Duncan v. Tennessee Valley Authority Retirement System
Docket: No. 3:10-cv-217
Court: District Court, M.D. Tennessee; August 19, 2015; Federal District Court
Two motions are currently before the court: a Motion for Summary Judgment filed by the Tennessee Valley Authority (TVA) and a Partial Motion for Summary Judgment filed by the plaintiffs. TVA's motion has been granted, leading to the dismissal of the action with prejudice, while the plaintiffs' motion has been denied as moot.
The TVA was established by Congress in the 1930s to manage electric power production and related services in the Tennessee River region. In 1939, TVA established the Tennessee Valley Authority Retirement System (TVARS) to provide retirement benefits to TVA employees, which operates as a legally separate entity. As of the filing, TVARS serves approximately 36,000 current and former TVA employees and is governed by its Rules and Regulations, which outline the Board of Directors' responsibilities, member composition, and benefit regulations.
Notably, Rule 3.12 grants the Board control over the system's administration, including benefit computation and beneficiary rights. The Board is comprised of seven members, with a mix of elected and appointed officials. In 1974, amendments were made to align TVARS with protections under the Employee Retirement Income Security Act (ERISA), ensuring that certain benefits became vested and nonforfeitable.
TVARS is primarily funded through TVA contributions, which must meet the actuarial valuation necessary to cover nonforfeitable benefits, as detailed in Rule 9.B. Excess contributions beyond this requirement are credited to an Excess COLA Account, which can be utilized for future TVA contributions. Members also have the option to contribute to an Annuity Savings Account, earning interest determined by the Board, as outlined in Rule 4.5.
Rights to benefits derived from a member’s contributions are nonforfeitable at all times, as per Rule 11.B.1. Nonforfeitable rights to accrued benefits from TVA’s contributions arise under specific conditions: upon a member’s retirement, death in service, completion of five years of creditable service for members employed since June 8, 1987, attainment of age 60 for members who joined before April 1, 1991, or completion of ten years of service for members whose employment ended before June 8, 1997.
Rule 13 allows for amendments to the Rules by the Board with a minimum of 30 days' notice to TVA and members. TVA can veto proposed amendments within this timeframe. Amendments cannot reduce accrued benefits that are nonforfeitable or backed by accumulated reserves.
In 2009, facing financial issues, TVARS requested a $300 million contribution from TVA for 2010. TVA proposed a $1 billion lump-sum contribution in exchange for amending the Rules to suspend further contributions for 2010-2013 and to reduce beneficiary payouts. The Board narrowly approved the proposal on August 17, 2009, and the amendments became effective January 1, 2010, after a 30-day notice period without a TVA veto. Notably, no advance notice was given to members before the Board's vote.
The amendments included: 1) capping cost-of-living adjustments (COLAs) for eligible retirees, 2) raising the eligibility age for COLAs from 55 to 60, and 3) suspending TVA's contribution obligations for 2010-2013 in favor of the one-time $1 billion contribution. Additionally, the interest rate on members’ savings was reduced from 7.5% to 6%. The Board utilized funds from the Excess COLA account to cover COLA costs from 2009 to 2013.
Plaintiffs claim the Board violated the Rules by failing to provide the required 30-day notice prior to the vote on the Amendments, arguing that such notice was essential for members to influence the decision. They assert that the language of Rule 13 clearly indicates that notice of proposed amendments should precede any voting action.
Plaintiffs assert that their interpretation of notice provisions aligns with the Sixth Circuit and other courts under the Administrative Procedures Act, distinguishing between proposed and definite rules. They acknowledge a historical practice of notifying members post-vote on rule changes, including the 1974 amendments that allegedly reduced or eliminated benefits, but argue this should not negate the requirement for pre-vote notice nor invalidate earlier amendments. They contend that the Board's changes to retirement plan benefits breached the Rules, particularly concerning caps and eligibility for Cost-of-Living Adjustments (COLAs), which they claim are safeguarded under Rule 13 as nonforfeitable benefits. The plaintiffs argue that while Rule 6.1 allows the Board to adjust the maximum COLA rate, it does not permit lowering it below the CPI-based rate. They also claim the Board's modification of the Annuity Account's interest rate contravenes Rule 4.5, asserting it should only apply to future contributions, and argue that the interest rate on existing member contributions is nonforfeitable under Rule 11.B.1. Furthermore, plaintiffs allege that the Amendments breached Rule 9.B by suspending TVA contributions from 2010 to 2013 in favor of a lump sum payment, referencing Rule 9.B.5 regarding annual payment calculations. They provide evidence of annual funding practices by TVARS. Lastly, they claim improper withdrawals from the Excess COLA Account from 2009 to 2013, arguing that Rule 10.D.2 restricts such withdrawals to TVA contributions, and that any withdrawals exceeded the amounts permitted by Rule 9.B.6, suggesting that contributions should have directly come from TVA rather than the Excess COLA Account.
Plaintiffs argue that TVA should have made contributions from 2010 to 2013 to fund the retirement system and distribute Cost of Living Adjustments (COLAs) instead of using the Excess COLA Account, which they claim would have preserved enough funds for CPI-based COLAs, making subsequent Amendments financially unnecessary.
Procedurally, on March 5, 2010, plaintiffs, including current and former participants of TVARS, filed a lawsuit against the TVARS Board directors for breach of fiduciary duty, breach of contract, constitutional violations, and violations of the Internal Revenue Code. On April 29, 2010, they amended the complaint to request equitable relief for appointing an impartial seventh Board member, citing the Board's inability to agree on a selection.
On September 7, 2010, the court dismissed the breach of contract and Internal Revenue Code claims with prejudice and the breach of fiduciary duty and constitutional claims without prejudice, allowing plaintiffs 14 days to file an amended complaint substituting TVARS and TVA as defendants. The court denied TVA's intervention as moot, highlighting that TVARS should be viewed as a federal legislative enactment rather than a trust under Tennessee law, which undermined the plaintiffs' fiduciary duty claims based on common law. The court suggested that plaintiffs could reframe their fiduciary duty allegations under federal law in their next submission.
On September 21, 2010, plaintiffs filed the Amended Complaint, asserting violations of the Administrative Procedure Act (APA), due process and equal protection clauses, the Takings Clause, and breach of fiduciary duties, along with violations of the Government in the Sunshine Act, seeking both declaratory and compensatory relief.
On November 18, 2013, TVA initiated a Motion for Summary Judgment (Docket No. 121) with supporting documents including a Memorandum (Docket No. 128), a Statement of Undisputed Material Facts (Docket No. 127), and several declarations (Docket Nos. 122-126). Subsequently, on March 6, 2015, the plaintiffs, with court permission, submitted a Response in opposition (Docket No. 224), a Response to TVA's Statement of Undisputed Material Facts (Docket No. 226), and a supporting declaration (Docket No. 225). On February 6, 2015, the plaintiffs also filed a Partial Motion for Summary Judgment (Docket No. 211), seeking summary judgment on claims related to fiduciary duty, the Takings Clause, estoppel, and a request for declaratory relief, intending to proceed to trial only on compensatory damages calculation. On the same day, TVA responded (Docket No. 220) and addressed the plaintiffs' Statement of Undisputed Material Facts (Docket No. 221). TVARS filed a Joint Response to both TVA's and the plaintiffs' motions on March 6, 2015 (Docket No. 217), along with a Statement of Additional Relevant Facts (Docket No. 219) and a supporting declaration (Docket No. 218). TVARS also responded to both parties' Statements of Undisputed Material Facts (Docket Nos. 222-223) on that date. On March 20, 2015, TVARS replied to the plaintiffs’ and TVA’s responses (Docket No. 230), while TVA filed a reply in support of its Motion for Summary Judgment (Docket No. 227) and addressed TVARS' additional facts (Docket Nos. 228-229). The plaintiffs also filed a reply in support of their Partial Motion (Docket No. 231) and responded to TVARS' additional facts (Docket No. 233), including a supporting declaration (Docket No. 232).
The legal standard for summary judgment under Rule 56 requires the court to grant it if there is no genuine dispute over any material fact, allowing judgment as a matter of law. A moving defendant must demonstrate the absence of a genuine issue concerning at least one essential element of the plaintiffs' claim. If successful, the burden shifts to the plaintiff to show specific facts indicating a genuine issue for trial. Conversely, a moving plaintiff must demonstrate no genuine issue exists regarding all essential elements of their claims. The court must view evidence in the light most favorable to the non-moving party, focusing on whether a genuine issue for trial exists rather than weighing evidence. A mere scintilla of evidence is insufficient; credible proof must be more than colorable, and an issue of fact is genuine only if a reasonable jury could find for the non-moving party.
Plaintiffs have abandoned their claims under the due process and equal protection clauses of the U.S. Constitution and the Government in the Sunshine Act. The remaining claims focus on the private right of action to challenge the Board's actions in federal court, with significant debate over the appropriate cause of action and standard of review due to a lack of precedent involving the Tennessee Valley Authority (TVA) and the Tennessee Valley Authority Retirement System (TVARS).
Count One of the Complaint seeks a declaratory judgment but is not a standalone cause of action; it requires a valid cause of action to support it. The plaintiffs' claim primarily challenges the Board’s actions as violations of the Rules, suggesting a private right of action to enforce the Rules. However, Sixth Circuit precedent, particularly the Kinzer decision, indicates that the Rules carry legislative weight and cannot be enforced through common law claims.
Furthermore, the Beaman case suggests that challenges to Board actions should be framed under the Administrative Procedure Act (APA) or as direct actions to enforce the Rules, yet it remains unclear if a private cause of action exists for reviewing Board decisions. The Beaman ruling's interpretation of federal common law as allowing judicially created private causes of action is now outdated, following the Supreme Court's decision in Alexander v. Sandoval, which established that a private right of action cannot be created without clear Congressional intent. This principle has been reiterated in subsequent Supreme Court cases, asserting that private rights of action under federal law must be explicitly granted rather than implied.
In Astra USA, Inc. v. Santa Clara County, the Supreme Court established that without a private right of action to enforce a statute, all claims must be treated uniformly, irrespective of how they are presented. The creation of such rights involves considerations beyond simply allowing the underlying conduct, including potential issues with enforcement that lack prosecutorial discretion. The court noted that the applicable Rules provide no private right of action for enforcement, nor is there any other legislation that permits such action against the Board's decisions, preventing claims for declaratory or other forms of relief based on alleged violations of those Rules.
The plaintiffs also raised claims under three sections of the Administrative Procedures Act (APA): 5 U.S.C. § 706, § 552b, and § 553. Section 706 allows courts to set aside agency actions deemed arbitrary, capricious, or contrary to law. The plaintiffs contended that the Board’s actions, by violating the Rules, were arbitrary and exceeded its authority. Sections 552b and 553 outline procedural requirements for agency meetings and rulemaking, respectively, and the plaintiffs alleged violations of these provisions alongside the Rules.
However, the court could not review the plaintiffs’ claims under these sections because TVARS does not qualify as an agency under the APA definitions, which exclude entities composed of representatives from the parties involved in disputes. This exclusion is supported by a Sixth Circuit ruling regarding the National Railroad Adjustment Board (NRAB), which similarly could not be reviewed under the APA due to its composition. The plaintiffs attempted to differentiate TVARS from NRAB, claiming that TVARS does not adjudicate disputes between its members and TVA.
The court determined that the statutory language of § 551 does not require an agency to be an adjudicative body for the exclusion to apply. It ruled that the Board, while managing the retirement plan and overseeing its funding from TVA, is responsible for resolving disputes between TVARS members and TVARS, as well as between beneficiaries and TVA, including the dispute relevant to the current case. The plaintiffs contended that the court must conduct further factual inquiries regarding the Board's composition and its past adjudication of disputes before ruling on the applicability of the exclusion; however, the court disagreed, concluding that the exclusion applies and the APA claim cannot proceed.
Regarding the fiduciary duty claim, the court reiterated its earlier ruling that state common law of fiduciary duty does not apply, and therefore no claims under it can be maintained. The plaintiffs previously alleged that the Board’s actions violated the Rules in their fiduciary duty claim, which the court noted could not proceed as a matter of law. Although the court dismissed this claim without prejudice, it instructed the plaintiffs to reframe their allegations under a legally viable theory, such as a violation of the APA. The plaintiffs misunderstood this directive, restating their fiduciary duty claim while arguing that these duties arise from the Rules rather than common law. However, the court found that this claim essentially seeks to enforce the Rules, for which there is no private right of action. Consequently, the fiduciary duty claim fails legally, as the plaintiffs did not demonstrate any express fiduciary duty owed by the Board in the Rules, instead relying on implied duties that lack supporting language in the Rules.
The allegation contradicts the Prior Opinion, which determined that there is no implied fiduciary duty of loyalty to beneficiaries regarding retirement plan amendments under ERISA claims. Consequently, the plaintiffs' fiduciary duty claims cannot legally proceed. Regarding the Takings Clause claim, the plaintiffs assert that reductions in cost-of-living adjustments (COLAs) and interest rates on their Annuity Account violated their property interest in those expected benefits, which they argue are protected by the Rules as a contractual obligation. However, the Prior Opinion, referencing Kinzer and Beaman, indicates that no enforceable contractual obligation arises from the Rules. The plaintiffs cite Lynch v. U.S. to support their claim that a contract can create a property right under the Takings Clause; however, the Supreme Court distinguished pensions as non-contractual gratuities. The plaintiffs' reference to Mascio v. Public Employees Retirement System of Ohio is also unpersuasive, as that case involved a statute that explicitly created contractual obligations under Ohio law, unlike the Rules here, which have not been recognized as creating such rights under federal law. Lastly, although the plaintiffs mention Parella v. Retirement Board of the R.I. Employees’ Retirement System, the First Circuit emphasized that a legislative enactment does not confer contractual rights unless there is clear legislative intent. It suggests that while a statute could create contractual obligations regarding vested benefits, such a determination would require overturning Kinzer, which is not feasible without explicit direction from the Sixth Circuit. Absent a clearly established contractual obligation, no constitutional property right exists for the expectation of future COLAs in the context of a Takings Clause claim based on legislative enactment.
A statutory entitlement to benefits may create government-induced expectations akin to those forming a contract in the private sector; however, such expectations do not constitute 'property' protected under the takings clause. Consequently, the court rules that the plaintiffs' Takings Clause claims are legally insufficient. Regarding equitable estoppel, the plaintiffs argue that the Tennessee Valley Authority (TVA) should be estopped from claiming that the minimum annual funding requirement in the Rules is not comparable to the CSRS annual funding requirements. However, the plaintiffs may not have adequately pled this claim in their Complaint. They further assert that the Board is estopped from implementing Amendments or altering the interest rate on the Annuity Account based on prior representations that led them to believe such actions were prohibited.
The court finds that an equitable estoppel claim based on the Rules cannot proceed, as the Rules are treated as legislative enactments and not subject to common law contract theories, including equitable estoppel. A more complex question arises regarding the Board's alleged prior representations that anticipated cost-of-living adjustments (COLAs) were vested benefits. For equitable estoppel against a governmental entity, heightened requirements include showing intentional or reckless misconduct by the defendant. While estoppel against the government is not prohibited, there is a policy disfavoring it, as established by case law. The plaintiffs argue that the Board’s communications indicating that the COLA benefits were vested were reckless misrepresentations relied upon to their detriment. However, the court notes that these representations reflected the Board's interpretation of existing legislation, which was later amended, rather than a misrepresentation.
The plaintiffs aim to prevent the Board from enacting legislative changes, but the enforceability of these changes hinges on the Board's authority under the existing Rules and any potential contractual obligations they might impose. The court refrains from addressing whether the amendments are unconstitutional, noting that the plaintiffs cannot demonstrate that the Board acted recklessly or intentionally in its prior interpretations of the Rules. The court distinguishes the plaintiffs' cited cases of estoppel against government actions, stating they are not applicable since they involve administrative errors rather than legislative functions. Consequently, the court denies the plaintiffs' request for equitable estoppel.
Regarding claims against TVARS, although TVARS has not filed a motion for summary judgment, the court applies the rationale for dismissing claims against TVA to those against TVARS as well, thus allowing the court to issue a summary judgment in favor of TVARS without a formal motion. This ruling effectively denies TVARS beneficiaries the ability to seek judicial enforcement of the Rules concerning their retirement benefits. The court acknowledges the complexity of this outcome, which appears inconsistent with other legislative frameworks permitting judicial review of administrative actions involving retirement programs, and recognizes that TVARS' unique structure complicates its classification within existing legal categories that would typically allow for such review.
TVA, representing public utility interests, was intentionally protected to enable it to fulfill its public service role without facing litigation from beneficiaries regarding pension rights. There is no current legislation allowing TVARS beneficiaries to enforce the Rules concerning their pensions, which they funded and relied upon for retirement planning. The district court lacks authority to rule on this matter due to the absence of legislative action or guidance from higher courts. Consequently, TVA's Motion for Summary Judgment is granted, dismissing the case with prejudice, while the Plaintiffs’ Partial Motion for Summary Judgment is denied as moot. The opinion refers to specific provisions within the Rules using a structured format (e.g., Rule 3.1) for clarity. The Trust Agreement, relevant to the case but not defined in the Rules, relates to the agreement between TVARS and Mellon Bank, as noted in the record. "Members" are defined as current TVA employees who joined after TVARS was established, with membership conditions outlined. Initially funded by Congressional appropriations, TVA now finances TVARS through its business earnings. The previously effective Rules are also referenced, specifically regarding benefit adjustments related to the Consumer Price Index (CPI).
An increase in benefits for any year cannot exceed 5%, unless the Board, with TVA's approval, applies a different maximum. Prior to the Amendments, Cost-of-Living Adjustments (COLAs) were payable to beneficiaries starting at age 55; the Amendments changed this for retirees after January 1, 2010, to age 60. In exchange for TVA's $1 billion contribution to the Retirement System for fiscal year 2010, certain requirements and actuarial valuations related to TVA's contributions will be suspended for four years (2010-2013). This contribution will be credited to the Accumulation Account but not to the Excess COLA Account. The interest rate on members' annuities was lowered from 7.25% to 6% effective January 1, 2010, though this change is not explicitly reflected in the Rules. The plaintiffs argue that the Board's actions breached the express language of the Rules, though the document does not provide a complete overview of the factual disputes or the defendants' responses. The court does not reach a conclusion on whether the Rules were violated and notes that TVARS provided its interpretation of the Rules, asserting that the court should defer to its position. However, the court clarifies that while the Board's interpretations are generally given deference, this pertains to administration, not litigation. TVA contends that the plaintiffs did not raise certain allegations in the Complaint, positioning them as not properly before the court. Ultimately, the court states that it will not review the plaintiffs’ claims regarding Rule violations as a matter of law.
Plaintiffs in this case include Jeriy Duncan, Charles T. Evans, David McBride, Ronald E. Farley, Larry J. Simpson, Robert B. Bonds, Steve Hinch, and Carl D. Hewitt, III, along with others similarly situated. Jerry Duncan and Carl D. Hewitt, III, have been dismissed due to their deaths during litigation, following TVA’s unopposed motion. The court's Prior Opinion indicated that a clear violation of the Rules could exceed the Board’s authority and potentially justify declaratory relief against the Amendments if the plaintiffs could demonstrate that the APA applied to their claim or establish another legally cognizable federal claim. However, the plaintiffs have failed to show the applicability of the APA, leading the court to conclude it does not apply.
The court simultaneously reviews two overlapping Motions for Summary Judgment and notes that the plaintiffs may have misunderstood the Prior Opinion's implication that declaratory relief could be granted for a Rules violation without first establishing a viable cause of action. It emphasized the need for a proper cause of action, such as under the APA, before considering claims for declaratory relief. Count One of the Complaint seeks declaratory judgment and references other potential causes of action besides a private right of action under the Rules. The court highlights the Beaman opinion, which suggests TVARS is similar to the Civil Service Retirement Act (CSRA), where the absence of an express preclusion of a private right of action allows for such rights to enforce the statute, subject to an arbitrary and capricious standard of review.
The court notes that the parties did not address the issue of a private right of action in their briefings; TVA argued instead for summary judgment based on the existence of a rational basis for the Board's decisions. This lack of discussion on a private right of action may stem from a misunderstanding of the Prior Opinion or because the plaintiffs did not explicitly identify their claim as one for a private right of action in their filings.
The court must first address the applicability of the Administrative Procedure Act (APA) to the review of TVA's actions before considering the plaintiffs’ claims. Although the Prior Opinion suggested that the APA might apply and indicated potential violations of its rules, it did not definitively rule on the APA's applicability. The court is not required to determine if the plaintiffs' claim review under 5 U.S.C. § 553 is exempt due to agency management or personnel matters, as this was not fully briefed. Furthermore, the Sixth Circuit may permit a reconsideration of the Kinzer decision in light of 1974 amendments to the Rules, which could affect whether they establish a contractual obligation; however, there is currently no guidance from the Sixth Circuit on this issue. Additionally, administrative decisions regarding private pension plans fall under ERISA, while the Civil Service Retirement System is managed by the Office of Personnel Management, with oversight by the Merit Systems Protection Board (MSPB), whose decisions can be reviewed judicially under 5 U.S.C. § 7703, as illustrated in Cheeseman v. Office of Pers. Mgmt.
