Arizona DES Found In Contempt Of Court

This week, the Arizona Court of Appeal found the Arizona Department of Economic Security (ADES) in contempt of court for failing to file approximately 100 appeals for people seeking unemployment benefits, food stamps and cash welfare assistance.

The Court considered “whether ADES should be held in contempt for failing to comply with Administrative Order 2017-01, issued February 13, 2017 (A.O. 2017-01), which required ADES to transmit to the Court by March 6, 2017 such all applications for appeal filed with ADES by February 13, 2017.”

Chief Judge Samuel A. Thumma wrote the Opinion, in which Judge Michael J. Brown and Judge Margaret H. Downie joined. Thuma wrote, “The Court finds that ADES has provided no just defense, cause or explanation for its failure to transmit to the Court by March 6, 2017 all applications for appeal and related documents that ADES had received by February 13, 2017 that had not previously been transmitted to the Court.”

“Given the factual and procedural background, including an evidentiary hearing before the Court,” wrote Thuma, “the Court finds by clear and convincing evidence that ADES is in civil contempt of the Court.”

Opinion highlights:

● As ADES conceded before the April 19, 2017 hearing, the number of applications for appeal that had not been timely transmitted by ADES to the Court identified in late 2016 “was only the tip of the iceberg.”

● In fact, given ADES’ inaction over a period of years, an enormous number of applications for appeal were not transmitted to the Court in a timely fashion.

● In the fiscal year ending June 30, 2017, ADES transmitted to the Court 483 applications for appeal. In calendar year 2017, ADES had transmitted to the Court 546 applications as of September 18, 2017. Some of these applications were first filed with ADES in 2013.

● The spike in cases transferred in fiscal year 2017 is staggering when compared to recent years:

● This downward trend appeared to continue dramatically during the first half of FY 2017, when ADES transmitted to the Court just two applications for appeal. One of those applications, however, had been filed with ADES on February 24, 2016, more than 300 days before it was transmitted by ADES to the Court.

● From sometime in 2013 to March 6, 2017, ADES employee Cynthia Dominguez, who was Clerk of the ADES appeals board, had administered the appellate services function for ADES.

● Ms. Dominguez’ last day of ADES employment was March 6, 2017, when she resigned. Both through testimony and in filings, ADES advised the Court that Ms. Dominguez exploited weaknesses in the ADES computer systems used in administering applications for appeal. This misconduct included “misdirecting the employee inputting the information [in an ADES computer system] to refrain from entering the date that the party filed the appeal application [with ADES] and the date” it was received by ADES.

● ADES further reported that Ms. Dominguez “used concealment, misdirection, and misinformation to prevent [ADES]management from discovering her malfeasance. She hid paper appeal applications in her office and . . . buried appeal applications in a digital file dedicated for another purpose, making detection extremely unlikely.”

● ADES added that Ms. Dominguez “manipulated unwitting coworkers and exploited a vulnerability” in the computer system “to further disguise the fact that she was not processing all of the appeal applications.” According to ADES, Ms. Dominguez “instructed the receptionists to route any calls about pending appeal applications to her if she was available. She further spread misinformation through the receptionists, telling them that a ruling on an appeal application took about two years, which the receptionists then passed on to parties when they sought information on the status of their applications.”

● During Ms. Dominguez’ ADES employment, ADES received many calls from parties whose applications for appeal were pending. When asked how ADES responded to those inquiries, staff testified that there was no record of written responses. Investigators found that, during Ms. Dominguez’ tenure, she and other ADES employees told inquiring parties that it took the Court of Appeals two years to process applications for appeal. This information was provided by ADES to parties whose applications for appeal had been pending for many months or years with ADES but had not yet been transmitted by ADES to the Court.

● After meeting with the Clerk of this Court, ADES’ investigation found that dozens of applications for appeal filed with ADES were located in Ms. Dominguez’ office. Those applications were unprocessed and placed in a file drawer in Ms. Dominguez’ office and had not been transmitted by ADES to the Court.

● Further investigation, including work with ADES computer systems, found more applications that had been filed with ADES but that had not been transmitted by ADES to the Court.

● By January 20, 2017, ADES had transmitted to the Court 19 applications for appeal in FY 2017, more than half of which had been filed with ADES at least 18 months before they were transmitted to the Court. Seven of those 19 applications had been filed with ADES in 2014 but had not been transmitted by ADES to the Court until January 2017.

● Later in January 2017, ADES disclosed to the Court for the first time that it had 140 additional applications for appeal that it had not yet transmitted. When the Court received information about those applications, 60 of the 140 had been filed with ADES more than a year earlier and six had been filed with ADES in 2014, yet were not transmitted by ADES to the Court until January 2017.

ADES is now required to submit monthly audit and inventory reports on appeals. The Court ordered ADES to file all appeals to the court within 30 days.

FACTUAL AND PROCEDURAL BACKGROUND

ADES administers Arizona’s unemployment compensation, food stamp and cash assistance programs under both Arizona and federal law. ADES has implemented a multistage process to administratively resolve disputes arising from these programs.

The last administrative stage of this process, typically occurring after an evidentiary hearing, is review and decision by the ADES appeals board.
A party wishing to challenge an ADES appeals board decision may seek review with the Court by filing an application for appeal “with the [ADES] clerk of the appeals board.”

“On the filing of an application for appeal, the clerk of the appeals board shall transmit to” the Court the ADES Record, consisting of “the application for appeal, the decisions issued by the appeals board and all petitions for review and responses of the appeals board,” as well as the transcript from any evidentiary hearing, and related documents.

After ADES transmits the ADES Record to the Court, the Clerk of Court opens a case and assigns the matter to a three-Judge panel for resolution. The panel considers the ADES Record in light of the issues raised and either grants or denies the application for appeal. If the application is denied, the ADES appeals board decision becomes final and no further appeal can be taken. If the application is granted, the appeal is treated like an appeal in a civil case according to “the rules for appeals in civil actions.”

Because an application for appeal is filed with ADES, the Court is unaware of such a filing until ADES transmits the application to the Court as required by statute.

The number of applications for appeal ADES transmits to the Court each year fluctuates significantly, ranging from a high of 486 to a low of 43 in fiscal years ending June 30, 2006 to June 30, 2016. In FY 2013, ADES transmitted to the Court 292 applications, a significant decline from the 486 and 430 transmitted during FY 2011 and FY 2012. This decline continued in FY 2014 and 2015, years when ADES transmitted 99 applications, and FY 2016, when ADES transmitted 43 applications.

Graphically, these trends are reflected as follows:

This downward trend appeared to continue dramatically during the first half of FY 2017, when ADES transmitted to the Court just two applications for appeal. One of those applications, however, had been filed with ADES on February 24, 2016, more than 300 days before it was transmitted by ADES to the Court.

By January 20, 2017, ADES had transmitted to the Court 19 applications for appeal in FY 2017, more than half of which had been filed with ADES at least 18 months before they were transmitted to the Court. Seven of those 19 applications had been filed with ADES in 2014 but had not been transmitted by ADES to the Court until January 2017.

Later in January 2017, ADES disclosed to the Court for the first time that it had 140 additional applications for appeal that it had not yet transmitted. When the Court received information about those applications, 60 of the 140 had been filed with ADES more than a year earlier and six had been filed with ADES in 2014, yet were not transmitted by ADES to the Court until January 2017.

Upon receipt of this information, and after further research by the Court, the Court issued A.O. 2017-01 on February 13, 2017.

Although addressing various concerns, as applicable here, A.O. 2017-01 noted that

Regardless of the reasons why ADES did not transmit the applications for appeal to this Court as mandated by A.R.S. § 41-1993, one of the Court’s immediate concerns is for ADES to transmit these applications for appeal to the Court as soon as possible to permit the parties to have their applications for appeal resolved by the Court.

As a result, A.O. 2017-01 ordered “that for every application for appeal filed with ADES as of the date of this Order [February 13, 2017] that has not been transmitted to this Court . . . , ADES shall transmit the ADES Record to the Court within 20 days of the date of this Order, [March 6, 2017].” If ADES failed to comply with the March 6, 2017 deadline, A.O. 2017-01 warned that “the Court may place the matter on the Court’s Order to Show Cause Calendar so that ADES has an opportunity to show cause, if any exists, why it should not be held in civil contempt and fined and/or sanctioned until such ADES Record or transcript is filed as required . . . and to otherwise ensure compliance with” A.O. 2017-01.

Notwithstanding this order that ADES transmit to the Court by March 6, 2017 all applications for appeal (and the ADES Record) ADES had received by February 13, 2017, ADES failed to comply with that order. As of March 29, 2017, based on information provided by ADES to the Court, at least 36 applications for appeal that were pending with ADES as of February 13, 2017, were transmitted by ADES to the Court after the March 6, 2017 deadline. Of these 36 applications for appeal, at least six were filed with ADES in 2013 (meaning they had been pending with ADES for more than three years before ADES forwarded them to the Court), and seven were filed with ADES in 2014 (meaning they had been pending with ADES for more than two years before ADES forwarded them to the Court).

As a result, on March 29, 2017, the Court set a show cause hearing to address ADES’ failure to comply with A.O. 2017-01. Unfortunately, the situation then got even worse.

As noted in a second Order to Show Cause issued April 12, 2017, After the issuance of the March 29, 2017 Order to Show Cause through April 11, 2017, 31 additional applications for appeal that were pending with ADES as of February 13, 2017, were transmitted by ADES to the Court. Of these 31 applications for appeal, 8 were filed with ADES in 2013 (meaning they had been pending with ADES for more than three years before ADES forwarded them to the Court), and 10 were filed with ADES in 2014 (meaning they had been pending with ADES for more than two years before ADES forwarded them to the Court).

These Orders to Show Cause described these failures to comply with A.O. 2017-01 and set a hearing to allow ADES an opportunity to show cause, if any existed, why ADES should not be held in civil contempt, fined and/or sanctioned for failure to comply with A.O. 2017-01. The Orders to Show Cause further ordered that, at the hearing, ADES’ representative(s) shall be prepared to testify under oath as to (1) all efforts by ADES to comply with the Order; (2) why ADES failed to comply with the Order (and provide documentation as to which cases have not been transmitted as required by the Order); (3) what steps ADES has taken and will take to ensure future compliance with the Order; and (4) what steps ADES has taken and will take to notify each affected party of ADES’ delay in transmitting applications for appeal and related records to the Court.

The Court held the show cause hearing on April 19, 2017. At that hearing, ADES was represented by counsel JoAnn Falgout and Carol Salvati. A record of the hearing was made by audio and video recording.

See https://www.youtube.com/watch?v=lsQPHZFwRvY

ADES provided testimony under oath from Marilyn J. White, Administrator, ADES Appellate Services Administration, with the Court also questioning Ms. White.

By the time of the April 19, 2017 hearing, the Court had received an additional 29 applications for appeal that were pending with ADES as of February 13, 2017 but were not transmitted to the Court by March 7, 2017. As a result, the evidence showed that ADES had failed to timely transmit to the Court at least 96 applications for appeal, in violation of A.O. 2017-01. The oldest of these applications was filed with ADES on February 5, 2013, meaning it had been pending with ADES for more than four years (1,527 days) before it was transmitted by ADES to the Court.

At the April 19, 2017 hearing, Ms. White testified that she had been employed by ADES since February 2015 and had been involved in processing applications for appeal since late October or early November 2016. Ms. White described the processing system for applications for appeal that ADES had used in the past, as well as changes made to that system given the delays that prompted A.O. 2017-01 and the Orders to Show Cause.

According to Ms. White, from sometime in 2013 to March 6, 2017, ADES employee Cynthia Dominguez, who was Clerk of the ADES appeals board, had administered the appellate services function for ADES.

Ms. Dominguez’ last day of ADES employment was March 6, 2017, when she resigned. Both through Ms. White’s testimony and in filings, ADES advised the Court that Ms. Dominguez exploited weaknesses in the ADES computer systems used in administering applications for appeal. This misconduct included “misdirecting the employee inputting the information [in an ADES computer system] to refrain from entering the date that the party filed the appeal application [with ADES] and the date” it was received by ADES.

ADES further reported that Ms. Dominguez “used concealment, misdirection, and misinformation to prevent [ADES]management from discovering her malfeasance. She hid paper appeal applications in her office and . . . buried appeal applications in a digital file dedicated for another purpose, making detection extremely unlikely.”

ADES added that Ms. Dominguez “manipulated unwitting coworkers and exploited a vulnerability” in the computer system “to further disguise the fact that she was not processing all of the appeal applications.” According to ADES, Ms. Dominguez “instructed the receptionists to route any calls about pending appeal applications to her if she was available. She further spread misinformation through the receptionists, telling them that a ruling on an appeal application took about two years, which the receptionists then passed on to parties when they sought information on the status of their applications.”

Ms. White testified to learning that, during Ms. Dominguez’ ADES employment, ADES received many calls from parties whose applications for appeal were pending. When asked how ADES responded to those inquiries, Ms. White testified that there was no record of written responses. Her investigation, however, revealed that, during Ms. Dominguez’ tenure, she and other ADES employees told inquiring parties that it took the Court of Appeals two years to process applications for appeal. Ms. White conceded that this information was provided by ADES to parties whose applications for appeal had been pending for many months or years with ADES but had not yet been transmitted by ADES to the Court.

Ms. White testified that, after meeting with the Clerk of this Court, ADES’ investigation found that dozens of applications for appeal filed with ADES were located in Ms. Dominguez’ office. Those applications were unprocessed and placed in a file drawer in Ms. Dominguez’ office and had not been transmitted by ADES to the Court.

Further investigation, including work with ADES computer systems, found more applications that had been filed with ADES but that had not been transmitted by ADES to the Court.

When asked about compliance with the requirements of A.O. 2017-01 for applications for appeal filed with ADES in the future, Ms. White testified that ADES could and would comply with those requirements. She testified the new internal process flow for such applications is designed to ensure that the ADES Record (including the application for appeal) in each matter is transmitted to the Court within 25 days of receipt of the application for appeal by ADES, a period of time that complies with A.O. 2017-01 where the transcript is not available at that time. Ms. White acknowledged that A.O. 2017-01 has a different deadline for the submission of a transcript when an application for appeal is filed and that ADES was able to comply with that requirement as well.

Ms. White testified that ADES has taken remedial action to cross-train various ADES employees to work with applications for appeal.

In addition, ADES has revised the procedures used to ensure an audit function and to use both technology and personnel to ensure that more than one individual knows of and is responsible for transmitting applications and the ADES Record to the Court. She added that ADES has a continuous improvement program that is being re-invigorated to ensure that nothing like this happens again.

Ms. White conceded that ADES had not complied with the deadlines ordered by the Court in A.O. 2017-01. The evidence at the April 19, 2017 hearing showed that ADES had not transmitted to the Court by March 6, 2017 approximately 100 applications for appeal that had been filed with ADES by February 13, 2017. Ms. White testified that failure was because ADES did not know that Ms. Dominguez had retained the applications for appeal in her file drawer. She added that ADES had scheduled a March 6, 2017 meeting to discuss the situation with various ADES employees in Ms. Dominguez’ office. At the time set for the meeting, Ms. Dominguez arrived, submitted a letter of resignation and left, never to return. ADES then discovered the many unprocessed applications for appeal in Ms. Dominguez’ office.

The Court asked Ms. White whether ADES considered letting the Court know in writing that it would not meet the March 6, 2017 deadline set forth in A.O. 2017-01 before that deadline passed. Ms. White responded that ADES should have advised counsel and the Court that it would not meet that deadline, but it failed to do so. Ms. White indicated that, as of the April 19, 2017 hearing, no formal action had been taken against Ms. Dominguez for her actions and omissions.

Ms. White testified that, as of the April 19, 2017 hearing, all applications for appeal filed with ADES had been transmitted to the Court. These applications were filed from 2013 to the beginning of 2017.

Through counsel, ADES asserted that it had adopted new systems, that Ms. Dominguez was the apparent cause of the problem and was no longer an ADES employee and measures were put in place that would not allow this type of situation to happen in the future. Although confessing error, ADES asked that no sanctions be imposed but, that if sanctions were imposed, they be remedial and not punitive. ADES also offered to provide monthly reports to show compliance with the Court’s requirements going forward. After receiving testimony and hearing argument, the Court took the matter under advisement.

At a May 17, 2017 status conference, the Court continued to take the matter under advisement and ordered that:

ADES shall file each month until further order of this Court audit reports and inventory reports in substantially similar form to those examples attached to their May 5, 2017 Notices, with such filings to be made in this matter and to be made no later than the fifth day of each month (or the next business day following the fifth day of each month should the fifth day of the month be a Saturday, Sunday or legal holiday), providing audit and inventory information for the previous month.

On August 17, 2017, the Court issued an order providing ADES up to and including September 18, 2017 in which to file any memorandum it wished to provide addressing: (1) the appropriate standard for contempt; (2) whether ADES should be held in contempt and (3) possible consequences if ADES was held in contempt. The order also stated that, after September 18, 2017, the Court would, without further hearing or order, consider the record provided and resolve whether ADES should be held in contempt and, if so, appropriate consequences. The Court has considered ADES’ September 18, 2017 filing as well as the entire record in this matter.

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