Court Opinion

ID: 5121698
Source: CourtListenerOpinion
Date Created: 2021-10-28 15:06:30.219732+00
Date Added: 2024-06-11T08:22:23.912075
License: Public Domain

RENDERED: OCTOBER 28, 2021
                                                        TO BE PUBLISHED

                 Supreme Court of Kentucky
                                 2019-SC-0477-DG

KENTUCKY UNEMPLOYMENT INSURANCE                                      APPELLANT
COMMISSION

                   ON REVIEW FROM THE COURT OF APPEALS
V.                           NO. 2017-CA-01156
                         JEFFERSON CIRCUIT COURT
                              NO. 16-CI-002236

MICHAEL NICHOLS; AND                                                 APPELLEES
NORTON HEALTHCARE, INC.

             OPINION OF THE COURT BY CHIEF JUSTICE MINTON

                          REVERSING AND REMANDING

      We granted discretionary review to address the specific question of law of

whether a non-attorney employee appearing on behalf of a corporation at

unemployment insurance (UI) referee hearings as authorized by KRS1

341.470(3) is engaging impermissibly in the practice of law. After reviewing the

matter, we find Nichols lacks standing to question the validity of KRS

341.470(3). So we reverse the decision of the Court of Appeals that invalidated

KRS 341.470(3) on constitutional grounds, finding it helpful to correct the

Court of Appeals panel’s interpretation of this Court’s precedent, Turner v.

      1   Kentucky Revised Statute.
Kentucky Bar Ass’n.2 Because our decision today does not address the merits

of Nichols’s appeal, we remand the case to the Court of Appeals to address the

merits.

                  I. FACTUAL AND PROCEDURAL BACKGROUND

      Michael Nichols worked for Norton Healthcare as a Clinical Engineering

Sterilization Maintenance Specialist from 2014 to 2015. In that role, he

performed after-hours equipment maintenance and repairs on an on-call basis.

In late September of 2015, Nichols told his supervisor that he no longer wanted

to do the on-call work. Norton alleges that in October 2015 Nichols was asked

to complete annual-maintenance, but he failed to do so, causing Norton to be

in violation of regulatory requirements. Norton further contends that the next

month it discovered Nichols had falsified the documents of his annual

maintenance review and he had submitted a purchase order for an outside

vendor to perform the work. Nichols took responsibility for these infractions,

and Norton discharged him for misconduct related to his work.

      Nichols made a claim for UI benefits. In his application, he reported that

he was separated from his employment by layoff due to a lack of work.3

Nichols’s claim was denied, he appealed, and a referee hearing was held to

      2   980 S.W.3d 560 (Ky. 1998).
        3 In appealing the referee’s findings to the Kentucky Unemployment

Commission (KUIC), Nichols argued that when he noted in his application that he was
discharged for a “lack of work,” he thought that meant his failure to complete his
assigned tasks. KUIC ultimately denied Nichols’s unemployment benefits because he
failed to report honestly the reason he was discharged. That issue is unrelated to the
legal issues we address in this review.

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determine the reason he was discharged.4 Two days of referee hearings were

held at which appeared Nichols, his counsel, a referee serving as fact-finder,

and Nichols’s main supervisor when he was employed at Norton, Scott Skinner,

who was Norton’s employee-representative.

      At the first hearing, the referee asked Skinner questions about the

documentation and facts of Nichols’s discharge. At the second hearing,

Skinner questioned Nichols. Nichols was represented by counsel at both these

hearings. Following the second hearing, the referee rendered a decision finding

that Nichols was discharged for misconduct associated with his work. Nichols

appealed to KUIC, which affirmed the referee’s decision.

      Nichols then sought judicial review in the Jefferson Circuit Court in

which he argued that KUIC committed three errors: 1) it failed to support its

factual findings by substantial evidence, 2) it erred by placing the burden on

him to show his lack of misconduct, and—the issue before us today—3) the

proceedings before the referee and the KUIC were unconstitutionally conducted

because of Skinner's appearance as a non-attorney representative on behalf of

Norton. As to the third issue, Nichols argued that KRS 341.470(3)(a) violates

the separation-of-powers doctrine of the Kentucky Constitution because only

the judicial department of state government can determine who may engage in

the practice of law.5 So, Nichols argued, Skinner’s appearance on behalf of

       4 A referee hearing is the initial proceeding in unemployment insurance claims.

A referee serves as the fact-finder to determine the factual basis of the employee’s
separation from employment.
      5   See KY. CONST. § 116.

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Norton was in violation of SCR6 3.020.7 Nichols alleged he was harmed by this

violation because Skinner testified falsely about the reason for which Nichols

was discharged and the allegedly false testimony would have been prevented if

an attorney had appeared on behalf of Norton at the hearing. The circuit court

upheld the statute, finding no violation of the separation-of-powers doctrine

because a UI hearing is not a proceeding in the court of justice, so an attorney

is not required.

      Nichols appealed to the Court of Appeals, which reversed the circuit

court’s ruling after finding that corporations must be represented by counsel at

UI referee hearings. In reaching that decision, the appellate panel relied on

Turner, which held that workers’ compensation specialists were non-lawyer

representatives improperly engaged in the practice of law.8 The specialists

were neither licensed attorneys themselves nor supervised by a licensed

attorney, but they mediated claims between employees and employers.9 The

Court of Appeals panel found an employee-representative at the UI referee

      6   Supreme Court Rule.
       7 SCR 3.020 (“The practice of law is any service rendered involving legal

knowledge or legal advice, whether of representation, counsel or advocacy in or out of
court, rendered in respect to the rights, duties, obligations, liabilities, or business
relations of one requiring the services. But nothing herein shall prevent any natural
person not holding himself out as a practicing attorney from drawing any instrument
to which he is a party without consideration unto himself therefor. An appearance in
the small claims division of the district court by a person who is an officer of or who is
regularly employed in a managerial capacity by a corporation or partnership which is
a party to the litigation in which the appearance is made shall not be considered as
unauthorized practice of law.”).
      8   980 S.W.3d at 565.
      9   Id. at 564.

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hearing to be comparable to the workers’ compensation specialists in Turner,

so it held that KRS 341.470(3) encroaches upon the judiciary’s constitutional

rule-making power related to the practice of law.

      Upon review, we find Nichols lacks standing to contest the constitutional

validity of KRS 341.470(3) because he has failed to show an injury in fact or

that he has suffered any harm from Norton’s lack of legal representation.

Because Nichols lacks standing to bring this claim, our analysis stops there,

and we are constrained to remand this case to the Court of Appeals to review

the merits of Nichols’s appeal. But we do hold that the Court of Appeals panel

misinterpreted Turner.

                                      II. ANALYSIS

   A. Nichols lacks standing to contest the constitutionality of KRS
      341.470(3).

      A court may only rule on the merits of justiciable issues, or, in other

words, matters that involve an actual case or controversy.10 One key

component of justiciability is the standing requirement.11 In Commonwealth

Cabinet for Health & Fam. Servs., Dep't for Medicaid Servs. v. Sexton ex rel.

Appalachian Reg'l Healthcare, Inc.,12 we adopted the federal courts’ standard for

constitutional standing.13 If not otherwise provided by statute, a plaintiff only

has standing to bring a claim if that plaintiff alleges “a personal injury fairly

      10   Overstreet v. Mayberry, 603 S.W.3d 244, 250 (Ky. 2020).
      11   Id. at 252.
      12   566 S.W.3d 185, 196 (Ky. 2018).
      13   Id.

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traceable to the defendant's allegedly unlawful conduct and [that injury is]

likely to be redressed by the requested relief.”14 Sexton also clarified that

constitutional standing cannot be waived, and it is a court’s duty to ensure it

only addresses purely justiciable claims.15 So, as Sexton instructs, our

analysis of the issues in the present case begins with assessing whether

Nichols has standing to contest the constitutional validity of KRS 341.470(3).

We ask then if Nichols’s right to UI benefits has been impaired, if that harm is

traceable to a non-attorney’s appearance for Norton at Nichols’s referee

hearing, and if his harm would be remedied by a holding that the statute

violates the separation-of-powers doctrine.

      We first ask if Nichols has alleged an injury in fact.16 In order to confer

standing, an injury cannot be speculative but instead must be direct and

imminent.17 In Merrick v. Smith, our predecessor court held “[i]t 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.”18 Thus, for Nichols to have standing to claim that KRS

341.470(3) violates the separation-of-powers doctrine, he must show that his

      14   Id.
      15 Id. at 192 (“We hold that all Kentucky courts have the constitutional duty to
ascertain the issue of constitutional standing, acting on their own motion, to ensure
that only justiciable causes proceed in court, because the issue of constitutional
standing is not waivable.”).
      16   Id. at 196.
      17   Id.
      18   347 S.W.2d 537, 538 (Ky. 1961).

                                             6
right to UI benefits was injured or placed in jeopardy by its violation. We find

that Nichols has failed to show that KRS 341.470(3) allowing non-attorneys to

appear on behalf of their corporate employer has prejudiced him because he

was denied benefits for reasons entirely independent of Scott Skinner’s

appearance at the referee hearing.19

      The KUIC’s order affirming the referee’s decision to deny Nichols’s

unemployment benefits stated:

      Claimant knowingly misrepresented or concealed the nature of his
      separation from the captioned employer a fact relevant and
      material to the determination of the benefit entitlement. Without
      question . . . he is disqualified from receiving benefits, on this basis
      ....

      Finally we note that if Claimant had prevailed on the separation
      issues [the issue of why he was discharged] disqualification would
      nonetheless be imposed. If a claimant knowingly misrepresents or
      withholds a fact relevant to the determination of benefit
      entitlement, he has violated the above-cited statute [KRS
      341.370(2)] whether or not said fact would have adversely affected
      his entitlement to benefits.

The order clarifies that regardless of whether Skinner reported inaccurate

information at Nichols’s referee hearing, Nichols would have been denied

benefits anyway because he himself reported false information on his

application for benefits. It cannot be said, then, that KRS 341.470(3)

permitting Skinner to appear on Norton’s behalf at the referee hearing has

prejudiced Nichols’s chance to receive UI benefits. KUIC’s denial of Nichols’s

      19 Steel v. Meek, 226 S.W.2d 542, 543 (Ky. 1950) (holding that appellant lacked
standing to challenge the constitutionality of an absentee voting statute that failed to
make provisions for certain disabled groups where appellant failed to show that he,
himself, was prejudiced by the alleged discrimination).

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benefits is entirely unrelated to KRS 341.470(3). An allegation of harm so

unrelated to the claimed constitutional violation does not amount to an injury

in fact sufficient to support standing.

      The circumstances here are like those in Veltrop v. Commonwealth, where

a Court of Appeals panel held that the defendant had failed to allege a

sufficient injury in fact.20 The defendant argued that a statute violated the

separation-of-powers doctrine by limiting the time that breath or blood test

results in DUI cases could be taken.21 The statute at issue required that the

results from a test given beyond the two-hour limit were inadmissible as

evidence.22 The defendant argued that the statute was unconstitutional

because the legislature had exceeded its authority by creating a rule of court

procedure.23 The Court of Appeals found the defendant lacked standing to

contest the separation-of-powers issue.24 The issue of whether the statute

violated the separation-of-powers doctrine had no relevance or application to

the defendant’s case because her blood test had been given within the two-

hour time limit.25 Because the defendant’s rights were not injured in a manner

that would make the issue of whether the statute violated the separation-of-

      20   269 S.W.3d 15, 18 (Ky. App. 2008).
      21   Id. at 17.
      22   Id.
      23   Id.
      24   Id. at 18.
      25   Id.

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powers doctrine relevant to her case, she lacked an injury sufficient to confer

standing to challenge the statute.26

      Likewise, here, Nichols has no injury that would make KRS 341.470(3)’s

potential constitutional violation applicable to his case. Nichols’s claim was

ultimately denied for reasons unrelated to the statute permitting Skinner to

represent Norton at the referee hearing. Therefore, Nichols has not shown a

concrete, particularized injury that would make KRS 341.470(3)’s violating the

separation-of-powers doctrine relevant to his case. Consequently, we find that

Nichols has not alleged a particularized way he was prejudiced by KRS

341.470(3)’s purported violation of the separation-of-powers doctrine. Thus,

Nichols lacks an injury in fact sufficient to support standing to bring this

constitutional challenge.

      Further, even if we overlooked the ultimate reason that KUIC denied

Nichols benefits and instead focused solely on KUIC’s ruling that the referee’s

findings of fact were supported by substantial evidence, Nichols would still lack

standing to claim that KRS 341.470(3) violates the separation-of-powers

doctrine. While KUIC’s substantial-evidence holding could have been affected

by a non-attorney appearing on Norton’s behalf, making KRS 341.470(3)

relevant to the case, Nichols would still lack standing for failure to show

causation and redressability.

      26   Id.

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      An examination of Cahoo v. Fast Enterprises,27 a federal district court

case, supports our finding. In Cahoo, the plaintiffs alleged their due-process

rights had been harmed by the state’s automated computer system that

processed unemployment insurance claims.28 The plaintiffs argued the system

had many shortcomings, among them reporting claims as fraudulent when

they were not.29 The plaintiffs brought suit against two corporate entities that

created the software and managed the system.30 The federal court held that

the plaintiffs had alleged a sufficient injury in fact because their applications

had been inaccurately reported as fraudulent.31 The court also found the

plaintiffs met the causation standing requirements because the automated

system was under the direct control of the corporate entities.32 The court even

noted that although one corporate entity was much more involved than the

other, it had “contributed to the formation of the policies and the

implementation of the system” that caused their harm.33 Overall, the injury in

fact, the plaintiffs’ unemployment insurance claims being erroneously reported

      27   508 F. Supp. 3d 162 (E.D. Mich. 2008).
      28   Id. at 167.
      29   Id. at 177.
      30   Id. at 176.
      31 Id. (“Even if the Court accepts the defendants’ arguments at face value and
assumes that UIA employees were involved in the plaintiffs’ fraud adjudications at
every step of the way, the plaintiffs individually have still demonstrated an injury in
fact, namely, the deprivation of their property interests in unemployment benefits
without adequate pre- or post-deprivation process.”).
      32   Id. at 178.
      33   Id.

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as fraudulent, was directly related to the wrongful conduct, i.e., the

management and creation of the system.34

      In contrast to the plaintiffs in Cahoo, Nichols cannot show how the

denial of his UI benefits is fairly traceable to Norton’s sending a non-lawyer to

the referee hearing. In ACLU v. Nat’l Sec. Agency,35 the plaintiff’s lack of

standing became clear when a panel of the Sixth Circuit Court of Appeals broke

down the causal chain from the alleged harm to the wrongful conduct.36

Overall, six different causal “steps” were needed before the injury could be

traced to the wrongful conduct.37 After assessing that at least two of the links

were uncertain, the court held the plaintiffs lacked standing for failing to

establish causation.38 We find similarly here that the causal chain from the

alleged wrongful conduct to the alleged harm is too attenuated to support a

finding that Nichols has standing.

      For example, for this Court to find that the denial of benefits to Nichols is

fairly traceable to Skinner’s appearing on behalf of Norton at the hearing, we

would have to find that employee-representatives are engaging in the practice

      34  Id. (“These actions amounted to active management and supervision by CSG.
And although CSG did not run MiDAS, it monitored the system's performance and
conducted cost-benefit analyses. Doing so should have alerted it to the potentially
unconstitutional adjudications and collection practices, and it certainly learned about
them in June 2015, when the Auditor General published its report. That may fall short
of establishing proximate cause, but it satisfies the “fairly traceable” requirement for
standing.”).
      35   493 F.3d 644 (6th Cir. 2007).
      36   Id. at 674.
      37   Id.
      38   Id. at 674-75.

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of law, which violates the separation-of-powers doctrine, that the information

Skinner gave was false, that Skinner knew the information he was giving was

false, that an attorney appearing on behalf of Norton would have known

Skinner was giving false information, and that the presentation of false

testimony affected the outcome of the referee hearing. As in ACLU, there are

too many “steps” that hinge on uncertainty in the causal chain for us to find

that any injury suffered is fairly traceable to Skinner’s appearance.

      Nichols’s own arguments only help us further conclude that too much

uncertainty remains to find causation has been established. He alleges that

Skinner, Norton’s employee-representative at the referee hearing, presented

false information through testimony and documents containing incorrect

information about his responsibilities at work. But Nichols fails to show how

an attorney being required to appear on behalf of Norton at the hearing would

have prevented such harm. While attorneys have ethical obligations requiring

them to avoid presenting false evidence, their duty only extends to falsehoods

of which they are aware.39 Here, it has not been proven that Skinner knew the

information he was presenting was incorrect, and even more unlikely an

attorney appearing on behalf of Norton would have known. Nichols also notes

that fact-witnesses, such as Skinner, are placed under oath at the hearing and

are subject to the penalty of perjury. This further diminishes any extra

protection Nichols asserts attorneys could provide against false testimony.

      39   SCR 3.130(3.3).

                                       12
Finally, Nichols appeared with counsel. He could have alerted his attorney

about Skinner’s testimony, and his counsel could have addressed them

through questioning at the hearing.

      Once the causal connection between Nichols’s alleged injury (the denial

of his benefits) and the wrongful conduct (Norton’s being represented by a non-

attorney) is broken down, it is clear that, unlike the direct connection in Cahoo,

too many uncertainties exist to establish that Nichols’s denial of benefits is

fairly traceable to a non-attorney appearing on behalf of Norton. Because

Nichols cannot show that his injury was caused by Norton’s lack of counsel at

the hearing, he lacks standing to bring his claim.

      Lastly, while resolving the case at hand on Nichols’s lack of

constitutional standing, we feel compelled to address the Court of Appeals

panel’s interpretation of our holding in Turner v. Kentucky Bar Ass’n.40 In

Turner, we held that workers’ compensation specialists were engaging in the

practice of law because they were advising workers’ compensation claimants

and mediating claims.41 We held “legal representation by a lay person before

an adjudicatory tribunal, however informal, is not permitted . . . [and] such

representation involves advocacy that would constitute the practice of law.”42

The Court of Appeals panel felt that Turner compelled treatment of the

administrative proceedings at hand similarly to the treatment given to circuit

      40   980 S.W.2d 560 (Ky. 1998).
      41   Id. at 565.
      42   Id. at 564.

                                        13
actions in which attorneys are required to represent corporations. To clarify,

our holding in Turner did not rest on the type of proceeding before us but

instead on the actions being taken by the non-attorney specialists in the

proceedings. It was not that the specialists were simply performing work in

administrative tribunals but that they were mediating claims and advising

claimants on their legal remedies without themselves being licensed attorneys

or working under the direct supervision of a licensed attorney.43 If no legal

advice is being given or legal rights are being adjudicated, it is unlikely this

Court would find that the non-attorney is engaging in the practice of law.

                                   III. CONCLUSION

      For the reasons stated above, we remand to the Court of Appeals to

resolve Nichols’s remaining claims.

      Conley, Hughes, Keller, VanMeter, JJ., and Special Justice Jeffrey

Edwards, sitting. All concur. Lambert and Nickell, JJ., not sitting.

COUNSEL FOR APPELLANT KUIC:

Amy Cubbage
Sam Flynn
John Ghaelian
Maria “Tess” Russell
Linda Keeton

COUNSEL FOR APPELLEE MICHAEL NICHOLS:

Robyn Smith
Law Office of Robyn Smith

      43   Id. at 565.

                                         14
J. Gregory Troutman
Troutman Law Office, PLLC

COUNSEL FOR APPELLEE NORTON HEALTHCARE, INC.:

Donna King Perry
Jeremy S. Rogers
Alina Klimkina
Dinsmore & Shohl LLP

COUNSEL FOR AMICUS CURIAE THE UNITED STATES:

Timothy D. Thompson
U.S. Attorney’s Office, Western District of Kentucky

Brad Hinshelwood
U.S. Department of Justice

COUNSEL FOR AMICUS CURIAE KENTUCKY CHAMBER OF COMMERCE, ET
AL.:

Jay E. Ingle
Jackson Kelly PLLC

COUNSEL FOR AMICUS CURIAE COMMONWEALTH OF KENTUCKY:

Daniel Cameron
Victor B. Maddox
Heather L. Becker
Office of the Attorney General

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