay medical reports.”

Addressing objections that its holding will make administrative proceedings more burdensome, the court wrote, “We recognize the importance of allowing claimants to present their position as simply and inexpensively as possible, including by means of written medical reports without having to present the testimony of the author of the reports. This decision should not be read to require corroboration by non-hearsay evidence in all instances.”

The court noted that parties may stipulate to some facts, or even agree that the agency may base its decision solely on medical reports. In addition, the Labor and Industry Review Commission does not permit uncorroborated hearsay to form the sole basis for resolution of an issue.

Accordingly, the court affirmed.

The Concurrence

Justice Butler wrote separately to address concerns that the decision would burden claimants by requiring them to produce expert medical testimony at great expense.

Butler noted that claimants, unlike the Board, can provide corroboration without testimony of a medical provider, via testimony of the claimant himself, or other lay witnesses. Butler wrote, “Testimonial evidence would provide the corroboration necessary to allow a hearing examiner to consider hearsay medical reports concerning the condition. Corroboration of hearsay does not have to come from experts, but hearsay must be corroborated to constitute ‘substantial evidence.’ That is precisely what is lacking in this case.”

The Dissents

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Justice Wilcox dissented for a number of reasons: “First, under the clear holding of Richardson v. Perales, 402 U.S. 389 (1971), the residuum rule — which posits that an administrative agency cannot base factual findings on uncorroborated hearsay — does not apply to reliable, probative, documentary evidence (particularly standard medical reports) in administrative proceedings. Further, applying the residuum rule to
prohibit agencies from considering uncorroborated documentary evidence regardless of its reliability and probative value conflicts with the relaxed evidentiary standards in administrative proceedings and this court’s deferential standard of review. Finally, applying the residuum rule in such a fashion will be harmful to claimants in future cases and is inconsistent with the reality of administrative proceedings.”

Prosser also wrote a dissent, concluding, “Professor Kenneth Davis has written that the reasons supporting abandonment of the residuum rule are ‘overwhelming — so overwhelming as to give rise to the question whether courts that have given lip service to the residuum rule have done so on the basis of misunderstanding instead of through an exercise of informed judgment.’ Kenneth Davis, 3 Administrative Law Treatise, 16.6 at 239 (2d ed. 1980). Apparently the majority is not ‘overwhelmed’ by the courts’ and scholars’ criticisms of the residuum rule. I am persuaded and would affirm the decision of the court of appeals relying on the reasoning of Perales. I would adopt the rule that hearsay evidence may constitute substantial evidence in administrative proceedings if the hearsay evidence bears inherent guarantees of reliability and trustworthiness and the opposing party has full notice of the evidence and the opportunity to challenge it by subpoenaing a witness. In addition, I believe this court should be more attentive to the waiver issue and the procedures employed by administrative agencies in general, and the Board in particular.”

Finally, Justice Roggensack dissented, arguing that the court need not reach the issue whether uncorroborated hearsay alone constitutes substantial evidence, because the evidence in this case was corroborated.

Roggensack noted, “Gehin, herself, testified sufficient to show that the opinions of Drs. Whiffen and Lemon could be true, in that she testified about her on-the-job training program at MMHI. She said that she was able to perform clerical tasks, such as typing, working on a computer, sorting mail, filing, and running errands, as well as receptionist duties, using a headset that allowed to her stand and walk while she answered the phone. She testified that she regularly took rests while doing these tasks.”

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David Ziemer can be reached by email.