BOARD OF TRUSTEES VS. ESTATE OF DAISEY CHANEY
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RENDERED: APRIL 18, 2008; 10:00 A.M.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2007-CA-000426-MR
BOARD OF TRUSTEES OF
THE KENTUCKY RETIREMENT SYSTEMS
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 05-CI-00936
ESTATE OF DAISY CHANEY
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: COMBS, CHIEF JUDGE; CAPERTON AND MOORE, JUDGES.
MOORE, JUDGE: The Board of Trustees of the Kentucky Employees Retirement
Systems (KERS) seeks review of two orders of the Franklin Circuit Court. In one order,
the circuit court set aside the Board’s order adopting a report and recommended order
of a KERS hearing officer in which the officer recommended KERS suspend the
retirement disability benefits of the decedent, Daisy Chaney. In the other order, the
circuit court denied KERS’ motion to alter, amend or vacate the circuit court’s first order.
On appeal, KERS argues that its hearing officer’s recommendation was supported by
substantial evidence, thus concluding that the circuit court erred. However, finding that
the hearing officer’s recommendation was not supported by substantial evidence, we
affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The decedent, Daisy Chaney, was employed as a case worker by the
Cabinet for Human Resources, Department of Social Services. Chaney worked for the
Cabinet for over seventeen and one-half years. During that time, Chaney developed a
number of physical ailments and suffered from depression. In June 1994, Chaney filed
an application with the Kentucky Employees Retirement Systems (KERS) for retirement
disability benefits. In her application, Chaney claimed that she was unable to perform
her duties as a case worker due to her physical and mental condition. However, KERS’
medical review board denied Chaney’s application. Eventually, Chaney appealed her
claim to the Disability Appeals Committee, which denied her application.
After the Disability Appeals Committee denied her claim, Chaney filed
another application in May 1996, claiming again that she was physically and mentally
incapable of working. Initially, the medical review board denied Chaney’s second
application. After further consideration, it approved her application, awarding her
retirement disability benefits. 1
For the next several years, Chaney received benefits from KERS.
However, in 2003, Chaney submitted medical records from her primary care physician,
Dr. Morris L. Peyton, for KERS’ medical review board to consider in deciding whether
KERS should continue paying benefits to Chaney. After reviewing Dr. Peyton’s latest
records, KERS’ medical review board recommended that Chaney’s benefits be
1
While the letter in which KERS informed Chaney that she had been approved did not state the
grounds on which KERS’ decision was based, the parties do not dispute that KERS approved
her application due to her psychiatric problems of depression and anxiety.
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suspended. Chaney appealed this decision to the Board of Trustees, but the Board
affirmed the medical review board’s decision. Subsequently, Chaney requested a
hearing before a hearing officer regarding the termination of her retirement disability
benefits.
After Chaney learned of the Board’s decision, she began treatment with
Dr. Robert J. Bunge, a general psychiatrist. Dr. Bunge opined that Chaney suffered
from major depression and he opined that “she is disabled from working due to her
depressed mood, difficulties interacting with others, difficulties handling stress, and
diminished concentration.” In February 2004, Chaney submitted to an independent
psychological evaluation conducted by Dr. Paul A. Ebben, a forensic psychologist. Dr.
Ebben subjected Chaney to numerous tests; after testing, he diagnosed Chaney with
chronic major depression that was mild to moderate in severity and with generalized
anxiety disorder. Dr. Ebben also rendered the following forensic opinions:
There is evidence that [Chaney] continues to suffer from
Major Depression and Generalized Anxiety Disorder. These
are the same conditions from which she was suffering when
she was approved for disability retirement benefits in June of
1996. There is evidence that she is experiencing a mildmoderate level of emotional distress, and perhaps mildmoderate functional impairment secondary to these
conditions. With appropriate and comprehensive treatment,
these conditions should not be totally disabling, and should
not result in a total incapacity to perform the duties of her
most recent position. Mrs. Chaney clearly told me that it was
“the entire package” of job stress that resulted in the
exacerbation of depression, and it is my understanding that
emotional distress secondary to what might be considered
typical or normal job stress would not be a qualifying factor
for disability retirement benefits. Whether that is a pertinent
issue at this juncture, as it relates to someone who has
already been approved for benefits, I am not sure.
Nevertheless, mild-moderate depression and anxiety is [sic]
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not considered totally disabling. Appropriate treatment
would improve prognosis, which is currently fair.
With regard to the permanency issue, I suspect that Mrs.
Chaney is going to continue to experience depression and
anxiety for a period of time not less than 12 months from this
evaluation, but again, that level of distress should abate with
appropriate and comprehensive treatment. It seems that
she has only resumed psychiatric care over the past few
months, and although she may have been receiving some
medicine through a primary care physician, that is not
sufficient. With proper medication management by a
psychiatrist, and regular, formal, structured psychotherapy
with a trained and experienced psychotherapist, further
improvement is expected, to the point where she would be
able to resume a level of social and occupational functioning
that would allow her to resume work in her most recent
position.
Several months after Chaney was evaluated by Dr. Ebben, Chaney died
from lung failure. After Chaney died, her estate continued her appeal. In April 2005, a
KERS’ hearing officer issued a report and recommended order. In the hearing officer’s
report, he took note of Dr. Ebben’s evaluation, summarizing Dr. Ebben’s opinion as
“while [Chaney] may continue to experience depression and anxiety, the conditions are
mild to moderate and not disabling with appropriate treatment.” 2 The hearing officer
also took note of Dr. Bunge’s records regarding Chaney but discounted the
psychiatrist’s opinions because he did not conduct any tests. Additionally, the hearing
officer took note of Dr. Peyton’s office records. The hearing officer found that Dr.
Peyton had noted that (1) Chaney was depressed in July 2003; (2) was evaluated by
Kentucky River Comprehensive Care in the past; and (3) that he would send Chaney
back to Comprehensive Care if needed.
2
In the hearing officer’s report, he also summarized the medical evaluations that were the basis
of KERS’ denial of Chaney’s first application although those evaluations were irrelevant to
resolving Chaney’s administrative appeal.
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After discussing the medical evidence, the hearing officer set forth the
following findings of fact:
Claimant [Chaney] was approved for disability retirement
benefits due to her mental impairments, not her physical
complaints. There are scant records submitted following her
approval related to her mental incapacity. Likely because
the Claimant discontinued psychiatric treatment some time
after she was approved for disability. She reported to Dr.
Ebben in [2004] that she had not . . . sought counseling for
at least 2-3 years.
The records indicate the Claimant sought treatment again
only after her benefits were going to be discontinued and her
counsel referred her to Dr. Bunge for evaluation. While Dr.
Bunge opined that the Claimant was still disabled by her
mental impairments, he conducted no testing and was
basing his opinion solely on her subjective reports of
incapacity. Additionally, Claimant reported improvement in
her depression with only a few sessions and a change in her
medication.
Claimant’s treating physician, Dr. Peyton, indicated in his
office record [in] July 2003, that he would send her for
psychiatric treatment again if needed. It appears that even
Dr. Peyton did not find her depression/anxiety to be that
incapacitating so as to require treatment other than
medication.
Based on the findings of fact supra, the hearing officer made the following conclusions
of law:
After careful consideration of the evidence, the Hearing
Officer concludes that the records establish that the
Claimant was no longer incapacitated by her mental
impairments and recommends that her benefits be
DISCONTINUED.
Subsequently, the Board of Trustees adopted the hearing officer’s report and
recommended order in its entirety, making it final and appealable.
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Once KERS terminated Chaney’s retirement disability benefits, her estate
filed a complaint with the Franklin Circuit Court seeking, pursuant to KRS 61.665(5) and
KRS 13B.140, appellate review of the Board of Trustees’ final order adopting the
hearing officer’s report. In the estate’s complaint, it argued that KERS’ termination of
Chaney’s benefits was arbitrary, capricious and not supported by substantial evidence.
The circuit court noted that the record contained no evidence addressing whether
Chaney’s mental condition improved, became worse or continued without change in the
preceding two to three years in which Chaney did not seek counseling. According to
the circuit court, the only evidence was Dr. Ebben’s opinion that if Chaney received
twelve months of therapy, then her mental condition would improve to such an extent
that she could return to work. Also, the court noted that KERS had asserted that
Chaney’s condition was not permanent because she could have improved with twelve
months of therapy. Citing KRS 61.600, the court reminded the parties that the General
Assembly had defined “permanent” for the purposes of retirement disability benefits as
an incapacity that could be expected to last continuously for a period of not less than
twelve months. According to the circuit court, KERS’ assertion that Chaney’s incapacity
was not permanent was based on the assumption that her mental condition would have
improved before completion of the twelve months of recommended therapy. The circuit
court held that the record could not support this proposition because Chaney died within
twelve months of Dr. Ebben’s recommendation.
The circuit court held that
[b]ecause Mrs. Chaney died prior to completion of 12
months of therapy and without any contemporaneous
determination of current recovery, it is clear Mrs. Chaney
was disabled at the time of the review. KRS 61.615(2)
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provides that benefits may be discontinued “[i]f the board’s
medical examiner determines that a recipient of a disability
retirement allowance is, prior to his normal retirement date,
no longer incapacitated.” (Emphasis added). The
Retirement System is not authorized to discontinue benefits
on the basis that an employee may no longer be
incapacitated at a future date prior to regular retirement if
she continues on a certain treatment.
Based on this reasoning, the circuit court set aside KERS’ termination of Chaney’s
retirement disability benefits.
In response to the court’s ruling, KERS filed a motion to alter, amend or
vacate. In its order addressing KERS’ motion, the court noted that it appeared that the
only post-approval evidence that the hearing officer considered credible was Dr.
Ebben’s 2004 evaluation. The court did an in-depth analysis of Dr. Ebben’s evaluation
and noted that Dr. Ebben stated in his report that with appropriate, comprehensive
treatment, Chaney’s major depression and her generalized anxiety disorder should not
be totally disabling and should not result in Chaney being totally incapacitated. The
court noted that KERS focused on a part of a sentence in Dr. Ebben’s report that read,
“mild-moderate depression and anxiety is not considered totally disabling[,]” and that
KERS claimed that this sentence proved that Chaney was not disabled at the time Dr.
Ebben evaluated her. However, the circuit court rejected this proposition because Dr.
Ebben stated that Chaney’s conditions should not be disabling with appropriate
treatment. The circuit court concluded that Dr. Ebben opined that Chaney could have
recovered with appropriate treatment, but he never found that she had recovered.
Thus, the circuit court denied KERS’ motion to alter, amend or vacate.
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II. STANDARD OF REVIEW
Regarding the standard of review in administrative appeals including those
from KERS, the Court of Appeals stated
[w]hen the decision of the fact-finder is in favor of the party
with the burden of proof or persuasion, the issue on appeal
is whether the agency’s decision is supported by substantial
evidence, which is defined as evidence of substance and
consequence when taken alone or in light of all the evidence
that is sufficient to induce conviction in the minds of
reasonable people. Where the fact-finder’s decision is to
deny relief to the party with the burden of proof or
persuasion, the issue on appeal is whether the evidence in
that party’s favor is so compelling that no reasonable person
could have failed to be persuaded by it. “In its role as a
finder of fact, an administrative agency is afforded great
latitude in its evaluation of the evidence heard and the
credibility of witnesses, including its findings and conclusions
of fact.” Causation generally is a question of fact. A
reviewing court is not free to substitute its judgment for that
of an agency on a factual issue unless the agency’s decision
is arbitrary and capricious.
McManus v. Kentucky Retirement Systems, 124 S.W.3d 454, 458-459 (Ky. App. 2003)
(citations omitted).
III. ANALYSIS
In KERS’ brief, it points out that in the report of Dr. Ebben’s evaluation, he
stated that “mild-moderate depression and anxiety is [sic] not considered totally
disabling.” KERS claims that its hearing officer relied on this isolated sentence and that
this proves that Dr. Ebben had opined that Chaney was not incapacitated at the time of
the KERS’ 2003 review. Furthermore, KERS avers that the record shows that Chaney
stopped attending counseling shortly after receiving retirement disability benefits.
According to KERS, if Chaney’s mental condition was disabling, then she would have
sought treatment for it as she did prior to being approved for benefits. Consequently,
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KERS reasons that Chaney’s failure to attend counseling demonstrates that her mental
condition had improved. In addition to the fact that Chaney stopped attending
counseling, KERS notes that Dr. Peyton stated in his office notes that Chaney had been
evaluated at Kentucky River Comprehensive Care and that he, Dr. Peyton, would refer
Chaney back to Comprehensive Care if needed. KERS asserts that this statement
constitutes evidence that Chaney’s mental condition was not as severe as it was when
KERS awarded benefits to her. According to KERS, Dr. Ebben’s evaluation, Chaney’s
failure to attend counseling, and Dr. Peyton’s failure to refer Chaney to Comprehensive
Care constitute substantial evidence supporting the hearing officer’s recommendation to
terminate Chaney’s benefits.
According to KRS Chapter 61, an employee of the Commonwealth may
retire on disability if, since the last date of employment, the employee is mentally or
physically incapacitated. An employee is incapacitated if he is unable to perform his job
or a job of like duties and his incapacity is permanent. KRS 61.600(1) and (3)(a)-(c).
An employee’s incapacity will be considered permanent if it is expected to continuously
last for a period of not less than twelve months from the employee’s last day of paid
employment. KRS 61.600(5)(a). Once an employee has been approved to receive
retirement disability benefits, KERS may discontinue such benefits if it determines that,
prior to the employee’s normal retirement date, he is no longer incapacitated. KRS
61.615(2). In the present case, KERS had the burden of proof because it was seeking
to terminate Chaney’s previously approved retirement disability benefits.
Now, before this Court, KERS argues that the hearing officer’s
recommendation was supported by three pieces of substantial evidence. KERS argues
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that the fact that Chaney discontinued counseling two to three years prior to the 2003
review proved that her mental condition had improved and that she was no longer
incapacitated. To be substantial evidence, a piece of evidence must be “sufficient to
induce conviction in the minds of reasonable people.” McManus, 124 S.W.3d at 458.
The fact that Chaney discontinued counseling is not affirmative evidence, in and of
itself, that she was no longer incapacitated. It may, however, be considered
circumstantial evidence because one could reasonably infer that she discontinued
counseling having experienced improvement.
KERS’ burden was not just to prove that Chaney experienced an
improvement in her condition but that she experienced such an improvement she was
no longer incapacitated as that term is defined in KRS 61.600. For KERS to be
successful, one must reasonably infer that Chaney’s discontinuation of counseling
constituted substantial evidence that she improved to the extent that she was no longer
incapacitated. While Chaney’s discontinuation of counseling may be sufficient to
support potential improvement in her condition, it is not sufficient to induce in the minds
of reasonable people that Chaney was no longer incapacitated.
For the same reasons, the fact that Dr. Peyton stated that he would refer
Chaney back to Comprehensive Care if needed is not substantial evidence. As with
Chaney’s discontinuation of counseling, one can reasonably infer from Dr. Peyton’s
statement that Chaney’s depression had improved. However, one cannot reasonably
infer from that statement that she improved to such an extent that she was no longer
incapacitated. To summarize, these two pieces of evidence do not constitute
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substantial evidence that Chaney was no longer incapacitated; consequently, the
hearing officer’s report and, ultimately, the Board of Trustee’s decision were arbitrary.
KERS also argues that Dr. Ebben’s evaluation supported the hearing
officer’s decision. Specifically, KERS insists that the statement in Dr. Ebben’s report
that “mild-moderate depression and anxiety is not considered totally disabling[,]” meant
that Dr. Ebben had concluded that Chaney was not incapacitated. However, turning to
the hearing officer’s report, we find that he noted that Dr. Ebben had opined that
Chaney’s conditions would not be disabling with appropriate treatment. Nowhere in his
report did he claim that Dr. Ebben’s opinion was that Chaney was no longer
incapacitated. A review of the hearing officer’s report reveals that he neither cited the
sentence fragment set forth by KERS nor did he rely on Dr. Ebben’s evaluation in
making his recommendation.
Assuming for the sake of argument that the hearing officer had relied upon
Dr. Ebben’s statement that “mild-moderate depression and anxiety is not considered
totally disabling[,]” this is not sufficient to induce in the minds of reasonable people that
Chaney was no longer incapacitated. Turning to Dr. Ebben’s report, we find that he
opined that
[w]ith proper medication management by a psychiatrist, and
regular, formal, structured psychotherapy with a trained and
experienced psychotherapist, further improvement is
expected, to the point where she would be able to resume a
level of social and occupational functioning that would allow
her to resume work in her most recent position.
KERS was required to prove that Chaney was capable of returning to work at the time
of the review. Despite KERS’ insistence to the contrary, this was not Dr. Ebben’s
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conclusion; consequently, his evaluation, either in whole or in part, does not constitute
substantial evidence supporting the hearing officer’s recommendation.
Because the hearing officer’s report and recommended order were not
supported by substantial evidence, the Franklin Circuit Court correctly set aside the
Board of Trustees’ order adopting the hearing officer’s recommendation. Consequently,
the decision of the Franklin Circuit Court is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Brian C. Thomas
Frankfort, Kentucky
James Dean Liebman
Frankfort, Kentucky
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