SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter comes before the South Carolina Administrative Law Court (ALC or Court) pursuant to S.C. Code Ann. § 9-21-60 (Supp. 2005) upon the request for a contested case hearing filed by William H. Pell (Petitioner or Pell). Petitioner contests the Final Agency Determination issued by Respondent South Carolina Budget and Control Board, South Carolina Retirement Systems (Respondent, SCRS or Retirement Systems), which found Petitioner was not entitled to change his retirement option from Option A to Option B after the first payment of his retirement allowance was due and without a qualifying event having taken place. After notice to all of the parties, a hearing was conducted on September 20, 2006, at the offices of the ALC in Columbia, South Carolina.

FINDINGS OF FACT

Having observed the witnesses and exhibits presented at the hearing and taking into consideration the burden of proof and the credibility of the witnesses, I make the following Findings of Fact by a preponderance of the evidence:

I. Background

1. Petitioner William H. Pell is a retired member of the South Carolina Retirement Systems who taught for Spartanburg County School District 7 and the University of South Carolina – Spartanburg. In October 2000, Mr. Pell began pursuing alternatives for retirement benefits, including the possibility of entering the Teacher and Employee Retention Incentive Program (the TERI program) that would begin January 1, 2001.^[1]

2. On October 29, 2000, Mr. Pell wrote SCRS and requested benefit estimates for two alternatives: (1) retiring 12/31/2000 with 29 ½ years of service and entering the TERI program; or (2) retiring 6/1/2001 with 30 years of service and entering the critical needs program.^[2] See Resp. Ex. 1, pp. 001-002. On November 8, 2000, an employee of SCRS mailed benefits estimates to Mr. Pell reflecting the various methods of payment for both retirement options. See Resp. Ex. 1, pp. 003-006. Mr. Pell does not deny receiving these estimates.

3. On November 29, 2000, Mr. Pell filed an application for service retirement seeking to retire effective January 1, 2001, and enter the TERI Program.^[3] See Resp. Ex. 1, pp. 007-008. In Section II of the application labeled “SCRS RETIREMENT PLAN ELECTION AND BENEFICIARY DESIGNATION,” Mr. Pell selected “Option A (Maximum-Retiree Only)” as his chosen method of payment.

4. On December 11, 2000, SCRS mailed Mr. Pell a Turnaround and Verification Document to confirm the information contained in the retirement application, including “Option A” as the method of benefit payment. See Resp. Ex. 1, p. 009. This form also invited Mr. Pell to change his method of benefit payment if he so desired. Mr. Pell changed only the designated beneficiary, changing it from “Estate” to his wife, Mary Pell. Mr. Pell then returned the form to SCRS. See Resp. Ex. 1, p. 009.

5. On January 12, 2001, SCRS notified Mr. Pell that it had received the changes made on the Turnaround and Verification Document and, as a result, needed to confirm the changes before continuing to process the retirement application. See Resp. Ex. 1, pp. 010-011. SCRS enclosed a new Turnaround and Verification Document for Mr. Pell to review, sign, and return. See Resp. Ex. 1, p. 012. On January 23, 2001, Mr. Pell signed and returned the new Turnaround and Verification Document without making any Changes. See Resp. Ex. 1, p. 012.

6. On January 30, 2001, SCRS Claims Department sent a letter to Mr. Pell explaining his estimated benefit payments based on a date of retirement of January 1, 2001, and benefit payment Option A. See Resp. Ex. 1, pp. 013-015. On that same date, SCRS Benefits Payroll Department sent a letter regarding the estimated benefits as well. See Resp. Ex. 1, pp. 016-020. The letter from the Benefits Payroll Department further provided other information regarding retirement including an enclosure entitled “Information for Retired Members” of which the first sentence provided “The method of payment may not be changed once benefit payments have begun.” See Resp. Ex. 1, pp. 018-020. (Emphasis added.) Mr. Pell does not deny receiving these documents.

7. Other than the issuance of Mr. Pell’s retirement checks (benefit payments), which began on February 28, 2001^[4], there was no further contact between Mr. Pell and SCRS until May 11, 2001, when Mr. Pell emailed the SCRS Customer Service Department. See Resp. Ex. 1, p. 021. In an exchange of emails, SCRS explained to Mr. Pell that state law precludes the changing of payment options once benefit payments begin. See Resp. Ex. 1, p. 021. In this exchange of emails, SCRS also indicated to Mr. Pell that, “[t]here is nothing to appeal with the Retirement Systems because this is a state law.” See Resp. Ex. 1, p. 021.

8. On July 5, 2001, Mr. Pell wrote a letter to Governor Hodges requesting he sponsor legislation to allow TERI Program retirees an opportunity to correct a mistake in choosing the payment option.^[5] See Resp. Ex. 1, pp. 023-024. Mr. Pell contacted Representative Littlejohn and Representative Harrell seeking their assistance through proposed legislation. See Resp. Ex. 1, pp. 025-027. Mr. Pell also contacted Representative Talley, who ultimately introduced legislation that would have allowed a TERI program retiree to change the payment option after retirement. See Resp. Ex. 1, pp. 028-030.

9. During the same period, Mr. Pell’s employer contacted SCRS and requested consideration on behalf of Mr. Pell regarding the issue. See Resp. Ex. 1, p. 031. On July 30, 2001, SCRS sent a letter to Mr. Pell explaining that state law precludes a change of payment method after retirement without a qualifying event. See Resp. Ex. 1, pp. 032-033. Mr. Pell does not deny receiving this letter. On August 8, 2001, Mr. Pell wrote SCRS asking for support for the pending legislation that would allow him to change his payment option. See Resp. Ex. 1, pp. 034-035.

10. Mr. Pell did not contact SCRS again until September 2005, approximately three-and-a-half months before his TERI Program period was scheduled to end and his payout was scheduled to be made. See Resp. Ex. 3. On September 13, 2005, Mr. Pell called the SCRS Customer Service Center inquiring about changing his payment option. See Resp. Ex. 3. The Customer Service Representative again explained that Mr. Pell could not change his payment option. See Resp. Ex. 3.

11. Mr. Pell, through his attorney, John E. Rogers, II, thereafter sought a Final Agency Determination on the issue of whether Mr. Pell could change his payment option from Option A to Option B. On February 13, 2006, Director Boykin issued a Final Agency Determination affirming the determination that Mr. Pell is precluded from changing his payment option from Option A to Option B. Mr. Pell appealed the Final Agency Determination to the Administrative Law Court.

II. The Application Process

12. Carolyn Ligon, Director of Payroll and Benefits for Spartanburg County School District 7, gave Mr. Pell his SCRS Service Retirement Application, Form 6101S. Ms. Ligon testified that Mr. Pell took the form home and brought it back to her office partially completed.^[6] Ms. Ligon completed Section IV and Section V on Form 6101S for Mr. Pell in his presence. Ms. Ligon may have darkened Petitioner’s election of Option A in Section II, but did not make the election for Mr. Pell.

Ms. Ligon does not provide retirement advice and does not provide advice on the TERI program. Ms. Ligon directs persons with questions to contact SCRS. Ms. Ligon does not recall Mr. Pell asking her any questions, therefore she did not advise Mr. Pell to contact SCRS. The forms provided by SCRS also reiterate that all questions should be directed to SCRS.

13. Petitioner Pell does not remember much of his retirement application process from 2000 to 2001. Petitioner Pell does not recall the exchange of many of the forms involved in the process, but does not deny (based on Respondent’s evidence), that this exchange took place. Mr. Pell admits that his signature is present on the documents requiring his signature.

Mr. Pell felt very hurried during the application process. He does not recall getting any explanation from anyone during the application process. Mr. Pell, at the time of filling out his application, did not understand that entering the TERI program meant that he was retiring from his job. Mr. Pell admits that he does not remember choosing Retirement Option A and concedes that he made a mistake in doing so. Mr. Pell stated that he saw the word “maximum” on the form and did not look any farther.

Mr. Pell also admits that he filled out and signed the SCRS “Turnaround and Verification Document” without carefully reading the document. He thought that the effect of the changes he made on this document was to insure that his wife would get his money. Mr. Pell changed “Estate” to “Mary M. Pell” on the document, but did not change his retirement option. See Resp. Ex. 1, p. 009. Mr. Pell does not recall getting the letter confirming the changes and the new “Turnaround and Verification Document”, however the document bears his signature, dated January 23, 2001. See Resp. Ex. 1, p. 012.

14. A letter dated January 30, 2001 confirmed that Mr. Pell was participating in the TERI program, and summarized the effects of his participation and the effects of his retirement application. See Resp. Ex. 1, pp. 016 - 020. Mr. Pell made a request to change his retirement option on May 11, 2001 via email, conceding that he had retired and entered the TERI program, and admitting that he made a blunder in choosing his retirement option. See Resp. Ex. 1, p. 021. This request for a change and realization of a blunder occurred after Mr. Pell’s wife entered the TERI program. Upon completing her forms, she questioned Mr. Pell about the retirement option he selected. His inspection of his forms caused him to realize his error. The May 11, 2001 request via email was made after Mr. Pell began receiving retirement benefits.

15. Mr. Pell wrote a letter, dated July 5, 2001, to “The Honorable Jim Hodges, Governor, State of South Carolina.” In this letter, Mr. Pell concedes that he made a mistake by deciding on Option A without fully understanding the three options. Mr. Pell blames this mistake on his district office because the district office did not fully explain the options to him. Mr. Pell asks the governor to sponsor a measure to give TERI program retirees who may have made a mistake in their retirement option a chance to correct the mistake. See Resp. Ex. 1, pp. 023 - 024.

16. There is no evidence showing Mr. Pell was treated differently from other applicants. SCRS and the Spartanburg County School District 7 office followed their procedures when disbursing information and when processing Mr. Pell’s application. All applicants have the same information and resources made available to them that Mr. Pell had made available to him. Mr. Pell did not contact SCRS during the application process for assistance.

CONCLUSIONS OF LAW

Based on the foregoing Findings of Fact, I conclude the following as a matter of law:

1. The ALC has jurisdiction to decide the issues in this case pursuant to S.C. Code Ann. § 9-21-60 (Supp. 2005) of the South Carolina Retirement Systems Claims Procedures Act. The standard of proof in an administrative proceeding is a preponderance of the evidence. Anonymous v. State Bd. of Med. Exam'rs, 329 S.C. 371, 496 S.E.2d 17 (1998). Petitioner, therefore, must prove by a preponderance of the evidence that he is entitled to change his retirement option from Option A to Option B after the first payment of his retirement allowance was due and without a qualifying event having taken place. See S.C. Code Ann. § 9-1-1620 (Supp. 2005).

2. Furthermore, as the trier of fact, the ALC must weigh and pass upon the credibility of the evidence presented. See South Carolina Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992).

3. Before discussing the issues on the merits of this case, two preliminary issues must be resolved. These issues are: (i) whether Petitioner failed to exhaust his administrative remedies in this matter; and (ii) whether the doctrine of estoppel applies to this case to prevent Respondent from asserting the statute of limitations against Petitioner in this matter.

I. Exhaustion of Remedies

The first issue that must be addressed in this case is whether this matter is properly before this Court. Under the South Carolina Retirement Systems Claims Procedures Act, a claimant must exhaust his "agency remedy" with SCRS prior to filing a request for a contested case hearing with this Court. See S.C. Code Ann. § 9-21-60 (Supp. 2005). To exhaust his administrative remedy in this case, Mr. Pell had to file a claim concerning the administrative decision by the retirement systems by the filing of a written claim with the director within one year of the decision by the retirement systems. See S.C. Code Ann. § 9-21-50(A) (Supp. 2005).

This exhaustion of agency remedies requirement is analogous to the judicial doctrine of exhaustion of administrative remedies, which generally requires a person seeking relief from the action of an administrative agency to pursue all available administrative remedies with the agency prior to seeking such relief from the courts. See, e.g., Pullman Co. v. Pub. Serv. Comm'n, 234 S.C. 365, 108 S.E.2d 571 (1959); see generally Richard H. Seamon, Administrative Agencies-General Concepts and Principles in South Carolina Administrative Practice and Procedure 1, 83-96 (Randolph R. Lowell & Stephen P. Bates eds. 2004).

In the case at hand, I find that Petitioner failed to exhaust his agency remedies with SCRS as to the retirement system’s May 11, 2001 “decision” because he did not timely file a written claim with the director within one year of the decision by the retirement systems and did not timely file an appeal with the proper court.^[7] See S.C. Code Ann. § 9-21-20(5)(a)-(c) (Supp. 2005) (defining "exhaustion of agency remedies" for the purposes of the Retirement Systems Claims Procedures Act); see also S.C. Code Ann. § 9-21-50(A) (Supp. 2005) and S.C. Code Ann. § 9-21-60 (Supp. 2005). Therefore, the denial by Respondent of Petitioner’s request to change his retirement option in the year 2001 is not properly before this Court.

II. Estoppel

However, the May 11, 2001 “decision” by SCRS was via email, and indicated that “there is nothing to appeal.” Based on this response, Petitioner did not pursue this matter any further. Petitioner asserts that he did not receive proper advice from Respondent. Accordingly, he argues that Respondent should be estopped from asserting any sort of statute of limitations and should also be estopped from asserting that a request for a contested case was not timely filed.

As the party asserting estoppel, Petitioner bears the burden of proof. Davis v. Sellers, 229 S.C. 81, 91 S.E.2d 885 (1956). Based upon the facts herein and the evidence in the record, Petitioner has not sustained his burden of proof.

Our Supreme Court has stated that, as a general rule, estoppel does not lie against the government to prevent the due exercise of its police powers or to thwart the application of public policy. Grant v. City of Folly Beach, 346 S.C. 74, 551 S.E.2d 229, 232 (2001) (citing South Carolina Dep't of Social Services v. Parker, 275 S.C. 176, 268 S.E.2d 282 (1980)). However, this does not mean that estoppel cannot apply against a government agency. Id. at 232 (citing Landing Dev. Corp. v. City of Myrtle Beach, 285 S.C. 216, 329 S.E.2d 423 (1985)). To prove estoppel against the government, the relying party must prove: (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question, (2) justifiable reliance upon the government's conduct, and (3) a prejudicial change in position. Id. (citing Midlands Utility, Inc. v. South Carolina Dep't of Health and Envtl. Control, 298 S.C. 66, 378 S.E.2d 256 (1989)).

A governmental body is not immune from the estoppel doctrine where its officers or agents act within the proper scope of their authority, but the government cannot be estopped by the unauthorized or erroneous conduct or statements of its officers which have been relied on by a third party to his detriment. Goodwine v. Dorchester Dep’t of Social Services, 336 S.C. 413, 519 S.E.2d 116 (Ct. App. 1999) (citing Service Mgmt. Inc. v. State Health & Human Servs. Fin. Comm'n, 298 S.C. 234, 379 S.E.2d 442 (Ct. App. 1989)); see also Service Mgmt, Inc., 379 S.E.2d at 444 (nursing home was required to repay Medicaid funds erroneously calculated by a state employee who had no authority to change the benefit amount); Berkeley Elec. Co-op, Inc. v. Town of Mount Pleasant, 308 S.C. 205, 417 S.E.2d 579 (1992) (Town of Mount Pleasant not estopped from denying validity of a franchise agreement where the franchise agreement was entered into in violation of statute).

In South Carolina Coastal Council v. Vogel, 292 S.C. 449, 357 S.E.2d 187 (Ct. App. 1987), appeal dismissed 294 S.C. 80, 362 S.E.2d 646 (1987), the South Carolina Court of Appeals held that a Coastal Council employee did not have authority to represent to the Vogels that they did not need a permit to build a deck on their beach house seaward of the critical line. Construction of the deck in the critical area of the primary oceanfront sand dune without a permit constituted a violation of the Coastal Zone Management Act. Id. at 188. The court held that the Council could not be estopped by the erroneous and unauthorized actions of its employee from ordering the removal of the illegally-constructed deck.

Similarly, the South Carolina Court of Appeals held that the City of Rock Hill could not be estopped where a zoning administrator had approved a parking area in violation of a city zoning ordinance. McCrowey v. Zoning Bd. of Adjustment of City of Rock Hill, 360 S.C. 301, 599 S.E.2d 617 (Ct. App. 2004). The court held that the zoning administrator lacked authority to alter or waive the zoning ordinance. Id. at 619-620.

On May 11, 2001, a representative of Respondent mistakenly advised Petitioner that “[t]here is nothing to appeal with the Retirement Systems because this is a state law.” This advice was erroneous. However, an unauthorized statement made by an employee of Respondent is not sufficient to estop Respondent from raising issues of timeliness and asserting the statute of limitations. Like the Coastal Council employee in Vogel, Respondent's employee lacked the authority to waive or alter statutory requirements or rules of procedure. Neither Respondent nor any of its employees has the authority to change any statutory requirement or rule of procedure. Therefore, Petitioner’s estoppel argument must fail.^[8] However, since I have found that Petitioner failed to exhaust his administrative remedies in regards to the 2001 decision to not allow Petitioner to change his retirement option, Respondent’s arguments on the statute of limitations need not be addressed.

III. Petitioner’s September 13, 2005 Request

Petitioner ultimately made another request to change his retirement option on September 13, 2005, which was denied. Petitioner’s attorney then sought a Final Agency Determination on the issue. A Final Agency Determination was issued on February 13, 2006 and a request for a contested case was promptly made to this Court on March 9, 2006 (which was within the thirty-day period). Therefore, this case is properly before this Court based on the request for a contested case filed March 9, 2006 contesting the Final Agency Determination issued February 13, 2006.^[9]

IV. Arguments on the Merits

On the merits of this case, Petitioner William H. Pell has argued that he should be granted the right to change his state retirement benefit election despite the clear language of S.C. Code Ann. § 9-1-1620 (Supp. 2005) (stating that “No later than the date the first payment of a retirement allowance is due, a member shall elect a form of monthly payment…”) and the clear language of 23A S.C. Code Ann. Regs. 19-912 (1976), which states: “Retirees cannot be granted privilege of changing option after benefit payments are begun.” Petitioner argues that the equitable remedies of rescission or reformation should apply in this case because the relationship between Petitioner and Respondent is contractual. Specifically, Pell has argued that he should be granted the option of changing his retirement benefit election for the following reasons: (i) he completed the retirement application while under duress; (ii) the Retirement Systems breached its fiduciary duty to him by not adequately informing him of his payment options; and (iii) he made a “unilateral mistake” when he completed the retirement application.^[10]

A. Rescission and Reformation

Rescission and Reformation are equitable remedies available to parties to a contract. See Regions Bank v. Schmauch, 354 S.C. 648, 663, 482 S.E.2d 432, 440 (Ct. App. 2003) (citing Alderman v. Bivin, 233 S.C. 545, 552, 106 S.E.2d 385, 388-389 (1958) (setting forth the criteria that must be met for a contract to be rescinded or reformed)). Therefore, in order for the equitable remedies of rescission or reformation to apply in this case, the rights of the Petitioner must be founded in contract.

The required elements of a contract are an offer, acceptance, and valuable consideration. Sauner v. Pub. Serv. Auth. of South Carolina, 354 S.C. 397, 406, 581 S.E.2d 161, 166 (2003). “A contract is an obligation which arises from actual agreement of the parties manifested by words, oral or written, or by conduct.” Roberts v. Gaskins, 327 S.C. 478, 483, 486 S.E.2d 771, 773 (Ct.App.1997). Valuable consideration may consist of “some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” Prestwick Golf Club, Inc. v. Prestwick Ltd. P'ship, 331 S.C. 385, 389, 503 S.E.2d 184, 186 (Ct.App.1998). A benefit to the promisor or a detriment to the promisee may provide sufficient consideration for a contract. Shayne of Miami, Inc. v. Greybow, Inc., 232 S.C. 161, 167, 101 S.E.2d 486, 489 (1957). With certain exceptions, a contract need not be in writing to be enforceable. Gaskins v. Firemen's Ins. Co. of Newark, N.J., 206 S.C. 213, 216, 33 S.E.2d 498, 499 (1945) (noting that if there is a meeting of the minds with regard to the essential elements of a contract, it is immaterial whether the contract is written or oral).

In this case, any rights that Petitioner has are founded in statute and generally statutes do not create contractual rights. Layman v. State, 368 S.C. 631, 637, 630 S.E.2d 265, 268 (2006). “However, if the statute indicates that the legislature intended to bind itself contractually, a contract may be found to exist.” Id. at 638, 630 S.E.2d at 268. The Layman case held that employees under the TERI program do have contractual rights because of the nature of the wording of the statute creating the program. The contractually significant language pointed out in Layman was, “We find it telling that the Legislature used terms that are indicative of a contract. A member who is eligible [to retire under TERI]…and complies with the requirements of this article…shall agree…” Id. at 639, 630 S.E.2d 269 (citing S.C. Code Ann. § 9-1-2210(A) (Supp. 2004) (emphasis added)).

I find that Section 9-1-1620, which is at issue in this case, is materially different from the code section at issue in Layman. Based on the rationale in Layman, it is clear that the statute applicable in the instant case is one by which the Legislature did not intend the State to be contractually bound. “The old TERI statute fixed obligations, required affirmative actions by both the State and old TERI program participants, and contained contractually significant language.” Id. In comparison, S.C. Code Ann. § 9-1-1620 (Supp. 2005), Optional forms of allowances, does not fix obligations for the State, does not require affirmative actions by the State, and does not contain contractually significant language, including the permissive language allowing a party to agree. See Roberts, supra (a contract is an obligation which arises from actual agreement of the parties). Section 9-1-1620 only requires performance by one person, the retiree; and the sole purpose of this section is to set out the retirement options from which the retiree must choose and to set out the consequences of those choices. A further limitation is provided by 23A S.C. Code Ann. Regs. 19-912 (1976) that is likewise free from contractually significant language (retirees cannot be granted privilege of changing option after benefit payments are begun).

I find the relationship between Petitioner and Respondent is not contractual. Since there is no contract involved with Petitioner’s choice, I further find there is not a basis for the application of the equitable principles of rescission and reformation. However, out of caution, I will address each of Petitioner’s arguments in detail below.

Mr. Pell has argued that he should be granted the option of changing his retirement benefit election for the following reasons: (i) he completed the retirement application while under duress; (ii) the Retirement Systems breached its fiduciary duty to him by not adequately informing him of his payment options; and (iii) he made a “unilateral mistake” when he completed the retirement application.

i. Duress

The first argument that Mr. Pell makes is that he was under “duress” when he completed the retirement application. Duress is a defense to an otherwise valid contract. Holler v. Holler, 364 S.C. 256, 268, 612 S.E.2d 469, 475 (Ct. App. 2005). The central question with respect to whether a contract was executed under duress is whether, considering all the surrounding circumstances, one party to the transaction was prevented from exercising his free will by threats or the wrongful conduct of another. Id. at 266-67, 612 S.E.2d at 475 (emphasis added). Duress is a condition of mind produced by improper external pressure or influence that practically destroys the free agency of a party and causes him to do an act or form a contract not of his own volition. Cox & Floyd Grading, Inc. v. Kajima Constr. Servs., Inc., 356 S.C. 512, 516, 589 S.E.2d 789, 791 (Ct. App. 2003) (quoting Willms Trucking Co. v. JW Constr. Co., 314 S.C. 170, 178, 442 S.E.2d 197, 202 (Ct. App. 1994). In order for duress to vitiate a contract, the danger must be imminent without means of present protection or of immediate relief, or the contract must be entered into under the reasonable belief that there are no means of immediate relief. 17A C.J.S. Contracts § 176(d) (1999). Where a contract is induced, not by a loss of volition, but by a desire to avoid inconvenience or delay, duress is not present. Id.

In order to establish that a contract was procured through duress, three things must be proved: (1) coercion; (2) putting a person in such fear that he is bereft of the quality of mind essential to the making of a contract; and (3) that the contract was thereby obtained as a result of this state of mind. Holler, 364 S.C. at 267, 612 S.E.2d at 475. Whether or not duress exists in a particular case is a question of fact to be determined according to the circumstances of each case, such as the age, sex, and capacity of the party influenced. Willms Trucking Co., 314 S.C. at 179, 442 S.E.2d at 202. Duress does not occur if the victim has a reasonable alternative to succumbing and fails to take advantage of it. Blejski v. Blejski, 325 S.C. 491, 498, 480 S.E.2d 462, 466 (Ct. App. 1997).

Unfortunately, I was not able to find any cases in which a retiree argued that he was under “duress” when he selected his retirement payment option. However, it is clear that this argument has little merit. First of all, even if Retirement Systems “rushed” Mr. Pell during his initial completion of the retirement application, there is no evidence showing that Mr. Pell reasonably believed that he could not ask for more time to review the retirement application. In fact, there is conflicting evidence as to whether or not Mr. Pell was given the opportunity to bring the retirement application home for review. Moreover, Mr. Pell is a college-educated man who has taught in our public schools for many years. He is not the type of person that one would usually label as being easily coerced. Finally, and perhaps most importantly, Retirement Systems, on two separate occasions, mailed Mr. Pell a Turnaround and Verification Document that allowed him to make changes to the retirement application. Thus, even if Mr. Pell was under duress at the time he initially completed the form, he was given the opportunity to review his choices while he was not under duress. Therefore, the defense of duress is clearly not applicable here.

ii. Breach of Fiduciary Duty

The next argument that Mr. Pell makes is that Retirement Systems had a fiduciary duty to adequately advise him of his retirement payment options and that Respondent breached this duty. In making this argument, he argues that the Spartanburg School District Seven benefits coordinator, Carolyn Ligon, did not offer any advice or explain the retirement options to him.

In South Carolina, a confidential or fiduciary relationship exists when one imposes a special confidence in another, so that the latter, in equity and good conscience is bound to act in good faith and with due regard to the interests of the one imposing the confidence. Hendricks v. Clemson Univ., 353 S.C. 449, 458, 578 S.E.2d 711, 715 (2003). The question of whether such a relationship should be imposed between two classes of people is a question for the court. Id. at 459, 578 S.E.2d at 715. Historically, the South Carolina Supreme Court has reserved the imposition of fiduciary duties to legal or business settings, often in which one person entrusts money to another. Id. at 459, 578 S.E.2d at 716 (emphasis added).

Based on the statutory provisions governing the administration of the state retirement system, it seems quite reasonable to impose a fiduciary duty on Retirement Systems. For instance, members of the state retirement system are required by state law to contribute a portion of their paychecks to the funds of the state retirement system,^[11] and Retirement Systems is responsible for acting as “trustee” of these funds.^[12] Moreover, S.C. Code Ann. § 9-16-40 (Supp. 2005) specifically requires Retirement Systems to perform its duties with the care, skill and caution that a prudent person acting in a like capacity would use. Based on these provisions, it seems rather clear that Retirement Systems owes a fiduciary duty to members of the state retirement systems.

In fact, other court decisions support the imposition of a fiduciary duty on Retirement Systems. For instance, in a referee’s order that was adopted by the South Carolina Supreme Court, South Carolina Appellate Court Judge John Kittredge suggested, in dicta, that Retirement Systems owes a fiduciary duty to members of the state retirement systems. See Wehle v. S.C. Retirement Sys., 363 S.C. 394, 412, 611 S.E.2d 240, 249 n.10 (2005) (“I do not suggest for a moment that [the South Carolina Retirement Systems], and those individuals charged with the fiduciary duty of managing [the South Carolina Retirement Systems], are beyond the reach of the courts.”). Moreover, a number of other state courts have held that state and municipal retirement systems owe a fiduciary duty to their participants. See, e.g., Honda v. Bd. of Trustees of the Employees’ Retirement Sys., 118 P.3d 1155, 1164 (Haw. 2005); Ricks v. Missouri Local Government Employees’ Retirement Sys., 981 S.W.2d 585, 592 (Mo. Ct. App. 1998); Mount v. Trustees of Pub. Employees’ Retirement Sys., 335 A.2d 559, 567 (N.J. Super. Ct. App. Div. 1975); Dadisman v. Moore, 384 S.E.2d 816, 822 (W. Va. 1988).

Nonetheless, even if Retirement Systems owed a fiduciary duty to Mr. Pell, the evidence is fairly clear that Respondent complied with this duty. See Ricks v. Missouri Local Gov’t Employees Retirement Sys., 981 S.W.2d 585 (Mo. Ct. App. 1998).^[13] In Ricks, 981 S.W.2d 585 (Mo. Ct. App. 1998), the plaintiff sought to change the retirement benefit option elected by her deceased husband. Due to vascular disease, the plaintiff’s husband decided to retire in December 1993. He was sent a benefits election form that set forth the following four options: Life Option, Option A, Option B and Option C. He was also provided with a booklet and a memorandum explaining the retirement benefit options. Because he had just recently married his wife, who he had chosen as his primary beneficiary, the bottom of the election form indicated that he was precluded from selecting Options A and B, both of which allowed for survivor benefits for beneficiaries. Under the descriptions of Options A and B, the memorandum explained that a spouse could not be a beneficiary unless the retiree had been married to that spouse for at least two years immediately preceding his retirement date. Among the remaining two options, the Life Option was a monthly allowance payable to the retiree for life, with no survivor benefits. Option C was a smaller monthly allowance that was payable to the retiree for life, with the added provision that if the retiree died before 120 monthly payments were made, his beneficiary would receive the same monthly payments for the remainder of the 120-month period. Importantly, the description of Option C in the memorandum sent to the plaintiff’s husband did not include the two-year spousal requirement.

Prior to executing the form, the plaintiff reviewed the materials sent to her husband by the retirement system and then called the retirement system’s toll-free number and spoke to two staff members about the retirement options. These discussions focused on the statutory rule that precluded the plaintiff’s husband from choosing Options A and B. Option C was not discussed. Because the staff members did not discuss Option C with her, the plaintiff assumed that the two-year spousal requirement applied to Option C and that the only option available to her husband was the Life Option.

In January 1994, the plaintiff and her husband completed the election form. They selected the Life Option. The plaintiff’s husband died in October of 1995. Shortly thereafter, the plaintiff sought to have her husband’s retirement benefit election changed, arguing that the retirement system breached its fiduciary duty to her and her husband by failing to provide sufficient information regarding eligibility under Option C. The retirement system’s board denied her request. On appeal, the Missouri Court of Appeals determined that the retirement systems did owe the plaintiff’s husband a fiduciary duty to provide sufficient information from which the retiree could make an informed decision. Ricks, 981 S.W.2d at 592. However, it ultimately concluded that the retirement system satisfied this fiduciary duty. In making this conclusion, the court explained:

Mrs. Ricks acknowledged in her testimony that Mr. Ricks received [the retirement] materials and that both she and Mr. Ricks reviewed them including the description of Option C in the booklet. Although this information was given to the Ricks prior to their conversations with the LAGERS staff, Mrs. Ricks’ own testimony was that she did not inquire about Option C at any time during her discussions with the staff . . . In addition to the booklet and the memo sent to the Ricks, the election form given to the Ricks specifically lists the options available to Mr. Ricks under the heading “Optional Forms of Payment Available to William Curtis Ricks” as being the Life Option and Option C. This form showed the computed monthly benefits for each of the two available options and again provided a description of all available options. In spite of this, the Ricks still did not inquire about Option C. Mr. Ricks then signed the election form, electing the Life Option, under a caption that read “I realize that this option cannot be changed after retirement,” and Mrs. Ricks signed the spousal consent to member’s election line. Although LAGERS has a fiduciary duty to provide sufficient information from which the retiree may make an informed decision, it is not required to give advice on which option to choose. Therefore, the information provided to the Ricks satisfied LAGERS’ fiduciary duty.

Id. (emphasis added).

A similar result is warranted here. Prior to making his election, Mr. Pell was provided with an estimate of the monthly payments that he would receive under each of the three options. The estimate form described Option A as a “Retiree Only Maximum Lifetime Monthly Annuity Plan” and stated that the “Beneficiary Payout” for Option A was “Remaining contributions, if any.” Moreover, the retirement application itself clearly described each payment option and stated that the payment plan could not be changed once benefit payments began. Notably, the retirement application contained a customer service number that Mr. Pell could call in the event that he had any questions about his payment options.^[14] Furthermore, on January 31, 2001, prior to the date on which Mr. Pell began receiving benefit payments, Retirement Systems mailed Pell a document entitled “Notice of Retirement Eligibility and Estimated Benefit.” This document indicated that Mr. Pell had selected Option A and stated: “If you believe that any of the above information is incorrect, please contact us without delay.” Like the retirement application, this document contained the Retirement Systems’ customer service number. Also, on the same day, Retirement Systems mailed Mr. Pell a letter stating that Mr. Pell had chosen Option A and explaining: “You selected the maximum benefit formula which provides the largest monthly benefit available to be paid to you as a retired member for your life. If you should die prior to recovering the total amount of your contributions plus interest, the balance of your account will be refunded in one payment to the designated beneficiary.” Again, the Retirement Services’ customer service number was included in this letter. In addition, an enclosure entitled “Information for Retired Members” was sent with this letter, the first sentence of which stated: “The method of payment may not be changed once benefit payments have begun.” Based on these facts, it appears clear that Mr. Pell was adequately informed of his benefit options and that he could not change his benefit election once payments began. Importantly, Retirement Systems was under no obligation to advise Mr. Pell on which option to choose.

iii. Unilateral Mistake

The final argument that Mr. Pell makes is that he should be given the opportunity to change his retirement benefit election based on the ground of unilateral mistake. In South Carolina, to rescind an instrument on the ground of unilateral mistake, the mistake must be accompanied by: (1) proof it was induced by fraud, deceit, misrepresentation, concealment, or imposition of the opposing party and without negligence on the part of the party seeking rescission, or (2) very strong and extraordinary circumstances which would make it a great wrong to enforce the agreement. Truck South, Inc. v. Patel, 339 S.C. 40, 49, 528 S.E.2d 424, 429 (2000). The mistake must be made at the time the contract was made and must relate to a fact material to the contract. See 17A C.J.S. Contracts § 154 (1999).

Notably, most other state courts have generally refused to use the doctrine of unilateral mistake to allow individuals to change retirement benefit elections, even in cases where the retiree became aware of a life-threatening illness either prior to his retirement or prior to the date on which his benefit election became final. See, e.g., Welsh v. State Employees’ Retirement Bd., 808 A.2d 261 (Pa. Commw. Ct. 2002) (refusing to allow change based on unilateral mistake where retiree was diagnosed with leukemia before he made his retirement election); Jones v. Teachers Insurance and Annuity Assoc., 934 S.W.2d 307 (Mo. Ct. App. 1996) (refusing to allow change based on unilateral mistake where retiree was diagnosed with valvular heart disease during time in which she still had option of changing her benefit election); Ricks, supra (refusing to allow change based on unilateral mistake where retiree retired because of vascular disease); but see Honda v. Bd. of Trustees of the Employees’ Retirement Sys., 118 P.3d 1155, 1164 (Haw. 2005) (finding that retiree’s retirement election might have been voidable under doctrine of unilateral mistake where retiree was diagnosed with cancer at time in which he could still change retirement option, retiree told wife that she would receive his pension, and retirement application contained inconsistent language with respect to phrase “normal retirement”).

For instance, in Welsh, the petitioner sought to change the retirement benefit option elected by her deceased husband. Her husband had retired from state service as a nurse’s aide the day after his doctor diagnosed him with leukemia. Prior to his death, her husband, who had both hearing and vision problems, phoned a retirement counselor from the state retirement board and scheduled a counseling session with her. During his phone conversation with the retirement counselor, he asked the petitioner to speak to the retirement counselor, but the counselor refused to speak to anyone other than the petitioner’s husband. Roughly two weeks after his retirement began (and thus after he received his leukemia diagnosis), petitioner’s husband attended the retirement counseling session alone. He was not given a letter outlining his retirement options prior to the session. At the session, he elected the maximum single life annuity without a survivor’s benefit option despite being repeatedly told by the retirement counselor that that option would leave no survivor benefits payable to a beneficiary. Upon returning from the session, he told his stepdaughter that he did not understand what the retirement counselor told him at the session. However, he told both the petitioner, who had multiple infirmities and was confined to a wheelchair, and his stepdaughter that the petitioner was “going to get his pension.” The petitioner’s husband died approximately seven months after he retired. After her husband’s death, the petitioner sought to change her husband’s retirement election, arguing that his election was a product of unilateral mistake.^[15] The state retirement board denied the petitioner’s request. On appeal, the Commonwealth Court of Pennsylvania affirmed the board’s decision, holding that the record did not compel a finding that the retirement counselor should have known of the mistake of the petitioner’s husband. Id. at 265. In doing so, the court noted that the state retirement system did not have the authority to conduct a detailed and invasive inquiry into the medical history and financial status of one of its members. Id. at 266.

Additionally, in the Ricks case discussed above, the Missouri Court of Appeals also considered the issue of whether the unilateral mistake of the plaintiff’s husband warranted rescission of the retirement election form. The court ultimately determined that it did not. In doing so, the court upheld the board’s finding that the plaintiff failed to establish that her husband was under a mistaken belief as to Option C at the time he completed the form. Ricks, 981 S.W.2d at 593. According to the court, although there was evidence that the plaintiff’s husband made a mistake in choosing Option C, the evidence equally established an inference that the plaintiff’s husband chose Option C because it offered more substantial payments. Id. Moreover, the court held that, even if the plaintiff had established the existence of a mistake, rescission was not warranted. Id. at 594. Under Missouri law, unilateral mistake was grounds for rescission where: (i) enforcement would be unconscionable, or (ii) where the other party had reason to know of the mistake. Id. As to the first ground, the court held that enforcement would not be unconscionable, explaining:

Both Mr. and Mrs. Ricks had the opportunity to review the written materials and ask questions about the options prior to Mr. Ricks’ election of a retirement option . . . . The agreement itself is not unconscionable in that four reasonable retirement options are set forth for the retiree to choose from, and a description of each option is provided on the election form.

Id. As to the second ground, the court held that the retirement system had no reason to know of the mistake of the plaintiff’s husband since Option C was never discussed between the plaintiff and the retirement system workers and the election form specifically stated that the plaintiff’s husband could choose Option C. Id.

Here, it appears clear that Mr. Pell has failed to establish that his “unilateral mistake” mandates rescission of the retirement application. As a fundamental matter, it is not completely clear that Mr. Pell, at the time he completed the retirement application, failed to realize that Option A did not provide survivor benefits. For instance, there was no evidence presented to show that Mr. Pell told his wife, or anyone else for that matter, that his wife would receive his pension when he died. Moreover, because Mr. Pell’s wife has her own state pension and because Mr. Pell is not suffering from a serious illness, Mr. Pell’s selection of Option A was completely reasonable. Thus, it is quite possible that Mr. Pell intentionally selected Option A because it offered larger payments.

Furthermore, even if Mr. Pell’s selection of Option A was a mistake, there is no evidence to show that Mr. Pell’s mistake was induced by the fraud, deceit, misrepresentation, or concealment of Retirement Systems. Instead, it appears that Mr. Pell’s mistake was due in large part to his own negligence in failing to read the retirement application carefully. Importantly, in South Carolina, a person who signs a contract or other written document cannot avoid the effect of the document by claiming he did not read it. Regions Bank v. Schmauch, 354 S.C. 648, 663, 582 S.E.2d 432, 440 (Ct. App. 2003); Sims v. Tyler, 276 S.C. 640, 643, 281 S.E.2d 229, 230 (1981); Evans v. State Farm Mut. Auto. Ins. Co., 269 S.C. 584, 587, 239 S.E.2d 76, 77 (1977). A person signing a document is responsible for reading the document and making sure of its contents. Regions Bank, 354 S.C. at 663, 582 S.E.2d at 440. One who signs a written instrument has the duty to exercise reasonable care to protect himself. Id. at 664, 582 S.E.2d at 440; Maw v. McAlister, 252 S.C. 280, 284-85, 166 S.E.2d 203, 204-05 (1969); Evans, 269 S.C. at 587, 239 S.E.2d at 77; DeHart v. Dodge City of Spartanburg, Inc., 311 S.C. 135, 139, 427 S.E.2d 720, 722 (Ct. App. 1993). Thus, because the retirement application clearly described Mr. Pell’s payment options, any mistake Mr. Pell made in selection Option A was due primarily to his own carelessness.

Mr. Pell, however, argues that Retirement Systems should have known that he was confused regarding his retirement payment options because he initially included some personal information regarding his wife in the beneficiary section of the retirement application despite naming his estate as his beneficiary. This argument is simply without merit. As discussed above, the estimate form clearly set forth the estimated “Retiree Benefits” and “Beneficiary Payout” under each payment option. Moreover, the retirement application included a clear description of each payment option. Furthermore, the retirement application also contained the Retirement Services’ customer service number and stated: “Please call SC Retirement Systems Customer Service with any questions.” Mr. Pell admitted that he never called the customer service number. Based on these facts, a finding that Retirement Systems should have known that Mr. Pell was confused regarding his payment options is simply not warranted. In addition, by twice mailing to Mr. Pell a Turnaround and Verification Document that allowed Mr. Pell to make changes to the retirement application, Retirement Systems took reasonable steps to prevent Mr. Pell from making a selection on his retirement application that did not reflect his true intentions. Thus, it is abundantly clear that, even if Mr. Pell did make a mistake when he selected Option A, the primary reason for his mistake was his own negligence, and not the acts of the Retirement Systems. Hence, relief is not warranted under the first ground listed in Patel.

Furthermore, as to the second ground set forth in Patel, it does not appear that “very strong and extraordinary circumstances” exist which would make it a “great wrong” to enforce the retirement application. As several state courts have recognized, allowing retirees to freely change their retirement benefit elections would endanger the financial integrity of the state retirement system and would create a massive administrative burden. See, e.g., Willis v. Bd. of Administration, Pub. Employees Retirement Sys., 226 Cal. Rptr. 567, 569 (Cal. Ct. App. 1986) (“The rules governing a retirement plan such as PERS are based on actuarial principles and must be strictly enforced in order to assure that funds will be available to pay all those relying on the plan.”); Greene v. Teachers Retirement Sys. of City of N.Y., 435 N.Y.S.2d 455, 460 (N.Y. Sup. Ct. 1980) (“[T]he fact that decedent made what turned out to be an unwise choice is not sufficient reason to void the pension contract, or to vitiate the statutory scheme of and the actuarially sound procedure employed by the Retirement System.”); Ex parte Employees Retirement Sys. Bd. of Control, 767 So.2d 331, 335 (Ala. 2000) (“To permit a surprised, disappointed, or disgruntled beneficiary to change an ERS member’s retirement-benefits election that is clear on its face, after events have made the election undesirable, would wreak havoc on the retirement system.”); Cosgrove v. Pa. Employees’ Retirement Bd., 665 A.2d 870, 874 (Pa. Commw. Ct. 1995) (“Any pension plan that would allow unrestricted changing of options would of course be almost impossible to administer.”).

Notably, because of the problems associated with allowing a retiree to change his benefit election after he has begun receiving payments, many state courts have refused to allow such changes even in situations where their holdings have caused harsh results. For instance, courts have refused to allow changes to benefit elections in cases where the retiree died shortly after retiring. See, e.g., Krill v. Pub. School Employees’ Retirement Bd., 713 A.2d 132 (Pa. Commw. Ct. 1998) (refusing to allow change where retiree died less than two months after she retired); Hutt v. Retirement Bd. of N.Y. State Teachers’ Retirement Sys., 749 N.Y.S.2d 597 (N.Y. App. Div. 2002) (refusing to allow change where retiree died less than a year after he began receiving retirement benefits); Davis v. Pub. Employees’ Retirement Sys., 750 So.2d 1225 (Miss. 1999) (refusing to allow change where retiree died three and one-half years after he retired). In fact, courts have made such rulings even in cases where the surviving spouse was left in a financially precarious position, see Burton v. Teachers’ Retirement Sys. of Alabama, 848 So.2d 1008, 1011 (Ala. Civ. App. 2002) (refusing to allow change where retiree died less than a year after making benefit election even though court noted that its decision left the retiree’s widow “facing possible unknown financial hardship”), and where the retiree was under a great deal of stress at the time he made his election. See, e.g., Stevenson v. State Employees’ Retirement Bd., 711 A.2d 533 (Pa. Commw. Ct. 1998) (refusing to allow change where retiree, who died less than two and one-half months after retiring, was told the day before he made his retirement benefit election that his chemotherapy treatments for his metastatic colon cancer were not working); Buzzard v. Pub. Emp. Retirement Sys. of Ohio, 745 N.E.2d 442 (Ohio Ct. App. 2000) (refusing to allow change where retiree was forced to leave his job because of allegations of theft and committed suicide six days after making benefit election).

Based on these cases, it is clear that it would not be a “great wrong” to enforce Mr. Pell’s retirement application. As noted above, the retirement application clearly described the three retirement options available to Mr. Pell and contained a customer service number in the event that he had any questions. Moreover, Mr. Pell is a former English teacher who, presumably, has above average reading comprehension skills. In addition, Mr. Pell did not testify that he had any sort of vision problem or other disability that prevented him from adequately reading the retirement application. Furthermore, Mr. Pell did not testify that he is dying or is in poor health. Thus, at this point in time, it is hardly certain that he will die before his wife does. Finally, Mr. Pell’s wife is a retired teacher who is currently receiving retirement benefits from Respondent. Thus, even if Mr. Pell’s wife were to outlive him, she would still have her own pension to support her financially. Under these circumstances, relief is clearly not warranted under the second ground listed in Patel.

V. Conclusion

Many state courts have strictly followed statutes and regulations that prohibit retirees from changing their retirement benefit elections after they have begun receiving payments. In fact, I found only one case in which a state court showed a willingness to disregard such a restriction. As discussed above, in Honda v. Bd. of Trustees of the Employees’ Retirement Sys., 118 P.3d 1155 (Haw. 2005), the Hawaii Supreme Court determined that the state retirement system failed to adequately inform a retiree of his benefit options and remanded the case to the state retirement system board for further proceedings. However, the Honda court’s decision was based largely on the fact that the retirement application contained confusing language with respect to the payment options available to retirees. Here, the retirement application is much clearer than the one used in Honda. Therefore, it appears that the ALC should follow the lead of most state courts and refuse to allow Mr. Pell to change his retirement benefit election.

ORDER

Based on the foregoing,

IT IS THEREFORE ORDERED that Petitioner’s request to change his Retirement Option under S.C. Code Ann. § 9-1-1620 (Supp. 2005), after his retirement allowance was due and without a qualifying event having taken place, is hereby DENIED.

AND IT IS SO ORDERED.

__________________________________

John D. McLeod

Administrative Law Judge

November 15, 2006

Columbia, South Carolina