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24871 - Garris v. Governing Board

Davis Adv. Sh. No. XX
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

D. Carroll Garris, Respondent/Appellant,

v.

The Governing Board of

the South Carolina

Reinsurance Facility and

the South Carolina

Reinsurance Facility, Appellants/Respondents.



Appeal From Richland County

John W. Kittredge, Circuit Court Judge



Opinion No. 24871

Heard November 4, 1998 - Filed December 29, 1998

AFFIRMED IN PART; REVERSED IN PART;

REMANDED.

Thomas C. Salane of Turner, Padget, Graham &

Laney, P.A., Columbia, for Appellants/Respondents.



Thornwell F. Sowell of Sowell, Todd, Laffitte, Beard

& Watson, L.L.C., Columbia; and Jeffrey A. Jacobs of

Nelson Mullins Riley & Scarborough, L.L.P.,

Columbia, for Respondent/Appellant.



WALLER, A.J.: This appeal follows the circuit court's reversal of

the decision of the Board of Governors (the Governing Board) of the South

p.5


GARRIS v. GOVERNING BOARD





Carolina Reinsurance Facility (Facility) to revoke D. Carroll Garris's (Garris)

status as a designated agent. We affirm in part, reverse in part, and remand

for further proceedings.





FACTS





Garris, a licensed insurance agent, is a designated agent of

Facility.1 Prompted by an audit performed by one of Facility's servicing

carriers, Facility began investigating allegations of underwriting irregularities

at Garris's agency in mid-1993. Facility issued a notice of hearing and rule

to show cause seeking to revoke Garris's status as a designated agent in

December 1993. Facility alleged Garris had improperly classified private

risks as commercial risks (which have lower premiums that are not subject

to recoupment fees), insured "phantom" vehicles, wrote duplicate coverages,

endorsed policies to insure additional vehicles after a policy had been

canceled, and violated trust accounting procedures.





The Governing Board voted in November 1994 to revoke Garris's

status as a designated agent. Garris petitioned the circuit court for review.

The circuit court, following additional discovery, reversed the Governing

Board's decision in November 1997. Both parties how appeal the circuit court's

decision.




1 Facility is an unincorporated, nonprofit entity created by statute in

1974 to provide high-risk drivers with automobile insurance not available

through the voluntary market. Facility imposes recoupment charges, based

upon a person's driving record, upon all drivers to recover its losses. In

addition to high-risk drivers ceded to Facility by voluntary insurers, Facility

authorizes designated agents such as Garris to sell policies offered by

servicing carriers to high-risk drivers.





Facility will cease to operate in its present form by 2006 under the new

system of automobile insurance the Legislature enacted in 1997. See S.C.

Code Ann. §§ 38-77-510 to -630 (1989 & Supp. 1997). Facility on March 1,

1999, will stop accepting new policies written by designated agents.

Designated agents may continue to earn commissions on renewals of existing

policies until 2002. S.C. Code Ann. §§ 38-77-590 to -595 (Supp. 1997).

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GARRIS v. GOVERNING BOARD





ISSUES





1. Did the circuit court err in ruling that Governing

Board members who voted to revoke Garris's status

as a designated agent acted as prosecutor and

adjudicator in violation of Article 1, Section 22 of the

state constitution?





2. Did the circuit court err in ruling that the doctrine of

res judicata bars Garris's argument about the

composition of the Governing Board?





3. If res judicata does not bar Garris's argument, did

the circuit court err in ruling that the composition of

the Governing Board violates Article III, Section 1 of

the state constitution?





4. Did the circuit court err in ruling that proxies were

properly exercised and a quorum was present at

Garris's hearing before the Governing Board?



1. ARTICLE 1, SECTION 22





The circuit court reversed the Governing Board's decision to

revoke Garris's status as a designated agent, finding the procedure followed

by Facility unconstitutional. Under the state constitution, a person shall not

"be subject to the same person for both prosecution and adjudication." S.C.

Const. art. 1, § 22.2Facility now argues the circuit court erred for three

reasons.


2 Section 22 states, in full:

No person shall be finally bound by a judicial or quasi-judicial

decision of an administrative agency affecting private rights

except on due notice and an opportunity to be heard; nor shall he

be subject to the same person for both prosecution and

adjudication; nor shall he be deprived of liberty or property

unless by a mode of procedure prescribed by the General

Assembly, and he shall have in all such instances the right to

judicial review.

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GARRIS v. GOVERNING BOARD





A. FACILITY IS AN ADMINISTRATIVE AGENCY





Facility contends it is a private organization that merely acts as

a statutory agent for the automobile insurance industry. Facility argues it

receives no state funding, has no rule-making authority, and is subject to

regulation by a state agency, the South Carolina Department of Insurance.

Consequently, Facility argues it is not an "administrative agency" for

purposes of Article I, Section 22 under the statute creating it or the

Administrative Procedure Act (APA), S.C. Code Ann. §§ 1-23-10 to -660 (1986

& Supp. 1997). We disagree.







An agency "means each state board, commission, executive

department or officer, other than the legislature or the courts, authorized by

law to make regulations or to determine contested cases." S.C. Code Ann. §

1-23-10(1) (1986) (emphasis added); accord S.C. Code Ann. § 1-23-310(l)

(Supp. 1997) (agency "means each state board, commission, department or

officer, other than the legislature or the courts, but to include the

Administrative Law Judge Division, authorized by law to determine contested

cases"). It is true that Facility, a statutory creature, "is subject to

regulations and orders promulgated by the director [of the Department of

Insurance] or his designee." S.C. Code Ann. §§ 38-1-20(16) and 38-77-510

(Supp. 1997).





Facility clearly possesses rule-making authority in the area of

automobile insurance, a subject that touches the life of most South

Carolinians. See S.C. Code Ann. § 38-77-520 (8upp. 1997) (every automobile

insurer in South Carolina is bound by Facility's plan of operation as approved

by the director of the Department of Insurance and by rules lawfully

prescribed by Facility's Governing Board); S.C. Code Ann. § 38-77-596 to -610

(Supp. 1997) (Facility must calculate and file recoupment fees that are

assessed on all automobile insurance policies in South Carolina, and changes

in rates are subject to public hearing pursuant to APA). See also Garris v.

Governing Board of South Carolina Reinsurance Facility, 319 S.C. 388, 461

S.E.2d 819 (1990) (applying APA to remand case for failure to exhaust

administrative remedies); Moore v. South Carolina Reinsurance Facility, 297

S.C. 276, 376 S.E.2d 510 (1989) (applying APA in deciding whether Facility

properly refused to certify each of designated agent's existing locations);

Grain Dealers Mut. Ins. Co. v. Lindsay, 279 S.C. 355, 306 S.E.2d 860 (1983)

(upholding Facility's power to enact rules regarding the distribution of

Facility losses); Mungo v. Smith, 289 S.C. 560, 347 S.E.2d 514 (Ct. App.

1986) (applying APA to decide that designated agent's status may not be



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GARRIS v. GOVERNING BOARD





revoked arbitrarily, but must be based upon substantial evidence); S.C. Code

Ann. § 38-77-510 (Supp. 1997) (designating Facility as a "using agency,"

which is defined as "any governmental body of the State which utilizes any

supplies, services, or construction purchased" under state Procurement Code).





Facility has the authority to assign the status of designated agent

to an individual, as well as the authority to revoke that designation. S.C.

Code Ann. §§ 38-77-590 to -595 (Supp. 1997). Facility argues it does not

decide "contested cases" as such cases are defined in the APA. See S.C. Code

Ann. § 1-23-310(2) (Supp. 1997) (contested case "means a proceeding,

including but not restricted to ratemaking, price fixing, and licensing, in

which the legal rights, duties or privileges of a party are required by law to

be determined by an agency after an opportunity for hearing"). Nevertheless,

Facility assured Garris during the course of its investigation that "a full

contested type hearing will be offered to you at which time your response can

be as full and complete as you deem appropriate." Facility concedes in its

brief that, while it does not believe it is an administrative agency, it "has no

objection to following due process standards applicable under the APA in all

hearings before the Board."





We have interpreted Section 1-23-310(2) to mean that a "contested

case" is one in which an agency is required by law to determine a party's

rights after an opportunity for a hearing. League of Women Voters of

Georgetown County v. Litchfield-by-the- Sea, 305 S.C. 424, 426, 409 S.E.2d

378, 380 (1991); Triska v. Dep't of Health and Envtl. Control, 292 S.C. 190,

196, 355 S.E.2d 531, 534 (1987). No statute explicitly requires Facility to

hold a hearing before revoking an agent's status as a designated agent;

therefore, Garris's case is not a "contested case" as defined in the APA.





However, we also have held that Article 1, Section 22 requires an

administrative agency to give procedural due process to parties that come

before it even though a matter may not be a "contested case" as defined in

the APA. See League of Women Voters of Georgetown County, supra (finding

that certification process as outlined in then prevailing statutes and

regulations was not a "contested case" as defined in APA, which meant

League was not entitled to a hearing under APA; but concluding League was

entitled to notice, a hearing, and judicial review under Article I, Section 22);

Stono River Envtl. Protection Ass'n v. South Carolina Dep't of Health and

Envtl. Control, 305 S.C 90, 93, 406 S.E.2d 340, 342 (1991) (stating same

principle).

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GARRIS v. GOVERNING BOARD





We affirm the circuit court's ruling and hold that Facility is an

administrative agency because it meets the rule-making component of the

APA definition. See Mungo v. Smith, supra (where a statute contains two

clauses which prescribe its applicability and the clauses are connected by the

disjunctive "or," application of the statute is not limited to cases falling

within both clauses, but applies to cases falling within either). Accordingly,

Facility must comply with the procedural due process protections established

in Article I, Section 22 even though Garris's case is not a "contested case" as

defined in the APA.





B. SAME PERSONS AS PROSECUTOR AND ADJUDICATOR





Facility argues the "same persons" were not engaged in both the

prosecution and adjudication of Garris's case. We disagree.





The Governing Board oversees Facility operations by considering

matters in various committees, which make recommendations to other

committees and the Governing Board. Governing Board member James

Lingle was present as a member at an Audit Committee meeting October 20,

1993. Governing Board members Jim Thompson, Clark Hobbie, Thomas

Kepley, C.M. Dinwiddie, and Frank Lee were present as observers at the

meeting. Larry Griner, who is not a Governing Board member but ultimately

exercised another member's proxy and voted on the Garris matter, also was

present as an observer. Garris was not present or represented at the meeting.





At that meeting, a Facility auditor who had examined Garris's

records and practices reported her findings in detail. The Audit Committee,

following a "lengthy discussion," unanimously voted to refer the matter the

Designated Agent Committee, the Operating Committee, and the state

Department of Insurance.





Governing, Board members Jim Thompson, Robert Herlong, Phillip

Love, Thomas Reichard, and Arthur Ivey were present as members at an

Operating Committee meeting October 29, 1993. Governing Board members

Steve Dennis, Hobbie, Randall Thompson, and Lee were present as observers

at the meeting. Non-member Griner again was present as an observer.

Garris was not present or represented at the meeting.





At that meeting, a Facility official discussed the auditor's report

on Garris, called members' attention to the auditor's written report that was

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GARRIS v. GOVERNING BOARD





attached as an exhibit to the agenda, and described the Audit Committee's

earlier motion. Committee members discussed the Garris matter in executive

session.





Governing Board members Hobbie, Kepley, and Lee were present

as members at a Designated Agent Committee meeting December 13, 1993.

Non-member Griner again was present as an observer. Garris appeared and

answered the committee's questions.





At that meeting, the committee discussed the matter in executive

session, then had a "lengthy discussion" about it in open session. The

committee voted unanimously to recommend that the Governing Board revoke

Garris's status as a designated agent. The committee further recommended

that the Governing Board hold a special meeting to consider the matter.

Facility served a notice and rule to show cause upon Garris on December 20,

1993, requiring him to appear before the Governing Board.







Of the members named above, Dennis, Jim Thompson, Herlong,

Hobbie, and Love attended the three-day hearing on the Garris matter in

August 1994. All voted in favor of revoking Garris's status as a designated

agent on November 21, 1994. Non-member Griner also attended the hearing

as the holder of Randall Thompson's proxy. Griner exercised the proxy to

vote in favor of revoking Garris's status. The Governing Board voted 8-2 to

revoke Garris's status.





Reichard and Lee also attended the entire hearing. Reichard did

not vote because Garris was a designated agent of his company. See S.C.

Code Ann. § 38-77-585 (Supp. 1997) (prohibiting member from voting on any

issue materially affecting the member's employer). Lee recused himself

because he had considered the matter in committee. Lee also was chairman

of the Designated Agent Committee at the time, and had referred the Garris

matter for investigation as early as May, 1993 after hearing reports of

underwriting irregularities at Garris's agency. Lee testified the purpose of

the Designated Agent Committee meeting was to gather information about

Garris's case.





Kepley did not attend the hearing but gave his proxy to Love,

instructing him before the hearing to vote to revoke Garris's status. Love

refused to accept the proxy in that fashion, so Kepley gave him an



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GARRIS v. GOVERNING BOARD





unconditional proxy.3





The bottom line is that five Governing board members and one

non-member attended, as a member or observer, one or more committee

meetings at which the Garris matter was discussed extensively in open and

executive sessions. All six voted to revoke Garris's status as a designated

agent. Of those six, four (Jim Thompson, Herlong, Hobbie, and Love) were

members of the committees which considered the Garris matter. In addition,

two other Governing Board members attended one or more committee

meetings and the entire hearing, but did not vote.





Facility now contends the circuit court erred in finding the

procedure unconstitutional because none of the committee members -- except

Hobbie -- voted or participated in the hearing. The Governing Board would

have revoked Garris's status even without Hobbie's vote, Facility argues.

Facility addresses only the Audit and Designated Agent Committee meetings

in its brief. At oral argument, Facility dismissed the Operating Committee

meeting as irrelevant because no vote was taken.





The court may reverse or modify the decision of an administrative

agency when an appellant's substantial rights have been prejudiced because

the agency's findings, inferences, conclusions, or decisions are, among other

things, in violation of constitutional or statutory provisions, or made upon

unlawful procedure. S.C. Code Ann. § 1-23-380(A)(6) (Supp. 1997).





"[A] fair trial in a fair tribunal is a basic requirement of due

process, [and] [t1his applies to administrative agencies which adjudicate as

well as to courts." Withrow v. Larkin, 421 U.S. 35, 46, 905 S.Ct. 1456, 1464,

43 L.Ed.2d 712, 723 (1975) (upholding process in which state medical board

suspended physician's license after investigating and hearing the case). The

fact that investigative, prosecutorial, and adjudicative functions are performed

within the same agency, or even performed by the same persons within an

agency, does not, without more, constitute a violation of due process. "That


3 Kepley's proxy was not exercised because Governing Board Chairman

John Richards did not allow any board member to exercise the proxy of

another member who was not present for the entire hearing. Richards did

allow non-board members (Griner and Nancy Coombs) to exercise their

proxies in the vote because they represented their respective board members

and were present for the entire hearing.

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GARRIS v. GOVERNING BOARD





is not to say that there is nothing to the argument that those who have

investigated should not then adjudicate," and a court facing special facts and

circumstances in a particular case may determine that dual roles are

impermissible. Id. at 51-58, 95 S.Ct. at 1466-70, 43 L.Ed.2d at 726-29.

Agency officials or members who adjudicate a matter are presumed to be

honest, fair, and unbiased. A party challenging the combination of

investigative and adjudicative functions must convince the court that, under

a realistic appraisal of psychological tendencies and human weakness,

conferring both functions on the same individuals poses such a risk that it

is likely to violate due process. Id. at 47, 95 S.Ct. at 1464, 43 L.Ed.2d at

724.





While Withrow v. Larkin established the parameters of due

process safeguards in administrative proceedings under the federal

constitution, Article 1, Section 22 of our constitution explicitly addresses

procedural due process in such proceedings. Section 22 provides for notice,

an opportunity to be heard, an impartial adjudicator, and judicial review. We

have recognized that Section 22 is an additional guarantee of important due

process rights, enacted in 1970 as legislators and judges noticed the

increasing prevalence and influence of administrative agencies in daily life.

See Ross v. Medical Univ. of South Carolina, 328 S.C. 51, 492 S.E.2d 62

(1997).





In Ross, we found the purpose of Section 22 "is to ensure

adjudications are conducted by impartial administrative bodies. Partiality

exists where, among others, an adjudicator has ex parte information as a

result of prior investigation or has developed, by prior involvement in the

case, a will to win."' Id. at 69, 492 S.E.2d at 72. We did not find a violation

of Section 22 where the university's president investigated a tenured

professor's conduct, terminated the professor, and then testified against him

at a committee hearing. The president' did not later participate as an

adjudicator, and he did not improperly consider ex parte information. Id.

However, we did find a violation of Section 22 where a university vice-

president investigated the professor's case, testified as an adverse witness at

a committee hearing, and sat as the intermediate judge in a three-step

disciplinary procedure. Id. at 70, 492 S.E.2d at 72.





We hold that Facility violated Article 1, Section 22 because the

same persons served as prosecutor and adjudicator. We disagree with

Facility's effort to ignore the Operating Committee meeting, which obviously

was part of the investigative and prosecutorial processes because the Garris



p.13


GARRIS v. GOVERNING BOARD





matter was referred to it. When all three committee meetings are considered,

it is clear that five Governing Board members and one non-member attended,

as a member or observer, one or more committee meetings at which the

Garris matter was discussed extensively in open and executive sessions. At

only one of those committee meetings was Garris given a chance to respond.

All five members and the one non-member later sat as adjudicators and voted

to revoke Garris's status as a designated agent.





We also disagree with Facility's effort to describe the process as

one in which Governing Board members were "merely exposed" to the charges

and facts of the case. Kepley's attempt to give a fellow board member his

proxy to vote in favor of revoking Garris's status plainly shows that at least

one member had formed an opinion before the hearing. But Kepley's action,

while relevant and revealing, is not primarily what leads us to conclude that

Garris did not receive procedural due process because members or officials of

an agency who adjudicate a matter are presumed to be honest, fair, and

unbiased. See Withrow v. Larkin, supra; City of Alma v. United States, 744

F. Supp. 1546, 1561 (S.D. Ga. 1990) (an agency official is not deemed unfit

to perform her statutory duty merely because she previously has taken a

position on issues related to the case before her, even if she expressed her

opinion publicly).







Instead, what leads us to conclude that Garris did not receive

procedural due process is the inherently flawed structure of the investigative

and prosecutorial processes that placed future adjudicators in situations

where they had the opportunity to form such premature opinions. Although

Hobbie may have been the only committee member who actually voted both

for the investigation to continue and to revoke Garris's status as a designated

agent, the other five members heard and engaged in extensive debate about

Garris's case in committee meetings before the hearing. We agree with the

circuit court that Governing Board members were intimately involved in the

investigative and prosecutorial processes as committee members.





We further agree with the circuit court's decision to reject as

incredible the testimony of Governing Board members who insisted they

either could not remember committee discussions or based their decision

solely on evidence presented at the hearing. Allowing an agency official or

board member to sidestep Article 1, Section 22 merely by stating, in rote

fashion, that he or she based a decision only on evidence presented at the

hearing would render the constitutional prohibition a nullity.



p.14


GARRIS v. GOVERNING BOARD







In short, under a realistic appraisal of psychological tendencies

and human weakness, we conclude that Governing Board members who

participate in the investigation or prosecution of a designated agent as a

member or observer at a committee meeting may not participate as

adjudicators of that agent's case at a subsequent hearing. Members who

participate in the investigation or prosecution of a case must distance

themselves from the adjudicatory process, and should refrain from even

discussing that case with future adjudicators. See Withrow v. Larkin, supra.

Such a rule will reduce or eliminate adjudicators' exposure to ex parte

information, as well as the inevitable human tendency to develop a will to

win. See Ross v. Medical Univ. of South Carolina, supra.





Our view is consistent with the approach taken by most courts

today. Courts generally discourage agency staff and members from

simultaneously acting as investigator, prosecutor, and judge.4 "It is proper

to have some blend of judicial and prosecutorial functions in an

administrative proceeding, provided that the person performing the quasi-

prosecutorial function is not a member of the decision-making body." Waste

Mgt. v. Pollution Control Bd., 530 N.E.2d 682, 694 (111. Ct. App. 1988).

Accord Babcock Center, Inc. v. Office of Audits, 286 S.C. 398, 334 S.E.2d 112

(1985) (holding that administrative agency may adjudicate appeals by panels

composed of other persons within the same agency who did not participate

in investigative or prosecutorial capacities); 4 Stein, Mitchell, and Mezines,

Administrative Law, § 33.02[l] to [4] (1998) (discussing separation of

functions and stating that such conflicts can easily be avoided by isolating

agency personnel or board members into investigatory, prosecution, and

adjudicatory positions).5




4The United States Supreme Court in Withrow v. Larkin and other

courts have noted that the federal Administrative Procedures Act prohibits

agency staff from serving in dual roles, but specifically exempts agency board

members from that prohibition. E.g., Blinder. Robinson and Co. v. SEC, 837

F.2d 1099, 1104-07 (D.C. Cir. 1988) (citing 5 U.S.C.A. § 554(d) (1996)).

Article I, Section 22, of our constitution contains no such distinction between

agency staff and board members.





5 See also Pope v. Mississippi Real Estate Comm'n, 695 F. Supp. 253,

285 (N.D. Miss. 1988) (finding no due process violation where staff

investigated a real estate agent, a commissioner from outside the agent's

(continued ... )

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GARRIS v. GOVERNING BOARD





C. HARMLESS ERROR







Facility contends any error in the handling of Garris's case,

including bias by persons not serving as adjudicators and exposure by

adjudicators to committee activities, is harmless error and provides no basis

for reversing the board's decision. We disagree.





In Ross v. Medical Univ. of South Carolina, supra, we found the

vice-president's participation as an investigator, witness, and intermediate

judge to be harmless error because the university's board independently

reviewed the record of the committee hearing, heard oral arguments from the

parties, and conducted its own deliberations. Id., 328 S.C. at 70, 492 S.E.2d at 7 2.





In this case, the Governing Board acted as the final adjudicator

in Garris's case. Five members and one-non member participated as

members or observers in prior committee meetings where Garris's case was

extensively discussed. Those six persons sat in judgment of Garris at the

hearing and cast six of the eight votes to revoke his status as a designated

agent. We conclude the structure of the proceeding in this case was so

inherently flawed that it is not subject to harmless error analysis. Cf.

Arizona v. Fulminante, 499 U.S. 279, 307-09, 111 S.Ct. 1246, 1263-64, 113

L.Ed.2d 302, 329-31 (1991) (dividing constitutional errors into "trial errors"

and "structural defects," with the latter defying analysis by harmless error

standards because they affect the framework within which a trial proceeds,

rather than simply an error in the trial process itself); State v. Byrd, 318

S.C. 247, 456 S.E.2d 922 (Ct. App. 1995) (same).




5( ... continued)

district decided whether the case should go forward, and the commissioners

who heard and decided the case did not participate in the investigation), aff'd,

872 F.2d 127 (5th Cir. 1989); Ridgewood Properties, Inc. v. Dep't of

Community Affairs, 562 So.2d 322 (Fla. 1990) (finding violation of state and

federal due process where department head testified in an administrative

hearing and later reviewed the hearing officer's order); Manka v. Tipton, 805

P.2d 1203, 1206 (Colo. Ct. App. 1991) (upholding decision in tax case decided

by deputy director in administrative hearing where taxpayer presented no

evidence that director investigated the case); 73A C.J.S. Public Administrative

Law and Procedure § 138(c) (1983); 2 Administrative Law § 313 (1994);

West's Digests Administrative Law Key No 445.



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GARRIS v. GOVERNING BOARD





In sum, we conclude Facility is an administrative agency, the

same persons served as both prosecutors and adjudicators in violation of

Article I, Section 22, and the process was so inherently flawed that it is not

subject to harmless error analysis.





2. RES JUDICATA





Garris, in a declaratory judgment action brought after Facility

filed the notice and rule to show cause, sought to enjoin Facility from

proceeding against him. Garris filed a notice of appeal and a petition for

supersedeas after the circuit court denied relief. We declined to stay the

proceeding before the Governing Board, but stayed review of any disciplinary

action which adversely affected Garris's status as a designated agent pending

judicial review of the Governing Board's decision. We ultimately affirmed the

circuit court, holding that Garris must first exhaust his administrative

remedies. We also addressed Garris's argument, holding that the APA does

not require Facility to give him time to correct any deficiencies, but only

requires Facility to give him an opportunity to show he had complied with

the law. Garris v. Governing Board of South Carolina Reinsurance Facility,

319 S.C. 3881 461 S.E.2d 819 (1995) (Garris I).





In his petition to the circuit court following the Governing Board's

decision to revoke his status as a designated agent, Garris argued the

composition of the board is unconstitutional under Article III, Section 1 of the

state constitution.6 The circuit court ruled the argument was barred by the

doctrine of res judicata. Garris contends the circuit court erred because res

judicata does not bar his argument. We agree.





"Res judicata bars a subsequent suit by the same parties on the

same issues. Res judicata is shown if (1) the identities of the parties is the

same as a prior litigation; (2) the subject matter is the same as the prior

litigation; and (3) there was a prior adjudication of the issue by a court of

competent jurisdiction." Johnson v. Greenwood Mills, Inc., 317 S.C. 248, 250,


6 Article III, Section 1, states:

The legislative power of this state shall be vested in two distinct

branches, the one to be styled the "Senate" and the other the

"House of Representatives," and both together the "General

Assembly of South Carolina."

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GARRIS v. GOVERNING BOARD





452 S.E.2d 832, 833 (1994) (citations omitted). "A litigant is barred from

raising any issues which were adjudicated in the former suit and any issues

which might have been raised in the former suit." Hilton Head Center of

South Carolina, Inc. v. Pub. Service Comm'n of South Carolina, 294 S.C. 9,

11, 362 S.E.2d 176, 177, (1987); see also James F. Flanagan, South Carolina

Civil Procedure 649-55 (1996) (explaining three basic tests used in res

judicata analyses). The primary purposes of the doctrine, commonly known

today as claim preclusion, are to bring an end to litigation and prevent a

defendant from being forced to defend the same action repeatedly. See 50

C.J.S. Judgment §§ 697, 702 (1997).





Res judicata or claim preclusion, however, is not always an

ironclad bar to a later lawsuit.



A valid and final personal judgment for the

defendant, which rests on the prematurity of the

action or on the plaintiffs failure to satisfy a

precondition to suit, does not bar another action by

the plaintiff instituted after the claim has matured,

or after the precondition has been satisfied, unless a

second action is precluded by operation of the

substantive law.



Restatement (Second) of Judgments § 20(2) (1982). Accord Allen v. Southern

Ry. Co., 218 S.C. 291, 62 S.E.2d 507 (1950) (plaintiff's voluntary dismissal of

first action leaves situation as though no suit had ever been brought;

subsequent, nearly identical action is not barred by res judicata even though

plaintiff appealed first action to Supreme Court, which held that voluntary

dismissal was inappropriate and premature); Gault v. Spoon, 168 S.C. 160,

167 S.E. 229 (1932) (where first action did not proceed to a conclusion

because it was dismissed for failure to execute a proper bond, res judicata did

not bar subsequent action on same transaction). See also Cooter & Gell v.

Hartmax Corp., 496 U.S. 384, 396, 110 S.Ct. 2447, 2456, 110 L.Ed.2d 359,

376 (1990) (a dismissal without prejudice is not an adjudication upon the

merits and does not have res judicata effect); McEachern v. Black, 329 S.C.

642, 496 S.E.2d 659 (Ct. App. 1998) (same).





Furthermore, dismissal of a prior lawsuit without prejudice, on

the ground that a party failed to exhaust administrative remedies, does not

mandate dismissal of an identical cause of action in a subsequent suit.

Bowden v. United States, 106 F.3d 433, 441 (D.C. Cir. 1997); Wright, Miller,

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GARRIS v. GOVERNING BOARD





& Cooper, Federal Practice and Procedure, § 4437 (1981). "When applying

res judicata to causes of action that were not before the court in the prior

action, due process of law and the interest of justice require cautious

restraint. Restraint is particularly warranted when the prior action was

dismissed on procedural grounds." Kearns v. General Motors Corp., 94 F.3d

1553, 1556 (Fed. Cir. 1996) (concluding res judicata did not bar patent

infringement claims that were not before court in earlier case dismissed by

court).





The doctrine of res judicata does not bar Garris's argument

raising Article III, Section 1 because he could not properly have raised it or

any other arguments before exhausting his administrative remedies. The fact

the Court chose to address one of his arguments in a premature appeal does

not mean he now should be penalized for not raising every purely legal

challenge in that premature appeal. The purposes of res judicata -- bringing

an end to litigation and preventing a defendant from being forced to defend

the same action repeatedly -- are not met by applying the rule in this case.

We remanded the matter in Garris I, which meant the proceedings against

Garris continued and Facility had to continue its involvement in the matter.

Accordingly, we reverse the circuit court's ruling on this issue.





3. ARTICLE III, SECTION 1





The circuit court, in the interest of finality, ruled on the merits

of Garris's argument and found that the statute establishing the composition

of the Governing Board unconstitutionally delegates legislative appointment

power to private organizations. Facility contends the circuit court erred. We

disagree.





The director of the Department of Insurance must appoint six of

the insurance industry representatives on the Governing Board from lists of

nominees prepared by and drawn from the American Insurance Association

(two members), the American Mutual Insurance Alliance (two members), and

the National Association of Independent Insurers (two members). See S.C.

Code Ann. § 38-77-580 (Supp. 1997).





We affirm the circuit court's ruling and hold that the delegation

in Section 38-77-580 of the Legislature's appointive powers to private

organizations violates Article III, Section 1. See Touissant v. State Bd. of

Medical Examiners, 285 S.C. 266, 329 S.E.2d 433 (1985) (striking down

statute which required Governor to select board members from list of

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GARRIS v. GOVERNING BOARD





nominees submitted by private association, where those nominees by statute

had to belong to the private association); Gold v. South Carolina Bd. of

Chiropractic Examiners, 271 S.C. 74, 245 S.E.2d 117 (1978) (same); see also

Hartzell v. State Bd. of Examiners in Psychology, 274 S.C. 502, 265 S.E.2d

265 (1980) (upholding a statute which required Governor to select board

members from a list of nominees submitted by private association, where

statute did not require those nominees to belong to the private association).





Facility, attempting to distinguish Touissant and Gold, argues the

entire Governing Board is not drawn from the membership of private

associations that include only a portion of a particular type of professionals.

It is true that Governing Board includes other members, including four

consumer representatives, two insurer representatives who are not association

members, four producer representatives, and two designated agent

representatives. However, that does not change the fact that, in establishing

a method to choose six of the insurer representatives, the Legislature

unconstitutionally delegated its appointive powers to private organizations.





4. EXERCISE OF PROXIES





Facility's plan of operation requires that a quorum of eleven

members be present for a vote, and an action is binding when approved by

the majority of those present. The director of the Department of Insurance

may provide for voting by proxy at meetings. S.C. Code Ann. § 38-77-580

(Supp. 1997). Governing Board Chairman John Richards initially counted

proxies in determining whether a quorum was present at the Garris hearing.

Richards ruled that only those members and proxy holders who had been

physically present for the entire three-day hearing could vote on the matter.

He later applied that same rule in determining whether a quorum was

present.





Nine board members7 and two proxy holders 8 were eligible to vote


7 Steve Dennis, Jim Thompson, Robert Herlong, Clark Hobbie, Phillip

Love, Gerry Huckaby, Chairman John Richards, David Rowell, and W.R.

Braddy.





8 Larry Griner, who exercised the proxy of board member Randall

Thompson; and Nancy Coombs, who exercised the proxy of board member

(continued ... )

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GARRIS v. GOVERNING BOARD







under the rule, i.e., they were present in person during the entire hearing.

In addition, two other nonvoting board members9 were present during the

entire hearing. Five other board members were present only by proxy. 10





The circuit court ruled that a quorum was present either in

person or by proxy during the entire hearing, the nonvoting members could

be counted for purposes of a quorum, and the proxies held by Larry Griner

and Nancy Coombs were properly exercised.





Garris contends the circuit court erred because allowing proxy

holders Griner and Coombs, who were not board members, to vote violated

Garris's due process rights and was inherently unfair. While proxy holders

may vote at "routine" meetings, the Court should not allow them to vote in

important cases such as this one which have constitutional implications, he

argues. Under that reasoning, every member could have given his or her

proxy to a file clerk, who could then have decided his case, Garris argues.

Furthermore, because Griner and Coombs could not vote, they also could not

be counted for purposes of a quorum, Garris asserts. That means there was

no quorum of eleven, he contends. We disagree.





The persons legally responsible for an administrative agency's

decision must be informed and unbiased, must hear the case, and must in

fact make the decision. Flav-o-Rich, Inc. v. NLRB, 531 F.2d 358, 362 (6th

Cir. 1976); KFC Nat'l Mgt. Corp. v. NLRB, 497 F.2d 298, 304 (2d Cir. 1974).

Due process requires an administrative board, when acting in a quasi-judicial

capacity, to consider all the evidence before deciding a particular question.

This does not mean, however, that the administrative board must itself hear

the evidence. Staff or assistants may prepare and present the evidence,

which the administrative board must consider when rendering its decision.

Pettiford v. South Carolina State Board of Educ., 218 S.C. 322, 346, 62

S.E.2d 780, 791 (1950) (approving procedure in which two board members

heard testimony and reported it to full board.- which decided the matter). It




8(...continued)

Philip Porter.





9 Thomas Reichard and Frank Lee.



10 Thomas Kepley, C.M. Dinwiddie, James Lingle, Arthur Ivey, and

Bob Taylor.

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GARRIS v. GOVERNING BOARD





is important, of course, that decision makers attend the hearing if possible.

See McCoy v. Easley Cotton Mills, 218 S.C. 350, 357, 62 S.E.2d 772, 775

(1950) (stating in workers' compensation case that "[o]rdinarily oral argument

is of much aid to any judicial or quasi-judicial body in reaching a proper

conclusion, [and] [o]nly circumstances of the most urgent nature are sufficient

to excuse a member's absence").





In the absence of any statutory or other controlling provision, the

common-law rule that a majority of a whole board is necessary to constitute

a quorum applies, and the board may do no valid act in the absence of a

quorum. Prosser v. Seaboard Airline R.R. Co., 216 S.C. 33, 44, 56 S.E.2d

591, 595 (1949); Gaskin v. Jones, 198 S.C. 508, 513, 18 S.E.2d 454, 456

(1942). A member who recuses himself or is disqualified to participate in a

matter due to a conflict of interest, bias, or other good cause may not be

counted for purposes of a quorum at the meeting where the board acts upon

the matter. Talbot v. James, 259 S.C. 73, 82, 190 S.E.2d 759, 764 (1972);

King v. New Jersey Racing Comm'n, 511 A.2d 615, 618 (N.J. 1986).





We affirm the circuit court's ruling and hold that proxy holders

Griner and Coombs appropriately participated in the Garris matter. Griner

was employed by same insurer who employed Randall Thompson, the board

member whose proxy he held. Coombs, a staff attorney at the Department

of Consumer Affairs, held the proxy of Consumer Advocate Philip Porter.

Due process does not require that only Governing Board members hear a

designated agent's case. See Pettiford, supra.11





Garris's reliance upon Flay-o-rich, supra, and KFC National

Management, supra, is misplaced because those cases are easily distinguished

on the facts. In Flav-o-Rich, the court held the National Labor Relations

Board could not delegate its authority to decide motions to the board's chief

counsel. In KFC National Management, the court held that allowing one

board member and two attorney assistants, who held the general proxies of

the other two board members, to decide petitions for review violated the

National Labor Relations Act and administrative due process. Drawing upon

those cases, Garris presents a hypothetical about all Governing Board


11 Griner's participation as a proxy holder was appropriate. His

participation as an observer at the three committee meetings and as an

adjudicator at the hearing was not appropriate, as explained in Issue 1.

Neither Coombs nor Porter attended the committee meetings.

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GARRIS v. GOVERNING BOARD







members handing over their proxy to a clerk. While his hypothetical might

present due process problems, that is not what happened in this case.





We further conclude the circuit court correctly ruled that a

quorum was present. The record shows that eleven members, including

Griner and Coombs, were present in person for the entire hearing. Enough

members were present in person to form a quorum without even considering

the five other board members who had given their proxy to fellow board members.





CONCLUSION





We affirm the circuit court's ruling on Issue 1 that the procedure

employed by Facility in this case violated Article 1, Section 22 of the state

constitution. We reverse the circuit court's ruling on Issue 2 that the

doctrine of res judicata barred Garris's argument about the composition of the

Governing Board. We affirm the circuit court's ruling on Issue 3 that the

statute establishing the composition of the Governing Board violates Article

III, Section 1 of the state constitution. We affirm the circuit court's ruling

on Issue 4 that proxies were properly exercised and a quorum was present

at Garris's hearing before the Governing Board.









We remand this case to Facility for further proceedings consistent

with this opinion. Our disposition of the issues renders it unnecessary to

address Garris's remaining arguments.





FINNEY, C.J., TOAL, MOORE, and BURNETT, JJ., concur





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