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Phan v. Tennessee Department of Commerce and Insurance

Court of Appeals of Tennessee, Nashville

March 2, 2017


          Session January 19, 2017

         Appeal from the Chancery Court for Davidson County No. 15-89-IV Russell T. Perkins, Chancellor.

         After a contested case hearing, an administrative law judge ("ALJ"), acting on behalf of the Tennessee Board of Cosmetology, revoked a cosmetologist's license based upon evidence that he had assisted in the procurement of reciprocity licenses in exchange for cash. The ALJ also assessed civil penalties against the cosmetologist in the amount of $20, 000. The cosmetologist filed a request for judicial review, and the chancery court affirmed the decision of the ALJ. We have concluded that the ALJ's decision is supported by substantial and material evidence and that none of the grounds raised by the cosmetologist justify reversal under the deferential standard of review described in Tenn. Code Ann. § 4-5-322(h).

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed.

          Jackie Sharp, Jr., and Natalie R. Sharp, Nashville, Tennessee, for the appellant, Lee Phan.

          Herbert H. Slatery, III, Attorney General and Reporter; Andrée Blumstein, Solicitor General; and R. Mitchell Porcello, Senior Counsel, for the appellee, Tennessee Department of Commerce and Insurance.

          Andy D. Bennett, J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and W. Neal McBrayer, J., joined.



         Factual and Procedural Background

         Lee Phan held a cosmetology license issued by the Tennessee Board of Cosmetology ("the Board"), part of the Tennessee Department of Commerce and Insurance ("the Department"). On July 19, 2013, the Board sent Mr. Phan a letter informing him that it had opened a complaint against him based on allegations that he had "fraudulently assisted in the procurement of licenses in exchange for cash." The Board voted to authorize a contested case against Mr. Phan at a meeting on November 4, 2013. On January 31, 2014, the Department filed a notice of hearing and charges with the Board against Mr. Phan. The notice stated that Mr. Phan's conduct constituted a violation of Tenn. Code Ann. § 62-4-127(b)[1] and that a hearing would be held on May 9, 2014.

         The Contested Case Hearing

         The contested case was heard by an ALJ on May 9 and 22, 2014. The Department presented testimony by the Board's executive director, Roxana Gumicio, who testified about the two ways to obtain licensure from the Board: (1) by completing the required number of educational hours (to be a cosmetologist, manicurist, or other type of license holder) and passing exams, or (2) by reciprocity, for persons with an active license in another state. To verify a person's qualifications for licensure by reciprocity in Tennessee, the other state must send proof of licensure directly to the Board.

         Ms. Gumicio testified that, in 2012, the Board asked one of its employees, Latrisha Johnson, "to produce some files that she herself entered, and the explanation that she gave was that she destroyed them." Ms. Johnson was a licensing technician who processed reciprocity licenses. The Board thereafter found that Ms. Johnson had been buying and selling prescription drugs using the state e-mail system, was irresponsible, and exhibited "unacceptable conduct in the management of the licensing files that she was entrusted to." Ms. Johnson subsequently resigned prior to being terminated. The Board sent letters out to the affected licensees requesting documentation of their education and licensure in other states to support their reciprocity licenses. In most cases, either the licensees provided the necessary documentation to support their licensure in Tennessee or the Board obtained the information from the other state where the Tennessee licensee had received his or her license. Ms. Gumicio testified that those who could not produce documents to support their reciprocal licensure were given the opportunity to have a hearing on their case. The Board revoked the reciprocal licenses of any persons who could not produce documents to establish their licensure in another state.

         The Department then presented ten witnesses who testified through a Vietnamese interpreter that they gave Mr. Phan money, ranging from $2, 000 to $6, 500, to obtain their cosmetologist, manicurist, or aesthetician licenses by reciprocity without completing any educational work or having licensure in another state.

         The Department also called Mr. Phan as a witness. Mr. Phan testified that he was a licensed cosmetologist and that he had recently become a licensed cosmetology instructor. Early in his testimony, Mr. Phan gave the following responses:

Q. Did you offer to help anyone obtain a cosmetology license in the state of Tennessee?
A. No.
Q. Did you offer to help anyone obtain a cosmetology license through the reciprocity application process in Tennessee?
A. Yes. After-if they complete their education, then I will help.
Q. How did you help them?
A. I just showed them.
Q. What did you show them?
A. Just to show, do this, do that, translate for them.
Q. So you would help them by translating [for] them?
A. Yes.
Q. Did you ever provide an application or form for someone to fill out for a cosmetology license?

         At this point in the hearing, the ALJ interjected with a reminder about her previous instructions concerning Mr. Phan's constitutional rights and stated to Mr. Phan's attorney that "if you feel like that you need to instruct him in any way, then you can let me know." Thereafter, Mr. Phan gave the following testimony:

Q. Did you ever make copies of identifying documents for any individuals such as a Social Security card or driver's license? A. Fifth Amendment.
Q. Did you ever fill out any applications for any individual for a cosmetology license in the state of Tennessee?
A. Fifth Amendment.
Q. Did you ever pay someone at the State of Tennessee to process cosmetology license applications?
A. Fifth Amendment.
Q. Did you ever obtain licenses for anyone through reciprocity in the State of Tennessee?
A. Fifth [A]mendment.
Q. Have you ever taken any money in exchange for a cosmetology license from any individual in the state of Tennessee?
A. Fifth Amendment.

         Mr. Phan's attorney conferred with him, and the questioning continued as follows:

Q. Mr. Phan, have you ever taken any money from any individual in any amount in exchange for a cosmetology license?
A. No.

         Mr. Phan denied receiving money from all but one of the ten witnesses who testified against him. He stated that he accepted $2, 000 from Thuy Nguyen to pay for tuition at the World Academy in Little Rock, Arkansas. As to another witness, Peter Pham, Mr. Phan stated that he told Mr. Pham that his niece should send the application and $2, 000 to the BN Career Institute in Houston, Texas. Asked if he received any money from BN Career Institute, Mr. Phan testified that, "if the person goes to school and completes, then they [the school] give me money, but I never did collect on the money." The Department's attorney asked Mr. Phan if he took any of the ten witnesses to a bank to complete an application or have anything notarized. Mr. Phan invoked his Fifth Amendment rights. Mr. Phan also testified that he referred students to the Academic World of Cosmetology in Little Rock, Arkansas, a school that offered cosmetology classes in Vietnamese. He denied ever receiving any money from the school or sending any money to the school. Mr. Phan could not recall whether he had sent the school money on behalf of a student.

         Mr. Phan expressly denied receiving money for arranging for licenses to be issued to the ten witnesses who testified against him. He also denied knowing Latrisha Johnson.

         The defendant's case began with further testimony by Ms. Gumicio. She answered questions about the Department's database, known as the Regulatory Board System ("RBS"). A licensed technician, like Ms. Johnson, would enter notes and information into the RBS. Certain information must appear in the RBS for a license to be issued to an applicant. Mr. Phan then questioned Ms. Gumicio about a letter the Department sent to Ms. Johnson on March 13, 2012, particularly the following paragraph regarding the results of an internal audit:

Based upon concerns regarding the missing reciprocal licensee records and your use of Ms. Buttrey's computer without her knowledge and in her absence from her work area, the department's Internal Audit team recently conducted an audit of the reciprocal licenses issued during the time period of July 1, 2011 through March 8, 2012. Of the five hundred ninety-nine (599) licensees sampled, one hundred fifty-six (156) licensee files were missing. Of the four hundred forty-three (443) licensee files reviewed, twenty-five (25) files had insufficient documentation to support approval of the license or otherwise questionable documentation.

         Ms. Gumicio stated that the licenses of the witnesses who had testified in this case fell within the July 1, 2011 to March 8, 2012 time period.

         At Mr. Phan's request, the Department produced RBS printouts for the witnesses in this case. Mr. Phan's attorney stated that Ms. Johnson's employee identification number ("CE number") appeared on the RBS screen shots for all seventeen of the former licensees who completed affidavits used in the case against Mr. Phan.

         The Administrative Decision

         The ALJ entered an initial order on January 5, 2015, revoking Mr. Phan's cosmetology license and assessing civil penalties against him in the amount of $20, 000. This order became final on January 20, 2015. The ALJ denied Mr. Phan's petitions for stay of the initial order and the final order on January 21, 2015.

         Judicial Review

         Mr. Phan filed a petition for judicial review in the chancery court on January 21, 2015. He filed a motion for a stay of the effectiveness of the final administrative order on the same day, and the trial court denied this motion on February 4, 2015. Mr. Phan also filed a Motion to Correct or Supplement the Record, or Alternatively to Take Additional Proof on March 13, 2015. The trial court granted Mr. Phan's motion as to those corrections or additions that the Department did not contest, but it excluded all other items requested as corrections or additions by Mr. Phan. The court denied Mr. Phan's request to present additional evidence or to "present to this Court proof of alleged irregularities in procedure before the agency pursuant to Tenn. Code Ann. § 4-5-322(g)."[2]

         The hearing on Mr. Phan's petition for judicial review was held on April 17, 2015. In its memorandum and final order entered on February 23, 2016, the trial court affirmed the Board's decision to revoke Mr. Phan's license and to assess civil penalties against him in the amount of $20, 000. Mr. Phan appeals.

         Issues on Appeal

         Mr. Phan has raised five issues on appeal: (1) Whether the ALJ's order revoking his cosmetology license is void for lack of subject matter jurisdiction or violations of the Open Meetings Act; (2) whether the ALJ's order was obtained through statutory or constitutional violations that denied Mr. Phan due process; (3) whether the ALJ exceeded her authority by imposing a civil penalty in excess of the statutory maximum and related to violations not included in the notice of hearing and charges; (4) whether the ALJ's decision was supported by substantial and material evidence in light of the entire record; and (5) whether the Department prosecuted the case against Mr. Phan with knowledge that some or all of the alleged violations were not grounded in fact or law, thereby warranting an award of attorney fees and costs pursuant to Tenn. Code Ann. § 4-5-325.

         Standard of Review

         Judicial review of the final decision of an administrative agency is governed by the Tennessee Uniform Administrative Procedures Act ("UAPA"), Tenn. Code Ann. § 4-5-101 et seq. See Story v. Civil Serv. Comm'n, No. M2010-01214-COA-R3-CV, 2011 WL 2623904, at *2-3 (Tenn. Ct. App. July 5, 2011). The UAPA limits our scope of review as follows:

The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if the rights of the petitioner have been prejudiced because the administrative findings, inferences, conclusions or decisions are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or
(5) (A) Unsupported by evidence that is both substantial and material in the light of the entire record.
(B) In determining the substantiality of evidence, the court shall take into account whatever in the record fairly detracts from its weight, but the court shall not substitute its judgment for that of the agency as ...

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