BOARD OF TRUSTEES OF THE KENTUCKY RETIREMENT SYSTEMS VS. HAYWOOD (LINDA)
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RENDERED: JULY 22, 2011; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2010-CA-001204-MR
BOARD OF TRUSTEES OF THE KENTUCKY
RETIREMENT SYSTEMS
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 08-CI-01916
LINDA HAYWOOD
APPELLEE
OPINION
VACATING, REVERSING, AND REMANDING
** ** ** ** **
BEFORE: DIXON, KELLER, AND VANMETER, JUDGES.
KELLER, JUDGE: The Board of Trustees of the Kentucky Retirement Systems
(the Board) appeals from the circuit court's order reversing the Board's finding that
Linda Haywood (Haywood) did not qualify for disability retirement benefits. On
appeal, the Board argues that Haywood failed to file exceptions to the hearing
officer's recommended order, thus failing to preserve any issues for review; that the
circuit court inappropriately relied on evidence outside the record in reversing the
Board; that the circuit court impermissibly shifted the burden of proof from
Haywood to the Board; that the circuit court incorrectly stated that the Board did
not consider Haywood's medical proof as objective evidence; and that the circuit
court inappropriately substituted its findings for the Board's. Haywood argues to
the contrary and asserts that the Board has a fiduciary duty to her, which it
violated. Furthermore, Haywood argues that the Board's role as both fiduciary and
fact-finder creates an impermissible and incurable conflict of interest. Having
reviewed the evidence and the arguments of the parties, we vacate, reverse, and
remand.
FACTS
Haywood sought disability retirement benefits alleging that she was
totally disabled because of "reflux esophagus," Lupus, peripheral neuropathy,
migraine headaches, loss of muscle mass and/or weight loss, and "hysterectomy."
At the time Haywood filed for benefits, she had 246 months of service credit. The
medical review board recommended denial of Haywood's application based on a
lack of objective evidence to support her claim of permanent total disability, and
Haywood requested a hearing. Following that hearing, the hearing officer issued a
recommended order finding that Haywood had failed to prove that she suffered
from permanent disability related to her medical conditions. Haywood did not file
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exceptions to the recommended order, and the Board adopted the recommended
order without making any substantive changes.
Haywood sought review of the Board's order in circuit court. The
Board filed a motion to dismiss, arguing before the circuit court as it does here,
that Haywood's failure to file exceptions to the hearing officer's recommended
order acted to bar any further appeal. Haywood argued that the hearing officer's
recommended order did not adequately advise her of her appellate rights and
responsibilities and that Kentucky Revised Statute(s) (KRS) 13B.110 violates the
equal protection provisions of the Kentucky and U.S. Constitutions.1
Following a hearing on the Board's motion, the circuit court ordered
the Board to produce all orders from the preceding three years, wherein the Board
disregarded a hearing officer's recommendation of denial of benefits. According to
the court, this information was necessary for it to determine if filing exceptions
would have been an unnecessary exercise in futility.
The Board then sought writs of prohibition and mandamus from this
Court seeking an order prohibiting the circuit court from ordering production of
those records and requiring the circuit court to grant the Board's motion to dismiss.
This Court granted the writ of prohibition, finding that the circuit court could not
order the production of the requested documents. However, this Court denied the
writ of mandamus.
1
We note that Haywood does not specifically argue this equal protection issue before us;
therefore, we do not further address it.
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The circuit court then issued an order setting a briefing schedule and
inviting the parties to discuss whether filing exceptions in this case would have
been an exercise in futility. Furthermore, the court invited the parties
to supplement their briefs on the pending motion to
dismiss with citation to any case law, or any final
administrative decision of the Kentucky Retirement
Systems (KRS), in which a KRS hearing officer has
recommended denial of disability benefits, but that
recommendation was rejected by the final administrative
decisionmaker [sic] and benefits were awarded to the
claimant at the administrative level.
The parties argued the issue in their briefs, but neither party filed copies of any
other final administrative decisions.
After reviewing the briefs, the circuit court issued its opinion and judgment
reversing the Board and ordering it to award Haywood benefits. This appeal
followed.
We set forth additional facts below as necessary to address the issues
raised by Haywood on appeal.
STANDARD OF REVIEW
If the party with the burden of proof is denied relief by the fact-finder,
“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.” McManus v.
Kentucky Retirement Systems, 124 S.W.3d 454, 458 (Ky. App. 2003). We reverse
the Board's findings of fact only upon a showing that the Board acted arbitrarily.
See Bowling v. Natural Res. & Envtl. Prot. Cabinet, 891 S.W.2d 406, 409 (Ky.
App. 1994). However, we review questions of law de novo. Carroll v. Meredith,
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59 S.W.3d 484, 489 (Ky. App. 2001). With these standards of review in mind, we
analyze the issues raised by Haywood on appeal.
ANALYSIS
1. Failure to File Exceptions
The circuit court found as follows:
The KERS argue that Haywood has failed to preserve
any issues on appeal because she failed to file exceptions
to the hearing officer's report and recommended order.
The hearing officer's report and recommendation
included the following notice regarding Haywood's right
to file exceptions:
Pursuant to KRS 13B.110, each party shall
have fifteen (15) days from the date of the
Recommended Order to file exceptions with
the Board of Trustees of the Kentucky
Retirement Systems.
The KERS' one-page cover memorandum accompanying
the hearing officer's report and recommended order
stated the following:
Attached please find the Hearing Officer's
recommended order regarding your appeal.
You may file exceptions as provided for in
KRS 13B and outlined in the
recommendations.
KRS 13B.110(1) provides that "[t]he Recommended
Order shall . . . include a statement advising parties fully
of their exception and appeal rights." [Emphasis added.]
The notices quoted above did not fully advise Haywood
of her actual rights relative to the filing of exceptions
because it neglected to inform her that the failure to file
exceptions would eliminate, or at least severely limit, the
issues that may be raised on appeal.
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While this Court is familiar with the holding in Rapier v.
Philpot, 130 S.W.3d 560 (Ky. 2004), the circumstances
of that case are distinguishable from cases [sic] involving
this appeal. Rapier involved an appeal of a decision of
the Kentucky Personnel Board, a Board that has no
contractual or fiduciary relationship to the parties before
it beyond a basic constitutional requirement to conduct a
fair and impartial hearing. Moreover, the Personnel
Board has no pecuniary interest in the outcome of a case.
In contrast, in the case at bar, Haywood, like all other
disability claimants, is a member of the Kentucky
Retirement Systems to whom the Systems' Board owes a
fiduciary duty under KRS 61.650, KRS 61.645 and KRS
61.692. This duty extends to the Board's contract hearing
officer, who conducts the administrative hearing as the
Board's designated agent.
The KERS has publicly acknowledged that the state
pension fund is short of funds. Denial of a disability
retirement claim increases the amount of money
remaining in the depleted pension fund. Whether or not
the Board has been acting in good faith in reviewing
disability retirement claims, this current state of affairs
raises the specter of a conflict of interest sufficient at
least to require the Board to put its own members on
clear notice that failure to file exceptions to an adverse
hearing officer's report and recommendation will result in
denial of the claim and will forfeit any right of judicial
review.
Here, the KERS is the agency that adjudicates disability
claims. It is also the agency that must pay the benefits
from its limited funds appropriated by the legislature and
contributed by its members. There is an inherent conflict
of interest between the role of KERS as an adjudicator of
claims, and its role as payor of claims. The federal courts
have noted this inherent conflict of interest in the similar
context of decisions in ERISA cases, holding that "where
the interpreter of the plan both decides what claims are
paid and ultimately pays those claims, ‘there is an actual,
readily apparent conflict . . . not a mere potential for
one.[’]" Killian v. Healthsource Provident Adm'rs., 152
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F.3d 514, 421 [sic] (6th Cir. 1998). In light of this
conflict, in this case, the Court holds that the failure of
the KERS to notify the Plaintiff that the failure to file
exceptions would preclude judicial review renders the
notice here defective, and accordingly, the failure to file
exceptions cannot fairly be applied to bar judicial review.
The Court further finds that filing exceptions would have
been an exercise in futility in this case. The Court has
invited the KERS to present authority in the form of any
final order of this agency reversing a hearing officer's
recommendation and awarding benefits as [a] result of
exceptions filed by the claimant. The KERS has failed to
provide any such authority. The Court is forced to
conclude that filing exceptions would be an exercise in
futility, as the Board has been unable to demonstrate that
the filing of exceptions to a hearing officer's report
recommending denial of benefits has ever resulted [in]
awarding benefits to a claimant. In the absence of a
single administrative precedent from this agency in
which the filing of exceptions has ever resulted in the
award of benefits, this Court must conclude that filing of
exceptions before this agency is an exercise in futility.
See Kentucky Retirement Systems v. Lewis, 163 S.W.3d
1, 3 (Ky. 2005), Adkins v. Commonwealth, 614 S.W.2d
950, 953 (Ky. App. 1981).
Because this Court has jurisdiction over appeals from
many state agencies, it is familiar with notices used
across state government and there are many examples of
notices that do, in fact, fully inform as required by KRS
13B.110, including the Personnel Board, the Kentucky
Horse Racing Commission, and many other agencies.
Although the Personnel Board's very minimal notice,
similar to the notice of the KERS here, was upheld in
Rapier, subsequently the Personnel Board has voluntarily
expanded its notice to let state employees know that the
failure to file exceptions will result in a bar to judicial
review. Ironically, although the Board of Trustees has a
fiduciary duty to its members while the Personnel Board
has no fiduciary duty, the Personnel Board . . .
....
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notice informs the parties not only of the time allowed
for the filing of exceptions but of the consequences of
failing to do so, and also includes a specific citation to
the relevant case law. Given the heightened duty the
Board of Trustees of the Kentucky Retirement Systems
has to its members, including those applying for
disability retirement, this Court finds that the notice
included by the Personnel Board constitutes the
minimum notice that the KERS should give to its
members who are pursuing an administrative remedy
before the agency. The Court finds that notice used in
Ms. Haywood's case is sufficiently defective to preclude
striking of Appellant's Brief.
So long as the applicant's arguments were presented to
the hearing officer and rejected by the agency, this Court
finds those arguments are adequately preserved for
review in this Court. The exhaustion of remedies
doctrine is designed to require litigant[s] to present their
arguments to the agency, and to give the agency a fair
opportunity to consider those arguments, not to create a
procedural minefield for unwary litigants and counsel.
So long as the agency was presented with a fair
opportunity to consider all arguments, all issues
presented to the agency should be considered on judicial
review. Haywood presented all arguments to the hearing
officer, who rejected them. The agency, which owes her
a fiduciary duty of full disclosure, did not inform her that
failure to file exceptions would result in forfeiture of the
right of judicial review. The agency, based on the record
in this case, has never sustained objections to a hearing
officer's report recommending denial of benefits. On
these facts it cannot be said that the filing of exceptions is
a necessary prerequisite to obtaining judicial review of
the agency's final action adopting the hearing officer's
report.
We begin our analysis by noting that administrative proceedings regarding
issues of entitlement to disability retirement benefits are conducted pursuant to the
provisions of KRS Chapter 13B. KRS 13B.020. Pursuant to that Chapter, a
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hearing officer is required to forward a recommended order to the Board and the
parties, containing findings of fact, conclusions of law, a recommendation
regarding disposition, and "a statement advising parties fully of their exception and
appeal rights." KRS 13B.110(1). Each party has fifteen days from the date the
recommended order is mailed to file exceptions to that order. KRS 13B.110(4).
Within ninety days after submission of the recommended order, the Board is
required to render a final order, taking into consideration the record, the
recommended order, and any exceptions. KRS 13B.120(4). Within thirty days
after the Board mails its final order, any party may seek judicial review by filing a
petition in circuit court. KRS 13B.140(1). Absent allegations of fraud or
misconduct, the circuit court's review is confined to the record. KRS 13B.150(1).
The court may not substitute its judgment for the Board's as to the weight of the
evidence on questions of fact. However, the court may reverse the Board's final
order if it finds that the Board: violated constitutional or statutory provisions; acted
arbitrarily, capriciously, or outside its authority; abused its discretion; or rendered a
final order not supported by substantial evidence. KRS 13B.150(2).
The Board argues before us that the circuit court acted beyond the scope of
its authority because Haywood skipped one step in the above process – filing
exceptions to the recommended order. The circuit court determined that step was
not necessary because the recommended order did not fully apprise Haywood of
her right to file exceptions; and filing exceptions would have been an exercise in
futility. We disagree with the circuit court.
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a. Adequacy of Notice
The Board argues that the notice in the recommended order regarding
Haywood's right to file exceptions was adequate.2 As noted by the circuit court in
Rapier v. Philpot, 130 S.W.3d 560 (Ky. 2004), the Supreme Court of Kentucky
addressed the adequacy of a Personnel Board hearing officer's notice of the right to
file exceptions. In Rapier, the hearing officer's recommended order stated that:
"Any Exceptions and/or requests for Oral Argument hereto shall be filed within
fifteen (15) days hereof and any Response to Exceptions shall be filed with [sic]
five (5) days of the date the Exceptions are filed with the Board." Id. at 564. The
Court concluded that this language "fully advised [the appellant] of his right to file
exceptions." Id.
The hearing officer's recommended order herein contained the following
language: "EXCEPTIONS Pursuant to KRS 13B.110, each party shall have
fifteen (15) days from the date of this Recommended Order to file to file [sic]
exceptions with the Board of Trustees of the Kentucky Retirement Systems."
(Emphasis in original.) The circuit court found the hearing officer's statement to
be deficient for two reasons: (1) the notice did not set forth the consequences for
failure to file exceptions; and (2) the Board has a fiduciary duty to its members and
is thus required to provide a more complete notice than the Court required of the
Personnel Board.
2
In oral argument, counsel for the Board stated that it has altered the notice it provides to
claimants, based in part on the circuit court's order herein.
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As to the circuit court's first reason, we note that three Justices in Rapier
argued that the Personnel Board's notice was deficient because it did not address
the consequences for failure to file exceptions. The majority of the Supreme Court
considered and rejected that argument. While the Court may choose to revisit the
argument, we cannot because we are bound to follow precedent. Rules of the
Supreme Court (SCR) 1.030(8)(a). Therefore, we hold that, pursuant to the
holding in Rapier, the notice in this case, in and of itself, was not deficient.
We also decline to accept the circuit court's second reason. The circuit court
is correct that the Board has a fiduciary duty to the members and beneficiaries of
the retirement system, including Haywood. Part of that fiduciary duty is to
impartially take "into account any differing interests of members and
beneficiaries." KRS 61.650(1)(c)4. Thus, the Board is required to protect the
retirement systems' funds by balancing the interests of those who seek and/or are
receiving benefits with those who are paying into the system. By providing notice
of the right to file exceptions as set forth by the Supreme Court, the Board, through
its hearing officers, is fulfilling that duty. Certainly, the Board could provide
information regarding the consequences for failure to file exceptions; however,
neither the statute nor the Supreme Court mandate the provision of that
information.
Based on the above, we hold that the notice provided by the hearing officer
was adequate and the circuit court's finding to the contrary was error. However,
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we agree with the circuit court that the Board could provide notice advising parties
of the right to file exceptions as well as the consequences for failing to do so.
Finally, on this issue, we note that, in its "cover letter" to Haywood, the
Board stated that exceptions "may" be filed. We understand how this could have
caused confusion for Haywood; however, because the recommended order
contained the required language, we discern no reversible error in the language in
the Board's cover letter. If this cover letter is a standard form letter, which we
suspect it is, we urge the Board to correct the language therein so that, at a
minimum, it is consistent with the language in Rapier and recommended orders.
b. Impact of Failure to File Exceptions
Having determined that the notice language in the recommended order was
not deficient, we must next determine what impact Haywood's failure to file
exceptions had on her claim. In Rapier, the Supreme Court held that failure to file
exceptions does not preclude final review by an agency. Furthermore, during that
review, the agency is not limited to only those issues raised by any exceptions.
However,
[u]nder Chapter 13B, the filing of exceptions provides
the means for preserving and identifying issues for
review by the agency head. In turn, filing exceptions is
necessary to preserve issues for further judicial review.
Cf. Eiland v. Ferrell, Ky., 937 S.W.2d 713, 716 (1997)
(failure to file objections to a domestic relations
commissioner's report adopted by the trial court
precluded challenging, on appeal, whether the trial
court's order was supported by sufficient evidence).
Under Kentucky law, this rule of preservation precludes
judicial review of any part of the recommended order not
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excepted to and adopted in the final order. Cf. United
States v. Central Bank & Trust Co., Ky., 511 S.W.2d
212, 214 (1974). (The failure to file written objections to
a commissioner's report precluded aggrieved party from
“questioning on appeal the action of the circuit court in
confirming the commissioner's [report].”) Thus, when a
party fails to file exceptions, the issues the party can raise
on judicial review under KRS 13B.140 are limited to
those findings and conclusions contained in the agency
head's final order that differ from those contained in the
hearing officer's recommended order.
Rapier, 130 S.W.3d at 563-64.
Despite the Supreme Court's holding in Rapier, the circuit court determined
that Haywood was not required to file exceptions to preserve the issues she raised
in her petition for review. In doing so, the court found that the filing of exceptions
would have been an exercise in futility because the Board had not produced any
evidence that its final orders ever varied from hearing officers' orders
recommending denial of benefits.
The circuit court's finding is in error because its review is limited to the
record. KRS 13B.150. As previously noted, the circuit court ordered the Board to
produce evidence on the issue of futility, an order this Court found to be
inappropriate. The circuit court invited the Board to produce the evidence, an
invitation the Board did not accept. The circuit court then used the Board's failure
to produce evidence it had no obligation to produce to support the finding of
futility. Thus, the circuit court drew an inference from evidence not in the record,
an act it is not permitted to do. Id. Because the circuit court's finding of futility
was not supported by the record, it was not appropriate and must be vacated.
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Having determined that Haywood was not exempt from the requirement to
file exceptions, we must determine what consequence that failure had. The Board's
final order did not differ from the recommended order, except for the change of a
typographical error. Therefore, the circuit court was precluded from addressing the
issues Haywood raised in her petition, and it should have affirmed the Board's final
order.
Based on the above holding, we need not address the other issues raised by
the Board on appeal. However, for the sake of completeness, we briefly do so.
2. Shifting of Burden of Proof
The Board argues that the circuit court impermissibly shifted the burden of
proof to it. We agree.
In support of her claim, Haywood testified regarding her work
activity. At the time she filed for benefits, Haywood worked as the director of a
senior citizens center in Pike County. During the hearing, Haywood testified that
through the years the center's budget and staff decreased. As a result, Haywood
had to assume responsibility for more and more hands-on job duties, including
transporting clients and food, picking up donated items, unloading deliveries of
food, stocking and preparing food, and cleaning. Haywood testified that these
activities required her to lift up to fifty pounds, stand and walk throughout the
majority of the work day, drive, bend, stoop, crouch, kneel, crawl, and climb.
Finally, Haywood testified that, because of her medical conditions, she could not
perform those duties.
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Haywood's employing agency provided a job description that indicated she
was required to: frequently handle, finger, feel, push, pull, and lift up to twenty
pounds; occasionally kneel, crawl, climb, balance and lift up to fifty pounds;
repetitively bend, stoop, and crouch; and sit for two hours a day and walk/stand six
hours a day. The agency noted that, when Haywood requested accommodations, it
provided a handcart. Haywood agreed that the agency provided a handcart but
testified that she still had to lift items onto and off of the cart so it did not do much
good.
The record also contains a number of reports/records from various
physicians. Dr. Thompson, a neurologist, treated Haywood for complaints of
numbness in her extremities, restless leg syndrome, sleep deprivation, and possible
Lupus. During the course of his treatment of Haywood, Dr. Thompson changed
medications to reflect the waxing and waning of Haywood's symptoms. However,
Dr. Thompson did not directly address what impact Haywood's symptoms had on
her ability to perform work.
Dr. Cole, a rheumatologist, treated Haywood for joint pain and muscle
weakness related to mild peripheral neuropathy. A lumbar MRI performed at Dr.
Cole's request revealed evidence of lumbar disc bulging and a herniation; however,
that diagnostic test was performed nearly a year after Haywood's last date of
employment. As with Dr. Thompson, Dr. Cole did not specifically address what
impact Haywood's conditions had on her ability to perform work.
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Dr. King made diagnoses of restless leg syndrome, peripheral neuropathy,
and degenerative joint disease with what appears to be a provisional diagnosis of
Lupus. Based on these conditions and Haywood's related symptoms, Dr. King
stated that Haywood could not: lift more than thirty-five pounds occasionally,
fifteen pounds frequently; stand/walk/sit for more than three hours per day; and
could not climb, balance, kneel, crawl, or push/pull. Additionally, Dr. King stated
that Haywood would need to take unscheduled breaks throughout the day and
would miss more than four days of work per month because of her symptoms.
An October 2006 functional capacity evaluation report from Pike County
Physical Therapy indicated that Haywood could lift thirty-five pounds
occasionally, fifteen to seventeen pounds frequently, and perform light to medium
work. The therapist noted that, in light of Haywood's Lupus, her functional
capacity would likely decrease.
Dr. Keller,3 who performed two medical reviews of Haywood's
records, noted that Haywood has a number of health-related problems, including
reflux esophagitis, restless leg syndrome, peripheral neuropathy, muscle weakness
and weight loss, a history of migraine headaches, paresthesias, and presumptive
Lupus. However, he found that these conditions and related symptoms were being
or had been treated; that there was no opinion from any physician that Haywood
was permanently disabled; and that there was no objective evidence of permanent
disability.
3
Dr. William Keller and Judge Michelle M. Keller are not related.
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Dr. McElwain, who also reviewed Haywood's medical records, concluded
that there was no evidence of total and permanent disability; therefore, he
recommended rejection of her application. Dr. Strunk, the final medical records
reviewer, also indicated that "there continues to be no evidence of a permanent
disabling problem documented in the records in this claim."
Haywood also filed medical records and reports from Dr. Huffnagle,
Mountain Comprehensive Care, and the Pain Management Center. Those
records/reports, in particular Dr. Huffnagle's, indicate that Haywood has some
significant physical and psychological limitations; however, they also post-date
Haywood's last date of employment by a year or more.
Faced with this evidence, the hearing officer found that Haywood failed to
prove that she had any permanent disability related to her reflux esophagitis, which
Haywood had successfully treated for years with over-the-counter medications.
The hearing officer found that the record contained no definitive diagnosis of
Lupus but, if Haywood has Lupus, she failed to prove it was disabling on the date
she last worked. With regard to Haywood's peripheral neuropathy, the hearing
officer found that medication helped alleviate any symptoms and that there was no
evidence the condition was disabling when Haywood last worked. The hearing
officer also found no evidence of permanent disability related to Haywood's
migraine headaches, weight loss/loss of muscle mass, degenerative disc/joint
disease, or hysterectomy. Finally, the hearing officer noted that Haywood's mental
problems, i.e., depression and anxiety, surfaced after her last day of employment
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and could not be considered. Based on these findings, the hearing officer
recommended denial of Haywood's application for benefits.
The circuit court found that this evidence made a prima facie case of
Haywood's disability, thus forcing the Board to "rebut that evidence with its own
evidence." In support of this finding, the court cited to City of Louisville, Div. of
Fire v. Fire Service Managers Ass'n ex rel. Kaelin, 212 S.W.3d 89, 94 (Ky. 2006).
However, that case has no application herein. In Kaelin, the issue before the Court
was who had the burden of proving that fire chiefs were employees for salary and
wage purposes. The Court determined that the fire chiefs had that burden.
Furthermore, the Court held that the city could assert an affirmative defense that
the fire chiefs were not employees. However, the city's burden of proving that
affirmative defense did not arise until the fire chiefs had made their prima facie
case. Herein, the Board has not asserted an affirmative defense; therefore, it has no
burden under Kaelin.
We recognize that the Board may be required to put forth rebuttal evidence.
However, the Board is not required to do so until the claimant has met her burden,
i.e., proven her disability by a preponderance of the evidence. See Personnel
Board v. Heck, 725 S.W.2d 13, 17 (Ky. App. 1986). Based on the evidence herein,
which was equivocal as to Haywood's diagnoses and the occupational impact of
those diagnoses, the Board acted within its discretion in determining that Haywood
had not met her burden. Furthermore, the record, which contains the reports from
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the medical review panel, is not devoid of rebuttal evidence. To the extent the
circuit court's order states otherwise, it is in error.
3. Whether the Board Ignored Evidence
The Board argues that the circuit court incorrectly determined that it ignored
evidence. The circuit court found that the Board "held Haywood to a higher
standard where an observable abnormality or a laboratory report was the only
acceptable objective medical evidence." Furthermore, the court held that "[t]he
KERS ignored Haywood's functional limitations, and the demanding requirements
of her job." The hearing officer, in his recommended order, listed in great detail
the medical records/reports in evidence, including those reflecting conditions that
surfaced and treatment that occurred well after Haywood's last date of
employment. Furthermore, the hearing officer noted Haywood's testimony
regarding her work activities, how those activities had increased with decreasing
staff, and the agency's failure to fully accommodate Haywood's requests for
assistance. Finally, the hearing officer noted the findings of Drs. Keller,
McElwain, and Strunk regarding the dearth of evidence of permanent disability.
Therefore, the circuit court's finding that the Board's findings were fatally deficient
is not supported by the record.
4. Substantial Evidence
As noted above, the record contains evidence of substance sufficient to
support the Board's order and the circuit court's determination to the contrary is in
error.
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5. Conflict of Interest
Finally, although neither party specifically raised the issue, we note that the
circuit court indicated that the Board's fiduciary duty creates an inherent conflict
with its authority to act as fact-finder. The legislature, which established the Board
and imposed a fiduciary duty upon it, chose not to except the Board from the
provisions of KRS Chapter 13B or to designate an independent fact-finder. “The
propriety, wisdom and expediency of statutory enactments are exclusively
legislative matters.” Wilfong v. Commonwealth, 175 S.W.3d 84, 93 (Ky. App.
2004) (citing Owens v. Clemons, 408 S.W.2d 642, 645 (Ky. 1966)). Even if we
agreed with the circuit court, absent a valid constitutional challenge, removing
fact-finding authority from the Board is within the purview of the legislature.
CONCLUSION
While another fact-finder may have found differently, we cannot say that the
Board acted arbitrarily, capriciously, or outside its authority. Therefore, we
reverse the circuit court, vacate its order, and remand for reinstatement of the
Board's order denying Haywood's application for benefits.
DIXON, JUDGE, CONCURS IN RESULT ONLY.
VANMETER, JUDGE, CONCURS IN RESULT AND FILES
SEPARATE OPINION.
VANMETER, JUDGE, CONCURRING IN RESULT: In my view,
the trial court correctly distinguished Rapier v. Philpot, 130 S.W.3d 560 (Ky.
2004), from the instant case based on the inherent conflict under which KERS
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operates in administering the plan and in adjudicating and paying claims, as in this
case, and on the statutorily imposed fiduciary duty KERS owes to participants such
as Haywood. See KRS 61.650(1)(c). No similar duty existed on the Personnel
Board in Rapier. KERS furthermore created an ambiguity by virtue of its cover
letter which stated Haywood “may file exceptions[,]” and thereby failed to advise
Haywood “fully of [her] exception and appeal rights.” KRS 13B.110(1). I thus
would not preclude Haywood from her opportunity to appeal.
However, I concur in the result reached because I am not convinced
that the “evidence in [Haywood’s] favor is so compelling that no reasonable person
could have failed to be persuaded by it.” McManus v. Kentucky Ret. Sys., 124
S.W.3d 454, 458 (Ky.App. 2003).
BRIEFS AND ORAL ARGUMENT
FOR APPELLANT:
Brian C. Thomas
Frankfort, Kentucky
BRIEF FOR APPELLEE:
Anna Stewart Whites
Frankfort, Kentucky
John Earl Hunt
Allen, Kentucky
ORAL ARGUMENT FOR
APPELLEE:
Anna Whites
Frankfort, Kentucky
-21-
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