Kentucky Unemployment Insurance Commission v. Michael Nichols

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.
2
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.
3
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.
4
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.
5traceable 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).
7
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.
8
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.
9An 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.
10as 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.
11
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
15