Detroit Automobile Inter-Insurance Exchange v. Commissioner of Insurance , 125 Mich. App. 702 ( 1983 )

125 Mich. App. 702 (1983) 336 N.W.2d 860

DETROIT AUTOMOBILE INTER-INSURANCE EXCHANGE
v.
COMMISSIONER OF INSURANCE

Docket No. 58807.

Michigan Court of Appeals.

Decided May 17, 1983.

Dykema, Gossett, Spencer, Goodnow & Trigg (by James D. Tracy and M. Teresa D'Arms), and Forrest G. Shaw, General Counsel, of counsel, for plaintiffs.

Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, and Harry G. Iwasko, Jr., and Louis J. Porter, Assistants Attorney General, for defendants.

Amicus Curiae:

Michigan Association of Administrative Law Judges (by James F. Finn).

Before: BRONSON, P.J., and R.M. MAHER and R.J. SNOW,^[*] JJ.

R.J. SNOW, J.

Defendants appeal as of right from the trial court's declaratory ruling that MCL 500.2030(3); MSA 24.12030(3) of the Insurance Code of 1956 is constitutional and that defendants must comply with its provisions.

On March 6, 1981, plaintiffs were issued a notice of opportunity to show compliance with the Insurance Code. After preliminary conferences, the Commissioner of Insurance designated defendant John R. Schoonmaker, an Insurance Bureau hearing referee, to conduct the hearing. On May 1, 1981, plaintiffs formally requested that an independent hearing officer be appointed pursuant to MCL 500.2030(3); MSA 24.12030(3), which states:

"(3) The commissioner or his designate shall preside over the hearing, except that an independent hearing officer shall be designated by the commissioner if requested by the person who is the subject of the proceedings. The independent hearing officer shall be selected by the commissioner from a list of individuals submitted by the American arbitration association qualified to conduct hearings on behalf of the commissioner. A list of the individuals shall be maintained by the commissioner and shall be compiled pursuant to rules promulgated by the commissioner. The rules shall set forth the qualifications, criteria, and procedures to be utilized in the compilation of the list of independent hearing officers. The person subject to the proceedings may exercise 1 peremptory dismissal of the hearing officer selected, if exercised within 20 days after notification."

In accordance with this subsection, the Commissioner of Insurance had earlier submitted to the Attorney General for approval proposed rules providing for the qualifications, criteria and procedures to be used by the American Arbitration Association (AAA) in preparing a list of independent hearing officers and to be used by the commissioner in selecting an officer from that list. The Attorney General declined to certify the rules because he found MCL 500.2030(3); MSA 24.12030(3) to unconstitutionally conflict with Const 1963, art 11, § 5. OAG, 1979-1980, No 5821, p 1100 (December 5, 1980).

On May 6, 1981, defendant Commissioner of Insurance denied plaintiffs' request for the appointment of an independent hearing officer, relying on the Attorney General's opinion. Plaintiffs sought a declaratory judgment in Ingham County Circuit Court. On July 9, 1981, a declaratory judgment was entered, the trial court ruling that MCL 500.2030(3); MSA 24.12030(3) did not violate Const 1963, art 11, § 5. Defendants appeal from this ruling, arguing both that the trial court lacked jurisdiction to issue the declaratory judgment and that the trial court incorrectly held the statute to be constitutional. Amicus curiae Michigan Association of Administrative Law Judges has filed, by leave of this Court, an appellate brief supporting defendants' position.

Defendants first argue that because plaintiffs sought the declaratory judgment before exhausting their administrative remedies the trial judge did not have jurisdiction to issue the declaratory judgment. In all but extremely rare cases, Michigan courts will not review administrative agency decisions except pursuant to the Administrative Procedures Act. Superx Drugs Corp v State Board of Pharmacy (On Rehearing), 375 Mich. 314, 320; 134 NW2d 678 (1965).

Among those extremely rare cases are cases in which review of the agency's final decision or order would not provide an adequate remedy. MCL 24.301; MSA 3.560(201). Defendants argue that plaintiffs had an adequate remedy under the act because plaintiffs could have obtained judicial review pursuant to Const 1963, art 6, § 28 after the Commissioner of Insurance had reviewed the hearing examiner's (John Schoonmaker's) decision. If plaintiffs prevailed in the courts, plaintiffs would then be entitled to a new proceeding before an independent hearing examiner followed by a second review by the commissioner.

While we agree with defendants that mere litigation expense does not render a remedy inadequate,^[1] we believe that the trial court correctly granted leave in this case. In International Business Machines Corp v Dep't of Treasury, 75 Mich. App. 604, 610; 255 NW2d 702 (1977), lv den 401 Mich. 816 (1977), this Court stated:

"Exhaustion of administrative remedies is not an inflexible condition precedent to judicial consideration, however, and will not be required if review of the agency's final decision would not provide an adequate remedy, MCL 24.301; MSA 3.560(201), i.e., if it would run counter to the policies which underlie the doctrine. That is the case here. Plaintiff's suit seeks to avoid the expenses of litigation and disclosure which would be incurred by submitting to the agency's procedures for redetermination. The very harm that plaintiff seeks to avoid would inevitably occur if plaintiff were required to exhaust administrative remedies before access to judicial review. Moreover, the issue of the agency's statutory authority is clearly framed for the court. Extensive fact findings are unnecessary, and the decision does not demand special technical expertise." As in IBM, this case presents no issue of facts requiring the application of agency expertise, the issue of the agency's statutory authority was clearly framed for the circuit court, and findings of fact were unnecessary. To require exhaustion of administrative remedies would run counter to the policies underlying the doctrine because the very harm plaintiffs seek to avoid would inevitably occur if plaintiffs are required to proceed with a potentially useless hearing before being allowed to challenge the legal authority of defendant Schoonmaker to conduct the hearing.

We also note that this case presented a unique constitutional question which merited interlocutory review. Defendants correctly argue that such review, even of only constitutional claims, would disrupt effective law enforcement because almost every administrative proceeding potentially involves some constitutional question. However, very few constitutional questions arise because an administrative agency refuses to comply with a statute despite the absence of a judicial determination that the statute is constitutionally invalid. Allowing interlocutory review in such cases will have an extremely limited disruptive potential.

Defendants next argue that MCL 500.2030(3); MSA 24.12030(3) violates Const 1963, art 11, § 5 because it precludes the Civil Service Commission from classifying the position of "independent" hearing officer and from filling the position on the basis of merit and competitive examinations. Defendants claim the Civil Service Commission is required to perform these duties by the following language in Const 1963, art 11, § 5:

"Sec. 5. The classified state civil service shall consist of all positions in the state service except those filled by popular elections, heads of principal departments, members of boards and commissions, the principal executive officer of boards and commissions heading principal departments, employees of courts of record, employees of the legislature, employees of the state institutions of higher education, all persons in the armed forces of the state, eight exempt positions in the office of the governor, and within each principal department, when requested by the department head, two other exempt positions, one of which shall be policy-making. The civil service commission may exempt three additional positions of a policy-making nature within each principal department.

* * *

"The commission shall classify all positions in the classified service according to their respective duties and responsibilities, fix rates of compensation for all classes of positions, approve or disapprove disbursements for all personal services, determine by competitive examination and performance exclusively on the basis of merit, efficiency and fitness the qualifications of all candidates for positions in the classified service, make rules and regulations covering all personnel transactions, and regulate all conditions of employment in the classified service.

* * *

"No payment for personal services shall be made or authorized until the provisions of this constitution pertaining to civil service have been complied with in every particular. Violation of any of the provisions hereof may be restrained or observance compelled by injunctive or mandamus proceedings brought by any citizen of the state."

Superficially, the requirement of an independent hearing officer may be read as not being in harmony with the constitution because the position is not one of the exceptions enumerated in art 11, § 5. However, defendants have never claimed that all persons paid by the Civil Service Commission must be either members of the classified civil service or specifically excepted by the constitution. In fact, in arguing against the independent hearing officers, defendants rely on Civil Service Commission Rule 16.6 which specifically permits contractual personal services by nonclassified and nonexempted personnel:

"Contractual Personal Service. — An appointing authority may request the use of contractual personal services upon a satisfactory showing that it is not feasible or practical to establish a classified position to perform the required personal service. Approval or disapproval for the use of such contractual personal services shall be in accordance with regulations issued by the state personnel director."

Furthermore, we agree that the Civil Service Commission possesses the authority to provide for such contractual personal services. Among the rights and duties enumerated in art 11, § 5 is the right to "approve or disapprove disbursements for all personal services". This right, like the right to make "rules and regulations covering all personnel transactions", is not limited to the "classified civil service". We believe that the independent hearing officers envisaged by MCL 500.2030(3); MSA 24.12030(3) would provide "personal services" within the meaning of this clause, and that, provided disbursements for their services are approved by the Civil Service Commission, use of such hearing officers is constitutional.

In interpreting this constitutional amendment, we must examine its historical context and the arguments employed by its proponents. Civil Service Comm v Auditor General, 302 Mich. 673, 681; 5 NW2d 536 (1942). One of the primary reasons for the civil service amendment was to discontinue the "spoils system", under which public employment was the reward for political work. Permitting the use of contractual personal services where it is neither feasible nor practical to establish a classified position to perform the required service, subject to Civil Service Commision approval, implements this intention. Approval or disapproval of the personal services remains with the Civil Service Commission.

On the facts before us, the Legislature has not attempted to divest the Civil Service Commission of this authority. MCL 500.2030(3); MSA 24.12030(3) is directed at the Commissioner of Insurance, and not at the Civil Service Commission. It requires the commissioner to first promulgate rules for the qualifications of independent hearing officers and then to submit these rules to the American Arbitration Association. Once the AAA has compiled a list of qualified candidates, the commissioner is then required to select the independent hearing officer from this list if requested to do so by the person subject to the hearing. To this point, the procedure in no way conflicts with the Civil Service Commission's constitutional right to approve or disapprove the disbursements for these personal services.

Because the Attorney General declined to certify the rules for the qualifications of the independent hearing officers promulgated by the Commissioner of Insurance, this case has not proceeded to the point where the Civil Service Commission is to decide whether or not to approve the disbursements for the hearing officers. We will not presume from a silent record that the Civil Service Commission will necessarily refuse the disbursement request. We therefore affirm the trial court's holding that MCL 500.2030(3); MSA 24.12030(3) is constitutional.

Furthermore, we decline to address the numerous factual arguments raised by defendants and amicus curiae concerning the ability of hearing officers presently employed by the state to perform the statutory functions of the independent hearing officers. Under the constitution, only the Civil Service Commission, and not the Attorney General, the Legislature or this Court, is to determine whether or not a request by the Commissioner of Insurance for an independent hearing officer is to be granted.

We do not address the additional issues raised by amicus curiae. Under Michigan practice, the parties to the case have control over the issues and this Court need address only the issues raised by them. Union Steam Pump Sales Co v Secretary of State, 216 Mich. 261, 263; 185 N.W. 353 (1921); Grand Rapids v Consumers Power Co, 216 Mich. 409, 415; 185 N.W. 852 (1921).

Affirmed. No costs, a public question being involved.

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.

[1] Farmers State Bank of Concord v Dep't of Commerce, Financial Institutions Bureau, 77 Mich. App. 313; 258 NW2d 496 (1977), lv den 402 Mich. 864 (1978).