                                                                                              October 9 2012
                                          DA 12-0158

              IN THE SUPREME COURT OF THE STATE OF MONTANA

                                          2012 MT 219



GARY & LEO’S FRESH FOODS, INC.,

               Petitioner and Appellee,

         v.

STATE OF MONTANA,
DEPARTMENT OF LABOR AND INDUSTRY,

               Respondent and Appellant.




APPEAL FROM:           District Court of the First Judicial District,
                       In and For the County of Lewis and Clark, Cause No. CDV 2011-701
                       Honorable Kathy Seeley, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       Patricia L. Bik, Special Assistant Attorney General; Helena, Montana

                For Appellee:

                       Amy D. Christensen, Kate McGrath Ellis; Hughes, Kellner, Sullivan &
                       Alke, PLLP; Helena, Montana



                                                    Submitted on Briefs: August 29, 2012
                                                               Decided: October 9, 2012


Filed:

                       __________________________________________
                                         Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1    The Montana Department of Labor & Industry (the Department) appeals from the

First Judicial District Court’s order reversing the Board of Labor Appeals’ (the Board)

award of unemployment benefits to Kaylee Reed (Reed). We affirm the District Court

and address the issues:

¶2    1. Did the Department properly preserve its evidentiary arguments for appeal?

¶3    2. Did the District Court err by concluding that Reed’s conduct constituted

misconduct under the “carelessness standard” of Admin. R. M. 24.11.460(1)(d)?

                 FACTUAL AND PROCEDURAL BACKGROUND

¶4    Reed worked as a deli clerk for Gary & Leo’s Fresh Food, Inc. (Gary & Leo’s), a

Havre grocery store, from February 22, 2009, until October 16, 2010.        Reed’s job

consisted of filling shoppers’ orders for deli items, such as sliced meats, salads,

sandwiches, fried food, and coffee. Gary & Leo’s terminated Reed’s employment on

October 16, 2010, after receiving complaints from shoppers regarding poor service and

use of inappropriate language by Reed.

¶5    Reed applied for unemployment insurance benefits.      The Department initially

determined that Reed was eligible for benefits, but after Gary & Leo’s requested a

redetermination, it concluded that Reed was not qualified for benefits because she had

been discharged for misconduct. Reed appealed and a hearing was conducted by a

hearing officer on April 14, 2011.

¶6    At the hearing, Gary & Leo’s manager Tracy Job testified that he had been

prompted to fire Reed because of multiple customer complaints, a number of which were

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memorialized in her personnel file as reports. The first report was dated March 14, 2009,

and was signed by a customer who said that Reed acted rudely toward her. The second

and third reports, dated March 14, 2010, and May 1, 2010, documented similar

complaints from other customers.          The fourth report, dated October 12, 2010,

documented a “very upset” customer who complained after Reed “was swearing and

saying she didn’t know how to make a meat and cheese tray.” The fifth report, also dated

October 12, 2010, documented a customer complaint that Reed was “extremely rude” and

“obviously didn’t want to help her in any way.” Reed said that she had no objection to

these reports, and the hearing officer admitted them into evidence.1 Reed testified and

denied the allegations contained in the reports. While Reed admitted to using profane

language at work, she testified that she did so out of earshot of customers.

¶7     The hearing officer found that five customer complaints regarding Reed’s service

had been made in her year-and-a-half employment with Gary & Leo’s. However, the

hearing officer concluded that Reed had not intentionally acted rudely toward customers.

Citing Admin. R. M. 24.11.460(1)(a)–(b), the hearing officer noted that misconduct was

defined as the “deliberate disregard of the employer’s rights and interests or the

deliberate disregard of employee standards of behavior the employer had the right to

expect.” While Reed had been issued written warnings regarding her rude behavior




1
 Reed objected to one report written by a fellow employee on the ground that he had not worked
the day of the incident. The hearing officer did not adopt as fact any of the information
contained in that report.

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toward or in front of customers, the hearing officer concluded that Reed had not been

deliberately rude and reinstated benefits.

¶8     Gary & Leo’s appealed to the Board, arguing that the hearing officer erred by

failing to apply an alternate definition of misconduct contained in subsection (d) of the

Admin. R. M. 24.11.460(1), which provides that misconduct also includes: “carelessness

or negligence of such degree or reoccurrence to show an intentional or substantial

disregard of the employer’s interest” (hereinafter “carelessness standard”). The Board

affirmed, reasoning that the hearing officer was in the best position to judge the

credibility of the parties and had “correctly applied the law to the facts.” The Board

briefly mentioned the carelessness standard but its analysis of the misconduct issue

focused on a different definition of misconduct under the regulations.

¶9     Gary & Leo’s petitioned for judicial review, arguing the Board had erred by

failing to address Reed’s conduct under the carelessness standard. The Department and

the Board filed a joint notice of non-participation indicating they would not be

participating in the proceeding but reserving the right to intervene if issues arose

pertaining to them. In addition, the notice addressed the standards of review and their

application to the case. Reed did not participate in the proceeding. Gary & Leo’s filed

an opening brief, serving Reed and the Department, and likewise filed and served a reply

brief after Reed’s and the Department’s response time expired.

¶10    The District Court reversed the Board’s decision, holding that Reed’s conduct as

established by the hearing officer’s findings of fact constituted misconduct as a matter of

law under the carelessness standard:

                                             4
       [A]pplying the law to the facts as determined by the hearing officer, the
       substantial evidence in the record establishes that Reed acted with a
       careless or negligent disregard of the employer’s interest. The legal
       conclusions of the hearings officer and the [Board] constitute an error of
       law.

The court reasoned that Reed failed to correct behavior for which she was on notice and

which related to the employer’s interests:

       The administrative record demonstrates repeated warnings to Reed about
       her inappropriate behavior to or around customers with no demonstrated
       effort to correct it after the warnings. Reed admitted to an ongoing anger
       problem. Her employer is a customer service business—employee
       misconduct toward customers is a legitimate concern of the employer. . . .
       Reed was discharged for misconduct.

Following this ruling, the Department and the Board filed a joint motion to alter the

court’s judgment, arguing the District Court had cited to the wrong statute in applying the

standard of review. Gary & Leo’s agreed and the District Court revised its order to cite

to the correct statute. This revision did not change the outcome as a substantially similar

standard of review is provided under both statutes.2

¶11    The Department appeals the District Court’s ruling.

                                STANDARD OF REVIEW

¶12    In unemployment insurance cases, this Court reviews the factual findings to

determine if they are supported by substantial evidence. Wheelsmith Fabrication v.


2
  The standard of review used by Gary & Leo’s in its briefing and adopted by the District Court
in its initial decision was taken from the Montana Administrative Procedure Act, which permits
courts to determine whether an agency’s interpretation of law is correct. See e.g. Steer, Inc. v.
Dept. of Rev., 245 Mont. 470, 474, 803 P.2d 601, 603 (1990). For unemployment insurance
matters, § 39–51–2410(5), MCA, governs and provides that legal conclusions are reviewed for
correctness. See e.g. Phoenix Physical Therapy v. Unemployment Ins. Div., 284 Mont. 95, 100,
943 P.2d 523, 526 (1997).
                                               5
Mont. Dept. of Lab. & Indus., 2000 MT 27, ¶ 8, 298 Mont. 187, 993 P.2d 713. “With

regard to questions of law, however, our task is to determine whether the agency’s

interpretation of the law is correct.” Wheelsmith, ¶ 8. Whether an employee’s conduct

constitutes misconduct is a question of law which this Court reviews for correctness.

Mont. Dept. of Corrections v. Dept. of Lab. & Indus., 2006 MT 298, ¶ 14, 334 Mont. 425,

148 P.3d 619 (citing Hafner v. Mont. Dept. of Lab. & Indus., 280 Mont. 95, 100, 929

P.2d 233, 236 (1996)).

                                    DISCUSSION

¶13   1. Did the Department properly preserve its evidentiary arguments for appeal?

¶14   The Department offers that the hearing officer and the Board gave no weight to the

five customer complaints against Reed because the complaints constituted “inadmissible

hearsay.”   The Department argues that the District Court erred by considering this

evidence, and that the court thus impermissibly re-weighed the evidence in determining

that Reed’s actions constituted misconduct.

¶15   Gary & Leo’s urges the Court to reject the Department’s arguments as untimely

and not properly before the Court. It argues that, because the Department notified the

District Court that it would not participate in the proceedings and did not answer the

briefing, the Department failed to preserve the issues raised in its appeal.         The

Department counters that it preserved the issues by way of the discussion provided in its

notice of non-participation, reservation of the right to re-enter the case, and motion to

alter or amend the judgment.



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¶16    “In Montana, the general rule is that an issue which is presented for the first time

to the Supreme Court is untimely and cannot be considered on appeal.” Day v. Payne,

280 Mont. 273, 276–77, 929 P.2d 864, 866 (1997). This rule is applied in unemployment

insurance proceedings, Wheelsmith, ¶ 12, and is rooted in fundamental fairness to the

parties and to the trial court, Day, 280 Mont. at 276–77, 929 P.2d at 688. Similarly,

motions to alter or amend a judgment “cannot be used to raise arguments which could,

and should, have been made before judgment issued.” Nelson v. Driscoll, 285 Mont. 355,

360–61, 948 P.2d 256, 259 (1997) (citations omitted); accord Lee v. USAA Casualty Ins.,

2001 MT 59, ¶ 76, 304 Mont. 356, 22 P.3d 631; Cook v. Hartman, 2003 MT 251, ¶ 24,

317 Mont. 343, 77 P.3d 231.

¶17    While addressing the issue of substantial evidence generally, the Department did

not make the inadmissible hearsay argument in its notice of non-participation. To the

extent that the Department attempted to raise the hearsay argument in its motion to alter

or amend, that attempt falls squarely within the prohibition stated in Nelson, Lee, and

Cook. In sum, the Department failed to properly raise and preserve its inadmissible

hearsay argument in the District Court. Thus, its argument that the five reports of

customer complaints, though admitted by the hearing officer, were inadmissible hearsay

and not to be considered, are not properly before this Court, and the reports remain a part

of the record.




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¶18 2. Did the District Court err by determining that the evidence found by the
Department constituted misconduct as a matter of law under the “carelessness standard”
of Admin. R. M. 24.11.460(1)(d)?

¶19    The Department argues that the District Court erred in concluding that Reed had

been discharged for misconduct. Giving the Department the benefit of the doubt that this

issue was preserved by the substantial evidence discussion which accompanied its notice

of non-participation,3 the Department’s argument nonetheless assumes that the customer

complaint reports were inadmissible and could not be considered. It argues that “no

credible, admissible evidence substantiates any alleged customer complaints about

Reed’s job performance.”          However, as we concluded under the first issue, the

admissibility of the customer complaints was not an issue which was preserved.

¶20    The hearing officer entered findings of fact that Gary & Leo’s received five

complaints regarding poor customer service provided by Reed during her employment.

The Board affirmed these findings of fact as supported by the evidence. As noted above,

whether these facts constitute misconduct as defined by Admin. R. M. 24.11.460 is a

question of law. Further, we apply a deferential review of the Board’s interpretation of

its regulations in light of its “considerable expertise” in these matters. Somont Oil Co. v.

King, 2012 MT 207, ¶ 18, ___ Mont. ___, ___ P.3d ___.

¶21    However, the Board gave little attention to Gary & Leo’s argument about the

carelessness standard of misconduct, even though that was the only issue Gary & Leo’s


3
  The Board’s notice stated that “[d]espite Petitioner’s assertions, it is improper for the Court to
re-weigh the evidence in this matter. . . . On judicial review, the findings of the [Board] as to the
facts, if supported by the evidence and in the absence of fraud, shall be conclusive and the
jurisdiction of the court shall be confined to questions of law (citations omitted).”
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counsel argued to the Board. Like the analysis provided by the hearing officer, the

Board’s citation to the governing regulations included only an alternate definition of

misconduct. The Board briefly referenced the carelessness standard in its order but did

not offer an analysis regarding why the findings of fact regarding Reed’s actions did not

constitute misconduct under the carelessness standard.

¶22   The findings of fact established that there were multiple complaints about Reed’s

use of language and poor customer service, five which had been reduced to written

reports, culminating in two complaints from customers on the same day. Reed had been

repeatedly warned in writing. We affirm the District Court’s conclusion of law that

Reed’s conduct as established by the findings constituted carelessness or negligence in

disregard of Gary & Leo’s interest in providing service to its retail customers under

Admin. R. M. 24.11.460(1)(d), and that the Board erred in its legal conclusion.

¶23   This case differs from Somont Oil Co., where we affirmed the Board’s

determination that an employee’s conduct did not rise to the level of misconduct. Somont

Oil Co., ¶¶ 20–21. We noted that the Board “cited evidence in its written opinion and

during its hearing” to support its conclusion that the employee’s conduct “amounted, at

most, to isolated negligence.” Somont Oil Co., ¶ 20. The record in Somont Oil Co.

supported the Board’s determination that the employee was terminated for “isolated”

behavior. Somont Oil Co., ¶ 20. In this case, the record indicates that Reed’s conduct

was recurring, even after she was repeatedly warned in writing. Further, while the Board

cited evidence to support its conclusion in Somont Oil Co., here the Board failed to



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analyze the evidence of Reed’s conduct under the carelessness standard found in Admin.

R. M. 24.11.460(1)(d).

¶24   Affirmed.


                                              /S/ JIM RICE


We concur:

/S/ PATRICIA COTTER
/S/ JAMES C. NELSON
/S/ MICHAEL E WHEAT
/S/ BETH BAKER




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