NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Alt hough it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1362-18T1
M.K.,
Appellant,
v.
CATASTROPHIC ILLNESS IN
CHILDREN RELIEF FUND
COMMISSION,
Respondent.
_______________________________
Argued November 21, 2019 – Decided January 3, 2020
Before Judges Alvarez, Suter and DeAlmeida.
On appeal from the Catastrophic Illness in Children
Relief Fund Commission.
M.K., appellant, argued the cause pro se.
Jeanette M. Barnard, Deputy Attorney General, argued
the cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Nicholas Logothetis,
Deputy Attorney General, on the brief).
PER CURIAM
M.K.1 appeals from the October 10, 2018 final agency decision of the
Catastrophic Illness in Children Relief Fund Commission (Commission)
denying reimbursement of $3167 in her child's medical expenses. We reverse.
I.
M.K.'s child has a medical condition that qualifies for reimbursement of
medical expenses from the Catastrophic Illness in Children Relief Fund (Fund) .
For the period May 1, 2015, to April 30, 2016, the Commission approved
reimbursement of $1647.55 in medical expenses paid by M.K. on behalf of her
child by personal check. The Commission denied reimbursement of $3167 in
the child's medical expenses claimed by M.K. paid by check issued from the
account of Save1Million 2, M.K.'s unincorporated sole proprietorship.
M.K. requested the Commission reconsider its denial. The minutes of the
Commission's discussion of M.K.'s request state:
[M.K.] appealed the initial Commission determination
arguing that the business is a sole proprietorship which
is unincorporated and owned and run by one individual
with no distinction between the business and the owner.
Bank documents were submitted confirming the mother
1
We use initials to protect the identity of M.K.'s child.
2
We note M.K's unincorporated sole proprietorship is identified in the record
as Save1Million, Save Millions, and Save Millions, LLC. Although the use of
"LLC" suggests the entity is a limited liability corporation, the parties agree the
disputed expenses were paid by M.K.'s unincorporated sole proprietorship.
A-1362-18T1
2
as the sole owner and both parents as signers on the
account. A letter from their accountant was provided,
explaining medical expenses were not deducted from
business income. It is recommended that the initial
decision, to exclude these expenses, be upheld as the
basis of the initial decision was not in regards to how
the business is structured or how taxes are paid, but
rather that payments were made out of a business
account and not a personal account.
On October 10, 2018, the Commission issued a written statement denying
M.K.'s request for reconsideration. The Commission "determined that these
expenses which had been paid from a business account were ineligible for
reimbursement."
This appeal followed. M.K. argues the Commission's final decision is
arbitrary because it relies on the fact the $3167 in expenses were paid from the
account of M.K.'s unincorporated sole proprietorship, when the economic reality
is those expenses were paid from M.K.'s personal funds.
II.
"Judicial review of agency determinations is limited." Allstars Auto Grp.,
Inc. v. N.J. Motor Vehicle Comm'n, 234 N.J. 150, 157 (2018). "An
administrative agency's final quasi-judicial decision will be sustained unless
there is a clear showing that it is arbitrary, capricious, or unreasonable, or that
it lacks fair support in the record." Ibid. (quoting Russo v. Bd. of Trs., Police
A-1362-18T1
3
& Firemen's Ret. Sys., 206 N.J. 14, 27 (2011)). In reviewing the agency's
decision, we consider:
(1) whether the agency's action violates express or
implied legislative policies, that is, did the agency
follow the law;
(2) whether the record contains substantial evidence to
support the findings on which the agency based its
action; and
(3) whether in applying the legislative policies to the
facts, the agency clearly erred in reaching a conclusion
that could not reasonably have been made on a showing
of the relevant factors.
[Ibid. (quoting In re Stallworth, 208 N.J. 182, 194
(2011)).]
"A reviewing court 'must be mindful of, and deferential to, the agency's
expertise and superior knowledge of a particular field.'" Id. at 158 (quoting
Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 10
(2009)). "A reviewing court 'may not substitute its own judgment for the
agency's, even though the court might have reached a different result. '"
Stallworth, 208 N.J. at 194 (quoting In re Carter, 191 N.J. 474, 483 (2007)).
"Deference to an agency decision is particularly appropriate where
interpretation of the [a]gency's own regulation is in issue." R.S. v. Div. of Med.
Assistance & Health Servs., 434 N.J. Super. 250, 261 (App. Div. 2014) (quoting
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4
I.L. v. N.J. Dep't of Human Servs., Div. of Med. Assistance & Health Servs.,
389 N.J. Super. 354, 364 (App. Div. 2006)). "However, a reviewing court is 'in
no way bound by [an] agency's interpretation of a statute or its determination of
a strictly legal issue.'" Allstars Auto Grp., 234 N.J. at 158 (alteration in original)
(quoting Dep't of Children & Families, Div. of Youth & Family Servs. v. T.B.,
207 N.J. 294, 302 (2011)).
The Fund is a State-run, non-lapsing fund created to provide financial
assistance to any eligible family with a child who has a qualifying illness which
could have a "potentially devastating financial consequence" for the family.
N.J.S.A. 26:2-148(a). A catastrophic illness eligible for reimbursement under
the Fund is "any illness or condition the medical expenses of which are not
covered by any other State or federal program or any insurance contract and
exceed" certain percentages of the family's income. N.J.S.A. 26:2-149(a).
Those eligible for reimbursement include a child's "parent . . . who is legally
responsible for the child's medical expenses." N.J.S.A. 26:2-149(d).
N.J.S.A. 26:2-154(b) authorizes the Commission to "[e]stablish
procedures for . . . determining the eligibility for the payment or reimbursement
of medical expenses for each child . . . ." Reimbursements for medical expenses
are "subject to the rules and regulations established by the [C]ommission . . . ."
A-1362-18T1
5
N.J.S.A. 26:2-156. According to N.J.A.C. 10:155-1.2, expenses eligible for
reimbursement are those
not covered by any other source, including, but not
limited to, other State or Federal agency programs,
insurance contracts, trusts, proceeds from fundraising,
or settlements . . . .
The Commission determined M.K.'s unincorporated sole proprietorship
was an "other source" of coverage for $3167 of her child's medical expenses.
The rationale offered by the Commission for its decision is the expenses were
paid by a check drawn on the unincorporated sole proprietorship's account.
Yet, unincorporated sole proprietorships "lack an existence apart from that
of their owner. In essence, the sole proprietor is the business, assuming
unlimited personal liability for obligations arising out of the operation of the
enterprise." 16A N.J. Practice, Legal Forms, § 56:1, at 478, James W. Kerwin,
"Sole Proprietorships" (James H. Walzer) (4th ed. 2009). The relationship
between a sole proprietor and its owner is reflected in our tax statutes. The
income and expenses of the sole proprietorship are reported on the owner's New
Jersey personal income tax return. N.J.S.A. 54A:5-1(b); Marrinan v. Div. of
Taxation, 10 N.J. Tax 542 (Tax 1989); see also Smith v. Dir., Div. of Taxation,
108 N.J. 19, 26-27 (1987) ("We find . . . the [Gross Income Tax] Act, insofar as
income derived from a business conducted in proprietorship or partnership form
A-1362-18T1
6
is concerned, imposes a tax on net income.") (quotations omitted). According
to N.J.A.C. 18:35-1.1(b),
[f]or purposes of the Gross Income Tax Act, a sole
proprietorship . . . is a form of business in which one
taxpayer owns all the assets of a business and which is
not a partnership or corporation.
....
Sole proprietors shall report their income or loss as net
profits from business.
Our review of the record reveals M.K. reported income earned by her
unincorporated sole proprietorship as taxable income on her personal tax returns
and did not deduct the $3167 in question as a business expense. By paying her
child's medical expenses with a check drawn on the account of her
unincorporated sole proprietorship, M.K., in effect, withdrew profits she earned
in her business and paid a personal expense. The assets of M.K.'s business are
not an independent source of funds for the payment of her child's medical
expenses. Thus, the Commission's reliance on the nature of the account from
which the expenses were made, without consideration of M.K.'s relationship to
the source of the funds, was arbitrary.
Reversed.
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