Opinion ID: 1789963
Heading Depth: 1
Heading Rank: 3

Heading: constitutionality of the prepayment waiver provisions.

Text: The majority has also held KRS 350.0301(5) and 405 KAR 7:092 § 15 to be unconstitutional insofar as they provide a waiver of the prepayment requirement for individuals who plead and demonstrate their inability to prepay, while making no such provision for corporations. There is no question that Kentec is a corporation and is thus within the class that was allegedly denied equal protection for purposes of this claim. [3] Even upon assuming the existence of Kentec's standing, however, its equal protection challenge must fail, because the classification between individuals and corporations is rationally related to a legitimate state interest. The pecuniary private interest implicated by the classification is not a fundamental right, see Part II(B) of this opinion, supra, and statutory classifications between individuals and corporations have never been considered suspect. See San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 28, 93 S.Ct. 1278, 1294, 36 L.Ed.2d 16 (1973) (The system of alleged discrimination and the class it defines have none of the traditional indicia of suspectness: the class is not saddled with such disabilities, or subjected to such a history of purposeful unequal treatment, or relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.). Accordingly, the general rule applies: legislation regulating an economic matter enjoys a strong presumption of constitutionality and will be upheld if the classification drawn by the statute is rationally related to a legitimate state interest. City of Cleburne v. Cleburne Living Ctr., 473 U.S. 432, 440, 105 S.Ct. 3249, 3254, 87 L.Ed.2d 313 (1985). See also Holbrook v. Lexmark Int'l Group, Inc., 65 S.W.3d 908, 914 (Ky.2001); Steven Lee Enter. v. Varney, 36 S.W.3d 391, 394 (Ky. 2000); Yeoman v. Commonwealth, Health Policy Bd., 983 S.W.2d 459, 470 (Ky.1998); Wynn v. Ibold, Inc., 969 S.W.2d 695, 696 (Ky.1998); Ky. Harlan Coal Co. v. Holmes, 872 S.W.2d 446, 455 (Ky.1994). Under the guise of rational basis review, however, the majority has held the Cabinet to a much stricter standard than that required by the equal protection jurisprudence of both the United States Supreme Court and this Court. [4] Statutory classifications based on nonsuspect criteria must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification. Fed. Communications Comm'n v. Beach Communications, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 2101, 124 L.Ed.2d 211 (1993) (emphasis added). See also Heller v. Doe by Doe, 509 U.S. 312, 320, 113 S.Ct. 2637, 2642, 125 L.Ed.2d 257 (1993); Walker v. Commonwealth, 127 S.W.3d 596, 602 (Ky.2004); Steven Lee Enter., 36 S.W.3d at 395; Preston v. Johnson County Fiscal Court, 27 S.W.3d 790, 795 (Ky.2000); Weiand v. Bd. of Tr. of Ky. Ret. Sys., 25 S.W.3d 88, 93 (Ky.2000); Commonwealth v. Howard, 969 S.W.2d 700, 703 (Ky.1998). The possibility that a classification might result in some practical inequity does not cause it to fail the rational basis test. Steven Lee Enter., 36 S.W.3d at 395 (If a rational basis is found for the discrimination, the statute must be upheld even if it is perceived to be unwise, unfair or illogical.); Howard, 969 S.W.2d at 703. See also Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 1161, 25 L.Ed.2d 491 (1970); Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78, 31 S.Ct. 337, 340, 55 L.Ed. 369 (1911). The first step in the rational basis test is to examine the state interests served by the classification. Wynn, 969 S.W.2d at 696. Here, the Cabinet points out that KRS 350.0301(5) and 405 KAR 7:092 § 15 serve two state interests: (1) effective collection of penalties assessed under Kentucky's surface mining laws; and (2) ensuring that individuals are not deprived of the financial resources needed to meet basic living expenses. Despite the majority's out-of-hand dismissal of these purposes, it cannot seriously dispute that both of these articulated purposes are legitimate state interests. A statutory classification can fail rational basis review only if it is completely irrelevant to the achievement of these legitimate state interests. Heller, 509 U.S. at 324, 113 S.Ct. at 2645; Holt Civic Club v. City of Tuscaloosa, 439 U.S. 60, 71, 99 S.Ct. 383, 390, 58 L.Ed.2d 292 (1978); McGowan v. Maryland, 366 U.S. 420, 425, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393 (1961). See also Chapman v. Gorman, 839 S.W.2d 232, 239-40 (Ky.1992). By allowing individuals to obtain prepayment waivers while denying corporations the same right, the classification promotes the effective collection of penalties. In Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973), the United States Supreme Court addressed an equal protection challenge to a state personal property tax that applied to corporations, but not individuals. Noting that the Illinois legislature had determined that the tax was almost impossible to administer consistently with regard to individuals, but was uniformly enforceable with respect to corporations, the Court held that the discriminatory treatment did not violate the Equal Protection Clause. Id. at 365, 93 S.Ct. at 1006. It is important to note that the tax, itself, was unchanging: the tax that the state found difficult to apply to individuals was the same tax that it easily applied to corporations. Thus, the rational basis for this differential treatment inhered in the very nature of the corporate form. In other words, fundamental differences between corporations and individuals can give rise to rational bases for imposing differential burdens between the two. See Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 406, 48 S.Ct. 553, 556, 72 L.Ed. 927 (1928) (Brandeis, J., dissenting) (The difference between a business carried on in corporate form and the same business carried on by natural persons is, of course, a real and important one.), abrogated by Lehnhausen, 410 U.S. at 365, 93 S.Ct. at 1006. For purposes of the effective collection of penalties, the relevant difference between individuals and corporations lies in the ability of a corporation to quickly undercapitalize itself. For example, the shareholders of a closely held corporation can easily transfer the corporation's assets to themselves, or to another corporate entity, thus divesting the corporation of its property while retaining ownership of such assets. Individuals have less ability to divest themselves of assets while retaining control thereof. If given the opportunity to seek prepayment waivers, corporations can undercapitalize in order to claim an inability to prepay, and, ultimately, attempt to evade the penalty assessment. Therefore, as the differential treatment appears to be rationally related to the legitimate state interest in collecting penalties, the equal protection analysis should be at an end. See Beach Communications, 508 U.S. at 315, 113 S.Ct. at 2102 ([A] legislative choice is not subject to courtroom factfinding and may be based on rational speculation unsupported by evidence or empirical data.); Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 812, 96 S.Ct. 2488, 2499, 49 L.Ed.2d 220 (1976) (The State is not compelled to verify logical assumptions with statistical evidence.); Yeoman, 983 S.W.2d at 470 (The rational review standard is not hard for a legislature to meet. It merely requires one to postulate that the legislature could have envisioned that [the statute] would promote a legitimate state purpose  any legitimate state purpose.). Even if the state interest in collecting penalties were not sufficient to justify the differential treatment, the distinction between individuals and corporations provides individuals with relief from the prepayment requirement insofar as they require a minimum amount of finances to meet basic human necessities. Kentec argues that corporate employees also require basic necessities. However, a classification's underinclusiveness with respect to its articulated purpose is insufficient to hold it unconstitutional under the rational basis test. By itself, the fact that a legislative classification is underinclusive will not render it unconstitutionally arbitrary. The legislature is free to choose to remedy only part of a problem.... [I]t may `select one phase of a field and apply a remedy there, neglecting the others.' Holbrook, 65 S.W.3d at 915 (quoting Cleland v. Nat'l College of Bus., 435 U.S. 213, 220, 98 S.Ct. 1024, 1028, 55 L.Ed.2d 225 (1978)). See also Clover Leaf Creamery Co., 449 U.S. at 466, 101 S.Ct. at 725 ([A] legislature need not strike at all evils at the same time or in the same way.) (internal citation and quotation omitted); Dandridge, 397 U.S. at 486-87, 90 S.Ct. at 1162 ([T]he Equal Protection Clause does not require that a State must choose between attacking every aspect of a problem or not attacking the problem at all. It is enough that the State's action be rationally based and free from invidious discrimination.) (internal citation omitted). There being no evidence of an invidious purpose here, I conclude that the General Assembly acted rationally in drawing this classification to ensure that indigent individuals are not deprived of their basic human necessities. The party seeking to have a classification declared unconstitutional is faced with the burden of demonstrating that there is no conceivable basis to justify the legislation. Holbrook, 65 S.W.3d at 915 (emphasis added). Kentec has failed to carry this burden. In fact, the classification between individuals and corporations is rationally related to two legitimate state purposes. This alone is sufficient to justify it under the Equal Protection Clause, and the fact [that] the line might have been drawn differently at some point is a matter for legislative, rather than judicial, consideration. United States R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 179, 101 S.Ct. 453, 461, 66 L.Ed.2d 368 (1980). Accordingly, I concur in the majority opinion's affirmance of the Secretary's order with respect to the fact of violation and dissent from the majority opinion's reversal of the Secretary's penalty assessment and its conclusion that the prepayment provisions of the statutory and regulatory schemes are unconstitutional. JOHNSTONE, and ROACH, JJ., join this opinion.