Administrative Agencies Cannot Base Decisions Solely on Uncorroborated Hearsay

Utility Reform Network v. Public Utilities Commission

(2014) 223 Cal.App.4th 945

It has long been a practice among certain administrative agencies, such as the California Public Utility Commission ("CPUC"), that hearsay evidence is generally admissible in administrative proceedings, although such evidence might be excluded in court proceedings under the California Rules of Evidence. In Utility Reform Network v. Public Utilities Commission, the First District Court of Appeal recently explained that there are limits that prevent agencies from relying exclusively on hearsay evidence in certain circumstances.

In Utility Reform Network, a public utility company filed an application with the CPUC seeking approval to acquire a gas-fired power plant in Oakley, California. A key question was whether a need for the power plant existed. The public utility company argued the power plant was needed and presented supporting evidence that included hearsay statements in the form of a written declaration by an executive from the California Independent System Operator, which was acknowledged to be hearsay. The CPUC found that the power plant was needed, based solely on the hearsay statements.

On appeal, the Court addressed the narrow question of whether the CPUC could base its finding of fact solely on hearsay evidence where the truth asserted in such statements was disputed. The Court clarified that hearsay evidence is generally admissible in administrative proceedings. Nevertheless, the Court explained that California still follows the "residuum rule," which requires that an agency's decision be supported by substantial evidence that consists of "at least 'a residuum of legally admissible evidence[.]'" The Court found guidance in California Government Code section 11513, subdivision (d), which provides that although hearsay evidence is admissible in administrative hearings, it cannot be the basis for the administration's finding without corroboration of the contested out of court statements. Therefore, the Court stated, "uncorroborated hearsay cannot constitute substantial evidence to support an agency's decision absent specific statutory authorization." Thus, the CPUC could not base its finding solely on the hearsay statements.

The Court stated that the residuum rule and its application have been criticized in other forums and even abandoned in federal courts, but it remains the law in California.

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