Jase Enterprises, LLC v. Tennessee Bureau of Workers' Compensation ( 2022 )

08/08/2022
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
Assigned on Briefs June 1, 2022
JASE ENTERPRISES LLC v. TENNESSEE BUREAU OF WORKERS’
COMPENSATION
Appeal from the Chancery Court for Henderson County
No. 27439 James F. Butler, Chancellor
No. W2021-00448-COA-R3-CV
This appeal concerns a penalty assessed against a company by the Tennessee Bureau of
Workers’ Compensation (“the Bureau”). The Bureau assessed a penalty against Jase
Enterprises, LLC (“Jase”), a construction company owned by Jason Usery (“Usery”), for
failure to secure workers’ compensation insurance coverage. After a contested case
hearing, the administrative law judge (“the ALJ”) upheld the penalty assessment but
modified its amount. Jase petitioned for judicial review in the Chancery Court for
Henderson County (“the Trial Court”). The Trial Court upheld the ALJ’s decision. Jase
appeals to this Court, arguing among other things that it was not afforded due process and
that the decision to assess a penalty against it was arbitrary. In particular, Jase argues that
the evidence did not establish that Joe Sheldon (“Sheldon”) was a Jase employee. We find
that Jase was afforded due process; it received adequate notice and had an opportunity to
be heard. We find further that the penalty assessment against Jase was supported by
substantial and material evidence, including Sheldon’s deposition. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed;
Case Remanded
D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which ANDY D. BENNETT
and KENNY W. ARMSTRONG, JJ., joined.
Hailey H. David, Jackson, Tennessee, for the appellant, Jase Enterprises, LLC.
Herbert H. Slatery, III, Attorney General and Reporter; Andrée Sophia Blumstein, Solicitor
General; and Erica M. Haber, Assistant Attorney General, for the appellee, the Tennessee
Bureau of Workers’ Compensation.
OPINION
Background
In April 2019, the Bureau issued its Agency Decision Assessing a Civil Penalty for
Failure to Secure Workers’ Compensation Insurance Coverage against Jase, assessing a
penalty of $37,457.32 for Jase’s failure to secure workers’ compensation insurance
coverage for a period beginning in 2015.1 It was and is Jase’s position that, at all relevant
times, it had no employees apart from Usery, who obtained an exemption for himself. In
May 2019, Jase requested a contested case hearing. In July 2019, a contested case hearing
was conducted before the ALJ, Robert R. Davies. In August 2019, the ALJ entered an
order upholding the penalty assessment against Jase but modifying the penalty’s amount.
In its Order Modifying a Penalty Assessment, the ALJ set out the history of the claim as
follows:
Jason Usery has worked in the construction services industry for many
years. Previously, he operated under the name of Jason Usery Construction,
LLC beginning in approximately 2003 and operating as a general contractor
until sometime in 2013 when his health failed. Mr. Usery developed blood
clots in his legs and also had knee surgery. His construction business tapered
off due to his illness and a slow building economy in his area. He let his
corporation be administratively dissolved.
However, Jason Usery Construction, LLC was penalized by Agency
Decision dated August 28, 2015 for operating as a limited liability
corporation without workers’ compensation insurance coverage for the
period of time including March 28, 2013 through the time the Agency
Decision was entered in August of 2015. Mr. Usery did not contest the
August 2015 Agency decision claiming that he was not aware of it even
though the USPS tracking system marked it as “delivered.”
Sometime in 2014 or 2015, Mr. Usery formed Jase Enterprises, LLC
and registered with the Workers’ Compensation Exemption Registry. He
testified that he was more of a “construction manager” rather than a general
contractor. Jason Usery and Jase [E]nterprises, LLC maintain a Facebook
account advertising all types of construction services and projects, including
turnkey construction, framing and installation of basement blocks.
1
Usery, his wife, and various entities other than Jase were included in the initial assessment. These parties
later were dismissed. Jase is the sole appellant.
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On or about July 25, 2017, Mr. Joe Vance Sheldon was injured on a
job site in Clarksburg, TN while putting decking on a roof. Mr. Sheldon
claims he was working for Jason Usery and/or Jase Enterprises, LLC. Mr.
Sheldon’s work accident occurred on his second day of work and he had not
yet been paid for his services. He claims there were other workers present at
the job site. On direct examination in his deposition taken for proof, Mr.
Sheldon indicates that Mr. Usery supplied all the materials, supplies and tools
other than maybe a hammer. Although he had not yet been paid for his
services, he estimated his pay to be approximately $500.00 per week, to be
paid by Jason Usery and or Jason Usery Enterprises, LLC. However, on
cross-examination, he testified that he didn’t actually know who paid for or
delivered the supplies to the job site. He just assumed they were Jason
Usery’s.
After Mr. Sheldon’s accident Jason Usery paid him regular payments
of somewhere in the neighborhood of $328.00 per week, for a total of
approximately $2,800.00. Mr. Usery admits making certain payments to Mr.
Sheldon after the accident, indicating that it was just “a neighborly thing to
do.” Ms. Suzanne Usery also admitted that payments were made to Mr.
Sheldon after the work accident, indicating that it was not unusual for the
Sheldon’s to ask for money. In addition, on the day of the accident, Mr.
Usery picked up Mr. Sheldon and took him to the workplace.
The penalty assessed by the Bureau of Workers’ Compensation and
contained in the Agency Decision dated April 24, 2019, was based on an
estimated premium of $12,408.67. The case was investigated by Benjamin
Edwards, Compliance specialist, Bureau of Workers’ Compensation, which
investigation included, but was not limited to, contact with Mr. Usery,
research from the Bureau’s administrative staff, Employer Questionnaire
Form, Request for Information Form, Internet/Facebook searches, NCCI
[National Council on Compensation Insurance] documentation, permit
reviews and a personal visit to Mr. Usery’s home. The penalty calculation
was also reviewed by Misty McGrady, the Bureau’s in-house auditor who
utilized the method suggested by the Occupational Employment Statistics
Foundation using a median wage for a carpenter in 2017. The estimated
premium was based on one (1) employee.
Mr. Usery claims that Mr. Sheldon was not being paid, but was simply
working off a debt owed to his Father, Ricky Usery.
(Internal record citation omitted).
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The ALJ noted that Usery did not introduce any financial information or
documentation supporting his position at the contested case hearing. The ALJ stated
further that the record was devoid of any financial documentation regarding Jase and that
Usery testified there was no such documentation. The ALJ determined that Jase was a
Tennessee employer engaged in construction services with at least a single employee and
was subject to Tennessee’s workers’ compensation laws. According to the ALJ, “Jason
Usery, individually and through his newest limited liability corporation, Jase Enterprises,
LLC holds himself and the LLC out to be general contractors with at least one additional
employee other than himself.” Nevertheless, the ALJ found that the dissolution of Jason
Usery Construction, LLC, and the subsequent reformation of Jase, was “done for legitimate
business purposes and not simply for the purpose [of] escaping liability.” In this regard,
the ALJ found Usery’s testimony convincing. The ALJ thus upheld the Bureau’s penalty
assessment against Jase but modified its amount down to $31,021.67.
A major piece of evidence relied upon below was the deposition testimony of
Sheldon, the alleged employee of Jase. In his deposition, Sheldon testified, in part:
Q. Okay. Are you familiar with Jason Usery?
A. Yes, ma’am.
Q. How do you know Mr. Usery?
A. We’ve lived beside him for 16, 17 years. My son, my oldest son, worked
for him. I worked for him prior to the accident. They were neighbors and
we just got to know each other.
***
Q. So Mr. Usery, at that time, would come by the house and pick you up to
go to work?
A. He either -- he would or his dad would.
Q. Where would he take you to?
A. To the job site, wherever we was working.
***
Q. Okay. At the time of the accident, do you recall what the name of the
business was that Mr. Usery paid you from or the name of the business that
you worked for?
A. I think it was Jase Enterprises or something other -- I never did pay no
attention.
Q. Okay.
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A. Because my wife, most of the time, was the one that cashed it.
Q. But you said Mr. Usery is the one that was paying you, though?
A. Yes, ma’am.
Q. And at that time of the accident, was he paying you -- did he ever pay you
for the labor that you performed for him, the best of your recollection?
A. I don’t know because, I mean, after the accident that was only the second
day and I just -- I don’t know.
Q. The second day you worked for him. Okay. Could you describe the type
of work that you were doing for him.
A. General carpenter, framing.
Q. If you don’t mind, please be as specific as you can.
A. I was putting decking on a roof.
Q. Okay. Did Mr. Usery supply the materials?
A. Yeah.
On cross and re-cross examination, Sheldon was asked further:
Q. Okay. And you don’t know what individual or business had an agreement
with the homeowner at that work site to do work out there? In other words,
you don’t know if that was Jase Enterprises, if that was Jason Usery
Construction --
A. No, I don’t know none of those --
Q. -- if that was Jason Usery or if that was somebody else altogether.
A. Right.
***
Q. You were asked some questions about supplies out on the job. You don’t
know who paid for those supplies.
A. Huh-uh.
Q. You don’t know who delivered them to the work site?
A. No, ma’am.
Q. You don’t know who the tools belonged to that were at the work site.
A. I assumed they were Jason’s --
Q. Do you know that for a fact?
A. No, ma’am, I don’t.
Q. I mean, it’s possible the homeowner rented out some tools from
somebody. You don’t know that, do you?
A. No, I don’t.
Q. And you said that you received some payments from Mr. Usery.
A. Yeah.
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Q. But you don’t recall what sort of account that was written on?
A. No, ma’am.
Q. Don’t know whose name was on that check?
A. I think it said Jason and Suzanne Usery.
Q. But are you sure about that?
A. Yeah.
***
Q. Just to clarify, you said that you don’t have any responsibility to the
homeowner. But then you also said -- I mean, you don’t really know. You’re
assuming that’s the case, correct?
A. I was working for Jason. He was the one that was paying me. They
wouldn’t have no business coming to me if something was messed up or not
built right.
Q. Now, you testified earlier that you didn’t get paid by Jason. You don’t
recall getting paid for the work you performed on those --
A. Right.
Q. -- on that day and a half.
In October 2019, Jase filed a petition for judicial review in the Trial Court pursuant
to Tenn. Code Ann. § 4-5-322. In its petition, Jase asserted that the process by which a
penalty was assessed against it was unconstitutional; that the ALJ’s order upholding the
imposition of a penalty against Jase was arbitrary, capricious, and an abuse of discretion or
clearly unwarranted exercise of discretion; and that the ALJ’s order upholding the
imposition of a penalty against Jase was unsupported by substantial and material evidence.
In February 2020, the Trial Court heard Jase’s petition. In April 2021, the Trial Court
entered its final judgment ruling in favor of the Bureau. The Trial Court attached to its
final judgment a detailed letter containing its rationale. In its letter, the Trial Court stated,
in part:
In this case, the Court observes that the notice given by the Bureau was some
five pages in length and set out details regarding Jase’s failure to secure
payment of compensation through insurance. Specifically, the notice
outlined the results of the Bureau’s investigation, set forth the relevant period
at issue, identified how Jase was in non-compliance, pointed to the notices
given to Jase, and pointed out the Administrator’s designee assessment of the
penalty and how it was assessed. The notice pointed out that the employer
would be required to either secure workers’ compensation insurance
coverage, or show the Bureau to its satisfaction as to why it is not subject to
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the requirement to secure workers’ compensation insurance in accordance
with the [Workers’ Compensation Law].
The Court further finds that the notice of the Contested Case hearing
as appears on page 183-187 of the Agency Record, specifically refers to the
Agency decision assessing a civil penalty. It provides the date, time and
place of the hearing. It states the Petitioner has the burden of proof to show
why it should not be subjected to the monetary penalties specified in the
Agency decision. The Agency decision was some four pages long and was
served on the Petitioner’s attorney. The notice provided information as to
the allegations against Petitioner. It also provided information as to what
would happen if the Petitioner did not secure the requisite insurance.
[Jase] claims that the statute [Tenn. Code Ann. § 4-5-307, governing
notice in a contested case] is deficient since it does not require the Agency
or the Bureau to provide sufficient information concerning the claim.
Petitioner points out that it would have little information if it had not engaged
in discovery. The Court finds that this claim is without merit in that the
notice of the Contested Case hearing was adequate to convey the
requirements required by the statute which is set forth in the statute. More is
not required. It is clear that through discovery Petitioner can obtain more
detail if desired. Petitioner was afforded an opportunity to contest the penalty
assessment and availed itself of that opportunity. The Court finds that [the]
notice and the procedures afforded to the Petitioner in this case satisfied the
requirements of the Due Process Clause of the United States Constitution and
the Tennessee statute.
Jase also claims it was not afforded due process arguing that the
process by which the penalty was assessed is unconstitutional, i.e., that Jase
was required to bear the burden of proof at the Contested Case hearing and
that the law did not require the Agency to state with specificity the facts and
evidence on which it assessed the penalty. Jase asserts the burden of proof
should be on the Bureau. However, Jase points to no authority compelling a
state agency to adapt the standards and procedures of a court trial. The
relevant statute, TCA § 50-6-412 (e)(4) provides that the employer has the
burden of proof at the Contested Case hearing and shall produce
documentary evidence that the penalties should be reduced, that the employer
is not subject to this chapter, or that the employer was in compliance with
this chapter. Jase was afforded this opportunity and availed itself of same.
Jase had the opportunity to present evidence and documentation. The Order
on the Contested Case hearing and the record indicates that Jase did present
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testimony, documentation, and the deposition of Joe Sheldon and Affidavits.
The record in this case is extensive and indicates some 113 pages of
testimony by Jason Usery, and 10 pages of testimony from his wife Suzanne
Usery. Mr. Usery also testified on rebuttal. Three other witnesses testified
for the Bureau for about 112 pages of transcript. A number of Exhibits were
introduced into evidence, including the deposition of Joe Sheldon. The ALJ
heard all of the testimony, reviewed the deposition and commented on the
testimony of Mr. Sheldon….
***
The Court finds that based on the entire record that Jase was engaged
in construction services and employed Joe Sheldon as an employee and thus
was subject to the State’s Workers’ Compensation Laws. The evidence
revealed that Usery operated Jase, a business offering construction services
which it advertised as construction management. It actively advertised its
services. The advertisements talked about Jase’s great projects, pictures of
houses and plans, and the options and packages Jase was offering for framing
new homes. It also advertised that Jase was now doing wood fence
installation. Joe Sheldon testified that he worked for Jase and Jason Usery
and was paid by them. In response, Jase produced an Affidavit of Mary
Jordan [a company owner who worked with Jase on a referral basis] that to
her knowledge, Jason Usery has not had any employees since he began
working as a construction manager with Jase Enterprises. Jase also produced
the Affidavit of Richard Usery, Jason Usery’s father, and Joe Sheldon’s
neighbor. His Affidavit stated that he had loaned Joe Sheldon money and
that Joe was working at the Beecham house where he got hurt to earn the
money to pay him back. Jase was acting as construction manager for the
Beecham’s. He stated that after Sheldon got injured, that Jason and he also
gave Sheldon money to help him pay his bills and that … Jason Usery did
not have any employees to the best of his knowledge. He also stated that he
knew that Jason Usery did not employ[ ] Sheldon when he got hurt. The ALJ
had this information and assessed it in making his ruling. These issues were
questions of fact as to whether Sheldon was working for Jason or Jase at the
time of his injury. It was a question of fact as to whether Jason had
employees. The ALJ found that Joe Sheldon was an employee of Jase and/or
Jason. The evidence produced by Usery at the Contested Case hearing
consisted mainly of his testimony, his wife’s, the deposition of Joe Sheldon,
and the two Affidavits. The ALJ had this information, the other testimony,
and also the advertisements on Face Book.
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Jase timely appealed to this Court.
Discussion
Although not stated exactly as such, Jase raises the following issues on appeal: 1)
whether Jase was denied due process; 2) whether the penalty assessment against Jase was
arbitrary, capricious, an abuse of discretion or clearly unwarranted exercise of discretion,
or unsupported by substantial and material evidence; and 3) whether Jase should receive
an award of attorney’s fees and expenses incurred as a result of an improper penalty
assessment.
Administrative final decisions are reviewed under the Uniform Administrative
Procedures Act. Tenn. Code Ann. § 4-5-101, et seq.; see Liberty Mut. Ins. Co. v. Tenn.
Dep’t of Labor & Workforce Dev., No. M2010-02082-COA-R3-CV, 2012 WL 11739, at
*1-2 (Tenn. Ct. App. Jan. 3, 2012), no appl. perm. appeal filed. As applicable to the appeal
at bar, Tenn. Code Ann. § 4-5-322(h) provided:
(h) The court may affirm the decision of the agency or remand the case for
further proceedings. The court may reverse or modify the decision if the
rights of the petitioner have been prejudiced because the administrative
findings, inferences, conclusions or decisions are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion; or
(5)(A) Unsupported by evidence that is both substantial and material in the
light of the entire record.
(B) In determining the substantiality of evidence, the court shall take into
account whatever in the record fairly detracts from its weight, but the court
shall not substitute its judgment for that of the agency as to the weight of the
evidence on questions of fact.
Tenn. Code Ann. § 4-5-322(h) (West April 11, 2019 to May 17, 2021).2 Substantial and
material evidence has been defined as “such relevant evidence as a reasonable mind might
accept to support a rational conclusion and to furnish a reasonably sound basis for the
decision under consideration.” City of Memphis v. Civ. Serv. Comm’n of City of Memphis,
2
This statute has since been amended.
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238 S.W.3d 238, 243 (Tenn. Ct. App. 2007) (internal quotation marks and citations
omitted).
We first address whether Jase was denied due process. In its brief, Jase argues that
the penalty assessment process established in Tenn. Code Ann. § 50-6-412 violated its due
process rights under the Fourteenth Amendment. Tenn. Code Ann. § 50-6-412 provided,
in relevant part:
(b) … (4) The administrator shall advise an employer of the amount of any
assessed monetary penalty in writing and shall include the date on which the
monetary penalty shall be due and payable.
(c)(1) When the records of the bureau of workers’ compensation indicate, or
when the bureau’s investigation of an employer indicates, that an employer
is subject to this chapter, and has failed to secure payment of compensation
as required by this chapter, the bureau shall so notify the employer by
certified letter, return receipt requested.
(2) The bureau shall require the employer to provide, within fifteen (15)
calendar days of the receipt of the certified letter, either proof that the
employer had secured payment of compensation as required by this chapter
or a verifiable sworn affidavit, with supporting documentation, that the
employer is exempt from this chapter.
(3) The certified letter shall also advise the employer of the monetary
penalties that may be assessed against the employer if it is determined by the
administrator or the administrator’s designee that the employer has failed to
secure payment of compensation as required by this chapter and shall advise
the employer of the criminal penalties to which the employer may be subject
for the failure.
(d)(1) If the employer responds to the certified letter within fifteen (15)
calendar days of its receipt and the administrator or the administrator’s
designee determines that the employer has secured payment of compensation
as required by this chapter, or that the employer is not subject to this chapter,
no monetary penalty shall be assessed.
***
(e) … (2) The administrator’s or administrator’s designee’s decision shall
notify the employer of all monetary penalties that have been assessed against
the employer and the criminal penalties to which the employer may be
subject.
(3) The administrator’s or administrator’s designee’s decision shall advise
the employer that it may request a contested case hearing to show cause why
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it should not have been assessed penalties for failure to comply with the
workers’ compensation law or to challenge the amount of the penalties
assessed. Such a request must be made to the bureau in writing within fifteen
(15) calendar days of receipt of the administrator’s or administrator’s
designee’s decision assessing monetary penalties. If such request is not
timely made, the decision becomes final.
(4) The employer has the burden of proof at the contested case hearing and
shall produce documentary evidence that the penalties should be reduced,
that the employer is not subject to this chapter, or that the employer was in
compliance with this chapter.
(5) The contested case hearing shall be scheduled to be heard in a timely
manner, not to exceed forty-five (45) calendar days from the date of the
employer’s timely written request for a contested case hearing pursuant to
subdivision (e)(3).
Tenn. Code Ann. § 50-6-412 (West May 4, 2015 to June 14, 2020).3
Jase also takes issue with Tenn. Code Ann. § 4-5-307, which governs notice for
contested case hearings. Tenn. Code Ann. § 4-5-307 provides:
(a) In a contested case, all parties shall be afforded an opportunity for hearing
after reasonable notice.
(b) In all proceedings the notice shall include:
(1) A statement of the time, place, nature of the hearing, and the right to be
represented by counsel;
(2) A statement of the legal authority and jurisdiction under which the
hearing is to be held, including a reference to the particular sections of the
statutes and rules involved; and
(3) A short and plain statement of the matters asserted. If the agency or other
party is unable to state the matters in detail at the time the notice is served,
the initial notice may be limited to a statement of the issues involved.
Thereafter, upon timely, written application a more definite and detailed
statement shall be furnished ten (10) days prior to the time set for the hearing.
Tenn. Code Ann. § 4-5-307 (2021).
Jase cites certain factors relevant to our consideration of whether due process was
observed in the administrative proceedings below, to wit: (1) the private interest affected;
(2) the risk of erroneous deprivation and probable value of any additional or substitute
3
This statute, too, has been amended since the penalty assessment against Jase.
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procedural safeguards; and (3) the government’s interest. See Mathews v. Eldridge, 424
U.S. 319, 335 (1976) (citation omitted). Jase notes that the penalty assessment against it
impacts its ability to do business and earn a livelihood. Jase states that Tennessee’s penalty
assessment process grants the Bureau unfettered discretion; that there is no objective
standard of proof; that the Bureau is not required to disclose the evidence that gave rise to
the penalty; and that there is no burden of proof on the Bureau at the contested case hearing.
Jase also contends that it should have received more detailed notice of the allegations
against it, such as “how many workers, who, where did they work, what work did they
perform….” Jase argues that the process should include the following safeguards: “(i)
identification of specific facts and evidence supporting the Agency’s preliminary
assessment to the individual or entities who could be subject to penalty, (ii) explanation of
the Agency’s position with reference to specific facts and evidence and assessments of
credibility before imposition of a penalty, and/or (iii) placement of the burden of proof at
a contested case hearing on the Agency.” For its part, the Bureau argues that Jase was
afforded due process. The Bureau contends that Jase received adequate notice; that once
the penalty was assessed, Jase was notified and informed it could request a contested case
hearing, which it did; and that a contested case hearing was held at which Jase could and
did present its case.
In McClellan v. Bd. of Regents of State Univ., 921 S.W.2d 684, 688 (Tenn. 1996),
the Tennessee Supreme Court stated that “[b]asic due process requires ‘notice reasonably
calculated under all the circumstances, to apprise interested parties’ of the claims of the
opposing parties.” (Quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306,
314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950)). A case from the United States District Court,
N.D. New York, is instructive. In it, the United States Magistrate Judge wrote:
Plaintiff’s remaining due process claim is an official capacity,
injunctive relief claim against Defendant Rodriguez [Chair of the New York
Workers’ Compensation Board] related to the imposition of the penalty for
lack of workers’ compensation coverage. As noted above, this claim
concerns the lack of any process prior to the imposition of the penalty and
the alleged insufficiency of post-deprivation process.
Due process mandates that “individuals whose property interests are
at stake are entitled to ‘notice and an opportunity to be heard.’ ” Dusenbery
v. United States, 534 U.S. 161, 167 (2002) (quoting United States v. James
Daniel Good Real Prop., 510 U.S. 43, 48 (1993)). In determining the process
due, courts weigh (1) the private interest affected, (2) the risk of erroneous
deprivation through the procedures used and the value of other safeguards,
and (3) the government’s interest. Mathews v. Eldridge, 424 U.S. 319, 335
(1976); Spinelli v. City of New York, 579 F.3d 160, 170 (2d Cir. 2009).
“[D]ue process is flexible and calls for such procedural protections as the
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particular situation demands.” Morrissey v. Brewer, 408 U.S. 471, 481
(1972).
Plaintiff’s private interest here, “operating a business and ... pursuing
a particular livelihood,” is clearly a strong one. Spinelli v. City of New York,
579 F.3d at 171. “The government interest ... is likewise significant.”
The other factor outlined in Mathews directs courts to consider “the
risk of an erroneous deprivation of [the private] interest through the
procedures used.” Krimstock v. Kelly, 306 F.3d 40, 62 (2d Cir. 2002); see
also Redd v. Wright, 2006 WL 6907552, at *7 (N.D.N.Y. Aug. 9, 2006)
(identifying second factor as “the most important” one). The greater the risk
of the potential error, the more pre-deprivation process that is due. See, e.g.,
Chase Grp. All. LLC v. City of New York Dep’t of Fin., 620 F.3d 146, 150
(2d Cir. 2010). By contrast, post-deprivation remedies “suffice where ‘the
nature of the issues at stake minimizes the risk’ of wrongful deprivation.”
Diaz v. Paterson, 547 F.3d 88, 99 (2d Cir. 2008) (quoting Mitchell v. W. T.
Grant Co., 416 U.S. 600, 609 (1974)).
The particular question presented in this case, whether an employer
has secured insurance, is not a particularly complex one which would involve
significant factual or legal argument. In the mine run of cases the existence
or non-existence of insurance would be a straightforward matter of providing
proof of insurance coverage and is thus not one where the risk of erroneous
conclusion absent a pre-deprivation hearing is high. Campo v. New York City
Employees’ Ret. Sys., 653 F. Supp. 895, 899 (S.D.N.Y. 1987) (“the risk of
erroneous deprivation in this case must be deemed minimal ... [where] the
resolution of the plaintiff’s claim revolves around documentary evidence”).
In fact, “in situations such as these where decisions are ‘sharply focused and
easily documented’ and are based on an objectively verifiable set of facts,
providing an individual with notice and an opportunity to file a written
response is sufficiently reliable.” City Line Auto Mall, Inc. v. Mintz, 2006
WL 8439742, at *4 (E.D.N.Y. Oct. 25, 2006) (quoting Mathews v. Eldridge,
424 U.S. at 343).
In addition, “the risk of erroneous deprivation is mitigated by the
availability of a prompt post-deprivation hearing.” Nnebe v. Daus, 644 F.3d
147, 159 (2d Cir. 2011). New York’s Workers’ Compensation Law outlines
a detailed post-deprivation procedure. The statute provides that an employer
who wishes to challenge the imposition of a penalty imposed under Section
52 may seek “a redetermination review of such penalty.” N.Y. Workers’
Comp. Law § 52(5). In the event of an adverse determination on
redetermination, the law provides for an appeal to be taken to the New York
State Appellate Division, Third Department. N.Y. Workers’ Comp. Law §
23; see also N.Y. Workers’ Comp. Law § 52, Practice Commentaries. The
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initial notice provided to Plaintiff made him aware of the availability of the
initial step in the process, the request for review of the initial determination.
Plaintiff availed himself of this right and filed a request for review with the
WCB. That review concluded that Plaintiff was “not in compliance with the
requirements for coverage.” At the time of this request for review, the
penalty that had been imposed against Plaintiff was $12,000. Plaintiff was
subsequently advised that additional penalties were imposed, but Plaintiff
does not claim, and there is no evidence in the record to suggest, that Plaintiff
pursued this administrative remedy regarding the later penalties. Plaintiff
concedes that he did not proceed to appeal that initial determination to the
Appellate Division. This statutory regime, including the opportunity for
review by a neutral court, provided ample due process. Campo v. New York
City Employees’ Ret. Sys., 843 F.2d 96, 100 (2d Cir. 1988) (“Because a
judicial hearing in a state court was available to [plaintiff] on timely demand,
due process requirements for a post-deprivation hearing are met.”).
“Particularly in property cases, post-deprivation remedies have been
held adequate when they can make the aggrieved party completely whole.”
Mohomed v. Vician, 490 F. Supp. 954, 959 (S.D.N.Y. 1980). The availability
of the post-deprivation review here could clearly have done so since a finding
that Plaintiff did in fact have proper insurance would have meant he was not
subject to the disputed penalty. This consideration bears particular weight
here where Plaintiff has not yet actually paid any of the penalty imposed by
the WCB nor have any funds been garnished by the WCB to satisfy the
penalty.
Having balanced the public and private interests with the process that
was provided to Plaintiff and that was available under state law, the Court
concludes that sufficient notice and opportunity to be heard was provided
such that no due process claim is stated.
Cassidy v. Rodriguez, 2021 WL 5028089, at *6-7 (N.D.N.Y. Sept. 30, 2021) (footnotes
and internal record citations omitted).
In addition, this Court has stated as follows with respect to the minimum
requirements of due process in administrative proceedings:
In administrative proceedings such as this, “the minimum
requirements of due process must ... be satisfied when an agency’s decision
could adversely affect vested property interests or other constitutional
rights.” Martin v. Sizemore, 78 S.W.3d 249, 267 (Tenn. Ct. App. 2001).
Although due process does not dictate particular procedures in every
instance, administrative proceedings must afford affected parties 1) adequate
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notice, 2) an opportunity for a hearing at a meaningful time and in a
meaningful manner, and 3) an opportunity to obtain judicial review of the
board’s or agency’s decision. Id. (internal citations omitted).
***
To satisfy the basic due process notice requirement, the notice provided to
the offending party must be “ ‘reasonably calculated under all the
circumstances, to apprise interested parties’ ” of the claims of the opposing
parties. McClellan v. Bd. of Regents of State Univ., 921 S.W.2d 684, 688
(Tenn. 1995) (quoting Mullane v. Central Hanover Bank & Trust Co., 339
U.S. 306, 314 (1950)). The purpose of due process requirements is to notify
the individual or organization in advance in order to allow adequate
preparation and reduce surprise. Id. (citing Memphis Light, Gas and Water
Div. v. Craft, 436 U.S. 1, 14 (1978)).
Liberty Mut. Ins. Co., 2012 WL 11739, at *5.
The preceding authorities reflect that due process is not a mechanical concept.
Rather, what will suffice for purposes of due process may differ according to the nature of
the proceedings at issue. Jase is correct in that, at minimum, it was entitled to sufficient
notice and an opportunity to be heard. From our review of the record, it received both.
Jase indisputably received notice sufficient to apprise it of the claims of the opposing
parties. Jase has cited no law compelling the kind of richly detailed notice it says it was
entitled to. The Bureau alleged that Jase had one or more employees subject to Tennessee’s
workers’ compensation laws. Jase thus knew that the Bureau was proceeding against it for
failure to secure workers’ compensation insurance coverage. The additional details Jase
demands would have been superfluous. Such details, were they to be necessary, could be
borne out at the contested case hearing or by discovery, but they were not essential to Jase
being apprised of the penalty it was facing and why. As it happened, Jase not only knew
that the Bureau was proceeding against it and why—it requested a contested case hearing
and made its case. It did so in extensive fashion, with considerable evidence entered into
the administrative record. Jase had an opportunity to be heard and it took that opportunity.
That Jase lost does not mean it was denied due process.
Jase argues further that the burden of proof was wrongly placed on it; that there was
no objective standard of proof; and that it had to prove a negative, an impossible demand.
However, this case involved an administrative proceeding, not a trial. Jase points to no
law requiring that administrative proceedings must be conducted with the identical burden-
placements and standards of proof as are attendant to trials. Our review of a final
administrative decision is narrow and circumscribed by Tenn. Code Ann. § 4-5-322(h).
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Nevertheless, it not totally deferential. If, for instance, the ALJ’s ultimate conclusion that
Jase had one or more employees subject to the workers’ compensation law lacked
substantial and material evidentiary support, that would be grounds for overturning his
decision. Thus, there exists an objective standard upon which to review the ALJ’s decision,
as well as subsequent opportunities for judicial review. Jase had the opportunity to seek
judicial review of the ALJ’s decision with the Trial Court, and now with this Court on
appeal. In sum, Jase had a full and fair opportunity to present its case. We hold that Jase
was not denied due process.
We next address whether the penalty assessment against Jase was arbitrary,
capricious, an abuse of discretion, a clearly unwarranted exercise of discretion, or
unsupported by substantial and material evidence. On this issue, Jase argues that (1) the
Tennessee Court of Workers’ Compensation Claims has conclusively determined that
Sheldon was not an employee of Jase and (2) the fact that Jase used plural pronouns in its
advertising (i.e., referring to “us,” suggesting employees besides Usery himself) does not
constitute substantial and material evidence. With regard to his first argument, Jase moved
for this Court to consider certain decisions by the Tennessee Court of Workers’
Compensation Claims as post-judgment facts pursuant to Tenn. R. App. P. 14 to the effect
that Sheldon was not an employee of Jase.4 However, this Court denied Jase’s motion by
order entered May 16, 2022. In our order, we concluded that “[Jase] has failed to
demonstrate how the facts [it] wishes this Court to consider are necessary to keep the record
current” and “[m]ore significantly, the facts [Jase] wishes to now introduce go directly to
the merits of this appeal.” For the reasons we articulated in our order denying Jase’s
motion, we will not consider the post-judgment facts cited by Jase. We proceed to consider
whether the ALJ’s decision was supported by substantial and material evidence.
To reiterate, our standard of review is narrow. It is not for us to determine, as though
for the first time, whether the Bureau was correct to assess a penalty against Jase. Rather,
we apply the limited standard of review set out in Tenn. Code Ann. § 4-5-322(h). At issue
is whether Jase employed one or more employees during the pertinent time period. Jase
maintains it did not. The Bureau alleged Jase did. The ALJ, after hearing the evidence,
agreed with the Bureau. To resolve this issue, we look to the administrative record. A
major piece of evidence was Sheldon’s deposition testimony. Jase points out that
Sheldon’s testimony was ambiguous in some areas, such as he did not know who certain
other workers at the worksite were, or exactly who provided the tools. Nevertheless, this
goes toward the weight of the evidence, and we are not to substitute our judgment for that
of the ALJ. Sheldon testified that he worked for Jase; that he expected to be paid by Jase;
and that he later received payments from Usery after being injured on the job. With respect
4
In its Expedited Hearing Order entered December 30, 2019, the Tennessee Court of Workers’
Compensation Claims held that “Mr. Sheldon did not establish he is likely to succeed in proving he was
Usery’s employee.” Sheldon’s claim was later dismissed for failure to prosecute.
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to evidence showing that Jase used plural pronouns like “us” in advertisements—a practice
Jase dismisses as just Usery having used “broad strokes” in communicating—this was
indeed additional evidence from which the ALJ could render its decision. The ALJ did not
base its decision solely on this evidence, but it was legitimate to consider it. “Us” implies
more than one. Based upon the aforementioned relevant evidence, a reasonable mind could
conclude that Jase had at least one other employee apart from Usery, thus furnishing a
sound basis for the Bureau’s assessment of a penalty against Jase for failure to secure
workers’ compensation insurance coverage. That the ALJ, or this Court, might have
reached a different conclusion on the basis of this substantial and material evidence is
beside the point under the applicable standard.
Finally, Jase argues that the ALJ was capricious in crediting Usery’s testimony that
he switched business entities because of a changed business model and purpose but failing
to credit his testimony that he was a construction manager who does not have employees.
However, this Court has explained: “When the agency conducts a hearing and can evaluate
the witnesses as they testify, this Court gives the tribunal’s credibility determinations great
weight. Moreover, the substantial and material evidence standard does not justify reversal
of an administrative decision only because the evidence could also support another result.”
City of Memphis, 238 S.W.3d at 243 (citations omitted). Jase points to no law in support
of its contention that a witness cannot be found credible in some respects and not in others.
On the contrary, it was the ALJ’s prerogative to credit witnesses in part, in whole, or not
at all. We find that, in light of the entire record, the ALJ’s decision upholding the Bureau’s
penalty assessment against Jase was supported by substantial and material evidence. The
ALJ’s decision neither was arbitrary or capricious nor did it constitute an abuse of
discretion or clearly unwarranted exercise of discretion.
The final issue we address is whether Jase should receive an award of attorney’s
fees and expenses incurred as a result of an improper penalty assessment. Jase relies upon
Tenn. Code Ann. § 4-5-325, which allowed for an award of attorney’s fees and expenses
when a state agency’s allegation of a violation was “not well grounded in fact and was not
warranted by existing law, rule or regulation” or “[f]or an improper purpose such as to
harass, to cause unnecessary delay or cause needless expense to the party cited.” Tenn.
Code Ann. § 4-5-325(a) (West, through May 11, 2021). However, we affirm the Trial
Court, which upheld the penalty assessment against Jase. Thus, there is no basis under
Tenn. Code Ann. § 4-5-325 for an award of attorney’s fees and expenses to Jase. We,
therefore, decline Jase’s request for an award of attorney’s fees and expenses. We affirm
the judgment of the Trial Court in its entirety.
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Conclusion
The judgment of the Trial Court is affirmed, and this cause is remanded to the Trial
Court for collection of the costs below. The costs on appeal are assessed against the
Appellant, Jase Enterprises, LLC, and its surety, if any.
____________________________________
D. MICHAEL SWINEY, CHIEF JUDGE
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