Indiana Law Review


Indiana Law Review
Volume 17 1984 Number 1

Survey of Recent Developments in Indiana Law

The Board of Editors of the Indiana Law Review is pleased to publish
its eleventh annual Survey of Recent Developments in Indiana Law. This

survey covers the period from May 1, 1982, through May 1, 1983. It com-
bines a scholarly and practical approach in emphasizing recent

developments in Indiana case and statutory law. Selected federal case and

statutory developments are also included. No attempt has been made to
include all developments arising during the survey period or to analyze

exhaustively those developments that are included.

I. Administrative Law

R. George Wright*

A. Notice, Hearings, and Eldridge Balancing

1. Notice of Right to Counsel.—In Berzins v. Review Board of the
Indiana Employment Security Division, ' the Indiana Supreme Court
authoritatively resolved the division of Indiana appellate authority noted

in last year's Survey Article2 respecting an unemployment compensation

claimant's right to notice of her right to counsel.

The court held first that "due process does require some form of

procedure reasonably calculated to provide notice to employers and

claimants of the right to be represented at evidentiary hearings conducted

by the Employment Security Division." 3 The court went on to hold,
however, that the failure to notify a claimant of her right to representa-

tion by counsel requires a remand only if the claimant is able to make
a sufficient showing of prejudice stemming from such lack of notice. 4

*Associate with the firm of Livingston, Dildine, Haynie & Yoder—Fort Wayne, In-
diana. A.B., University of Virginia, 1972; Ph.D., Indiana University, 1976; J.D., Indiana

University School of Law—Indianapolis, 1982. The author acknowledges the counsel of Judith
A. Stewart and the technical support of Livingston, Dildine, Haynie & Yoder in the prepara-
tion of this Article.

'439 N.E.2d 1121 (Ind. 1982).
2Smith, Administrative Law, 1982 Survey of Recent Developments in Indiana Law,

16 Ind. L. Rev. 1, 6-8 (1983).
3 439 N.E.2d at 1123.

'Id. at 1127.



2 INDIANA LA W REVIEW [Vol .17:1

With respect to the first holding, the court's ultimate authority was

the balancing test mandated by the well-known Supreme Court case of

Mathews v. Eldridge.- Eldhdge, it will be recalled, weighs the benefits

of additional procedural safeguards with respect to an administrative hear-

ing against the additional costs incurred, through balancing

(1) the private interest that will be affected by the official action;

(2) the risk of an erroneous deprivation of such interest through

the procedures used, along with the probable value, if any, of

additional or substitute procedural safeguards, and; (3) the govern-

ment's interest, including the function involved and the fiscal and

administrative burdens that the additional or substitute procedural

requirements would entail. 6

The court's conclusion that due process, as determined by an Eldridge

balancing, requires at least some form of notice of a claimant's right to

counsel dictated the partial overruling
7
of the prior Indiana case of Walker

v. Review Board of the Indiana Employment Security Division. 8

On the issue of whether a showing of prejudice from lack of such
notice is necessary to mandate reversal, though, the court did not choose

to re-apply the Eldridge test. Instead, the court determined that

if the hearing referee fulfills his duty and effectuates a complete

presentation of the case, . . . there is no need to remand the

cause to the Employment Security Division and impose on that
agency the time-consuming exercise of another hearing. The
harmless error doctrine . . . has its place in judicial review of

administrative proceedings. 9

From this point, the court concluded that the due process fairness of ad-
ministrative evidentiary hearings "inherently requires a case-by-case

assessment." 10

The court thus opted for a case-by-case prejudice rule, as opposed
to a per se error standard, in its approach to instances of lack of notice

of a right to counsel. While this approach is almost demonstrably the

less satisfactory of the two, candor requires the admission that contrary

authority not addressed by the court in Berzins is sparse."

5 424 U.S. 319 (1976).
6 Wilson v. Review Bd. of the Ind. Employment Sec. Div., 270 Ind. 302, 309-10,

385 N.E.2d 438, 444 (Ind. 1979) (citing Mathews v. Eldridge, 424 U.S. 319, 335 (1976)).
See 439 N.E.2d at 1123.

•404 N.E.2d 1363 (Ind. Ct. App. 1980).
'439 N.E.2d at 1127.

'"Id.

"Several social security disability benefit cases are of some value in evaluating the
court's rationale in Berzins. See, e.g., Echevarria v. Secretary of HHS, 685 F.2d 751 (2d
Cir. 1982); Thompson v. Schweiker, 665 F.2d 936 (9th Cir. 1982); Ware v. Schweiker, 651
F.2d 408 (5th Cir. 1981), cert, denied, 455 U.S. 912 (1982); Rials v. Califano, 520 F. Supp.



1 984] SUR VEY—ADMINISTRA TIVE LA W 3

The court's adoption of a case-by-case prejudice rule, with its con-

comitant rejection of a per se error standard, is instead inconsistent with

principles of fairness and the economic conservation of judicial resources.

There is no reason in logic or law not to apply the Eldridge balancing

test factors
12

to determine the most commendable judicial response to a

deprivation of due process through lack of appropriate notice.

Whether the Eldridge test is deemed technically applicable or not, it

remains true that requiring a remand for rehearing in any case involving

a lack of appropriate notice would obviate the substantial chance of an

erroneous determination of lack of prejudice or of ineligibility for benefits,

and would be virtually costless with respect to judicial and administrative

time.

The obvious administrative response to an announced per se error

rule would be to ensure that in each case, the claimant at a minimum
is sent a comprehensible written notice, along with other appropriate forms,

indicating the scope of the claimant's rights to representation, including

the possibility of free counsel. A per se error rule undeniably establishes
the strongest appropriate incentives for hearing referees to prevent the

question of the optimal judicial response to a due process violation from

arising in the first place.

Moreover, a case-by-case prejudice rule will result in at least occa-

sional instances in which prejudice to the claimant passes undetected on

review, even if whole record review is utilized, no matter what test for

prejudice is eventually adopted. While certain sorts of prejudice, such as

a missing hearsay objection, may be apparent from the record, no record
can disclose, for example, that an uncounseled claimant mistakenly believed

that revealing his chronic alcoholism would hurt his case. 13

786 (E.D. Tex. 1981); see also Meyerhoff & Mishkin, Application of Goldberg v. Kelly
Hearing Requirements to Termination of Social Security Benefits, 26 Stan. L. Rev. 549

(1974); Popkin, The Effect of Representation in Nonadversary Proceedings—A Study of
Three Disability Programs, 62 Cornell L. Rev. 989 (1977).

The majority of relevant foreign jurisdictional cases apparently are from Pennsylvania.

See, e.g., Unemployment Compensation Bd. of Review v. Ceja, 493 Pa. 588, 427 A.2d

631 (1981); Linke v. Commonwealth, 450 A.2d 312 (Pa. Commw. Ct. 1982); Snow v. Com-
monwealth, 61 Pa. Commw. 396, 433 A.2d 922 (1981); Robinson v. Commonwealth, 60
Pa. Commw. 275, 431 A. 2d 378 (1981); Hoffman v. Commonwealth, 60 Pa. Commw. 108,
430 A.2d 1036 (1981); Katz v. Commonwealth, 59 Pa. Commw. 427, 430 A.2d 354 (1981).

Subsequent Indiana cases in other contexts that are at least arguably inconsistent with

the tenor of Berzins would include Kennedy v. Wood, 439 N.E.2d 1367 (Ind. Ct. App.

1982) (paternity case); In re Turner, 439 N.E.2d 201 (Ind. Ct. App. 1982) (civil commit-

ment proceeding).
12See supra note 6 and accompanying text.

^Compare Sotak v. Review Bd. of the Ind. Employment Sec. Div., 422 N.E.2d 445,
448 (Ind. Ct. App. 1981) with Foster v. Review Bd. of the Ind. Employment Sec. Div.,

413 N.E.2d 618, 621 (Ind. Ct. App. 1980), following remand, 421 N.E.2d 744 (Ind. Ct.

App. 1981). See also Flick v. Review Bd. of the Ind. Employment Sec. Div., 433 N.E.2d

84, 87 (Ind. Ct. App. 1982).



4 INDIANA LA W REVIEW [ Vol . 1 7 :

1

Finally, it should be noted that a per se error standard, by requiring

notice of right to counsel in every instance, logically tends to generate

a higher percentage of attorney-assisted claimants. Perhaps the most im-

portant implication of this result is reduced role conflict for the hearing

referee, who otherwise is unnecessarily pushed to extremes in his conflict-

ing roles of being a neutral, detached arbiter on the one hand, and of

actively ensuring a complete presentation of the case on the other hand. 14

2. Post-Deprivation Hearings.—In City of Indianapolis v. Tabak, 15
the court of appeals was confronted with a close question of Eldridge 16

balancing in determining that the trial court abused its discretion in grant-

ing a preliminary injunction against the city controller's suspension of

the plaintiff's secondhand goods dealer's license.

In this case, the plaintiff had been arrested for several license-related

crimes, including attempt to receive stolen property and failure to keep

proper records. As a result, the city controller suspended the plaintiff's

license. The plaintiff, however, was able to obtain a temporary restrain-

ing order and preliminary injunction against the suspension.

In view of the multifaceted nature of the Eldridge balancing test, and

the subtlety of some of the determinations required, reference to in-

contestably controlling precedent is typically impossible. In this case, for

example, arrest is not the same as conviction, 17 and secondhand goods

dealing is not as highly regulated, or as closely tied to legal and illegal

gambling, as the training of race horses. 18

On the other hand, the loss of business revenue does not, despite
the right to a post-suspension hearing within ten days, seem as grievous

or as potentially health jeopardizing as the disconnection of utilities for

disputed or unpaid bills despite the right to a post-disconnection hearing. 19

It is at least arguable that the court of appeals might have avoided

the difficulties inherent in such a balancing process by accepting the argu-

ment that the trial court did not abuse its discretion in enjoining the

suspension. The Indianapolis city code provides for license suspension
without a hearing when the licensee is accused of "an offense involving
his fitness to hold a license and an emergency exists." 20 At trial, the con-
troller had testified that he believed an emergency existed because the plain-

tiff had been charged with several license-related crimes. 21

''See 640 Ind. Admin. Code § 1-11-3 (1979). See also, in the social security disability
context, Echevarria v. Secretary of HHS, 685 F.2d 751, 755-56 (2d Cir. 1982); Cowart v.
Schweiker, 662 F.2d 731, 735 (11th Cir. 1981), quoted in Smith v. Schweiker, 677 F.2d
826, 829 (11th Cir. 1982).

M441 N.E.2d 494 (Ind. Ct. App. 1982).
"See Matthews v. Eldridge, 424 U.S. 319 (1976).
'\See Bell v. Burson, 402 U.S. 535 (1971).

"See Barry v. Barchi, 443 U.S. 55 (1979).
'See Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1, 19-20 (1978).

2 "441 N.E.2d at 495-96 (quoting Code of iNDiANAPOLfs and Marion County Indiana
§ 17-49(b) (1975)).

2I
441 N.E.2d at 496.



1984] SUR VEY—ADM/N/STRA TIVE LA W 5

To find an emergency in a stolen goods case, as opposed, say, to
a case involving the purveying of contaminated foods, is to announce that

one will nearly always find an emergency, and that the apparently distinct

requirements of a crime reflecting on fitness and an emergency are in

fact one, with the latter "requirement" of an emergency having no in-

dependent force or meaning. In ordinary language, "crime" and "emer-

gency" are sufficiently distinct so as to lead one to presume the city to

have intended at least partially distinct meanings. Tabak effectively repeals

the "emergency" provision.

B. Due Process and Academic Dismissal

Neel v. I.U. Board of Trustees
12

required the reconciliation, in the

context of an academic dismissal from a state-supported dental school,

of traditional considerations of university autonomy and faculty discre-

tion, with equally well established principles of the common law of
contracts.

This case involved the trial court's denial of the plaintiff's request

for a permanent injunction requiring his reinstatement as a dental stu-

dent in good standing. The plaintiff's expulsion stemmed essentially from

excessive unexcused absences from lecture and clinical classes.

On appeal, the court rejected the plaintiff's due process claim on the
strength of Board of Curators v. Horowitz,

21
in which the Supreme Court

distinguished between academic and disciplinary or conduct-based

dismissals and imposed only minimal due process requirements with respect

to the former.
24

In Neel, the court determined that a dismissal of the

academic sort was involved, despite evidence that the plaintiff's failure

to attend classes was psychologically rooted. 25

The thrust of the plaintiff's contract argument focused on certain ex-

plicit provisions of the officially promulgated dental school Bulletin, in

which an apparently exhaustive set of criteria for dismissal were listed,

none of which applied to the plaintiff. 26 The school relied on a separate

provision under which unexcused absences from clinics brought forth a

dubiously graduated progression of sanctions featuring a pronounced gap

between the sanctions for the second absence ("a discussion with the

Dean") and the third ("dismissal"). 27

The plaintiff's arguments that he had insufficient notice of the school's

reliance on the latter provision and that the school in any event failed

to comply literally with its own stated unexcused absence policies were
unsuccessful at trial and on appeal. The court on appeal held that in the

22435 N.E.2d 607 (Ind. Ct. App. 1982).
23435 U.S. 78 (1978).
24
Id. at 89-90.

25435 N.E.2d at 610.
26
Id. at 611.

21
Id.



o INDIANA LAW REVIEW
[
Vol . 1 7 :

1

absence of a showing of arbitrariness or unfairness, the expert applica-

tion of academic or professional standards could override any necessity

for the school to adhere to its own internal rules with literal precision. 28

It is submitted that there is no necessity for the courts readily to ac-

commodate apparent, or at least colorable, material breaches of contract

by university administrations. The Horowitz case makes clear that the due

process hearing requirements in the case of academic dismissals will be

minimal.- Due process does not require elaborate, exhaustive specifica-
tions in advance of every circumstance under which a professional school

may dismiss a student. A generalized prior public statement, reasonably
and impartially applied, will suffice. There is thus no need for a school

to inadvertently restrict its own disciplinary options through its published
bulletin, only to circumvent those self-imposed explicit restrictions through

a magisterial exercise of expert academic or professional discretion.

While more advanced educational institutions doubtless require the

exercise of less readily reviewable discretion, it is also clear that the rela-

tionship between a graduate student and his university more nearly ap-
proaches the pure contract model than that between the elementary school

student and his school. To the extent that the relationship between stu-
dent and administration is contractual, the reasonable expectations of the

parties should govern that relationship. 30 It lies within the discretion of

the school administration to largely control the extent of its contractual

obligations through its drafting of school bulletins, handbooks, and other

materials.

C. Scope of Local Government Discretion

1. Designation of Urban Development Areas.—In a case of poten-
tial importance, the court of appeals in St. Joseph Medical Building

Associates v. City of Fort Waynelx considered the denial by the Fort

1%
Id. at 612.

29See 435 U.S. at 85-86.

"See, e.g., Giles v. Howard Univ., 428 F. Supp. 603, 605 (D.D.C. 1977). The court
on appeal in Neel took note of the Giles case, but applied the Giles "reasonable expecta-
tions" test not to interpreting the bulletin or contract in question, but more generally to
the practical position of the parties. While the plaintiff might not have reasonably expected
dismissal under the contract, he should, in the court's estimation, have reasonably apprehended
the likelihood of his dismissal on "equitable" grounds, his contract rights aside. 435 N.E.2d
at 612-13. More restrictive, and more defensible, interpretations of the Giles "reasonable
expectations" test may be found in Pride v. Howard Univ., 384 A.2d 31, 36 n.7 (D.C.
1978) and in Marquez v. University of Washington, 32 Wash. App. 302, 306, 648 P. 2d
94, 97 (1982), cert, denied 103 S. Ct. 1253 (1983). See also Peretti v. Montana, 464 F.
Supp. 784, 786 (D. Mont. 1979), rev'd on other grounds, 661 F.2d 756 (9th Cir. 1981);
Zumbrun v. University of S. Cal., 25 Cal. App. 3d 1, 101 Cal. Rptr. 499 (1972); Basch
v. George Washington Univ., 370 A.2d 1364, 1366-68 (D.C. 1977); Maas v. Corporation
of Gonzaga Univ., 27 Wash. App. 397, 400, 618 P. 2d 106, 108 (1980).

3, 434 N.E.2d 130 (Ind. Ct. App. 1982).



1 984] SUR VEY—ADMINISTRA Tl VE LA W 7

Wayne Common Council of appellant's application to have a certain tract
of its real estate designated as an "urban development area."

32

The point of such a designation would be to encourage the develop-

ment of otherwise unpromising properties or areas through the provision

of property tax relief benefits to private developers. In this instance, the

Fort Wayne Common Council denied such designation, at least in part
on the basis of its recently adopted policy that such applications should

be filed prior to the issuance of the necessary building permits.
33

On appeal, the court affirmed the trial court's grant of summary judg-
ment against the developers based largely on the consideration that the

statute governing these matters
34 was said to grant legislative discretion

in this respect to the council.
35 As the statute in question uses the per-

missive "may," as opposed to mandatory language, the appellant's en-

forceable rights were minimal. The court concluded that "it does not mat-

ter whether the council relied upon one reason or many, or whether its

reasons were laudable or not. Its exercise of its discretion is not a matter

for substantive review." 36

Judge Staton, in dissent, was troubled by what he viewed as a judicial

conferral of essentially unreviewable discretion to local councils to grant

or withhold substantial tax deductions. 37 Judge Staton instead emphasized

language in the urban development area statute apparently mandating the

council's adherence to specified decision procedures required under separate

provisions of the Indiana Code. 38

It is apparent, though, that the statutes and their successors alluded

to by Judge Staton were less than artfully drafted if it was their purpose,

and the legislature's intention, to effectively rein in the discretion of the

common council. The statutes focus on the case of an affirmative finding
of eligibility for redevelopment and the appropriate procedures for such

a finding,
39

rather than the denial of eligibility as in the case at bar. Pro-

cedures for denying eligibility are neither explicitly nor implicitly provided.

Despite references to exceptions, "supporting data," notice, and eviden-

tiary hearings, the statutes would be seriously overread if found to effec-

"See Ind. Code §§ 6-1.1-12.1-1 to -6 (1982).
"See 434 N.E.2d at 133 n.3.
34
Ind. Code § 6-1.1-12.1-2 (1982). New statutory standards and terminology in this

respect were imposed by the 1983 session of the general assembly. See Ind. Code §
6-1.1-12.1-2.5 (Supp. 1983).

35434 N.E.2d at 133.
i6
Id. at 134.

37
Id. (Staton, J., dissenting).

"See Ind. Code §§ 18-7-7-12 to -14 (1976) (current version at Ind. Code §§ 36-7-14-15
to -17 (1982)). For a generally useful discussion in the redevelopment context of permissive
as opposed to mandatory statutory language, the relationship between state and municipal
authority, and the ascertainment of legislative intent, the reader's attention is directed to
Campbell v. First Baptist Church, 298 N.C. 476, 259 S.E.2d 558 (1979).

"See Ind. Code §§ 18-7-7-12 to -14 (1976) (current version at Ind. Code §§ 36-7-14-15
to -17 (1982)).



8 INDIANA LAW REVIEW [Vol. 17:1

lively limit the discretion of the local council to deny urban development

area status, along with the consequent tax advantages.

2, Reimbursement of Hospital Expenses.—The relationship between
state and local authority was also explored in Welborn Memorial Baptist

Hospital, Inc. v. County Department of Public Welfare.
40

In this case,

the county limited its reimbursement to the hospital for expenses incurred

in treating emergency cases involving alcoholism, drug addiction, or emo-

tional disorder to only the first five to seven days of hospitalization. The

county prevailed at trial, and on appeal cited the press of fiscal necessity,

as well as implicit authority granted by the legislature, in establishing this

reimbursement limitation policy. 41

The court of appeals reversed, holding that under the applicable prior

statutes,
42

the county's obligation to reimburse the hospital for the costs

of care of eligible indigents, once the determination of eligibility had been

made, was not subject to restriction or limitation by county department

of public welfare policy.
43

While the statutes in question are not as explicit on this point as the

hospital may have maintained, there is certainly prior dicta that the court
could have cited, suggesting that the county's obligation to reimburse is

not subject to limitation as a matter of county policy. 44 Despite the need

to exert reasonable control over the otherwise largely unpredictable and

uncontrollable potential liability of the county departments of public

welfare in this respect, it is difficult to read the statutes as conferring

upon local governmental units carte blanche to restrict their reimbursements

on any reasonable basis they choose to adopt.

Actually, this issue would pose a closer question under the current

statute.
45

This statute provides in part that "[a] resident of Indiana who
meets the income and resource standards established by the state depart-

ment of public welfare ... is eligible for assistance to pay for any part

of the cost of the treatment of a disease . . . ."
46 An opinion consistent

40442 N.E.2d 372 (Ind. Ct. App. 1982). Other hospital assistance cases decided during

the survey period are of diminished importance in light of statutory amendments. These

cases would include DeKalb County Welfare Bd. v. Lower, 444 N.E.2d 884 (Ind. Ct. App.

1983) (see Ind. Code § 12-5-6-3 (1982)); Marion County Dep't of Pub. Welfare v. Methodist
Hosp., 436 N.E.2d 123 (Ind. Ct. App. 1982) (see Ind. Code § 12-5-6-11 (1982)); County
Dep't of Pub. Welfare v. Baker, 434 N.E.2d 958 (Ind. Ct. App. 1982) (see Ind. Code
§ 12-5-6-2 (1982); 470 Ind. Admin. Code § 11-1-1 (Supp. 1983)).

41 442 N.E.2d at 373.
42
Ind. Code §§ 12-5-1-1 to -17 (1976) (repealed 1981) (current version at Ind. Code

§§ 12-5-6-1 to -11 (1982)).
4, 442 N.E.2d at 373.

"See Marion County Dep't of Pub. Welfare v. Methodist Hosp., 436 N.E.2d 123,
125-26 (Ind. Ct. App. 1982); see also Lutheran Hosp. v. Department of Pub. Welfare,
397 N.E.2d 638, 644 (Ind. Ct. App. 1979).

45
Ind. Code §§ 12-5-6-1 to -11 (1982).

"Id. § 12-5-6~2(a) (1982) (emphasis added). Section 12-5-6-11, cited by the court in

Welborn, 442 N.E.2d at 373 n.2, applies only to counties in which a health and hospital



1984] SUR VEY—ADMINISTRA TIVE LAW 9

with Welborn would in some instances treat the emphasized language as

surplusage.

D. Rulemaking versus Adjudication

Indiana Air Pollution Control Board v. City of Richmond
41

presented

a difficult problem of rulemaking versus adjudication and an associated

problem of standing. In this case, on the basis of a hearing of somewhat

indeterminate scope, the Indiana Air Pollution Control Board sought to

promulgate a final ruling classifying Wayne Township of Wayne County
as a "nonattainment" area with respect to permissible levels of airborne

pollutants.
48

This determination, or rule, would have jeopardized, but not

necessarily foreclosed, EPA approval of any new pollutant emission
sources.

49

The City of Richmond filed its complaint in an effort to prevent final

promulgation of the "rule" in question. The board's motion to dismiss

on the grounds that the City lacked standing to challenge the properly

promulgated rule was denied, and the trial court ultimately held that the

"nonattainment" classification of Wayne Township was actually a case
of adjudication, 50 with the attendant strict notice and hearing procedure

requirements imposed by the Indiana Administrative Adjudication Act. 51

On appeal, the court reversed.
The appellate court attempted to resolve this issue first by turning

to the legislative definitions of the terms in question. 52 A definitional stand-
off resulted, because while a rule does not include an adjudication, and

an adjudication may involve an administrative hearing of "issues or cases
applicable to particular parties," 53 a rule may take the form of a
"classification . . . having the effect of law." 54 The court then cited several

federal authorities for the proposition that the non-attainment classifica-

corporation exists, i.e., to Marion County only. See Marion County Dep't of Pub. Welfare

v. Methodist Hosp., 436 N.E.2d 123, 124 (Ind. Ct. App. 1982).
47
443 N.E.2d 1262 (Ind. Ct. App. 1983), vacated, No. 1283 S 472 (Ind. Dec. 30, 1983).

A choice between rulemaking and adjudicative procedures on review by the state board
of tax commissioners was authorized in Board of School Comm'rs v. Eakin, 444 N.E.2d
1197, 1202 (Ind. 1983).

48443 N.E.2d at 1263.

"Id. at 1264 n.5.
50
Id. at 1263.

S] See Ind. Code § 4-22-1-5 to -8 (1982). For a brief discussion of the difference be-
tween rulemaking and adjudication with respect to resolution of controverted issues, see
Indiana Sugars, Inc. v. Interstate Commerce Comm'n, 694 F.2d 1098, 1100 (7th Cir. 1982).

S2See Ind. Code § 4-22-2-3 (1982).
"Id. § 4-22-2-3(d).
54
Id. § 4-22-2-3(b). This definitional statute was also referred to in Jones v. Blinziner,

536 F. Supp. 1181 (N.D. Ind. 1982). In this case, three Indiana Department of Public Welfare

implementation letters were asserted by the plaintiff class to amount to rules under Indiana
Code section 4-22-2-3(b), not properly subjected to notice and comment procedures under
section 4-22-2-4. The court determined that the implementation letters in question were not



1 INDIANA LA W REVIEW [Vol .17:1

tion is a "rule" under the federal APA, 55 while acknowledging both the
greater breadth of the federal definition and the absence in its authorities

of any squarely posed issue of rulemaking versus adjudication. 56

In light of the recognition that chasing some abstract distinction be-

tween rules and adjudications tends to degenerate into a rather scholastic

endeavor, the courts should be encouraged to resolve issues of rulemak-

ing versus adjudication on a pragmatic basis, with the practical costs and

benefits of rulemaking as opposed to adjudication being determinative

in close cases.

Professor Davis rightly observes that "the same function may be
rulemaking for one purpose or in one context and adjudication for another

purpose or in another context." 57 In deciding which approach is required

in a close case, the court should weigh not only such rather academic

considerations as the forward-looking or retrospective approach of the

agency, but also more significant factors such as the number of parties
practically concerned, the financial stakes involved, the likely benefits of

required in order to interpret federal Public Law 97-35, subsequently codified at 42 U.S.C.

§ 602(a)(18), as the federal statute in question required no interpretation.

In light of the fact that the court in Jones devoted several columns to interpreting

this statute in the course of rejecting the interpretation of the department of public welfare,

and that the implementaion letters could also be construed as rules implementing the federal

statute in question, there is certainly a case to be made for viewing such letters as rules

under section 4-22-2-3(b). While the implementation letters might have been viewed not as

rules, but as internal directives without the force of law, it is quite possible that the need

for Jones might have been avoided entirely if the department's implementation letters had

been treated as rules from the beginning and subjected to appropriate notice and comment

procedures.

Jones is also noteworthy for requiring the state department of public welfare to in-

clude its calculations or other means to enable AFDC claimants to check the department's
non-eligibility determinations, to notify claimants that Medicaid benefits will be terminated

if the claimant is terminated from the AFDC program, and for determining that "state
standard of need" in 42 U.S.C. § 602(a)(18) refers to total calculated needs, as opposed

to adjusted or ratably reduced needs. See 6 Ind. Reg. 912, 913-14 (1983) (amending 470

Ind. Admin. Code § 10-5-1 (Supp. 1983)).
55
5 U.S.C. § 551(4) (1976).

56443 N.E.2d at 1264 n.4. Not cited in the court's opinion is PPG Industries, Inc.
v. Costle, 630 F.2d 462 (6th Cir. 1980) in which the court, though still in dicta, at least

poses the alternatives more self-consciously. The court in Anaconda Co. v. Ruckelshaus,
482 F.2d 1301 (10th Cir. 1973), was confronted with Anaconda's request for an adjudicatory

hearing and injunction against the EPA's promulgation of a proposed rule governing sulfur
dioxide emissions in a particular county in Montana. The district court in this cause had

found an adjudicatory proceeding, with right of cross-examination, to be required in light

of Anaconda's status as the sole target of the "rule" and the contested status of the rele-

vant "adjudicative facts." Anaconda Co. v. Ruckelshaus, 352 F. Supp. 697 (D. Colo. 1972).
On appeal, the Tenth Circuit reversed, finding no due process violation and no explicit
requirement in the text of the Clean Air Act for hearings "on the record." 482 F.2d at

1306. For argument for a more liberal approach to imposing hearing requirements beyond
those explicitly mandated by the statute, see Utah Int'l, Inc. v. Department of Interior,

553 F. Supp. 872, 881 (D. Utah 1982).
57
2 K. Davis, Administrative Law Treatise § 7:2, at 5 (2d ed. 1979).



1 984] SUR VEY—ADMINISTRA TIVE LAW \\

trial-type safeguards and procedures, the cost or delay entailed by ad-

judication, and the ability to effectively carry out agency policy if ad-

judication is to be required in this and like instances.

In City of Richmond, the concern over adjudication versus rulemak-

ing was largely pointed toward resolving whether the City had standing

to challenge the result of the administrative proceeding.
58 Because the doc-

trine of standing is recognized as largely prudential in any event, 59 there

is a case to be made for determining the issue of the City's standing first

and independently, and then proceeding, if necessary, to tackle the

rulemaking versus adjudication issue on this basis.

E. Whole Record versus Favorable Evidence Review

This survey period produced the anticipated batch of largely recon-

cilable pronouncements on the propriety of whole record review as opposd

to review based only on evidence favorable to the judgment.

There is a superficial consensus that on direct appellate court review

of unemployment compensation determinations, favorable evidence review

will be employed. This consensus was reinforced during the past survey

period by Skrundz v. Review Board of the Indiana Employment Security
Division,

60 City of Indianapolis v. Review Board of the Indiana Employ-

ment Security Division, 61 and Ryba v. Review Board of the Indiana
Employment Security Division. 62

Even among these cases, there is arguably enough variance in the
precise language employed by the courts for the practitioner to appreciate

one more than another, depending on the facts of her case. The court
in Skrundz, for example, indicated that "findings of the Board are con-

clusive unless reasonable men, considering only evidence supporting those

findings, would be bound to reach a different conclusion." 63 City of In-
dianapolis determined that "[w]e may only consider the evidence, together
with its reasonable inferences, most favorable to the Review Board's

decision."
64 Ryba stated that the court "looks only to the evidence most

favorable to the judgment together with all reasonable inferences to be

drawn therefrom." 65

5SSee 443 N.E.2d at 1265 n.7.
59See id. at 1265; see also Minority Police Officers Ass'n v. South Bend, 555 F. Supp.

921, 929 (N.D. Ind. 1983); Jones v. Blinziner, 536 F. Supp. 1181, 1191 (N.D. Ind. 1982).
60444 N.E.2d 1217 (Ind. Ct. App. 1983).
6, 441 N.E.2d 36 (Ind. Ct. App. 1982).
62435 N.E.2d 78 (Ind. Ct. App. 1982).
63444 N.E.2d at 1220 (citing Marozsan v. Review Bd. of the Ind. Employment Sec.

Div., 429 N.E.2d 986 (Ind. Ct. App. 1982); Jean v. Review Bd. of the Ind. Employment
Sec. Div., 429 N.E.2d 4 (Ind. Ct. App. 1981)).

64441 N.E.2d at 37 (citing Skirvin v. Review Bd. of the Ind. Employment Sec. Div.,
171 Ind. App. 139, 355 N.E.2d 425 (1976)).

65435 N.E.2d at 81.



1

2

INDIANA LA W REVIEW [ Vol . 1 7 :

1

It therefore remains for the practitioner to determine whether, in a

given case, she can draw some effective distinction between evidence sup-

porting a finding and evidence supporting a decision or judgment, whether

inferences from the evidence of record are permissible grounds of judg-

ment, and even whether there may be some difference between evidence
favorable to a judgment and evidence "most favorable" to a judgment.

The practitioner who remains dissatisfied with the favorable evidence
standard—and who may indeed be wondering why the courts of appeal
systematically apply their most restrictive scope of review precisely where

no intervening trial court decision has reviewed the administrative

determination—may perhaps find a sympathetic hearing for an argument
that, for example, a search for prejudice stemming from a procedural

error makes no sense if such a search is confined to the evidence support-

ing the decision appealed from. 66

Ultimately, what may be least satisfactory about a favorable evidence
standard is not that, literally applied, it would virtually ensure affirmance,

but that evidence favorable to a finding or judgment may be inseparable
from, or susceptible of meaningful evaluation only in the context of,

evidence not so favorable. Perhaps the standard persists because of its

usefulness in steeling the court's resolve not to reweigh the evidence on

appeal.
67

In the matter of direct review by trial courts of determinations by

the Indiana Public Service Commission, it is whole record review that

is well entrenched, despite the absence of any explicit statutory mandate. 68

During this survey period, this consensus was reinforced by AFL-CIO,
Central Labor Council v. Southern Indiana Gas & Electric Co., 69 Office
of Utility Consumer Counselor v. Indiana Cities Water Corp., 10 and State
Employees' Appeals Commission v. Brown. 11

When a trial court reviews a determination by an Indiana zoning ap-
peals board, the court of appeals has, in contrast, indicated that "the

trial court reviews the evidence and inferences supporting the Board's

"Prejudice hunts have been conducted most recently in the unemployment compensa-
tion cases of Berzins v. Review Bd. of the Ind. Employment Sec. Div., 439 N.E.2d 1121
(Ind. 1982); Flick v. Review Bd. of the Ind. Employment Sec. Div., 443 N.E.2d 84 (Ind.
Ct. App. 1982); Ryba v. Review Bd. of the Ind. Employment Sec. Div., 435 N.E.2d 78
(Ind. Ct. App. 1982).

S7 Note that in each one of the principal cases, the court explicitly stated that it was
not its function to weigh or reweigh the evidence. See Skrundz, 444 N.E.2d at 1220; City
of Indpls., 441 N.E.2d at 37; Ryba, 435 N.E.2d at 81.

"See State Employees' Appeals Comm'n v. Brown, 436 N.E.2d 321, 330 (Ind. Ct.
App. 1982) (citing City of Evansville v. Southern Ind. Gas & Elec. Co., 167 Ind. App.
472, 339 N.E.2d 562 (1975); Ind. Code § 8-1-3-1 (1982)).

6 M43 N.E.2d 1243, 1247 (Ind. Ct. App. 1983).
"440 N.E.2d 14, 17 (Ind. Ct. App. 1982).

7I 436 N.E.2d 321, 330 (Ind. Ct. App. 1982).



1 984] SUR VEY—ADMINISTRA TIVE LAW 13

decision."
72 This view was supported by Martin County Nursing Center,

Inc. v. Medco Centers, Inc., 13 which urged that "[a] trial court . . . must
look at the evidence most favorable to the party who prevailed in the
administrative proceeding,"

74 but which also observed that "the trial court

must examine the whole record to determine whether an agency's deci-

sion lacks a reasonably sound basis of evidentiary support."
75 A certain

flexibility in the scope of review in such instances thus remains.

A final development during this survey period on the scope of review,
and certainly not the least significant, was the supreme court's declara-

tion that in its appellate review of workers' compensation claim deter-

minations by the Indiana Industrial Board, "we may consider only that
evidence which tends to support its determination, together with any un-

contradicted adverse evidence.
" 76 Counsel may wish to argue that the

supreme court has intended to establish a hybrid, middle-ground scope

of review standard to be broadly applied, or, in contrast, that the supreme

court has intended by implication to preclude the marshaling of inferences

from evidence to support administrative determinations.

F. Specificity and Comprehensiveness of Required Findings of Fact

and Statements of Reasons

During the past survey period, the Indiana courts of appeal extended

and refined recent expositions of what may be required in the way of

72Porter County Plan Comm'n v. Burns Harbor Estates, 437 N.E.2d 1053, 1055 (Ind.
Ct. App. 1982).

73441 N.E.2d 964 (Ind. Ct. App. 1982).
14
Id. at 968 (citing Indiana Civil Rights Comm'n v. Holman, 177 Ind. App. 648, 380

N.E.2d 1281 (1978)).
75
441 N.E.2d at 967 (citing Natural Resources Comm'n v. Sullivan, 428 N.E.2d 92

(Ind. Ct. App. 1981)).
76
Talas v. Correct Piping Co., 435 N.E.2d 22, 26 (Ind. 1982) (emphasis added).

For the period of this survey, the most interesting federal pronouncements on the

scope and standard of appellate review of administrative decisions are found in Indiana

Sugars, Inc. v. Interstate Commerce Comm'n, 694 F.2d 1098 (7th Cir. 1982). This case
explores the arcane balancing tests imposed in the case of non-deregulated rail line aban-

donment proceedings, in which the public's interest is held as an article of faith to lie with

non-abandonment of even unprofitable lines. See id. at 1100.

The court of appeals in Indiana Sugars began by essentially equating for their present
purposes the "arbitrary and capricious" and substantial evidence tests. Id. In reversing the

Commission's decision, the court then provided a graphic illustration of the thinness of

the line between vigorous "arbitrary and capricious" review and reweighing the evidence

on appeal. The court determined that the commission should have focused "greater atten-

tion upon the serious need for rail service by the shipper," and that the commission's deci-
sion was in other respects "extremely unpersuasive," "speculative," and unconvincing. Id.

at 1101. Rightly or wrongly, in Indiana Sugars the Seventh Circuit essentially treated substan-

tial evidence review as requiring substantial evidence persuasive to the court on review. See id.



1

4

INDIANA LAW REVIEW [ Vol . 1 7 :

1

administrative findings of fact 77 and statements of agency reasoning

processes
71

in decisionmaking.

In Charles W. Cole & Son, Inc. v. Indiana & Michigan Electric Co., 19

the court of appeals had indicated that once a certain threshold level

of subject matter complexity and quantity of evidence is exceeded, in-

telligent appellate court review of administrative determinations requires

not only statements of agency findings and conclusions, but also a state-

ment of reasons for the agency's decision, a statement of the law thought

applicable by the agency, relevant policy considerations, and "an explana-

tion of the processes followed" by the agency in arriving at its decision. 80

While a complex utility case might be the prototypical instance in

which these requirements would be imposed, the court of appeals within

the past survey period indicated that statements of reasons and of reason-

ing, or of the linkage between findings of basic and of ultimate fact,

may be necessary outside the context of Public Service Commission
decisions.

81 Counsel appealing administrative decisions of some complex-

ity, therefore, may wish to examine not only the adequacy of the agency's
findings of fact and conclusions of law, but also the degree to which

the former is determinative of the latter.

A second theme of Cole taken up within the past survey period is
that the "quantity and complexity of the evidence introduced" will, in

part, determine "what degree of specificity is required of basic findings." 82

While this language from Cole was cited almost verbatim during the past

survey period, 83 the implication is presumably not that relatively simple

cases require only generalized, vague statements of basic facts found, and

conversely, but that the degree of complexity of a given case should be

"See Perez v. United States Steel Corp., 428 N.E.2d 212 (Ind. 1981); Talas v. Correct

Piping Co., 426 N.E.2d 26 (Ind. 1981). It is unclear whether the court of appeals retains

jurisdiction when it remands for further findings of fact. Compare Hidden Valley Lake

Property Owners Ass'n v. HVL Utils., Inc., 441 N.E.2d 1388, 1389 (Ind. Q. App. 1982)
(jurisdiction should be retained to ensure compliance) with Pierce Governor Co. v. Review

Bd. of the Ind. Employment Sec. Div., 435 N.E.2d 274, 276 (Ind. Ct. App. 1982) (jurisdic-

tion not retained since clear directions were given to the agency).
78
Charles W. Cole & Son, Inc. v. Indiana & Michigan Elec. Co., 426 N.E.2d 1349

(Ind. Ct. App. 1981).
19
Id.

""Id. at 1353.

"See State Employees' Appeals Comm'n v. Brown, 436 N.E.2d 321, 331 (Ind. Ct.
App. 1982) (citing the same underlying authority, V.I. P. Limousine Service, Inc. v. Herider-

Sinders, Inc., 171 Ind. App. 109, 355 N.E.2d 441 (1976), as is relied upon in Cole, 426
N.E.2d at 1353-54)).

82426 N.E.2d at 1353.

"See Indiana Bell Tel. Co. v. T.A.S.I., Inc., 433 N.E.2d 1195, 1200 (Ind. Ct. App.
1982); cf. ATS Mobile Tel. Inc. v. Northwestern Bell Tel. Co., 330 N.W.2d 123, 129 (Neb.
1983) (sufficient evidence to deny mobile telephone service license); see also Mobilfone of

Northeastern Pa., Inc. v. Pennsylvania Pub. Util. Comm'n, 40 Pa. Commw. 181, 397 A.2d
35 (1979) (sufficient evidence of need and capacity).



1 984] SUR VEY—ADMINISTRA TIVE LAW 15

reflected in the lengthiness and sheer magnitude of the findings of basic

fact.

The Indiana Supreme Court determined in Perez v. United States Steel

Corp.*
4
that the appellant from an administrative determination has "a

legal right to know the evidentiary bases upon which the ultimate finding
rests."

85 Two cases from the past survey period, however, indicate that
while an appellant may have a right to a finding on every disputed material
issue, or on every possible theory of recovery, the court on appeal may
look to implications from the explicit findings, or to documents aside from

those denominated as findings of fact, in order to supply the necessary

findings.

In Sloan v. Review Board of the Indiana Employment Security
Division™ the unemployment compensation claimant-appellant asserted

on appeal, in essence, that a finding of a breach on the part of the claim-

ant of a duty reasonably owed did not substitute for a finding of the

reasonableness of the duty in question. The court of appeals disagreed,

noting that the former implies, or necessarily entails, the latter. 87 While

this is doubtless true as a matter of logic, it would seem that a require-

ment, within practical limits, of separate findings as to breach of duty

and of the reasonableness of the duty in question would tend to better

ensure their separate consideration by the agency. There may be more
that is logically implied in an explicit finding than that which the fact

finder has consciously weighed.

In the case of Hardesty v. Bolerjack™ the court of appeals upheld

the trial court's affirmance of the decision of the county sheriff's merit

board to discharge the officer-appellant. The court approved what

amounted to the incorporation into the findings of various reasonably
detailed written allegations lodged against the appellant. 89 In finding the

existence of the violations as charged, the board was said to find, by

84426 N.E.2d 29 (Ind. 1981).
%5
Id. at 32. See Office of Util. Consumer Counselor v. Indiana Cities Water Corp.,

440 N.E.2d 14, 17 (Ind. Ct. App. 1982); Sosa v. Review Bd. of the Ind. Employment Sec.
Div., 433 N.E.2d 29, 30 (Ind. Ct. App. 1982) ("[T]he findings of fact must exclude every

possibility of recovery."); Jones v. Review Bd. of the Ind. Employment Sec. Div., 405
N.E.2d 601, 604-05 (Ind. Ct. App. 1980); Wolfe v. Review Bd. of the Ind. Employment
Sec. Div., 176 Ind. App. 287, 291-92, 375 N.E.2d 652, 655-56 (1978).

86444 N.E.2d 862 (Ind. Ct. App. 1983).
%1
Id. at 865. Missing explicit findings were supplied by inference as well in City of

Frankfort v. FERC, 678 F.2d 699, 707 (7th Cir. 1982). In contrast, no supportive inferences
were drawn in Trigg v. Review Bd. of the Ind. Employment Sec. Div., 445 N.E.2d 1010
(Ind. Ct. App. 1983), in which the court on appeal reversed and remanded a denial of
unemployment compensation benfits where there was no finding that the work rule alleged-
ly violated by the claimant was uniformly enforced, even where the board might have found

discharge for just cause under other statutory definitions of just cause. See Ind. Code §
22-4-1 5-1 (e) (1982).

88440 N.E.2d 490 (Ind. Ct. App. 1982).
* 9
Id. at 494.



1

6

INDIANA LAW REVIEW [Vol . 1 7 :

1

necessary implication, the required facts constituting or underlying each

alleged violation.
90

Intelligent review on appeal was therefore said to be

possible.

This procedure provoked a dissent from Judge Staton,
91 who argued

that a reiteration of even detailed charges was inconsistent with the man-

date of Perez and could not reveal the board's method or reasons for

its resolution "of the relevant sub-issues and factual disputes."
92

It is possible for a charging document to be so elaborate, specific,

and detailed in its pleading and analysis of the evidence to be adduced,

that if it were conscientiously incorporated into a set of findings of fact

and conclusions of law, intelligent appellate review would be possible.

To encourage the unnecessary extension of this procedure, though, is to
encourage impressionistic administrative decisionmaking and ineffective

judicial review.

G. The Liberal Construction of Remedial Statutes

It is well established in Indiana that social legislation such as the

Employment Security Act should be construed liberally in favor of the

claimant in order to accomplish the legislation's social purposes.
93 The

actual weight attributed to this policy varies according to context, and

several cases decided within the past survey period explored the force and

limitations of this policy.

In City of Indianapolis v. Review Board of the Indiana Employment
Security Division, 9 * the policy of liberal interpretation of the Employment
Security Act in the claimant's favor came into play in the appellate court's
determination that the claimant was entitled to unemployment compensa-
tion benefits, despite his resignation, by virtue of the medically substan-

tiated health-related nature of his departure. 95

The same policy provided guidance to the court on appeal in Potts
v. Review Board of the Indiana Employment Security Division.

9e
In Potts,

the court determined that the board had acted contrary to law in allocating

90
Id. at 493-94. The court noted that because the Industrial Board and the Employ-

ment Securities Division do not use charging documents as a Merit Board does, the
incorporation-by-reference procedure approved here would not be possible in workers' com-
pensation or unemployment cases. Id. at 494.

9
'Id. at 494-95 (Staton, J., dissenting).

"'Id. at 495 (quoting Perez v. United States Steel Corp., 426 N.E.2d 29, 33 (Ind. 1982)).
"'See, e.g., City of Indianapolis v. Review Bd. of the Ind. Employment Sec. Div.,

441 N.E.2d 36, 39 (Ind. Ct. App. 1982); Potts v. Review Bd. of the Ind. Employment
Sec. Div., 438 N.E.2d 1012, 1016 (Ind. Ct. App. 1982); Bowen v. Review Bd. of the Ind.
Employment Sec. Div., 173 Ind. App. 166, 168, 362 N.E.2d 1178, 1179 (1977); Hacker
v. Review Bd. of the Ind. Employment Sec. Div., 149 Ind. App. 223, 231, 271 N.E.2d
191, 195 (1971); Schakel v. Review Bd. of the Ind. Employment Sec. Div., 142 Ind. App.
475, 478, 235 N.E.2d 497, 500 (1968).

'"441 N.E.2d 36 (Ind. Ct. App. 1982).
9i
Id. at 39.

"438 N.E.2d 1012 (Ind. Ct. App. 1982).



1 984] SUR VEY—ADMINISTRA TlVE LAW 17

vacation pay wage credits to the week paid rather than the week the vaca-

tion occurred, thus leaving the claimants without sufficient wage earnings

to qualify for the quarter in which their vacation occurred.
97

The policy of liberal construction, however, was of little efficacy in

Smith v. Review Board of the Indiana Employment Security Division.'"

The claimant's petition for judicial review had been dismissed as untimely

in view of her failure to file notice of her intention to appeal within fif-

teen days of the mailing of the adverse decision. What lent special in-
terest to this appeal were the circumstances of a week's delay, due to

the logistics of mail delivery, in the claimant's receipt of the board's deci-

sion, and the claimant's mailing of her notice of appeal by certified mail,

return receipt requested, on the last day of the statutory appeal period."

Justice Hunter's reasonable recommendation that this unnecessary trap

for the unwary be statutorily overturned 100 was not acted upon by the

past session of the Indiana legislature.

The liberal construction policy was also without effect, though ap-

parently applicable, in Frost v. Review Board of the Indiana Employ-

ment Security Division. 101 Frost centered on the proper interpretation of

an Indiana statute 102 relevant to the issue of the state's right to recoup

certain unemployment compensation benefits paid to the recipient follow-

ing her discharge from employment for which the recipient later received

an arbitration award.

On appeal, the court upheld the review board's determination "that
the retroactive wages paid pursuant to an order of the grievance arbitrator

were the legal equivalent of an award of back pay by the National Labor

Relations Board." 103 The difficulty lay in determining how much weight
to allocate, respectively, to the statute's explicit reference to only NLRB
back pay awards, and to the prefatory language of the statute, which

makes the categories of income sources that follow, including NLRB
awards, not necessarily exclusive and exhaustive. 104

In Frost, the policy of liberal construction in favor of the claimant

(or more specifically in this case, an awardee), was trumped by the counter-

vailing policy, bearing the presumed authority of the legislature, of pre-

venting the retention of windfall benefits. 105

91
Id. at 1016.

98439 N.E.2d 1334 (Ind. 1982) (Hunter, J., dissenting to denial of transfer).

"Id. at 1334. See Ind. Code § 22-4-17-11 (1982); Smith v. Review Board of Ind.
Emp. Sec. Div., 159 Ind. App. 282, 306 N.E.2d 140 (1974) (construing Ind. Code § 22-4-17-11

(1971) to require that notice of appeal be in the actual physical custody of the review board

within the statutory fifteen day period). •
l00See 439 N.E.2d at 1338.
I0I 432 N.E.2d 459 (Ind. Ct. App. 1982).
i02

Ind. Code § 22-4-5-1 (1982).
,03432 N.E.2d at 460.
,04

Ind. Code § 22-4-5-1 (1982).
I05
432 N.E.2d at 461. Among the federal cases decided during this survey period, a

similar conflict between a liberal construction and the avoidance of arguable windfalls was



IS INDIANA LAW REVIEW [Vol. 17:1

The general inference to be drawn from these cases would seem to

be that in instances in which a flat denial of benefits impends, a careful

statement by the claimant of the applicability and judicial pedigree of

the policy of liberal construction may help tip the balance where case
authority is mixed or absent.

H. Standing

The court of appeals in Stokes v. City of Mishawaka*
06 was confronted

with the interesting issue of whether nonresidents of a city who own prop-
erty contiguous with, but outside, city limits have standing to challenge

the city's zoning ordinance on the grounds that the ordinance may ad-
versely affect their property values. Certainly the standing requisites of

sufficient individualized stake in the outcome and concrete adverseness

were present. 107

While no Indiana cases precisely on point were detected, the Missouri

case of Allen v. CoffeP * was favorably cited for the availability of stand-

ing in such circumstances. 109 Actually, standing under the circumstances

in Stokes has been granted with some regularity. 110

What is less clear is the appropriate scope of this rule of standing.

As long as the requirement of contiguous land ownership is maintained,

resolved in favor of the claimant in Jackson v. Schweiker, 683 F.2d 1076 (7th Cir. 1982)

(refusing to impute to supplemental security income recipient, as unearned income, the ex-

cess of fair rental market value over actual rent paid by the recipient, where most of such

excess was not "actually available" to recipient for conversion to the satisfaction of basic

needs).

The court in Jackson distinguished four court of appeals cases dealing with the same

regulations, and would have had a difficult time in distinguishing Nunemaker v. Secretary
of HEW, 679 F.2d 328 (3d Cir. 1982) (decided six weeks before Jackson). But see Young
v. Schweiker, 680 F.2d 680, 682-83 (Farris, J., concurring) (noting the typical non-convertibility

of "extra" rental housing into food or cash in an equivalent sum); Summy v. Schweiker,
688 F.2d 1233, 1235 (9th Cir. 1982) (favorably citing Jackson). See generally Annot., 69

A.L.R. Fed. 230 (1983). For a case under the amended current regulations, see Bormey
v. Schweiker, 695 F.2d 164 (5th Cir. 1983).

I06
441 N.E.2d 24 (Ind. Ct. App. 1982).

""See id. at 24-25. Plaintiffs brought their action under the Uniform Declaratory Judg-

ment Act, Ind. Code §§ 34-4-10-1 to -16 (1982). The issue in this case was whether the
plaintiffs are "[persons] . . . whose rights, status or other legal relations are affected by

. . . municipal ordinances." 441 N.E.2d at 26 (quoting Ind. Code § 34-4-10-2 (1982)).
,0 '488 S.W.2d 671 (Mo. Ct. App. 1972).

'""See 441 N.E.2d at 27-28.

"''See, e.g., Schweig v. City of St. Louis, 569 S.W.2d 215, 220-21 (Mo. Ct. App.
1978) (citing Dahman v. City of Ballwin, 483 S.W.2d 605, 609 (Mo. Ct. App. 1972) (dicta));
Orange Fibre Mills, Inc. v. City of Middletown, 94 Misc. 2d 233, 404 N.Y.S.2d 296 (Sup.

Ct. 1978). A number of the directly applicable cases are cited in Annot., 69 A.L.R.3d 805
(1976). See also 4 R. Anderson, American Law of Zoning § 28.03, at 358 (2d ed. 1977).

A standing problem of a different sort was addressed in County Dep't of Pub. Welfare
v. Stanton, 545 F. Supp. 239 (N.D. Ind. 1982). In this case, the Lake County Department
of Public Welfare sought payments from and a prospective injunction against the Indiana



1984] SUR VEY—ADMINISTRA TIVE LAW 19

imprudent overextension of standing would seem to be avoided. It seems

apparent, though, that a municipality's zoning determinations can have

readily demonstrable and substantial effects on the value of remote prop-

erty. In a case in which a downwind property owner seeks to object to

a city's zoning ordinance, conflicts arise among values such as municipal
autonomy and self-determination, the ability of a municipality to effec-
tuate its own policies, and the broader public interest, including an in-
terest in discouraging local units of government from simply externalizing

certain disamenitites without regard to the costs involuntarily imposed.

/. Utility Rates and Appropriate Notice

The case of AFL-CIO, Central Labor Council v. Southern Indiana
Gas & Electric Co. ' ' ' featured an appeal of a Public Service Commission
order granting an electric utility rate increase. Issues of both substance

and procedure were decided on appeal.

On the substantive side, the court determined that the PSC did not
err in including, for rate-making purposes, certain power plant and pollu-

tion control devices as "used and useful" property even though the devices

were not actually utilized, because of testing requirements, for the entire

period of the selected test year. 112

For this point, the court referred generally to the major Indiana util-

ity rate case, City of Evansville v. Southern Indiana Gas & Electric Co. 113

While the jurisdictions nationally vary significantly in their willingness to

include such items as property held for future use or construction work
in progress in the rate base, there is ample authority for the position

adopted by the court on appeal. 114 This approach would seem to offer

the best accommodation of the widely accepted principle that current

Department of Public Welfare respecting unreimbursed county department administrative

expenses. The plaintiff raised challenges on supremacy clause and equal protection grounds

to the applicable reimbursement statute. See Ind. Code § 12-1-18-2 (1982).
The court, in ruling on the defendant's motion to dismiss, noted that "[c]ounty depart-

ments of public welfare have a unique and frequently confusing position in Indiana." 545

F. Supp. at 243. The court determined that while the plaintiff county department might

be viewed either as a political subdivision of the state, or as a subordinate local agency,

under neither characterization did it have standing to challenge the statute in question. Id.

at 243, 245. This result followed from holding the county department to be a creature of

the state, and under the authority and control of the state department of public welfare.

Id. at 245. See, e.g., Smythe v. Lavine, 76 Misc. 2d 751, 351 N.Y.S.2d 568 (Sup. Ct. 1974).
'"443 N.E.2d 1243 (Ind. Ct. App. 1983).
112

Id. at 1247-48.
" 3443 N.E.2d at 1247 (citing City of Evansville v. Southern Ind. Gas & Elec. Co.,

167 Ind. App. 472, 339 N.E.2d 562 (1975)).
" 4

In Appalachian Power Co., 22 Pub. Util. Rep. 4th 548 (1977), the Virginia State

Corporation Commission found that

[installation of pollution control equipment at the Amos Unit No. 2 and Kanawha
River generating plants imposes a considerable financial burden on company while
simultaneously reducing plant productivity. In our opinion, pollution control equip-



20 INDIANA LA U ' REVIEW [Vol . 1 7 :

1

ratepayers should bear the eosts alloeable to the provision of the benefits

in service they currently enjoy. This principle would also, in consistency,

require the exclusion from the rate base of property recently retired from

service.

On the procedural side, the court agreed that noncompliance by the
utility with the strict terms of the applicable public notice requirements" 5

authorizes, but does not require, the commission to dismiss or continue

the hearings in question." 6 In a related matter, the court determined that

the commission did not abuse its discretion in denying the petition of

the City of Evansville, filed on the last day of the hearing, to intervene

in the proceedings."
7

Evansville explained its apparent laxity on the

grounds that while it had early notice of the utility's petition, the pro-

posed rate schedule sought no rate increase for street lighting, and that

such an increase materialized as an issue only at a late stage in the

proceedings." 8

On appeal, the court observed that "our cases have long held that
a party given notice of a ratemaking proceeding is bound to know that
its rates may be affected by the Commission's final order whether or not
any changes in its rates are initially proposed or petitioned for."" 9 Poten-

tial intervenors may therefore wish to avoid unfortunate outcomes by in-
tervening in a timely fashion in any case holding any prospect of an adverse

rate impact, but limiting their expenditures in connection with the hear-

ing until their interests become jeopardized in some concrete fashion.

ment installed by electric utilities during a test period should be treated as "in
service" plant for the entire test period ....

Id. at 552.

In a Nevada commission case, Trans-Service Water Serv., Inc., 37 Pub. Util. Rep.
4th 536 (1980), a filtration system was included in the rate base where it had been out
of service for an extended period of time, but was due back in actual operation shortly.
Pennsylvania has determined that non-operational property may be considered "used and
useful" for inclusion in the utility's jurisdictional rate base where the return to service of
the property in quesion is imminent and certain. Pennsylvania Pub. Util. Comm'n v.
Metropolitan Edison Co., 37 Pub. Util. Rep. 4th 77 (1980). In certain instances, adjustments
have been ordered to reflect significant additions to a plant coming on line after the test
year in question. See, e.g., Edgartown Water Co., 41 Pub. Util. Rep. 4th 106 (1980).

The commissions involved adopted less liberal approaches under somewhat different
circumstances in Carolina Power and Light Co., 41 Pub. Util. Rep. 4th 315 (1981) and
Cleveland Elec. Ilium. Co., 38 Pub. Util. Rep. 4th 494 (1980).

Specifically, in this case, 170 Ind. Admin. Code § 4-l-18(c) (1979).
"*443 N.E.2d at 1245.

'Id. at 1248 (citing 170 Ind. Admin. Code § 119(b) (1979)).
""443 N.E.2d at 1248.

Id. (citing Indiana authority). See also Hawaiian Elec. Co., 45 Hawaii 260, 535 P. 2d
i 102 (1975); Bethlehem Steel Corp v. NIPSCO, 397 N.E.2d 623 (Ind. Ct. App. 1979); Gary
Transit, Inc. v. Indiana Pub. Serv. Comm'n., 161 Ind. App. 7, 314 N.E.2d 88 (1974);
Checkasha Cotton Oil Co. v. Corporation Comm'n, 562 P. 2d 507 (Okla.), cert, denied,
434 U.S. 829 (1977).



1 984] SUR VEY—ADM1NISTRA TI VE LAW 21

J. Utility Rates and Consolidated Tax Returns

During the past survey period, the court of appeals again addressed

the difficult question of how a consolidated income tax return, filed by

a utility's parent company, should be treated when the utility subsequently

requests a rate increase.

Specifically, in Office of Utility Consumer Counselor v. Indiana Cities

Water Corp., 120 the court on appeal was confronted by a situation in which

the utility paid to its parent company the amount for which the utility

would have been liable in income taxes had it filed a tax return on a

separate entity basis. As it developed, the holding company that owned

the parent company filed a consolidated return under which the holding

company paid no tax because of loss carry forwards attributable to non-

jurisdictional subsidiaries. On appeal, the court determined the utility's
tax liability expense to be merely hypothetical, and the transfer from utility

to parent to be an expense not lawfully to be borne by the utility's

ratepayers.
121

In reversing on this issue, the court reasoned that

[t]he Commission's own findings state that the result of the par-
ticipation of [the utility} in a consolidated tax return is that no

income taxes are paid to the U.S. government. Given that find-

ing, we fail to understand how [the utility] can be said to have
an actual income tax expense. 122

The dictates of equity in such instances are often not unequivocal.

There is a basis in equity for suggesting that consistency would require

ratepayers to bear an actual income tax expenditure paid on a separate

entity basis, even if the utility might have paid less had its parent filed

a consolidated return.
123

It should be recognized as well that the benefits

accruing to jurisdictional customers under the Indiana Cities rule may bear
no relation to the share of the costs borne by such customers in generating

the losses carried forward. Ultimately, should the courts recognize the

consolidated filing status of utility subsidiaries only when it is most tempt-

ing as a practical matter to do so, a conflict with the regulatory objective

,20440 N.E.2d 14 (Ind. Ct. App. 1982).
,2]

Id. at 15.

i22
Id. at 17. See City of Muncie v. Public Serv. Comm'n., 378 N.E.2d 896, 898-99

(Ind. Ct. App. 1978); United Tel. Co. v. Public Serv. Comm'n, 402 N.E.2d 1013, 1015-16

(Ind. Ct. App.), reh'g denied in part, 406 N.E.2d 1268 (Ind. Ct. App. 1980). A fuller state-
ment of the commision's order in this cause is found in Indiana Cities Water Corp., 45

Pub. Util. Rep. 4th 55 (1981). The leading authority cited by the commission is Muncie

Water Works Co., 44 Pub. Util. Rep. 4th 331 (1981).
]2iSee generally Public Serv. Comm'n v. Indiana Bell Tel. Co., 235 Ind. 1, 28-29,

130 N.E.2d 467, 480 (1955).



:

:

INDIANA LA H REVIEW [ Vol . 1 7 :

1

of providing investors with a competitive compensatory return would be

expected.
,:4

A'. Primary Jurisdiction and Interstate Commerce

In a careful opinion, the Seventh Circuit during the past survey period,

in Hansen v. Norfolk & Western Railway Co., 125 invoked the doctrine
of primary jurisdiction,

126
but stayed rather than dismissed the plaintiff's

complaint in order to preclude statute of limitations problems.

The plaintiff's complaint in Hansen alleged Interstate Commerce Act
as well as antitrust violations. The plaintiff claimed that the defendant

railroad had offered improper rebates, preferences, and kickbacks to its

customers and had conspired with the other defendants to avoid certain

tariffs.
12 " On appeal, the court determined that the plaintiff's claims were

appropriate for a judicial referral to the Interstate Commerce Commis-
sion of issues within its scope of particular expertise and of issues which

might impinge on the Commission's uniform and consistent scheme of

regulation.
128

]2
*See 440 N.E.2d at 15 (citing City of Evansville v. Southern Ind. Gas & Elec. Co.,

167 Ind. App. 472, 339 N.E.2d 562, 568 (1975)).

During the past survey period, the Seventh Circuit issued several substantive holdings

of importance specifically affecting Indiana public utilities. In Indianapolis Power & Light
Co. v. Interstate Commerce Comm'n, 687 F.2d 1098 (7th Cir. 1982), the court on appeal
indicated the circumstances under which tariff rates respecting intrastate rail shipment of

bituminous coal fell within the jurisdiction of the Interstate Commerce Commission and
the Indiana Public Service Commission, respectively.

In Public Serv. Co. v. United States Envtl. Protection Agency, 682 F.2d 626 (7th Cir.

1982), cert, denied, 103 S. Ct. 762-63 (1983), the Seventh Circuit held that the EPA was
statutorily empowered to partially approve Indiana's adopted revisions of its state implemen-

tation plan regarding ambient air quality, despite PSI's contentions that this result would

allow the EPA to "approve something never actually adopted by the state." Id. at 632.
Finally, in City of Frankfort v. Federal Energy Regulatory Comm'n, 678 F.2d 699

(7th Cir. 1982), the Seventh Circuit held that Public Service Company of Indiana had dis-
charged the burden, squarely placed on it by the court, to factually justify substantial

disparities in rates charged to different municipal customers of the same class. Such justifica-

tion in this case depended on PSI's discontinuance of fixed rate contracts, but the court

indicated more broadly that a utility charged with price discrimination may defend on grounds
other than cost of service differentials. Id. at 706. As to the burden of proof issue, com-
pare City of Frankfort with Park Towne v. Pennsylvania Pub. Util. Comm'n, 61 Pa. Commw.
285, 433 A.2d 610, 614 (1981) (placing burden of showing discrimination on the challenging

party).

,25689 F.2d 707 (7th Cir. 1982).
l26The court explained the doctrine of primary jurisdiction as applicable "when a claim

is cognizable in a court but adjudication of the claim 'requires the resolution of issues

which, under a regulatory scheme have been placed within the special competence of an

administrative body.' " Id. at 710 (quoting United States v. Western Pac. R.R. Co., 352

U.S. 59, 64 (1956)). The appropriate judicial response to such a case is to hold its action

until the administrative body has expressed itself on the matter. 689 F.2d at 710.
I27689 F.2d at 709.
' 2
*Id. at 710-11.



1 984] SUR VEY—ADMINISTRA TIVE LA W 23

The plaintiff's assertion of a statute-based, unqualified right to select

its forum was dealt with by reference to the landmark Supreme Court

case of Texas & Pacific Railway Co. v. Abilene Cotton Oil Co. ]2J Once
the propriety of invoking the primary jurisdiction doctrine was established

by the court, 130 the court of appeals was faced with the issue of whether

to affirm Judge Holder's dismissal of the complaint without prejudice,

or instead, to order a stay pending ICC action.
The court on appeal opted for the latter course even though the alter-

native of a stay had never been raised by the plaintiff in the court below,

but had been raised in the defendant's district court brief. 131 Parties in

the position of the plaintiff are urged to raise the possibility of a stay

in the alternative, to avoid limitations of action problems, even though

this procedure is referred to by the Seventh Circuit merely as "better

practice."
132

L. Statutory Utility Reforms

The 1983 session of the General Assembly overwhelmingly passed a

comprehensive utility reform package as House Bill 1712. 133

Among the more significant features of the Act are sections
establishing a low income household energy cost assistance program, 134

increasing the number of public service commissioners from three to five, 135

substantially increasing the annual salaries of the commission chairperson

and members, 136 requiring that a commissioner rather than an ad-

ministrative law judge conduct rate hearings in which an increase of more

than twenty million dollars is sought, 137 upgrading the commission's pro-

fessional staffing authority and authority to acquire necessary technical

equipment, 138 prohibiting ex parte contacts in connection with evidentiary

l29
Id. at 710 (citing Texas & Pac. Ry. Co. v. Abilene Cotton Oil Co., 204 U.S. 426

(1907)). See also 4 K. Davis, Administrative Law Treatise § 22:3 (2d ed. 1983).
130The Eighth Circuit has recently stated that "the ICC has primary jurisdiction over

any matter that 'raises issues of transportation policy which ought to be considered by the

Commission in the interests of a uniform and expert administration of the regulatory scheme

laid down by [the Interstate Commerce] Act.' " Iowa Beef Processors, Inc. v. Illinois Cent.
Gulf R.R., 685 F.2d 255, 259 (8th cir. 1982) (quoting United States v. Western Pac. R.R.,

352 U.S. 59, 65 (1956)). See also Burlington N., Inc. v. United States, 103 S. Ct. 514 (1982);

Bartlett & Co. Grain v. Union Pac. R.R., 528 F. Supp. 1234 (W.D. Mo. 1981). But see
Mercury Motor Express, Inc. v. Brinke, 475 F.2d 1086 (5th Cir. 1973) (inappropriateness
of invoking primary jurisdiction doctrine in light of obvious violations by freight forwarders,

absence of threat to regulatory uniformity, and need for speedy enforcement determination).
I3, 689 F.2d at 714 n.10.

2
Id.

'See Act of Apr. 22, 1983, Pub. L. No. 43-1983, §§ 1-14, 1983 Ind. Acts 407, 407-29.
4
Ind. Code §§ 4-27-5-1 to -13 (Supp. 1983).
"Id. § 8- 1-1 -2(a) (effective January 1, 1984).

"Id. § 8-l-l-3(b).

"Id. § 8-l-l-3(e).

li
*Id. § 8-l-l-3(h).



24 INDIANA LAW REVIEW [Vol. 17:1

proceedings, 1 -" providing for the appointment of a deputy consumer

counselor for Washington affairs, 140 and establishing a committee for the

purpose of nominating candidates for vacant public service commission

positions to the governor. 141

The Act also bars, with certain specified exceptions, general rate in-

crease requests within fifteen months of the utility's previous such filing, 142

and establishes a gas cost pass-through provision. 143 Utilities providing

electric or gas service are prohibited from terminating service between

December 1 and March 15 to any person who is eligible and has applied
for home energy assistance under newly added Indiana Code sections
4-27-5-1 to -13.

144
Subject to this provision, utilities must in most cases

provide fourteen days notice of the disconnection of heating or energy

sen ice because of failure to pay bills, if the disconnection would fall within

the period between November 1 and the following April l. 145

A final significant change effected by the Act requires public utilities
to obtain a certificate of public convenience and necessity before begin-

ning any construction of an electric generating facility, requires the com-

mission to develop and appropriately utilize an analysis of long-term elec-

tric generating facility expansion needs, and makes other provisions with

respect to powerplant construction. 146

Noteworthy by its absence from this reform package is any reference

to the widely-debated issue of recovery of the costs of construction work
in progress.

M. Textbook Assistance and Statutory Construction

Under what circumstances does the amendment of a federal statute,
which has been incorporated by reference into a state statute, work a
modification of the latter? In Doe v. Indiana State Board of Education ,

147

the Indiana textbook assistance standard statutes 148 were to be keyed to

food stamp program eligibility standards. The issue was whether the food
stamp eligibility formula operative at the time of enactment of the In-

diana statute, or as subsequently modified by Congress, would control

eligibility for the state textbook assistance program. 149

139
"Id. § 8-1-1 -5(e).

,i0
Id. § 8-1-1.1-9.

,A,
Id. §§ 8-1-1.5-1 to -10.

iA2
Id. § 8-l-2-42(a).

14,M § 8-l-2-42(g).
,4i

Id. § 8-1-2-121.

''Id. § 8-1-2-122. The general involuntary disconnection notice period of seven days
is established by 170 Ind. Admin. Code § 4-l-16(E)(l) (1979). The notice requirements of
the new section 122 generally track those of 170 Ind. Admin. Code § 4-l-16(E)(2) (1979).

I4
*Ind. Code §§ 8-1-8.5-1 to -7 (Supp. 1983).
"550 F. Supp. 1204 (N.D. Ind. 1982).

"See Ind. Code §§ 20-8.1-9-1, -2 (1982) (amended 1983).
'550 F. Supp. at 1205 (citing 7 U.S.C. § 2014 before and after the 1981 eligibility

amendment).

I47(

I fit



1 984] SUR VEY—ADMINISTRA TIVE LAW 25

The district court in this instance rejected the board of education's

argument that the Indiana legislature had incorporated by reference only

discrete provisions from the federal statute, as opposed to "the general

law." 150 The court therefore rejected the inference that subsequent food

stamp eligibility amendments were not to be considered incorporated. The

court's reasoning rested in part on Indiana statutory references to federal

food stamp eligibility standards in effect in any given year.
15 '

The specific force of the court's decision in this case persisted until

precisely April 4, 1983, on which date new amendments to the Indiana

statutory standards for assistance to schoolchildren took effect.
152 The new

standards attempt to pin assistance eligibility to a fixed sum income

cutoff153 or official "poverty line" cutoff, 154 as compared to the "max-

imum monthly or annual gross income available to a family." 155 The
statute makes no provision for a method of calculating "gross income

available to a family."
156

N. Blind Assistance and Federal Supremacy

In Kellum v. Stanton, 151 the court granted summary judgment in favor
of a class of Indiana blind persons less than eighteen years old on their

claim that the operation of the Indiana Blind Assistance Statute 158 con-

travened the applicable federal social security statutes
159 and regulations 160

by imposing an impermissible eighteen year age eligibility requirement on

potential recipients.
161

,50 550 F. Supp. at 1205 (quoting Meunich v. United States, 410 F. Supp. 944, 946

(N.D. Ind. 1976)).
151 550 F. Supp. at 1205-06; see Ind. Code § 20-8.1-9-2 (1982) (amended 1983).
,52Act of Apr. 4, 1983, Pub. L. No. 214-1983, §§ 1-5, 1983 Ind. Acts 1351, 1351-54

(codified at Ind. Code §§ 20-8.1-9-1 to -11 (Supp. 1983)).
153 Ind. Code § 20-8.1-9-2(a), (b) (Supp. 1983).
"*Id. § 2(c), (d).
l55

Id. § 1(a).

l56The vagueness of this standard may in a given case be remedied ad hoc through
the exercise of the township trustee's discretion to pay for an ineligible child's school books,

supplies, or other fees "[ujnder extraordinary circumstances." Id. § 11.

It should be noted that a challenge to an Indiana public school textbook rental policy,

based not on equal protection, but on the "common schools" provision of the Indiana
constitution, was rejected in Chandler v. South Bend Community Schools Corp., 160 Ind.
App. 192, 312 N.E.2d 915 (1974) (strictly construing the requirement in Ind. Const., art.

VIII, § 1 of "tuition" without charge). For a collection of the disparate authorities in this

general area, see Sneed v. Greensboro City Bd. of Educ, 299 N.C. 609, 611 n.l, 264 S.E.2d
106, 109 n.l (1980). See also Johnson v. New York State Educ. Dep't, 449 F.2d 871 (2d
Cir. 1971), vacated and remanded, 409 U.S. 75, 76-77 (1972) (Marshall, J., concurring).

,57
537 F. Supp 1237 (N.D. Ind. 1982).

1SH See Ind. Code § 12-1-6-1 to -20 (1982).
]59See 42 U.S.C. §§ 1201, 1206 (Supp. IV 1980).
,60
45 C.F.R. § 233.30(b)(l)(iii) (1980) (presently codified at 45 C.F.R. § 233.39(b)(l)(iii)

(1982)).
I6I 537 F. Supp. at 1241.



26 INDIANA LAW REVIEW [Vol. 17:1

The key to the court's supremacy clause analysis was a line of Supreme

Court cases to the effect that " 'at least in the absence of congressional

authorization for the exclusion clearly evidenced from the Social Security

Act or its legislative history, a state eligibility standard that excludes per-

sons eligible for assistance under federal AFDC standards violates the
Social Security Act and is therefore invalid under the Supremacy

Clause.'
" lt>: Finding an absence of such authorization with respect to

blind persons under the age of eighteen, state coverage of such persons

was determined to be mandatory.

Perhaps the fullest recent Seventh Circuit supremacy clause analysis

is found in Raskin v. Moran, l6i where the court, using federal preemp-

tion and supremacy as interchangeable and essentially synonymous terms, 164

emphasized the validity of state law unless "the clear and manifest pur-

pose of Congress" runs to the contrary. 165 But the court recognized the

necessity to void state laws that are not merely inconsistent with, but

operate as an "obstacle" to, congressional policy. 166 The court in Raskin

refused to balance even an important and good faith independent state

policy against an arguably less than crucial federal social security policy,

and struck down the state regulation in question. 167

It would thus appear that there is room for proponents of the valid-
ity of state statutes to argue for "mere" inconsistency of the state and

federal statutes, and for an analysis under which congressional intent to

preempt the area, or to trump inconsistent state law, must affirmatively

appear.

O. Social Security and Equitable Estoppel

The District Court for the Northern District of Indiana ventured into

poorly charted water in McDonald v. Schweiker. ]6S The claimant in this
case was deprived of the opportunity to receive retirement insurance

benefits from her sixty-second birthday in November of 1978 by her
reliance on a misstatement of fact by a representative of the Social Security

Administration (SSA) to the effect that she needed more calendar quarters
of work in order to qualify. The SSA agreed to pay the claimant benefits
from the time she actually applied for them in August, 1979, when the
prior misstatement was discovered, but denied her claim to payments dating

back to the time of her actual eligibility.

The court granted the claimant's motion for summary judgment and
found the SSA estopped from relying on the absence of the required writ-

" 2
Id. at 1239 (quoting Townsend v. Swank, 404 U.S. 282, 286 (1971)).

'"684 F.2d 472 (7th Cir. 1982).

"'See id. at 474-75.

"'Id. at 475 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)).
I66684 F.2d at 475 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
I67684 F.2d at 479.
,6S 537 F. Supp. 47 (N.D. Ind. 1981).



1 984] SUR VEY—ADMINISTRA TIVE LA W 27

ten benefit application in denying benefits as of November, 1978. On the
analysis in McDonald, once the elements of traditional estoppel are

established, the question becomes whether "affirmative misconduct" on

the part of the government is also present. 169 The court stated that "a

finding of affirmative misconduct and the applicability of estoppel can

only be determined through careful examination of the mistake made by
the government, the claimant's ability to prove that the government made

a mistake, and whether the claimant could have identified the mistake

and avoided its consequences." 170 Having found that the government's

mistake was one of fact rather than law; that the incident of the mistake,

if not the precise error, was well-documented; and that the claimant could

not have identified the mistake and avoided its consequences, the court

held the government estopped and awarded the claimant back-payment. 171

Easily the most problematic element of the McDonald test of affir-
mative government misconduct is the question of whether the government's

error is properly characterized as one of fact or one of law. The logic

of attaching significance to this distinction derives from the duty on the

part of private persons to be independently familiar with the applicable

law, undercutting the estoppel element of reasonable reliance. While the

result, and apparently the test applied, in McDonald may be satisfying,
the value of McDonald's contribution to clarifying the law of govern-

ment estoppel may be modest.
In any given instance, it is notoriously difficult to characterize an

erroneous statement on the part of the government as one of law or of

fact. It becomes tempting to view such representations as mixed statements

of law and fact. Are claimants to be charged with the knowledge of the

truth or falsity of mixed legal-factual representations?

It seems clear as well that borderline cases are not the only troublesome

ones. Some factual representations, based on erroneous records exclusively
within the government's possession, may be so patently questionable as
to put a prospective claimant on inquiry notice.

But it seems equally reasonable, if less well-grounded in the case law,

to wonder whether holding all claimants, regardless of their sophistica-

tion, or the sums involved, to a knowledge of the law in all its complex-

ity genuinely serves the public interest. Admittedly, this policy frees the

SSA to make useful informal representations as to matters of law without
fear of adverse fiscal consequences.

It is questionable, however, whether a rational disappointed appli-

cant can be expected to seek out and pay for expensive legal advice con-

l69
Id. at 50. See, e.g., Schweiker v. Hansen, 450 U.S. 785 (1981) (per curiam); Com-

munity Health Servs. v. Califano, 698 F.2d 615, 621-24 (3d Cir. 1983); Mendoza-Hernandez

v. INS, 664 F.2d 635, 639 (7th Cir. 1981); see also Note, Equitable Estoppel of the Govern-

ment, 79 Colum. L. Rev. 551 (1979).
I70537 F. Supp. at 50.
17
7c/. at 50-52.



:

8

INDIANA LA W REVIEW [ Vol . 1 7

:

1

Firming or questioning the agency's representations if the probability of

the SSA's being correct, in view of its accumulated experience, is generally

high. If it does not generally pay to check up on SSA's legal representa-

tions, should parties in effect be required to do so? Is this the least costly

way of ensuring accurate and uniform eligibility determinations?
172

P. Uncompensated Hill-Burton Costs as Non-Reimbursable under

Medicare

During the past survey period, the Seventh Circuit, with congressional

assistance, resolved the division of district court authority
173

as to the per-

missibility of reimbursement to hospitals under Medicare for performance

of their free care obligations under the Hill-Burton Act.
174

Specifically, in Johnson County Memorial Hospital v. Schweiker,
115

the Seventh Circuit reversed the decision of the District Court for the

Southern District of Indiana
176 on the authority of its decision the same

day in the consolidated case of Saint Mary of Nazareth Hospital Center
v. Department of Health & Human Services. 117

The court of appeals in Johnson County held that

Congress never intended to reimburse hospitals with Medicare

funds for the free care the hospitals are obligated to perform under

the terms of the Hill-Burton Act. Moreover, it would be improper

to allow the hospitals to receive a double payment from the

!

"
: For the most recent sustained attempt to clarify the murky concept of "affirmative

misconduct" on the part of the government, see Community Health Servs. v. Califano,
698 F.2d 615, 621-24 (3d Cir. 1983) (inquiring whether the unauthorized incorrect advice

was "closely connected to the basic fairness of the administrative decision making process").

Cf. Schweiker v. Hansen, 450 U.S. 785, 789 (1981) (per curiam) (looking not only into

causality, but also to whether the error in question induced uncorrectable action or inaction

by claimant and whether it involved the breach of a regulation). It may be noted that each
of these two decisions, as well as a decision in the Second Circuit Court, Hansen v. Harris,

619 F.2d 942 (2d Cir. 1980), provoked dissenting opinions.

In McDonald, the government appealed the adverse summary judgment order to the
Seventh Circuit, but did not file a brief, and eventually voluntarily dismissed with prejudice.

This factor was among those taken into account when the district court awarded attorney's
fees under the Equal Access to Justice Act, based on a finding that the government's posi-

tion "was not substantially justified." McDonald v. Schweiker, 551 F. Supp. 327, 333 (N.D.
Ind. 1982) (discussing as well issues of timeliness of application and exclusivity of attorney's

fees under the Social Security Act). See 2 H. McCormick, Social Security Claims and
Procedures § 777 (3d ed. 1983).

''Each of the relevant district court opinions is discussed in Wright, Social Security

and Public Welfare: 1982 Survey of Recent Developments in Indiana Law, 16 Ind. L. Rev.
339, 344-45 (1983).

See 42 U.S.C. § 291c(e) (1976).

698 1 .2d 1347 (7th Cir. 1983).

"'Johnson County Memorial Hosp. v. Schweiker, 527 F. Supp. 1134 (S.D. Ind. 1981).
"698 I.2d 1337 (7th Cir. 1983) (consolidating the appeal of St. James Hosp. v. Har-

ris, 535 F. Supp 751 (N.D. III. 1981)).



1 984] SUR VEY—ADMINISTRA TIVE LA W 29

government, and Congress did not intend to compensate hospitals

a second time for medical care for which the government has

already paid through contractual agreements for indigent care

under the Hill-Burton Act. 178

The court noted that a section of the 1982 Tax Equity and Fiscal Respon-

sibility Act 179 had amended the applicable Medicare statute 180 to resolve

retroactively the reimbursability issue and that the expressed post-

congressional view was that non-reimbursability had always been the in-

tent of Congress. 181 A related due process taking argument, in which the
providers asserted a vested contractual right to reimbursement of the

Medicare costs in question, was rejected on similar grounds. 182

I78698 F.2d at 1350.
179
96 Stat. 324 (1982).

,8042 U.S.C. § 1395x(v)(l) (1976).
m698 F.2d at 1350 (quoting H.R. Conf. Rep. No. 760, 97th Cong., 2d Sess. 431

(1982) reprinted in 1982 U.S. Code Cong. & Ad. News 1190, 1211).
I82698 F.2d at 1350. See also Metropolitan Medical Center v. Harris, 693 F.2d 775

(8th Cir. 1982); Harper-Grace Hosps. v. Schweiker, 691 F.2d 808, 810 (6th Cir. 1982); Ar-

lington Hosp. v. Schweiker, 547 F. Supp. 670 (E.D. Va. 1982).

Among the miscellany of recent cases dealing with either substantive or jurisdictional
administrative law are Synesael v. Ling, 691 F.2d 1213 (7th Cir. 1982) (upholding the validity

of Indiana's five year "reachback" rule limiting Medicaid benefit eligibility in cases of asset

transfers for inadequate consideration); American Healthcare Corp. v. Schweiker, 688 F.2d

1072 (7th Cir. 1982) (no constitutional entitlement shown under the circumstances to a pre-

decertification hearing with respect to Medicare or Medicaid provider facilities, hence no

waiver of exhaustion requirement, hence no subject matter jurisdiction); Indiana Hosp. Ass'n.

Inc. v. Schweiker, 544 F. Supp. 1167 (S.D. Ind. 1982) (numerous Indiana hospitals not

entitled to reimbursement of portion of return on equity capital, bad debt, and charity

costs attributable to participation in Medicare program as "reasonable cost" thereof) (similar

result obtained in Saline Community Hosp. Ass'n v. Schweiker, 554 F. Supp. 1133 (E.D.

Mich. 1983)). See generally Neeley-Kvarme, Administrative and Judicial Review of Medicare

Issues: A Guide Through the Maze, 57 Notre Dame Law. 1 (1981).