S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
D. Carroll Garris, Respondent/Appellant,
v.
The Governing Board of
the South Carolina
Reinsurance Facility and
the South Carolina
Reinsurance Facility, Appellants/Respondents.
Appeal From Richland County
John W. Kittredge, Circuit Court Judge
Opinion No. 24871
Heard November 4, 1998 - Filed December 29, 1998
AFFIRMED IN PART; REVERSED IN PART;
REMANDED.
Thomas C. Salane of Turner, Padget, Graham &
Laney, P.A., Columbia, for Appellants/Respondents.
Thornwell F. Sowell of Sowell, Todd, Laffitte, Beard
& Watson, L.L.C., Columbia; and Jeffrey A. Jacobs of
Nelson Mullins Riley & Scarborough, L.L.P.,
Columbia, for Respondent/Appellant.
WALLER, A.J.: This appeal follows the circuit court's reversal of
the decision of the Board of Governors (the Governing Board) of the South
p.5
GARRIS v. GOVERNING BOARD
Carolina Reinsurance Facility (Facility) to revoke D. Carroll Garris's (Garris)
status as a designated agent. We affirm in part, reverse in part, and remand
for further proceedings.
FACTS
Garris, a licensed insurance agent, is a designated agent of
Facility.1 Prompted by an audit performed by one of Facility's servicing
carriers, Facility began investigating allegations of underwriting irregularities
at Garris's agency in mid-1993. Facility issued a notice of hearing and rule
to show cause seeking to revoke Garris's status as a designated agent in
December 1993. Facility alleged Garris had improperly classified private
risks as commercial risks (which have lower premiums that are not subject
to recoupment fees), insured "phantom" vehicles, wrote duplicate coverages,
endorsed policies to insure additional vehicles after a policy had been
canceled, and violated trust accounting procedures.
The Governing Board voted in November 1994 to revoke Garris's
status as a designated agent. Garris petitioned the circuit court for review.
The circuit court, following additional discovery, reversed the Governing
Board's decision in November 1997. Both parties how appeal the circuit court's
decision.
1 Facility is an unincorporated, nonprofit entity created by statute in
1974 to provide high-risk drivers with automobile insurance not available
through the voluntary market. Facility imposes recoupment charges, based
upon a person's driving record, upon all drivers to recover its losses. In
addition to high-risk drivers ceded to Facility by voluntary insurers, Facility
authorizes designated agents such as Garris to sell policies offered by
servicing carriers to high-risk drivers.
Facility will cease to operate in its present form by 2006 under the new
system of automobile insurance the Legislature enacted in 1997. See S.C.
Code Ann. 38-77-510 to -630 (1989 & Supp. 1997). Facility on March 1,
1999, will stop accepting new policies written by designated agents.
Designated agents may continue to earn commissions on renewals of existing
policies until 2002. S.C. Code Ann. 38-77-590 to -595 (Supp. 1997).
p.6
GARRIS v. GOVERNING BOARD
ISSUES
1. Did the circuit court err in ruling that Governing
Board members who voted to revoke Garris's status
as a designated agent acted as prosecutor and
adjudicator in violation of Article 1, Section 22 of the
state constitution?
2. Did the circuit court err in ruling that the doctrine of
res judicata bars Garris's argument about the
composition of the Governing Board?
3. If res judicata does not bar Garris's argument, did
the circuit court err in ruling that the composition of
the Governing Board violates Article III, Section 1 of
the state constitution?
4. Did the circuit court err in ruling that proxies were
properly exercised and a quorum was present at
Garris's hearing before the Governing Board?
1. ARTICLE 1, SECTION 22
The circuit court reversed the Governing Board's decision to
revoke Garris's status as a designated agent, finding the procedure followed
by Facility unconstitutional. Under the state constitution, a person shall not
"be subject to the same person for both prosecution and adjudication." S.C.
Const. art. 1, 22.2Facility now argues the circuit court erred for three
reasons.
2 Section 22 states, in full:
No person shall be finally bound by a judicial or quasi-judicial
decision of an administrative agency affecting private rights
except on due notice and an opportunity to be heard; nor shall he
be subject to the same person for both prosecution and
adjudication; nor shall he be deprived of liberty or property
unless by a mode of procedure prescribed by the General
Assembly, and he shall have in all such instances the right to
judicial review.
p.7
GARRIS v. GOVERNING BOARD
A. FACILITY IS AN ADMINISTRATIVE AGENCY
Facility contends it is a private organization that merely acts as
a statutory agent for the automobile insurance industry. Facility argues it
receives no state funding, has no rule-making authority, and is subject to
regulation by a state agency, the South Carolina Department of Insurance.
Consequently, Facility argues it is not an "administrative agency" for
purposes of Article I, Section 22 under the statute creating it or the
Administrative Procedure Act (APA), S.C. Code Ann. 1-23-10 to -660 (1986
& Supp. 1997). We disagree.
An agency "means each state board, commission, executive
department or officer, other than the legislature or the courts, authorized by
law to make regulations or to determine contested cases." S.C. Code Ann.
1-23-10(1) (1986) (emphasis added); accord S.C. Code Ann. 1-23-310(l)
(Supp. 1997) (agency "means each state board, commission, department or
officer, other than the legislature or the courts, but to include the
Administrative Law Judge Division, authorized by law to determine contested
cases"). It is true that Facility, a statutory creature, "is subject to
regulations and orders promulgated by the director [of the Department of
Insurance] or his designee." S.C. Code Ann. 38-1-20(16) and 38-77-510
(Supp. 1997).
Facility clearly possesses rule-making authority in the area of
automobile insurance, a subject that touches the life of most South
Carolinians. See S.C. Code Ann. 38-77-520 (8upp. 1997) (every automobile
insurer in South Carolina is bound by Facility's plan of operation as approved
by the director of the Department of Insurance and by rules lawfully
prescribed by Facility's Governing Board); S.C. Code Ann. 38-77-596 to -610
(Supp. 1997) (Facility must calculate and file recoupment fees that are
assessed on all automobile insurance policies in South Carolina, and changes
in rates are subject to public hearing pursuant to APA). See also Garris v.
Governing Board of South Carolina Reinsurance Facility, 319 S.C. 388, 461
S.E.2d 819 (1990) (applying APA to remand case for failure to exhaust
administrative remedies); Moore v. South Carolina Reinsurance Facility, 297
S.C. 276, 376 S.E.2d 510 (1989) (applying APA in deciding whether Facility
properly refused to certify each of designated agent's existing locations);
Grain Dealers Mut. Ins. Co. v. Lindsay, 279 S.C. 355, 306 S.E.2d 860 (1983)
(upholding Facility's power to enact rules regarding the distribution of
Facility losses); Mungo v. Smith, 289 S.C. 560, 347 S.E.2d 514 (Ct. App.
1986) (applying APA to decide that designated agent's status may not be
p.8
GARRIS v. GOVERNING BOARD
revoked arbitrarily, but must be based upon substantial evidence); S.C. Code
Ann. 38-77-510 (Supp. 1997) (designating Facility as a "using agency,"
which is defined as "any governmental body of the State which utilizes any
supplies, services, or construction purchased" under state Procurement Code).
Facility has the authority to assign the status of designated agent
to an individual, as well as the authority to revoke that designation. S.C.
Code Ann. 38-77-590 to -595 (Supp. 1997). Facility argues it does not
decide "contested cases" as such cases are defined in the APA. See S.C. Code
Ann. 1-23-310(2) (Supp. 1997) (contested case "means a proceeding,
including but not restricted to ratemaking, price fixing, and licensing, in
which the legal rights, duties or privileges of a party are required by law to
be determined by an agency after an opportunity for hearing"). Nevertheless,
Facility assured Garris during the course of its investigation that "a full
contested type hearing will be offered to you at which time your response can
be as full and complete as you deem appropriate." Facility concedes in its
brief that, while it does not believe it is an administrative agency, it "has no
objection to following due process standards applicable under the APA in all
hearings before the Board."
We have interpreted Section 1-23-310(2) to mean that a "contested
case" is one in which an agency is required by law to determine a party's
rights after an opportunity for a hearing. League of Women Voters of
Georgetown County v. Litchfield-by-the- Sea, 305 S.C. 424, 426, 409 S.E.2d
378, 380 (1991); Triska v. Dep't of Health and Envtl. Control, 292 S.C. 190,
196, 355 S.E.2d 531, 534 (1987). No statute explicitly requires Facility to
hold a hearing before revoking an agent's status as a designated agent;
therefore, Garris's case is not a "contested case" as defined in the APA.
However, we also have held that Article 1, Section 22 requires an
administrative agency to give procedural due process to parties that come
before it even though a matter may not be a "contested case" as defined in
the APA. See League of Women Voters of Georgetown County, supra (finding
that certification process as outlined in then prevailing statutes and
regulations was not a "contested case" as defined in APA, which meant
League was not entitled to a hearing under APA; but concluding League was
entitled to notice, a hearing, and judicial review under Article I, Section 22);
Stono River Envtl. Protection Ass'n v. South Carolina Dep't of Health and
Envtl. Control, 305 S.C 90, 93, 406 S.E.2d 340, 342 (1991) (stating same
principle).
p.9
GARRIS v. GOVERNING BOARD
We affirm the circuit court's ruling and hold that Facility is an
administrative agency because it meets the rule-making component of the
APA definition. See Mungo v. Smith, supra (where a statute contains two
clauses which prescribe its applicability and the clauses are connected by the
disjunctive "or," application of the statute is not limited to cases falling
within both clauses, but applies to cases falling within either). Accordingly,
Facility must comply with the procedural due process protections established
in Article I, Section 22 even though Garris's case is not a "contested case" as
defined in the APA.
B. SAME PERSONS AS PROSECUTOR AND ADJUDICATOR
Facility argues the "same persons" were not engaged in both the
prosecution and adjudication of Garris's case. We disagree.
The Governing Board oversees Facility operations by considering
matters in various committees, which make recommendations to other
committees and the Governing Board. Governing Board member James
Lingle was present as a member at an Audit Committee meeting October 20,
1993. Governing Board members Jim Thompson, Clark Hobbie, Thomas
Kepley, C.M. Dinwiddie, and Frank Lee were present as observers at the
meeting. Larry Griner, who is not a Governing Board member but ultimately
exercised another member's proxy and voted on the Garris matter, also was
present as an observer. Garris was not present or represented at the meeting.
At that meeting, a Facility auditor who had examined Garris's
records and practices reported her findings in detail. The Audit Committee,
following a "lengthy discussion," unanimously voted to refer the matter the
Designated Agent Committee, the Operating Committee, and the state
Department of Insurance.
Governing, Board members Jim Thompson, Robert Herlong, Phillip
Love, Thomas Reichard, and Arthur Ivey were present as members at an
Operating Committee meeting October 29, 1993. Governing Board members
Steve Dennis, Hobbie, Randall Thompson, and Lee were present as observers
at the meeting. Non-member Griner again was present as an observer.
Garris was not present or represented at the meeting.
At that meeting, a Facility official discussed the auditor's report
on Garris, called members' attention to the auditor's written report that was
p.10
GARRIS v. GOVERNING BOARD
attached as an exhibit to the agenda, and described the Audit Committee's
earlier motion. Committee members discussed the Garris matter in executive
session.
Governing Board members Hobbie, Kepley, and Lee were present
as members at a Designated Agent Committee meeting December 13, 1993.
Non-member Griner again was present as an observer. Garris appeared and
answered the committee's questions.
At that meeting, the committee discussed the matter in executive
session, then had a "lengthy discussion" about it in open session. The
committee voted unanimously to recommend that the Governing Board revoke
Garris's status as a designated agent. The committee further recommended
that the Governing Board hold a special meeting to consider the matter.
Facility served a notice and rule to show cause upon Garris on December 20,
1993, requiring him to appear before the Governing Board.
Of the members named above, Dennis, Jim Thompson, Herlong,
Hobbie, and Love attended the three-day hearing on the Garris matter in
August 1994. All voted in favor of revoking Garris's status as a designated
agent on November 21, 1994. Non-member Griner also attended the hearing
as the holder of Randall Thompson's proxy. Griner exercised the proxy to
vote in favor of revoking Garris's status. The Governing Board voted 8-2 to
revoke Garris's status.
Reichard and Lee also attended the entire hearing. Reichard did
not vote because Garris was a designated agent of his company. See S.C.
Code Ann. 38-77-585 (Supp. 1997) (prohibiting member from voting on any
issue materially affecting the member's employer). Lee recused himself
because he had considered the matter in committee. Lee also was chairman
of the Designated Agent Committee at the time, and had referred the Garris
matter for investigation as early as May, 1993 after hearing reports of
underwriting irregularities at Garris's agency. Lee testified the purpose of
the Designated Agent Committee meeting was to gather information about
Garris's case.
Kepley did not attend the hearing but gave his proxy to Love,
instructing him before the hearing to vote to revoke Garris's status. Love
refused to accept the proxy in that fashion, so Kepley gave him an
p.11
GARRIS v. GOVERNING BOARD
unconditional proxy.3
The bottom line is that five Governing board members and one
non-member attended, as a member or observer, one or more committee
meetings at which the Garris matter was discussed extensively in open and
executive sessions. All six voted to revoke Garris's status as a designated
agent. Of those six, four (Jim Thompson, Herlong, Hobbie, and Love) were
members of the committees which considered the Garris matter. In addition,
two other Governing Board members attended one or more committee
meetings and the entire hearing, but did not vote.
Facility now contends the circuit court erred in finding the
procedure unconstitutional because none of the committee members -- except
Hobbie -- voted or participated in the hearing. The Governing Board would
have revoked Garris's status even without Hobbie's vote, Facility argues.
Facility addresses only the Audit and Designated Agent Committee meetings
in its brief. At oral argument, Facility dismissed the Operating Committee
meeting as irrelevant because no vote was taken.
The court may reverse or modify the decision of an administrative
agency when an appellant's substantial rights have been prejudiced because
the agency's findings, inferences, conclusions, or decisions are, among other
things, in violation of constitutional or statutory provisions, or made upon
unlawful procedure. S.C. Code Ann. 1-23-380(A)(6) (Supp. 1997).
"[A] fair trial in a fair tribunal is a basic requirement of due
process, [and] [t1his applies to administrative agencies which adjudicate as
well as to courts." Withrow v. Larkin, 421 U.S. 35, 46, 905 S.Ct. 1456, 1464,
43 L.Ed.2d 712, 723 (1975) (upholding process in which state medical board
suspended physician's license after investigating and hearing the case). The
fact that investigative, prosecutorial, and adjudicative functions are performed
within the same agency, or even performed by the same persons within an
agency, does not, without more, constitute a violation of due process. "That
3 Kepley's proxy was not exercised because Governing Board Chairman
John Richards did not allow any board member to exercise the proxy of
another member who was not present for the entire hearing. Richards did
allow non-board members (Griner and Nancy Coombs) to exercise their
proxies in the vote because they represented their respective board members
and were present for the entire hearing.
p.12
GARRIS v. GOVERNING BOARD
is not to say that there is nothing to the argument that those who have
investigated should not then adjudicate," and a court facing special facts and
circumstances in a particular case may determine that dual roles are
impermissible. Id. at 51-58, 95 S.Ct. at 1466-70, 43 L.Ed.2d at 726-29.
Agency officials or members who adjudicate a matter are presumed to be
honest, fair, and unbiased. A party challenging the combination of
investigative and adjudicative functions must convince the court that, under
a realistic appraisal of psychological tendencies and human weakness,
conferring both functions on the same individuals poses such a risk that it
is likely to violate due process. Id. at 47, 95 S.Ct. at 1464, 43 L.Ed.2d at
724.
While Withrow v. Larkin established the parameters of due
process safeguards in administrative proceedings under the federal
constitution, Article 1, Section 22 of our constitution explicitly addresses
procedural due process in such proceedings. Section 22 provides for notice,
an opportunity to be heard, an impartial adjudicator, and judicial review. We
have recognized that Section 22 is an additional guarantee of important due
process rights, enacted in 1970 as legislators and judges noticed the
increasing prevalence and influence of administrative agencies in daily life.
See Ross v. Medical Univ. of South Carolina, 328 S.C. 51, 492 S.E.2d 62
(1997).
In Ross, we found the purpose of Section 22 "is to ensure
adjudications are conducted by impartial administrative bodies. Partiality
exists where, among others, an adjudicator has ex parte information as a
result of prior investigation or has developed, by prior involvement in the
case, a will to win."' Id. at 69, 492 S.E.2d at 72. We did not find a violation
of Section 22 where the university's president investigated a tenured
professor's conduct, terminated the professor, and then testified against him
at a committee hearing. The president' did not later participate as an
adjudicator, and he did not improperly consider ex parte information. Id.
However, we did find a violation of Section 22 where a university vice-
president investigated the professor's case, testified as an adverse witness at
a committee hearing, and sat as the intermediate judge in a three-step
disciplinary procedure. Id. at 70, 492 S.E.2d at 72.
We hold that Facility violated Article 1, Section 22 because the
same persons served as prosecutor and adjudicator. We disagree with
Facility's effort to ignore the Operating Committee meeting, which obviously
was part of the investigative and prosecutorial processes because the Garris
p.13
GARRIS v. GOVERNING BOARD
matter was referred to it. When all three committee meetings are considered,
it is clear that five Governing Board members and one non-member attended,
as a member or observer, one or more committee meetings at which the
Garris matter was discussed extensively in open and executive sessions. At
only one of those committee meetings was Garris given a chance to respond.
All five members and the one non-member later sat as adjudicators and voted
to revoke Garris's status as a designated agent.
We also disagree with Facility's effort to describe the process as
one in which Governing Board members were "merely exposed" to the charges
and facts of the case. Kepley's attempt to give a fellow board member his
proxy to vote in favor of revoking Garris's status plainly shows that at least
one member had formed an opinion before the hearing. But Kepley's action,
while relevant and revealing, is not primarily what leads us to conclude that
Garris did not receive procedural due process because members or officials of
an agency who adjudicate a matter are presumed to be honest, fair, and
unbiased. See Withrow v. Larkin, supra; City of Alma v. United States, 744
F. Supp. 1546, 1561 (S.D. Ga. 1990) (an agency official is not deemed unfit
to perform her statutory duty merely because she previously has taken a
position on issues related to the case before her, even if she expressed her
opinion publicly).
Instead, what leads us to conclude that Garris did not receive
procedural due process is the inherently flawed structure of the investigative
and prosecutorial processes that placed future adjudicators in situations
where they had the opportunity to form such premature opinions. Although
Hobbie may have been the only committee member who actually voted both
for the investigation to continue and to revoke Garris's status as a designated
agent, the other five members heard and engaged in extensive debate about
Garris's case in committee meetings before the hearing. We agree with the
circuit court that Governing Board members were intimately involved in the
investigative and prosecutorial processes as committee members.
We further agree with the circuit court's decision to reject as
incredible the testimony of Governing Board members who insisted they
either could not remember committee discussions or based their decision
solely on evidence presented at the hearing. Allowing an agency official or
board member to sidestep Article 1, Section 22 merely by stating, in rote
fashion, that he or she based a decision only on evidence presented at the
hearing would render the constitutional prohibition a nullity.
p.14
GARRIS v. GOVERNING BOARD
In short, under a realistic appraisal of psychological tendencies
and human weakness, we conclude that Governing Board members who
participate in the investigation or prosecution of a designated agent as a
member or observer at a committee meeting may not participate as
adjudicators of that agent's case at a subsequent hearing. Members who
participate in the investigation or prosecution of a case must distance
themselves from the adjudicatory process, and should refrain from even
discussing that case with future adjudicators. See Withrow v. Larkin, supra.
Such a rule will reduce or eliminate adjudicators' exposure to ex parte
information, as well as the inevitable human tendency to develop a will to
win. See Ross v. Medical Univ. of South Carolina, supra.
Our view is consistent with the approach taken by most courts
today. Courts generally discourage agency staff and members from
simultaneously acting as investigator, prosecutor, and judge.4 "It is proper
to have some blend of judicial and prosecutorial functions in an
administrative proceeding, provided that the person performing the quasi-
prosecutorial function is not a member of the decision-making body." Waste
Mgt. v. Pollution Control Bd., 530 N.E.2d 682, 694 (111. Ct. App. 1988).
Accord Babcock Center, Inc. v. Office of Audits, 286 S.C. 398, 334 S.E.2d 112
(1985) (holding that administrative agency may adjudicate appeals by panels
composed of other persons within the same agency who did not participate
in investigative or prosecutorial capacities); 4 Stein, Mitchell, and Mezines,
Administrative Law, 33.02[l] to [4] (1998) (discussing separation of
functions and stating that such conflicts can easily be avoided by isolating
agency personnel or board members into investigatory, prosecution, and
adjudicatory positions).5
4The United States Supreme Court in Withrow v. Larkin and other
courts have noted that the federal Administrative Procedures Act prohibits
agency staff from serving in dual roles, but specifically exempts agency board
members from that prohibition. E.g., Blinder. Robinson and Co. v. SEC, 837
F.2d 1099, 1104-07 (D.C. Cir. 1988) (citing 5 U.S.C.A. 554(d) (1996)).
Article I, Section 22, of our constitution contains no such distinction between
agency staff and board members.
5 See also Pope v. Mississippi Real Estate Comm'n, 695 F. Supp. 253,
285 (N.D. Miss. 1988) (finding no due process violation where staff
investigated a real estate agent, a commissioner from outside the agent's
(continued ... )
p.15
GARRIS v. GOVERNING BOARD
C. HARMLESS ERROR
Facility contends any error in the handling of Garris's case,
including bias by persons not serving as adjudicators and exposure by
adjudicators to committee activities, is harmless error and provides no basis
for reversing the board's decision. We disagree.
In Ross v. Medical Univ. of South Carolina, supra, we found the
vice-president's participation as an investigator, witness, and intermediate
judge to be harmless error because the university's board independently
reviewed the record of the committee hearing, heard oral arguments from the
parties, and conducted its own deliberations. Id., 328 S.C. at 70, 492 S.E.2d at 7 2.
In this case, the Governing Board acted as the final adjudicator
in Garris's case. Five members and one-non member participated as
members or observers in prior committee meetings where Garris's case was
extensively discussed. Those six persons sat in judgment of Garris at the
hearing and cast six of the eight votes to revoke his status as a designated
agent. We conclude the structure of the proceeding in this case was so
inherently flawed that it is not subject to harmless error analysis. Cf.
Arizona v. Fulminante, 499 U.S. 279, 307-09, 111 S.Ct. 1246, 1263-64, 113
L.Ed.2d 302, 329-31 (1991) (dividing constitutional errors into "trial errors"
and "structural defects," with the latter defying analysis by harmless error
standards because they affect the framework within which a trial proceeds,
rather than simply an error in the trial process itself); State v. Byrd, 318
S.C. 247, 456 S.E.2d 922 (Ct. App. 1995) (same).
5( ... continued)
district decided whether the case should go forward, and the commissioners
who heard and decided the case did not participate in the investigation), aff'd,
872 F.2d 127 (5th Cir. 1989); Ridgewood Properties, Inc. v. Dep't of
Community Affairs, 562 So.2d 322 (Fla. 1990) (finding violation of state and
federal due process where department head testified in an administrative
hearing and later reviewed the hearing officer's order); Manka v. Tipton, 805
P.2d 1203, 1206 (Colo. Ct. App. 1991) (upholding decision in tax case decided
by deputy director in administrative hearing where taxpayer presented no
evidence that director investigated the case); 73A C.J.S. Public Administrative
Law and Procedure 138(c) (1983); 2 Administrative Law 313 (1994);
West's Digests Administrative Law Key No 445.
p.16
GARRIS v. GOVERNING BOARD
In sum, we conclude Facility is an administrative agency, the
same persons served as both prosecutors and adjudicators in violation of
Article I, Section 22, and the process was so inherently flawed that it is not
subject to harmless error analysis.
2. RES JUDICATA
Garris, in a declaratory judgment action brought after Facility
filed the notice and rule to show cause, sought to enjoin Facility from
proceeding against him. Garris filed a notice of appeal and a petition for
supersedeas after the circuit court denied relief. We declined to stay the
proceeding before the Governing Board, but stayed review of any disciplinary
action which adversely affected Garris's status as a designated agent pending
judicial review of the Governing Board's decision. We ultimately affirmed the
circuit court, holding that Garris must first exhaust his administrative
remedies. We also addressed Garris's argument, holding that the APA does
not require Facility to give him time to correct any deficiencies, but only
requires Facility to give him an opportunity to show he had complied with
the law. Garris v. Governing Board of South Carolina Reinsurance Facility,
319 S.C. 3881 461 S.E.2d 819 (1995) (Garris I).
In his petition to the circuit court following the Governing Board's
decision to revoke his status as a designated agent, Garris argued the
composition of the board is unconstitutional under Article III, Section 1 of the
state constitution.6 The circuit court ruled the argument was barred by the
doctrine of res judicata. Garris contends the circuit court erred because res
judicata does not bar his argument. We agree.
"Res judicata bars a subsequent suit by the same parties on the
same issues. Res judicata is shown if (1) the identities of the parties is the
same as a prior litigation; (2) the subject matter is the same as the prior
litigation; and (3) there was a prior adjudication of the issue by a court of
competent jurisdiction." Johnson v. Greenwood Mills, Inc., 317 S.C. 248, 250,
6 Article III, Section 1, states:
The legislative power of this state shall be vested in two distinct
branches, the one to be styled the "Senate" and the other the
"House of Representatives," and both together the "General
Assembly of South Carolina."
p.17
GARRIS v. GOVERNING BOARD
452 S.E.2d 832, 833 (1994) (citations omitted). "A litigant is barred from
raising any issues which were adjudicated in the former suit and any issues
which might have been raised in the former suit." Hilton Head Center of
South Carolina, Inc. v. Pub. Service Comm'n of South Carolina, 294 S.C. 9,
11, 362 S.E.2d 176, 177, (1987); see also James F. Flanagan, South Carolina
Civil Procedure 649-55 (1996) (explaining three basic tests used in res
judicata analyses). The primary purposes of the doctrine, commonly known
today as claim preclusion, are to bring an end to litigation and prevent a
defendant from being forced to defend the same action repeatedly. See 50
C.J.S. Judgment 697, 702 (1997).
Res judicata or claim preclusion, however, is not always an
ironclad bar to a later lawsuit.
A valid and final personal judgment for the
defendant, which rests on the prematurity of the
action or on the plaintiffs failure to satisfy a
precondition to suit, does not bar another action by
the plaintiff instituted after the claim has matured,
or after the precondition has been satisfied, unless a
second action is precluded by operation of the
substantive law.
Restatement (Second) of Judgments 20(2) (1982). Accord Allen v. Southern
Ry. Co., 218 S.C. 291, 62 S.E.2d 507 (1950) (plaintiff's voluntary dismissal of
first action leaves situation as though no suit had ever been brought;
subsequent, nearly identical action is not barred by res judicata even though
plaintiff appealed first action to Supreme Court, which held that voluntary
dismissal was inappropriate and premature); Gault v. Spoon, 168 S.C. 160,
167 S.E. 229 (1932) (where first action did not proceed to a conclusion
because it was dismissed for failure to execute a proper bond, res judicata did
not bar subsequent action on same transaction). See also Cooter & Gell v.
Hartmax Corp., 496 U.S. 384, 396, 110 S.Ct. 2447, 2456, 110 L.Ed.2d 359,
376 (1990) (a dismissal without prejudice is not an adjudication upon the
merits and does not have res judicata effect); McEachern v. Black, 329 S.C.
642, 496 S.E.2d 659 (Ct. App. 1998) (same).
Furthermore, dismissal of a prior lawsuit without prejudice, on
the ground that a party failed to exhaust administrative remedies, does not
mandate dismissal of an identical cause of action in a subsequent suit.
Bowden v. United States, 106 F.3d 433, 441 (D.C. Cir. 1997); Wright, Miller,
p.18
GARRIS v. GOVERNING BOARD
& Cooper, Federal Practice and Procedure, 4437 (1981). "When applying
res judicata to causes of action that were not before the court in the prior
action, due process of law and the interest of justice require cautious
restraint. Restraint is particularly warranted when the prior action was
dismissed on procedural grounds." Kearns v. General Motors Corp., 94 F.3d
1553, 1556 (Fed. Cir. 1996) (concluding res judicata did not bar patent
infringement claims that were not before court in earlier case dismissed by
court).
The doctrine of res judicata does not bar Garris's argument
raising Article III, Section 1 because he could not properly have raised it or
any other arguments before exhausting his administrative remedies. The fact
the Court chose to address one of his arguments in a premature appeal does
not mean he now should be penalized for not raising every purely legal
challenge in that premature appeal. The purposes of res judicata -- bringing
an end to litigation and preventing a defendant from being forced to defend
the same action repeatedly -- are not met by applying the rule in this case.
We remanded the matter in Garris I, which meant the proceedings against
Garris continued and Facility had to continue its involvement in the matter.
Accordingly, we reverse the circuit court's ruling on this issue.
3. ARTICLE III, SECTION 1
The circuit court, in the interest of finality, ruled on the merits
of Garris's argument and found that the statute establishing the composition
of the Governing Board unconstitutionally delegates legislative appointment
power to private organizations. Facility contends the circuit court erred. We
disagree.
The director of the Department of Insurance must appoint six of
the insurance industry representatives on the Governing Board from lists of
nominees prepared by and drawn from the American Insurance Association
(two members), the American Mutual Insurance Alliance (two members), and
the National Association of Independent Insurers (two members). See S.C.
Code Ann. 38-77-580 (Supp. 1997).
We affirm the circuit court's ruling and hold that the delegation
in Section 38-77-580 of the Legislature's appointive powers to private
organizations violates Article III, Section 1. See Touissant v. State Bd. of
Medical Examiners, 285 S.C. 266, 329 S.E.2d 433 (1985) (striking down
statute which required Governor to select board members from list of
p.19
GARRIS v. GOVERNING BOARD
nominees submitted by private association, where those nominees by statute
had to belong to the private association); Gold v. South Carolina Bd. of
Chiropractic Examiners, 271 S.C. 74, 245 S.E.2d 117 (1978) (same); see also
Hartzell v. State Bd. of Examiners in Psychology, 274 S.C. 502, 265 S.E.2d
265 (1980) (upholding a statute which required Governor to select board
members from a list of nominees submitted by private association, where
statute did not require those nominees to belong to the private association).
Facility, attempting to distinguish Touissant and Gold, argues the
entire Governing Board is not drawn from the membership of private
associations that include only a portion of a particular type of professionals.
It is true that Governing Board includes other members, including four
consumer representatives, two insurer representatives who are not association
members, four producer representatives, and two designated agent
representatives. However, that does not change the fact that, in establishing
a method to choose six of the insurer representatives, the Legislature
unconstitutionally delegated its appointive powers to private organizations.
4. EXERCISE OF PROXIES
Facility's plan of operation requires that a quorum of eleven
members be present for a vote, and an action is binding when approved by
the majority of those present. The director of the Department of Insurance
may provide for voting by proxy at meetings. S.C. Code Ann. 38-77-580
(Supp. 1997). Governing Board Chairman John Richards initially counted
proxies in determining whether a quorum was present at the Garris hearing.
Richards ruled that only those members and proxy holders who had been
physically present for the entire three-day hearing could vote on the matter.
He later applied that same rule in determining whether a quorum was
present.
Nine board members7 and two proxy holders 8 were eligible to vote
7 Steve Dennis, Jim Thompson, Robert Herlong, Clark Hobbie, Phillip
Love, Gerry Huckaby, Chairman John Richards, David Rowell, and W.R.
Braddy.
8 Larry Griner, who exercised the proxy of board member Randall
Thompson; and Nancy Coombs, who exercised the proxy of board member
(continued ... )
p.20
GARRIS v. GOVERNING BOARD
under the rule, i.e., they were present in person during the entire hearing.
In addition, two other nonvoting board members9 were present during the
entire hearing. Five other board members were present only by proxy. 10
The circuit court ruled that a quorum was present either in
person or by proxy during the entire hearing, the nonvoting members could
be counted for purposes of a quorum, and the proxies held by Larry Griner
and Nancy Coombs were properly exercised.
Garris contends the circuit court erred because allowing proxy
holders Griner and Coombs, who were not board members, to vote violated
Garris's due process rights and was inherently unfair. While proxy holders
may vote at "routine" meetings, the Court should not allow them to vote in
important cases such as this one which have constitutional implications, he
argues. Under that reasoning, every member could have given his or her
proxy to a file clerk, who could then have decided his case, Garris argues.
Furthermore, because Griner and Coombs could not vote, they also could not
be counted for purposes of a quorum, Garris asserts. That means there was
no quorum of eleven, he contends. We disagree.
The persons legally responsible for an administrative agency's
decision must be informed and unbiased, must hear the case, and must in
fact make the decision. Flav-o-Rich, Inc. v. NLRB, 531 F.2d 358, 362 (6th
Cir. 1976); KFC Nat'l Mgt. Corp. v. NLRB, 497 F.2d 298, 304 (2d Cir. 1974).
Due process requires an administrative board, when acting in a quasi-judicial
capacity, to consider all the evidence before deciding a particular question.
This does not mean, however, that the administrative board must itself hear
the evidence. Staff or assistants may prepare and present the evidence,
which the administrative board must consider when rendering its decision.
Pettiford v. South Carolina State Board of Educ., 218 S.C. 322, 346, 62
S.E.2d 780, 791 (1950) (approving procedure in which two board members
heard testimony and reported it to full board.- which decided the matter). It
8(...continued)
Philip Porter.
9 Thomas Reichard and Frank Lee.
10 Thomas Kepley, C.M. Dinwiddie, James Lingle, Arthur Ivey, and
Bob Taylor.
p.21
GARRIS v. GOVERNING BOARD
is important, of course, that decision makers attend the hearing if possible.
See McCoy v. Easley Cotton Mills, 218 S.C. 350, 357, 62 S.E.2d 772, 775
(1950) (stating in workers' compensation case that "[o]rdinarily oral argument
is of much aid to any judicial or quasi-judicial body in reaching a proper
conclusion, [and] [o]nly circumstances of the most urgent nature are sufficient
to excuse a member's absence").
In the absence of any statutory or other controlling provision, the
common-law rule that a majority of a whole board is necessary to constitute
a quorum applies, and the board may do no valid act in the absence of a
quorum. Prosser v. Seaboard Airline R.R. Co., 216 S.C. 33, 44, 56 S.E.2d
591, 595 (1949); Gaskin v. Jones, 198 S.C. 508, 513, 18 S.E.2d 454, 456
(1942). A member who recuses himself or is disqualified to participate in a
matter due to a conflict of interest, bias, or other good cause may not be
counted for purposes of a quorum at the meeting where the board acts upon
the matter. Talbot v. James, 259 S.C. 73, 82, 190 S.E.2d 759, 764 (1972);
King v. New Jersey Racing Comm'n, 511 A.2d 615, 618 (N.J. 1986).
We affirm the circuit court's ruling and hold that proxy holders
Griner and Coombs appropriately participated in the Garris matter. Griner
was employed by same insurer who employed Randall Thompson, the board
member whose proxy he held. Coombs, a staff attorney at the Department
of Consumer Affairs, held the proxy of Consumer Advocate Philip Porter.
Due process does not require that only Governing Board members hear a
designated agent's case. See Pettiford, supra.11
Garris's reliance upon Flay-o-rich, supra, and KFC National
Management, supra, is misplaced because those cases are easily distinguished
on the facts. In Flav-o-Rich, the court held the National Labor Relations
Board could not delegate its authority to decide motions to the board's chief
counsel. In KFC National Management, the court held that allowing one
board member and two attorney assistants, who held the general proxies of
the other two board members, to decide petitions for review violated the
National Labor Relations Act and administrative due process. Drawing upon
those cases, Garris presents a hypothetical about all Governing Board
11 Griner's participation as a proxy holder was appropriate. His
participation as an observer at the three committee meetings and as an
adjudicator at the hearing was not appropriate, as explained in Issue 1.
Neither Coombs nor Porter attended the committee meetings.
p.22
GARRIS v. GOVERNING BOARD
members handing over their proxy to a clerk. While his hypothetical might
present due process problems, that is not what happened in this case.
We further conclude the circuit court correctly ruled that a
quorum was present. The record shows that eleven members, including
Griner and Coombs, were present in person for the entire hearing. Enough
members were present in person to form a quorum without even considering
the five other board members who had given their proxy to fellow board members.
CONCLUSION
We affirm the circuit court's ruling on Issue 1 that the procedure
employed by Facility in this case violated Article 1, Section 22 of the state
constitution. We reverse the circuit court's ruling on Issue 2 that the
doctrine of res judicata barred Garris's argument about the composition of the
Governing Board. We affirm the circuit court's ruling on Issue 3 that the
statute establishing the composition of the Governing Board violates Article
III, Section 1 of the state constitution. We affirm the circuit court's ruling
on Issue 4 that proxies were properly exercised and a quorum was present
at Garris's hearing before the Governing Board.
We remand this case to Facility for further proceedings consistent
with this opinion. Our disposition of the issues renders it unnecessary to
address Garris's remaining arguments.
FINNEY, C.J., TOAL, MOORE, and BURNETT, JJ., concur
p.23