King v. Opm

Citations: 730 F.3d 1342; 2013 U.S. App. LEXIS 18966; 2013 WL 4865147Docket: 12-3061

Court: Court of Appeals for the Federal Circuit; September 13, 2013; Federal Appellate Court

Original Court Document: View Document

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Kathryn King appeals the Merit Systems Protection Board's November 10, 2011 final order, which denied her a waiver for recovering survivor annuity benefits. The Federal Circuit reverses this decision, citing the Board's failure to recognize substantial evidence of Kathryn's detrimental reliance on the overpayment of these benefits, in line with 5 C.F.R. 831.1403.

The case is rooted in the complex marital history of Don King, a former employee of the U.S. Forest Service. Don was married to Diana King in 1967, divorced in 1980, remarried in 1981, and divorced again a year and a half later. Despite their divorces, Don and Diana cohabited and presented themselves as a couple while maintaining separate tax filings. In 2002, Don moved out and married Kathryn in a civil ceremony. During their marriage, Kathryn managed Don's medical care until his death from cancer on May 26, 2004. 

Both Kathryn and Diana claimed to be Don's legal wife upon his death, with Kathryn asserting her civil marriage and Diana claiming common law status. Prior to his death, Diana initiated proceedings to dissolve her common law marriage to Don. Following his death, litigation ensued over Don's estate, including the federal annuity. Kathryn joined this litigation, contesting Diana's claims. 

In June 2004, Kathryn and Diana signed a settlement agreement acknowledging Diana's common law marriage and stipulating that any retirement benefits Kathryn received would belong to Diana, who also agreed to pay Kathryn $50,000 and cover Don's medical and funeral expenses. This agreement plays a crucial role in the ongoing legal dispute regarding the survivor annuity benefits.

After signing the 2004 Settlement Agreement, Kathryn sought to vacate it, labeling it unconscionable and unenforceable, prompting Diana to enforce the agreement and claim damages. While the litigation was ongoing, Kathryn applied for survivor annuity funds from OPM, which were paid to her from May 27, 2004, until February 2007. In July 2005, the Montana court upheld the 2004 Settlement Agreement, confirming that Kathryn could not contest Don's common law marriage to Diana. Following this, in November 2006, Diana applied for survivor annuity funds, providing an affidavit of her marriage to Don and the Montana court's validation of the settlement. OPM then revoked Kathryn's payments and awarded the funds to Diana.

On February 1, 2008, Kathryn and Diana entered into a second settlement agreement, releasing claims under the 2004 Settlement Agreement, including reimbursement for Don's medical and funeral expenses. To clarify the marital status of Don at his death, OPM sought a declaration from the Montana court, which on February 7, 2008, declared Diana as Don's lawful common law wife from 1984 until his death and voided his marriage to Kathryn. The Montana court dismissed the case between Kathryn and Diana in April 2009. 

Subsequently, OPM determined that the payments made to Kathryn were overpayments, totaling $41,939.13, and sought recovery from her. Kathryn did not dispute the receipt of payments but argued against OPM's recovery efforts, claiming she had transferred the funds to Diana. OPM treated her submission as a request for reconsideration but upheld the overpayment decision, stating that collecting from Kathryn would not cause her financial hardship. An Administrative Judge later confirmed OPM's decision, stating that Kathryn did not qualify as a "widow" under the Civil Service Retirement Act and had not provided sufficient evidence for an overpayment waiver.

Kathryn was found not at fault for an overpayment but was denied a waiver for its recovery based on equity and good conscience. The Administrative Judge dismissed theories of detrimental reliance and unconscionability. The case was reopened by the full Board to assess additional evidence regarding funds Kathryn had transferred to Diana, which were derived from OPM survivor annuity payments. The Judge determined that Kathryn transferred $33,563.94 of the $41,939.13 received from OPM to Diana but ruled that recovery of the overpayment was justified, as Kathryn did not demonstrate that such recovery would be inequitable under 5 U.S.C. 8470(b). The Board reviewed the appeal again, with a majority affirming the denial of waiver, interpreting the 2004 Settlement Agreement as obligating Kathryn to reimburse OPM. In dissent, Vice Chairman Wagner argued against this interpretation, suggesting the intention was not for Kathryn to repay both Diana and OPM. An appeal to the court followed, which has jurisdiction under 28 U.S.C. 1295(a)(9). The court may only reverse the Board's decision if it is arbitrary, capricious, or unsupported by substantial evidence. OPM has the authority to recover overpayments, but waivers can be granted if the individual is faultless and recovery would be against equity and good conscience, defined by specific criteria that include financial hardship or significant detrimental reliance.

OPM's Policy Guidelines outline the burden of proof required to waive recovery of overpayments under the Civil Service Retirement System and Federal Employees’ Retirement System. Initially, OPM must prove an annuity overpayment by a preponderance of evidence, after which the recipient must demonstrate by substantial evidence that a waiver is warranted. OPM can then contest the waiver's validity.

In Kathryn's case, the record supports the Administrative Judge's finding that she was not at fault for the overpayment, as she received survivor annuity payments from May 2004 to February 2007, while believing she was Don King’s widow until a Montana court ruling in February 2008. OPM does not dispute this timeline, affirming Kathryn’s lack of fault.

However, the Board found that recovering the overpayment from Kathryn would not be unjust. The Administrative Judge dismissed her claims of detrimental reliance, stating there was no evidence that Kathryn changed her position based on the payments. The Board upheld this finding, but Kathryn argues that the Judge and Board ignored evidence showing she detrimentally relied on the funds, specifically that she transferred money to Diana based on the annuity payments. OPM counters that Kathryn was aware of the possibility of repayment and her acknowledgment in a 2004 Settlement Agreement negates her claims of detrimental reliance.

To establish detrimental reliance, the recipient must demonstrate that the overpayment or related notice caused them to relinquish a valuable right or change their position negatively. Also, the recipient's financial ability to repay is irrelevant in this assessment. The Board applies specific criteria from the OPM Overpayment Guidelines to evaluate claims of detrimental reliance, requiring the changes to be directly caused by the overpayment, detrimental, material, and irrevocable.

The Board’s conclusion that there was insufficient evidence for detrimental reliance is challenged by substantial evidence presented in the record. Kathryn has shown that accepting the overpayment of survivor annuity funds has led to financial detriment; specifically, without a waiver, she would face a net loss of $33,563.94. From May 2004 to February 2007, she received $41,939.13 from OPM but was obligated to pay $33,563.94 to Diana per a court decree and settlement agreement, leaving her at risk of a total loss if required to return the full amount to OPM. 

Kathryn argues that her financial position changed due to the overpayment, as it prompted her to transfer funds to Diana, acknowledging potential error in receiving Don's retirement benefits. OPM contends that this transfer was merely a settlement of debts rather than a result of the overpayment, arguing it does not constitute detrimental reliance. The Board sided with OPM, viewing Kathryn’s actions as debt settlement. However, this reasoning is deemed flawed, as the record indicates a lack of clarity about the transfer's purpose. Kathryn’s explanation is considered reasonable, supported by documentation showing the transfer was related to the overpayment. Her communications with OPM in 2008 reinforce her position that the transferred funds were the overpayment amounts, aligning with the timeline and evidence of her circumstances.

The transfer of funds from Kathryn to Diana is deemed material, as Kathryn's annual income from 2005 to 2007 did not exceed $22,000, yet she sent more to Diana than she earned during those years. The Office of Personnel Management (OPM) does not dispute the materiality of this transfer, confirming that Kathryn meets the third element of detrimental reliance. 

Regarding irrevocability, the Board did not evaluate whether Kathryn's change in position was irreversible. OPM contends that Kathryn can seek relief by suing Diana in Montana for the recovered funds. Conversely, Kathryn asserts that her position is irrevocable due to a final judgment from the Montana court, which dismissed prior litigation with prejudice, preventing her from recovering the transferred funds. Under OPM guidelines, an irrevocable change in position is one that cannot be undone. OPM argues that Kathryn’s loss could be reversed through further litigation, a view the Court disagrees with, citing the lengthy and complex litigation history between the two parties, culminating in a 2008 Settlement Agreement that conclusively resolved all claims.

The Court notes that reopening the case would require Kathryn to file under Rule 60(b), a process fraught with uncertainty and likely to be unsuccessful. It concludes that the costs and burdens of further litigation would not yield meaningful relief for Kathryn, confirming that her change in position is indeed irreversible. 

Consequently, the Court finds substantial evidence that Kathryn is entitled to a waiver of the overpayment recovery under applicable regulations, reversing the Board's decision. The Court awards costs to Kathryn, emphasizing that there is no need to address other issues raised by the parties due to the established grounds for waiver.