JAMES M. BAKER v. COMMONWEALTH OF KENTUCKY, KENTUCKY RETIREMENT SYSTEMS AND BOARD OF TRUSTEES OF KENTUCKY RETIREMENT SYSTEMS
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RENDERED: OCTOBER 19, 2007; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2005-CA-001588-MR
JAMES M. BAKER
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROBERT G. JOHNSON, JUDGE
ACTION NO. 01-CI-01664
COMMONWEALTH OF KENTUCKY,
KENTUCKY RETIREMENT SYSTEMS
AND BOARD OF TRUSTEES OF
KENTUCKY RETIREMENT SYSTEMS
APPELLEES
OPINION AND ORDER
REVERSING AND REMANDING
** ** ** ** **
BEFORE: ACREE AND VANMETER, JUDGES; KNOPF, SENIOR JUDGE.1.
ACREE, JUDGE: This is an appeal from a judgment of the Franklin Circuit Court
affirming a decision by the Board of Trustees of the Kentucky Retirement Systems. The
Systems found that James Baker, a state retiree who had returned to state employment,
was not entitled as a retiree to payment in full from the Systems of the monthly
Senior Judge William L. Knopf sitting as Special Judge by assignment of the Chief Justice pursuant to
Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
1
contribution toward his health insurance premiums, because he was also receiving a
similar contribution from his new employer.
At its core, this case pits Baker’s right to a specified retirement health care
benefit against the Systems’ policy ostensibly created to administer those benefits. Its
resolution requires us to examine issues of Kentucky administrative law and statutory
construction. Some are issues of first impression in Kentucky.
In summary, we find that Baker's right to the claimed retirement health care
benefit is statutory and inviolable, that Baker did not waive that right, and that the
Systems' policy is void because it violates provisions of Kentucky Revised Statutes
(KRS) Chapter 13A. Therefore, we reverse.
FACTS
Baker retired from his employment with the Legislative Research
Commission after more than 27 years of service to the state. He immediately re-entered
full-time state employment as general counsel to the Kentucky Teacher’s Retirement
Systems (KTRS). Consequently, Baker simultaneously enjoyed the benefits of his
retirement from state government and the benefits of his employment by state
government. In common parlance, he was a “double-dipper.”2
2
Ky. OAG 04-001, 2004 WL 220675 (Ky. A.G.). The subject of this Kentucky Attorney
General Opinion is the “Constitutionality of a retroactive amendment to KRS 61.637(7)(a),
commonly referred to as the ‘double-dipping’ provision.” While the term “double-dipper” has
developed a negative connotation, this well-reasoned Opinion of the Attorney General correctly
points out that there is nothing unlawful about the practice of double-dipping in the absence of
legislative prohibition. The Opinion answered a legislative query whether such a prohibition
could be created and made retroactive. In summary, the Attorney General stated that
“retrospectively prohibiting the practice of ‘double dipping’ would necessarily ‘impair the
obligations’ of the ‘inviolable contract’ of the Commonwealth created by KRS 61.510 to 61.705
[state retirement benefits] in violation of the Contract Clause of the United States Constitution
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Baker's double set of benefits included eligibility for group health insurance
offered both through the Systems and through KTRS. He was also entitled to a separate
specific contribution from each of these entities toward payment of his health insurance
premium. Each such contribution is referred to in statute as a “state contribution.”3 For
each of the years 1991 to 1995, the state contributions to which Baker was entitled were
more than sufficient to fully pay the premium for the health insurance coverage option
Baker selected.
During these five years, Baker coordinated his available state contributions
by means of “cross-referencing” the benefits entitlements. “Cross-referencing” is a
practice applicable in group insurance plans to indicate that multiple benefits sources will
contribute to the payment of a single insurance premium. Cross-referencing often occurs
when a husband and wife both work for the same employer. However, cross-referencing
with one’s self occurs when one employee is entitled to contributions from two
independent sources, as is the case before us.
Prior to 1996, regardless of whether a state employee cross-referenced, he
forfeited any amount of state contribution that exceeded the premium for the coverage
and Section 19 of the Kentucky Constitution. Thus, the General Assembly can only prohibit the
practice of ‘double dipping’ on a prospective basis.”
3
The legislature requires each entity participating in the Kentucky Group Health Insurance Plan,
including the Systems and KTRS, to pay “an amount at least equal to the state contribution
rate[,]” determined as part of the state budget process, for each employee or retiree, as the case
may be. KRS 18A.225(2)(h). This is the minimum established by the legislature. A
participating agency is not prohibited from paying more than the state contribution rate for each
employee or retiree. The Systems was a participating agency which, by statute, was required to
pay “[t]he premium in full” for retirees entitled to full benefits. KRS 61.702(3)(1995),
recodified at KRS 61.702(3)(a)5.
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option he selected. And so it was with Baker. When Baker cross-referenced prior to
1996, he forfeited the excess of the total of the two contributions beyond the lower cost
of his premium. However, an amendment to the group health insurance plan made it
possible for each state employee, including Baker, to make full use of the state
contribution, including the amount that exceeded the employee's premium. That
amendment, effective in 1996, allowed state employees, for the first time, to participate
in a medical Flexible Spending Account, or FSA.
Medical FSAs are creatures of federal statute, authorized as part of the
Internal Revenue Code, Title 26 United States Code (U.S.C.) § 125. Such accounts
provide tax savings to employees whose employers establish cafeteria plans that include a
written plan document and an established “flexible spending account.” Under this
system, each employee estimates his out-of-pocket medical expenses for the upcoming
year. Each pay period, by payroll deduction, the employer deducts a pro rata portion of
this annual estimate from the employee’s gross income and deposits the amount into the
FSA. When the employee incurs a medical expense not covered by his insurance, he
submits a receipt to the FSA administrator who reimburses the employee from the FSA.
Kentucky's legislature authorized FSAs in 1990 when it enacted KRS
18A.227, entitled “Flexible benefits plan for employees and retirees.” Its title indicates
the legislature's intent that FSAs be available to state retirees. Unfortunately, the
legislature's desire was thwarted because the federal law authorizing FSAs requires that
“all participants are employees[.]” 26 U.S.C. § 125(d)(1)(a). Baker, however, was both a
retiree and an employee. Therefore, he could participate in the state's FSA program.
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The possibility of benefiting from the new FSA program caused Baker to
more closely consider the manner in which he cross-referenced his two health insurance
premium funding sources. During the open enrollment period in November 1995, he
contacted an insurance coordinator at the System’s offices in Frankfort and asked if there
were any policies or procedures affecting the manner in which his two premium payment
sources could be coordinated. He also asked the same question of a representative of
Plan Source, the state’s health insurance purchasing alliance. Both representatives told
him they knew of no applicable policies.
Baker then met with the KTRS Payroll Officer, Annie Martin (Martin).
Just as with the representatives Baker previously asked, Martin was unaware of any
policy affecting how Baker could coordinate his two premium payment sources.
A representative of the Systems would later testify, however, that Martin
should have known of a longstanding, unwritten, Personnel Cabinet policy that required a
double-dipper’s employer to pay its full state contribution, as required by KRS
18A.225(2)(h), before the Systems paid any portion of its state contribution obligation.
The Systems would then pay only the balance remaining necessary to fully fund the
premium selected, not to exceed the state contribution rate for that year. This unwritten
policy was created when the combination of the two state contributions exceeding the
cost of the premium was forfeited. The policy was obviously for the benefit of the
agencies rather than the retiree since it primarily determined which agency was entitled to
retain the forfeited amount. Under this policy, the Systems always retained the unused
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and forfeited amount. No agency ever considered how adding an FSA program to
employee benefits would affect the policy, or vice versa.
The legislature imposed upon the Personnel Cabinet the responsibility for
developing an FSA program for eligible employees. KRS 18A.227(2). The Cabinet was
not prohibited from developing a program that would have excluded excess state
contributions as a source for funding an employee's FSA account. But it did not do so.
The program the Cabinet developed specifically authorized an employee to direct the
excess state contributions, previously forfeited, into his own FSA account. (R. 174, 177).
Unaware of what Martin allegedly should have known, and believing he
had informed himself as fully as possible, Baker decided on a health insurance coverage
option for himself and his family, for 1996, that cost $245.92 per month. Because he was
entitled to $175.50 per month (the state contribution rate for 1996) from each of his
premium payment sources for a total of $351.00, he planned to have the difference,
$105.08, deposited into his FSA.
All parties understood throughout this case, and this Court does not
question, that FSAs cannot be funded from retirement benefits. This led Baker to ensure
that the only funding source for his FSA was by payroll deduction out of the gross pay he
received from his employer, KTRS. He accomplished this by carefully completing the
required human resources paperwork both at KTRS and the Systems.
The actual insurance application process required Baker to indicate his
intent to cross-reference on two separate enrollment forms provided by the health plan
administrator, Plan Source. He completed the first form, entitled “Employee Enrollment
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Application,” with Martin’s assistance. The forms anticipated the circumstance of
spouses cross-referencing with one another and had blanks on the form for that purpose.
However, owing apparently to the infrequency with which “cross-referencing with self”
occurred, no similar blanks were provided for that purpose. With Martin’s assistance,
however, Baker indicated his intent to “cross-reference with self,” and identified the other
payment source as “KERS” (that is, the Kentucky Employees' Retirement System), by
writing those words near the blanks provided for spousal cross-referencing.
Consistent with Baker’s desire to have the Systems pay his insurance
retirement benefit in full first, Payroll Officer Martin made notations in the margin of the
form as follows:
245.92
- 175.50 KERS
70.42
70.42
- 175.50 KTRS
- 105.08
Nothing in the record contradicts the interpretation given by all parties to these figures.
Martin first wrote Baker's monthly premium payment due of $245.92. Then, Martin
indicated Baker's intent that the state contribution from the Systems (identified by Martin
as “KERS”), in the amount of $175.50, was to be paid in full toward the insurance
premium first, leaving a balance due on the premium of $70.42. The next column shows
the balance of $70.42 being paid by the KTRS state contribution of $175.50. The excess
of the KTRS state contribution was then available to be paid, lawfully, into Baker's FSA.
Baker signed the form on November 20, 1995, and Martin signed it the following day.
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Martin filed copies of this form with KTRS, and sent copies to Plan Source and the
Systems.4
Baker also completed a second enrollment form, this one with the Systems,
entitled “Retiree Enrollment Application.” He indicated on this form his intent to “crossreference with self” and identified KTRS as the other source of premium payment. He
signed and dated this form on November 20, 1995, as well. Copies were sent to Plan
Source and KTRS.
On December 7, Baker completed a second form provided by KTRS,
designed to “[d]etermine if you are eligible for an Employer Contribution toward your
Medical Spending Account.” The form was created by Flexible Employee Benefits
Company, Inc. (FEBCO), the flexible spending account firm chosen by the Personnel
Cabinet to administer the FSA program. The form had a line to be completed for the
“Cost of Health Insurance Plan.” Baker filled in that line with the figure “$70.42,”
indicating the amount remaining to be paid by KTRS after the Systems paid $175.50
toward the $245.92 premium. The balance, $105.08, was identified on the form as
Baker's “monthly employer contribution to the Medical [Flexible] Spending Account.”
On December 8, Martin met with a representative of FEBCO to complete
the paperwork necessary to ensure that KTRS transmitted $105.08 to FEBCO each month
to be deposited in the FSA on Baker’s behalf. Despite all of these efforts, this was not
how Baker’s health insurance premium and FSA were funded.
4
As developed infra, the question whether the Systems received a copy of the form that included
Martin’s calculations is the only fact issue the Board determined in a manner contrary to the factfinding of the hearing officer.
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Beginning in January 1996, the two agencies, KTRS and the Systems,
applied Baker’s benefits in a completely uncoordinated fashion. KTRS followed Baker's
and Martin’s allocation figures and paid $70.42 to Plan Source toward the $245.92
premium, followed by a $105.08 payment to FEBCO for Baker’s FSA. The Systems,
however, did not pay the full $175.50 contribution. Instead, the Systems paid only
$70.42 to Plan Source toward Baker’s premium and retained $105.08 of Baker's monthly
entitlement in its own coffers. When Plan Source combined the payments actually
received from KTRS and the Systems, it had only $140.84 per month to pay toward
Baker’s $245.92 monthly premium. This left the premium payment short $105.08 each
month.
We would be remiss if we did not pause at this juncture and note that this
dispute never would have arisen if the Systems had simply paid to Plan Source the
$175.50 contribution in full toward Baker’s health insurance premium. Whether the
Systems considered its payment to have been prior or subsequent to KTRS’ payment of
$70.42 is irrelevant. The key point here is that none of the Systems’ contribution would
have funded Baker’s FSA. Consequently, there could have been no assertion, despite the
Systems' counsel's continued insistence, that retirement funds were used to fund an FSA
in violation of 26 U.S.C. § 125.5 This, unfortunately, did not occur.
5
The Systems’ attorney called this statute, 26 U.S.C. § 125, “[t]he elementary and uncontested
provision of law governing this case.” His prime exception to the hearing officer’s
recommendation was that the hearing officer “demonstrates that he fails to understand the most
basic and elementary issue in this case” – “that Kentucky Retirement Systems may not provide a
cafeteria plan or flexible spending account to its retirees.” However, if the Systems had simply
followed Baker’s method for cross-referencing and paid $175.50 to Plan Source – not FEBCO –
the source of funding for Baker's FSA would not have been the Systems and the federal statute
would not have been offended.
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Initially, Baker and KTRS were unaware that the Systems was paying Plan
Source only $70.42 toward Baker's premium. It was August 1996 before Plan Source
finally informed Martin at KTRS that Baker’s account was $735.666 in arrears for the
months since January of that year.7
Martin attempted to solve the problem, at least for subsequent months.
Without Baker’s consent, she increased the amount KTRS paid toward the premium from
$70.42 to $175.50 to cover the Systems' $105.08 payment shortfall. This fully paid the
$245.92 premium. Unfortunately, this also meant that KTRS was paying nothing toward
Baker’s FSA. Martin, who admitted she was herself confused, informed Baker of these
developments and what it meant for him.
Because funding of any federally-regulated FSA program is calculated on
an annual basis, the balance of payments to fund Baker's FSA for the rest of 1996 had to
be paid by someone. See also, KRS 18A.228(4)(“Once an option [to fund a flexible
spending account] is chosen, it shall not be changed until the end of the period for which
election is made . . . .”). Consequently, to use Baker's language, he began “making an
additional involuntary payment of $105.08 to FEBCO” from his pay for the five
6
We rely on Baker’s March 31, 1997, Corrected Answers to Interrogatories regarding these
claimed damages amounts which are consistent with his testimony during the September 19,
1997, hearing. The figure calculated by the hearing officer ($839.04) appears to be incorrect due
to minor errors in transcription and calculation. The actual figure would appear to us to be
$735.56, being 7 months of delinquency at $105.08 per month.
7
Plan Source never made demand on Baker to pay this arrearage and Baker, in fact, never paid
it. Consequently, it is not an amount recoverable by Baker in damages.
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remaining months of 1996 for a total of $525.40.8 Baker failed to understand why this
had happened. His search for an explanation was unavailing.
Baker wrote to the Systems on October 11, 1996, requesting “assistance in
resolving a problem which has developed relating to the payment of my health insurance
premium.” The prompt response came by letter from the System’s Deputy
Commissioner of Operations who said, in pertinent part:
The [Systems’] policy for cross-referencing medical
insurance premiums is: “The employer contribution toward
medical insurance premium shall be applied prior to
determination of the amount to be paid by the [Systems']
Insurance Fund.” . . .
This is a final administrative decision concerning this matter.
Accordingly, you are entitled to an administrative hearing, if
you desire, in order to contest this decision pursuant to KRS
61.645(16)(a) and 13B.
After an unsuccessful second attempt to resolve the issue without invoking
the adjudicatory power of the Systems, Baker did timely request an administrative
hearing pursuant to KRS Chapter 13B, and the Systems’ adjudicatory authority was
engaged.
PROCEDURAL HISTORY
Baker's Petition alleged that the Systems had reduced his retirement
benefits, specifically his health insurance premium benefits, contrary to plain legislative
mandate that
8
This is the only out-of-pocket expense Baker experienced as a result of the Systems’ failure to
follow his cross-referencing method and pay his premium “in full” within the meaning of KRS
61.702(3)(1995). Baker declined participation in the FSA for years subsequent to 1996.
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The premium required to provide hospital and medical
benefits [to retiree-participants in the Kentucky Group Health
Insurance Plan] shall be paid in full from the insurance fund9
for all recipients of a retirement allowance from [the
Kentucky Employees Retirement System] where such
recipient . . . had two hundred and forty (240) months or more
of service upon retirement [which included Baker].
KRS 61.702(3)(1995)(emphasis supplied), recodified, using the same language, as KRS
61.702(3)(a)5. Furthermore, Baker claimed that this right was part of an inviolable
contract of which he was a beneficiary, then cited the Systems to the appropriate
authority.
It is hereby declared that in consideration of the contributions
by the members [of the Kentucky Employees Retirement
System] and in further consideration of benefits received by
the state from the member's employment, KRS 61.510 to
61.705 shall, except [for legislators and former legislators
who commit felonies], constitute an inviolable contract of
the Commonwealth, and the benefits provided therein shall . .
. not be subject to reduction or impairment by alteration,
amendment, or repeal.
KRS 61.692(emphasis supplied); see also Jones v. Board of Trustees of Kentucky
Retirement Systems, 910 S.W.2d 710, 713 (Ky.1995).
The Systems' Response to Baker's Petition denied his claim. The substance
of the denial was that all agencies participating in the Kentucky Group Health Insurance
Plan, including the Systems and KTRS, as well as their participating retirees and
employees, are required to abide by the Personnel Cabinet's policies and procedures for
administering the plan. According to the Systems, among these policies and procedures
9
The Kentucky Retirement Systems' insurance fund was established for the purpose of funding
the state contribution on behalf of retirees. KRS 61.701. The Systems and its Trustees who
comprise the Board oversee the insurance fund in a fiduciary capacity and administer it “solely
in the interest of the members and beneficiaries.” KRS 61.650(1)(c)1.
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was the Cabinet's unwritten policy requiring a double-dipper's employer to pay first
toward his premium, thereby reducing the Systems' obligation to an amount equal to the
remaining balance of the premium.
The Systems claimed that Baker's rights were also subject to the Systems'
written policy. This policy was created on December 29, 1995, eleven days after the
Systems' receipt of a copy of Baker's Employee Enrollment Application containing
Martin's figures for allocating Baker's state contributions. It states in its entirety:
KENTUCKY RETIREMENT SYSTEMS
POLICY ON PAYMENT OF CROSS-REFERENCE INSURANCE
The Kentucky Retirement Systems, by authority of KRS
61.645, established the following POLICY effective January
1, 1996, concerning amounts paid from the Insurance Fund on
medical insurance cross-referenced with medical insurance
obtained through a participating employer:
(1) The employer contribution toward the medical insurance
premium shall be applied prior to determination of the
amount to be paid by the Insurance Fund.
(2) The Insurance Fund shall pay the remainder of the
premium not to exceed the amount that would be paid under
KRS 61.702.
Signed: Pamala S. Johnson
Adopted: 12-29-95
After a fair period of discovery, a hearing was conducted on September 19,
1997, before Michael Head, an administrative hearing officer from the Office of the
Kentucky Attorney General, Division of Administrative Hearings. The Systems was
represented by legal counsel, as was Baker. The parties presented their cases in seven
and one-half hours of testimony. Post-hearing briefs were filed by both parties.
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On February 13, 1998, after nearly five months considering the record, the
hearing officer issued a 23-page Findings of Fact, Conclusions of Law and
Recommendation (Recommended Order) in favor of Baker. In summary, the hearing
officer found that Baker’s right to payment by the Systems of the full state contribution
toward his health insurance premium was created by statute, KRS 61.702(3)(1995), and
constituted an inviolable contract between Baker and the state. KRS 61.692. He also
found that Baker did not waive that right, but gave timely notice to the Systems of his
demand that the full contribution be paid in accordance with the statute. Finally, the
hearing officer concluded as a matter of law that the Systems lacked the authority to
affect Baker's right by internal policy, either written or unwritten, or otherwise.
As a remedy, the hearing officer recommended that the Systems pay into
Baker’s FSA an amount equal to that which it failed to pay for the years 1996 to 1998,
and to award all future benefits to Baker without diminishment by the Systems’ invalid
cross-referencing policy.
The Systems transmitted the hearing officer’s recommendation to Baker by
unsigned letter dated the same day as the recommendation, February 13, 1998. The
language of the letter is somewhat curious, stating that the “Board of Trustees . . . has
seen fit to offer you fifteen (15) days from your receipt of this notice to file any
exceptions.” (emphasis added). We are not sure what the Systems believed the Board
had seen fit to do for Baker. First, the Recommended Order was overwhelmingly in
Baker's favor. Second, and more significantly, the legislature, not the Board, had already
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granted Baker the right to file exceptions. KRS 13B.110(4). By this letter, the Systems
only misinformed Baker as to his rights.
The statute actually measures the fifteen-day period, not from Baker's
receipt of the notice, but “from the date the recommended order is mailed[.]” KRS
13B.110(4)(emphasis supplied). In other words, the Systems told Baker he had more
time to file exceptions than the law allowed. This sounds generous at first blush, but “an
administrative agency cannot enlarge statutorily prescribed time frames[.]” Curtis v.
Belden Electronic Wire and Cable, a Div. of Cooper Industries, 760 S.W.2d 97, 99
(Ky.App. 1988). Furthermore, before being overruled in 2004 by Rapier v. Philpot, 130
S.W.3d 560 (Ky. 2004), missing the deadline for filing such exceptions could result in
termination of the claim. Swatzell v. Commonwealth of Kentucky Natural Resources and
Environmental Protection Cabinet, 962 S.W.2d 866, 869 (Ky. 1998)(Failure to file
exceptions results in termination of claim), overruled by Rapier at 564. When the
unnamed author at the Systems sent the letter to Baker, Swatzell was still good law.
Therefore, if Baker had been lulled into inaction by the Systems' letter, he would have
been precluded from seeking judicial review of any portion of the Board's final order that
did not differ from the recommended order. Id.
As the procedural history goes, however, both parties timely filed
exceptions. Baker merely took exception to the hearing officer’s recommended method
of remedy. Not surprisingly, the Systems took exception to the entire recommended
order. The Systems' specific exceptions were few but amounted largely to its general
demand that “the Board of Trustees of Kentucky Retirement Systems must reject in
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whole as being clearly erroneous the Hearing Officer’s Findings of Fact, Conclusions of
Law and Recommendation.”
On April 27, 1998, the Systems’ Administrative Appeals Committee met to
consider the exceptions filed in Baker’s case and in two others. Only two members were
present.10 The meeting started at 9:11 AM and ended at 10:05 AM. First, the Committee
approved the minutes of the previous meeting, then went into closed session during
which it “studied the record of James Baker . . . in its entirety.” At that time, the record
in Baker's case consisted of nearly seven and one-half hours of videotaped testimony,
nearly 400 pages of documents, lengthy post-hearing briefs filed by each party, the
hearing officer’s 23-page recommendation, and the parties’ exceptions to that
recommendation. The two men decided to reject the hearing officer's recommendation in
toto.
At the same meeting, the Committee engaged in a “review of the record in
its entirety” of two other hearings. In each of these, the hearing officer recommended
denying the claims and the Committee of two voted to accept the recommendation. It is
likely the Committee spent less time deliberating these cases, and understandably so.
All of this work was accomplished in the span of not quite one hour.
On May 12, 1998, the Systems sent an Order to Baker indicating that the
Committee rejected the hearing officer’s recommendation in its entirety. Ostensibly
acting on behalf of the Board, the Committee Chairman signed, filed and served the
10
Information regarding this meeting is taken from the Minutes of the Administrative Appeals
Committee, April 27, 1998. Chairman Larry C. Conner and Bobby H. Henson were the
members of the Administrative Appeals Committee in attendance.
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decision in the form of a Final Order that the Chairman represented as the Committee's
work. Examination of that Committee Order reveals that very little of it can be
legitimately claimed as deriving from the Committee's original efforts.
The Committee’s decision is captioned: “Board of Trustees Report and
Order.” The introductory paragraph of the Committee Order sets forth the same
perfunctory information about the time, place and manner of the hearing as contained in
the hearing officer’s recommendation. Thereafter, the entire Committee Order is taken,
word-for-word, from the Systems’ Post-Hearing Brief.
The similarities between the Systems' brief and the Committee Order are
not merely coincidental. Not only are the words the same, but the two documents share
the identical font and format, paragraph structure, and typographical and grammatical
errors.11 In fairness, we do note that two and one-half sentences of the twenty-five page
Committee Order are new, but those sentences are inconsequential to the decision.12 The
Committee Order's “Conclusions of Law” are even sequentially identical to the numbered
11
For example, the word “forward” is misspelled in both documents as “froward.” (Compare
R.342 and R.449). The word “own” is misspelled “on” in both documents in the phrase
“contrary to her on [sic] prior course of dealing”. (Compare R.351 and R.457). The phrase
“over come” is used in both documents where the word “overcome” is clearly intended.
(Compare R.361 and R.466). Similarly, identical errors in grammar appear in both documents,
as where the phrase “the coordination of Baker’s insurance premiums were accomplished” is
used. (Compare R.349 and R.456). As noted, infra, after this case was remanded on its first
appeal to this Court, the Chairman of the Board of Trustees simply signed a reprinted copy of the
Committee Order. Consequently, these identical typographical and grammatical errors can also
be found at R.475, R.484, R.493 and R.482, respectively.
12
Those sentences appear as the first sentence of paragraph 1, page 17 (R.463); the second half
of the fourth sentence in paragraph 2, page 18 (R.464); and, the last sentence in paragraph 5,
page 21 (R.467).
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Arguments from the Systems' Post-Hearing Brief.13 It takes no more than the most
rudimentary knowledge of computer word processing to understand that the Systems'
brief and the Committee Order share the same base document, created originally as an
electronic file, on the same word processing system.
When Baker received the Committee Order, he appealed it to Franklin
Circuit Court. In June 2000, that court affirmed the Committee's decision.
Baker then sought review for the first time in this Court. We issued an
opinion vacating and remanding the case because the Board had delegated its power to
enter a final order to a committee in violation of KRS 13B.030(1).14 See Baker v.
Kentucky Retirement Systems, 50 S.W.3d 770, 773 (Ky.App. 2001)(hereafter, Baker I).
Having decided the case on that narrow issue, we expressed no opinion regarding the
merits of the other issues Baker raised.
13
The Committee’s Conclusions of Law directly correspond with the Systems’ Arguments as
follows:
Conclusion of Law 1 = Systems’ Argument I (first part)
Conclusion of Law 2 = Systems’ Argument I (second part)
Conclusion of Law 3 = Systems’ Argument II
Conclusion of Law 4 = Systems’ Argument III
Conclusion of Law 5 = Systems’ Argument IV
Conclusion of Law 6 = Systems’ Argument VI
Conclusion of Law 7 = Systems’ Argument VII (paragraph 1)
Conclusion of Law 8 = Systems’ Argument VII (paragraph 2)
Conclusion of Law 9 = Systems’ Argument VII (paragraph 3)
Conclusion of Law 10 = Systems’ Argument VII (paragraph 4)
14
In pertinent part, KRS 13B.020(1) says that “[a]n agency head may not . . . delegate the power
to issue a final order unless specifically authorized by statute . . . .” (emphasis supplied). In
2002, the Systems responded to Baker I by seeking such authorization. That year, the Kentucky
legislature passed House Bill 309 amending KRS 61.645(16). The amendment authorized the
Systems’ Board of Trustees to create an appeals committee and to delegate to it the “authority to
act upon the recommendations and reports of the hearing officer on behalf of the board” in cases
such as Baker’s. 2002 Kentucky Laws Ch. 52 (H.B. 309), § 11.
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Nevertheless, we gave the Systems very clear instruction on remand. We
pointed out that the “entire Board [of Trustees], collectively, is the agency head
responsible for entry of a final order.” Id. “[A]ll actions taken by the Board shall be
taken by affirmative vote of a majority of the trustees present, subject to the requirement
that those present constitute a quorum.” Id. (Footnote citation omitted). We noted that
“the final order of the Board need only be signed by the chairperson,” but we made it
clear that the chairperson's signature alone was sufficient only “so long as the signature
reflects the decision of a majority of the Board.” Id. We “remanded to the Franklin
Circuit Court with directions to remand the matter to the Board for entry of a final order
consistent with this opinion.” Baker I became final on September 21, 2001. Id.
The record before us now gives virtually no indication that the ninemember Board followed our clear direction. More to the point, nothing in the record
indicates “the entire Board, collectively,” ever knew about this case. There is simply a
three-and-one-half year recordless gap between the Systems’ notification to Baker of the
Committee Order he appealed in Baker I, and the Order signed only by Board of Trustees
Chairman, Randy J. Overstreet, on November 15, 2001 (Board Order). There are no
indicia in the Board Order or the record suggesting that the Board of Trustees actually
participated in its issuance. The Chairman's signature does not indicate that he signed it
at the direction of the Board or after Board action by majority vote. There are no minutes
of the Board of Trustees indicating a vote on this order. Nor does this order indicate
anywhere in its body that it is the decision of the Board of Trustees. We shall presume
however, despite the absence of typical hallmarks indicating Board action, that the Board
-19-
Order was issued with Board approval. Hutson v. Commonwealth, 215 S.W.3d 708, 716
(Ky.App. 2006)(courts presume public officers perform the duties entrusted to them by
law in good faith). If we are mistaken in that presumption, that is a matter to be
determined and addressed by the Board of Trustees itself.
The Board Order is captioned identically to the Committee Order reviewed
in Baker I, that is, “Board of Trustees Report and Order.” With the exception of the
signature line, it is identical to the Committee Order, which, as we indicated supra, is in
its body, identical to the Systems' Post-Hearing Brief. The Board order is clearly another
spawn of that original electronic word processing file that gave birth likewise to its
kindred, the Systems' Post-Hearing Brief and the Committee Order.
Just as he had appealed the Committee Order, Baker appealed this identical
Board Order to the Franklin Circuit Court. Again, the circuit court affirmed this order,
holding that: (1) the Board’s Order complied with the statutory requirements of KRS
13B.120; (2) the Board’s decision was supported by substantial evidence and was not
arbitrary; and (3) the Systems’ policy did not violate KRS Chapter 13A nor did it exceed
its authority or impair any benefits to which Baker was entitled.
Baker appeals to this Court for a second time. We have grouped his
arguments in the following three categories.
▪ The Board Order is not supported by substantial evidence
and its rejection of the hearing officer’s findings of fact,
conclusions of law and recommendation was arbitrary;15
15
Appellant’s Brief, Arguments III and IV, pp. 12-14.
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▪ By adopting the Systems' Post-Hearing Brief as its Final
Order, the Board failed to comply with KRS 13B.120(1)
and undermined the purpose of KRS Chapter 13B;16
▪ The Systems' cross-referencing policy is void because it
was an internal policy, was not promulgated as a regulation
as required by Chapter 13A, and completely lacked
statutory or regulatory authority for its issuance.17
Only the first of these arguments challenges the weight of the evidence or disputes any
facts.
STANDARD OF REVIEW
Substantial Evidence
The Systems urges that we focus our attention on the Board's fact-finding,
stating that “Baker's case is subject to the substantial evidence standard of review.”
(Appellee's Brief, p.12 fn.16). In general terms, this standard holds that if there is any
evidence of substance to support the agency action, the reviewing court must defer to the
agency decision because such action could not be arbitrary. Borkowski v.
Commonwealth, 139 S.W.3d 531, 533 (Ky.App. 2004)(“If there is any substantial
evidence to support the decision of the administrative agency, it cannot be found to be
arbitrary and will be sustained.” Internal quotation marks omitted.).
This standard is a powerful weapon in any administrative agency's arsenal
since it puts review of an agency's decision at least on a par with appellate review of a
jury verdict. Compare, Lewis v. Bledsoe Surface Min. Co., 798 S.W.2d 459, 461 (Ky.
1990)(reversal not justified unless jury verdict is “palpably or flagrantly against the
16
Appellant’s Brief, Argument V, p. 15.
17
Appellant’s Brief, Argument I and II, pp. 8-12.
-21-
evidence.” Internal quotation marks omitted), with McManus v. Kentucky Retirement
Systems, 124 S.W.3d 454, 458 (Ky.App. 2003)(reversal not justified unless evidence is
“so compelling that no reasonable person could have failed to be persuaded by it.”); see
also, Kentucky State Racing Commission v. Fuller, 481 S.W.2d 298, 308-09 (Ky.
1972)(comparing role of administrative fact-finder to that of jury; the case should be read
with the caveat that the members of the State Racing Commission actually sat as the
tribunal in this administrative adjudication and did not delegate the fact-finding,
including the opportunity to assess witness demeanor, to a hearing officer.).
However, “[s]ubstantial evidence is only important when the award of the
board is attacked as being insufficiently grounded upon evidence.” Stovall v. Collett, 671
S.W.2d 256, 257 (Ky.App. 1984). As noted, only one of Baker's arguments challenges
the sufficiency of any evidence. And the only finding of fact rejected by the Board was
whether the Systems received notice as to how Baker intended to cross-reference the two
state contributions. Consequently, we will review that single finding to see if it is
supported by substantial evidence.
For Baker's remaining legal arguments, the Systems predictably turns to
American Beauty Homes Corp. v. Louisville and Jefferson County Planning and Zoning
Commission, 379 S.W.2d 450 (Ky. 1964) as its touchstone. However, in view of the
Supreme Court's decision in Hilltop Basic Resources, Inc. v. County of Boone, 180
S.W.3d 464 (Ky. 2005), and given that KRS Chapter 13B applies to this case, we believe
it is time to review and clarify the applicability of the “extraordinarily powerful case” of
American Beauty Homes. Kuprion v. Fitzgerald, 888 S.W.2d 679, 689 (Ky. 1994).
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American Beauty Homes
American Beauty Homes was a zoning case that has had impact far beyond
its original limited scope. The “root of the trouble” in American Beauty Homes was
whether the Legislature could “impose on the court a nonjudicial administrative
function” by means of KRS 100.057, a statute captioned “Appeal to courts from decision
of commission on question of approving adjustments.” American Beauty Homes, 379
S.W.2d at 453 (emphasis in original). The case was decided at a time when our
administrative law was a mass of “uncorrelated legislative attempts to designate specific
considerations controlling the scope of judicial review[.]” Id. at 457. Some would say
that is still the state of affairs in Kentucky administrative law.
The general standard of review drawn from American Beauty Homes has
become an axiom: “In the final analysis all of these issues may be reduced to the ultimate
question of whether the action taken by the administrative agency was arbitrary.” Id.
This self-evident general rule is so all-encompassing that it applies to appellate review of
all manner of administrative action, whether it be a review of a zoning determination as
in American Beauty Homes itself, a worker's compensation claim, a Board of Claims
award, or any other appeal from any administrative agency. Nothing in this opinion
changes that general rule. However, when attention is given to the specific language of
American Beauty Homes, we see how limited the case is, in fact.
The court in American Beauty Homes clearly and narrowly stated that the
decision “concerns the scope of review under KRS 100.057 [and of] appeals taken under
KRS 100.085.” Id. at 456, 458 (emphasis supplied). The court focused on the fact that
-23-
these statutes represent the legislature's delegation of its own legislative power.
American Beauty Homes, then, establishes the principle that the separation of powers
doctrine will not allow any “court to substitute its independent judgment on the facts for
that of an administrative agency” which the legislature has “designated to carry out a
legislative policy by the exercise of discretionary judgment in a specialized field
[thereby] performing a nonjudicial function.” Id. at 458-59, 458 (emphasis supplied).
The case is thus perfectly suited to serve as the standard for reviewing the exercise of “a
delegation of legislative power to an administrative agency[,] exercised in conformity
with a legislative policy and in a discretionary manner in the light of prevailing local
conditions.” Id. at 455 (emphasis supplied). That is, to zoning matters. Some of its
principles certainly will apply to many agency actions. Yet we must guard against
relying on American Beauty Homes out of habit or convenience.
We do not present the circumscribed nature of American Beauty Homes as
a new concept. Almost immediately after the case was rendered, we were warned to
resist the judicial reflex of “relying on American Beauty Homes without reference to the
subsequent opinions by th[e Commonwealth's highest] court that have eroded the holding
in American Beauty Homes.” Brady v. Pettit, 586 S.W.2d 29, 31 (Ky. 1979). “The first
indication that this court was not wholly committed to American Beauty Homes . . . came
in Kilburn v. Colwell, Ky., 396 S.W.2d 803 (1965),” in which the court reviewed a city's
termination of a police officer's employment. Id. Two years after Kilburn, the Supreme
Court made it clear that “American Beauty Homes is limited to zoning and other
administrative acts and held not to be applicable to” an agency's adjudication of a public
-24-
employee's contract of employment. Brady at 31, citing Osborne v. Bullitt County Bd. of
Ed., 415 S.W.2d 607, 610 (Ky. 1967)(“We no longer think that the principles enunciated
in American Beauty Homes should be extended to the problems herein involved.”). By
1979, it was inarguable that “American Beauty Homes now applies only to zoning matters
and matters of like nature.” Brady at 31.
Then, if resort to American Beauty Homes is not the first proper step in our
review of an agency's actions, what is? The answer is that before we can apply any
standard of review to an any act of any administrative agency, we must decide what
function the agency is performing.
“A Mixed Bag of Legislative, Executive, and Judicial Functions”
Just as with the circumscribed nature of American Beauty Homes, it is
neither a new, nor should it be a surprising, concept that we must first determine the
function being performed by an administrative agency before applying a standard of
review. In Bourbon County Bd. of Adjustment v. Currans, 873 S.W.2d 836 (Ky.App.
1994), we indicated that what might be arbitrary action in one context might not be so in
another, even within the same agency. This is because Kentucky's various administrative
bodies “perform a mixed bag of legislative, executive, and judicial functions[,]” id. at
838, and for that reason
it is most helpful to determine the function performed by the
body in order to determine the appropriate standard of review;
that is to say, one should look not only at the nature of the
body, [footnote omitted] but more particularly to the act
performed by it. Was it a legislative, executive, or judicial
act? Ultimately, it is the act or function performed and not
the nature of the body which dictates the standard of review.
-25-
Id.
This first step in the review process is not merely perfunctory. At least
three substantive characteristics distinguish a review of an agency's adjudicative acts
from a review of its non-adjudicative acts. Each significantly impacts the standard of
review.
Distinguishing Review of an Agency's Non-Adjudicative or Legislative Acts from
Review of an Agency's Adjudicative Acts
The first distinguishing characteristic is the focus of appellate inquiry.
Review of an agency's non-adjudicative or legislative acts is “concerned primarily with
the product and not with the motive or method which produced it.” National-Southwire
Aluminum Co. v. Big Rivers Elec. Corp., 785 S.W.2d 503, 515 (Ky.App. 1990)(emphasis
supplied), quoted with approval in Hilltop Basic Resources, Inc. v. County of Boone, 180
S.W.3d 464, 469 (Ky. 2005). The “product” of such non-adjudicative acts is simply the
agency's manifestation of its legislative prerogative in deciding “[g]eneral policy-based
controversies[.]” Hilltop at 470; see also City of Louisville v. McDonald, 470 S.W.2d
173, 177-78 (Ky. 1971)(“when the local legislative body undertakes . . . to enact a
generally applicable zoning regulation, the facts to be considered do not relate as such to
a particular individual[.]” Emphasis supplied.). Therefore, when an agency exercises its
legislative authority, “[t]he 'right to an impartial tribunal' is nowhere to be found[,]”
Hilltop at 469, and “the concept of what is 'arbitrary' is much more narrowly
constricted[.]” Trimble Fiscal Court v. Snyder, 866 S.W.2d 124, 125 (Ky.App. 1993).
-26-
Admittedly then, our review of an agency's non-adjudicative or legislative act is oriented
to the result of the act and not to the process.
By contrast, when an agency enters a final order adjudicating an
individual's rights, we most certainly do focus on “the motive and method which
produced it.” National-Southwire, supra, at 515. Our Supreme Court recently held that
all of Kentucky's “adjudications, whether judicial or administrative,” are protected by
due process guarantees “whereby Kentucky citizens may be assured of fundamentally fair
and unbiased procedures.” Commonwealth Natural Resources and Environmental
Protection Cabinet v. Kentec Coal Co., Inc., 177 S.W.3d 718, 724 (Ky. 2005)(emphasis
supplied). Kentucky thus embraces the concept long ago enunciated by the United States
Supreme Court that, in the exercise of its adjudicative authority, an administrative agency
is not excused from adhering to the same basic principles of due process we expect of any
court.
The maintenance of proper standards on the part of
administrative agencies in the performance of their quasijudicial functions is of the highest importance and in no way
cripples or embarrasses the exercise of their appropriate
authority. On the contrary, it is in their manifest interest.
For, as we said at the outset, if these multiplying agencies
deemed to be necessary in our complex society are to serve
the purposes for which they are created and endowed with
vast powers, they must accredit themselves by acting in
accordance with the cherished judicial tradition embodying
the basic concepts of fair play.
Morgan v. U.S., 304 U.S. 1, 22, 58 S.Ct. 773, 778 (1938)(all emphasis supplied), cited in
Osborne v. Bullitt County Bd. of Ed., 415 S.W.2d 607, 611 (Ky. 1967). And so, it is
essential to distinguish an agency's non-adjudicative acts from its adjudicative acts so that
-27-
we properly direct our focus. The focus of our review of an agency's adjudicative acts is
on the process.
The second distinguishing characteristic is that, in its exercise of
adjudicatory authority, an agency often functions in dual capacities – as an advocate and
as the adjudicator. Expressed another way, the agency judges the merits of its own
lawyer's case against the other party. This causes concern among many that the agency
head cannot engage in the detached and independent adjudication which is expected in
our understanding of due process.
A biased decision-maker is constitutionally unacceptable, and our system of
justice “has always endeavored to prevent even the probability of unfairness.” Withrow v.
Larkin, 421 U.S. 35, 47, 95 S.Ct. 1456 (1975)(citation and internal quotation marks
omitted). In terms of probability, the odds for bias are greater when the adjudicator heads
the agency appearing as a party before it than when that is not the case. See, e.g.,
Morongo Band of Mission Indians v. State Water Resources Control Bd., 153
Cal.App.4th 202, 214, 62 Cal.Rptr.3d 492, 500 (2007)(“Human nature being what it is,
the temptation is simply too great for the . . . Board members, consciously or
unconsciously, to give greater weight to [the Board's attorney's] arguments by virtue of
the fact she also acted as their legal advisor[.]”).
While Kentucky is among the jurisdictions holding that concepts of due
process are flexible enough to countenance the dual roles, Commonwealth, Cabinet for
Human Resources, Dept. of Health Services v. Kanter, 898 S.W.2d 508, 512-13 (Ky.App.
1995), our highest court also long ago recognized that these dual roles do increase the
-28-
risk of bias. The Court specifically cautioned that the dual nature of an agency's
functions demands that reviewing courts guard against a deteriorating vigilance.
The anomaly in procedure which permits . . . an
administrative body, to serve in the [mult]iple capacity of
[party] and judge makes it vitally necessary that in reviewing
administrative decisions courts zealously examine the record
with the view to protecting the fundamental rights of the
parties, lest the rule against arbitrariness and oppressiveness
become a mere shibboleth. [Review] must not be permitted to
degenerate into a mock ceremony. The least that the courts
can do is to hold high the torch of “fair play” which the
highest court of our land has made the guiding light of
administrative justice.
Osborne v. Bullitt County Bd. of Ed., 415 S.W.2d 607, 611 (Ky. 1967), citing Morgan v.
U.S., 304 U.S. 1, 22, 58 S.Ct. 773 (1938).
While we are vigilant, we are also mindful of “a presumption of honesty
and integrity in those serving as adjudicators[,]” Withrow at 47, and so we reject the
notion “that the combination of . . . functions necessarily creates an unconstitutional risk
of bias in administrative adjudication[.]” Id. at 46-47 (emphasis supplied), cited in Board
of Ed. of Pulaski County v. Burkett, 525 S.W.2d 747, 747 (Ky. 1975). We tolerate the
increased risk of bias as a matter of policy and because administrative adjudication
expedites resolution of certain controversies. “But neither wisdom of policy nor demands
of expediency, nor both, should be allowed to lead the courts away from basic
constitutional processes, or sound judicial construction of statutory authority” to which
the agency is also bound. Bloemer v. Turner, 281 Ky. 832, 137 S.W.2d 387, 390 (1939).
Thus, we have rightfully refused to abdicate our responsibility to remain “alert to the
possibilities of bias that may lurk in the way particular procedures actually work in
-29-
practice.” Withrow at 54; see also LaGrange City Council v. Hall Bros. Co. of Oldham
County, Inc., 3 S.W.3d 765, 770-71 (Ky.App. 1999). Although, we must admit that
there was a time when our judiciary appeared overwhelmed by the power of
administrative agencies.
During World War II, after a “trend of . . . two or three decades [that] raised
serious and difficult questions of delegation of governmental power to administrative
agencies[,]” our former Court of Appeals lamented that “[t]he assertion, ‘Ours is a
government of laws and not of men’ became hackneyed in the early days of the Republic,
and . . . is no longer accepted by all as a truism[.]” Goodpaster v. Foster, 296 Ky. 614,
178 S.W.2d 29, 31 (1944). Three decades later, a Kentucky law school professor was
still motivated to write:
As any lawyer who has practiced before an administrative
agency knows, however, ours has become, to a significant
degree, “a government of men and not of laws.” [footnote
omitted] The “men” referred to are those nameless
bureaucrats at every level of government whose discretionary
domain now includes practically every aspect of American
life.
Edward H. Ziegler, Jr., Legitimizing the Administrative State: The Judicial Development
of the Nondelegation Doctrine in Kentucky, 4 N. KY. L. REV. 87, 90 (1977), citing
generally C. Horsky, The Washington Lawyer (1952).
Fortunately, we have outgrown that pessimism. “Ours is a government of
laws and not of men” remains our credo. We no longer defend this statement as a mere
“assertion” embraced only by some as truth. It is the irrefutable foundation upon which
our government is set. And we must not consider it otherwise, for “there is danger in a
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departure from th[is] fundamental doctrine[.]” Id. It “is not a fair-weather or timid
assurance[,]” but represents “a profound attitude of fairness between man and man, and
more particularly between the individual and government[.]” Joint Anti-Fascist Refugee
Committee v. McGrath, 341 U.S. 123, 162, 71 S.Ct. 624, 643 (1951)(Frankfurter, J.,
concurring). And so, it is essential, when an agency adjudicates the merits of its own
case, that we ensure every decision rests upon the firm foundation of the law, and not
upon the conscious or unconscious bias of men and women.
The third characteristic distinguishing review of an agency's adjudicative
acts from that of its non-adjudicative acts involves the comparative influence of specific
constitutional considerations. Hilltop recognized that when a court reviews a decision by
an administrative agency in its exercise of a legislative function, it must
balance[] the need to ensure fair and nonarbitrary treatment . .
. with the equally compelling need to avoid undue
infringement upon the legislative or nonjudicial aspects of the
process or function of such bodies.
Hilltop at 469-70. In constitutional terms, the Court was balancing Kentucky
Constitution § 2, prohibiting government exercise of arbitrary power, with Kentucky
Constitution § 28, prohibiting the judiciary from exercising power belonging to the
legislative branch. See also Raney v. Stovall, 361 S.W.2d 518, 522 (Ky. 1962)(“[W]hile
the courts will jealously guard its [sic] powers and jurisdictions, they will be careful not
to infringe upon the powers, prerogatives and jurisdictions of the legislative department.”
Quotation marks and citation omitted).
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Fortunately, “[t]he concept of constitutional due process in administrative
hearings is flexible.” Danville-Boyle County Planning and Zoning Com'n v. Prall, 840
S.W.2d 205, 207 (Ky. 1992). This flexibility leaves reviewing courts free to grant only
“such procedural protections as the particular situation may demand.” Hilltop at 568-69,
quoting Kentucky Cent. Life Ins. Co. v. Stephens, 897 S.W.2d 583, 590 (Ky.1995). Due
process flexibility, combined with principles of comity, allowed the Court in Hilltop to
tip the scales against Ky. Const. § 2, and in favor of Ky. Const. § 28, resulting in the
ruling that “[t]he 'right to an impartial tribunal' . . . , as it is commonly conceived within
the judicial context, cannot be guaranteed (nor need it be) in the administrative or
legislative setting.” Hilltop at 469 (emphasis supplied).
We should not be surprised that the court in Hilltop weighed constitutional
considerations in favor of Section 28 which, together with Section 27, embodies the
“cardinal principle of our republican form of government and one that is among the most
emphatically cherished and guarded principles in our Constitution.” Prater v. Com., 82
S.W.3d 898, 901 (Ky. 2002)(citations and internal quotation marks omitted).
Perhaps no state . . . has a Constitution whose language more
emphatically separates and perpetuates what might be termed
the American tripod form of government than does our
Constitution, which history tells us came from the pen of the
great . . . Thomas Jefferson[.]
Sibert v. Garrett, 197 Ky. 17, 246 S.W. 455, 457 (1922).
In essence and summary, constitutional considerations require that judicial
review of an exercise of legislative authority delegated by our General Assembly is
substantially the same as our review of an exercise of legislative authority retained by our
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General Assembly. Conversely, appellate review of an agency's exercise of adjudicative
authority is far less concerned – perhaps not concerned at all – with the “need to avoid
undue infringement upon the legislative” branch. Id. at 469-70.
In fact, to the extent consideration of the separation of powers doctrine is
implicated, the violator – if there is one – is the legislative branch. When the legislature
enacts a law directing that a particular claim against the Commonwealth be adjudicated
before a particular state agency, it does so under claim of authority found in Ky. Const. §
231. But that constitutional provision only allows the legislature to direct “in what courts
suits may be brought against the Commonwealth.” Ky. Const. § 231 (emphasis supplied);
see also Ky. Const. § 14 (captioned, “Right of judicial remedy for injury . . . ”; emphasis
supplied). It is only by the doctrine of comity that the judicial branch accepts and even
embraces such legislation.18 Consequently, a court reviewing an agency's exercise of
18
Governance effected through a proliferation of federal and state agencies has been referred to
as “the modern administrative state.” See Massachusetts v. E.P.A., ___ U.S. ___, 127 S.Ct. 1438,
1454 (2007). In Kentucky, we have referred to agencies as the “fourth branch of government.”
American Beauty Homes, 379 S.W.2d at 454 fn.4 (“An administrative agency has been
realistically characterized as a fourth branch of government.” Emphasis in original); Kentucky
Commission on Human Rights v. Fraser, 625 S.W.2d 852, 857 (Ky. 1981)(“[T]here has
developed in our government a fourth branch known as administrative proceedings[.]”); see also
Legislative Research Com'n By and Through Prather v. Brown, 664 S.W.2d 907, 916 (Ky.
1984)(“[T]here are three branches of government[. T]he net effect of the words 'independent
agency of state government' [in legislation creating the Legislative Research Commission] was to
create a fourth branch of government.” Emphasis in original); see also Federal Trade
Commission v. Ruberoid Co., 343 U.S. 470, 487, 72 S.Ct. 800, 810 (1952)(Administrative
agencies “have become a veritable fourth branch of the Government, which has deranged our
three-branch legal theories much as the concept of a fourth dimension unsettles our threedimensional thinking.” Jackson, J., dissenting). Whatever its label, it should be clear that it
exists because the judiciary has permitted it to exist.
It is not clear from the Constitution that this transference of
governmental power to the agencies is constitutional. Indeed, the
text may suggest just the opposite. . . . The most fundamental
challenge to the administrative state focused on whether this
delegation of power is permissible. The [United States Supreme]
-33-
adjudicatory authority need not be concerned that it will run afoul of the separation of
powers doctrine. See City of Greenup v. Public Service Com'n, 182 S.W.3d 535, 539
(Ky.App. 2005)(“[I]t is a judicial function finally to decide the limits of the statutory
power of an administrative agency.”).
Therefore, our review of administrative adjudications properly involves
only one side of the scales balanced in Hilltop; that is, the side holding Ky. Const. § 2
and “the need to ensure fair and nonarbitrary treatment” of the parties. Hilltop at 469.
Hilltop, by the clarity with which it defined the parameters of due process in
a legislative context, has returned American Beauty Homes to its proper context. Both
cases review “zoning determinations [which] are purely the responsibility and function of
the legislative branch of government[.]” Hilltop, 180 S.W.3d at 467. Hilltop makes it
entirely clear that the process due a party affected by an agency's exercise of an
administrative19 or legislative function is very different from the process she is due when
Court's affirmative answer to this question represents one of the
most important developments in constitutional history.
....
The Court's role in the administrative state has been that of both
facilitator and skeptic. . . . Having allowed the establishment of the
administrative state, the Court has assumed a role in supervising
the agencies. In this role the Court tends to avoid unduly
interfering [but, a]s in virtually every other area of the law, the
Court tends to equate judicial review with the very idea of the rule
of law.
Kermit L. Hall, ed., The Oxford Companion To The Supreme Court of the United States 11, 16
(1992). Administrative agencies and the function they perform have become so entrenched in
the makeup of our federal and state governments that to strictly apply constitutional principles to
do away with them would place burdens on the three traditional branches of government that
they could not feasibly bear.
19
Characterizing non-judicial functions as “administrative” in Hilltop is not as “ill-advised” as
the use of “quasi-judicial” to describe the same function, see, Hilltop at 468 n.1, since an
agency's “administrative functions or acts are distinguished from such as are judicial.” Black's
-34-
the agency is performing a judicial function. Id., passim, at 468-70. Therefore, while
Hilltop and American Beauty Homes are perfectly appropriate as measures of the
standard for reviewing zoning determinations, neither case is the best guide to appellate
review of an agency's exercise of a judicial function. For that, we have sufficient case
law, but equally important with regard to the case before us, we have KRS Chapter 13B.
Review of Administrative Adjudications under KRS Chapter 13B
The concern for fundamentally fair and impartial administrative
adjudications was addressed by our legislature just more than a decade ago. The Albert
Jones Act of 1994 (codified as KRS Chapter 13B and effective in 1996) created
comprehensive and uniform procedural safeguards for “any type of formal adjudicatory
proceeding conducted by an agency as required or permitted by statute or regulation to
adjudicate the legal rights, duties, privileges, or immunities of a named person.” KRS
13B.010(2); see also KRS 13B.020(1)(“This chapter creates only procedural rights[.]”).
The Act is not applicable to all state agencies, but provides for a fair number of
exemptions including the conduct of legislative proceedings of the type addressed in
American Beauty Homes and Hilltop. KRS 13B.020(2)(f). None of the exemptions are
applicable to this case. Therefore, this statutory standard of review applies.
The Act codified much of Kentucky administrative common law. While
our state agencies and even our courts have often foregone citation to the Act and opted
instead for reference to case law, and particularly to American Beauty Homes, it is most
proper to apply KRS 13B.150.
Law Dictionary 42 (5th ed. 1979).
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The court shall not substitute its judgment for that of the
agency as to the weight of the evidence on questions of fact.
The court may affirm the final order or it may reverse the
final order, in whole or in part, and remand the case for
further proceedings if it finds the agency's final order is:
(a) In violation of constitutional or statutory provisions;
(b) In excess of the statutory authority of the agency;
(c) Without support of substantial evidence on the whole
record;
(d) Arbitrary, capricious, or characterized by abuse of
discretion;
(e) Based on an ex parte communication which substantially
prejudiced the rights of any party and likely affected the
outcome of the hearing;
(f) Prejudiced by a failure of the person conducting a
proceeding to be disqualified pursuant to KRS 13B.040(2); or
(g) Deficient as otherwise provided by law.
KRS 13B.150(2).
Applying the proper standard of review requires our reflection on this
statute, and the judicial interpretations of Chapter 13B, along with the administrative
common law that preceded it. We now apply that standard to Baker's arguments.
LACK OF SUBSTANTIAL EVIDENTIARY SUPPORT
Baker first argues that the Board “made factual determinations contrary to
the trier of fact” that are not supported by substantial evidence. As noted, there is only
one factual issue that the Board resolved in a manner contradictory to the hearing officer.
That fact is whether Baker gave notice to the Systems of his expectation that the Systems
-36-
would comply with KRS 61.702(3)(1995) and coordinate the cross-referencing
allocations of his state contributions that he requested. The hearing officer found as fact
that he did. The Board found that he did not. We believe the Board's finding to that
effect is not supported by substantial evidence.
The Significance of Baker's Notice to the Systems
As is evident from an exchange at the beginning of the hearing, both the
Systems and Baker believed this fact to be crucial to their respective cases. Baker’s
counsel began the hearing by explaining to the hearing officer that, during the discovery
phase, he requested that the Systems produce a copy of the “Employee Enrollment
Application” it received from KTRS Payroll Officer Martin. The Systems responded by
producing a copy that strangely did not contain Martin’s figures in the margin. At the
hearing, Baker’s counsel requested that the System’s counsel produce the original from
which that copy was made.
Hearing Officer:
Are you saying that is pertinent to
this issue?
Baker’s Counsel:
Yes, sir.
Hearing Officer:
Do you have something that has
the original markings on it?
Baker’s Counsel:
Yes, sir.
Hearing Officer:
Okay.
Systems’ Counsel:
Well, the issue is that that is what
we received from [KTRS] with
illegible scratchings in the lower
right hand corner. That is the
notice we received that they were
-37-
going to take some different
action on Mr. Baker’s crossreferencing.
The Systems claims Baker's failure to notify it of the manner in which he
desired to coordinate his benefits is a complete defense to any alleged right Baker may
have to the Systems' payment of the full contribution rate. By his prior course of dealing,
claims the Systems, Baker waived the right to an allocation of the state contribution
different from that to which he previously acquiesced. To the extent this defense is valid,
it is necessary that we determine Baker's prior cross-referencing practices, and then
determine whether substantial evidence supports the Board's finding that Baker did not
give notice to the Systems.
Baker's Course of Dealing Prior to 1996
We begin by identifying an irrefutable fact of this case: Baker is the
beneficiary of an inviolable right to have the Systems insurance fund pay his insurance
premium in full. KRS 61.692; KRS 61.701(2); KRS 61.702(3)(1995); see also, Jones v.
Board of Trustees of Kentucky Retirement Systems, 910 S.W.2d 710, 712 (Ky. 1995).
From 1991 to 1996, the Systems disregarded this mandate and paid only the balance
remaining after Baker's employer, KTRS, paid its full state contribution rate toward the
premium. Baker never raised an objection to the System's failure to obey this statute
since his goal of combining his contributions to pay his entire premium was being met.
For years prior to 1996, he effectively waived the right to compel the Systems to pay his
premium in full. At least that is one of the Systems' arguments, and we have no reason to
question it.
-38-
However, when the state adopted an FSA plan for its employees, Baker
became eligible to divert a portion of the KTRS contribution to his FSA. The Systems'
obligation to pay Baker's premium “in full” thereby became more significant to Baker. If
the Systems complied with the statute and paid his premium in full20, Baker could direct a
portion of the KTRS contribution to his FSA.
But Baker had established a certain “course of dealing” – to use the
Systems' language – in previously failing to object to the Systems' payment of only part
of the state contribution. To effectuate a change, so the argument goes, he needed to
notify the Systems. The only notification Baker gave was the allocation figures written
by Martin on the “Employee Enrollment Application” sent to the Systems. The hearing
officer considered this document sufficient notice.
The Hearing Officer's Finding of Evidence Tampering
When the hearing officer examined the original application produced at
Baker's counsel's urging during the hearing, the hearing officer himself introduced this
version of the form into the record as Exhibit 22. The reason is obvious. It is irrefutable,
and in fact the Board does not attempt to refute, that someone created this version of the
form by cutting and taping together copies of a previous generation of the form, or forms,
resulting in a copy on which Martin’s figures could not be read. That spliced and taped,
and partially unreadable, version of the form was then copied and produced to Baker's
counsel during discovery.
20
Baker does not claim entitlement to any more than the applicable state contribution rate.
-39-
The hearing officer made the following findings of fact regarding this
document, based on his examination of the evidence and his observation of the witnesses,
including their demeanor.
37.
The hearing officer introduced into the record at the
hearing the original copy of the Employee Form sent by
Martin to the Systems which was retained in the
Systems’ file for Baker. [Hearing Exhibit, “HE”, 22]
38.
Martin’s hand-written figures regarding allocation of
premium payments between KTRS and the System[s]
(KERS) do not appear at the bottom margin of the copy
in the Systems’ files. However, the bottom section of
Baker’s form is taped on. This taped-on bottom section
has barely discernible marks in the margin where
Martin’s hand-writing appeared.
39.
Martin said she would never send a copy of Baker’s
Employee Form to the Systems in this condition. She
said she had the ability to make a reduced copy of the
legal size form, or to make a full-sized copy, and it
would be too much trouble to cut and paste a form
together. In fact, Martin brought with her to the hearing
Baker’s KTRS file which contained a full-sized
photocopy of Baker’s Employee Form. [Hearing
Exhibit] 21. On this photocopy, Martin’s figures in the
margin are clearly legible.
40.
The hearing officer finds that the photocopy of Baker’s
Employee Form in the Systems’ files (HE 22) which
was received December 18, 1995, was altered by
someone within the Systems to remove any indication of
the payment allocation figures hand-written by Martin.
Recommended Order, Record (R.) 394-95 (footnotes and citations to the record omitted;
emphasis supplied).
In the process of finding as fact that this document “was altered by
someone within the Systems,” the hearing officer was required to assess the credibility of
-40-
two witnesses whose testimony directly contradicted one another. One was Martin,
whose testimony the hearing officer summarized and we have set forth, supra.
The other was the Systems' employee, Lela Hatter. Hatter was allowed to
testify first, out of traditional order, because she was not feeling well at the time of the
hearing and wanted to go home as soon as she could. Observation of her videotape
testimony shows that, in contrast to Martin's relaxed testimony, Hatter appears nervous,
uncomfortable and uncertain, particularly when testifying about how she received the
form, changing her testimony, then changing it back again.21
Hatter testified that she never received any communication from Martin
regarding Baker's cross-referencing and that she received the “Employee Enrollment
Application” in the spliced and taped and partially unreadable condition in which it was
presented at the hearing.
The hearing officer obviously believed that someone at the Systems, if not
Hatter, did receive the form in the fully readable condition in which Martin testified she
sent it. Relying in part upon the witnesses' demeanors, he found as fact that “the Systems
21
On appellate review, we must look at “the whole record[,]” KRS 13B.150(2)(c); see also KRS
13B.130(1)-(10), just as we should expect the Board did. 105 KAR 1:215 Section 8 (“final order
of the board shall be based on substantial evidence appearing in the record as a whole[.]”). This
would include at least viewing the videotaped testimony of these two witnesses. Appellate
courts often view videotape to observe a person's demeanor where such demeanor has a bearing
on the review. See, e.g., Gabow v. Commonwealth, 34 S.W.3d 63, 79 (Ky. 2000)(Appellate
court's viewing of videotape determined defendant's demeanor during confession to be “calm”
and not “under the influence of alcohol or drugs.”); Transit Authority of River City (TARC) v.
Montgomery, 836 S.W.2d 413, 416 (Ky. 1992)(On claim of judicial misconduct, Appellate
court's viewing of videotape determined trial judge's “'body language' [and] plain physical
attitude and tone of voice do not [appear] vituperative[.]”); Price v. Commonwealth, 734 S.W.2d
491, 494 (Ky.App. 1987)(Appellate court viewing of videotape revealed defendant's demeanor
of “despair and shame.”). By doing so, we are not substituting our judgment of demeanor for
that of the hearing officer or the Board. We observe the videotape only to gain insight into
whether the decision under review meets the standard of that review.
-41-
received a copy of Baker's Employee Form with figures showing Baker intended the
Systems to pay first.” He then concluded as a matter of law that “[t]his is sufficient
notice from KTRS, even if not intended as such by Martin, that Baker and KTRS
intended the Systems to pay first.”
The Board's Finding that Baker Failed to Give the Systems Notice
If the Board had adopted the hearing officer's finding that Baker gave
notice to the Systems, it would have been acknowledging that someone under its
authority had tampered with the evidence.22 Notably, the Board did not contradict the
hearing officer's finding of evidence tampering itself and, in fact, ignored it. The Board
simply stated that Hatter had received Exhibit 22, the tampered document, “with the cut
and attached bottom” just as it was presented at the hearing. Then the Board criticized
Martin's conduct.
Martin's conduct was contrary to established Personnel
Cabinet cross-reference procedures and contrary to her on
[sic] prior course of dealing in the administration of payment
of Baker's health insurance premiums. . . . Ms. Martin had a
duty to place Baker on notice that the action he proposed was
contrary to cross-reference procedures. Ms. Martin never
gave notice to [the Systems] that she was deviating from
established cross-reference procedures, nor that she was
altering her course of dealing with [the Systems].
(R. 456-57). The Board then concluded that “Baker never gave notice to [the Systems]
that he was changing his course of dealing.” (R.491).
22
We do not suggest that any particular Systems employee, including the employees who
testified, was necessarily responsible for the tampered condition of the document. We take no
more specific position than that the hearing officer determined “someone within the Systems”
did so. If the Board chooses to investigate or ignore the conduct of its employees, it is free to do
so.
-42-
The Board did not explain why it found Hatter's testimony more credible
than Martin's, nor did it give any other reason for rejecting the hearing officer's
conclusions on this issue. The Systems apparently believes no explanation is necessary,
simply urging this Court to find that the substantial evidence standard is satisfied because
the Board Order and Hatter's testimony are consistent on this point.
If we were to simply review the final order and, upon finding some measure
of evidentiary support in the record, affirm on the basis of substantial evidence, we would
be failing in our duty. Such a sciolistic approach would suffice only if the rule were that
where there is any evidence to support a finding, that finding cannot be challenged. This
is not the rule and we will not make it so. Com., Revenue Cabinet v. South Hopkins Coal
Co., 734 S.W.2d 476, 479 (Ky.App. 1987)(“'Substantial evidence' is not simply some
evidence or even a great deal of evidence[.]”); see also Young v. L. A. Davidson, Inc., 463
S.W.2d 924, 926 (Ky. 1971)(“[M]isuse of the fact-finding power by the board arrogates
to that administrative body a policy-making function which it should not have[.]”).
Appellate Review of Agency Head's Rejection of Hearing Officer's Recommendation
For his part, Baker urges adoption of a more sophisticated rule of review
that he believes applies when the agency head deviates from the recommendation of the
hearing officer. Citizens Bank of Marshfield, Missouri v. FDIC, 718 F.2d 1440, 1444 (8th
Cir. 1983)(“a slightly different rule applies when the administrative agency rejects the
findings” of the hearing officer; emphasis supplied); see also, Brock v. L.E.Myers Co.,
818 F.2d 1270, 1277 (6th Cir. 1987)(administrative agency must explain grounds for
rejection of hearing officer's recommendation).
-43-
Baker advances the argument that the Board cannot reject a hearing
officer's recommendation, including his fact-finding, without first articulating nonarbitrary reasons for doing so. We find merit in this argument.
We believe our statutes and case law require us to recognize that an agency
head's failure to articulate its rationale for rejecting the hearing officer's recommendation
is a factor in our review. See, e.g., Kentucky Bd. of Nursing v. Ward, 890 S.W.2d 641,
643 (Ky.App. 1994)(“In determining whether the evidence is substantial, the court must
take into account whatever in the record fairly detracts from its weight.” Internal
quotation marks omitted).
Section (1) of KRS 13B.120 requires the Board to “consider the record
including the recommended order[.]” (Emphasis supplied). Consistent with the chapter,
the Board has even adopted a regulation requiring that any “final order of the board shall
be based on substantial evidence appearing in the record as a whole[.]” 105 KAR 1:215
Section 8. Consequently, the Board is not free to review only the evidence presented and
reach its own independent result, utterly disregarding the reasoning, observations and
opinions of the hearing officer.
When an agency head adopts the hearing officer's recommendation, it is
self-evident that the recommendation received appropriate consideration.
However, when an agency head rejects the hearing officer's
recommendation, there is no way for a reviewing court to know whether due
consideration was given to reasons and factors supporting that rejection. We believe it is
necessary for the agency head to add to the record by articulating non-arbitrary reasons
-44-
for such rejection. This specific directive is implicit in the language of KRS 13B.120(3),
as interpreted by our Supreme Court.
If the Board exercises its lawful prerogative of rejecting the hearing
officer's findings of fact, KRS 13B.120(3) explicitly requires the agency head to “include
separate statements of findings of fact and conclusions of law.” Our Supreme Court
interpreted this to mean more than simply identifying what testimony the Board believes
conflicted with the hearing officer's fact-finding.
In Herndon v. Herndon, 139 S.W.3d 822 (Ky. 2004) a unanimous court
“took pains to point out that '[i]f the agency head deviates from the recommended order,
it must make separate findings of fact and conclusions of law for any deviation from the
recommended order.’” Id. at 825 (emphasis supplied), quoting Rapier v. Philpot, 130
S.W.3d 560, 563 (Ky. 2004), citing KRS 13B.120(3).
Lest the “pains”-taking of our Supreme Court be misinterpreted as a mere
repetition of the statutory requirements, the court emphasized a “difference between KRS
13B cases and cases governed by the civil rules.” Id. That difference is “the breadth of
discretion possessed respectively by the agency head [acting on the recommendation of a
hearing officer under KRS 13B.030] or the trial judge [acting on the recommendation of
a commissioner under CR 53.06].” Id. The Supreme Court indicated there are strictures
on an agency head's discretion where, “[b]y contrast, a trial judge acting on a
Commissioner's report pursuant to CR 53.06 has the broadest possible discretion with
respect to the action that may be taken.” Id. (emphasis supplied).
-45-
The contrasting degree of discretion is not readily revealed by simply
comparing the respective rules and statutes. Both CR 53.06 and KRS 13B.120(2) give
the respective final decision-maker the power to accept, reject or remand the
recommendation. Both CR 52.01 and KRS 13B.120(3) say that the final decision-maker
must render written findings of fact and conclusions of law. Yet Herndon unmistakably
intended to identify a degree of deference owed by an agency head to the hearing officer
that does not exist between a trial judge and a commissioner. Such a rule of deference
has been adopted in other jurisdictions, primarily to recognize the superior ability of the
hearing officer to determine demeanor-based facts. See, e.g., McEwen v. Tennessee Dept.
of Safety, 173 S.W.3d 815, 824 (Tenn.Ct.App. 2005); Brock v. L.E. Myers Co., High
Voltage Div., 818 F.2d 1270, 1277 (6th Cir. 1987); see also, Community Clinic, Inc. v.
Department of Health and Mental Hygiene, 922 A.2d 607, 619 (Md.App. 2007).
We believe the basis for the deference alluded to in Herndon is the agency
head's lack of adjudicatory experience and expertise relative to that of the hearing officer.
A further comparison of the two systems is illustrative.
When we undertake appellate review of a circuit judge's decision that has
been aided by a commissioner's report, we appropriately presume that the adjudicatory
experience and expertise of the circuit judge is at least equal to that of the commissioner.
On the other hand, when we examine the statutes and regulations governing the conduct
of administrative hearings, we are struck by the fact that it is the hearing officer, and not
the agency head, who is possessed of superior adjudicatory experience and expertise.
-46-
While “[c]ourts often advert to the expertness, special competence,
specialized knowledge, or experience of the administrative agency” when engaged in a
legislative function, Graybeal v. McNevin, 439 S.W.2d 323, 326 (Ky. 1969)(citation
omitted), it is the hearing officer and not the agency head who is the expert in the kind of
fact-finding necessary to an agency adjudication. Hearing officers develop this expertise
through training and experience that is rarely, if ever, possessed by agency board
members. In fact, the legislature specifically exempts board members from the
requirement of obtaining any education in adjudicating controversies that come before
them. KRS 13B.030(3).
On the other hand, since 1994 the legislature has required that Kentucky's
Office of the Attorney General, Division of Administrative Hearings, be responsible for
hearing officer training and for “maintaining a pool of hearing officers for assignment to
the individual agencies at their request, for the conduct of administrative hearings.” KRS
15.111(2)(a), (c). Legislatively mandated training includes both initial training (a
minimum of 18 classroom hours) and continuing education (a minimum of 6 classroom
hours annually) in a variety of disciplines focusing on administrative law and procedure.
KRS 13B.030(3), (4); 40 Kentucky Administrative Regulations (KAR) 5:010. Training
includes everything from the substantive statutory law of specific agencies to enhancing
the hearing officer's ability to determine witness credibility. On the latter topic alone,
courses cover “judging demeanor and forthrightness of witnesses, appearance and body
language; [s]exual, racial and cultural bias, and prejudice; and [j]udging common sense
of answers, consistency, context and flow.” 40 KAR 5:010 Section 3(1)(c).
-47-
No doubt the legislature's intent in requiring this level of qualification was
to better serve the agency head and the public, but ultimately it was to best serve justice.
Without question, it is the hearing officer who provides the agency head with the
adjudicatory experience and expertise it would otherwise lack. This is undoubtedly the
reason more than sixty (60) government agencies and boards23 “delegate the fact-finding
role to a hearing officer[.]” Herndon v. Herndon, 139 S.W.3d 822, 826 (Ky. 2004).
We do not intend to suggest that this Board, or any agency head, is
prohibited from rejecting a hearing officer's recommendation, including his fact-finding.
Upon due consideration of the entire record, an agency head enjoys the prerogative of
making factual findings independent of, and even contrary to, those of the hearing officer.
KRS 13B.120(2). Despite the politicization of the appointment process, the individuals
comprising the various agency heads are appointed to serve ostensibly because of their
particular personal expertise in the field regulated by the agency. The agency head
certainly may, and should when appropriate, draw upon that expertise to articulate
legitimate bases upon which to reject a hearing officer's recommendation.24 We simply
23
The number of state agencies and boards using hearing officers comes from the official
website of the Commonwealth of Kentucky, Office of the Attorney General, Division of
Administrative Hearings. http://ag.ky.gov/hearings.htm This information is current as of
October 10, 2006.
24
The deference reviewing courts have always given an agency's final order is derivative of this
expertise. See, e.g., Our Lady of the Woods, Inc. v. Com., Kentucky Health Facilities and Health
Services Certificate of Need and Licensure Board, 655 S.W.2d 14, 17 (Ky.App. 1982).
Deference is accorded [an agency's] factual conclusions for a
different reason – [the agency is] presumed to have broad
experience and expertise in [the area]. . . . Further, it is the
[agency] to which [the legislature] has delegated administration of
the [statute]. The [agency], therefore, is viewed as particularly
capable of drawing inferences from the facts. . . . Accordingly, . . .
a [reviewing court] must abide by the [agency's] derivative
-48-
deem it appropriate and necessary to require the agency head to offer an explanation
when it does so.
However, “on matters which the [hearing officer], having heard the
evidence and seen the witnesses, is best qualified to decide, the agency should be
reluctant to disturb his findings unless error is clearly shown.” Universal Camera Corp.
v. N.L.R.B., 340 U.S. 474, 494 (1951). Where the agency overcomes that reluctance and
“rejects the fact-finding of a [hearing officer], on appellate review, courts are entitled to
expect, at a minimum, that the agency will provide a rational exposition of how other
facts or circumstances justify its course of action.” 2 Am. Jur. 2d Administrative Law §
365.
Upon appellate review, we are required to look at “the whole record,” KRS
13B.150(2)(c); see also KRS 13B.130(1)-(10). For purposes of our review under Chapter
13B, the hearing officer's recommendation (including his findings of fact) is as much a
part of the record as the evidence put before the hearing officer, and we must consider his
views in deciding whether the Board Order is supported by substantial evidence.
Universal Camera Corp. v. N.L.R.B., 340 U.S. 474, 493 (1951)(“[A]n examiner's
[hearing officer's] report is as much a part of the record as the complaint or the
inferences, if drawn from not discredited testimony, unless those
inferences are “irrational,” . . . “tenuous” or “unwarranted.” . . . As
already noted, however, the [agency], as a reviewing body, has
little or no basis for disputing a [hearing officer]'s testimonial
inferences.
Department of Health and Mental Hygiene v. Shrieves, 641 A.2d 899, 907 (Md.App. 1994),
quoting Penasquitos Village, Inc. v. National Labor Relations Bd., 565 F.2d 1074, 1078-79 (9th
Cir.1977)(internal citations omitted).
-49-
testimony.”). Similarly, the agency head's rationale for rejecting the hearing officer's
recommendation, if one is given, is also part of that whole record we must consider. If no
non-arbitrary rationale is given, that too is a factor we must consider.
Expecting the agency head to articulate its rationale for departing from the
recommendation does not erode the substantial evidence rule of review. Because we are
already required to give due regard to the hearing officer's recommendation, KRS
13B.150(2)(c); KRS 13B.130(7), the agency head's explanation for any departure from it,
if not arbitrary, will only serve to strengthen the validity of the final order. To give both
the recommendation and the rationale for its rejection “this significance does not seem to
us materially more difficult than to heed the other factors which in sum determine
whether evidence is 'substantial.'” Universal Camera, supra, at 496-97.
The need for the agency head to articulate its rationale for rejecting
demeanor-based findings, such as the one we address here, is especially keen. Other
courts have called “the problem of ignoring the 'credibility' findings of the initial hearing
officer[,]” Scarborough v. Cherokee Enterprises, 816 S.W.2d 876, 877 (Ark. 1991), “a
special problem of administrative review.”Slusher v. NLRB, 432 F.3d 715, 727 (7th Cir.
2005).
We have concluded that when an agency head rejects any finding or
recommendation of a hearing officer pursuant to KRS 13B.120(2), and fails to make its
non-arbitrary rationale for such rejection a part of the final order, as in the case sub
judice, it risks a determination both that the final order is not supported by substantial
evidence and that it is arbitrary.
-50-
The Board's Finding that Baker Failed to Give Appropriate Notice to the Systems is
Not Supported by Substantial Evidence
We have previously said that “[i]n determining whether the evidence is
substantial, the court must take into account whatever in the record fairly detracts from its
weight.” Kentucky Bd. of Nursing v. Ward, 890 S.W.2d 641, 643 (Ky.App. 1994)(internal
quotation marks omitted), quoting Willbanks v. Secretary of Health & Human Services,
847 F.2d 301 (6th Cir. 1988), quoting Universal Camera at 488. In this case, there are at
least three factors that detract from the substantiality of the evidence upon which the
Board relies in finding that the Systems never received Baker's notification.
First, unlike the hearing officer, the Board was not in a position to observe
the demeanor of the witnesses and assess their credibility. Of course, this is always the
case when an agency head delegates its fact-finding duty. Consequently, we would
expect this to be a factor only in cases in which a demeanor-based finding plays an
important role, such as the one before us. As the United States Supreme Court put it,
“evidence supporting a conclusion may be less substantial when an impartial,
experienced examiner [in our case, the hearing officer,] who has observed the witnesses
and lived with the case has drawn conclusions different from the Board's than when he
has reached the same conclusion.” Universal Camera at 469.
The prevailing view on an agency head's deference to demeanor-based factfinding by a hearing officer has been articulated often and variously, but in general
conformity with Ward v. N. L. R. B., 462 F.2d 8 (5th Cir. 1972).
The preeminence of the [hearing officer's] conclusions
regarding testimonial probity does not amount to an inflexible
-51-
rule that either the Board or a reviewing court must invariably
defer to his decision, thereby effectively nullifying either
administrative or judicial review. But when the Board
second-guesses the [hearing officer] and gives credence to
testimony which he has found – either expressly or by
implication – to be inherently untrustworthy, the
substantiality of that evidence is tenuous at best.
Ward at 12, citing N.L.R.B. v. Walton Mnfg. Co., 369 U.S. 404, 408, 82 S.Ct. 853, 855, 7
L.Ed.2d 829, 832 (1962); see also Brock v. L.E. Myers Co., High Voltage Div., 818 F.2d
1270, 1277 (6th Cir. 1987); McEwen v. Tennessee Dept. of Safety, 173 S.W.3d 815, 824
(Tenn.Ct.App. 2005)(Where “credibility plays a pivotal role, then the hearing officer's . . .
credibility determinations are entitled to substantial deference.”); Department of Health
and Mental Hygiene v. Shrieves, 641 A.2d 899, 908-09 (Md.App. 1994)(Hearing officer's
“findings based on the demeanor of witnesses are entitled to substantial deference and
can be rejected by the agency only if it gives strong reasons for doing so[.]”); Ritland v.
Arizona State Bd. Of Medical Examiners, 140 P.3d 970, 974 (Ariz.App. 2006)(“Board's
decision must reflect its factual support for rejecting [hearing officer's] credibility
findings.”). This is an appropriate and necessary consideration when any agency head
decides to reject findings of fact of the same hearing officer to whom the agency head
entrusted its delegation of responsibility for determining facts.
While the first factor focuses on the witnesses' believability, the second
focuses on the witnesses' relationship to the Board. To reach the finding of fact at issue
in this case – that Baker never sent the Systems proper notice – the Board had to totally
discount the apparently disinterested testimony of Martin that the form she sent on
Baker's behalf to the Systems was not the tampered document produced during discovery
-52-
and at the hearing. Further, the Board had to reject the notion that anyone at the agency it
headed, and specifically Ms. Hatter, tampered with the document. It had to vest in the
testimony of its own agency's employee the entire weight of the issue. In the absence of
the Board's rationale for doing so, such obvious cherry-picking of the evidence, contrary
to the disinterested finding of the hearing officer, based on the testimony of a
disinterested witness, has the strong appearance of arbitrariness. Such an appearance is
brought into sharper resolution by the fact that the Board's substituted finding on this
point was a literal parroting of this witness's employer's brief.
The third factor has to do with motivation. The Board's finding that it
never received notice requires acceptance of the inference that a person other than
“someone within the Systems” had a reason to tamper with Baker's form. Martin had no
reason to tamper with the form. To do so would have served neither her nor her
employer any purpose. In fact, sending a form illegible in any way would have been
contrary to her purpose, possibly necessitating that she repeat her effort. We can
conceive of no other motivation for any person or entity to tamper with the form than that
provided by the hearing officer. More importantly, the Board offers no alternative
explanation, rational or otherwise.
We have fully considered the record as a whole and conclude that the
Board's finding that Baker did not give notice to the Systems of his allocation of state
contributions, to which he was lawfully entitled, is not supported by substantial evidence
and is arbitrary.
-53-
Nevertheless, Baker's notice to the Systems of his desired coordination of
benefits is irrelevant if the Systems' policy is sustainable under KRS Chapter 13A as a
matter of law. Before addressing that issue, however, we must turn to Baker's second
argument and determine whether the Board's adoption of the System's Brief as its final
order was proper under KRS Chapter 13B.
ADOPTION OF THE SYSTEMS' BRIEF AS THE BOARD ORDER
Baker's second argument opens upon an erroneous premise. He claims that
Chapter 13B includes “an administrative hearing procedure that removes total control of
in house decision making by a state agency and vests that responsibility in an
independent professionally managed quasi judicial authority[.]” While this statement is
more accurate with regard to some administrative adjudications than others, Chapter 13B
most certainly is not designed to do this. See, e.g., KRS 13B.030(1)(“An agency head
may not . . . delegate the power to issue a final order[.]”).
We have noted in the past, with varying degrees of emphasis, as well as in
this opinion, that administrative adjudications vary widely in their process. That variety
was specifically addressed with regard to the subject of Baker's second argument – an
agency head's duty of independent fact-finding – in Burch v. Taylor Drug Store, Inc., 965
S.W.2d 830 (Ky.App. 1998).
[I]n many administrative agencies, there is a single finder of
fact who hears and weighs evidence, makes factual findings
and applies the facts to the law. . . . For example, workers'
compensation procedure (at least prior to 1996) functions
much in the same manner as the courts. . . . [A]n
Administrative Law Judge (ALJ) conducts a hearing, makes
findings of fact, conclusions of law and determines the
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amount of the award, if any. On appeal, the Workers'
Compensation Board sits as a true appellate body. The Board
cannot consider additional evidence, or second-guess the
findings made by the ALJ. . . .
However, the approach to fact-finding in unemployment
insurance cases is substantially different. . . . The referee
conducts a hearing, receiving testimony from witnesses and
reviewing documentary evidence. The referee then issues
findings of fact, conclusions of law and final order[. A]n
aggrieved party may appeal to the full Commission.
[A]ll appeals to the Commission may be heard upon . . . the
evidence and exhibits introduced before the referee. Thus,
while the Commission generally does not hear evidence
directly from witnesses, it has the authority to enter
independent findings of fact. Necessarily, such authority
allows the Commission to judge the weight of the evidence
and the credibility of witnesses and to disagree with the
conclusion reached by the referee.
Burch at 833-34 (emphasis supplied; internal quotation marks and citations omitted).
While both workers' compensation and unemployment compensation claims are
exempted from Chapter 13B, KRS 13B.020(3)(e)1.a., (3)(i)1.a., the fact-finding
determination under that chapter very closely reflects the method prescribed for
unemployment claims. KRS 13B.120(2), (3) (“agency head may accept . . . or it may
reject or modify . . . the recommended order [and] include separate statements of findings
of fact and conclusions of law.”).
Baker nevertheless correctly makes the point that KRS 13B.120 places the
duty squarely on the agency head to prepare a final order. See also KRS 13B.030(1). He
argues that the Board breached this duty because “the Board's counsel became the
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decision maker” when the “Board of Trustees essentially adopted the [Systems'] PostHearing Brief as its Report and Order.” (Appellants Brief, pp. 14, 16).
We cannot imagine a more complete appropriation of the intellectual work
product of another than occurred here when the Board adopted the Systems' brief as its
final order. But for the fact that the Systems obviously agreed to have the Board
appropriate its work, this case would represent the essence of plagiarism. But does it
constitute reversible error? Ultimately, we think not.
The question fairly stated is, “To what extent may an agency head
incorporate the work of others, and more particularly, the work of the parties before it, as
its final order in a Chapter 13B adjudication?”
Undoubtedly, claimants whose personal rights are being adjudicated by a
state agency are entitled to a decision that is the product of independent, deliberative
consideration by the members of the agency head. Yet even before adoption of Chapter
13B, we “held that agency decisions may be based on the work of hearing officers.”
Robinson v. Kentucky Health Facilities, 600 S.W.2d 491, 492 (Ky.App. 1980). Clearly,
the entire concept of utilizing hearing officers under KRS 13B.030(1) anticipates that the
agency head conducting independent deliberations and fact-finding will rely on, and
routinely appropriate, the work product of another, namely the hearing officer.
Does it make a difference when the work being appropriated was offered by
a party to the administrative proceeding? While this aspect of the question is one of first
impression in Kentucky, we believe that an agency head's fact-finding under Chapter 13B
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is sufficiently comparable to the fact-finding of a trial court under CR 52.01 to justify
application of the principles developed in the latter context.
An early consideration of the question in a judicial context is found in
Callahan v. Callahan, 579 S.W.2d 385 (Ky.App. 1979), where we once claimed “[t]he
appellate courts of this state have universally condemned the practice of adopting
findings of fact prepared by [a party's] counsel . . . because of the problems such findings
present upon appellate review.” Id. at 387. However, a few years later, the Supreme
Court corrected us.
We do not condemn this practice (of permitting attorneys to
draft findings of fact and conclusions of law) in instances
where the court is utilizing the services of the attorney only in
order to complete the physical task of drafting the record.
However, . . . [o]ur concern . . . is that the trial court does not
abdicate its fact-finding and decision-making responsibility[.]
Bingham v. Bingham, 628 S.W.2d 628, 629 (Ky. 1982)(emphasis supplied); see also
Mansfield v. Voedisch, 672 S.W.2d 678, 681 (Ky.App. 1984). In Bingham, the Supreme
Court engaged in a “[c]areful scrutiny of the record” and determined that “the court was
thoroughly familiar with the proceedings and facts[,] prudently examined the proposed
findings and conclusions and made several additions and corrections to reflect his
decision in the case.” Id. (emphasis supplied). Consequently, the Supreme Court
determined the trial court had not abdicated its role in the case before it.
But Bingham did seem to establish a bright line rule for distinguishing
between the trial court's impermissible abdication of its fact-finding responsibility and its
permissible adoption of persuasive language. Distinguishing U.S. v. Forness, 125 F.2d
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928 (2nd Cir. 1942) from the case before it, the Supreme Court in Bingham pointed to the
fact that in Forness there was a “verbatim or mechanical adoption of proposed findings of
fact[.]” Bingham at 629. The Forness court thus concluded that the trial court did
abdicate such responsibility. See Forness at 942 (“[W]e lose the benefit of the judge's
own consideration [when] the findings proposed by the defendants [a]re mechanically
adopted[.]”).
Emphasizing the importance of independent fact-finding, Forness itself
addressed the analogous roles of a trial court and an administrator as fact-finder.
We stress this matter because of the grave importance of factfinding. The correct finding . . . of the facts . . . is fully as
important as the application of the correct legal rules to the
facts as found. An impeccably “right” legal rule applied to the
“wrong” facts yields a decision which is as faulty as one
which results from the application of the “wrong” legal rule
to the “right” facts. The latter type of error, indeed, can be
corrected on appeal. But the former is not subject to such
correction unless the appellant overcomes the heavy burden
of showing that the findings of fact are “clearly erroneous”.
Chief Justice Hughes once remarked, “An unscrupulous
administrator might be tempted to say 'Let me find the facts
for the people of my country, and I care little who lays down
the general principles.'” [citation omitted]. That comment
should be extended to include facts found without due care as
well as unscrupulous fact-finding; for such lack of due care is
less likely to reveal itself than lack of scruples, which, we
trust, seldom exists. And Chief Justice Hughes' comment is
just as applicable to the careless fact-finding of a judge as to
that of an administrative officer. The judiciary properly holds
administrative officers to high standards in the discharge of
the fact-finding function. The judiciary should at least
measure up to the same standards.
Forness at 942 (citations omitted).25
25
Chief Justice Hughes' quotation is taken from his Address before the Federal Bar Association
in 1931, quoted in N.Y. Times, February 13, 1931, page 18. See James Landis, The
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Very quickly taking our cue from Bingham's interpretation of Forness, this
Court decided Stafford v. Board of Educ. of Casey County, 642 S.W.2d 596 (Ky.App.
1982). In Stafford, the trial court had both parties prepare findings of fact “and then
adopted verbatim the set of findings and conclusions which more closely reflected his
thoughts[.]” We said,
Such a practice is not proper, as the trial court should have
either made an oral statement as to his findings and
conclusions for the benefit of counsel in completing the
physical task of drafting the finding of fact and conclusion of
law or in some other manner retained control of the decision
making process. (See, for example, Bingham v. Bingham,
Ky., 628 S.W.2d 628 (1982) . . . .
Stafford at 598 (emphasis supplied). In Prater v. Cabinet for Human Resources, Com. of
Ky., 954 S.W.2d 954 (Ky. 1997), the Supreme Court again disabused us of an erroneous
belief. This time it was our erroneous belief that Bingham had given us a bright line rule.
In Prater, the appellant counted on the existence of the ostensible bright
line rule. He claimed “the trial court failed to make independent findings of fact[.]”
Prater at 956. As proof he demonstrated that “the trial court adopted the Cabinet's
proposed findings of fact without correction or change.” Id. While the Supreme Court
agreed the adoption was verbatim, it did not agree that this is proof of the trial judge's
abdication of his fact-finding responsibility, specifically holding that it “is not error for
the trial court to adopt findings of fact which were merely drafted by someone else.” Id.
Given our review of the case law, we believe Kentucky stands with the
United States Supreme Court on this issue. Even where a party's work is “adopted
Administrative Process (1938) 135, 136. Cf. Bell, Let Me Find the Facts, 26 A.B.A.J. 552
(1940).
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verbatim[, t]hose findings, though not the product of the workings of the [trial] judge's
mind, are formally his; they are not to be rejected out-of-hand[.]” U. S. v. El Paso
Natural Gas Co., 376 U.S. 651, 656, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964), quoted in
Brunson v. Brunson, 569 S.W.2d 173, 175 (Ky.App. 1978); see Bingham at 630 (“[I]n the
absence of a showing that the trial judge clearly abused his discretion and delegated his
decision-making responsibility[, his findings] are not to be easily rejected.”). And so it is
also with the fact-finding of an agency head.
Findings of fact “drawn with the insight of a disinterested mind are,
however, more helpful to the appellate court.” Id. (emphasis supplied). And, of course, it
is just as much in the interest of the agency head, with the assistance of the hearing
officer to whom it lawfully delegated fact-finding authority, KRS 13B.030(1), to draw its
own findings of fact.
And yet, an agency head, in the lawful exercise of its own wisdom and
discretion, remains free to jettison the hearing officer's recommendation, and the training
and experience in fact-finding that goes with it. KRS 13B.120(2); KRS 13B.030(3), (4).
The agency head is also free to replace that recommendation with language from a brief
designed for an entirely different purpose, see Bingham at 630, and written by an
advocate who likely lacks the specialized training required of the hearing officer. See 40
KAR 5:010 Section 3(1)(h)(Required hearing officer training in “Decision writing”); 40
KAR 5:010 Section 3(2)(g)(“Findings and evidence”); 40 KAR 5:010 Section
3(2)(h)1.(“The recommended order and writing for judicial review”; “The nature, scope
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and function of findings and conclusions under KRS 13B.110”). Determining what or
whose work to appropriate is a decision left to the agency head.
Unlike plagiarism though, where the main risk is being discovered, the
greater gamble in appropriating the legal work of another is the potential for embracing
inferior work and claiming it as one's own. Determining whether the work appropriated
by an agency head is inferior as a matter of law is a decision left to the reviewing
judiciary.
Having thus warned even ourselves about the risks of appropriating the
work of others, we pass on the following bit of advice to trial judges and agency heads
alike. We have offered this advice before, Brunson, supra, at 175 fn.1, having borrowed
the words, with attribution, from the United States Supreme Court in United States v. El
Paso Natural Gas Co., supra, which credited the quote to Judge J. Skelly Wright of the
Court of Appeals for the District of Columbia.
[We] suggest to you strongly that you avoid as far as you
possibly can simply signing what some lawyer puts under
your nose. These lawyers, and properly so, in their zeal and
advocacy and their enthusiasm are going to state the case for
their side in these findings as strongly as they possibly can.
When these findings get to the courts of appeals they won't be
worth the paper they are written on as far as assisting the
court of appeals in determining why the judge decided the
case.
Brunson at 175 fn.1 (internal quotations and citations omitted).
In summary, we hold that the Board's adoption of substantial portions of the
Systems' brief does not, in itself, establish that the agency head abdicated its fact-finding
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responsibility. Therefore, Baker's argument that the Board committed reversible error by
failing to make its own findings of fact in violation of KRS 13B.120(1) must fail.
THE ILLEGALITY OF THE SYSTEM'S CROSS-REFERENCING POLICY
Even though we found that Baker gave sufficient notice to the Systems, he
will not prevail on appeal unless the Systems' cross-referencing policy is unenforceable.
Baker's final argument is that this policy lacks underlying authority and violates various
provisions of Chapter 13A. To properly address this argument and apply Chapter 13A,
we must identify the circumstances about which there is no controversy.
Baker's rights as a retiree were established by the General Assembly in
KRS 61.510, et seq. and are contractual and inviolable. KRS 61.692; see also Jones v.
Board of Trustees of Kentucky Retirement Systems, 910 S.W.2d 710, 713 (Ky.1995).
Those rights included the Systems' obligation to pay Baker's monthly health insurance
premium for 1996 in full, not to exceed the monthly state contribution rate for that year
of $175.50. See KRS 61.702(3)(1995). The legislature provided that such right shall “not
be subject to reduction or impairment by alteration, amendment, or repeal.” KRS 61.692.
Equally clear is the fact that the Systems' policy – a policy applicable to all
retirees – reduced or impaired Baker's right by withholding $105.08 of its $175.50
monthly state contribution obligation. The Systems claims it was authorized to do so by:
(1) an unwritten Personnel Cabinet policy dating back at least as far as 1981; (2) a written
Systems policy issued December 29, 1995; and (3) the policy-making authority delegated
by the legislature pursuant to KRS 61.645(9)(a), (b), and (g) to the Systems' General
Manager, Pamala Johnson.
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Because the proper role of an administrative agency is to regulate, the first
question we must answer is whether the Systems' policy is an “administrative regulation,”
and, if it is not, does it qualify as a exception, as defined by KRS 13A.010(2). For the
purpose of answering this question, we focus on the Systems' December 29, 1995, written
policy.
The Systems' Policy is an Administrative Regulation
Whether administrative action constitutes a “regulation” does not depend
on the label the agency attaches to it, such as policy or procedure, but whether it fits the
definition of KRS 13A.010(2). KRS 13A.010(2) defines “administrative regulation”26
expansively as
each statement of general applicability promulgated by an
administrative body that implements, interprets, or
prescribes law or policy, or describes the organization,
procedure, or practice requirements of any administrative
body.
KRS 13A.010(2).27 An administrative regulation is effective only after it is “adopted.”
KRS 13A.010(3). See GTE v. Revenue Cabinet, Com. of Ky., 889 S.W.2d 788, 792 (Ky.
26
Kentucky did not adopt either the 1961 or 1981 version of the Model State Administrative
Procedures Act (MSAPA). See Model State Admin. Proc. Act, Refs. & Annos., Table of
Jurisdictions Where Adopted (1961); Model State Admin. Proc. Act, Refs. & Annos., Table of
Jurisdictions Where Adopted (1981). However, the definition of “administrative regulation”
contained in KRS 13A.010(2), which is identical to the definition of “regulation” contained in its
predecessor statute, KRS 13.080(3)(repealed 1984), is worded nearly identically to the definition
for “rule” contained in Section 1(7) of the 1961 MSAPA.
27
The verb “promulgated” in this definition should be distinguished from the technical term
“adopted” defined in KRS 13A.010(3)(“'Adopted' means that an administrative regulation has
become effective in accordance with the provisions of this chapter[.]”). “Promulgated” should
be given its its “common and everyday meaning[,]” KRS 446.015, which is simply to announce
or make known publicly. However, the legislature uses the terms interchangeably in other
statutes in the chapter. See, e.g., KRS 13A.100(1) and KRS 13A.120(1). We therefore treat
them as synonymous.
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1994)(Agency actions not excepted from the definition of “administrative regulation” and
not adopted “constitute a technical violation of KRS 13A.010(2).”). If an administrative
regulation is not adopted, it does not have the effect of law. Commonwealth, Bd. of
Examiners of Psychology v. Funk, 84 S.W.3d 92, 98 (Ky.App. 2002)(“An administrative
agency may promulgate administrative regulations, and such regulations, if 'duly adopted
and properly filed have the full effect of law.'”; emphasis supplied), quoting United Sign,
Ltd. v. Commonwealth, 44 S.W.3d 794, 798 (Ky.App. 2000).
The legislature, in its wisdom, understood that an administrative agency
would be hamstrung if it could only act by promulgating and adopting an administrative
regulation for every action it needed to take.28 So that an agency could operate internally,
the legislature carved out five specific categories of agency action and excepted them
from the definition of administrative regulation. KRS 13A.010(2)(a)-(e). Such agency
28
UCLA School of Law Professor Emeritus Michael Asimow tells us that the trend among the
majority of states is to follow federal law and allow agencies to adopt informal statements of
policy, referred to as “guidance documents,” without the pre-adoption notice-and-comment
required of administrative rulemaking. Michael Asimow, Guidance Documents in the States:
Toward a Safe Harbor, 54 ADMIN. L. REV. 631, 632, 644 (2002). However, “eight states have
gone in precisely the opposite direction: their statutes and case law explicitly prohibit the
adoption of guidance documents except by complying with [their respective state's] rulemaking
procedures. California is the most prominent of these states[,]”Id. at 644, but Kentucky is also
among them. Id. at 651 (citing KRS 13A.010(2) and KRS 13A.130). In those eight states, the
agencies recognize that
[u]sing notice and comment to adopt every piece of paper that
interprets law or constrains discretion would be prohibitively
expensive in terms of scarce staff resources [and] consume
precious months. . . . Instead, agencies generally adopt these
documents, pejoratively known as 'underground regulations,' and
hope that nobody will notice (or at least nobody will challenge)
them.
Id. at 635.
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actions need not be adopted to be effective. Because the last two exceptions have no
possible applicability to this case, we will describe only the first three. They are
▪ “Statements concerning only the internal management of an
administrative body and not affecting private rights or
procedures available to the public” KRS 13A.010(2)(a)
▪ “Intradepartmental memoranda not in conflict with KRS
13A.130” KRS 13A.010(2)(c)
▪ “Declaratory rulings” KRS 13A.010(2)(b)
The Systems' policy does not fall within the first exception for two reasons:
(1) it is not a “[s]tatement concerning only the internal management of [the]
administrative body” and (2) it did “affect[] private rights” of Baker and all retirees
similarly situated. KRS 13A.010(1)(a). A proper example of this category of exception
would be a policy stating whether a Systems' employee could listen to music at his or her
workstation.
We also conclude that the policy does not fall within the next exception
listed: an “[i]ntradepartmental memoranda not in conflict with KRS 13A.130.” KRS
13A.010(2)(c). We need go no further than to say that the Systems' policy was intended
to apply to all persons who retired from employment with Kentucky state government.
By definition, these persons were not “intradepartmental” personnel. Even if the policy
applied only intradepartmentally, the policy does not satisfy the second part of the
exception (not conflicting with KRS 13A.130(1)) because it modifies or limits a statute –
KRS 61.702(3)(1995), now KRS 61.702(3)(a)5. A proper example of this category of
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exception would be the health benefits plan available intradepartmentally to all Systems
employees.
The third listed exception, declaratory rulings, requires closer examination.
However, we conclude that the Systems' policy was not a “[d]eclaratory ruling.” KRS
13A.010(2)(b).29
Declaratory rulings, per se, have been authorized by the legislature to only
one Kentucky agency – the Board of Nursing. KRS 314.105. While Chapter 13A does
not provide a definition for the term, the meaning ascribed to it by the legislature in KRS
314.105 is consistent with our understanding of how that term is to be interpreted in KRS
13A.010(2)(b). A “declaratory ruling” is an interpretation by an administrative agency of
“the applicability to any person, property, or state of facts of a statute, administrative
regulation, decision, order, or other written statement of law or policy within the
jurisdiction of the board.” KRS 314.105(1); see also, Baltimore City Bd. of School
Com'rs v. City Neighbors, 929 A.2d 113, 136 (Md. 2007)(“[T]he declaratory ruling
procedure was meant to enable persons concerned with a more narrowly focused issue to
obtain binding advice about their particular situation.”).
29
As noted in footnote 24, supra, KRS 13A.010(2) is taken from the definition for “rule”
contained in § 1(7) of the 1961 version of the MSAPA, which includes these very same
exceptions verbatim. However, the legislature apparently chose not to adopt § 8, the section of
the MSAPA that would have authorized all state agencies to issue declaratory rulings. It reads as
follows:
Each agency shall provide by rule [administrative regulation] for
the filing and prompt disposition of petitions for declaratory
rulings as to the applicability of any statutory provision or of any
rule or order of the agency. Rulings disposing of petitions have the
same status as agency decisions or orders in contested cases.
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On the other hand, the legislature has authorized Kentucky agencies other
than the Board of Nursing to render “advisory opinions” which we perceive to be
synonymous with “declaratory rulings.” See, e.g., KRS 6.666(4)(Legislative Ethics
Commission); KRS 11A.110 (Executive Branch Ethics Commission); KRS
121.120(1)(f)(Kentucky Registry of Election Finance); KRS 216B.040(3)(e)(Cabinet for
Health and Family Services); KRS 224.20-515(1)(Small Business Stationary Source
Compliance Advisory Panel of the Environmental and Public Protection Cabinet); KRS
311A.040 (Kentucky Board of Emergency Medical Services).
Despite the fact that the legislature has declined to specifically grant the
Systems the authority to issue either declaratory rulings or advisory opinions, the
Systems claims the policy was authorized by KRS 61.645(9). A description of that
authority is appropriate.
A search of Kentucky statutes will not reveal a grant of agency authority
more broadly worded than that contained in KRS 61.645(9)(g). The legislature
empowered the Board to “do all things, take all actions, and promulgate all
administrative regulations, not inconsistent with the provisions of KRS 61.515 to
61.705.” KRS 61.645(9)(g)(emphasis supplied). A strict and literal interpretation of this
statute would authorize the Systems to exercise every power that did not undermine its
mission. That is different from granting it only so much authority as is necessary to carry
out its mission. However, such a strict and literal interpretation would not promote the
legislative purpose, and we do not believe the legislature's choice of the double-negative
phrase, “not inconsistent with,” was intended to grant more power than would have been
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granted if the more appropriate phrase, “consistent with,” had been used. Therefore, for
purposes of statutory interpretation, we ascribe the same, more restrictive, meaning to
both of these phrases.
Yet the Systems also claims, and its Board held, that the legislature has
granted broad policy-making authority to its general manager under KRS 61.645(9)(a)
and (b).
As chief administrative officer of the Board, Ms. [Pamala]
Johnson is in a policy making position as authorized by
statute and she is not prohibited from issuing an opinion or
administrative decision on behalf of the Board.
(Board Order, Conclusions of Law ¶ 4). The specific provisions the Board relies upon
state:
The board of trustees shall appoint or contract for the services
of an executive director [who] shall be the chief
administrative officer of the board [who is] deemed to be in a
policy-making position[.]
KRS 61.645(9)(a) and (b).
The Systems and its Board misunderstand the statute's primary purpose in
designating Ms. Johnson's position a “policy-making” position. KRS 61.645(9)(a) and
(b) do not constitute a blanket grant to Ms. Johnson of boundless authority to set policy.
Designation of Ms. Johnson as a policymaker has more to do with her compensation and
liability than with any grant of authority. See KRS 61.645(9)(b) and KRS 18A.175; see,
e.g., Cabinet for Families and Children v. Cummings, 163 S.W.3d 425, 431, 435 (Ky.
2005)(“Legislature did not intend for policy makers and managers to be individually
liable under the [Whistleblower] Act. . . . Commonwealth or its agencies are per se liable
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for the acts of a policy maker or manager in violation of the statute.”); compare Heggen
v. Lee, 284 F.3d 675, 683 (6th Cir. 2002)(To some degree, even “a 'football coach' is a
policymaker”; applying Kentucky law).
“[W]hether a particular official has 'final policymaking authority' is a
question of state law[,]” City of St. Louis v. Praprotnik, 485 U.S. 112, 123, 108 S.Ct.
915, 924 (1988)(emphasis removed), citing Pembaur v. City of Cincinnati, 475 U.S. 469,
483, 106 S.Ct. 1292, 1300 (1986), and this Court is responsible for answering that
question. We do not doubt that Ms. Johnson has certain authority. Her “office has all the
indicia of a 'policy-making,' government position which vests its holder with
discretionary power, considerable responsibility, confidence and supervisory authority.”
Garrard County Fiscal Court v. Layton, 840 S.W.2d 208, 210 (Ky.App. 1992). What it
does not do, is exempt the office or officeholder from the safeguards we have established
to protect citizens such as Baker from the arbitrary exercise of that policy-making
authority.
However broad Ms. Johnson's or the Board's power may appear, it is
always subject to “Kentucky's strong stance against vague delegations” of power referred
to as the “nondelegation doctrine.” Board of Trustees of Judicial Form Retirement
System v. Attorney General of the Commonwealth of Kentucky, 132 S.W.3d 770, 781-82,
784 (Ky. 2003)(describing at length the “nondelegation doctrine” in Kentucky). This
doctrine compels us to strictly limit an agency's authority to that clearly delegated and no
more.
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Our common law has long adhered to the doctrine that the powers of
administrative agencies “are limited to those conferred expressly by statute or which exist
by necessary and fair implication. . . . But these implications are never extended beyond
fair and reasonable inferences.” Blue Boar Cafeteria Co. v. Hackett, 312 Ky. 288, 227
S.W.2d 199, 201 (Ky. 1950). “Powers not conferred are just as plainly prohibited as
those which are expressly forbidden[.]” Louisville and Jefferson County Planning
Commission v. Schmidt, 83 S.W.3d 449, 460 fn.14 (Ky. 2001), quoting Allen v.
Hollingsworth, 246 Ky. 812, 56 S.W.2d 530, 532 (1933). Because the legislature did not
delegate to the Systems the authority to render declaratory rulings or advisory opinions, it
is prohibited from doing so, either through the Board or pursuant to any authority
presumed by Ms. Johnson as the Board's chief administrative officer.
Furthermore, the Board has not treated the policy it promulgated as a
declaratory ruling or advisory opinion. One important feature of either is that its validity
is not to be challenged in a Chapter 13B hearing, but is immediately subject to judicial
review. See KRS 314.105(5), supra, (“A declaratory ruling of the board may be appealed
to the Circuit Court[.]”); and KRS § 311A.040(5), supra, (“An advisory opinion of the
board may be appealed to the Circuit Court[.]”). Inconsistent with immediate judicial
review, the Systems required Baker to challenge the policy in a Chapter 13B hearing.
We therefore conclude that the Systems' policy was not a declaratory ruling
as that term is used in KRS 13A.010(2)(b).
There is but one conclusion. The Systems' policy constituted an
administrative regulation, never adopted, and therefore ineffective. Vincent v. Conn, 593
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S.W.2d 99, 100, 101 (Ky.App. 1979)(“[P]olicy of the Bureau for Social Insurance . . .
amounts to a regulation[, but] was not promulgated as required by KRS 13.085 [now
KRS 13A.100], has no effect, KRS 13.085(1) [now KRS 13A.100(2)], and therefore
cannot be used as an independent basis for denying benefits.”). The question remains
whether the policy, now determined to be an unadopted administrative regulation, is
enforceable as law nonetheless.
Administrative Agency Action Subject to Safeguards Against Abuse
Kentucky embraces the concept that the legislature's delegation of power is
valid only to the extent it does not run counter to established “safeguards against abuse
and injustice.” Butler v. United Cerebral Palsy of Northern Ky., Inc., 352 S.W.2d 203,
208 (Ky. 1961)(Adopting the “safeguards” approach and rejecting the “standards”
approach as “mumbo-jumbo.”); see also, Kentucky Commission on Human Rights v.
Barbour, 587 S.W.2d 849, 850-51 (Ky.App. 1979)(Butler “placed Kentucky in the
forefront of states adopting the 'safeguards' test[.]”). Since Butler, our courts have
applied the safeguards analysis after the fact to remedy abuses of agency authority.
In 1984, the legislature wisely enacted Chapter 13A to establish preventive
safeguards30. Three statutes in that chapter are of particular relevance here. They are
KRS 13A.100, KRS 13A.120 and KRS 13A.130. These statutes, indeed all of the
statutes of KRS Chapter 13A, were designed to prevent administrative agencies from
30
KRS Chapter 13A is the successor chapter to KRS Chapter 13. Chapter 13 was originally
enacted in 1952, substantially revised beginning in 1972 to reflect developments in
administrative law, and repealed in 1984 when replaced by Chapter 13A.
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abusing their authority. Should any agency fail to abide by these preventive safeguards,
it is the judiciary's role to remedy the failure.
KRS 13A.100, KRS 13A.120 and KRS 13A.130, read together and in the
context of the definition of “administrative regulation” contained in KRS 13A.010(2),
require the adoption of a regulation every time an agency desires to give legal effect to its
issuance of any “statement of general applicability” or any “other form of action” that the
agency intends to impact any group of individuals other than that agency's own
personnel. Any agency's attempt to modify or vitiate, limit or expand, any statute or
administrative regulation, or to expand or limit a right guaranteed by any regulation,
statute, or the state or federal Constitution using an internal policy such as is before this
Court, is void. KRS 13A.100; KRS 13A.120; KRS 13A.130.
The Systems' Policy is Void
The Systems' policy on cross-referencing violates all three of these
provisions and “is null, void, and unenforceable.” KRS 13A.130(2). Franklin v. Natural
Resources and Environmental Protection Cabinet, 799 S.W.2d 1, 3 (Ky. 1990)(Agency
action “modifies and vitiates the statute, rendering the regulation 'null, void and
unenforceable' as set out in KRS 13A.120(2).”). Because the Systems failed to adopt this
policy as a regulation, it is already suspect. White v. Checkholders, Inc., 996 S.W.2d 496,
498 (Ky. 1999)(“Court limits the deference shown to informal agency interpretations that
have been arrived at without rulemaking or an adversarial proceeding.”). However,
because it essentially creates new law and usurps the authority of the legislature by
limiting KRS 61.702(3)(1995), it is entirely invalid. Hagan v. Farris, 807 S.W.2d 488,
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490 (Ky. 1991)(“KRS 13A.130 prohibits an administrative body from modifying an
administrative regulation by internal policy or another form of action.”); see also Linkous
v. Darch, 323 S.W.2d 850, 852 (Ky. 1959)(Agency “may not by rule or regulation . . .
limit the terms of a legislative enactment.”); Revenue Cabinet v. Humana, Inc., 998
S.W.2d 494, 495-96 (Ky.App. 1998)(KRS Chapter 13A “sets limits upon the
discretionary interpretive powers of agencies by forbidding certain actions by internal
policy or memorandum.”).
Not giving up however, the Systems' asserts that the voiding of its policy
does not affect the fact that Baker failed to satisfy his burden of proving “the propriety of
his scheme for cross-referencing.” We believe the language of KRS 61.702(3)(1995)
sufficiently does exactly that by requiring the Systems to pay its state contribution “in
full.” If we doubted that Baker's interpretation was correct and the Systems' wrong, our
review of the legislative history of “cross-referencing” put that doubt to rest.
Prior to 1998, no mention is made in statute or regulation to crossreferencing. But in that year, the legislature amended a portion of KRS 61.702 to
implement the Systems' policy with regard to a retiree who cross-references with his
spouse. The amended statute states that where there is:
cross-referencing of insurance premiums, the employer's
contribution for the working member or spouse shall be
applied toward the premium, and the Kentucky Retirement
Systems insurance fund shall pay the balance, not to exceed
the monthly contribution
1998 Ky. Acts ch. 105 (H.B. 234) § 20, codified as KRS 61.702(3)(a)4.
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In 2002, the legislature solved this problem of “benefits double-dipping” in
a completely different way by adding the following language to KRS 18A.225:
Any employee who is eligible for and elects to participate in
the state health insurance program as a retiree, . . . shall not be
eligible to receive the state health insurance contribution
toward health care coverage as a result of any other
employment for which there is a public employer
contribution.
2002 Kentucky Laws Ch. 352 (H.B. 846) § 1, codified as KRS 18A.255(13), and
recodified as KRS 18A.225(12). This eliminated the problem that the Systems’ internal
policy sought to address.
In 2004, Kentucky’s legislature amended KRS 61.702 again. This time the
legislation affected members of the retirement system whose participation began after
July 1, 2003. Among other things, it deprives participants of the inviolable nature of the
retirees' health insurance benefits.
The benefits of this subsection provided to a member whose
participation begins on or after July 1, 2003, shall not be
considered as benefits protected by the inviolable contract
provisions of KRS 61.692, 16.652, and 78.852. The General
Assembly reserves the right to suspend or reduce the benefits
conferred in this subsection if in its judgment the welfare of
the Commonwealth so demands.
2004 Ky. Acts ch. 33 (H.B. 290) § 5, codified as KRS 61.702(8)(d).
The Legislature’s incorporation into law of the essence of the Systems’
cross-referencing policy, subsequent to the relevant time-period, has no retroactive effect
on Baker. KRS 446.080(3)(“No statute shall be construed to be retroactive, unless
expressly so declared.”). It does, however, indicate that the Systems' policy was
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inconsistent with the law prior to 1998 for “whenever a statute is amended, courts must
presume that the Legislature intended to effect a change in the law.” Brown v. Sammons,
743 S.W.2d 23, 24 (Ky. 1988); see also Butler v. Groce, 880 S.W.2d 547, 550 (Ky.
1994)(Lambert, C.J., dissenting)(“courts must presume that the amendment of a statute
was intended to change the law.”), citing Whitley County Bd. of Ed. v. Meadors, 444
S.W.2d 890, 891 (Ky. 1969)(“the presumption is that the legislature, by the amendment,
intended to change the law.”) and Blackburn v. Maxwell Co., 305 S.W.2d 112, 115 (Ky.
1957)(“We are compelled to assume that the Legislature had a purpose in mind in
specifically changing the statute as it did-that the changes were intentional and not
fortuitous.”). That change in the law reflected a shift in the law from Baker's correct, pre1998, interpretation to the Systems' then erroneous view of the law as embodied in its
void policy. But the change in the law occurred too late to affect Baker's rights in 1995
and 1996.
We summarize the Systems' attempt to implement law by internal policy as
follows. First, the Systems lacked statutory authority in 1995 to limit Baker's inviolable
contract rights expressed in KRS 61.702(3)(1995). Second, the policy the Systems
promulgated is invalid because it was never “adopted” as an “administrative regulation”
as required by KRS 13A.100, and as those terms are defined in KRS 13A.010(2) and (3).
If the policy had been adopted, it would have violated KRS 13A.120(2)(i) because it
sought to “modify or vitiate a statute [KRS 61.702(3)(1995)] or its intent.” Finally, the
cross-referencing policy is an “internal policy, memorandum or other form of action” that
attempts to modify or limit KRS 61.702(3)(1995), in violation of KRS 13A.130.
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DAMAGES
Baker was entitled to the Systems' payment of the state contribution toward
his health insurance premium “in full.” The Systems failed to make that payment. This
led to a shortfall in the payment of Baker's health insurance premium. If KTRS had not
unilaterally chosen to stop funding Baker's FSA in order to pay the balance of his
premium, Baker would have had to do so. Because KTRS stopped paying into the FSA
in order to pay the balance of the premium the Systems failed to pay, Baker was forced to
reach into his own pocket to fund the FSA for the remainder of 1996 in the amount of
$525.40.
The Systems’ counsel described Baker’s claim for damages as follows:
“Baker is requesting KRS to give him a dollar for dollar reimbursement for money he
contributed into a flexible spending account.” (R.366). We believe this is a correct
assessment of Baker's claim and a correct statement of Baker's measure of damages. We
will order the Systems to pay to Baker the sum of $525.40, a sum more representative of
principle than of principal.
Baker is not entitled to recover the sum of $735.56 claimed as an arrearage
accruing during the first seven months of 1996 when the Systems paid only $70.42 per
month toward his premium. According to the record, that sum was never demanded of
Baker and he never paid it.
Nor is Baker entitled to be paid anything as compensation for years after
1996. He elected not to participate in the FSA program. Therefore, he cannot be said to
have been damaged by having to pay it. Effectively, he waives this claim.
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Inapplicability of the Rule of De Minimus Non Curat Lex
The small sum of money in controversy in this case could quite easily have
camouflaged its significance. And so we deem it necessary to address the rule of de
minimus non curat lex.
The rule translates from the Latin as “The law does not concern itself with
trifles.” BLACK'S LAW DICTIONARY (8th ed. 2004), de minimis non curat lex (Westlaw
through September 2007). But the “trifles” to which the rule refers are not the dollars
involved in a case. That understanding of the rule ignores the proper role of the judiciary.
The courts are not redistributors of wealth. The courts address injustice and enforce
rights, or at least strive to do so. The movement of dollars from party to party is merely a
by-product of the judiciary's work. In our application of the rule of de minimus non curat
lex, the sum of money has never been the primary consideration.
Our review of the rule in Kentucky shows that cases with sums in
controversy as paltry as $6.00 have been addressed and reversed. Wagers v. Sizemore,
222 Ky. 306, 300 S.W. 918, 919 (1927)($69.59 in today's dollars). Where the rule has
not been applied, it is because a legal principle or substantial right was at stake, making
the issue anything but “trifling.” The only cases with which the law in Kentucky will not
concern itself are those where both the amount of money at stake and the legal principle
involved, if any, are trifling.
In Clark v. Mason, 264 Ky 793, 117 S.W.2d 993, 997 (1938), the sum of
$16 was at stake on appeal; that would be about $241 dollars today. The case illustrates
the correct interpretation of the doctrine in Kentucky.
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This general “de minimis” rule is thus announced [that]:
Where the only impropriety in the judgment or decree is a
trifling error in the amount of the recovery which might
have been corrected in the court below, the appellate court
will usually apply the maxim, “de minimis non curat lex,”
and refuse to reverse the judgment or decree on that account.
....
The question is necessarily governed by the discretion of the
court, and where equity and justice demand it, a judgment
will be reversed, even though the amount in controversy is
insignificant.
Clark, 117 S.W.2d at 296(emphasis supplied).
Kentucky courts have uniformly refused to apply the rule in cases such as
Wagers, supra, where substantial rights are at stake. In such cases, “because of their
involvement of matters other than that of merely a small amount erroneously adjudged,
the application of the rule is held to be improper because of its working material
prejudice to such substantial rights involved.” Id. at 297.
In the case sub judice, the rights of a former public servant, a retiree from
state employment, are at stake. In “consideration of benefits received by the state from”
that public servant, no lesser institution than the General Assembly of the
Commonwealth of Kentucky granted and guaranteed those rights by statute in the form of
an inviolable contract, never to be reduced or impaired. KRS 61.692. Applying the rule
of de minimus non curat lex would not only disparage that right, it would dishonor the
commitment of a co-equal branch of our government. And so it would be improper to
apply the rule in this case.
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The significance of this case is reflected in the stubbornness with which
each party strived to prevail. There was never more money at stake than a few hundred,
perhaps a few thousand, dollars. What then would cause Baker, a lawyer, to hire another
lawyer to pursue his case for more than a decade? What would cause the Systems, an
agency of state government that manages total assets exceeding $15,000,000,000,31 to
utilize such substantial resources resisting Baker's claim to such a small amount of
money? A cynic would call it trite, but the answer is obvious. This is a case about rights
and principles, power and authority.
We are, in fact, grateful that the sum of money in controversy is minimal,
for the issue at stake is great. Our system of government is premised upon the concept
that all authority originates with our citizens. When the proper exercise of that authority
is displaced by the abuse of power, it is the judiciary's duty to remedy it, no matter how
few dollars are involved, for the abuse of power feeds upon itself and will inevitably do
greater harm if left unchecked. The rule of de minimus non curat lex has its proper place
in our jurisprudence. But actual injustice is never a trifling matter, and this is particularly
so when the injustice comes at the hands of the government.
CONCLUSION
The Kentucky Retirement Systems, by means of a void internal policy that
never had the effect of law, wrongfully reduced James Baker's inviolable contractual
right to have the Systems pay the full state contribution rate toward his health insurance
31
This figure is taken from the Systems' “Comprehensive Financial Report for Fiscal Year Ended
June 30, 2006,” p. 28, http://www.kyret.com/cafr/cafr2006.pdf. The actual figure is
$15,051,061,000.
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resulting in Baker's suffering monetary damages in the amount of $525.40. The Board's
rejection of the hearing officer's Recommended Order was not supported by substantial
evidence, was arbitrary and was contrary to law. For these reasons, we REVERSE.
IT IS HEREBY ORDERED:
1. That the Order of the Franklin Circuit Court affirming the Board of Trustees'
Report and Order is REVERSED and REMANDED with instructions to order the
Board to reinstate the Recommended Order of the hearing officer with
modifications consistent with this opinion.
2. That the Systems pay to James M. Baker the sum of $525.40.
VANMETER, JUDGE; KNOPF, SENIOR JUDGE, CONCUR IN
RESULT ONLY.
ENTERED: October 19, 2007
/s/ Glenn E. Acree
JUDGE, COURT OF APPEALS
ORAL ARGUMENT AND BRIEFS
FOR APPELLANT:
ORAL ARGUMENT AND BRIEF FOR
APPELLEES:
Donald Duff
Frankfort, Kentucky
Brown Sharp, II
Frankfort, Kentucky
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