Lester H. JOHNSON, Plaintiff and Appellant. v. KOLMAN, A DIVISION OF ATHEY PRODUCTS CORPORATION, Defendant and Appellee.
No. 15388.
Supreme Court of South Dakota.
Decided Sept. 2, 1987.
Considered on Briefs Feb. 19, 1987.
We must be mindful of the fact that prior unsworn statements of a witness are mere hearsay and are, as such, generally inadmissible as affirmative proof. The introduction of such testimony, even where limitеd to impeachment, necessarily increases the possibility that a defendant may be convicted on the basis of unsworn evidence, for despite proper instructions to the jury, it is often difficult for them to distinguish between impeachment and substantive evidence.
Id. at 190.
Can there be any question but what the most important information that State sought to extract from Sharon was the bloody condition of her husband‘s clothing and shoes? Although the majority characterizes it as useful and important proseсution evidence, most, if not all of the testimony which was otherwise adduced from Sharon, was cumulative. There was other testimony linking Ashker to Novaock and the use of the green pickup truck that day. The thing that strikes me, and it seems rather obvious is: Why would a prosecuting attorney, who has a witness delivering all of that useful evidence the majority speaks of, turn around and deliberately attempt to impeach that witness? The only reason possible is that the prosecutor felt it more importаnt to get the otherwise inadmissible hearsay before the jury than to support the veracity of his witness.
The prosecutor certainly was not caught by surprise. Sharon‘s testimony was presented in deposition form so State was on notice from the time of the taking of the deposition as to what her testimony would be. Nor, does it appear from this record that Sharon was “recalcitrant or unscrupulously tampered with.” Sharon appeared to testify freely on every other facеt, and the prosecutor did not see fit to attempt to qualify her as a hostile witness, so I distinguish this case from United States v. DeLillo, 620 F.2d 939 (2d Cir.1980), upon which the majority relies.
Nor, can I say that the admission of the evidence was harmless error. This conviction was based entirely on circumstantial evidence. The prosecution was throwing everything before the jury that it could possibly sweep up. The testimony of the blood on Novaock‘s clothing and shoes was the closest to a “smoking gun” State could come up with and the prosecution was determined to get it before the jury. Ashker might very well have been convicted without Jensen‘s evidence; but, in my mind, it is certain that he was convicted because of it. I would therefore reverse.
Scott G. Hoy, of Swanson, Carlsen, Carter Hoy & Anderson, Sioux Falls, for plaintiff and appellant.
John E. Burke, Sioux Falls, for defendant and appellee.
Lester H. Johnson (Johnson) appeals from a summary judgment dismissing his complaint for wrongful termination, breach of employment and severance contracts, fraud and breach of fiduciary duty against Kolman. We reverse and remand.
FACTS
Kolman, a division of Athey Products Corporation (Athey), is a manufacturer of various types оf heavy equipment. Most of Kolman‘s sales involve bids to customers, with the lowest bidder normally receiving the contract. Kolman hired Johnson in 1966, and over the years Johnson was promoted until he became the general manager of Kolman‘s Sioux Falls office.
In February of 1984, James Cloonan (Cloonan), the Athey president, contacted Johnson and told him that he had a man who could fill an open district representative position at the Sioux Falls office. This man was Don Blalock, a long time acquaintance of Cloonan. Johnson met with Blalock and determined that Blalock was not suited for the position since he did not have an engineering degree, which was required for the position, and had not dealt directly
At about the same time, an Athey directive informed Johnson that the profit margin in the bids Johnson made should go no lower than 25%. About a year later, Johnson decided that he needеd to lower the profit margins in order to generate business. In January of 1985, Johnson bid a contract using an 18% profit margin. Upon discovering this, and without warning, Cloonan told Johnson to resign or be fired. Johnson chose to resign.
After his resignation, Johnson entered into a severance agreement with Kolman for severance payments amounting to three months salary. Kolman ceased payments under this contract after one month, claiming that Johnson breached the contract by looking for anоther job in the industry.
Johnson filed a claim for unemployment insurance benefits in April of 1985. Shortly thereafter, the South Dakota Department of Labor ruled that Johnson was ineligible for benefits since he had been discharged for work-connected misconduct. The agency‘s determination notice stated that the ruling would be final unless Johnson filed an appeal within nine days after the mailing of the notice. An appeal by Johnson would have resulted in a hearing before an appeals referee. Johnson did not appeal the agency‘s initial decision.
Johnson filed this suit against Kolman, asserting breach of employment contract and severance contract, wrongful termination, fraud, and breach of fiduciary duty. Kolman had immediately hired Don Blalock to replace Johnson as Kolman‘s general manager, but Johnson evidently did not become aware of it until after he filed his claim for unemployment benefits. Johnson claimed that there was a conspiracy within the corporation to remove him from his position for the purpose of placing Don Blalock in that position. The trial court granted summary judgment to Kolman on the ground that Johnson failed to exhaust his administrative remedies before bringing suit.
JOHNSON‘S CLAIMS
The issue raised by Johnson is whether the doctrine of exhaustion of administrative remedies applies in this case. Johnson argues that the doctrine does not apply since the Department of Labor has no jurisdiction to decide matters such as breaсh of contract, wrongful termination, and fraud. He contends that application of the doctrine serves only to improperly deny him access to the courtroom and that the trial court erred in granting summary judgment. We agree.
1. EXHAUSTION OF ADMINISTRATIVE REMEDIES
The doctrine of exhaustion of administrative remedies is one of the fundamental principles of administrative law and jurisprudence. The doctrine is broadly stated as the withholding of judicial relief on a claim or dispute cognizable by an administrative agency until the administrative process has run its course. Zar v. S.D. Bd. of Examiners of Psychologists, 376 N.W.2d 54 (S.D.1985); Gottschalk v. Hegg, 89 S.D. 89, 228 N.W.2d 640 (1975); see also Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638 (1938). In South Dakota, the exhaustion doctrine has been codified in the Administrative Procedures Act (
This court applied the exhaustiоn doctrine in a recent case which is almost directly on point, Weatherwax v. Hiland Potato Chip Co., 372 N.W.2d 118 (S.D.1985). In that case, Weatherwax filed for unemployment insurance benefits, but the Department of Labor denied his claim. Rather than appealing the agency‘s decision, he filed suit in circuit court for wrongful discharge. He argued that he had a separate
A reexamination of the authorities on the exhaustion doctrine lеads us to the conclusion that the trial court erred by applying the doctrine in this case. By definition, the exhaustion doctrine applies only to disputes cognizable by an administrative agency. Zar, supra; Gottschalk, supra. In other words, a party must exhaust all available administrative remedies only if the agency actually has authority to deal with the particular question raised. In this case, the only dispute cognizable by the Department of Labor was whether or not Johnson was eligible for unemployment insurance benefits.
This result is consistent with the general rule that administrative agencies have only such adjudicatory jurisdiction as is conferred upon them by statute. Springville Com. Sch. Dist. v. Iowa Dept. of Pub. Inst., 252 Iowa 907, 109 N.W.2d 213 (1961); Montana Bd. of Nat. Res. & Con. v. Montana Power Co., 166 Mont. 522, 536 P.2d 758 (1975); 2 Am.Jur.2d Administrative Law § 328.
Even if part of the wrongful termination of employment issue is cognizable by the Department of Labor, the facts of the case bring it within one of the exceptions to the exhaustion doctrine. It is well settled that exhaustion is not required when the administrative remedies are inadequate. N.L.R.B. v. Industrial Union of Marine & Ship Wkrs., 391 U.S. 418, 88 S.Ct. 1717, 20 L.Ed.2d 706 (1968); K. Davis, Administrative Law Treatise § 26:11 (2d ed. 1983); B. Schwartz, Administrative Law § 173 (1976). Thе record shows that if Johnson had been awarded unemployment compensation by the agency, the
2. RES JUDICATA
Although the trial court based its decision solely on the exhaustion doctrine, it may be argued that the trial court‘s decision should be affirmed under the doctrine of res judicata. In Weatherwax, supra, Justice Wuest filed a separate opinion arguing that the exhaustion doctrine should not be applied since the plaintiff did not have an administrativе remedy for wrongful discharge. Justices Wuest and Wollman would have affirmed using the theory of issue preclusion, a branch of res judicata, under which administrative findings may be afforded res judicata effect provided they meet certain procedural requirements. 372 N.W.2d at 121.
The doctrine of res judicata may be applicable to appeals from administrative agencies. The filing of a claim for unemployment benefits may also preclude a separate action for wrongful terminаtion, whether based on statute, contract or tort, if the plaintiff‘s claims were within the agency‘s jurisdiction and were actually determined by the agency. For example, in Weatherwax the only claim asserted was the wrongful termination claim which was based on the employee‘s repeated violations of instructions concerning stale products. Since the Department of Labor examined all of the facts surrounding Weatherwax‘s termination in rendering its decision on unemployment benefits, its decision had res judicata effect. However, res judicata does not operate to bar those claims which were not raised before the administrative agency and over which the agency did not have jurisdiction. Patzer v. Bd. of Regents of Univ. of Wis. System, 763 F.2d 851 (7th Cir.1985); McKee v. County of Ramsey, 310 Minn. 192, 245 N.W.2d 460 (1976); see also United States v. Radio Corp. of America, 358 U.S. 334, 79 S.Ct. 457, 3 L.Ed.2d 354 (1959). Since Johnson‘s claims of breach of employment contract and severance contract, wrongful termination, fraud, and breach of fiduciary duty were not raised before the Department of Labor, and since the Department of Labor does not have jurisdiсtion over such claims, the agency‘s ruling on unemployment insurance benefits has no res judicata effect in this lawsuit.
We overrule Weatherwax to the extent that it is inconsistent with this opinion. We also note that the facts in Tombollo are clearly distinguishable since Tombollo‘s claim was cognizable by the administrative agency. 342 N.W.2d at 25. Since neither the doctrine of exhaustion of administrative remedies nor res judicata are applicable in this case, the trial court erred in granting summary judgment and in dismissing Johnson‘s complaint.
We reverse and remand.
WUEST, C.J., and MORGAN and MILLER, JJ., concur.
HENDERSON, J., dissents.
HENDERSON, Justice (dissenting).
Johnson was fired fоr work-connected misconduct as he did not adhere to a company directive. Johnson elected to pursue redress through administrative procedure for unemployment benefits and filed a claim for such benefits in April 1985. On May 3, 1985, the South Dakota Department of Labor ruled that Johnson was ineligible for benefits because he was discharged for work-connected misconduct. It must be remembered that Johnson began the administrative procedure seeking unemployment benefits. When he lost, and when he was losing, he quit. Johnson was advised that the ruling would be final unless he filed an appeal within nine days after the mailing of
Johnson then instituted a lawsuit on four theories all without exhausting his administrative remedies.
In Weatherwax v. Hiland Potato Chip Co., 372 N.W.2d 118 (S.D.1985), Weatherwax started his civil litigation while his claim for unemployment benefits was still in the process of being decided before an administrative agency. Weatherwax instituted civil litigation while administrative proceedings were ongоing. This is very similar to the course of action Johnson pursued. Like Weatherwax, Johnson wanted to be in two worlds simultaneously. In Weatherwax, the administrative proceeding had not come to a grinding halt when Weatherwax decided to sue; yet, here the administrative proceeding came to a unilateral halt at an earlier stage because Johnson failed to file an appeal.
An expressed basis for the Weatherwax decision was that the doctrine of exhaustion of administrative remedies “permits the administrative agency to exercise its discretion, apply its expertise, and make a factual record upon which to base subsequent judicial review.” Id., at 120.2 See 5 B. Mezines, J. Stein & J. Gruff, Administrative Law § 49.01 (rev. ed. 1987). To allow a party who has initiated an administrative action to then abort that action, before the administrative process is complete, and commence a lawsuit (even one tangentially related) is unwise. Such a procedure would discourage use of agencies’ proven abilities to address problems within their statutory ambit and foster a heavy reliance on our already overburdened judicial system. In this case, the majority opinion is absolutely correct in its observation that an administrative proceeding and a judicial action differ in their underlying areas of inquiry. But, it erroneously overlooks the primary reality that both proceedings stem from a singular, inseparable factual episode and, at least, some of those
Johnson would have us believe, and the majority opinion supports him, that he can start a proceeding before an administrative body seeking money; then, when he loses, he may shift his position—totally abandoning the administrative avenue—and institute a lawsuit. What will this type of procedure avail our settled law in this state? Johnson chose an institutionalized mechanism (statutory) for unemployment adjudication, namely, the Unemployment Division of the Department of Labor of the State of South Dakota. See
With the advent of this decision, this state has entered into the creation of new torts, i.e., lawsuits, against employers by employees. This, notwithstanding a codification of the employment-at-will rule via
Therefore, primarily based upon a failure to exhaust administrative remedies, and being thereby precluded from bringing various causes of action based upon wrongful discharge, I would affirm the circuit court and hereby respectfully dissent.