OAT AND 2003-SC-0730-DG Fr--' t KENTUCKY RETIREMENT SYSTEMS APPELLANT/CROSS- V. JOYCE ANN LEWIS APPELLEE/CROSS-
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MODIFIED : JUNE 16, 2005
RENDERED : MARCH 17, 2005
TO BE PUBLISHED
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2002-SC-0516-DG
AND
2003-SC-0730-DG
KENTUCKY RETIREMENT SYSTEMS
V.
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OAT
Fr---'
APPELLANT/CROSS-APPELLEE
ON REVIEW FROM COURT OF APPEALS
2000-CA-2859-MR
FRANKLIN CIRCUIT COURT NO. 2000-CI-1212
JOYCE ANN LEWIS
APPELLEE/CROSS-APPELLANT
OPINION OF THE COURT BY JUSTICE JOHNSTONE
REVERSING
Appellee/Cross-Appellant, Joyce Ann Lewis, was employed by the Kentucky
River District Health Department, a participating agency in the Kentucky Employees
Retirement Systems (KERS) . Lewis initially applied for disability retirement benefits in
December of 1997 . That application was denied . She filed a substantial change
application in October of 1999, alleging a worsening of the same condition . A medical
examiner reviewed the application and determined that there had not been a substantial
change in her condition, and denied the application .
A dispute arose as to the proper procedure for evaluating this application . The
heart of the matter was one of statutory interpretation : the agency asserted that the
substantial change applications were reviewed by only one medical examiner, while
Lewis contended that her substantial change application was to be treated as a second
application, allowing review by up to three medical examiners . Lewis therefore
appealed the denial of her substantial change application and requested either a
hearing or further review by additional medical examiners . A hearing was scheduled .
The hearing officer conducted a preliminary conference, and entered recommended
orders on Lewis's motions regarding, among other issues, the procedure to be followed
by the agency. KERS filed exceptions to the hearing officer's recommended orders ;
Lewis did not.
Instead, Lewis petitioned the Franklin Circuit Court for a declaratory judgment
directing KERS to process the application according to her interpretation of the statute .
The circuit court dismissed for lack of jurisdiction, resulting from Lewis's failure to
exhaust available administrative remedies, as there had been no final administrative
decision on the merits of her application .
Lewis appealed the circuit court's decision . The Court of Appeals reversed, in a
2-1 opinion, finding that KERS had acted ultra vires in handling Lewis's second
application . When Lewis submitted the substantial change application, KERS
submitted it to a single medical examiner pursuant to 105 KAR 1 :210 §13 (1998) . The
application was denied because the examiner did not detect a substantial change in her
condition since denial of her first application in 1997 . The Court of Appeals opined that
105 KAR 1 :210 §13 (1998) failed to comport with the statutory procedure set forth in
KRS 61 .665(2)(e) . Pursuant to that statute, if a first medical examiner recommends
denial of benefits, the application is submitted to a second examiner. If the two
disagree, a third medical examiner reviews the application before the matter is set for a
hearing . The Court of Appeals concluded that the due process rights established by
KRS 61 .665 cannot be abridged by agency regulation and, therefore, KERS was acting
ultra vires in denying Lewis's application without submission to a second medical
examiner . Relying on Franklin v. Natural Resources & Environmental Protection
Cabinet, 799 S.W .2d 1 (Ky. 1990), the Court of Appeals concluded that Lewis was not
obliged to exhaust all administrative remedies. The case was remanded .
KERS sought discretionary review by this Court; Lewis filed a cross-motion
asserting that the agency's procedural regulations violated existing statutes in several
respects . Both motions were granted .
The determinative issue in this matter is whether Lewis is required to pursue
administrative remedies to conclusion prior to seeking judicial intervention . We hold
that she must .
Exhaustion of administrative remedies is a well-settled rule of judicial
administration that has long been applied in this state. See generally Popplewell's
Alligator Dock No. 1, Inc . v. Revenue Cabinet, 133 S .W .3d 456, 471-72 (Ky. 2004) .
The exhaustion of remedies doctrine is easily explained : "proper judicial administration
mandates judicial deference until after exhaustion of all viable remedies before the
agency vested with primary jurisdiction over the matter." Board of Regents of Murray
State University v. Curris , 620 S .W.2d 322, 323 (Ky. App . 1981). The doctrine does not
preclude judicial review, but rather delays it until after the expert administrative body
has compiled a complete record and rendered a final decision . Popplewell's , 133
S.W .3d at 471 . Exceptions to this principle do exist: a party is not required to exhaust
all administrative remedies when the statute is alleged to be void on its face . Goodwin
v. City of Louisville , 215 S .W .2d 557, 559 (Ky. 1948). Exhaustion of remedies is
likewise not required when continuation of an administrative process would amount to
an exercise in futility. Popplewell's , 133 S.W.3d at 471 . This is the case when a
complaint "raises an issue of jurisdiction as a mere legal question, not dependent upon
disputed facts, so that an administrative denial of the relief sought would be clearly
arbitrary ." Goodwin , 215 S.W.2d at 559.
Bearing these principles in mind, we turn to the present matter. KRS Chapter
13B governs Kentucky Retirement Systems' administrative process . KRS 61 .645(16) .
The Board of Trustees of Kentucky Retirement Systems is responsible for entry of final
administrative orders and is the agency head as defined by KRS 13B.010(4). Upon
request, claimants are assigned a hearing officer to consider administrative appeals.
KRS 13B .030 . The hearing officer rules on preliminary motions and enters
recommended orders regarding all issues raised during the administrative process .
KRS 13B.090 ; KRS 13B.110 . The agency head issues the final order and may adopt,
reject or modify the hearing officer's recommended order, or remand that matter to the
hearing officer for further proceedings . KRS 13B .120. KRS 13B.140(1) provides that all
final orders of an agency are subject to judicial review.
The agency head in this matter, the Board of Trustees of Kentucky Retirement
Systems, neither considered Lewis's claim nor entered a final order. In fact, the hearing
officer has not yet fully considered Lewis's claim: the hearing officer had issued
recommended orders on only miscellaneous, preliminary issues, but no hearing on the
merits of Lewis's claim has been conducted . The actual hearing on Lewis's claim was
scheduled for October 24, 2000, but was held in abeyance pending resolution of the
declaratory judgment action filed by Lewis in the Franklin Circuit Court . It is our
conclusion from review of the record that Lewis has not exhausted all administrative
remedies available - no final order has been issued and indeed a hearing officer has
yet to consider the merits of her claim.
Moreover, none of the exceptions to the exhaustion of remedies doctrine apply.
Lewis has not alleged that any applicable statute or regulation is void on its face .
Rather, Lewis is complaining about KERS' prospective application of 105 KAR 1 :210:
specifically, that KERS' proposed application of 105 KAR 1 :210 to her claim would be in
conflict with KRS 61 .665(2)(e) . This is essentially an assertion that the regulation is
unconstitutional as applied, not a constitutional challenge that would otherwise relieve a
party of the duty to exhaust administrative remedies. This distinction was explained in
Commonwealth v. DLX, Inc . , 42 S.W .3d 624 (Ky. 2001):
When an administrative agency applies a statute
unconstitutionally, it acts beyond the bounds of the
constitution, rather than passing on a constitutional question .
In other words, until a statute has been applied, there can
be no unconstitutional application . This is the basis for the
rule that one must first show injury as the result of a
statutory application, before that application may be
attacked as unconstitutional . Thus, exhaustion of
administrative remedies is not futile to an as-applied
challenge to a statute . Quite the contrary, it is the
administrative action which determines the extent, if any, of
the constitutional injury.
Id . at 626 (internal citation omitted) . Judge Johnson expressed the same view in his
dissent in the present case: "until KERS has finally decided Lewis' disability claim
raised in her second application, it is premature to rule that the agency acted
unconstitutionally ."
The Court of Appeals erred in holding that Lewis was relieved of her obligation to
exhaust all administrative remedies due to an inconsistency between 105 KAR 1 :210
and KRS 61 .665(2)(e) . Lewis was obliged to obtain a final order from the agency
before seeking judicial redress . Therefore, we reverse the Court of Appeals and
reinstate the judgment of the Franklin Circuit Court .
All concur .
COUNSEL FOR APPELLANT/CROSS-APPELLEE :
Robert W . Kellerman
Kentucky Retirement Systems
307 Washington Street
Frankfort, KY 40601
Jennifer A. Jones
Kentucky Retirement Systems
1260 Louisville Road
Frankfort, KY 40601
COUNSEL FOR APPELLEE/CROSS-APPELLANT :
James P. Benassi
Worsham Hall, Suite A
215 North Elm Street
Henderson, KY 42420-3132
,Sixprmtr (9ourf of
2002-SC-000516-DG
and
2003-SC-000730-DG
KENTUCKY RETIREMENT SYSTEMS
APPELLANT/CROSS-APPELLEE
ON REVIEW FROM COURT OF APPEALS
2000-CA-2859-MR
FRANKLIN CIRCUIT COURT NO . 2000-CI-1212
V.
APPELLEE/CROSS-APPELLANT
JOYCE ANN LEWIS.
ORDER DENYING PETITION FOR REHEARING
AND
GRANTING MODIFICATION OF OPINION
Appellee/Cross-Appellant's petition for rehearing is denied. The Opinion of the
Court rendered herein on March 17, 2005, is modified on page 1, page 2, paragraph 2,
lines 4 and 7 by changing "105 KAR1 :120" to "105 KAR 1 :210", and on page 4,
paragraph 1, line 2 by changing, " KRS Chapter 13B governs Kentucky Retirement
Systems' administrative process, KRS 61 .645(16) ." to "KRS Chapter 13B governs the
Kentucky Retirement Systems' administrative appeals process . See KRS 61 .645(16)
and KRS 61 .665(3) ." Said modifications do not affect the holding of the opinion as
originally rendered .
All concur .
ENTERED: June 16, 2005.
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