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Gallarzo v. Arizona Department of Economic Security

Court of Appeals of Arizona, First Division

July 31, 2018

MANUEL GALLARZO, Appellant,
v.
ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, and PROGRESSIVE LOGISTICS SERVICES LLC, Appellees. PHYLLIS CHASE, Appellant,
v.
ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, and, JP MORGAN CHASE BANK, Appellees. PEDRO MARTINEZ, Appellant,
v.
ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, Appellee. GABRIELA RAMOS, Appellant,
v.
ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, and, CONNECTICUT GENERAL LIFE INSURANCE CO., Appellees. NICOLE GROW, Appellant,
v.
ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, and, WALMART ASSOCIATES, INC., Appellees. KIMBERLEE SULLINS, Appellant,
v.
ARIZONA DEPARTMENT OF ECONOMIC SECURITY, an agency, Appellee.

          Appeal from the A.D.E.S. Appeals Board Nos. U-1415014-001-BR, U-1445293-001-BR, U-1442365-001-BR, U-1396354-001-BR, U-1447832-001-BR, U-1481487-001-BR

          Arizona Attorney General's Office, Phoenix By Carol A. Salvati, JoAnn Falgout Counsel for Appellee Arizona Department of Economic Security

          Kercsmar & Feltus, PLLC, Scottsdale By Julia A. Wagner Coppersmith Brockelman, PLC, Phoenix By D. Andrew Gaona Co-Counsel for Amicus Curiae

          Progressive Logistics Services, LLP, St. Louis, MO Appellee JP Morgan Chase Bank, NA, Dallas, TX Appellee Connecticut General Life Insurance Company, Denver, CO Appellee Wal-Mart Associates, Inc., Denver, CO Appellee

          Manuel Gallarzo, Phoenix Appellant Phyllis Chase, Phoenix Appellant Pedro Martinez, Phoenix Appellant Kimberlee Sullins, Show Low Appellant Gabriela Ramos, Lynwood, CA Appellant Nicole Grow, Phoenix Appellant

          Judge Peter B. Swann delivered the opinion of the court, in which Presiding Judge Diane M. Johnsen and Judge Lawrence F. Winthrop joined.

          OPINION

          SWANN, JUDGE

         ¶1 This consolidated matter arises from the Arizona Department of Economic Security's sustained failure, over a period of years, to perform its obligation under A.R.S. § 41-1993(B) to transmit to this court applications for appeal in disputes regarding claimants' entitlement to government benefits. The Department's unexcused breach of its statutory duty resulted in the delayed resolution of hundreds of applications, including applications concerning substantial benefit overpayments and interest thereon. The parties whose applications were delayed were unjustifiably denied the procedural due process right to timely adjudication of their disputes. In the exercise of our inherent authority, we order that the Department must waive all non-fraud overpayment interest caused by its delay in the consolidated cases. Further, as set forth below, we issue several orders designed to prevent future delays, ensure a complete remedy, and protect the rights of applicants whose colorable claims were delayed.

         FACTS AND PROCEDURAL HISTORY

         ¶2 The Department administers various benefit programs under state and federal law, including state unemployment and federal nutritional assistance programs. See A.R.S. §§ 41-1953(E), -1954(A). Disputes arising from claims for benefits under those programs are resolved in multi-stage administrative proceedings, after which an aggrieved party may seek this court's review by filing an application for appeal with the Department. See A.R.S. §§ 41-1991 to -1993. A.R.S. § 41-1993(B) requires the Department to notify this court of the pendency of an application for appeal by transmitting the application and the record. See also A.R.S. § 23-674(A) (obligating Department to transcribe hearing upon party's application for appeal).

         ¶3 Beginning in 2013 the Department failed, for approximately three years and in hundreds of cases, to fulfill its statutory obligation to transmit applications for appeal. In re Arizona Department of Economic Security's Compliance with Administrative Order 2017-01, 2017 WL 4784584 ¶ 13 (App. 2017). According to the Department, the problem was the result of misconduct by the employee whose job it was to prepare case files and transmit them to this court. Rather than send the files to the court, the employee, who no longer works for the Department, hid them in her workspace at the Department, employing various devices to conceal her malfeasance.

         ¶4 The Department reportedly did not discover and therefore did not begin to remedy the consequences of the employee's misconduct until late 2016, [1] and its initial efforts did not resolve the issue. Accordingly, in February 2017, this court issued an administrative order, A.O. 2017-01, that required the Department to transmit all outstanding applications for appeal within 20 days. The Department's failure to comply with that order led to our decision in In re Arizona Department of Economic Security's Compliance with Administrative Order 2017-01, wherein we held the Department in contempt and entered orders designed to prevent future delayed transmissions. 1 CA-UB 17-0128, 2017 WL 4784584, at *1, 10-11, ¶¶ 1, 51-53 (Ariz. App. Oct. 24, 2017) (mem. decision). Under those orders, which we repeated in A.O. 2017-03, the Department must transmit all applications for appeal within 30 days, transmit all associated transcripts within 40 days, and file monthly audit and inventory reports. Id. at *10-11, ¶¶ 51-54. Non-compliance carries the risk of additional consequences, including monetary sanctions. Id. at *11, ¶ 53.

         ¶5 All delayed applications - totaling approximately 350 - were provided to this court by mid-April 2017. By that time, roughly 200 of the appeal applications had been delayed for at least one year. And of that 200, approximately one-third had been delayed for between two and three years, and one-third for between three and four years.

         ¶6 Delays in resolution of benefit claims can have significant consequences for the applicants. A claimant whose application for benefits is wrongfully denied is deprived of a legal entitlement while the appeal is pending. And in some cases, a claimant is initially granted benefits, for a period of time, but the claim is eventually ruled invalid in the course of administrative review. When that happens, the claimant is required to repay the resulting overpayments, which, depending on the length of the process, may amount to thousands of dollars. Of the 200 appeals applications delayed for two years or more, more than half implicate benefit overpayments, with a quarter of that subset delayed between two and three years and a quarter between three and four years. All delayed overpayment applications ...


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