author: SHUMAKER, Judge.

text:
    Sandra RUDEBECK, f/k/a Sandra Liddy, Plaintiff, v. Raymond PAULSON, defendant and third-party plaintiff, Appellant, v. Ford Motor Company, a Delaware corporation, third-party defendant, Respondent.
    No. C1-99-1574.
    Court of Appeals of Minnesota.
    June 27, 2000.

      Michael R. Quinlivan, Bethan M. Davies, Cronan Pearson Quinlivan P.A., Minneapolis, MN; and Katherine L. Mackinnon, St. Louis Park, MN (for appellant).
    W. Perry Brandt, Jocelyn A. Villanueva, Berkowitz, Feldmiller, Stanton, Brandt, Williams & Stueve, L.L.P., Kansas City, MO; and Kathryn Hipp Carlson, Miller & Hipp, P.L.L.P., Minneapolis, MN (for respondent).
    Considered and decided by SHUMAKER, Presiding Judge, HUSPENI, Judge, and PORITSKY, Judge.

       Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const, art. VI, § 10.

       Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const, art. VI, § 10.

   OPINION

SHUMAKER, Judge.

Appellant Raymond Paulson challenges the district court’s grant of summary judgment to respondent Ford Motor Company, contending genuine issues of material fact existed as to whether alleged defamatory statements were privileged and made with malice. He also challenges the denial of his request for indemnification from Ford for his attorney fees. We affirm as to summary judgment on the defamation claim but reverse the indemnification decision and remand.

FACTS

Respondent Ford Motor Company is a Delaware corporation with its principal place of business in Dearborn, Michigan. Ford operates a St. Paul plant at which Sandra Rudebeck and Raymond Paulson worked. In 1994, Paulson became the plant’s final area manager, one of the top-salaried positions. Rudebeck became a salaried supervisor in 1995.

In February 1996, another Ford supervisor asserted various claims against Ford including allegations of sexual harassment by Paulson. Gail Shirey, a personnel relations associate from Ford headquarters, conducted an investigation into the allegations against Paulson. She interviewed primarily female salaried employees, including Rudebeck. Shirey issued a report determining that Paulson’s behavior constituted sexual harassment. She recommended that he be demoted ahd transferred to another Ford .facility. Ford acted on her recommendation.

In 1997, Rudebeck sued Paulson, Ford, and another supervisor, alleging sexual harassment and related claims and defamation. Ford began discussing settlement with Rudebeck and informed Paulson. Paulson then brought claims against Ford and Rudebeck for defamation and related claims and sought indemnification from Ford.

Rudebeck settled with Ford and the other supervisor, and the district court granted summary judgment in favor of Ford on Paulson’s defamation claim. After dismissal and summary judgment of other counts, the issues that remained were: (1) Rudebeck’s claims against Paulson for sexual harassment and related claims and defamation; and (2) Paulson’s claim against Ford for indemnification. The jury found Paulson did not defame Rudebeck, and the district court ruled for Paulson on Rude-beck’s sexual harassment claims. The court denied Paulson’s request that Ford be ordered to indemnify him for his attorney fees.

The district court denied Paulson’s motion for amended findings on the indemnification claim and motion for amended judgment reinstating the defamation, claim against Ford. Paulson then filed a notice of appeal.

ISSUES

I. Are the allegedly defamatory statements protected by a qualified privilege, absent a showing of malice, because they were made on reasonable or probable grounds in the course of an investigation into alleged misconduct by an employee?

II. Is the employee, who prevailed in the sexual harassment lawsuit another employee brought against him, entitled to indemnification from his employer under Delaware law?

ANALYSIS

Standard of Review

When reviewing a summary judgment, an appellate court will determine whether there are any genuine issues of material fact and whether the district court erred in its application of law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). When reviewing a purely legal issue, a reviewing court is not bound by and need not defer to the district court’s decision. Frost-Benco Elec. Assn. v. Minnesota Pub. Utils. Commn., 358 N.W.2d 689, 642 (Minn.1984).

I.

For a statement to meet the legal standards for defamation,

it must be communicated to someone other than the plaintiff, it must be false, and it must tend to harm the plaintiffs reputation and to lower him in the estimation of the community.

Stuempges v. Parke, Davis Co., 297 N.W.2d 252, 255 (Minn.1980) (citations omitted). Even publishing a defamatory statement will not lead to liability if the statement is conditionally privileged and the privilege is not abused. Lewis v. Equitable Life Assurance Socy., 389 N.W.2d 876, 889 (Minn.1986). For a communication to be privileged, “it must be made upon a proper occasion, from a proper motive, and must be based upon reasonable or probable cause.” Stuempges, 297 N.W.2d at 256-57 (citation omitted). Statements made “in the course of investigating or punishing employee misconduct” are generally privileged, based on the employer’s interest in protecting against harmful employees. McBride v. Sears, Roebuck Co., 306 Minn. 93, 97, 235 N.W.2d 371, 374 (1975). Once it has been shown that a conditional privilege applies, the plaintiff must prove actual malice to recover. Stuempges, 297 N.W.2d at 257.

The district court determined as a matter of law that the alleged defamatory statements about Paulson made by Ford employees were privileged and that there was no evidence of malice. Paulson contends there was a factual question for the jury as to whether the Ford employees had reasonable or probable cause to make the statements and whether the statements were made with malice.

“Reasonable grounds can exist if a person has valid reasons for believing a statement, even though the statement later proves to be false.” Elstrom v. Independent Sch. Dist. No. 270, 533 N.W.2d 51, 55 (Minn.App.1995), review denied (Minn. July 27, 1995). In determining whether the statements were supported by reasonable or probable cause, courts will examine whether the employer took investigative steps. Wirig v. Kinney Shoe Corp., 461 N.W.2d 374, 380 (Minn.1990). We do not interpret this to mean that a mere assertion that the employer conducted an investigation will suffice; instead, the court will examine the precise nature and extent of the investigation to assess the facts supporting the defamatory allegations and the efforts the employer made to ascertain their accuracy.

Paulson contends the statements and reports about him were so biased and unsubstantiated that they do not show Ford had reasonable or probable cause for making the statements. We disagree. Unlike cases in which an employer makes allegations without investigation or identifying the source of complaints, Ford here conducted a thorough investigation, prompted by a complaint by another employee. Ford interviewed and took statements from a number of witnesses, reviewed Paulson’s history of similar complaints, and talked to Paulson himself. The investigation provided reasonable or probable grounds to support the statements concerning Paulson, which are therefore protected by a qualified privilege.

• Once a qualified privilege applies, the plaintiff must prove actual malice to recover. Stuempges, 297 N.W.2d at 257. Malice is “actual ill will, or a design causelessly and wantonly to injure plaintiff.” McBride, 306 Minn. at 98, 235 N.W.2d at 375. While the issue of whether actual malice is present is usually a jury question, in some circumstances, it may be subject to summary judgment. Wallin v. Minnesota Dep’t of Corrections, 598 N.W.2d 393, 402 (Minn.App.1999), review denied (Minn. Oct. 21, 1999).

Paulson contends there was sufficient evidence of malice on the part of those making the statements to allow the issue to go to the jury. He asserts that several of the individuals who made statements had a clear vendetta against him, and that the reports used exaggerated language and false representations. But Paulson himself admitted at his deposition that Shi-rey and Ford were just doing their job during the investigations and no personal grudges or vendettas were involved. He acknowledged there was no evidence that Shirey handled the investigation in such a way as to intentionally harm him. We agree with the district court that Paulson did not provide evidence showing there was a factual issue as to whether actual malice was present.

II.

Next, Paulson contends that the district court erred as a matter of law in holding that he was not entitled to indemnification from Ford under Delaware law. The district court ruled Ford need not indemnify Paulson under Delaware law because Rudebeck’s claim against him was not “by reason of the fact” that he was an employee, but based on his actions as an individual.

Before reaching the merits, we must dispose of several preliminary issues. Ford challenges this court’s jurisdiction to address the indemnification issue because Delaware law now provides that its court of chancery has exclusive jurisdiction over indemnification claims. Del.Code Ann. tit. 8, § 145(k) (Supp.1998); see Jinadu v. CenTrust Mortgage Corp., 517 N.W.2d 84, 86 (Minn.App.1994) (holding party may raise jurisdictional issue at any stage of proceedings), review denied (Minn. July 27, 1994). But a state legislature cannot create a transitory cause of action and confine its enforcement to its own courts. State ex rel. Bossung v. District Court, 140 Minn. 494, 498, 168 N.W. 589, 591 (1918). To determine whether a claim is local or transitory, courts will examine the nature of the claim. Wilson v. Celestial Greetings, Inc., 896 S.W.2d 759, 760-61 (Mo.Ct.App.1995) (holding that Delaware statute providing dissenting stockholder in Delaware corporation with right of appraisal, which is essentially a contract claim with terms supplied by Delaware law, was local action enforceable only in the Delaware Court of Chancery). The types of cases which are transitory and which may not be confined to a particular state’s courts usually involve personal injury or wrongful death, which are by their nature transitory. Id. at 761. Similarly, the indemnification claim, which will require an examination of the underlying case, is in the nature of a transitory action, which may be decided in Minnesota courts.

The next preliminary issue requires us to address which version of the Delaware statute applies. The Delaware legislature amended section 145(c) in 1997 to remove the right of employees or agents of the corporation to obtain mandatory indemnification. 71 Del. Laws ch. 120, § 5 (1997). But the revisor’s note explicitly provides that the section “shall become effective with respect to indemnification of expenses (including attorneys’ fees) for acts or omissions occurring on or after July 1, 1997.” Id., § 32. Because the acts or omissions here occurred before this date, the earlier version applies.

Finally, we address the merits of appellant’s claim for indemnification. Section 145(c) provides mandatory indemnification for any person who is a party to a lawsuit “by reason of the fact that he is or was a director, officer, employee, or agent of the corporation,” to the extent the person succeeds on the merits or in defense of any action. DeLCode Ann. tit. 8, § 145(a) (1991). This is a “mandatory provision that applies to all Delaware corporations and grants an absolute right of indemnification in such situations.” Witco Corp. v. Beekhuis, 38 F.3d 682, 691 (3d Cir.1994); see also Merritt-Chapman Scott Corp. v. Wolfson, 321 A.2d 138, 141 (Del.Super.Ct.1974). It has been broadly interpreted. Witco, 38 F.3d at 691.

The issue here is whether appellant was sued “by reason of the fact” that he was an employee of Ford. This section applies where one eligible for indemnification under the statute “successfully defends against claims of personal liability that arise from or have a nexus to his corporate position.” Id. at 692. Paulson asserts that absent the employment relationship, Rudebeck would have had no cause of action, and he was made a party to the proceeding by reason of the fact that he was a Ford employee. Ford disagrees, contending the claims under the Minnesota Human Rights Act for aiding and abetting and reprisal do not require an employment relationship, and instead apply to “any person.” Minn.Stat. § 363.03, subds. 6, 7 (1998). Further, Ford argues that Rudebeck’s claims against Paulson do not arise from or have a sufficient nexus to his duties as area manager. Instead, her claims were based on sexual harassment, and Ford has a zero-tolerance policy against sexual harassment.

In a very recent California case, this question was addressed. Jacobus v. Krambo Corp., 78 Cal.App.4th 1096, 93 Cal.Rptr.2d 425 (Cal.Ct.App.2000). There, the employee sued the employer for indemnification of legal costs he incurred in successfully defending against a sexual harassment suit brought by a co-worker. The court noted that “social interactions among employees * * * are broadly incidental to the enterprise of an employer.” Id. at 1103, 93 Cal.Rptr.2d 425.

These expressions of human nature are incidents inseparable from working together. They involve risks of injury, and these risks are inherent in the working environment. •

Id. at 1103-04, 93 Cal.Rptr.2d 425 (citation omitted). In an office where “sexual joking and profanity were commonplace” and the facts suggested the employee developed her sexual harassment claim to gain an advantage in employment, the court held that:

In our view, the risk that one worker may accuse another of sexual harassment to deflect an adverse performance review is a risk inherent in employment * * *. If the employer chooses not to defend the accused employee in the lawsuit, then the employer must pay the defense costs of the exonerated employee.

Id. at 1104, 93 Cal.Rptr.2d 425.

In this case, the district court determined that, based on Rudebeck’s pattern of continued voluntary association with Paulson, her claim of harassment was not credible. Based on the reasoning in Jaco-bus, Paulson is entitled to indemnification from Ford for successfully defending against Rudebeck’s lawsuit.

DECISION

The decision of the district court granting summary judgment on the defamation claim is affirmed. The decision regarding indemnification is reversed.

Affirmed in part, reversed in part, and remanded.


source: Caselaw Access Project

author: BERTRAND PORITSKY, Judge.

license: Public Domain

text:
    Laura Ann FOSSELMAN, (C5-99-2095), Vikki Lee Lindstrom, (C7-99-2096), Linda Carol Hughes, (C9-99-2097), Relators. v. COMMISSIONER OF HUMAN SERVICES, Respondent.
    Nos. C5-99-2095, C7-99-2096, C9-99-2097.
    Court of Appeals of Minnesota.
    July 3, 2000.

      Kevin M. Lindsey, St. Paul, MN (for relators).
    Mike Hatch, Attorney General, Theresa Meinholz Gray, Assistant Attorney General, St. Paul, MN (for respondent).
    Samuel D. Orbovich, Orbovich & Gart-ner Chartered, St. Paul, MN (for amicus curiae Association of Residential Resources in Minnesota).
    Considered and decided by KALITOWSKI, Presiding Judge, WILLIS, Judge, and PORITSKY, Judge.
   OPINION

BERTRAND PORITSKY, Judge.

The Department of Human Services (DHS) disqualified relators from employment in positions allowing direct contact with persons receiving services from (1) programs licensed by DHS or the Department of Health or (2) unlicensed personal-care-provider programs. DHS based rela-tors’ disqualifications on their failure to report the maltreatment of a child that allegedly occurred at an intermediate-care facility where relators were employed. Respondent Commissioner of Human Services denied relators’ requests for reconsideration in separate decisions, and they have petitioned this court for writs of cer-tiorari. We have consolidated their appeals.

Relators assert that they are entitled to a fair hearing pursuant either to statute or the Due Process Clause. They further contend that (1) the commissioner’s determination that relators had a duty to report maltreatment is not supported by substantial evidence; (2) the commissioner failed to conclude that the alleged maltreatment caused the child’s death or caused her serious injury; (3) the commissioner violated relators’ due process rights by applying collateral estoppel to the issue of whether maltreatment occurred in the facility; and (4) the commissioner’s decisions were arbitrary and capricious. The commissioner has filed a motion to strike certain documents in relators’ appendix that are not contained in the record. We reverse the commissioner’s decisions disqualifying re-lators and remand, and we grant the commissioner’s motion to strike.

PACTS

Relators Laura Ann Fosselman and Vikki Lee Lindstrom are registered nurses, and Linda Carol Hughes is a qualified mental retardation professional (QMRP). Relators are employed by AXIS Minnesota, Inc., a residential, intermediate-care facility for individuals with developmental disabilities.

R.W. was a resident at AXIS. At approximately 3:30 p.m. on February 6,1998, C.B., a nurse at AXIS, received a call from R.W.’s school requesting that someone from the facility pick up R.W. because R.W. was extremely agitated. C.B. went to the school, administered chloral hydrate to R.W. to alleviate R.W.’s agitation, and brought her back to AXIS. C.B. then monitored R.W. every 15 minutes. At approximately 8:15 p.m., C.B. activated the emergency alarm after noticing R.W. was not breathing. Neither the facility’s nurses nor the paramedics, who arrived a short time later, were able to revive R.W., and she was pronounced dead.

Fosselman was on duty the evening of R.W.’s death, and she assisted C.B. in preparing a report on what occurred with R.W. that evening. Lindstrom and Hughes were not on duty that night. A few days later, the three relators spoke to two other nurses about the other nurses’ concerns regarding the care R.W. received on February 6. Relators expressed their determination that C.B. had complied with the orders of R.W.’s physician. Relators did not report maltreatment to outside authorities.

The Department of Human Services (DHS) disqualified relators from working in direct contact with individuals receiving services from (1) programs licensed by DHS or the Department of Health or (2) unlicensed personal-care-provider organizations. Each relator filed a request for reconsideration of the disqualification with the Commissioner of Human Services. The commissioner denied relators’ requests for reconsideration, and relators appealed.

ISSUES

1. Does the right to procedural due process entitle relators to an agency hearing under Minn.Stat. § 256.045, subd. 3(a)(6) (1998)?

2. Did the commissioner make an error of law in disqualifying relators for failure to report serious maltreatment when the commissioner made no finding that the alleged maltreatment caused R.W.’s death or caused serious injury or-harm to her?

3.Should the commissioner’s motion to strike documents in relators’ appendix be granted?

ANALYSIS

A quasi-judicial agency decision not subject to the Administrative Procedure Act (APA) is reviewed on writ of certiorari by inspecting the record to determine whether the decision was “ ‘arbitrary, oppressive, unreasonable, fraudulent, under an erroneous theory of law, or without any evidence to support it.’ ” Rodne v. Commissioner of Human Servs., 547 N.W.2d 440, 444-45 (Minn.App.1996) (quoting Dietz v. Dodge County, 487 N.W.2d 237, 239 (Minn.1992) (other quotations omitted)).

I.

We first address relators’ assertion that they have a statutory right to a hearing. There are two statutory provisions that might grant a hearing to an individual disqualified from direct-contact positions under Minn.Stat. § 245A.04, subd.3d(4) (Supp.1999), for failure to report child maltreatment. The first, Minn.Stat. § 245A.04, subd. 3c (1998), provides, in effect, that public employees may request contested case hearings under the APA. This provision does not apply here, however, because relators are not public employees. The second statute, Minn.Stat. § 256.045 (1998), provides for “state agency” hearings to review DHS matters.

Relators rely on the latter statute, section 256.045, subdivision 3(a)(6), and claim that they are entitled to a state agency hearing. They do not dispute that subdivision 3 of the statute contains a list of persons expressly entitled to such hearings. They also do not dispute that persons accused of failing to report maltreatment, such as relators, are not expressly mentioned in the list. However, they point to subparagraph (6) of subdivision 3, which grants a hearing to “any person to whom a right of appeal according to this section is given by other provision of law” and argue that the Due Process Clauses of the United States and Minnesota Constitutions are “other provision[s] of law” within the meaning of the statute. Alternatively, they argue that if they are hot granted a statutory right to a hearing, then the statutory scheme is unconstitutional in that it deprives them of procedural due process.

It is a cardinal rule of construction that, when reasonably possible, a statute must be construed so as to uphold its constitutionality. Minnesota Higher Educ. Facilities Auth. v. Hawk, 305 Minn. 97, 103, 232 N.W.2d 106, 110 (1975) (“Statutes are to be construed so as to uphold their constitutionality.” (Citations omitted)); see also Minn.Stat. § 645.17(3) (1998) (stating legislature does not intend to violate state or federal constitution). If the failure to grant relators a hearing did in fact deprive them of due process, then, if possible, the statute must be construed to grant them such a hearing. If the statute cannot be so construed, then the statute must be declared unconstitutional. Either way, therefore, it comes down to the same issue: Did the failure to grant relators a hearing deprive them of due process?

In disqualifying relators, the commissioner proceeded in the following manner:

First, upon receiving a complaint that there had been maltreatment of R.W., Mary Kelsey, an investigator with the DHS Licensing Division, conducted an investigation, which concluded that C.B. had maltreated R.W. by failing to provide her with medical care.

Second, Jackie Spies, supervisor of the Licensing Division, made a five-point determination, as to each relator, based on Kelsey’s report: (1) relators were mandated reporters; (2) they had reason to believe that R.W. had been maltreated; (3) relators failed to report the maltreatment; (4) the maltreatment was substantiated; and (5) the maltreatment was recurring. Based on this determination, relators were disqualified' by a letter over Spies’s signature.

Third, relators exercised their right to request the commissioner to reconsider their disqualification. DHS, through Spies’s letter, informed relators that they could request reconsideration. But the letter stated that the commissioner would only consider three grounds: (1) whether the information upon which DHS relied was incorrect; (2) whether the maltreatment was not recurring; or (3) whether relators would not pose a risk to persons served by AXIS. See Minn.Stat. § 245A.04, subd. 3b(a) (1998) (stating individual requesting reconsideration ' must present information demonstrating information commissioner relied on is incorrect or inaccurate or demonstrating individual does not pose risk of harm to persons served by applicant or license holder). Relators were allowed to submit written material in support of their position.

Fourth, after completing the “correctness review,” the commissioner affirmed relators’ disqualifications.

Certain aspects of the above procedure should be noted. At no stage were rela-tors given the opportunity to present oral testimony on their behalf or to confront and cross-examine the individuals who provided the information adverse to them. They did not have the power to subpoena persons to give information on their behalf. Moreover, under Minn.Stat. § 245A.04, subd. 3b(a)(l), once the commissioner has issued a final order in an appeal from a maltreatment determination or disposition, “the commissioner’s order is conclusive on the issue of maltreatment.” Thus, in this case, once DHS determined in C.B.’s case that C.B. was guilty of maltreatment — a determination that C.B. did not contest— under the statute, relators could not contest this issue in their own disqualification proceedings.

With respect to relators’ due process argument, the first issue is whether disqualification proceedings are subject to due process requirements. At the onset, we note that the due process protections granted under the United States and Minnesota Constitutions are identical. Sartori v. Harnischfeger Corp., 432 N.W.2d 448, 453 (Minn.1988).

In defining those areas in which governmental action is restricted by procedural due process, the United States Supreme Court has stated:

Procedural due process imposes constraints on governmental decisions which deprive individuals of “liberty” or “property” interests within the meaning of the Due Process Clause of the Fifth or Fourteenth Amendment.

Mathews v. Eldridge, 424 U.S. 319, 332, 96 S.Ct. 893, 901, 47 L.Ed.2d 18 (1976).

In Mathews, the Court noted that an individual could not be deprived of Social Security benefits without procedural due process. Id. (recognizing continued receipt of these benefits is statutorily created property interest protected by Fifth Amendment). In Bell v. Burson, 402 U.S. 535, 539, 91 S.Ct. 1586, 1589, 29 L.Ed.2d 90 (1971), the Court held that if a driver’s license is essential to one’s livelihood, any proceeding to suspend that license must be consistent with procedural due process. This court stated in Humenansky v. Minnesota Bd. of Med. Exam’rs, 525 N.W.2d 559, 566 (Minn.App.1994), review denied (Minn. Feb. 14, 1995), “A license to practice medicine is a property right deserving constitutional protection.” (Citing Greene v. McElroy, 360 U.S. 474, 492, 79 S.Ct. 1400, 1411, 3 L.Ed.2d 1377 (1959) (other citations omitted).) Relators, two of whom are RNs and one of whom is a QMRP, clearly have a property interest in working in direct-contact positions.

Not only are relators’ property interests involved, but the courts have also recognized that if a person’s good name, reputation, honor, or integrity is at stake because of governmental action, the person is entitled to procedural due process. Wisconsin v. Constantineau, 400 U.S. 433, 437, 91 S.Ct. 507, 510, 27 L.Ed.2d 515 (1971); see also Boutin v. LaFleur, 591 N.W.2d 711, 718 (Minn.1999) (recognizing liberty interest is implicated when loss of reputation is coupled with loss of another tangible interest), cert. denied, — U.S. -, 120 S.Ct. 417, 145 L.Ed.2d 326 (1999). Because re-lators have been disqualified for alleged failure to carry out the provisions of a law embodying an important policy — that of protecting children’s health and welfare— it is clear to us that disqualification has tainted their good names and reputations.

The commissioner all but concedes on appeal (1) that relators have a protected property interest in holding their jobs free from unreasonable governmental interference and (2) that they have a protected liberty interest in protecting their names and associations in the community and in protecting their freedom to pursue future employment opportunities involving direct contact with persons served by certain programs. We conclude that disqualification proceedings are subject to the requirements of procedural due process.

Having reached that conclusion, we turn to the second issue: Did the procedure by which relators were disqualified deprive them of due process? “The fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner.” Mathews, 424 U.S. at 333, 96 S.Ct. at 902 (quotation omitted). In Mathews, the Court identified the distinct factors that should be considered ■ in determining the specific dictates of due. process:

First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest, through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.

Id. at 335, 96 S.Ct. at 903 (citation omitted).

The first of the Mathews factors, rela-tors’ private interest, weighs heavily in their favor. According to relators, their disqualification both precludes them from working in their chosen field for seven years and renders them opportunity to reenter that field at the discretion of the commissioner. See Bell, 402 U.S. at 539, 91 S.Ct. at 1589 (holding if driver’s license is essential to one’s livelihood, any proceeding to suspend that license must be consistent with due process); Falgren v. State, Bd. of Teaching, 545 N.W.2d 901, 909 (Minn.1996) (noting revocation of teaching license affects ability to work in chosen profession and quoting United States Supreme Court, “‘the significance of the private interest in retaining employment cannot be gainsaid. We have frequently recognized the severity of depriving a person of the means of livelihood.’ ” (quoting Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 543, 105 S.Ct. 1487, 1494, 84 L.Ed.2d 494 (1985))); Humenansky, 525 N.W.2d at 566 (“A license to practice medicine is a property right deserving constitutional protection.”).

The second Mathews factor — risk of erroneous deprivation of relators’ ability to work in their chosen profession and the probable value of additional procedural safeguards — also weighs heavily in favor of relators. Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970), is instructive on this score.. In Goldberg, the Court held that the New York procedure for. terminating welfare benefits, before giving recipients. the opportunity for an evidentiary hearing, denied recipients due process. Id. at 268, 90 S.Ct. at 1021. After noting that due process requires the opportunity to be heard and that the hearing must be at a meaningful time and in a meaningful manner, the Court held that the failure to grant recipients the opportunity to present evidence orally or to confront and cross-examine adverse witnesses was “fatal to the constitutional adequacy” of the New York procedures. Id. at 267-68, 90 S.Ct. at 1020-21. In regard to the issue of oral versus written presentations, the Court first noted that many welfare recipients may not have the education to write effectively. Id. at 269, 90 S.Ct. at 1021. Then, as relates to the instant cases, the Court made two observations. First, the Court said:

Moreover, written submissions do not afford the flexibility of oral presentations; they do not permit the recipient to mold his argument to the issues the decision maker appears to regard as important.. Particularly where credibility and veracity are at issue, as they must be in many [welfare] termination proceedings, written submissions are a wholly unsatisfactory basis for decision.

Id. Second, the Court said:

In almost every setting where important decisions turn on questions of fact, due process requires an opportunity to confront and cross-examine witnesses.

Id. While credibility is an essential issue in welfare -termination cases, as the Court noted, it is no less important in disqualification proceedings, where much of the evidence for failure to report maltreatment may well come from a perpetrator of the maltreatment.

In the instant cases, before the maltreatment determination and their subsequent disqualification, the only opportunity relators had to give their side was when they were interviewed by a DHS investigator. It is not clear from the record whether relators were told they were the subject of the investigation or were told what specific allegations had been made against them. It may have appeared to relators that C.B. was the subject of the investigation. Only after they were formally disqualified were relators given an opportunity to submit written evidence in connection with their request for reconsideration. At no point in the proceedings were relators given the opportunity to present oral testimony, to confront and cross-examine witnesses against them, or to subpoena witnesses on their behalf. Disqualification proceedings — which involve questions of whether an individual was maltreated and whether the mandated reporter knew or had reason to know of the maltreatment— may well be as fact intensive as welfare termination proceedings and thus have the same need for the procedural safeguards noted in Goldberg.

As to the conduct of a hearing, we have noted above that under MinmStat. § 245A.04, subd. 3b(a)(l), once the commissioner has. issued a final order in an appeal from a maltreatment determination or disposition, “the commissioner’s order is conclusive on the issue of maltreatment.” In the case involving the nurse, C.B., DHS had determined that C.B. was guilty of maltreatment — a determination that C.B. did not contest — and as a result, under the statute relators could not contest this issue in their disqualification proceedings. Preventing an individual from challenging an essential fact on which the government bases an adverse action may result in a denial of due process.

In Bell, 402 U.S. at 537, 91 S.Ct. at 1588, Bell was a clergyman who needed his ear to travel to the various rural Georgia localities within his ministry. He was involved in an auto accident but apparently did not have liability insurance. Id. He was thereafter informed by the Director of the Georgia Department of Public Safety that he was required either to post security in an amount sufficient to cover potential liability or to present a notarized release from liability, plus he was to file proof of future financial responsibility. Id. If he failed to comply with these requirements, his driver’s license would be suspended. Id. Bell requested an administrative hearing before the director, asserting that he was not at fault for the accident and was therefore not liable for damages resulting from it. Id. At the administrative hearing, Bell’s proffer of evidence on the issue of liability was rejected on the ground that the applicable statute did not recognize absence of liability as an excuse for not •complying with the financial requirements noted above. Id. at 538, 91 S.Ct. at 1589. The Georgia Superior Court ruled in Bell’s favor, but the Georgia Court of Appeals reversed. Id. On review, the United States Supreme Court reversed and held that it was a denial of due process to foreclose Bell from raising the issue of liability. Id. at 543, 91 S.Ct. at 1591. The Court ruled:

Since the statutory scheme makes liability an important factor in the State’s determination to deprive an individual of his licenses, the State may not, consistently with due process, eliminate consideration of that factor in its prior hearing.
The hearing required by the Due Process Clause must be meaningful, and appropriate to the nature of the case. It is a proposition which hardly seems to need explication that a hearing which excludes consideration of an element essential to the decision whether licenses of the nature here involved shall be suspended does not meet this standard.

Id. at 541-42, 91 S.Ct. at 1590-91 (citations and quotations omitted).

This principle is controlling in the instant cases. Relators, like Bell, are unable to pursue their chosen occupations by reason of the state administrative action, and the Minnesota statute, as did the Georgia procedure, “excludes consideration of an element essential to the decision.” To the extent that MinmStat. § 245A.04, subd. 3b(a)(l), takes DHS’s determination that C.B. was guilty of maltreatment and makes it conclusive upon relators, the statute denies due process.

'Finally, we note that as a measure of what due process requires, the legislature has provided that persons determined to have actually committed maltreatment are granted a right to a hearing -after exercising a right to reconsideration by the commissioner. See Minn.Stat. §§ 256.045, subd. 3(a)(8) (stating individual determined to have maltreated child has right to hearing after exercising right to reconsideration by commissioner), 626.556, subd. lOi (Supp.1999) (stating if commissioner determines individual maltreated child, individual may request agency, reconsideration). At such a hearing, the accused individual has these rights: to have counsel; to appear personally, testify, and offer evidence; and to examine and cross-examine witnesses. Minn.Stat. § 256.045, subd. 4. Parties to DHS agency hearings also have the right to obtain subpoenas to compel witnesses to appear. Minn.Stat. § 256.045, subd. 6(b). A maltreatment determination may be used to support disqualification from direct-contact positions only after the commissioner enters a final order pursuant to this review process and after DHS determines that such maltreatment was recurring or serious. See Minn. .Stat. § 245A.04, subd. 3b(a)(l) (stating commissioner’s order conclusive on issue of maltreatment if commissioner has issued final order in appeal under Minn.Stat. § 256.045), subd.3d(4) (listing “substantiated serious or recurring maltreatment of a minor under 626.556 ⅜ * ⅜ for which there is a preponderance of evidence that the maltreatment occurred” as reason for disqualification). As noted above, the commissioner’s position in the instant proceeding is that individuals accused of failing to report maltreatment, such as relators, do not have a right to a hearing. This position ironically grants greater procedural protections to persons who actually perpetrate maltreatment than to those individuals who merely fail to report it.

Turning to the third Mathews factor, the government’s interest, the government’s primary interest here lies in protecting individuals being treated in direct-contact facilities. Due to statutory options granted to the commissioners, this interest would not be obstructed by providing a hearing. Those options include placing individuals who request a hearing on restricted status or removing them from direct-contact positions pending the hearing’s outcome. Cf. Minn.Stat. § 245A.04, subd. 3a(b) (Supp.1999) (describing procedures pending reconsideration decisions including: immediate removal of disqualified individuals posing imminent risk of harm; restrictive status for those posing some risk; and no change in status for those posing no imminent risk of harm). The government has an additional interest in avoiding the cost and administrative burden of providing individuals disqualified from working in direct-contact facilities with a hearing. Requiring some form of hearing will undoubtedly increase costs and be an added burden to DHS. The burden on the department is lessened, however, because DHS already has procedures in place for hearings in other human services cases. See Minn.Stat. § 256.045 (describing procedures for review of human services matters). These procedures include the existing power of the commissioner to appoint state human services referees to conduct state agency hearings. Id., subd. 1. Although this Matheivs factor weighs against granting relators an agency hearing, its weight is not significant, and it is clearly outweighed by the other two Mathews factors.

We conclude that (1) Minn.Stat. § 256.045, subd. 3(a)(6), affords a statutory right to a hearing where due process rights would otherwise be violated; (2) disqualification proceedings are subject to procedural due process protections; and (3) consideration of the Mathews factors yields the conclusion that due process requires that relators receive an agency hearing. Therefore, we reverse and remand the commissioner’s decisions.

II.

Because we are remanding these cases to the commissioner for further proceedings, it is essential to address relators’ claim that the commissioner committed an error of law in his decisions. Specifically, relators assert that the commissioner erred in disqualifying them without first finding that C.B.’s alleged maltreatment caused R.W.’s death or caused serious injury or harm to her.

After completing a background study, DHS may disqualify individuals from working in any position allowing direct contact with persons receiving services from programs licensed by DHS or the Department of Health or from unlicensed personal-care-provider organizations. See Minn.Stat. §§ 144.057 (1998) (stating background studies for Department of Health shall be conducted by DHS), 245A.04, subd. 3 (1998) (describing DHS background studies and stating employees providing direct-contact services in personal-care-provider organizations shall also be studied), 245A.04, subd.3d (Supp.1999) (stating, after background study, individual may be disqualified from positions allowing direct contact with persons receiving services from license holder). In order to disqualify an individual for failing to report maltreatment of a child, the commissioner must make an administrative determination that includes all of the following elements:

1. The individual was a mandated reporter under Minn.Stat. § 626.556, subd. 3 (Supp.1999);
2. The individual knew or had reason to know that a child was maltreated;
3. The maltreatment was substantiated;
4. The maltreatment was recurring or serious; and
5. The individual failed to make the required report.

See Minn.Stat. §§ 245A.04, subd.3d(4) (stating individual disqualified from positions involving direct contact if there is administrative determination that individual failed to make reports required under section 626.556, subdivision 3, where maltreatment was substantiated and maltreatment was recurring or serious), 626.556, subd. 3 (identifying mandated reporters).

With 'respect to the’ elements listed above, it is undisputed that relators are mandated reporters and that they did not report C.B.’s alleged maltreatment of R.W. The commissioner concluded that relators had reason to know of the maltreatment and that the maltreatment was substantiated. Relators contest the commissioner’s conclusions on the latter two elements, but their argument on this score focuses on the remaining element: Based on the commissioner’s findings, the commissioner could not draw the conclusion that C.B.’s maltreatment of R.W. was recurring or serious.

Initially, DHS concluded that C.B.’s maltreatment was “recurring.” The record does not support the conclusion that C.B. was guilty of recurring maltreatment with respect to R.W. The commissioner realized that it was erroneous to label the maltreatment as “recurring,” and in his final orders he changed the characterization of maltreatment from “recurring” to “serious.”

At no point in his orders did the commissioner make a finding that-C.B.’s conduct caused R.W.’s death or caused serious injury or harm to her. In fact, the commissioner made an express finding that the DHS investigation did not establish such causation. In his findings, the commissioner quoted Mary Kelsey’s report, which included the following, “The investigation did not establish the extent to which [C.B.’s] failure to supply [R.W.] with medical care contributed to [R.W.’s] death.” In conclusion seven of each order, the commissioner concluded, “The DHS investigation did not establish the extent to which [C.B.’s] failure to supply [R.W.] with medical care contributed to [R.W.’s] death.”

Relators point to the definition of “serious maltreatment” found in Minn.Stat. § 245A.04, subd.3d(4), which is, insofar as it pertains to this case,

maltreatment resulting in death; or maltreatment resulting in serious injury or harm which reasonably requires the care of a physician whether or not the care of a physician was sought.

Relators argue that since the commissioner did not establish the extent to which C.B.’s maltreatment (i.e., failure to supply R.W. with medical care) contributed to R.W.’s death or caused her serious injury, the necessary causation is missing. That is, absent abuse, to be serious maltreatment under the statute, the maltreatment must result in serious injury or death. Thus, relators conclude, the necessary statutory element is missing, and the disqualification for failure to report serious maltreatment is legally unfounded.

The commissioner responds to this argument by pointing to the following language, also found in conclusion seven:

However, [R.W.] was in respiratory distress that reasonably required the care of a physician whether or not the care of a physician was sought. Under Minn. Stat. § 245A.04, subd.3d(4) maltreatment resulting in death or maltreatment resulting in serious injury or harm which reasonably requires the care of a physician whether or not .the care of a physician is sought is serious maltreatment

But what the statute requires is that the maltreatment cause the death or the serious injury or harm requiring the physician’s care. Conclusion seven states that the underlying condition — R.W.’s respiratory distress — not the maltreatment, caused the need for a physician’s care. In his brief, the commissioner attempts to bridge the gap:

C.B.’s neglect was serious because the child needed medical care to improve her condition. C.B.’s failure to follow the physician’s orders and risk management plan and his failure to notify the child’s doctor of her deteriorating condition caused her to continue to experience agitation and respiratory distress that reasonably required the care of a physician.

(Emphasis added.) As noted above, however, the commissioner did not make a finding that C.B’s conduct caused any change in R.W.’s condition, and, in point of fact, he ruled expressly that the investigation did not make a finding that C.B.’s conduct caused R.W’s death. R.W. had, in fact, numerous health problems, which had resulted in five hospitalizations between July 1997 and January 1998, and which are detailed in the DHS report dated October 29, 1998. Dr. Terence J. Coyne, R.W.’s treating physician, submitted to the commissioner an affidavit dated February 8, 1999, in which Dr. Coyne stated that he reviewed his orders and the records in connection with R.W.’s care, treatment, and medication. Dr. Coyne went on to state, “The actions taken and documented were consistent with my orders.” From all that appears in the record, it appears as likely that R.W.’s death resulted from her underlying condition as from any inaction on C.B.’s part. In light of (1) the commissioner’s express finding that a link between C.B.’s conduct and R.W.’s death was not established, and (2) the commissioner’s failure to find that C.B.’s alleged maltreatment caused R.W.’s death or caused serious injury or harm to her, his conclusion that C.B. was guilty of serious maltreatment is not supported by his findings and is thus an error of law.

III.

The commissioner requests that this court strike certain documents contained in relators’ appendix. The commissioner moves to strike Dr. Coyne’s second affidavit, dated January 7, 2000; a stipulation-and-consent order between C.B. and the Board of Nursing; a memorandum from the Office of the Ombudsman for Mental Health and Mental Retardation; and two letters from the Board of Nursing.

As the commissioner correctly observes, these documents are not contained in the file. There are also additional documents in relators’ appendix that are not contained in the file, including (a) an affidavit from relators’ attorney; (b) two letters from relators’ attorney to the commissioner; and (c) a letter from an assistant commissioner to relators’ attorney.

The record on certiorari review includes the documents filed with the agency. See Minn. R. Civ.App. P. 110.01 (stating record on appeal includes papers filed in trial court, exhibits, and transcript), 115.04, subd. 1 (applying provisions of rule 110 to certiorari review and stating references to trial court shall be read as references “to body whose decision is to be reviewed”). Thus, the documents in relators’ brief that are not contained in the record are stricken, and the commissioner’s motion is granted. See Mitterhauser v. Mitterhauser, 399 N.W.2d 664, 667 (Minn.App.1987) (reviewing court must strike matters outside record). Our decision to strike these documents does not preclude relators from introducing them on remand. Both rela-tors and DHS shall have the opportunity to introduce additional evidence on remand.

DECISION

The commissioner’s failure to grant rela-tors a state agency hearing deprived them of due process. Pursuant to the rule that if possible a statute must be construed to preserve its constitutionality, we conclude that the phrase, “other provision of law” appearing in Minn.Stat. § 256.045, subd. 3(a)(6) (1998), is to be construed to include due process. To the extent this conclusion is inconsistent with Minn.Stat. § 245A.04, subd. 3b(e) (1998), which states that the commissioner’s decision on reconsideration of a disqualification decision is the final administrative agency action, we conclude that this provision denies relators due process.

The commissioner also erred as matter of law when he concluded that R.W. was the subject of serious maltreatment yet did not first determine that C.B. caused R.W.’s death or caused serious injury or harm to her. Although the commissioner is not precluded on remand from concluding that R.W. was the subject of serious maltreatment,. such a conclusion must be supported by a determination that C.B.’s actions caused R.W.’s death or caused serious injury or harm to R.W. Because of our decision on the foregoing issues, we need not address the additional issues raised by relators.

The Commissioner of Human Services’ decisions denying relators’ requests for reconsideration are reversed.- These matters are remanded to the commissioner for further proceedings consistent with this decision.

Additionally, we grant the commissioner’s motion to strike documents contained in relators’ appendix that are not contained in the agency file.

Reversed and remanded; motion granted.

       Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const, art. VI, § 10.

      . In any case, in Rodne, 547 N.W.2d at 444, this court noted that DHS is not required to conduct a contested case proceeding when an individual who is not subject to Minn.Stat. § 245A.04, subd. 3c, requests reconsideration under Minn.Stat. § 245A.04, subd. 3b (1998), as did relators in this case.

      . In his brief, the commissioner states that the Licensing Division Investigations Unit performed the initial investigation and that ■ the Investigations Unit then referred the matter to the Licensing Division Background Studies Unit, which made the five-point determination supporting relators’ disqualification. We can find no explanation of'this process in the record or in the applicable statutes or rules, and we can find no support for the commissioner's statement that two separate units of the Licensing Division were involved in this matter.

      . Although Minn.Stat. § 245A.04, subd.3d(4), is not clear on this point, we conclude that relators have given a plausible reading to the statute, which, in determining the extent of the harm to relators, must be credited.

      . In the unpublished opinion, J.L.H. v. Commissioner of Human Servs., No. C2-97-316, 1997 WL 435877, at *1 (Minn.App. Aug.5, 1997), "J.L.H. was disqualified from working in direct-contact positions as a result of committing maltreatment while working in a DHS-licensed facility. J.L.H. argued, in part, that she was not afforded procedural due process. Id. at ⅞3. This court disagreed and concluded that the reconsideration procedure that allowed her to submit written information to the - commissioner afforded her due process. Id. at *4.
      The law regarding suspected perpetrators of maltreatment changed immediately before this court filed J.L.H. See 1997 Minn. Laws ch. 203, art. 5, § 29 (adding Minn.Stat. § 626.556, subd. lOi, which permits individual determined to have maltreated child to request reconsideration), 1997 Minn. Laws ch. 203, art. 5, § 6 (adding subsection (8) to Minn.Stat. § 256.045, subd. 3; subsection provides individual determined to have maltreated minor has right to state agency hearing after exercising right to reconsideration; provision applies only to maltreatment occurring on or after July 1, 1997). Although J.L.H. did not receive these additional procedural protections because her actions took place before the statute's effective date, the legislature's decision to change the law and grant suspected perpetrators of maltreatment the right to challenge a maltreatment determination, both through a request for reconsideration and a subsequent request for an agency hearing, reflects legislative recognition of the need for due process in such cases.


author: HALBROOKS, Judge.

text:
    Vicky HAZELTON, petitioner, Appellant, v. COMMISSIONER OF the DEPARTMENT OF HUMAN SERVICES FOR the STATE of Minnesota, Respondent, Beltrami County Human Services, Respondent.
    No. C5-00-158.
    Court of Appeals of Minnesota.
    July 3, 2000.

      Douglas P. Johnson, Legal Services of Northwest Minnesota, Bemidji, MN (for appellant).
    Mike Hatch, Attorney General, Suzette Schommer, Assistant Attorney General, St. Paul, MN; and Timothy R. Faver, Beltrami County Attorney, David P. Frank, Assistant County Attorney, Bemid-ji, MN (for respondents).
    Considered and decided by DAVIES, Presiding Judge, PETERSON, Judge, and HALBROOKS, Judge.
   OPINION

HALBROOKS, Judge.

Appellant received public assistance for herself and her minor children under the Minnesota Family Investment Program. She also received food-stamp benefits on behalf of her adult son, but he left her household a few months after that assistance began. Respondents initiated an investigation, suspecting that appellant had committed an intentional program violation by misrepresenting to respondents that no one for whom she was receiving benefits had left her household. The Commissioner of Human Services ultimately concluded that appellant had committed an intentional program violation. Appellant appealed to the district court, and the agency’s decision was affirmed. Appellant now appeals to this court, and we hold that there is not substantial evidence to sustain the determination that appellant committed an intentional program violation. We, therefore, reverse.

FACTS

Appellant Vicky Hazelton applied for public assistance in December 1997. The combined application required Hazelton to disclose all members of her household to respondent Beltrami County Human Services. She listed herself, her two minor children, and her adult son, Gary Hazelton, as members of the household. Gary did not qualify for cash assistance, but he was eligible to receive food-stamp assistance.

Hazelton received the notices of decision on the day she completed her application. She learned she was eligible for food-stamp assistance and that the benefit was based on a “household size” of four. She also received a notice of decision regarding her qualification for the AFDC program. This notice of decision specifically indicated that Gary was, not eligible for participation in this program.

On January 9, 1998, Hazelton received two new notices of decision from Beltrami County Human Services. One notice, a food stamp notice of decision, indicated that her benefit was being reduced to $91 per month. The notice did not explicitly provide that the $91 per month benefit was calculated based on Gary’s presence in the household. It did, however, indicate that Hazelton and the two minor children were no longer eligible for the food-stamp program. The second notice informed Hazei-ton that her public-assistance benefits were now a part of the Minnesota Family Investment Program (MFIP). According to the notice, this program was to replace AFDC and food stamps. That notice listed the household size as three and indicated that Gary was not eligible to receive MFIP benefits.

As part of the MFIP, Hazelton was required to participate in a job-training program. The program required Hazelton to attend meetings or provide her employment counselor _ with a valid excuse for missing a meeting. A client-contact-inquiry form maintained by her job counselor indicates that on February 23,1998, Hazel-ton contacted her job counselor to inform her that she would not be able to attend the scheduled meeting because Gary was leaving that day to.- begin service with the United'States Army.

In June 1998, Hazelton received a household-report form from the county. All program participants are required to complete one of these reports every ■ six months. The first page of'the report indicated in a boldface box that “Your REPORT MONTH(S) is June.” Beneath the box, another line stated “[t]his is a MFIP Six Month Review.” Hazelton completed the 4-page report and checked the “no” box in response to the question “[d]id anyone move out of your home in the report month(s)?”

Program participants are required to provide the county with what amounts to a benefit renewal application on an annual basis. In November 1998, Hazelton completed the recertification form. Hazelton indicated that she was completing the application on behalf of herself and two of her children. She did not indicate that she was applying for benefits for Gary. In response to the question of whether anyone had moved out of her household in the last 12 months, she answered “no.”

This negative response coupled with her statement to a county employee that Gary had moved out in February 1998 led to the investigation that precipitated these proceedings. A fraud investigation was conducted to determine whether the county had made an overpayment. When it was determined that the county had overpaid Hazelton more than $900 in food stamps on behalf of Gary, proceedings were initiated to determine whether Hazelton had committed a disqualifying intentional program violation. The Commissioner of Human Services found that Hazelton had committed a program violation and that decision was affirmed following an administrative appeal. Hazelton moved the district court for an order reversing the administrative determination. The district court denied her motion and Hazelton appeals.

ISSUE

Did respondents establish by substantial evidence that appellant committed an intentional program violation disqualifying her from receiving public assistance benefits?

ANALYSIS

When a district court acts as an appellate court by reviewing an agency decision, this court performs an independent review of the agency record. Erickson v. Commissioner of Dep’t of Human Servs., 494 N.W.2d 58, 62 (Minn.App.1992).

Under the Administrative Procedure Act, a reviewing court must uphold the decision of an administrative agency unless the substantial rights of the petitioner have been prejudiced because, among other defects, the decision is not supported by “substantial evidence in view of the entire record as submitted.”

Id. (quoting Minn.Stat. § 14.69(e)-(f)). Substantial evidence is defined as:

1. Such relevant evidence as a reasonable mind might accept as adequate to support a conclusion;
2. More than a scintilla of evidence;
3. More than some evidence;
4. More than any evidence; and
5. Evidence considered in its entirety.

Cable Communications Bd. v. Nor-West Communications Partnership, 356 N.W.2d 658, 668 (Minn.1984) (citation omitted). The party appealing the administrative decision has the burden of proving that the decision violates the Administrative Procedure Act. Erickson, 494 N.W.2d at 62.

Individuals who receive public assistance in Minnesota are required to notify the agency when certain events occur that have the potential to affect their eligibility to participate in the various programs. One of the events is a change in the number of people residing in the participant’s household. Minn. R. 9500.4280, subp. 9 (1997). In addition to this requirement, participants in public assistance programs must periodically complete forms that are used to verify their continued eligibility.

Agencies that administer public assistance programs are required to investigate suspected abuses of those programs. Minn.Stat. § 256.046 (1998) (providing that local agencies shall initiate proceedings against program participants suspected of fraud). Abuse of these programs by the very people they are intended to assist does occur, and the agencies must do everything they can to limit and reign in abuse. Without vigilant efforts to control abuses, the integrity of the entire public-assistance system is jeopardized. Nonetheless, it is equally critical that the agency base any determination that a program abuse' or violation occurred on substantial evidence.

In this case, the Beltrami County Human Services contends that Hazelton committed an intentional program violation by failing to notify it that her son moved out of her household and by falsifying the forms used to verify her continued eligibility. The Minnesota statutes governing public-assistance programs incorporate federal regulations for the purpose of determining whether an intentional program violation has occurred. Food-stamp program violations are governed by 7 C.F.R. § 273.16 (1999). An intentional violation of the food-stamp, program occurs when one makes “a false or misleading statement, or misrepresented, concealed or withheld facts * * * .” 7 C.F.R. § 273.16(c). The agency has the burden of establishing an intentional program violation by clear and convincing evidence. 7 C.F.R. § 273.16(e)(6). We hold that there is not substantial evidence in the record to support the • agency’s determination that Hazelton committed an intentional program violation and that the agency did not meet its burden.

The agency’s decision focuses on the six-month household report signed by Hazel-ton on July 1, .1998. But contrary to the agency’s contention, Hazelton did not make a misrepresentation in connection with completing this form. The form is unclear and confusing. One sentence of the form states that it is “a MFIP Six Month Review,” but a bolder, more conspicuous part of the form states that the “REPORT MONTH(S) is June.” The agency determined that Hazelton’s intentional program violation occurred as a result of her answer to the question on the form regarding whether anyone had moved “out of your home in the report month(s)?” Hazelton responded “no” to this question. The agency determined that this was a false statement.

The question apparently is intended to cover the entire report period, i.e., January through June of 1998. But the question specifically asked Hazelton whether anyone had moved out of her home in June because that was the “report month” listed on the front of the form. Gary moved out of the household in February, and there is no evidence that anyone moved out of Ha-zelton’s household in June. Because Hazel-ton’s response to the specific question is not untrue, i.e., no one moved out of the household during the month of June, we hold that this response does not rise to the level of an intentional program violation.

We also hold that Hazelton’s response to the annual recertification application was not an intentional program violation. Ha-zelton noted on the recertification form that she was completing the application on behalf of herself and her two minor children. She did not state that she was attempting to obtain benefits for Gary. Although she did check “no” in response to the question of whether anyone had left her household in the past year, there is not substantial evidence to conclude that her response was intentionally false or misleading. See Erickson, 494 N.W.2d at 62.

Respondent contends that the notices received by Hazelton informing her of the benefits that she was eligible for in January 1998 support the commissioner’s decision. But the January 1998 notices are, like the six-month report, less than clear. The MFIP notice indicated that Hazelton was to receive those benefits for herself and her two minor children. It did note that Gary did not qualify for those benefits. The food-stamp notice indicated that Hazelton was eligible for an additional $91 each month. It did not, however, state that this benefit was being paid on behalf of Gary. Rather, it indicated that it was not being paid on behalf of relator and her minor children. Absent additional evidence, we are unwilling to impute knowledge to relator that the food-stamp benefit was being paid to her for Gary.

Respondents also contend that Ha-zelton would have received additional notices that she was receiving benefits on behalf of Gary. In fact, the commissioner’s decision includes the following finding:

It is also assumed that the respondent would have received some of the later notices which would be sent as a matter of standard agency notification practice. Standard agency practice would require a renewed notice of the continuation of benefits for the son following the six-month review. Standard practice would also require another notice when the amount of basic Food Stamp benefit amount changed as it did in the fall of 1998.

While we acknowledge the deference typically paid to an agency’s understanding of its own practices, there is no evidence produced by the agency to support the finding that these standard practices were actually followed in this case. Absent some evidence that the agency’s standard practices were followed in this case, we cannot hold that this finding meets the substantial evidence test.

Finally, we are troubled by the referee’s determination that Hazelton’s contention that she did not know she was receiving benefits for Gary was not credible. Although not a basis for our decision, we note that this credibility determination was made in connection with a telephone hearing. The administrative rules specifically provide for telephone hearings, but:

With telephone testimony, the trier of fact can perceive some of the indicia of credibility, such as tone of voice, but cannot perceive others, such as body language.

In re Bieganowski, 520 N.W.2d 525, 528 (Minn.App.1994), review denied, (Minn. Oct. 27, 1994). We question the credibility determination because the evidence indicates that Hazelton freely admitted to her job counselor that her son was leaving the household in February, and she did not attempt to hide the fact that he had left when questioned in connection with the completion of the recertification form. But we need not decide whether the referee’s credibility determination is support by substantial evidence because it does not form the basis of our conclusion.

DECISION

The record does not contain substantial evidence to support the agency’s decision that Hazelton committed an intentional program violation, and we, therefore, reverse.

Reversed.


author: VANDE WALLE, Chief Justice.

text:
    2000 ND 132
    Walter D. WAGNER, Plaintiff and Appellee, v. Bernadette WAGNER, Defendant and Appellant.
    No. 20000012.
    Supreme Court of North Dakota.
    June 29, 2000.
    See also 579 N.W.2d 207.

      Rauleigh D. Robinson, Bismarck, N.D., for plaintiff and appellee.
    Patricia E. Garrity, Bair, Bair & Garrity, LLP, Mandan, N.D., for defendant and appellant.
   VANDE WALLE, Chief Justice.

[¶ 1] Bernadette Wagner appealed from an amended divorce judgment incorporating a bankruptcy stipulation into the judgment. We modify the judgment and, as modified, we affirm.

I

[¶ 2] Under a March 15, 1996 divorce decree, Bernadette-received a quarter section of land, personal property, attorney fees, and a cash payment cumulatively valued at $120,000. Walter Wagner received 3,080 acres of land and personal property cumulatively valued' at $1,069,146.09. The judgment assigned Bernadette $205.50 in debt and Walter $884,573.46 in debt, and ordered Walter to pay spousal support of $500 per month for 10 years and child support of $751 per month.

[¶ 3] In August 1996, the trial court denied Walter’s motion to reduce his child support obligation. In February 1997, the court found Walter in civil contempt for failing to comply with provisions of the divorce decree for spousal support, attorney fees, and property division. The court said “Since the judgment was entered, [Walter] has purposely placed himself in a position so that he is unable to comply with the terms of the Judgment.” The court ordered Walter to serve 30 days in jail, beginning on April 2, 1997, unless he purged himself of the contempt. On March 31, 1997, Walter filed a voluntary petition in bankruptcy court, claiming he was unable to pay creditor claims and to comply with the financial obligations under the divorce decree.

[¶ 4] In May 1997, Walter moved to reduce or eliminate his child support obligation, claiming his farm income had decreased dramatically. Initially, the trial court summarily denied .Walter’s motion, and we temporarily remanded for specific findings of fact. See Wagner v. Wagner, 1998 ND 117, ¶¶ 6-7, 579 N.W.2d 207 (Wagner I). In a March 1998 amended judgment, the trial court ultimately set Walter’s child support obligation at $750 per month, and found, since entry of the original judgment, he had purposely rendered himself unable to comply with the terms of the judgment. In Wagner I, at ¶ 12, we affirmed the court's decision requiring Walter to pay $750 per month for child support.

[¶ 5] Meanwhile, Bernadette brought an adversary proceeding in bankruptcy court, claiming cash property payments, accrued interest, spousal support, and attorney fees awarded in the divorce decree were not dischargeable. In January 1998, Walter and Bernadette entered a stipulation in the bankruptcy proceeding regarding their property and support disputes. On January 23, 1998, the bankruptcy court approved the stipulation and dismissed Bernadette’s adversary proceeding with prejudice. The stipulation specified it “shall be treated as an amendment to the divorce decree.” Under the stipulation, Walter agreed to pay Bernadette $2,000 per month for ten years commencing on January 15, 1998. The stipulation allocated $750 for child support, $500 for spousal support, and $750 as a property settlement. Paragraph F of the stipulation allowed Walter to liquidate the parties’ land, machinery, and equipment at an auction if he was unable to pay the $2,000 per month:

(F) Option to Sell the Land and Machinery. The parties agree that in the event Walter is unable to realistically make payments in the amount of $2,000.00 per month, rendering the terms of Paragraphs (A) and (B) of this Agreement unworkable, Walter shall be entitled to exercise his option to liquidate the land and equipment and machinery. Any and all tools and personal property, including personal vehicles, of Walter shall not be required to be liquidated. In the event there is a complete liquidation of all the parties!’] land and equipment and machinery and after payment of all valid, currently existing, secured claims on machinery and mortgages on real estate, real estate taxes, and the IRS tax liability, Bernadette and Walter shall split the remaining proceeds as set forth below. Bernadette’s portion of the distribution shall be reduced by all payments made toward property distribution that Walter has made from the date of January 15, 1998 to the date of the distribution of the proceeds. Distribution of Bernadette’s share of the proceeds to her from the sale shall constitute satisfaction of the property settlement payments; thus relieving Walter from any further property settlement obligation. It is agreed that Walter may exercise the option to liquidate the land and machinery and equipment at any time. In the event Walter elects to sell, each item of machinery or parcel of land shall be sold for an amount as close to its fair market value as possible and as determined by appraisal. In the event the property is sold at auction, the highest bid offered shall be the acceptable sale price. Walter may choose an appraiser, agreeing that he will not use Herman Schumacher, Joe Vetter or Paul Schafner. The fees and cost of the appraisal shall be shared equally between the parties. If the parties cannot agree on an appraiser, each may select and pay for their own appraisal. The fair market value shall then be the average between the two appraisals. If the sale is by public auction, Walter shall submit the names of three (3) auctioneers to Bernadette, excluding the names of Herman Schu-macher, Joe Vetter and Paul Schafner. Bernadette shall select the auctioneer from the list of three names. Walter’s obligations to pay child support shall continue at whatever level is set by the Court in an appropriate judicial proceeding. As to spousal support continuing upon liquidation of the real estate, equipment and machinery, Walter shall make payments each month in the amount of $250.00, unless otherwise determined by court. Walter may seek action in court at any time to reduce or eliminate spousal support in the event of liquidation of the real estate and equipment and machinery. Bernadette may seek action in court at any time to increase or modify spousal support. 'Walter shall make payments as determined by the court in any action by either party. The parties agree that after all claims are paid, Bernadette shall receive the first $33,000.00. It is further agreed that Walter will receive the next $33,000.00 of assets and the 'remainder shall be split equally between Bernadette and Walter. ■

While our temporary remand in Wagnér I was pending in the trial court, Bernadette moved to incorporate the bankruptcy stipulation into the divorce judgment. The record does not reflect any contemporaneous action on Bernadette’s motion.

[¶ 6] Walter failed to pay the $2,000 due under the stipulation on January 15, 1998, and informed Bernadette he intended to liquidate the parties’ land, machinery, and equipment. On March 4, 1998, an auction was held and the land, machinery, and equipment were sold.

[¶ 7] On March 27, 1998, Bernadette obtained an ex parte interim order in the divorce action, restraining Walter from closing' on the sale of the land. Bernadette moved to rescind the stipulation on the ground Walter had fraudulently induced her to enter into it without intending to perform, and she asked the court to reinstate the divorce decree. She sought to void the sales of machinery and land as fraudulent transfers and to appoint a receiver to sell the land at fair market value. If the court upheld the stipulation and sale, Bernadette alternatively asked the court to find Walter’s confessed judgments were fraudulent transfers; she be given priority over Herman Schumacher, an unsecured bánkruptcy creditor; and she be paid under the initial divorce decree. As part of Bernadette’s alternative request, she asked the court to enter an amended judgment nunc pro tunc to December 15, 1995, the date of the court’s initial memorandum decision in the divorce action, to'avoid seven confessed judgments entered after the memorandum decision and before filing of the initial divorce decree on March 15, 1996. Walter moved to vacate the ex parte interim order and resisted Bernadette’s motions.

[¶ 8] After an August 7, 1998 hearing, the trial court denied Bernadette’s motions, and granted Walter’s motion to vacate the ex parte interim restraining order. The court found Walter did not fraudulently induce Bernadette to enter into the stipulation, and the auction was not conducted improperly. Thé court said Bernadette’s claim that- Walter’s confessions of judgment worked a fraud on her would need to be addressed in another proceeding. The court also awarded Bernadette $1,500 for attorney fees for the prior appeal in Wagner I. Bernadette requested reconsideration, claiming Walter failed to comply with the stipulation in distributing the proceeds of the auction. The court denied Bernadette’s request for reconsideration.

[¶ 9] In Wagner v. Wagner, 1999 ND 169, ¶ 16, 598 N.W.2d 855 (Wagner II), we affirmed the trial court’s order denying Bernadette’s request for a nunc pro tunc modification of the divorce decree. We also concluded .the court did not have subject matter jurisdiction to enforce the stipulation as part of the divorce decree because it had never been incorporated into the decree. Id. at ¶ 12. Because the stipulation was never incorporated into the parties’ decree, nor made the basis of a separate lawsuit to enforce it as a contract, we held the court was without jurisdiction to rule on it. Id. We said our decision left the parties subject to the terms of the March 1998 amended judgment, and we remanded to the trial court, directing it to vacate any order entered regarding the stipulation. Id. at ¶ 13. We said the ruling on the ex parte interim restraining order was intrinsically intertwined with issues surrounding the stipulation, and we directed the trial court to reconsider the ex parte order in light of the March 1998 amended judgment, or, in light of the stipulation, if it was properly incorporated into the divorce decree on remand. Id.

[¶ 10] On remand the court granted Walter’s motion to incorporate the stipulation into the divorce judgment, and an amended judgment was entered effective January 23,1998.

II

[¶ 11] On appeal, Bernadette argues the trial court erred in finding Walter did not fraudulently induce her to enter into the stipulation. She argues there is clear and convincing evidence Walter had no intent to pay her $2,000 per month under the stipulation.

[¶ 12] A party alleging fraud must prove it by clear and convincing evidence. First Nat’l Bank and Trust Co. v. Brakken, 468 N.W.2d 633, 636 (N.D.1991). Whether fraud exists is treated as a question of fact, and a trial court’s determination on that issue will not be set aside on appeal unless clearly erroneous. Id: A finding of fact is clearly erroneous if it has no support in the evidence, if, although there may be some evidence to support it, a reviewing court is left with a definite and firm conviction a mistake has been made, or if it is induced by an erroneous conception of the law. CAP Partners v. Cameron, 1999 ND 178, ¶ 11, 599 N.W.2d 309. In reviewing findings of fact, we give due regard to the trial court’s opportunity to assess the credibility and observe the demeanor of the witnesses. Miller Enterprises, Inc. v. Dog N’ Cat Pet Ctrs., 447 N.W.2d 639, 644 (N.D.1989). We will not reverse a trial court’s findings merely because we may have viewed the facts differently if we had been the trier of fact. Id.

[¶ 13] Here, the parties’ stipulation settled issues of spousal support and property division. The stipulation clearly contemplated liquidation of real and personal property if Walter was “unable to realistically make” the $2,000 per month payments and said “Walter may exercise the option to liquidate the land and machinery and equipment at any time.” The . trial court found the record failed to establish Walter did not intend to fulfill the stipulation even though he defaulted shortly after it was executed. The court found Walter’s attorney’s testimony indicated the agreement was entered into after extensive negotiations in the belief it could be performed, and Walter’s failure to perform was related to his inability to obtain proper operating financing. Although we may have viewed the evidence differently if we had been the trier of fact, we are not left with a definite and firm conviction the court made a mistake in finding Walter did not fraudulently induce Bernadette to enter into the stipulation. The court’s finding therefore is not clearly erroneous.

Ill

[¶ 14] Bernadette argues the trial court erred in failing to. void the sale of the land and the farm equipment, at the auction as fraudulent transfers. She claims there were pre-auction maneuverings by Walter which were designed to discourage bidders and were part of his scheme to defraud her.

[¶ 15] The court found the testimony, taken as a whole, did not substantiate Bernadette’s claims the auction was conducted 'improperly, or there was illegal collaboration between Walter and the auctioneer or others to deflate the prices received. The court said it viewed a videotape of the auction received into evidence, and found the auctioneer worked strenuously and took considerable time in an attempt to obtain the highest bid possible for the land. The court found Bernadette’s evidence indicating the land could have been sold for higher prices if it had been parceled out differently was rebutted by the testimony of Dean Schwartz, a real estate agent who testified he believed the parties received a price commensurate with other comparable sales. The court found the land was purchased in an arm’s-length transaction. We are not left with a definite and firm conviction the court made a'mistake in finding the sales at the auction were not fraudulent transfers. The court’s finding is not clearly erroneous.

IV

[¶ 16] Bernadette argues the trial court erred in deciding Walter followed the stipulation in disbursing the auction proceeds. Bernadette argues the distribution of the auction proceeds did not follow the terms of the stipulation, which, in relevant part, states:

In the event there is a complete liquidation of all the parties!’] land and equipment and machinery and after payment of all valid, currently existing, secured claims on machinery and mortgages on real estate, real estate taxes, and the IRS tax liability, Bernadette and Walter shall split the remaining proceeds as set forth below.... The parties agree that after' all claims are paid, Bernadette shall receive the first $33,-000.00. It is further agreed that Walter will receive the next $33,000.00 of assets and the remainder shall be split equally between Bernadette and Walter.

[¶ 17] The stipulation has been incorporated into the divorce decree and unambiguously identifies how the auction proceeds are to be disbursed. It clearly requires the auction proceeds to be used first for payment of real estate taxes, IRS tax liability, and “all valid, currently existing, secured claims on machinery and mortgages on real estate,” and after those payments are made, Bernadette was to receive the first $33,000 in remaining proceeds and Walter the next $33,000, with any remainder split equally between them.

[¶ 18] A proposed auction settlement statement for the sale of the land identifies $324,030 in proceeds from the sale of 1,877 acres of land with $12,961 in expenses for auctioneer’s fee's and the clerk. The settlement statement identifies $8,600 as estimated real estate taxes; $15,450 for a first mortgage with the Farm Services Agency; $191,386.35 for a second mortgage with the Strasburg State Bank; $43,095.88 for a third mortgage with Herman Schumacher; $19,498.35 plus interest for a judgment filed on February 15,1996, in favor of O.R. Miller; and $33,038.42 for a judgment filed on February 20, 1996, in favor of Ken Zacher. The statement listed a balance of $24,463.21 for the Zacher judgment and said no proceeds were available for an undetermined income tax liability; a $29,968.54 judgment filed on February 22, 1996, in favor of Todd D. Wagner; a $10,243.94 judgment filed on February 22, 1996, in favor of Jerome Senger; a $30,969.01 judgment filed on February 22, 1996, in favor of Daniel E. Volk; and a $4,480 judgment filed on February 22, 1996, in favor of Donald Nagel.

[¶ 19] Under the plain language of the stipulation, Bernadette was entitled to the first $33,000 in auction proceeds “after payment of all valid, currently existing, secured claims on machinery and mortgages on real estate, real estate taxes, and the IRS tax liability.” Under North Dakota law, a mortgage is a contract by which.specific real property capable of being transferred, is hypothecated for the performance of an act without requiring a change in possession,- and includes a transfer of an interest in real property made only to secure the performance of an act. N.D.C.C. § 35-03-01.1. Although a docketed judgment for payment of money is a lien on the real property, except the homestead, of every person against whom the judgment is rendered, see N.D.C.C. § 28-20-13, the plain meaning of a “mortgage on real estate” does not include a judgment lien. Under the original divorce decree, Walter was assigned debts to Herman Schumacher, who was listed as an unsecured creditor in bankruptcy documents, and to the creditors who obtained confessed judgments, and we decline to construe the stipulated language to effectively require Bernadette to pay those debts. Schumacher and the confessed judgment creditors did not have “valid, currently existing, secured claims on machinery and mortgages on real estate” within the meaning of the stipulation. We conclude the part of the auction settlement statement for the sale of land which proposes payment to Schumacher and confessed judgment creditors does not comply with the parties’ stipulation. We modify the judgment to require disbursement of $33,000 to Bernadette and $33,000 to Walter with the remainder of the proceeds from the sale of real estate equally to each as required by the stipulation. See Circle B Enterprises, Inc, v. Steinke, 1998 ND 164, ¶¶ 15-18, 584 N.W.2d 97.

[¶ 20] The trial court did not decide whether Walter’s confession of the seven judgments constituted fraudulent conveyances. To the extent the ultimate distribution of these auction proceeds depends on the disposition .of that issue, the trial court will have to decide it. If the confessed judgments do not constitute fraudulent conveyances by Walter, Bernadette nevertheless is entitled to recover from Walter because those judgments are not “valid, currently existing, secured claims oh machinery and mortgages on real estate” within the meaning of the stipulation.

V

[¶ 21] We affirm the judgment as modified. ■

[¶ 22] DALE V. SANDSTROM, ' WILLIAM A. NEUMANN, MARY MUEHLEN MARING, CAROL RONNING KAPSNER, JJ„ concur.

      . The record reflects Walter, sued Bernadette for a divorce in- a complaint dated October 2, 1993. After protracted proceedings, the trial court issued a memorandum opinion dated December 15, 1995, an addendum to the memorandum decision dated January. 12, 1996, and a second addendum to the memorandum decision dated February 15, 1996. From February 15 to February 22, 1996, Walter confessed judgments to seven creditors. The parties' original divorce judgment was filed on March 15, 1996.