Bracken v. Dlr Reemployment Assistance Division

#30041-r-MES
2023 S.D. 22

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****

DARCY BRACKEN, Petitioner and Appellant,

v.

SOUTH DAKOTA DEPARTMENT OF
LABOR AND REGULATION,
REEMPLOYMENT ASSISTANCE DIVISION, Respondent and Appellee.

****

APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
CUSTER COUNTY, SOUTH DAKOTA

****

THE HONORABLE JOSHUA K. HENDRICKSON
Judge

****

ERIC C. SCHULTE of
Davenport, Evans, Hurwitz
& Smith, LLP
Sioux Falls, South Dakota Attorneys for petitioner
and appellant.

SETH A. LOPOUR
COURTNEY S. CHAPMAN of
Woods, Fuller, Shultz & Smith, P.C.
Sioux Falls, South Dakota Attorneys for respondent
and appellee.

****

ARGUED
MARCH 22, 2023
OPINION FILED 05/10/23
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SALTER, Justice

[¶1.] Darcy Bracken appeals administrative and circuit court decisions

ordering her to repay $14,080 in Pandemic Unemployment Assistance (PUA)

benefits that she had received under the Coronavirus Aid, Relief, and Economic

Security Act (CARES Act). We reverse.

Factual and Procedural Background

[¶2.] Bracken and her husband owned and operated the White Tail Ridge

Bed and Breakfast in Custer County. In January 2020, the U.S. Department of

Health and Human Services declared a public health emergency relating to the

COVID-19 pandemic. Starting in February 2020, Bracken claimed new bookings at

the bed and breakfast ceased and many existing bookings were canceled. Bracken

also reported that the business did not have any guests until the end of May 2020.

The bed and breakfast remained open, but Bracken attributed the overall decline in

guests to the pandemic. 1

[¶3.] In March 2020, Congress passed the CARES Act, which created a

temporary, state-administered PUA benefits program for unemployed individuals,

including self-employed workers. See 15 U.S.C. § 9021. In South Dakota, the

Reemployment Assistance Division of the South Dakota Department of Labor and

Regulation (the Department) administered the PUA benefits program.

[¶4.] Bracken applied for PUA benefits, stating in her application that she

was self-employed but became unemployed in March 2020 “as a result of COVID-

1. Bracken and her husband eventually closed the bed and breakfast, but after
the time period relevant to this appeal.

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19[.]” Responding to the application’s prompt to explain the circumstances of her

unemployment claim, Bracken wrote, “I own a small bed and breakfast. The travel

industry has been hit very hard by COVID19 so we have no business due to it.” The

Department initially determined Bracken was eligible for PUA benefits and issued

a series of payments totaling $14,080, which covered the period from March to

Early-August 2020.

[¶5.] However, the Department later determined that Bracken was not

eligible for PUA benefits following an internal review. In the Department’s stated

reasoning, Bracken was ineligible for benefits because she was “not considered

unemployed” under any of the bases listed in the CARES Act. Consequently, the

Department viewed the entire sum of PUA benefits as an overpayment that

Bracken was required to repay.

[¶6.] Bracken, proceeding pro se, appealed the Department’s determination,

and an Administrative Law Judge (ALJ) conducted a hearing at which Bracken

testified. The record does not contain a transcript of the hearing, but it does include

the ALJ’s written decision affirming the Department’s overpayment determination,

along with findings of fact and conclusions of law.

[¶7.] Several of the ALJ’s findings appear to support Bracken’s claim that

she became unemployed because of the COVID-19 pandemic. For instance, the ALJ

found:

1. Claimant was self-employed in the operation of a bed and
breakfast[;] . . .
2. Prior to COVID-19, Claimant’s business regularly had
guests each month[;]

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3. In February 2020, Claimant’s business had no new
reservations and many reservations from prior bookings
were cancelled[;]
4. Claimant’s business has [sic] no guests until the end of
May 2020.

[¶8.] Notwithstanding these findings, the ALJ concluded that Bracken was

not unemployed:

The evidence does not establish that Claimant meets any of the
reasons for eligibility identified under the CARES Act.
Although Claimant's business experienced a loss of guests
during the COVID-19 pandemic, the evidence suggests that the
reason for the loss of guests is because of indirect economic
consequences from the COVID-19 public health emergency.
Reductions in the number of guests or a decreased demand for
bed and breakfast rooms is, without more, properly considered
an indirect result of the COVID-19 public health emergency.
Claimant's business was not closed by a state or local order.
Claimant was neither required to self-quarantine nor was
Claimant diagnosed with COVID-19.

(Emphasis added.)

[¶9.] Bracken requested review of the ALJ’s decision from the Department.

Still representing herself, she argued, in part, that “[under] the CARES Act, I am

not required to provide evidence that I was directly affected by the pandemic, only

that I met any [ ] criteria as stated in . . . . the CARES Act[.]” As to this latter point,

Bracken quoted the text of an additional criterion for PUA benefits approved by the

United States Secretary of Labor, as authorized by the CARES Act:

Self-employed individuals (including independent contractors
and gig workers) who experienced a significant diminution of
their customary or usual services because of the COVID-19
public health emergency, even absent a suspension of services[.]”

U.S. Dep't of Labor, Unemployment Insurance Program Letter No. 16-20, Change 4

(January 8, 2021) (UIPL 16-20), at 8 (emphasis added).

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[¶10.] The Department did not accept Bracken’s interpretation of what we

will describe here as the Secretary of Labor’s “Self-Employment Rule.” 2 Instead,

the Department summarily adopted the ALJ’s whole decision and, as a

consequence, identified the self-employed eligibility basis as the only reason for

requiring Bracken to repay the PUA benefits.

[¶11.] Bracken appealed to the circuit court and continued to press her claim

that eligibility for PUA benefits did not require that the “significant diminution” of

a self-employed person’s business be directly caused by the COVID-19 pandemic in

the ways described by the ALJ—i.e., the business was ordered to be closed or

Bracken contracted COVID-19 and had to quarantine. The Department countered

with a much broader interpretation of the “because of” text in the Self-Employment

Rule, and also asserted for the first time that the evidence was insufficient to

support a determination that there had been a significant diminution in the usual

business activity at Bracken’s bed and breakfast.

[¶12.] Believing the question before it to be factual and entitled to deference,

the circuit affirmed the ALJ’s decision, though somewhat reluctantly. The court

explained the decision to affirm “leaves a bad taste in my mouth[,]” noting “I don't

know how your business wouldn't be affected by Covid, but based on the record I've

reviewed I can't make that a clearly erroneous finding.” (Emphasis added.)

2. Though we refer to it as a “rule,” we do so in a generic sense because it does
not appear to have been promulgated under the provisions of the federal
Administrative Procedures Act.

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[¶13.] Now with the assistance of counsel, Bracken appeals to this Court

claiming the ALJ erred when it determined that she was ineligible to receive PUA

benefits because, in the ALJ’s view, her bed and breakfast suffered only indirect

economic consequences of the COVID-19 pandemic.

Standard of Review

[¶14.] When reviewing an administrative agency’s decision, SDCL 1-26-36

provides the appropriate standard of appellate review. Christenson v. Crowned

Ridge Wind, LLC, 2022 S.D. 45, ¶ 20, 978 N.W.2d 756, 761 (citation omitted). As

relevant here, the statute provides:

The court shall give great weight to the findings made and
inferences drawn by an agency on questions of fact. The court
may affirm the decision of the agency or remand the case for
further proceedings. The court may reverse or modify the
decision if substantial rights of the appellant have been
prejudiced because the administrative findings, inferences,
conclusions, or decisions are:
...
(4) Affected by other error of law;
(5) Clearly erroneous in light of the entire evidence in the record
....

SDCL 1-26-36.

[¶15.] Here, the circuit court’s restraint and fidelity to the clearly erroneous

standard of review were commendable, but in our view the question of Bracken’s

eligibility for PUA benefits is not a factual one. Instead, the eligibility issue

implicates the provisions of the CARES Act and, in particular, the Self-Employment

Rule—legal questions which we review de novo and without deference. See

Ehlebracht v. Crowned Ridge Wind II, LLC, 2022 S.D. 19, ¶ 20, 972 N.W.2d 477,

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485 (applying de novo standard of review to administrative tribunal’s application of

law).

Analysis and Decision

[¶16.] Under the CARES Act, PUA benefits are paid to “any covered

individual . . . while such individual is unemployed, partially unemployed, or unable

to work . . . .” 15 U.S.C. § 9021(b). Subject to certain requirements that are not

implicated here, the statutorily defined term “covered individual” includes those

that meet any of the criteria set forth in 15 U.S.C. § 9021(a)(3)(A)(ii)(I)(aa-kk).

[¶17.] Particularly relevant to our discussion is 15 U.S.C. §

9021(a)(3)(A)(ii)(I)(kk), which enables the United States Secretary of Labor to

establish additional criteria for PUA benefits eligibility. Acting pursuant to this

authority, the Secretary of Labor has issued the Self-Employment Rule, set out

above, that allows self-employed people to be considered “covered individual[s]” if

they “experienced a significant diminution of their customary or usual services

because of the COVID-19 public health emergency, even absent a suspension of

services[.]” U.S. Dep't of Labor, Unemployment Insurance Program Letter No. 16-

20, Change 4 (January 8, 2021) (UIPL 16-20), at 8 (emphasis added). 3

[¶18.] As a matter of textual interpretation, the phrase—“because of”—is

generally described in essential terms as but-for causation:

In everyday usage, the phrase “because of” indicates a but-for
causal link between the action that comes before it and the
circumstance that comes afterwards. John carried an umbrella
because of the rain. Jane stayed home from school because of

3. The excerpt of the Self-Employment Rule set out in the ALJ’s decision did not
include the “even absent a suspension of services” clause.

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her fever. Dictionary definitions of the phrase reflect this
common-sense understanding: “Because of” means “by reason of”
or “on account of” the explanation that follows.

United States v. Miller, 767 F.3d 585, 591 (6th Cir. 2014) (quoting Webster's Second

New International Dictionary 242 (1950); see also Cause, Black's Law Dictionary

(11th ed. 2019) (“The cause without which the event could not have occurred.”). 4

[¶19.] Under any reading of the Self-Employment Rule, the direct vs. indirect

dichotomy suggested by the ALJ simply does not exist. Nothing in the text used by

the Secretary of Labor indicates that considering the indirect effects of COVID-19 is

categorically foreclosed, and the ALJ cited no authority to support this narrow

interpretation.

[¶20.] Notably, the “because of” standard in the Self-Employment Rule is

different than some of the statutory criteria used to determine PUA eligibility for

workers who are not self-employed. These individuals can receive benefits if they

“ha[d] to quit his or her job as a direct result of COVID-19 . . . [or] . . . the

individual's place of employment is closed as a direct result of the COVID-19 public

health emergency[.]” 15 U.S.C. § 9021(a)(3)(A)(ii)(I) (ii)—(jj). The use of different

text to describe PUA eligibility among different types of claimants supports the

view that the causation standard is not universal among them.

4. Even if we determined that “because of” was essentially a legal or proximate
cause standard, the ALJ’s view that Bracken’s diminished work had to be
directly caused by the COVID-19 pandemic is still not supportable. See Est.
of Gaspar v. Vogt, Brown & Merry, 2003 S.D. 126, ¶ 6, 670 N.W.2d 918, 921
(“A proximate or legal cause is a cause that produces a result in a natural
and probable sequence and without which the result would not have
occurred. Such cause need not be the only cause of a result. It may act in
combination with other causes to produce a result.” (citing SDCL 21–3–1)).

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[¶21.] On appeal, the Department cites other federal regulations—not part of

the CARES Act—to support its direct result argument. Specifically, the

Department points to separate regulations governing Disaster Unemployment

Assistance (DUA) which state the “direct result” standard as a requirement for a

self-employed individual’s request for unemployment assistance following a natural

disaster. See 20 C.F.R. Part 625. The Department seeks to import these DUA

regulations via a CARES Act provision that allows their use when the CARES Act is

silent or conflicts with DUA regulations. See 15 U.S.C. § 9021(h) (“Except as

otherwise provided in this section or to the extent there is a conflict between this

section and [the DUA regulations], such [DUA regulations] shall apply to this

section . . . .”) However, here there is neither silence nor conflict.

[¶22.] As to the former, 15 U.S.C. § 9021(a)(3)(A)(ii)(I)(kk) expressly

authorizes the Secretary of Labor to issue the Self-Employment Rule which both

parties agree applies here. There is no silence.

[¶23.] And there is no conflict. The most the Department offers in this regard

is the contrasting standards of the DUA regulation’s direct result language and the

“because of” test set out in the Self-Employment Rule. But this establishes only

that the rules are different, as evidenced by the use of divergent text—not that they

are in conflict. 5

5. The Department notes that the Court of Appeals for Utah applied this direct
cause analysis in Martin v. Dep't of Workforce Servs., 507 P.3d 847 (Utah Ct.
App. 2022). But we think the Martin decision is not helpful because it does
not appear the court was confronted with the same textual interpretation
issue we face here. Without any apparent argument to the contrary, the
court simply accepted the preeminence of administrative guidance from the
(continued . . .)
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[¶24.] Under the circumstances, we conclude that the ALJ erroneously

applied the causation standard in the Self-Employment Rule and should not have

concluded Bracken was ineligible for PUA benefits. By reading a “direct result”

provision into the Self-Employment Rule, the ALJ overlooked key textual

distinctions and effectively amended the rule, creating an artificially heightened

causation standard for self-employed individuals. But in addition to this error, the

ALJ’s determination is at odds with other aspects of the Self-Employment Rule’s

text.

[¶25.] For instance, the ALJ’s suggestion that Bracken’s bed and breakfast

had to be closed in order for her to qualify for PUA benefits overlooks the plain

language of the Self-Employment Rule, which requires no such thing. In fact, the

Self-Employment Rule expressly states that self-employed individuals can qualify

for PUA benefits “even in the absence of a suspension of services.”

U.S. Dep't of Labor, Unemployment Insurance Program Letter No. 16-20, Change 4

(January 8, 2021) (UIPL 16-20), at 8 (emphasis added).

[¶26.] Beyond this, the Self-Employment Rule also extends eligibility to self-

employed individuals “who experienced a significant diminution of their customary

________________________
(. . . continued)
United States Department of Labor about how to read the Self-Employment
Rule to include a “direct result” causation standard. See Martin, 507 P.3d at
851. But here the correct interpretation of the Self-Employment Rule is
squarely presented, and we can interpret the unremarkable “because of” text
using traditional methods of interpretation and without the need for
administrative guidance. And in any event, the result in Martin did not turn
on a direct/indirect distinction, but rather a failure of proof by the claimant
who confessed uncertainty as to what had diminished the need for his
services. Id.

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or usual services . . . .” Id. (emphasis added). Here, the ALJ specifically found that

Bracken’s bed and breakfast had guests before the COVID-19 pandemic began but

had no guests as of May 2020. It is difficult to conceive how this would not

constitute a “significant diminution” of the business’s “customary or usual services.”

[¶27.] Finally, we address the Department’s alternative argument that “even

if this Court refused to apply the direct/indirect analysis[,] . . . there is simply a

complete failure of evidence to support a causal finding under [the Self-Employment

Rule] that Bracken's reduction in business was ‘because of’ COVID-19.” We view

the record differently and so did the ALJ whose findings make clear that the

COVID-19 Public Health Emergency had a significant adverse impact upon

Bracken’s business to the point she had no customers by May 2020.

[¶28.] The Department has not challenged these findings, and, consequently,

we do not believe the Department’s alternative sufficiency of the evidence argument

is properly before us. Indeed, the only basis identified by the ALJ for Bracken’s

PUA ineligibility was what we have concluded to be an erroneous interpretation

and application of the Self-Employment Rule.

[¶29.] We reverse.

[¶30.] JENSEN, Chief Justice, and KERN, DEVANEY, and MYREN,

Justices, concur.

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