ORDERS:
FINAL ORDER AND DECISION
STATEMENT
OF THE CASE
This
matter is before the South Carolina Administrative Law Court (“ALC”) for a
final order and decision following a contested case hearing pursuant to S.C.
Code Ann. §§ 9-21-10 et seq. Martha B. Smith (“Smith”), contests the
Final Agency Determination of the State Budget and Control Board, South
Carolina Retirement Systems (“SCRS”), which found that Smith was not eligible
to retire and participate in the Teacher and Employee Retention Incentive
(“TERI”) Program until July 1, 2005.
After
timely notice to the parties, the court held a hearing on this matter on
January 11, 2007, at the ALC in Columbia, South Carolina. Both parties were in
attendance and represented by counsel. Evidence was introduced and testimony
presented. After carefully weighing all of the evidence, the court finds that
Smith was not eligible to retire until July 1, 2005.
ISSUES
1. Was
Smith eligible to retire on June 30, 2005 pursuant to S.C. Code Ann. § 9-1-1510
(1986 & Supp. 2006) and therefore entitled to change her date of retirement
from July 1, 2005 to June 30, 2005?
2. If
not, should the ALC apply the equitable remedies of reformation or rescission?
BACKGROUND
AND FACTS
Having
observed the witnesses and exhibits presented at the hearing and closely passed
upon their credibility, and taking into consideration the burden of persuasion
by the parties, the court makes the following Findings of Fact by a
preponderance of the evidence.
a. The
TERI Program and Act No. 153 of 2005
Effective
January 1, 2001, SCRS provided the Teacher and Employee Retention Incentive
(“TERI”) Program to its members. S.C. Code Ann. § 9-1-2210 (1986 & Supp.
2006). The TERI Program allows members of SCRS to retire and begin accruing
their monthly annuity in an account while continuing to work for a period not
to exceed five years. The members participating in the TERI Program as it was
originally established did not pay contributions or accrue service credit
during the TERI Program period. S.C. Code Ann. § 9-1-2210 (1986 & Supp.
2001).
On
June 6, 2005, the General Assembly ratified Act No. 153, which required, among
other things, all participants in the TERI Program to begin paying
contributions on July 1, 2005 to SCRS as if the members were active employees.
2005 S.C. Acts 153 § 2. On June 10, 2005, the Governor signed Act No. 153.
b. The Layman Case
On
June 13, 2005, in response to Act No. 153, a purported class of state retirees
participating in the TERI program filed the case of Layman v. State of South
Carolina and South Carolina Retirement System, 2005-CP-40-02785. Among
other things, the complaint in Layman alleged a cause of action for
breach of contract. The gravamen of the Layman lawsuit was that the State
of South Carolina could not require retirees already participating in the TERI Program
to make monthly contributions to SCRS since at the time they began
participating in the program they were expressly exempt from such
contributions. The Supreme Court took original jurisdiction of the case and,
eleven months after the filing of the complaint, issued an opinion on May 4,
2006. The Supreme Court found that the State of South Carolina breached its
contract with retirees who enrolled in the TERI Program prior to July 1, 2005. Layman v. State of South Carolina and South Carolina Retirement System, 368
S.C. 631, 644, 630 S.E.2d 265, 272 (2006). The Court ordered SCRS to refund all
contributions, plus interest, withheld from anyone who enrolled in the TERI
Program prior to July 1, 2005. Id. at 644, 630 S.E.2d at 272.
c. Smith’s
Retirement
Contemporaneous
with the events in the spring and summer of 2005 surrounding the passage of Act
No. 153 and the filing of the Layman complaint, Smith, a public school
teacher, was implementing her plan to retire. In December 2004, Smith attended
a pre-retirement seminar. After the seminar, Smith met with a counselor at
SCRS and requested a monthly benefit estimate reflecting a retirement date of
June 30, 2005. Smith requested a retirement date of June 30, 2005 because she
was advised through the School District that
it was best to retire at the end of the month. Additionally, because her anniversary
is in June, June was a special month for her.
On
April 12, 2005, Smith completed and signed a Service Retirement Application
requesting a June 30, 2005 effective date of retirement and to participate in
the TERI program. In a phone call to SCRS the day before, Smith had requested a
calculation of the cost to purchase five months and six days of non-qualified
service, enough to have twenty-eight years of service credit by July 1, 2005.
Smith requested a July 1, 2005 date to ensure that she was covered with enough
service credit to permit a June 30, 2005 retirement date.
Additionally,
on April 14, 2005, the School District submitted an Employer Certification of
Last Day Paid indicating that Smith’s last paycheck would be June 1, 2005, and
that her TERI start date would be June 30, 2005.
On
April 20, 2005, SCRS issued an invoice to Smith for the purchase of five months
and six days of nonqualified service credit at a cost of $8,290.40. With the
assistance of the School District’s human resources personnel, Smith set up a
deferred compensation account through SCRS. The deferred compensation account
would allow her to purchase the service credit needed with tax-deferred money.
To fund the account, money was withheld from each of Smith’s paychecks. When
Smith established her deferred compensation account, she calculated the amount
that she would need to have withdrawn from each check between April 15, 2005,
and June 17, 2005, so that she would have enough money in her account to pay
for the full service purchase with pre-tax funds. There was no requirement
that service credit be purchased through a deferred compensation account.
Personal funds could have also been used.
On
May 17, 2005, with the advice of the School District’s human resources personnel,
Smith signed and filed a Turnaround and Verification document, changing her
planned date of retirement from June 30, 2005, to July 1, 2005. Smith still
wanted a June 30, 2005 retirement date, but followed the advice and changed the
date. SCRS mailed a Notice of Retirement Date Change to Smith acknowledging
the change in the effective date of retirement. Smith also notified the School
District of the changed date of retirement, which then sent a revised Employer
Certification of Last Day Paid, indicating that Smith would retire July 1,
2005.
Smith
subsequently decided to change the effective date back as originally intended
to June 30, 2005. By letter dated May 26, 2005, Smith informed the School
District of her intent to retire and TERI effective June 30, 20005. This was
the first time Smith submitted any such letter to the employing School District
informing the School District of her intent to retire June 30, 2005. The
notification was a requirement of the School District. On May 26, 2005, the School
District submitted its second revised Employer Certification of Last Day Paid
that indicated Smith’s TERI start date would be June 30, 2005.
On
June 13, 2005, before Smith’s final contribution had been deposited into her
deferred compensation account, SCRS received a partial payment for the invoice
issued April 20, 2005, for five months and six days of nonqualified service.
Although the invoice amount was $8,290.40, SCRS received only $6,821.82. SCRS
therefore sent a letter to Ms. Smith explaining her various options for paying
the outstanding balance of $1,468.58. Because the deferred compensation
administrator issued the check before all of Smith’s contributions had been
withheld and deposited into the account, Smith apparently did not have sufficient
funds in her account to rollover the entire balance of the service purchase
when the deferred compensation administrator issued the check on June 8, 2005.
Unfortunately, the deferred compensation administrator completed the rollover
and issued the check on June 8, 2005, more than one week before Ms. Smith’s
final pre-tax deduction was deposited into her account. Smith therefore
requested a transfer from the deferred compensation administrator of the
remaining balance of $1,468.58.
In
a telephone conversation on June 23, 2005, Smith advised SCRS that she would
transfer funds from her deferred compensation account to SCRS to pay for the
remaining $1,468.58 balance due on her purchase of nonqualified service. The
SCRS consultant suggested to Smith that she call back to confirm SCRS’s receipt
of the transfer from her deferred compensation account. Smith indicated she
would write a personal check if the transfer were not complete by the next
week.
The
parties’ version of the facts prior to June 30, 2005 is essentially
consistent. Their stories diverge, however, as to a crucial meeting that took
place on June 30, 2005. Based upon the evidence presented, the court finds as
follows.
This
proposed solution would allow Smith to use her tax-deferred funds to effectuate
her service purchase, assuming the deferred compensation check arrived at SCRS
the next day, July 1. However, since delivery of the check on July 1 remained uncertain,
Smith was to leave her personal check “as a backup” to ensure a retirement date
no later than July 1. If the
deferred compensation check arrived on July 1, it would be used for the service
purchase. If it did not, her personal check would be posted on July 1. Smith
acted on this proposal and completed another Turnaround and Verification form changing
her retirement date to July 1. The court finds that when faced late in the day
with the choice between having a June 30 retirement date and using tax-deferred
funds for the service purchase, Smith chose the latter.
However,
the court further finds that she made that choice in reliance on Martin’s
representation that one day would make no difference. The evidence clearly
demonstrates that Smith went to SCRS on June 30 with the intent to retire on
that date. June 30 was the original retirement date on her first application in
April 2005, she changed her retirement date back to June 30 in late May 2005,
and she drove to Columbia with a personal check to complete her service
purchase, a prerequisite to retirement, by June 30. The court finds that Smith
would not have changed her retirement date back to July 1 without assurances
from Martin that it would make no difference. Moreover, Martin’s testimony was
much less credible than Smith’s on this point. Accordingly, the court finds
that, based upon Martin’s assurance that postponing her retirement date would
make no difference, and in reliance on that assertion, Smith’s intent regarding
delivery of the personal check for the balance of the service purchase
changed. When she left SCRS’s office at approximately 4:45 p.m. on June 30,
she intended for SCRS to hold her personal check until July 1 and to use it for
payment on July 1 only if the deferred compensation check did not arrive on
July 1.
On
the morning of July 1, 2005, SCRS received the remaining balance of $1,468.58 from
the deferred compensation administrator and Barnes personally called to notify
Smith. Smith agreed that Barnes would shred her personal check. Smith’s
retirement was then processed with the July 1, 2005 retirement date. As a
result, Smith’s effective date of retirement and commencement of TERI
participation became July 1, 2005.
d.
Procedural Background
As
Smith subsequently discovered, the confluence of the events stemming from the
passage of Act No. 153, the Supreme Court’s ultimate decision in the Layman case, and Smith’s retirement in the summer of 2005 means that Smith’s retirement
on July 1 rather than on June 30 results in her having to contribute a portion
of the salary she draws as a TERI participant to SCRS. Over her five years as
a TERI participant, the retirement date of July 1 rather than June 30 will
result in a net loss to Smith of approximately $18,000.
On
May 9, 2006, upon learning of the Supreme Court’s decision in Layman,
Smith contacted SCRS inquiring about whether she qualified to receive a refund
of contributions pursuant to Layman. SCRS informed Smith that the Layman refund only applied to members who entered the TERI Program on or before June
30, 2005, and because she retired on July 1, 2005, she was not eligible for a
refund. Smith
appealed that determination pursuant to S.C. Code Ann. §§ 9-21-10 to -70 (Supp.
2006). On July 27, 2006, SCRS Director Peggy G. Boykin issued a Final Agency
Determination finding Smith selected July 1,
2005, as her date of retirement and was not eligible to retire on June 30,
2005. Smith appealed the Final Agency Determination to the ALC pursuant to
S.C. Code Ann. § 9-21-60 (Supp. 2006).
LAW
Based
on the foregoing Findings of Fact, the court concludes the following as a
matter of law.
The Court has jurisdiction to
decide the issues in this case pursuant to S.C. Code Ann. § 9-21-60 (Supp.
2006). The weight and credibility assigned to evidence presented at the
hearing of a matter is within the province of the trier of fact. See South
Carolina Cable Television Ass’n v. Southern Bell Tel. and Tel. Co., 308
S.C. 216, 417 S.E.2d 586 (1992). Furthermore, a trial judge who observes a
witness is in the best position to judge the witness’s demeanor and veracity
and to evaluate the credibility of his testimony. See Woodall v.
Woodall, 322 S.C. 7, 471 S.E.2d 154 (1996); Wallace v. Milliken &
Co., 300 S.C. 553, 389 S.E.2d 448 (Ct. App. 1990).
In presiding over this
contested case, the court serves as the finder of fact and makes a de novo determination regarding the matters at issue. See S.C. Code Ann. §
1-23-600(B) (2005 & Supp. 2006); Marlboro Park Hosp. v. S.C. Dep’t of
Health & Envtl. Control, 358 S.C. 573, 595 S.E.2d 851 (Ct. App. 2004); Brown
v. S.C. Dep’t of Health & Envtl. Control, 348 S.C. 507, 560 S.E.2d 410
(2002). 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). Smith must therefore prove by a preponderance of the
evidence that she was eligible to retire on June 30, 2005.
For a member of SCRS to be
eligible for service retirement benefits, the member must meet the requirements
set forth in § 9-1-1510, which provides in pertinent part:
A member may retire
upon written application to the system setting forth at what time, no more than
ninety days before nor more than six months after the execution and filing of
the application, the member desires to be retired, if the member at the time
specified for the member’s service retirement has:
(1) five
or more years of earned service;
(2) attained
the age of sixty years or has twenty-eight or more years of creditable service;
and
(3) separated from service.
S.C. Code Ann. §
9-1-1510 (1986 & Supp. 2006). There is no dispute in this case
that Smith met the requirements of having five or more years of earned service
and separating from service. The question in this case is when Smith had
twenty-eight or more years of creditable service.
Smith sought to attain
twenty-eight years of creditable service by purchasing the last five months and
six days of service in expectation of retiring on June 30, 2005. Smith therefore
requested to purchase nonqualified service credit pursuant to § 9-1-1140(E), which provides in pertinent part:
An active member who has five or more years of earned
service credit may establish up to five years of nonqualified service by making
a payment to the system to be determined by the board, but not less than
thirty-five percent of the member’s current salary or career highest fiscal
year salary, whichever is greater, for each year of credit purchased. . . .
Periods of less than a year must be prorated.
S.C. Code Ann. § 9-1-1140(E) (1986 & Supp. 2006).
Payment is “delivery of money
or its equivalent in either specific property or service by one person from
whom it is due to another person to whom it is due.” Black’s Law Dictionary 1129 (6th ed. 1990). As the South Carolina Supreme Court has held, “[T]he law
has always recognized conditional deliveries of papers . . . and it has
invariably been held that the intention of the parties controlled as to whether
a delivery was absolute or conditional.” Alexander v. Kerhulas, 151
S.C. 354, 149 S.E.12, 13 (1929). Thus, “delivery is a matter of intention” of
the parties. Id. (quoting Morgan v. Morgan, 116 S.C. 272, 108
S.E. 110 (1921)). In the Alexander case, Kerhulas issued a check to
Alexander on July 28, 1925, and dated the same, to purchase a certain lot in
Florida. Although Kerhulas gave the check to Alexander on July 28, 1925, he
requested that Alexander hold the check until he could return home and attempt
to acquire the funds for the first purchase price payment on the lot. The
Supreme Court concluded the entire transaction was conditional and the parties
mutually understood that such delivery was conditional upon the occurrence of a
particular event. When the event did not occur, the check should have been
returned to Kerhulas and the contract canceled.
The court finds that Smith’s
delivery to SCRS of her personal check on June 30, 2005 was similarly
conditional. Although Smith dated and delivered the check June 30 with the original
intent of effectuating her service purchase that day, her intent changed based
upon Martin’s representation that postponing her retirement date by one day
would make no difference. As a result of that assertion, Smith ultimately
agreed that Barnes would hold the check until the next day to see if the
deferred compensation check arrived. Barnes testified that it was his
understanding that if the deferred compensation check did not arrive on July 1,
he was to post and deposit Smith’s personal check on July 1. Consistent with
this agreement and with the concept that she could not be retired until her
service purchase giving her the required twenty-eight years of service was
complete, Smith completed the Turnaround and Verification form to change her
date of retirement to July 1. On July 1, 2005, when Barnes informed Smith and
that the deferred compensation check had arrived that day, Smith directed
Barnes to destroy the June 30 check and use the deferred compensation check. Thus,
the court finds that delivery of the personal check on June 30 for payment of the
balance owed for the service purchase was conditioned on a contingency that
could not have occurred until July 1 at the earliest – the failure of the
deferred compensation check to arrive on July 1. Since that contingency did
not occur and the deferred compensation check in fact arrived on July 1, the event
upon which delivery of the personal check was conditioned was not fulfilled,
and payment was therefore not complete until July 1. Consequently, Smith’s
service purchase was not complete until July 1, 2005 when it was effectuated
with the deferred compensation check. Thus, she was not eligible to retire
with twenty-eight years of service until July 1, 2005.
Smith alternatively argues
that, even if she was not eligible to retire on June 30 because her service
purchase was not complete until July 1, the court should apply the equitable
remedies of reformation or rescission. Smith claims such relief should be granted
for the following reasons: (1) SCRS breached its fiduciary duty to her by
misinforming her of the consequences of changing her date of retirement on the
Turnaround and Verification Document; (2) she made a unilateral mistake, which
was induced by SCRS’s misrepresentations and/or concealments without negligence
on the part of Smith, or strong and extraordinary circumstances exist which
would make it a great wrong to enforce the July 1, 2005 retirement date. The
court finds that it would not be appropriate to grant such relief.
Smith’s “alternative”
equitable arguments are in reality separate claims over which this court has no
jurisdiction. The ALC is an executive branch agency and a legislatively created
court whose jurisdiction derives solely from state statutes. S.C. Code Ann. §
1-23-500 (Supp. 2006) (“There is created the South Carolina Administrative Law
Court, which is an agency and court of record within the executive branch of
the government of this State.”); see, e.g., S.C. Code Ann. § 1-23-600(B)
(Supp. 2006) (stating that “[a]n administrative law judge shall preside over
all hearings of contested cases as defined in Section 1-23-310 or Article I,
Section 22, Constitution of the State of South Carolina” and listing
exceptions); Calhoun Life Ins. Co. v. Gambrell, 245 S.C. 406, 411, 140
S.E.2d 774, 776 (1965) (stating that an administrative agency is a creation of
the legislature and, as such, possesses only such powers as are conferred,
expressly or by reasonably necessary implication). The ALC’s jurisdiction over
this matter stems from § 9-21-60 and § 1-23-600(B). Pursuant to those
statutes, the ALC is vested with the authority to adjudicate Smith’s
eligibility to retire under state law. Thus, the claim over which the ALC has
jurisdiction is her claim that she was eligible to retire on June 30, 2005.
Under the rubric of
“alternative arguments,” Smith essentially seeks preemptively to assert claims
against SCRS in this court for breach of fiduciary duty and misrepresentation.
These are civil claims which are separate and independent from her claim of
eligibility for retirement. In fact, these separate civil claims for breach of
fiduciary duty and misrepresentation do not even accrue until this court issues
a final order determining that she was not eligible to retire on June 30.
Having now obtained such a determination regarding her retirement eligibility
from this court, Smith’s remedy for any alleged breach of fiduciary duty or
misrepresentations by SCRS is to pursue those civil claims in circuit court and
there seek the damages she has allegedly sustained – an amount equal to the contributions
she is required to make during her participation in the TERI Program – as a
result of SCRS’s alleged misconduct.
Smith argues that the ALC has
authority to award equitable relief pursuant to S.C. Code Ann. § 1-23-630(A),
which confers on ALJs “the same power at chambers or in open hearing as [ ]
circuit court judges” as well as the power “to issue those remedial writs as
are necessary to give effect to its jurisdiction.” However, to the extent this
statute confers the authority to grant equitable remedies, such remedies must
be provided in connection with a claim over which this court has jurisdiction.
For example, the ALC may issue an injunction – an equitable remedy –
prohibiting a party from discharging unauthorized pollutants because the ALC
has jurisdiction pursuant to state statute over contested cases involving alleged
violations of environmental permits. S.C. Code Ann. § 44-1-60(A), (F) (Supp.
2006) (providing that department permitting decisions shall be made using the
procedures set forth in this section and that a contested case is conducted by
the ALC); § 1-23-600(B); see also S.C. Code Ann. § 1-23-600(E) (Supp.
2006) (“Notwithstanding another provision of law, a state agency . . . may
apply to the Administrative Law Court for injunctive or equitable relief
pursuant to Section 1-23-630. The provisions of this section do not affect the
authority of an agency to apply for injunctive relief as part of a civil action
filed in the court of common pleas.”). By contrast, the ALC does not have
jurisdiction to adjudicate a civil claim of nuisance stemming from the
discharge of those pollutants. See, e.g. Coneross Concerned Citizens
v. S.C. Dep’t of Health & Envtl. Control, 05-ALJ-07-0462-CC, 2006 WL
2711785 (S.C. Admin. Law Ct., Sept. 6, 2006) (stating that “the ALC is not the
proper forum to pursue nuisance claims”). Nor then does it have authority to
grant equitable relief to abate such nuisance.
Similarly, no state statute
confers jurisdiction to the ALC to adjudicate claims for breach of fiduciary
duty or misrepresentation, even those against a state agency. The ALC has no more
authority to order reformation or rescission based on SCRS’s alleged breach of
fiduciary duty or misrepresentation than it would to award monetary damages for
such claims. See Calhoun Life Ins. Co., 245 S.C. at 411, 140
S.E.2d at 776 (stating that an administrative agency is a creation of the
legislature and, as such, possesses only such powers as are conferred,
expressly or by reasonably necessary implication); Labouseur v. Harleysville
Mut. Ins. Co., 302 S.C. 540, 397 S.E.2d 526 (1990) (holding that the Workers’
Compensation Commission was not authorized to adjudicate or award damages for a
claim for bad faith/wrongful cancellation even though the bad faith/wrongful
cancellation claim had “at its bottom” the question of whether cancellation was
proper, a question the Commission is empowered to decide when it arises in the
context of an employee’s claim for workers’ compensation). Because the
equitable remedies of reformation and rescission stem from Smith’s civil claims
resulting from SCRS’s alleged misconduct rather than her claim for retirement
eligibility, the ALC has no authority to apply them in the instant matter.
ORDER
Based
on the foregoing findings of fact and conclusions of law, the court finds that
Smith was not eligible to retire pursuant to S.C. Code Ann. §§ 9-1-1510 and 9-1-1140(E) until July 1, 2005.
IT
IS SO ORDERED.
______________________________________
PAIGE J. GOSSETT
Administrative Law Judge
April 25, 2007
Columbia, South Carolina
|
