Could Kentucky redirect unclaimed utility refunds to cover a bankrupt coal company's workers' compensation obligations?

Plain-English summary

In 1996, Kentucky's Attorney General concluded that proposed House Bill 72 could constitutionally allow certain unclaimed utility customer refunds to be used for the unpaid workers' compensation obligations of a bankrupt, purportedly self-insured employer. The proposal preserved the rights of ratepayers to claim their refunds and made any worker's settlement, including a waiver of claims against the Commonwealth, voluntary. On those terms, the AG found no unconstitutional taking, impermissible retroactive law, or prohibited special legislation.

The AG also answered the bill's separate factual test. Kentucky Utilities owed refunds after coal-contract litigation with South East Coal. The AG found a reasonable relationship between South East Coal's lost coal-sale income and its failure to pay workers' compensation benefits. The opinion evaluated a proposed bill; it did not report that the bill had become law.

Currency note

This opinion was issued in 1996. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

Utility customers awaiting refunds

The AG said the refunds remained ratepayers' property. House Bill 72 required designated agencies to preserve their right to claim a refund, including during the original seven-year period, even though the bill would shorten the utility's holding period to one year. The AG relied on that protection in rejecting the due-process objection.

Workers with unpaid compensation benefits

The proposed use of refund money concerned employees of a bankrupt employer that had purportedly insured its own workers' compensation liability. The AG said an employee could choose whether to accept a settlement; the bill did not make acceptance or a related waiver of claims against the Commonwealth mandatory.

Legislators considering the proposal

The AG found the bill's retroactive provision did not impair vested private rights because, as he read it, the bill created a remedy without taking private property. He also concluded that its limited reach did not make it prohibited special legislation. These were conclusions about House Bill 72 as proposed in the opinion.

Common questions

Would the proposed bill have taken away a Kentucky utility customer's refund?
The AG said no. House Bill 72 required the designated agencies to preserve ratepayers' right to claim their refunds, which the AG treated as their property.

Would a worker have been forced to settle a compensation claim?
No. The AG said accepting a settlement under the bill was voluntary, as was the associated waiver of claims against the Commonwealth.

Why did the AG link the refunds to South East Coal's unpaid benefits?
The refunds followed litigation that reduced the company's expected coal-sale income. The AG found that lost income reasonably related to its failure to meet workers' compensation obligations.

Was House Bill 72 already enacted when this opinion was written?
The opinion described House Bill 72 as a bill introduced to amend KRS 393.080 and gave conclusions about the proposed amendment. It did not state that the proposal had become law.

Background and statutory framework

House Bill 72 proposed to amend KRS 393.080, which addressed unclaimed public-utility refunds. The AG answered the request under KRS 15.020. His constitutional discussion covered ratepayers' property, voluntary settlement by claimants, the retroactive clause and the bill's limited scope. He then applied the bill's reasonable-relationship test to the Kentucky Utilities refund and South East Coal's unpaid workers' compensation liability.

Citations and references

• KRS 393.080
• KRS 15.020
• House Bill 72
• Walker v. Commonwealth, Ky., 130 S.W.2d 27 (1939)
• Bowman v Frost, Ky., 158 S.W.2d 945 (1942)

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG96-007.htm

Original opinion text

OAG 96-7

January 23, 1996

Subject: Constitutionality of House Bill 72

Written By: Michael A. Richardson

Requested By: Stephen Nunn, House of Representatives

Syllabus: House Bill 72, an amendment to KRS 393.080, is constitutional and bears the required reasonable relationship

OAGs Cited: None.

Statutes Construed: KRS 393.080, 15.020.

OPINION OF THE ATTORNEY GENERAL

We are asked for an opinion as to the constitutionality of HB 72 introduced to amend KRS 393.080 to allow additional uses for funds presumed to be abandoned. We are also asked whether a “reasonable relationship” exists between the source of and reason for the refund and the workers compensation liability of a self-insured bankrupt employer. We give this opinion pursuant to KRS 15.020.

THE FACTS

House Bill 72 amends KRS 393.080. That statute directs that money held by a public utility for refund to its customers, which has remained unclaimed by the person entitled thereto after seven years, shall be presumed abandoned and will therefore escheat to the Commonwealth.

The amendment provides an alternative disposition of these funds in a case where the circumstance which created the refund are reasonably related to a default in the payment of workers' compensation benefits to employees of a bankrupt employer. It would also shorten the seven year holding period to a one year period, in return for the designated agency guaranteeing the payments to any rate payer who should appear within the original seven year period.

The bill is retroactive to January 1, 1975; and it expires on July 15, 1997.

CONSTITUTIONAL QUESTIONS RAISED

Three constitutional issues are raised by this amendment. They are:

1. Does the bill take property without due process of law?

2. Does the retroactive clause involve ex post facto legislation?

3. Does the limited scope of the bill render it special legislation?

ANALYSIS

Does the bill take property without due process of law?

The public utility rebates dealt with in KRS 393.080 are the property of the ratepayer, held by the public utility for the sole purpose of returning this money to those persons. Any bill which would deprive the ratepayer of this rebate would constitute the taking of property without due process of law. Such taking is prohibited by both the State and Federal Constitutions.

House Bill 72 deals with this in Section 2(2), where the agency or agencies designated to carry out the provisions of this section are required to “preserve the rights of persons or rate payers entitled to claim a refund under KRS 393.080, and may utilize any funds held by the agency or agencies for this purpose.”

The other group that potentially could lose a property right would be any workers' compensation claimant, who must waive any claim against the Commonwealth or any of its agencies (except the Special Fund) in order to receive any of the funds dealt with in this bill. Clearly, the right to prosecute a claim against the Commonwealth or any of its agencies is a property right which cannot be taken away without due process of law. House Bill 72 expressly provides in Section 2(5) that the acceptance of any offer of settlement “shall not be mandatory”. Any waiver of claims against the Commonwealth will be voluntary, and the consideration for this waiver would be the settlement amount.

We conclude that House Bill 72 does not take any property without due process of law.

Does the retroactive clause involve ex post facto legislation?

It is well settled that the Legislature cannot impair private rights by retroactive laws. It is equally well settled that the Legislature can enact retrospective statues not effecting vested rights. Walker v. Commonwealth, Ky., 130 S.W.2d 27 (1939). More specifically, it has been held that acts which give to a party a remedy which he did not previously possess, or modify an existing remedy, or remove an impediment in the way of legal procedure are not barred. U.S. v Resch, 85 F.Supp. 389 (1949).

House Bill 72 does not impair any vested private rights in that it does not take any private property. Instead, it provides a new remedy which did not exist. Therefore we conclude that it does not constitute ex post facto legislation.

Does the limited scope of the bill render it special legislation?

The scope of House Bill 72 is clearly limited as it is restricted to the unclaimed rebate funds which would escheat to the State, and as it requires that there be unclaimed refunds from a public utility and a default in the payment of workers' compensation benefits related to the source of those funds before it can have any effect. Thus, it may appear to be special legislation, prohibited by �3 of the Constitution.

This issue was disposed of in Bowman v Frost, Ky., 158 S.W.2d 945 (1942):

When members of the Constitutional Convention adopted the constitutional provision that no grant of exclusive, separate public emoluments or privileges shall be made to any man or set of men, except in consideration of public services, they had in mind the powerful and influential and not the unfortunate and helpless members of society.

. . .

The constitutional provision that no grant of exclusive, separate public emoluments or privileges shall be paid to any man or set of men, except in consideration of public services, applies in cases where no duty rests of the state to reward the recipient, but not to cases where payments are made in discharge of an inherent duty.

Employees who lose their workers' compensation benefits because of the bankruptcy of their employer are clearly the “unfortunate and helpless”, not the “powerful and influential”. Section 3 was not intended to effect the power of the State to provide for its citizens who are in need of assistance, either as to the right to exercise it or as to the manner in which the assistance should be granted.

Therefore, we conclude that House Bill 72 would not be special legislation prohibited by our Constitution.

CONCLUSION

We conclude that House Bill 72 is constitutional.

“REASONABLE RELATIONSHIP” QUESTION

In late 1992 Kentucky Utilities won a suit against South East Coal Company regarding the price charged for coal between 1984 and 1990 [1]. In 1994 Kentucky Utilities was ordered by the Public Services Commission to refund approximately $35,300,000.00 to the rate payers who had been charged for services provided during that period [2]. At this time approximately $28,600,000.00, or over eighty percent, of that amount has been refunded. The remaining ratepayers have not been located. Therefore, the money remaining in that fund, plus interest and minus any lawful deductions, will escheat to the State after seven years.

In early 1993 South East Coal Company ceased paying its workers' compensation benefits to its employees. South East Coal had been purportedly self-insured, either individually or through a group, since 1975.

House Bill 72's amendment to KRS 393.080 allows the funds that Kentucky Utilities currently holds for refund to ratepayers be used to pay the workers' compensation liability of South East Coal Company.

ANALYSIS

Under Section 2(2) of HB 72, the Attorney General is asked to determine if "a reasonable relationship exists between the source of and reason for the refund, and the workers' compensation liability of a bankrupt employer who purportedly was self-insured, either individually or through a self-insurance group. . . ".

First, it is clear that the amounts held by Kentucky Utilities for refund to its customers is in fact the type of fund referred to in KRS 393.080(1)(2) and (3). Thus, the real question is whether or not there is a "reasonable relationship" between the source of the refund and South East Coal Company's failure to pay its workers' compensation liability.

The source of the funds in question was a suit between South East Coal Company and Kentucky Utilities Company over the amount that South East Coal Company should receive for the coal that it was selling to Kentucky Utilities. Specifically, the suit dealt with the question of whether the price that had been agreed upon in the initial contract should have been re-negotiated due to an unforeseen change in circumstances. The ultimate result of the suit was to lower the amount that South East Coal had expected to receive for the coal that it had sold to Kentucky Utilities by over $35,000,000.00. This amount exceeded the debts of South East Coal–including its workers' compensation liability.

It is certainly reasonable to believe that the loss of income from the coal sales to Kentucky Utilities is reasonably related to the failure of South East Coal Company to pay its workers' compensation obligations.

CONCLUSION

The Attorney General finds that there is a sum which a public utility has been ordered to rebate pursuant to KRS 272.291.

This fund has been held by Kentucky Utilities for more than one year, and the amount in the fund exceeds $1,000,000.00.

South East Coal Company is a bankrupt, purportedly self-insured employer, which has outstanding workers' compensation liability.

There is a reasonable relationship between the source of, and the reason for, the refund held by Kentucky Utilities and the unpaid liability of South East Coal Company, within the meaning of KRS 393.080 as amended by House Bill 72.

A. B. CHANDLER III

ATTORNEY GENERAL

Michael A. Richardson

Assistant Attorney General

Footnotes

[1] Kentucky Utilities Co. vs. South East Coal Co., Ky., 836 S.W.2d 392 (1992)

[2] In Re Application of Kentucky Utilities Company to Amortize, by means of temporary decrease in rates, net fuel cost savings recovered in coal contract litigation. Case #93-113 (1993)