Court Opinion

ID: 4469274
Source: CourtListenerOpinion
Date Created: 2020-01-03 15:06:27.502699+00
Date Added: 2024-06-11T08:48:53.227024
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
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     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-1362-18T1

M.K.,

          Appellant,

v.

CATASTROPHIC ILLNESS IN
CHILDREN RELIEF FUND
COMMISSION,

     Respondent.
_______________________________

                    Argued November 21, 2019 – Decided January 3, 2020

                    Before Judges Alvarez, Suter and DeAlmeida.

                    On appeal from the Catastrophic Illness in Children
                    Relief Fund Commission.

                    M.K., appellant, argued the cause pro se.

                    Jeanette M. Barnard, Deputy Attorney General, argued
                    the cause for respondent (Gurbir S. Grewal, Attorney
                    General, attorney; Melissa H. Raksa, Assistant
                    Attorney General, of counsel; Nicholas Logothetis,
                    Deputy Attorney General, on the brief).

PER CURIAM
        M.K.1 appeals from the October 10, 2018 final agency decision of the

Catastrophic Illness in Children Relief Fund Commission (Commission)

denying reimbursement of $3167 in her child's medical expenses. We reverse.

                                          I.

        M.K.'s child has a medical condition that qualifies for reimbursement of

medical expenses from the Catastrophic Illness in Children Relief Fund (Fund) .

For the period May 1, 2015, to April 30, 2016, the Commission approved

reimbursement of $1647.55 in medical expenses paid by M.K. on behalf of her

child by personal check. The Commission denied reimbursement of $3167 in

the child's medical expenses claimed by M.K. paid by check issued from the

account of Save1Million 2, M.K.'s unincorporated sole proprietorship.

        M.K. requested the Commission reconsider its denial. The minutes of the

Commission's discussion of M.K.'s request state:

              [M.K.] appealed the initial Commission determination
              arguing that the business is a sole proprietorship which
              is unincorporated and owned and run by one individual
              with no distinction between the business and the owner.
              Bank documents were submitted confirming the mother

1
    We use initials to protect the identity of M.K.'s child.
2
  We note M.K's unincorporated sole proprietorship is identified in the record
as Save1Million, Save Millions, and Save Millions, LLC. Although the use of
"LLC" suggests the entity is a limited liability corporation, the parties agree the
disputed expenses were paid by M.K.'s unincorporated sole proprietorship.
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            as the sole owner and both parents as signers on the
            account. A letter from their accountant was provided,
            explaining medical expenses were not deducted from
            business income. It is recommended that the initial
            decision, to exclude these expenses, be upheld as the
            basis of the initial decision was not in regards to how
            the business is structured or how taxes are paid, but
            rather that payments were made out of a business
            account and not a personal account.

      On October 10, 2018, the Commission issued a written statement denying

M.K.'s request for reconsideration. The Commission "determined that these

expenses which had been paid from a business account were ineligible for

reimbursement."

      This appeal followed. M.K. argues the Commission's final decision is

arbitrary because it relies on the fact the $3167 in expenses were paid from the

account of M.K.'s unincorporated sole proprietorship, when the economic reality

is those expenses were paid from M.K.'s personal funds.

                                        II.

      "Judicial review of agency determinations is limited." Allstars Auto Grp.,

Inc. v. N.J. Motor Vehicle Comm'n, 234 N.J. 150, 157 (2018).                   "An

administrative agency's final quasi-judicial decision will be sustained unless

there is a clear showing that it is arbitrary, capricious, or unreasonable, or that

it lacks fair support in the record." Ibid. (quoting Russo v. Bd. of Trs., Police

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& Firemen's Ret. Sys., 206 N.J. 14, 27 (2011)). In reviewing the agency's

decision, we consider:

            (1) whether the agency's action violates express or
            implied legislative policies, that is, did the agency
            follow the law;

            (2) whether the record contains substantial evidence to
            support the findings on which the agency based its
            action; and

            (3) whether in applying the legislative policies to the
            facts, the agency clearly erred in reaching a conclusion
            that could not reasonably have been made on a showing
            of the relevant factors.

            [Ibid. (quoting In re Stallworth, 208 N.J. 182, 194
            (2011)).]

      "A reviewing court 'must be mindful of, and deferential to, the agency's

expertise and superior knowledge of a particular field.'" Id. at 158 (quoting

Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 10

(2009)). "A reviewing court 'may not substitute its own judgment for the

agency's, even though the court might have reached a different result. '"

Stallworth, 208 N.J. at 194 (quoting In re Carter, 191 N.J. 474, 483 (2007)).

"Deference to an agency decision is particularly appropriate where

interpretation of the [a]gency's own regulation is in issue." R.S. v. Div. of Med.

Assistance & Health Servs., 434 N.J. Super. 250, 261 (App. Div. 2014) (quoting

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                                        4
I.L. v. N.J. Dep't of Human Servs., Div. of Med. Assistance & Health Servs.,

389 N.J. Super. 354, 364 (App. Div. 2006)). "However, a reviewing court is 'in

no way bound by [an] agency's interpretation of a statute or its determination of

a strictly legal issue.'" Allstars Auto Grp., 234 N.J. at 158 (alteration in original)

(quoting Dep't of Children & Families, Div. of Youth & Family Servs. v. T.B.,

207 N.J. 294, 302 (2011)).

      The Fund is a State-run, non-lapsing fund created to provide financial

assistance to any eligible family with a child who has a qualifying illness which

could have a "potentially devastating financial consequence" for the family.

N.J.S.A. 26:2-148(a). A catastrophic illness eligible for reimbursement under

the Fund is "any illness or condition the medical expenses of which are not

covered by any other State or federal program or any insurance contract and

exceed" certain percentages of the family's income.           N.J.S.A. 26:2-149(a).

Those eligible for reimbursement include a child's "parent . . . who is legally

responsible for the child's medical expenses." N.J.S.A. 26:2-149(d).

      N.J.S.A. 26:2-154(b) authorizes the Commission to "[e]stablish

procedures for . . . determining the eligibility for the payment or reimbursement

of medical expenses for each child . . . ." Reimbursements for medical expenses

are "subject to the rules and regulations established by the [C]ommission . . . ."

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N.J.S.A. 26:2-156. According to N.J.A.C. 10:155-1.2, expenses eligible for

reimbursement are those

            not covered by any other source, including, but not
            limited to, other State or Federal agency programs,
            insurance contracts, trusts, proceeds from fundraising,
            or settlements . . . .

      The Commission determined M.K.'s unincorporated sole proprietorship

was an "other source" of coverage for $3167 of her child's medical expenses.

The rationale offered by the Commission for its decision is the expenses were

paid by a check drawn on the unincorporated sole proprietorship's account.

      Yet, unincorporated sole proprietorships "lack an existence apart from that

of their owner.   In essence, the sole proprietor is the business, assuming

unlimited personal liability for obligations arising out of the operation of the

enterprise." 16A N.J. Practice, Legal Forms, § 56:1, at 478, James W. Kerwin,

"Sole Proprietorships" (James H. Walzer) (4th ed. 2009). The relationship

between a sole proprietor and its owner is reflected in our tax statutes. The

income and expenses of the sole proprietorship are reported on the owner's New

Jersey personal income tax return. N.J.S.A. 54A:5-1(b); Marrinan v. Div. of

Taxation, 10 N.J. Tax 542 (Tax 1989); see also Smith v. Dir., Div. of Taxation,

108 N.J. 19, 26-27 (1987) ("We find . . . the [Gross Income Tax] Act, insofar as

income derived from a business conducted in proprietorship or partnership form

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is concerned, imposes a tax on net income.") (quotations omitted). According

to N.J.A.C. 18:35-1.1(b),

            [f]or purposes of the Gross Income Tax Act, a sole
            proprietorship . . . is a form of business in which one
            taxpayer owns all the assets of a business and which is
            not a partnership or corporation.

                  ....

            Sole proprietors shall report their income or loss as net
            profits from business.

      Our review of the record reveals M.K. reported income earned by her

unincorporated sole proprietorship as taxable income on her personal tax returns

and did not deduct the $3167 in question as a business expense. By paying her

child's medical expenses with a check drawn on the account of her

unincorporated sole proprietorship, M.K., in effect, withdrew profits she earned

in her business and paid a personal expense. The assets of M.K.'s business are

not an independent source of funds for the payment of her child's medical

expenses. Thus, the Commission's reliance on the nature of the account from

which the expenses were made, without consideration of M.K.'s relationship to

the source of the funds, was arbitrary.

      Reversed.

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