#30314-aff in pt & rev in pt-PJD 2024 S.D. 19
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
****
LONNIE REIDBURN, Claimant and Appellant,
v.
SOUTH DAKOTA DEPARTMENT OF LABOR AND REGULATION, REEMPLOYMENT ASSISTANCE DIVISION, Agency and Appellee.
**** APPEAL FROM THE CIRCUIT COURT OF THE THIRD JUDICIAL CIRCUIT CLARK COUNTY, SOUTH DAKOTA
THE HONORABLE CARMEN MEANS Judge
SUSAN Y. JENNEN of Boos Jennen Law Firm Clark, South Dakota Attorneys for claimant and appellant.
SETH A. LOPOUR COURTNEY S. CHAPMAN of Woods, Fuller, Shultz & Smith, P.C. Sioux Falls, South Dakota Attorneys for agency and appellee.
CONSIDERED ON BRIEFS JANUARY 8, 2024 OPINION FILED 04/10/24 #30314
DEVANEY, Justice
[¶1.] Lonnie Reidburn appeals the circuit court’s decision affirming the
administrative law judge’s (ALJ) determination that he must repay $24,690 in
pandemic unemployment benefits he received from the South Dakota Department
of Labor, Reemployment Assistance Division (Department). The ALJ found that
while Reidburn, who was self-employed, experienced a significant reduction in
services during the COVID-19 pandemic, he was not eligible for benefits because his
reduction in services was not directly the result of the pandemic. Reidburn also
appeals the circuit court’s denial of his request for attorney fees. We affirm in part
and reverse in part.
Factual and Procedural Background
[¶2.] Reidburn is a self-employed insurance agent, selling home, auto,
commercial, health, and farm insurance policies for Farmers Union Insurance. His
income is based on commissions he receives for all new policies and renewals. In
2019, he reported $55,862 in gross earnings. Reidburn testified that to procure new
policies and renewals of existing policies, he is required to conduct in-person visits
at the client’s home or place of business so that he can perform inspections, take
measurements and pictures, and obtain handwritten signatures.
[¶3.] During the COVID-19 pandemic, Reidburn experienced a significant
reduction in his ability to procure new policies and renewals because existing and
prospective clients told him that they did not want him to make in-person visits to
their homes or places of business and Reidburn had no software or other online
alternative to allow him to avoid in-person visits. As a result of his inability to
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procure new policies and renewals, Reidburn’s income decreased. He reported
$44,625.91 in gross earnings in 2020.
[¶4.] In March 2020, Congress passed the CARES Act, creating a temporary
program for self-employed individuals to receive unemployment benefits. 15 U.S.C.
§ 9201. The program provided up to 39 weeks of unemployment benefits for
individuals who would not otherwise qualify for traditional unemployment benefits.
The federal program was administered through the states.
[¶5.] On April 20, 2020, Reidburn completed an online application for
Pandemic Unemployment Assistance (PUA) through the Department. The
Department determined Reidburn was eligible to receive PUA benefits effective
February 2, 2020, and in response, Reidburn submitted weekly requests for PUA
benefits. The Department issued Reidburn benefits for 39 weeks, the maximum
number of weeks initially allowed under the program. For weeks ending February
2, 2020 through October 31, 2020, the Department issued Reidburn $414 in PUA
benefits. For the weeks of April 4, 2020 through July 25, 2020, the Department
issued him an additional $600 in federal pandemic unemployment benefits. In
total, Reidburn received $26,346 in benefits.
[¶6.] On January 8, 2021, after Congress extended the temporary
unemployment relief program, Reidburn reapplied for PUA benefits with the
Department by submitting another online application. The Department initially
sent Reidburn a notice on January 28 that he was eligible to receive a $414 weekly
benefit. However, prior to issuing him a payment, a representative from the
Department contacted Reidburn to inquire further about his loss of income, and
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after this discussion, the representative determined that Reidburn’s loss of income
was not the direct result of the pandemic. On February 8, 2021, the Department
issued Reidburn a determination of ineligibility.
[¶7.] Also on February 8, the Department issued Reidburn a notice and
determination of an overpayment of $26,346, the entire amount previously paid to
him. The notice contained a sentence indicating that “[t]he department cannot
waive recovery of this overpayment since [Reidburn was] not without fault[.]” No
additional information was provided in the notice about the reason for the
Department’s determination that Reidburn was ineligible to receive the benefits
previously paid or that he was not without fault. A box near the top of the notice
contained the following statement: “If you believe this determination is incorrect,
you have the right to file an appeal and/or request a waiver on or before 2/23/2021.
Your rights are further explained on the reverse side of this form.” (Bold in
original.)
[¶8.] On February 9, Reidburn, acting pro se, faxed a letter to the
Department, noting his receipt of the notice of overpayment and that the letter said
he was “not without fault but can appeal this.” Reidburn related that he contacted
the unemployment division because he “wanted to make sure [he] was doing the
steps and forms right.” He maintained that he submitted his 2019 income taxes or
W-2s as requested showing exactly what he earned and did not hide anything. He
further noted that he had “filled out the weekly forms exactly the way it should be,”
and he then explained the reasons for his loss of income. His letter ended with the
statement, “So yes I am appealing this matter.” Reidburn eventually obtained
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counsel, and his attorney issued the Department a letter on April 12, 2021,
clarifying that Reidburn’s letter was intended to be an appeal and a request for a
waiver.
[¶9.] A telephonic administrative hearing was held on October 22, 2021,
before an ALJ. The Department was not represented by counsel. Rather, Jane
Husman appeared as the Department’s representative. She testified and answered
questions posed by counsel for Reidburn. Reidburn also testified and answered
questions posed by Husman, his attorney, and the ALJ.
[¶10.] During her testimony, Husman related the information Reidburn
reported in his application and weekly requests and the details concerning the
amounts the Department issued as payments during the 39 weeks. She also
testified that after Reidburn re-applied for benefits in January 2021, a
representative contacted him to acquire additional information. At Husman’s
request and over Reidburn’s objection, the ALJ admitted into evidence the notes
detailing this representative’s conversation with Reidburn. Husman thereafter
testified that after reviewing Reidburn’s claim, the additional information provided
to the representative, and “additional guidance the agency had accumulated from
the federal Department of Labor,” the Department determined Reidburn did not
meet the eligibility requirements and had not been eligible for the benefits he
previously received.
[¶11.] After noting that the notice of ineligibility issued to Reidburn did not
identify the reason for the Department’s determination, counsel for Reidburn asked
Husman to explain the Department’s rationale for its determination. Husman
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testified that the notes from the representative’s conversation with Reidburn
indicated the representative’s view that Reidburn’s reduction in income was
indirectly, rather than directly, the result of the pandemic. Counsel then asked
Husman why the Department did not inform Reidburn of its reason for the
determination of ineligibility and overpayment until her testimony at this hearing.
Husman replied that she could not say definitively if anyone ever provided that
explanation to Reidburn. She stated that “[t]here are no notes documenting that
[Reidburn] spoke with anyone or requested further explanation.” She agreed that
her record contained no documentation that the Department ever informed
Reidburn of its reason for ineligibility. When asked whether the Department had
any information to support its determination that Reidburn was not without fault,
Husman testified, “I do not have any information available to support that finding.”
[¶12.] Reidburn testified about how he earns income as a self-employed
insurance agent. In regard to his application for PUA benefits, he testified that he
answered all questions truthfully and provided all information required, although
he claimed that the online application process was “[v]ery confusing.” 1
[¶13.] To support the statement in his application that his income was
reduced because COVID affected his ability to sell insurance policies, Reidburn
testified that despite continuing to try to procure new policies and renewals, his
“[c]lients told [him] not to visit their homes.” He claimed that approximately 60% of
1. In particular, he noted that even though he indicated he was self-employed, the application had him enter employer information. He also testified that when asked to select the type of pay he receives, he answered, “monthly,” because the question did not have an option for him to indicate that his pay was commission based. -5- #30314
his clients fell within what the government health guidelines regarded as at risk
because of their age and that 75% were at risk because of underlying health
conditions. He further testified about one particular instance in 2020 with an
existing “farm client named Bill who did not want [him] to come to his farm for the
renewal.” According to Reidburn, because he could not go to Bill’s home, he was
unable to complete a policy renewal, which he testified was valued at $6,125.35.
[¶14.] During cross-examination, Husman asked Reidburn whether Farmers
Union Insurance required in-person meetings or whether that was his personal
practice. He replied, “Both.” However, he explained that Farmers would not allow
him to renew a policy without a personal visit and that Farmers did not provide any
online application or renewal alternative. Husman did not ask questions
challenging the veracity of Reidburn’s testimony that his clients did not want him to
conduct in-person visits because of COVID or that his income was reduced as a
result.
[¶15.] In closing remarks, counsel for Reidburn noted that Reidburn
established through his testimony and evidence that, as claimed in his application
for PUA benefits, he experienced a significant reduction in services because of
COVID when his clients told him not to come to their homes for fear of contracting
COVID. Counsel further argued that the “[r]easons given by [Reidburn’s] clients
show the direct correlation between his decline in business and the COVID public
health emergency” and, thus, his entitlement to benefits. Counsel noted that there
is no language in the CARES Act requiring that the government impose restrictions
on the business before a self-employed individual is deemed eligible and claimed
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that the Department does not have authority to impose new criteria outside the
existing eligibility provisions. Counsel therefore requested that the ALJ reverse the
Department’s determination of ineligibility or, in the alternative, reverse the at-
fault determination and waive the requirement that Reidburn repay the amount he
had been overpaid.
[¶16.] The ALJ issued a written decision on March 9, 2022. The ALJ
determined that Reidburn was eligible for PUA benefits during the weeks in which
he was suffering from COVID and self-isolated, and this determination is not at
issue on appeal. As it relates to the other 35 weeks, the ALJ found that Reidburn
“experienced a significant diminution of services” and that “[b]etween 2019 and
2020, [Reidburn’s] gross income from self-employment was reduced by over 20
percent.” Further, the ALJ found that “[t]he reason [Reidburn] experienced a
diminution in services was because his clients did not want him to come to their
homes.”
[¶17.] Nevertheless, the ALJ determined that Reidburn did not meet any of
the CARES Act eligibility terms and was thus ineligible for PUA benefits for these
35 weeks. Even though the pandemic may have impacted his clients’ decisions to
preclude Reidburn from entering their homes or places of business, the ALJ
reasoned that “[t]hese were the individual and independent decisions of his clients
that kept him from doing business with them” and “it was ultimately their decisions
which resulted in any loss of business for [Reidburn.]” Thus, the ALJ held that any
loss Reidburn experienced “would fairly be considered indirect.”
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[¶18.] However, the ALJ rejected the Department’s at-fault determination
and instead found that Reidburn was not at fault for the overpayment. But the ALJ
then concluded that Reidburn’s request for a waiver was untimely because his
February 9 letter did not request a waiver or contain statements that would put the
Department on notice that he was requesting a waiver. The ALJ further noted that
although Reidburn’s attorney asked in an April 2021 letter that Reidburn’s earlier
letter be considered a request for a waiver, the letter from the attorney was not filed
within 15 days of the notice of overpayment as required by the administrative rules.
[¶19.] Reidburn appealed the ALJ’s decision to the circuit court. In his
statement of issues, Reidburn asserted that the ALJ erred in determining that he
was ineligible for PUA benefits, that he was overpaid $24,690 in benefits, and that
his request for a waiver was untimely. He further asserted that he is entitled to a
waiver and an award of attorney fees. The parties submitted pre-argument briefs.
Notably, in its brief, the Department argued, for the first time, that Reidburn failed
to present sufficient evidence, via texts, emails, or other witness testimony, to the
ALJ to establish that his clients did not want him to come into their homes and
businesses because of COVID-19.
[¶20.] The circuit court issued a memorandum decision in March 2023,
affirming the ALJ’s decision regarding the interpretation of the governing federal
law. The court did not address the Department’s sufficiency of the evidence
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argument. Reidburn now appeals to this Court, asserting multiple issues, 2
including:
1. Whether the circuit court erred in affirming the ALJ’s determination that Reidburn was ineligible to receive PUA benefits under the CARES Act.
2. Whether the circuit court erred in denying Reidburn’s request for an award of attorney fees and costs.
Standard of Review
[¶21.] Under SDCL 1-26-36, “we examine agency findings in the same
manner as the circuit court to decide whether they were clearly erroneous in light of
all the evidence.” Pirmantgen v. Roberts Cnty., 2021 S.D. 5, ¶ 20, 954 N.W.2d 718,
724 (citation omitted). However, “[w]hen the issue is a question of law, the
decisions of the administrative agency and the circuit court are fully reviewable”
under the de novo standard of review. Id. (citation omitted).
Analysis and Decision
1. Whether the circuit court erred in affirming the ALJ’s determination that Reidburn was ineligible to receive PUA benefits under the CARES Act.
[¶22.] Reidburn claims he is eligible for PUA benefits under multiple
provisions of the CARES Act, namely subsections (gg), (jj), and (kk). 15 U.S.C.
§ 9021(a)(3)(A)(ii)(I). In regard to subsection 15 U.S.C. § 9021(a)(3)(A)(ii)(I)(kk),
Reidburn argues that based on this Court’s recent decision in Bracken v. South
2. Reidburn also asserts that the circuit court erred in affirming the ALJ’s determination that he was overpaid $24,690 in benefits and in affirming the ALJ’s determination that his waiver request was untimely. In light of our holding on Reidburn’s first issue, it is not necessary to address these additional issues. -9- #30314
Dakota Department of Labor and Regulation, Reemployment Assistance Division,
2023 S.D. 22, ¶ 24, 991 N.W.2d 89, 94, “the ALJ improperly incorporated a ‘direct
result’ requirement” and created “‘an artificially heightened causation standard for
self-employed individuals.’” He further claims that he established, consistent with
the claimant in Bracken, that he experienced a significant diminution in services
because of COVID-19. He thus requests that this Court reverse the ALJ’s decision
that he was ineligible for these benefits.
[¶23.] In response, the Department concedes that the ALJ and circuit court
“utilized the now-rejected direct/indirect standard,” and as such, this Court could
reverse “on this basis alone[.]” However, the Department requests that we
nevertheless affirm the ALJ’s decision because, in the Department’s view, Reidburn
“fundamentally failed to meet his burden of proof or provide any evidence to support
his contention that his reduction in business was ‘because of’ COVID-19 under
(kk)(1).” In making this argument, the Department refers to a lack of “affirmative
evidence” such as emails, texts, letters, or other records from his customers
supporting Reidburn’s claim that they would not allow him into their homes
because of COVID-19. The Department also faults Reidburn for not presenting
witness testimony besides his own.
[¶24.] In Bracken, the Department made the same sufficiency of the evidence
argument to the circuit court and this Court declined to address the claim, deeming
it not “properly before us.” 2023 S.D. 22, ¶ 28, 991 N.W.2d at 95. In so stating, we
noted that the Department “asserted for the first time [before the circuit court] that
the evidence was insufficient to support a determination that there had been a
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significant diminution in the usual business activity at Bracken’s bed and
breakfast.” Id. ¶ 11, 991 N.W.2d at 92.
[¶25.] Here, a review of the transcript and submissions to the ALJ reveals
that the Department did not argue that Reidburn failed to present sufficient
evidence to support his testimony that he experienced a significant reduction in
services. The Department also did not challenge the veracity of Reidburn’s
testimony before the ALJ that such reduction occurred in response to his clients
telling him that because of COVID-19 they did not want him to come into their
homes. Similarly, the Department did not dispute Reidburn’s tax or other financial
information provided in his application and weekly submissions. Finally, Husman,
the Department’s representative who cross-examined Reidburn, did not challenge
his credibility in any regard. It is apparent the Department simply relied on its
view, albeit incorrect in light of Bracken, that Reidburn was ineligible for PUA
benefits because his undisputed reason for the significant reduction in services was
not a direct result of the COVID-19 pandemic.
[¶26.] Because the Department did not raise the sufficiency of the evidence
argument at Reidburn’s administrative hearing, we decline to address the
argument on appeal. It is a general rule of procedure that an appellate court does
not address issues parties raise for the first time on appeal (here, to the circuit
court). In re LAC Minerals (USA), LLC, 2017 S.D. 44, ¶ 14, 900 N.W.2d 283, 289.
Further, because it is clear under Bracken that the ALJ erred in its interpretation
and application of the governing law, we reverse the ALJ’s determination that
Reidburn was ineligible to receive PUA benefits for 35 of the 39 weeks at issue. In
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light of this conclusion, it is unnecessary to address Reidburn’s additional
arguments that he was eligible for PUA benefits under subsections (gg) and (jj).
2. Whether the circuit court erred in denying Reidburn’s request for an award of attorney fees and costs.
[¶27.] Reidburn asserts the circuit court erred in not awarding him attorney
fees under SDCL 15-17-51. That statute provides:
If a civil action, including an action for appeal of a zoning decision, or special proceeding is dismissed or requested relief is denied and if the court determines that it was frivolous or brought for malicious purposes, the court shall order the party whose claim, cause of action, or defense was dismissed or denied to pay part or all expenses incurred by the party defending the matter, including reasonable attorneys’ fees.
Id. According to Reidburn, attorney fees were warranted because the Department
has acted with improper motive beginning with its notice of ineligibility. In
particular, he refers to the Department changing its interpretation of the eligibility
rules in a manner that does not align with the information required by the
application process; the Department’s failure to give an explanation of its later basis
for determining ineligibility; the Department’s refusal to consider his request for a
waiver as timely; and its continued demand for repayment after this Court issued
the Bracken decision. He further argues that “the Department fails to take any
responsibility or show any humility regarding the difficulties it has caused innocent
individuals such as [him] by asserting novel legal theories to pursue the recovery of
benefits distributed under the Department’s own control and procedures.” In his
view, “[t]he Department has abused its authority as it works to seek recovery of
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funds from past recipients who applied properly and in good faith, without any
possible foresight of the Department’s recovery claims to come.”
[¶28.] In response, the Department argues that Reidburn cannot establish
the circuit court erred because under SDCL 15-17-51, fees are allowable when the
“proceeding is dismissed or requested relief is denied and if the court determines
that it was frivolous or brought for malicious purposes[,]” and here, the circuit court
affirmed the ALJ’s decision allowing the Department to recoup amounts overpaid to
Reidburn. It alternatively contends that there is no evidence that the Department
brought the case for frivolous or malicious purposes.
[¶29.] This Court has explained that “[a] frivolous action exists when the
proponent can present no rational argument based on the evidence or law in
support of the claim[.]” Healy v. Osborne, 2019 S.D. 56, ¶ 34, 934 N.W.2d 557, 566–
67 (citation omitted). Further, “[t]o fall to the level of frivolousness there must be
such a deficiency in fact or law that no reasonable person could expect a favorable
judicial ruling.” Ridley v. Lawrence Cnty. Comm’n, 2000 S.D. 143, ¶ 14, 619 N.W.2d
254, 259. “Malice, on the other hand, exists when the proceedings are instituted
primarily for an improper purpose.” Healy, 2019 S.D. 56, ¶ 34, 934 N.W.2d at 567
(quoting Stratmeyer v. Engberg, 2002 S.D. 91, ¶ 20, 649 N.W.2d 921, 926). In
defining what constitutes an improper purpose, we noted that such can occur when
“the plaintiff in the original action was actuated by any unjustifiable motive, as
where he did not believe his claim would be held valid, or where his primary motive
was hostility or ill will, or where his sole purpose was to deprive the defendant of a
beneficial use of his property or to force a settlement having no relation to the
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merits of the claim.” Stratmeyer, 2002 S.D. 91, ¶ 20, 649 N.W.2d at 926 (citation
omitted).
[¶30.] When the Department issued the notice of overpayment to Reidburn,
Bracken had not yet been decided by this Court. The Department issued its notice
based on its interpretation that the applicable federal law requires that the COVID-
19 pandemic be the direct cause of the claimant’s significant reduction in services.
Reidburn does not argue that the Department’s interpretation, albeit ultimately
wrong under the analysis of the governing law we provided in Bracken, was without
merit at the time of the Department’s decision or that the Department had no basis
in law to seek repayment. Rather, Reidburn faults the Department for its deficient
procedures for determining eligibility and its actions when it later reversed course
and determined him to be ineligible.
[¶31.] Although we find some aspects of how the Department handled this
matter to be concerning, 3 it is important to note that Reidburn did not file a motion
for appellate attorney fees with this Court. See, e.g., Strong v. Gant, 2014 S.D. 8,
3. The Department failed to give Reidburn notice or information prior to the hearing before the ALJ about its reasons for deeming him ineligible. And although nothing in the record reveals that Reidburn was directed to bring documentary evidence to the hearing to support the representations he made in his application and weekly requests for PUA benefits, the Department, in response to Reidburn’s appeal, argued, for the first time, that Reidburn failed to present sufficient evidence at the hearing. Further concerning, Husman testified that the Department did not have any information to support the Department’s statement in its notice of overpayment that it could not waive the overpayment because Reidburn was not without fault. Thus, this determination, which the Department thereafter said Reidburn failed to timely challenge, lacked any support from the outset. Finally, despite this Court’s ruling in Bracken rejecting this same type of unpreserved sufficiency of the evidence argument, the Department elected to proceed with it in this appeal. -14- #30314
¶ 25, 843 N.W.2d 357, 364 (awarding appellate attorney fees because “Strong has
not presented an acceptable argument based upon the law or evidence in support of
her claims” on appeal); see also SDCL 15-26A-87.3 (providing the requirements for a
motion for appellate attorney fees). Rather, he challenges only the circuit court’s
decision denying attorney fees. Thus, the question whether the Department’s
position on appeal in light of Bracken warrants an award of appellate attorney fees
is not before us. As it pertains to the circuit court’s decision, because Bracken had
not been decided at the time of that proceeding, the Department had a rational
argument that Reidburn was not entitled to PUA benefits. We further conclude
that the Department’s argument that Reidburn’s request for a waiver was untimely
was not frivolous. Moreover, the circuit court did not dismiss or deny the
Department’s determinations regarding Reidburn’s eligibility for PUA benefits or
that he was overpaid such benefits. We therefore affirm the circuit court’s denial of
Reidburn’s motion for attorney fees under SDCL 15-17-51.
[¶32.] Affirmed in part and reversed in part.
[¶33.] JENSEN, Chief Justice, and KERN, SALTER, and MYREN, Justices,
concur.
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