Lee Phan v. Tennessee Department of Commerce and Insurance
M2016-00612-COA-R3-CV
| Tenn. Ct. App. | Mar 2, 2017Background
- Lee Phan, a Tennessee-licensed cosmetologist and instructor, was accused of assisting persons to obtain Tennessee cosmetology licenses by reciprocity in exchange for cash; the Board authorized a contested case and the Department filed charges.
- Ten witnesses (with Vietnamese interpreters) testified at the ALJ hearing that they paid Phan amounts ranging from $2,000 to $6,500 for licenses without meeting education or out-of-state licensure requirements.
- The Department’s internal review had identified missing or inadequate reciprocity files and a licensing technician (Latrisha Johnson) who had edited/entered records and later resigned; the Department audited affected licenses and sent letters seeking proof of qualifications.
- At the contested-case hearing Phan invoked the Fifth Amendment to multiple questions; the ALJ drew adverse inferences but also based findings on witness testimony and documentary records (RBS prints, affidavits, agreed orders).
- The ALJ revoked Phan’s cosmetology license and assessed $20,000 in civil penalties; the chancery court affirmed on judicial review and the Court of Appeals affirmed the chancery court judgment.
Issues
| Issue | Phan's Argument | Department's Argument | Held |
|---|---|---|---|
| Board delegation / Open Meetings | Board did not validly delegate authority to ALJ; omission from minutes voids delegation under Open Meetings Act | Board’s public meeting (video/transcript) authorized a hearing; omission from minutes not fatal given public record | Delegation valid; vote shown in record and not void solely for omission from minutes |
| Procedural & constitutional violations (notice, discovery, motions, continuances, ex parte, Brady) | Multiple procedural errors deprived due process: defective notice, withheld files, discovery denials, improper ex parte contacts, Brady preservation | Agency followed UAPA/rules; Phan had ample notice, opportunity to cross-examine, and ALJ’s discovery/rulings within discretion | No prejudicial procedural or constitutional error; ALJ acted within discretion and UAPA standards |
| Adverse inferences from Fifth Amendment / employee misconduct | ALJ improperly drew adverse inferences from Phan’s Fifth Amendment invocations and did not draw adverse inferences against Department for employee’s misconduct | ALJ’s adverse inferences were supported by corroborating evidence; employee misconduct was addressed by Department and does not exonerate Phan | ALJ’s inferences permissible (and not necessary to result); independent evidence supports findings; no relief granted |
| Civil penalties / statutory authority & notice of violations | Penalties exceed statutory limits or were imposed for violations not in notice | Statute permits up to $1,000 per separate violation; ALJ found violations as to ten individuals so $20,000 within applicable authority and notice was adequate | Penalties within authority and consistent with notice and regulations |
| Substantial & material evidence & attorney fees request | Findings unsupported by substantial evidence; Department acted in bad faith so Phan should get attorney fees | Credible witness testimony, records, and audit evidence provide substantial/material support; no basis for fee award under § 4-5-325 | Findings supported by substantial and material evidence; no attorney-fee award warranted |
Key Cases Cited
- Smith v. UHS of Lakeside, Inc., 439 S.W.3d 303 (Tenn. 2014) (use of party-drafted findings requires they reflect the court’s independent decision)
- Akers v. Prime Succession of Tenn., Inc., 387 S.W.3d 495 (Tenn. 2012) (permitting adverse inference from Fifth Amendment invocation only if independent evidence corroborates)
- City of Memphis v. Civil Serv. Comm’n, 239 S.W.3d 202 (Tenn. Ct. App. 2007) (substantial-and-material-evidence standard applies to agency factual findings)
- Wayne Cnty. v. Tenn. Solid Waste Disposal Control Bd., 756 S.W.2d 274 (Tenn. Ct. App. 1988) (deferential review of agency factfinding; courts should not substitute their judgment for agency’s)
- Mercer v. Vanderbilt Univ., Inc., 134 S.W.3d 121 (Tenn. 2004) (admission of evidence reviewed for abuse of discretion)