Opinion ID: 1789963
Heading Depth: 1
Heading Rank: 2

Heading: constitutionality of the prepayment requirement.

Text: Today's majority opinion has held two separate elements of Kentucky's surface mining regulatory scheme to be unconstitutional under the Equal Protection Clause of the United States Constitution and the equal protection principles embodied within Section 3 of the Constitution of Kentucky. The first, contained in KRS 350.0301(5) and 405 KAR 7:092 § 6, requires a permittee seeking a formal administrative hearing on the amount of a proposed penalty assessment to prepay the amount of the proposed assessment. According to the majority, this requirement unconstitutionally discriminates between corporations that are able to prepay the amount of the proposed assessment and those that are not.
It is fundamental that the existence of standing is a prerequisite to any equal protection challenge. See, e.g., United States v. Hays, 515 U.S. 737, 742-45, 115 S.Ct. 2431, 2435-36, 132 L.Ed.2d 635 (1995); Northeastern Fla. Chapter of Assoc. Gen. Contractors of Am. v. City of Jacksonville, 508 U.S. 656, 663-64, 113 S.Ct. 2297, 2302, 124 L.Ed.2d 586 (1993); Village of Arlington Heights v. Metro. Hous. Dev. Corp., 429 U.S. 252, 260-61, 97 S.Ct. 555, 561, 50 L.Ed.2d 450 (1977); Warth v. Seldin, 422 U.S. 490, 498-99, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). See also Associated Indus. of Ky. v. Commonwealth, 912 S.W.2d 947, 950-51 (Ky. 1995) (First Amendment challenges to portions of Kentucky code of legislative ethics and executive branch code of ethics were properly dismissed where the complaining party lacked standing). The standing inquiry is essential to ensure that the complaining party has such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions. Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663 (1962). See also Larson v. Valente, 456 U.S. 228, 238-39, 102 S.Ct. 1673, 1680, 72 L.Ed.2d 33 (1982). Standing, at its irreducible minimum, is composed of three well-settled requirements. Northeastern Fla. Chapter of Assoc. Gen. Contractors of Am., 508 U.S. at 664, 113 S.Ct. at 2302; Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992). First, the complaining party must have suffered an injury in fact, i.e., an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Lujan, 504 U.S. at 560, 112 S.Ct. at 2136 (emphasis added) (internal citations and quotations omitted). Second, a causal relationship must exist between the complaining party's alleged injury and the challenged conduct. Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 41-42, 96 S.Ct. 1917, 1926, 48 L.Ed.2d 450 (1976). Finally, there must be a likelihood that a favorable decision will redress the injury, meaning that the `prospect of obtaining relief from the injury as a result of a favorable ruling' is not `too speculative.' Northeastern Fla. Chapter of Assoc. Gen. Contractors of Am., 508 U.S. at 663-64, 113 S.Ct. at 2302 (quoting Allen v. Wright, 468 U.S. 737, 752, 104 S.Ct. 3315, 3325, 82 L.Ed.2d 556 (1984)). Because Kentec has failed to set forth any facts establishing an injury-in-fact, it lacks standing to claim that the prepayment provisions of KRS 350.0301(5) and 405 KAR 7:092 § 6 violate its equal protection rights. In equal protection cases, persons are required to show that they have been in fact injured in order to have standing to challenge the validity of laws that apply to them. 16 Am.Jur.2d Constitutional Law § 142 (1998). In addressing various constitutional challenges to other statutes, Kentucky courts have long adhered to a strict injury-in-fact requirement. E.g., Second St. Prop., Inc. v. Fiscal Court of Jefferson County, 445 S.W.2d 709, 716 (Ky. 1969) (Before one seeks to strike down a state statute he must show that the alleged unconstitutional feature injures him.); Merrick v. Smith, 347 S.W.2d 537, 538 (Ky.1961) (It is an elementary principle that constitutionality of a law or its application is not open to challenge by a person or persons whose rights are not injured or jeopardized thereby.); Steel v. Meek, 312 Ky. 87, 226 S.W.2d 542, 543 (1950) (constitutional challenge to statute governing absentee voting procedures on grounds that it made no provisions for absentee voting by the blind, the illiterate, or the disabled, dismissed for lack of standing where appellant failed to show that he, himself, was prejudiced by the alleged discrimination); Stein v. Ky. State Tax Comm'n, 266 Ky. 469, 99 S.W.2d 443, 445-46 (1936) (It is incumbent upon a party who assails a law invoked in the course thereof to show that the provisions of the statute thus assailed are applicable to him and that he is injuriously affected thereby.... We advert to the established principle in testing the validity of a statute, that objections thereto are not available to one not injured thereby.). Kentec's allegations must be tested to ensure compliance with this injury-in-fact requirement. Simon, 426 U.S. at 39, 96 S.Ct. at 1925; Ass'n of Data Processing Serv. Org., Inc. v. Camp, 397 U.S. 150, 152, 90 S.Ct. 827, 829, 25 L.Ed.2d 184 (1970). It is the responsibility of the complainant clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers. Warth, 422 U.S. at 518, 95 S.Ct. at 2215 (emphasis added). Moreover, it is improper to rely on Kentec's representations before this Court to establish standing. Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 547, 106 S.Ct. 1326, 1334, 89 L.Ed.2d 501 (1986) ([T]he necessary factual predicate may not be gleaned from the briefs and arguments themselves.). Finally, the allegations of fact that would give rise to standing must affirmatively appear in the record and cannot be inferred from the averments in Kentec's pleadings. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 608, 107 L.Ed.2d 603 (1990) (It is a long-settled principle that standing cannot be inferred argumentatively from averments in the pleadings, but rather must affirmatively appear in the record.) (emphasis added) (internal citations and quotations omitted). To allege an injury-in-fact in the context of an equal protection challenge, the complaining party must set forth facts showing that it was personally denied equal treatment by the challenged conduct. Hays, 515 U.S. at 743-44, 115 S.Ct. at 2435; Allen, 468 U.S. at 755, 104 S.Ct. at 3326. Stated another way, a party cannot challenge the constitutionality of a statute unless he can show that he is within the class whose constitutional rights are allegedly infringed. Barrows v. Jackson, 346 U.S. 249, 256, 73 S.Ct. 1031, 1035, 97 L.Ed. 1586 (1953). Kentec's equal protection argument is essentially that the prepayment requirement denies a formal administrative hearing on the amount of the proposed penalty assessment to those corporations that cannot afford to prepay the proposed assessment. Kentec was, therefore, required to allege specific facts showing that it, personally, was unable to prepay its proposed assessment. If it failed to make the necessary allegations, it has no standing. FW/PBS, Inc., 493 U.S. at 231, 110 S.Ct. at 608. The only averment in the entire record that even approaches the required showing was Kentec's statement in its unverified petition for formal administrative review that Petitioner does not have sufficient funds by which to pay this large and excessive proposed assessment. At no point in this litigation has Kentec set forth any facts in support of this threadbare allegation. In the absence of such facts, Kentec's claim that it will be denied formal administrative review of its proposed assessment is, at best, conjectural or hypothetical. Lujan, 504 U.S. at 560, 112 S.Ct. at 2136. See also Warth, 422 U.S. at 508, 95 S.Ct. at 2210 (We hold only that a plaintiff ... must allege specific, concrete facts demonstrating that the challenged practices harm him, and that he personally would benefit in a tangible way from the court's intervention. Absent the necessary allegations of a demonstrable, particularized injury, there can be no confidence of a real need to exercise the power of judicial review....) (emphasis added) (internal citation and quotation omitted). Nevertheless, even if Kentec's allegation were sufficient to confer standing under other circumstances, two additional problems exist. [I]t is within the trial court's power to allow or to require the plaintiff to supply, by amendment to the complaint or by affidavits, further particularized allegations of fact deemed supportive of plaintiff's standing. If, after this opportunity, the plaintiff's standing does not adequately appear from all materials of record, the complaint must be dismissed. Id. at 501-02, 95 S.Ct. at 2206-07. While Warth dealt with a case originally brought in federal district court, its principles are applicable to matters subject to initial administrative adjudication. In this case, the Cabinet was acting as the trial court. See KRS 350.0305 (No objection to the final order shall be considered by the [reviewing] court unless it was raised before the cabinet or there were reasonable grounds for failure to do so. The findings of the cabinet as to the facts, if supported by substantial evidence, shall be conclusive.). In this capacity, the Cabinet has already exercised the power discussed in Warth , establishing requirements for pleading a claim of inability to prepay a proposed assessment. The requirements include, inter alia, [a] statement of facts underlying the request, and [a]n affidavit... setting forth the applicant's income, property owned, outstanding obligations, the number and age of dependents, and a copy of his most recent Kentucky and federal income tax returns. 405 KAR 7:092 § 15(2). Kentec's pleading did not contain any of these elements. As Kentec failed to show an inability to prepay as required by the Cabinet's regulations, its equal protection claim should be dismissed under the analogous principles articulated in Warth . Finally, Kentec's failure to plead facts demonstrating that it was personally denied equal treatment is exacerbated by its own admission. In the same petition for review, Kentec stated that the terms and conditions of Section 15 of 405 KAR 7:092 for obtaining a waiver of the prepayment requirement are so strict and unreasonable as to preclude Petitioner's qualification for use thereof. This statement, which likely referred to the presumption against a waiver that arises under the circumstances set forth in 405 KAR 7:092 § 15(5)(b), is effectively an admission that Kentec would indeed have the assets to prepay the amount of its proposed assessment. This admission contradicted Kentec's earlier averment and eviscerates its present claim that it is within the class of entities that are allegedly denied equal treatment by the prepayment requirement. Cf. McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 190, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936) (Here, the allegation in the bill of complaint as to jurisdictional amount was traversed by the answer. The court made no adequate finding upon that issue of fact, and the record contains no evidence to support the allegation of the bill. There was thus no showing that the District Court had jurisdiction and the bill should have been dismissed upon that ground.). Despite Kentec's claim that it was unable to prepay, it has neglected to allege facts supporting this claim, failed to offer a scintilla of evidence to maintain it, and acted in a manner completely contrary to it. Kentec therefore has not shown that it was personally denied equal access to a formal hearing. It cannot now be heard to claim that the prepayment requirement injures other corporations that actually are unable to prepay. Broadrick v. Oklahoma, 413 U.S. 601, 610, 93 S.Ct. 2908, 2915, 37 L.Ed.2d 830 (1973) (Embedded in the traditional rules governing constitutional adjudication is the principle that a person to whom a statute may constitutionally be applied will not be heard to challenge that statute on the ground that it may conceivably be applied unconstitutionally to others, in other situations not before the Court.); Barrows, 346 U.S. at 255, 73 S.Ct. at 1034 (Ordinarily, one may not claim standing in this Court to vindicate the constitutional rights of some third party.); Martin v. Commonwealth, 96 S.W.3d 38, 50 (Ky.2003) (Generally, a person to whom a statute may constitutionally be applied cannot challenge it on the ground that it may conceivably be applied unconstitutionally to others in other situations not before the Court.). As Justice Holmes stated in United States v. Wurzbach, 280 U.S. 396, 50 S.Ct. 167, 74 L.Ed. 508 (1930), if there is any difficulty ... it will be time enough to consider it when raised by some one whom it concerns. Id. at 399, 50 S.Ct. at 169. Because Kentec has failed to show that it, personally, was injured, it has no standing to assert an equal protection challenge to the prepayment provisions.
The majority opinion repeatedly refers to the formal administrative hearing on the amount of the proposed penalty assessment as a due process hearing, ante, at 725-26, implying that the federal Due Process Clause and Section 2 of the Kentucky Constitution require this hearing to be held before payment of the proposed assessment. In dismissing the host of decisions holding to the contrary, the majority states that [d]ecisions of the lower federal courts are not conclusive as to state courts. Ante, at 725. While this proposition is certainly correct with respect to matters of state law, Bell v. Commonwealth, 566 S.W.2d 785, 788 (Ky.App.1978), when this Court analyzes state legislation under the federal Due Process and Equal Protection Clauses, it is bound by the decisions of the United States Supreme Court. Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 461 n. 6, 101 S.Ct. 715, 722 n. 6, 66 L.Ed.2d 659 (1981) ([W]hen a state court reviews state legislation challenged as violative of the Fourteenth Amendment, it is not free to impose greater restrictions as a matter of federal constitutional law than this Court has imposed.); Oregon v. Hass, 420 U.S. 714, 719, 95 S.Ct. 1215, 1219, 43 L.Ed.2d 570 (1975). When a claim is made that the Due Process Clause requires a particular procedure, the governing principles are found in Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976): [I]dentification of the specific dictates of due process generally requires consideration of three distinct factors: First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. Id. at 335, 96 S.Ct. at 903. Further, this Court has previously held that the Mathews test is applicable to procedural due process claims raised under Section 2 of the Kentucky Constitution. Transp. Cabinet v. Cassity, 912 S.W.2d 48, 51 (Ky.1995). Despite the binding precedents mandating application of the Mathews standard, the majority has concluded without analysis that due process requires a formal hearing on the amount of the proposed assessment to be held before a permittee can be required to pay this amount. Before applying the Mathews test to Kentucky's regulatory scheme, it is worth discussing the fact that the federal scheme is substantially identical. In such circumstances, it is appropriate to examine how the federal courts have resolved similar issues. E.g., Brooks v. Lexington-Fayette Urban County Hous. Auth., 132 S.W.3d 790, 801-02 (Ky.2004) (interpreting Kentucky Civil Rights Act); Meyers v. Chapman Printing Co., 840 S.W.2d 814, 820-21 (Ky.1992) (same). This is especially true where our statute specifically states, as does KRS 350.028(5), that its purpose is to administer and enforce the regulatory programs established by federal law. See Couch v. Natural Res. & Envtl. Prot. Cabinet, 986 S.W.2d 158, 162 (Ky.1999) (adopting, for purposes of the Kentucky surface coal mining laws, the definition of agent used by the Sixth Circuit, because of the relationship between the SMCRA and KRS Chapter 350 and in the interest of consistency). In fact, the SMCRA is a more stringent scheme with respect to prepayment of proposed penalty assessments than is the Kentucky scheme. Under the SMCRA, the permittee may request, without prepayment, an expedited public hearing on the fact-of-violation issue, 30 U.S.C. § 1275(a); 30 C.F.R. § 843.16; 43 C.F.R. § 4.1160 et seq.; but, by doing so, the permittee waives the further right to a more formal administrative review of that issue. 30 C.F.R. § 723.19(a). Like 405 KAR 7:092 § 3(4)(b), the federal scheme affords the permittee the right to request an assessment conference without prepayment. 30 C.F.R. §§ 723.18 & 845.18. However, if the permittee does not request the expedited hearing on the fact of violation, the permittee must prepay the proposed penalty assessment into escrow in order to obtain further review of either the fact of violation or the proposed penalty assessment. 30 U.S.C. § 1268(c); 30 C.F.R. § 723.19(a); 43 C.F.R. § 4.1152(b)(1). Despite the SMCRA's prepayment barrier to formal administrative review of both the fact of violation and the proposed penalty assessment, the federal courts have consistently held that the scheme is in accord with the Due Process Clause. In B & M Coal Corp. v. Office of Surface Mining Reclamation and Enforcement, 699 F.2d 381 (7th Cir.1983), the United States Court of Appeals for the Seventh Circuit held that the Due Process Clause did not require a formal adjudicatory hearing on either issue prior to the escrow deposit of the penalty assessment. Id. at 386. In doing so, the court employed the Mathews analysis, and concluded that (1) the effect of the prepayment on the private interest (the permittee's use of its money during the review process) was not of such a magnitude to render prepayment unconstitutional; (2) the opportunity for less formal hearings on the fact of violation and the amount of the assessment before prepayment sufficiently reduced the likelihood of an erroneous deprivation of the permittee's interest; and (3) a sufficient governmental interest validated the prepayment requirement, i.e., promotion of effective collection of assessed civil penalties and promotion of the goals of the SMCRA. Id. at 385-86. See also United States v. Finley, 835 F.2d 134, 137 n. 4 (6th Cir.1987); Graham v. Office of Surface Mining Reclamation and Enforcement, 722 F.2d 1106, 1111-12 (3rd Cir.1983) (We find, as has every other court which has considered the question, that the review procedures which were available ... without prepayment of the proposed penalty are more than sufficient to comply with due process requirements as set forth in [ Mathews ].); Blackhawk Mining Co., Inc. v. Andrus, 711 F.2d 753, 757-58 (6th Cir.1983); John Walters Coal Co. v. Watt, 553 F.Supp. 838, 840-41 (E.D.Ky.1982) (While the Court is aware that under some circumstances, the enforcement of the prepayment requirement `might' force some operators to choose between contesting a violation or staying in business, this private interest is simply not sufficient to offset the government's interest in collecting these prepayment penalties.) (internal citation omitted); United States v. Crooksville Coal Co., Inc., 560 F.Supp. 141, 144 (S.D.Ohio 1982); United States v. Hill, 533 F.Supp. 810, 815 (E.D.Tenn.1982). The Mathews analysis first requires consideration of the private interest affected by the official action. Where the private interest is not of overriding importance, something less than an evidentiary hearing prior to adverse administrative action suffices. Mackey v. Montrym, 443 U.S. 1, 13, 99 S.Ct. 2612, 2618, 61 L.Ed.2d 321 (1979); Dixon v. Love, 431 U.S. 105, 113, 97 S.Ct. 1723, 1728, 52 L.Ed.2d 172 (1977); Mathews, 424 U.S. at 343, 96 S.Ct. at 907. In Mathews , the complaining party was a disabled worker deprived of his disability benefits, on which he depended for income, during the pendency of the administrative review process. 424 U.S. at 340, 96 S.Ct. at 905. Yet, the Court held that this private interest was not of sufficient overriding importance to mandate a pretermination hearing. Id. at 343, 96 S.Ct. at 907. The private interest implicated by the prepayment requirement of KRS 350.0301(5) and 405 KAR 7:092 § 6 is the use of the permittee's money, in the amount of the proposed penalty assessment, while the assessment review process is ongoing. In contrast to the situation presented in Mathews , the permittee retains its source of income. Moreover, if the permittee is successful in obtaining a reduction in the amount of the penalty assessment, the Cabinet is required to refund the appropriate amount of money within thirty days of receipt of the order reducing the assessment, plus interest. 405 KAR 7:092 § 13(6)(c). Interest is adequate compensation for the permittee's loss of use of its money during the review process. Accord B & M Coal Corp., 699 F.2d at 385. Thus, the private interest affected is not substantial and certainly is not of sufficient overriding importance to per se require a formal hearing before payment of the assessment. Second, Mathews mandates consideration of the risk of erroneous deprivation of the private interest. [T]he Due Process Clause has never been construed to require that the procedures used to guard against an erroneous deprivation of a protectible `property' or `liberty' interest be so comprehensive as to preclude any possibility of error. Mackey, 443 U.S. at 13, 99 S.Ct. at 2618. In light of the procedural safeguards available to a permittee before it prepays the proposed penalty assessment, the risk of an erroneous deprivation of the private interest is minimal. Permittees are not only entitled to an informal conference on the proposed assessment amount, but also can obtain a formal administrative hearing on the fact of violation, without prepayment, unlike the federal scheme. The fact-of-violation procedure provides a formal evidentiary hearing that will necessarily include many of the same issues that are relevant to the amount of the penalty assessment, and thus reduces the risk of erroneous deprivation. In Kentec's particular case, the risk of erroneous deprivation is even less substantial. Kentec was unsuccessful in its fact-of-violation appeal, so logic dictates that it would inevitably be deprived, rightfully, of some amount of money. Moreover, seventy-five percent of the proposed penalty assessment ($22,500.00) was the minimum assessment authorized by law. With respect to this amount, further review of the penalty assessment would never yield a more favorable ruling for Kentec; thus, the possibility of erroneous deprivation of that sum was impossible once the fact of violation was affirmed. Kentec was subject to almost no risk of erroneous deprivation of its property; regardless, the preliminary administrative review procedures are sufficient to guard against that risk. Finally, we must consider the government interest involved. According to the Cabinet, the prepayment requirement serves the government interest in the prompt collection of civil penalties. Undoubtedly, the prepayment requirement promotes this purpose by discouraging frivolous requests for hearings seeking only to delay the collection process. The government interest also includes the administrative burden and other societal costs that would be associated with requiring, as a matter of constitutional right, an evidentiary hearing upon demand in all cases prior to the [collection of the penalty assessment]. Mathews, 424 U.S. at 347, 96 S.Ct. at 909. Thus, it is relevant that the costs of providing additional procedural safeguards to those permittees whom the preliminary administrative process has identified as likely to be found undeserving, will eventually be spread to the taxpayers. See id. at 348, 96 S.Ct. at 909. As the government has articulated a sufficient interest to justify the prepayment requirement, and the private interest affected and the risk of erroneous deprivation are minimal, the prepayment barrier to a formal administrative hearing on the amount of a proposed penalty assessment is consistent with the due process provisions of the United States and Kentucky Constitutions.