STATE OF MAINE SUPERIOR COURT KENNEBEC, SS CIVIL ACTION DOCKET NO. AP 14-43 CHARLES L. FARRELL, Petitioner
v. ORDER
MAINE UNEMPLOYMENT INSURANCE COMMISSION, Respondent
Petitioner Charles L. Farrell filed a M.R. Civ. P. SOC appeal from the decision
of the State of Maine Unemployment Insurance Commission ("Commission")
denying Petitioner unemployment benefits because he made false statements in his
applications to obtain unemployment benefits. Specifically, the Commission found
that Petitioner represented that he was not working or receiving pay when, in fact,
he was working and entitled to pay, but chose to defer payment so that he could
continue to receive unemployment benefits. As discussed in greater detail below,
the Court sustains Petitioner's M.R. Civ. P. SOC Appeal and reverses the
Commission's Decision because the Decision was not supported by substantial
evidence on the record as a whole and did contain errors of law.
Petitioner was laid off from a position at Know Technology, LLC on March 11,
2009. He applied for unemployment benefits the following day. Using the
Department of Labor's internet-based system, Petitioner filed weekly claims for the
weeks ending April11, 2009 through August 2S, 2010. From the weeks ending
1 September 4, 2010 through November 20, 2010, Petitioner filed claims through
Extended Benefit Claims Cards, which he signed. For each week, the Petitioner
answered the question, "Did you work or earn wages during the week?" with a no.
During this time, he received weekly benefits in the amount of $344.00 plus $25 in
Federal Additional Compensation.
In April 2009, Petitioner and a business partner, Kevin Cloutier ("KC") began
a new venture that operated under the name Network Support Partners, LLC (the
"Company"). The Company's Articles of Organization were filed on April13, 2009
and its business was described as a "limited liability company that provides IT
technical support services." Petitioner served as the Company's Registered Agent.
Earlier that month, KC and the Petitioner entered into a Partnership Agreement,
which provided, in pertinent part:
The initial capital of the partnership shall consist of cash to be contributed by the partners in the form of their individual payment of business-related starting-up expenses and deferment of a standard base salary, commission payments, and bonus payments until such time as both agree to cause [the Company] to reimburse the partners for the accrued business expenses and until such time as both agree to cause [the Company] to initiate payment of compensation. Both Partners agree to submit business expense reports at least monthly.
The Agreement further provided that:
Partners are entitled to draws from expected partnership profits. The amount of each draw will be determined by a vote of the partners. The draws are recoverable (that is, if sufficient profit is not available to pay the draw and provide the necessary cash for the next period's continued operation of the business, the amount of the draw is treated as a no-interest loan and the amount of the draw deducted from the partner's future compensation) and shall be paid on no greater frequency than monthly.
2 In determining the amount of profits available for distribution, allowance will be made for the fact that some money must remain undistributed and available as working capital as determined by all partners.
Petitioner's former business partner, KC, brought an allegation of fraud or
misrepresentation to the attention ofthe Bureau of Unemployment Compensation.
In particular, KC alerted the Bureau to an email dated April 27, 2009 from Petitioner
to KC in which Petitioner stated, in pertinent part:
> tomorrow I'm stuck in a half-day unemployment session (one- maybe two benefits .... first, those unemployment checks are part of the reason we don't have to pay me in 2009 and second- I hope to plead my case for the State to approve the notion of starting a company- which continues the dollars and removes the rest of the bureaucracy.
Unemployment Claims Fraud Investigator, Paul Jerome, asserted that
Petitioner told the Deputy-in charge of the initial determination-that he worked
approximately 15 to 20 hours per week for the Company. On June 11, 2013,
Petitioner wrote a letter to Mr. Jerome estimating that he worked 10-15 hours a
week for the first six month's of the Company's existence and no more than 10 hours
per week after that time. This alleged correction was disregarded or overlooked by
the Commission.
On April15, 2009, Petitioner completed an application for Maine Enterprise
Option ("MEO"). The MEO was designed as a means to assist people who wished to
become self-employed and met criteria to allow them to be eligible for collecting
regular unemployment benefits while participating in the program. Petitioner's
application was denied on May 8, 2009. Petitioner did not appeal this denial.
3 In 2009, the Company's IRS 1065 indicated it had ordinary business income
of $11,332.16. As of December 31, 2009, Petitioner owned 40% of the Company and
KC owned the other 60%. Petitioner reduced his ownership interest in the
Company from 40% to 25% on July 1, 2010. In 2010, the Company had ordinary
business income of $25,511.67 and in $2011 income of $833.40. Petitioner asserts
that aside from $1.00 for transferring a logo that he owned to the Company, he did
not receive any form of wages, reimbursement, or compensation from the Company.
Petitioner, however, brought a small claims action against KC to recover some
money from the Company. In fact, he obtained two judgments of $6,000 on or about
March 17, 2013 for two periods. Petitioner did not, however, receive the $12,000.
Instead, he received a check for $150 that he has yet to cash. Petitioner did not
disclose the business income shown on the income tax records, the judgments
totaling $12,000, or the $150 check to the Bureau of Unemployment Compensation
or the Commission, although Petitioner believes he made Mr. Jerome aware of them
and testified he knew his obligation to report any cash received on the judgments to
the Depart of Labor.
KC testified that while there were not weekly or monthly paychecks,
compensation could have been to Petitioner. KC asserts that if Petitioner had
chosen, he could have received some form of compensation for the services he
performed for the Company. KC testified, however, that Petitioner requested to
defer the payment: "[Petitioner] didn't want to be paid just to- our goal was to build
the company up and to sell it, pretty much." When subsequently asked why
4 Petitioner wanted to defer payments, KC testified that he did not believe Petitioner
told him why:
I might have- I'd have to review my emails. I believe the only one that there was, was the [April 27, 2009 email]. Where he pretty much said it was 'cause he's collecting unemployment.
On June 3, 2013, the Bureau contacted Petitioner to indicate that his
unemployment claim had been audited. On June 18, 2013, the Deputy issued a
decision concluding that Petitioner was disqualified from April 5, 2009 to November
20, 2010 from receiving benefits, was ineligible for benefits from June 18, 2013
through June 13, 2014, received an overpayment of $31,365, and must also repay a
50% penalty of$15,682.50 for a total of$47,047.50 that must be repaid. This ruling
was based on the Deputy's findings that the Petitioner knowingly made false
statements or knowingly failed to disclose material facts in his application for
benefits. In particular, the Deputy explained that documentation indicates the
Petitioner worked for the Company and received a share of money for this work
even though it was intentionally kept in the Company bank account.
On July 1, 2013, Petitioner appealed the Deputy's Decision to the Maine
Department of Labor, Division of Administrative Hearings. On August 19, 2013, a
hearing was held in which two issues were presented: 1) Whether Petitioner made a
false statement or representation knowing it to be false or knowingly failed to
disclose a material fact in his application for benefits under Section 119 3 (6) of the
Employment Security Law; and 2) Whether Petitioner was paid benefits in error
under Section 1194(10) of the Employment Security Law. On August 23, 2013,
Administrative Hearing Officer Maura R. Bragg issued a decision affirming the
5 Deputy's finding that Petitioner "knowingly made a false representation under
Section 1193(6) of the Employment Security Law" and was thus disqualified for
benefits.
Petitioner appealed that decision to the Commission on August 30, 2013 and
on January 14, 2014, a hearing was held. On April 28, 2014, the Commission issued a
2-1 Decision finding that Petitioner "knew or should have known that since he was,
in fact working and that he was entitled to pay for his work that he must report the
earnings when filing his weekly claim."(emphasis supplied). It elaborated that
Petitioner "specifically requested that the payments from the [Company] that he
was entitled to during the timeframe that he was receiving unemployment
compensation be deferred" and that Petitioner "made a conscious choice to seek
payment for services rendered at a later time." This conclusion was supported only
by Petitioner's April 27, 2009 email to KC "because it demonstrates that the
[Petitioner] requested the deferral specifically to avoid having the [C]ompany pay
him any wages during the period in question." Indeed, the Commission found the
fact that Petitioner sued KC for payment and received two judgments additional
evidence that he was working and expected to be paid. The Commission also
dismissed Petitioner's argument that he asked Bureau officials if what he was doing
was correct as unpersuasive because there was no evidence that he told the Bureau
that he was in fact working for pay, but simply requesting payment at a later date.
On May 2, 2014, Petitioner filed a request for reconsideration, which was
denied, with a dissent from Commissioner O'Malley. Thereafter, Petitioner timely
appealed to the present Court.
6 The Court understands it "will not overrule findings of fact supported by
substantial evidence, defined as 'such relevant evidence as a reasonable mind might
accept as adequate to support the resultant conclusion."' Lewiston Daily Sun v.
Maine Unemployment Ins. Comm'n, 1999 ME 90, ,-r 7, 733 A.2d 344 (quoting Crocker
v. Maine Unemployment Ins. Comm'n, 450 A.2d 469, 471 (Me. 1982)). When
conflicting evidence is presented, such conflicts are for the fact finder to resolve.
Bean v. Maine Unemployment Ins. Comm'n, 485 A.2d 630, 634 (Me. 1984). In
particular, credibility determinations are "exclusively the province of the
Commission and will not be disturbed on appeal." Sprague Electric Co. v. Maine
Unemployment Ins. Comm'n, 544 A.2d 728, 732 (Me. 1988). Stated differently, the
Court may not substitute its judgment for that of the agency merely because the
evidence could give rise to more than one result. Dodd v. Secretary of State, 526 A.2d
583,584 (Me. 1987) (citing Gulickv. Bd. ofEnvtl Protection, 452 A.2d 1202,1209
(Me. 1982)). "The burden of proof clearly rests with the party seeking to overturn
the decision of an administrative agency." Seven Islands Land Co. v. Maine Land Use
Regulation Comm'n, 450 A.2d 475,479 (Me. 1982) (citation omitted). However, this
court need not accept errors of corporate or partnership law as applied to the
evidence on the record.
Petitioner argues that the Commission committed legal error by finding that
it was appropriate to bring the present case of unemployment insurance fraud over
three years after the alleged act occurred. In particular, Petitioner contends that the
present dispute is controlled by the three-year statute of limitations applicable to
Class E crimes. (citing 17 -A M.R.S. § 8 (2) (B)). Petitioner argues that the three-year
7 statute of limitations applies because unemployment compensation fraud is
identified as theft by deception, a Class E crime.
The Commission responds that no statute of limitations applies to findings of
a false statement or misrepresentation under 26 M.R.S. § 1193(6) The proceedings
before the Commission were civil proceedings that do not fall under Title 17 -A
The Court rejects Petitioner's argument because the plain language of 17 -A
M.R.S. § 8(2)(B) makes clear that its three-year statute of limitations applies to
criminal, not civil proceedings before the Commission and the Court. The mere fact
that a civil violation also gives rise to a criminal charge does not, in itself, impute the
criminal statute of limitations to the civil proceeding.
The Commission determined that Petitioner was disqualified from receiving
benefits pursuantto 26 M.R.S. § 1193(6). Section 1193 provides, in pertinent part:
For any week for which the deputy finds that the claimant made a false statement or representation knowing it to be false or knowingly failed to disclose a material fact in the claimant's application to obtain benefits from any state or federal unemployment compensation program administered by the bureau. In addition, for a first or 2nd occurrence, the claimant is ineligible to receive any benefits for a period of not less than 6 months nor more than one year from the mailing date of the determination, and the commissioner shall assess a penalty of 50% of the benefits falsely obtained for the first occurrence.
26 M.R.S. § 1193(6).
Petitioner contends the Commission's finding of a false statement or
representation is not supported by the record because: 1) the standard the
Commission attempts to employ-that an individual should and can report work
without simultaneously reporting earnings-is not an acceptable command under
the Department's online reporting system; 2) Petitioner reported the activities he
8 was participating in to the Department and they informed him that such "work" was
permissible; and 3) Petitioner did not receive any wages or other monetary
compensation for the services he provided to the Company.
Specifically, Petitioner argues that the software the Department uses to
process claims submitted online does not permit an individual to report that they
worked, but did not earn any income from such work. Petitioner argues the
Commission's finding that Petitioner knew or should have known that he was
working and entitled to pay, although not receiving any earnings, is not supported
by substantial evidence on the record as a whole.
The Commission responds that Petitioner's argument that the claims system
did not allow a report of work without corresponding earnings ignores the fact that
Petitioner did have earnings, but chose to put them back into the business, "in part
so that he could collect unemployment benefits." This is contrary to the explanation
in Maine's Unemployment "Blue Book" that a claimant should report earnings the
week in which the work is done, not when payment is received. In particular, the
Blue Book provides that "[i]fyou were paid for an 'odd job' and you cannot provide
written verification of your earnings, report your earnings for the week in which
you did the work, regardless of when you are paid." The Commission also points out
that Petitioner's argument ignores the fact that when Petitioner received extended
unemployment benefits, from September 4, 2010 to November 20, 2010, he filed
claims on an Extended Benefit Claims Card. On this card, the Commission contends,
Petitioner could have checked "yes" and put a zero in the blank for gross earnings.
Finally, the Commission argues that since the Petitioner expected to receive
9 earnings at some point, he should have calculated his anticipated earnings and
reported them each week.
Petitioner points out that there is no dispute that he reported the work he
was doing for the Company. Indeed, Petitioner contacted Bureau representatives at
least nine times during the course of his unemployment to confirm that he was
properly completing the paperwork and, each time, was told that he could continue
with his volunteer activities and work at the Company without reporting them as
long as he remained able and available to work and did not receive earnings or
wages. This is consistent with the on-line system not allowing a user to answer "yes"
to question 6 without reporting any income. As the Bureau representatives
indicated, it is the income or the earnings, not the work itself, that makes the activity
reportable. Because there was no testimony indicating that working, without
immediate pay, must be reported, the Commission lacked substantial evidence to
find that the Petitioner knowingly made a false representation.
Regarding Petitioner's point that he relied upon the advice of the Bureau of
Unemployment Compensation, it complains that the Petitioner left out the fact that
he could have been paid, but chose to defer such payment. The Commission notes
that it also appears that Petitioner asked the question about such work in the
context of volunteer work he performed. The Commission argues that a
misunderstanding about how advice should be used does not negate the Petitioner's
obligation to follow the applicable law. (citing Pankey v. Maine Unemployment Ins.
Comm'n, 2013 Me. Super. LEXIS 199 *6-7 (Oct. 8, 2013).
10 Petitioner argues that he did not receive any payment for work from the
Company, nor did he refuse payments in order to create an entitlement for
unemployment. In addition, as of the present date, Petitioner has not received any
money from the Company-aside from a $1.00 payment as a result of the sale of a
trademark-and is unaware of what happened to any money the Company had
prior to its wind up. Furthermore, Petitioner argues that the record does not
support the Commission's finding that there were funds available to compensate
him. Indeed, the Company's history clearly demonstrates that Petitioner never
received any form of compensation for his contributions to the Company.
Furthermore, Petitioner argues the Partnership Agreement, in paragraph 5, states
that "[i]n determining the amount of profits available for distribution, allowance will
be made for the fact that some money must remain undistributed and available for
working capital as determined by all partners. While the Company reported income
at the end of multiple years, "there is no evidence to support a conclusion that the
income could have been distributed and the business would have remained
operable."
The Commission responds 'that Petitioner's intent to misrepresent the facts
is evidenced by his email to KC that his "unemployment checks are part of the
reason we don't have to pay me in 2009." While the Commission acknowledges that
this statement was made while an application for the MEO program was pending
and that the program would have allowed Petitioner to become self-employed and
remain eligible for unemployment benefits, the Commission points out that this
11 application was denied. Similarly, the Commission points to testimony of KC that the
Company could have remained operable and distributed income to Petitioner.
The Commission points out that while the Petitioner asserts that he did not
expect any money from the business in the short term, the tax returns and
judgments he obtained against KC indicate that the business earned money. The
Commission points to Petitioner's testimony that he "never" received any money
from the partnership, even though he received a check for $150 and two judgments
for $6,000 each. While Petitioner attempts to downplay the significance of the $150
check because he did not cash it, the Commission contends that this constitutes valid
evidence in support of its finding that Petitioner had a subjective intent to
misrepresent his work and deferred earnings.
Petitioner replies that insofar as KC testified that Petitioner chose to defer
any partnership payments for his work, that statement is not supported by the
Partnership Agreement itself, which provides that a draw-i.e. payments-must be
determined by a vote of the partners-meaning KC would have to decide whether
Petitioner was paid-and that a significant amount of funds must "remain
undistributed and available as working capital," as the nature of the business
required a large amount of working capital.
In addition, Petitioner contends that the judgments he obtained were only
done after the Company ceased operations. These payments, Petitioner argues, were
found "irrelevant" by the Hearing Officer as outside the period in time in question
and, even if relevant, were pursuant to a small claims judgment, which would
account for different taxable reporting standards than wages for work performed.
12 Petitioner further argues that while the Court must accept the Commission's
credibility determinations, it must also determine whether the Petitioner had a
subjective intent to deceive the Commission. Petitioner argues that in this case,
there is no evidence that Petitioner understood work and earnings to be linked
terms. In addition, Petitioner argues that the Commission did not take Petitioner's
subjective understanding into account because it noted that Petitioner "knew or
should have known." Furthermore, the only evidence that "may even partially
support a finding of fraud or a knowing misrepresentation" was the April 27, 2009
e-mail from Petitioner to KC stating, in pertinent part that "those unemployment
checks are part of the reason we don't have to pay me in 2009 .... " Petitioner argues
that this email must be read in the context of the MEO program, which Petitioner
applied for on April11, 2009. This application was not denied until after the April
27, 2009 email was sent. Accordingly, Petitioner contends that at the time the email
was written, he understood that the MEO program would provide the Company with
start-up cost and still permit him to collect unemployment.
While the Commission wrote that Petitioner "knew or should have known"
he made a false statement, the remainder of the Decision speaks in terms of
Petitioner's actual knowledge and clarifies that "[i]t is found, for the reasons stated
above that the [Petitioner] knowingly made a false representation under 26 M.R.S.A.
§ 1193(6) of the Employment Security Law and therefore, is disqualified for benefits
under the law." (emphasis added); ("[Petitioner] made a conscious choice to seek
payment for services rendered at a later time ... there is no evidence that the
13 [Petitioner] ever told the Bureau that he was in fact working for pay, but simply
requesting payment at a later date"). s
In response to the Petitioner's argument that he could not physically indicate
on the Department's form that he worked, but did not earn any money, the
Commission claims that Petitioner "should have calculated his anticipated earnings
and reported them each week." In other words, the Commission implicitly found
that the Petitioner worked, and earned more than zero dollars from the Company,
for the weeks in question. See Davric Me. Corp. v. Bangor Historic Track, Inc., 2000
ME 102, ~ 9, 751 A.2d 1024 (discussing an agency's implicit conclusion); Driscoll v.
Gheewalla, 441 A.2d 1023, 1029-30 (Me. 1982) (upholding agency finding because
record implicitly supported such a finding even though no express finding existed).
It relies on the Company's tax records and KC's testimony. In addition, the
Commission doubted Petitioner's sincerity in attempting to fill in zero on the
electronic form based on his treatment of the non-electronic extended benefit
weekly claim forms. This is because Petitioner conceded that he could have, but did
not, indicate on the extended benefit form that he worked, but did not receive any
gross earnings.
Petitioner argues that the Commission's finding that he knowingly made a
false statement is arbitrary and capricious because the Department's electronic
unemployment benefit claims system does not allow the user to explain that he has
worked, but not "earned" any money as a result thereof. In addition, Petitioner
argues that defining "work" as not requiring "earnings" would open the door to a
plethora of claims that fraud has occurred. Petitioner argues that the Commission's
14 distinction is unavailing as the only two things that are to be looked at is whether
the individual worked and whether the individual earned wages. In this case,
Petitioner argues, the record is clear that the Company never paid Petitioner any
compensation or earnings.
As discussed supra, the Commission did not find the Petitioner should have
indicated that he worked, but did not receive any wages. Instead, the Commission
found that the Petitioner worked, earned wages, but purposefully deferred them so
that he could continue to receive unemployment benefits. Implicit within this
finding is the conclusion that Petitioner worked, and earned more than zero dollars
from the Company, for the weeks in question.
Petitioner argues that the Commission's Decision is premised on adding an
element into the statute which is not present: expectation. Petitioner points to
language in the Commission's decision that the Petitioner "expected to be paid" and
then argues that expectations, as a form of currency to buy and sell goods, is not
recognizable. Petitioner then challenges the Commission's argument that he should
have calculated his return by pointing out that "[h]ow one can calculate
expectations remains unknown." In addition, Petitioner argues that the
Commission's citation to Pankey v. Me. Unemployment Ins. Comm. 2013 Me. Super.
LEXIS at 5, is unavailing as in that case, the individual had actual earnings as a sole
owner, not the expectation of earnings. She was not subject to a sharing contractual
agreement. The case that is most on point, Petitioner argues, is Crocker because the
claimant in that case was working a similar amount of time and was ready, willing,
able, and available to work full-time. In addition, the claimant in Crocker never
15 received any earnings or compensations, but there was an understanding or
expectation that the work he was performing could provide benefits in the future-
because Mr. Crocker co-owned the venture and the venture made payments to his
wife.
Petitioner argues that the Commission's Decision is contrary to the Law
Court's decision in Crocker v. Maine employment Security Comm'n., 450mA.2d 469.
The Commission argues that the holding of Crocker does not apply to this situation.
The Law Court's reversal was based on stipulations, which have not been made in
the present case. On the contrary, the facts in the present case are identical to
Crocker.
In Crocker v. Maine Employment Sec. Comm'n, the claimant applied for
unemployment benefits on June 16, 1980. 450 A.2d at 469-70. The Petitioner
marked the "no" box to question 6, "did you work or earn wages this week." In late
May 1980, the claimant and his wife jointly obtained a license for and opened up a
Bait & Tackle Shop. Id at 470. At the time they obtained the license, they did not
know the claimant would be laid off. After the claimant was laid off, on June 13,
1980, he did not work at the store or keep the books. !d. Several times a week he
would drive his nephew to ponds where the boy caught bait to be sold in the shop.
!d. At first, he showed his nephew how to catch each kind of bait. !d. The task of
securing bait required two to three hours of time each day. !d. Based on the parties'
stipulation that despite the fact that he was "working" 2-3 hours a day he was still
available for work under the statute. On August 25, 1980, the claimant informed the
Commission that "[a]ll I do is spend 2 or 3 hours a day supervising & overseeing the
16 business operations to include 2 or 3 hours a day fishing or procuring the bait
supply." !d. Based largely on this statement, the deputy found that the claimant
knowingly made a false statement, i.e. that he had not worked or earned wages and
that he was able and available for work on each day during the time in question. !d.
This decision was affirmed and appealed to the superior court. !d. at 4 71. While the
appeal was pending, the parties submitted a partial consent decree in which they
agreed that the decisions concerning the plaintiffs availability for work and his
employment status were erroneous and should be reversed. !d. Nevertheless, the
Superior Court found that the Commission's decision and facts were supported by
substantial evidence and did not contain errors of law or an abuse of discretion. !d.
On appeal, the Law Court explained that the parties' stipulation conceded:
That the [claimant's] furnishing of his services in driving his nephew to the several ponds to gather bait for the bait and tackle shop operated by his wife and licensed as a joint business venture did not in fact and law render him unavailable for work, and that, notwithstanding such services, [claimant] was available for work within the meaning of the eligibility requirements of 26 M.R.S.A. § 1192(3). Also, the Commission was admitting that the furnishing of the reference services did not in fact and law nullify his unemployment status, another prerequisite of unemployment benefit eligibility ....
!d. at 471-472. As a result of these concessions:
A majority of the [Law] Court believes that we need not go further in our analysis. Simply put, the Court holds that the agreement of the parties in Superior Court, (1) that [claimant] was available for work and (2) that [claimant] was not employed, precludes any imposition of sanctions under 26 M.R.S. § 1051 or§ 1193."
!d. at 473. This was because the partial consent decree established that the two
statements found by the Commission to be false were not in fact false and it follows
17 that the claimant was in fact eligible for benefits and the nondisclosure of his bait-
catching activities was not fraudulent. /d.
The current situation is no different, as the Petitioner has remained ready,
able, and willing to work throughout the course of his unemployment. In addition,
Petitioner worked approximately 10-15 hours per week, similar to the 14-21 hours
per week Mr. Crocker worked. Indeed, Petitioner argues that Mr. Crocker obtained a
benefit that the Petitioner did not insofar as Mr. Crocker's actions furthered a
business venture he co-owned and which made payments to his wife. Despite these
similarities, Petitioner contends that the Hearing Officer attempted to differentiate
the cases by arguing that Petitioner spent approximately 20 hours a week soliciting
sales from his business and thus "clearly performed services for his business while
collecting unemployment benefits." This 20-hour assessment, however, is
unsupported by the record as Petitioner clarified that he worked approximately 10
to 15 hours for the first six weeks, and then no more than 10 for the remaining time.
The Decision of the Commission cannot be sustained because it has ignored
important evidence and principles of law. It does not recognize the true
circumstance of the Petitioner in regard to his LLC.
The Commission's determination that Petitioner knowingly made a false
statement is not supported by substantial evidence. The false statement found by
the Commission at issue is Petitioner's representation that he was not working or
receiving pay when, in fact, he was working and entitled to pay, but chose to defer
payment so that he could continue to receive unemployment benefits.
18 The Commission's Decision claims it is supported by KC's testimony that
Petitioner could have received some form of compensation for the services he
performed for the Company, but chose not to because he was collecting
unemployment. Indeed, KC explicitly testified that "had he chosen," Petitioner could
have received some form of compensation for the services he performed for the
Company on a weekly and/or monthly basis." 1Petitioner contends there was not
sufficient evidence to demonstrate that the Company could have paid him by
distributing its income while remaining operable.
Since KC was the other partner in the Company and he testified that
Petitioner could have been paid on a weekly andjor monthly basis, the Commission
determined that Petitioner could have been paid a salary since the Partnership
Agreement calls for the deferment of a standard base salary "until such time as both
[partners] agree to cause [the Company] to initiate payment of compensation."
While credibility determinations are generally for the Commission, not the
Court, (Sprague Electric Co., 544 A.2 d at 73 2. ) a review of the testimony of both
the petitioner and KC causes the court to question why KC's testimony was relied
upon as it was directly contrary to the admitted documents. Most important,
without a corporate/partnership vote to authorize earnings, how could the
Commission determine the weekly or monthly salary? Farrell's "earnings" were
never established. There is no evidence that petitioner earned anything; by the
terms of his joint venture, he was contributing to an investment.
1 "Had he chosen" is directly contrary to the partnership contract obligations.
19 A serious review of the record reveals that Mr. Farrell was not an employee
of Network Support Partner, LLC. He was a part owner in the organization and was
governed by the Partnership agreement with Kevin Cloutier, the other owner. As
such, he advanced capital to the company as an investment. The evidence is
undisputed that a crucial operating principle of the partners was to build the value
of the company to effectuate a subsequent sale. The ability of either partner to
realize funds from Network Support Partner was entirely dependent on a
unanimous vote of both of them to reimburse expenses, create a salary or authorize
a draw. The amount of such reimbursement, salary or draw needed the approval of
both partners, an event which never took place.
Petitioner's efforts were entirely consistent with that of Mr. Crocker, 450
A.2d 469, in that his efforts of less than half or a quarter of the weekly working
hours were spent building the business, (fishing for bait). He, like Crocker, was
building equity in his investment. And , like Crocker, there is no evidence that
Farrell was not ready, willing and able to accept employment at any time during the
period in question. Absent affirmative action by the partners, his only "earnings"
were a return on investment in the event the company was liquidated. There is no
evidence of any record of the LLC that the partners formally authorized any
payment. Further, Petitioner's State court claim against Cloutier was in the nature of
a demand for accounting for the funds acquired by the entity during its business life,
allegedly disposed of by the partner. The Commission totally ignored the
partnership agreement, a vital item of evidence.
20 The court recognizes that the Petitioner sent an email to his partner in which
he states that "part of the reason" he wasn't expecting a wage, expense
reimbursement or a draw is because he was living on unemployment benefits.
(emphasis supplied). The words would seem to express a fraudulent intent but it is
the only affirmative evidence that could be interpreted that way. Mr. Cloutier made
it clear that at no other time Farrell expressed his clear interest in retaining
earnings in the venture rather than accept reimbursement because he was drawing
unemployment benefits. Everything Mr. Farrell told the Commission investigator,
the hearing examiner and the Commission was consistent with his understanding
that his efforts were in building equity in a joint enterprise. They were consistent
with his meetings with Department of Labor staff. He named the staff members.
There is no evidence that the investigator or any one on Commission staff made any
efforts to contact those named to substantiate or disprove his assertions.
It is axiomatic that the hearing examiner and the Commission are given great
deference in assessing the credibility of the witnesses. But Mr. Farrell's testimony is
entirely consistent with all the other evidence in the matter and was totally ignored,
while Mr. Cloutier comes to the hearing suffering an adverse judgment by Mr.
Farrell and a contempt order by the District Court for failure to cooperate with the
disclosure proceedings some four months earlier. In fact, the testimony of KC is
consistent with that of Farrell except it is contrary to the partnership agreement.
Further, while the Petitioner is to be criticized for not advising the Department of
the judgments received, it is not completely unreasonable for Farrell to wait until he
21 realized funds from his investment to report his legal obligation, if any, to reimburse
for the benefits received.
This court recognizes that its review of the Commission Decision is "limited
to determining whether the Commission correctly applied the law and whether its
fact findings are supported by competent evidence". McPherson Timberlands v.
Unemployment Ins. Comm'n, 1998 ME 177, 714 A.2d 818. The standard "is identical
to the 'clear error' standard used by the Law Court',Gulick v. Bd. of Envtl. Prot., 452
A.2d 1202, (Me. 1982). The court must not disturb the decision of the Commission
"unless the record before the Commission compels a contrary result" Id. The court
must examine the entire record in order to determine whether the Commission
could fairly and reasonably find the facts as it did. See 5 M.R.S.A. §11007(4)(C)(5);
Clarke v. Maine Unemployment Ins. Comm'n, 491 A.2d 549 (Me. 1985). The burden of
proof is on the petitioner. Bischoffv. Maine State Ret.Sys.,661 A.2d 167(Me. 1995).
The court may not substitute its judgment for that of the Commission simply
because the evidence could give rise to more than one result. Gulick, 452 A.2d at
1209.
The court finds the Commission did not correctly apply the law because it
ignored the Partnership Agreement, the limitations on the Petitioner's right to
proceeds from the business entity and the lack of corporate action to authorize
income to Mr. Farrell. There is no competent evidence that Mr. Farrell was legally
entitled to a wage from Network Support Partners and it fails to consider that his
access to funds could only come about as a result of partnership affirmative action
22 or a liquidation of corporate assets. The law and the evidence compels a contrary
result.
The entry will be:
The petition is SUSTAINED; the Decision of the Maine Unemployment
Insurance Commission dated April 28, 2014 is REVERSED.
The clerk may docket this order by reference.
September 11, 2015
JUSTICE, SUPERIOR COURT