Hitchcock v. Washington State Dept. of Retirement Systems

• Decision Date: 04 December 1984
• Docket Number: No. 5976-III-6,5976-III-6
• Citation: 39 Wn.App. 67,692 P.2d 834
• Parties: , 22 Ed. Law Rep. 497 Walter A. HITCHCOCK, Appellant, v. WASHINGTON STATE DEPARTMENT OF RETIREMENT SYSTEMS and its Director, Robert L. Hollister, Jr., Respondents.
• Court: Washington Court of Appeals

Page 67

39 Wn.App. 67

692 P.2d 834, 22 Ed. Law Rep. 497

Walter A. HITCHCOCK, Appellant, v. WASHINGTON STATE DEPARTMENT OF RETIREMENT SYSTEMS and its Director, Robert L. Hollister, Jr., Respondents.

No. 5976-III-6.

Court of Appeals of Washington Division 3, Panel Four.

Dec. 4, 1984.

Bruce D. Corker, Perkins, Coie, Stone, Olsen & Williams, Seattle, for appellant.

Kenneth O. Eikenberry, Atty. Gen., Donald F. Cofer, Asst. Atty. Gen., Olympia, for respondents.

THOMPSON, Judge.

In 1980, after nearly 40 years of service in the public school system, Walter Hitchcock retired as superintendent of Spokane School District 81 and applied for retirement benefits with the Department of Retirement Systems (Department). Retirement benefits are calculated on a percentage of the retired employee's average earnable compensation during the two highest compensated consecutive years of service. RCW 41.32.497, .498. In Dr. Hitchcock's case, the Department excluded payments which were designated in his employment contract as being "in lieu of transportation and local expenses". This appeal challenges the propriety of the Department's determination. We reverse.

The undisputed facts and findings of the agency are: In 1972, Dr. Hitchcock was hired as superintendent by the Board of Directors of Spokane Public Schools. Payments in lieu of transportation, in addition to those in lieu of health insurance, were added to his contract of employment after his initial salary was negotiated. The amounts in lieu of transportation were included instead of providing Dr. Hitchcock with an automobile, which had been provided to his predecessor. The school board negotiated a lump sum amount based on the concern that requiring Dr. Hitchcock to account for actual transportation expenses would inhibit his image and attendance at meetings or conferences within the district. The payments were not, however, calculated on the basis of his actual expenses and he never submitted an accounting of his expenses as required by RCW 28A.58.310 and RCW 43.03.150-.210. In subsequent contracts the payments were increased proportionately as his base salary was increased.

His total salary, including the "in lieu of" payments, was reported as wages and salary to the IRS for tax purposes. Retirement contributions were also withheld based on the total amount.

Prior to Dr. Hitchcock's retirement, the Department generally did not challenge salary figures reported by the school district for computing retirement benefits, but included them as earnable compensation. In 1975, Dr. Hitchcock requested a calculation of his potential retirement benefits from Robert Reiley, who was then assistant director of the Department and was in charge of advising members of their benefits. Mr. Reiley advised Dr. Hitchcock that those portions of his contract labeled "in lieu of transportation expenses" would be included in earnable compensation, "since they were part of the determination by the school district of the payment for services." ¹ He sent Dr. Hitchcock an estimate of retirement benefits to "assist [Dr. Hitchcock] in planning [his] retirement at some time in the future" based on a total salary which included the payments in lieu of transportation expenses. Dr. Hitchcock's employment contract for the last 3 years of employment listed the "in lieu of" payments as part of his total salary.

In the last year of employment, Dr. Hitchcock received a dramatic increase in salary, which prompted the Department to review the superintendent's application for retirement benefits. An audit revealed no irregularities in the employment contract for contributions to the retirement system. Nonetheless, the Department excluded the payments in lieu of transportation from his earnable compensation for determining retirement benefits.

At an agency hearing, members of the school board testified the payments in lieu of transportation were intended to be included as part of his total salary for calculating retirement benefits. Dr. Hitchcock testified Mr. Reiley's representations concerning his retirement benefits were one of the considerations in his decision to retire. He maintained the Department was estopped from calculating his benefits in a manner contrary to its prior practices and the representations of Mr. Reiley.

At the close of the evidence, the director of the Department found the amounts in lieu of transportation were not intended by the district to be payment for personal services, that to the contrary they were reimbursement for expenses reasonably related to such expenses; hence, they were not includable as earnable compensation within the meaning of RCW 41.32.010(11). The director concluded the Department was not estopped by Mr. Reiley's representations from excluding those payments in computing retirement benefits. On appeal to the Superior Court, the director's determination was affirmed.

The primary issues are whether payments in lieu of transportation should have been included in Dr. Hitchcock's salary when computing his retirement benefits and whether the Department is estopped from excluding them.

Appellate review, whether conducted by the superior court, Court of Appeals, or Supreme Court, is limited to the record of the administrative tribunal itself. Franklin Cy. Sheriff's Office v. Sellers, 97 Wash.2d 317, 323-24, 646 P.2d 113 (1982).

In determining the scope of this court's review, it is necessary to characterize the issues. Sellers, at 322-30, 646 P.2d 113, establishes the rules applicable to the three types of reviewable issues: issues of fact, issues of law, and mixed issues of law and fact.

Out of deference for specialized expertise, agency findings of fact will be upheld under the "clearly erroneous" standard of RCW 34.04.130(6)(e) unless the court's review of the entire record leaves it with the definite and firm conviction that a mistake has been made. Renton Educ. Ass'n v. Public Empl. Relations Comm'n, 101 Wash.2d 435, 440, 680 P.2d 40 (1984); ² Franklin Cy. Sheriff's Office v. Sellers, supra. The error of law standard in RCW 34.04.130(6)(d) applies to questions of law and allows the reviewing court to independently substitute its judgment for that of the agency, though substantial weight is accorded the agency's view of the law. Sellers, 97 Wash.2d at 325-26, 646 P.2d 113.

In an appeal involving a mixed question of law and fact, the court does not try the facts de novo, but determines the law independently of the agency's decision and applies it to the facts as found by the agency unless clearly erroneous. Renton, 101 Wash.2d at 441, 680 P.2d 40.

The director's determination that the payments at issue do not fall within the statutory term "earnable compensation" presents a mixed question of law and fact. The finding of intent is a factual determination of the purpose for which the payments in lieu of transportation were made. ³ Finding that the district did not intend that the payments be for personal services, the agency then determined that the payments were outside the definition of the statutory term "earnable compensation", i.e., the legal consequences of the factual determination of intent. Under this analysis, and balanced by the policy that pension legislation is to be liberally construed in favor of its intended beneficiaries, Hanson v. Seattle, 80 Wash.2d 242, 247, 493 P.2d 775 (1972), we hold the factual component of this mixed question to be clearly erroneous based on the evidence of the board's intent and the actual treatment of the payments by the parties. The Department's exclusion of these particular payments in lieu of fringe benefits from the statutory definition is an error of law. The lump sum, salary-type character of the payments is more reasonably related to payment for services rendered.

The retirement statute, RCW 41.32, authorizes the Department to "decide on all questions of eligibility covering membership, service credit and benefits", RCW 41.32.160. Benefits are determined on the basis of earnable compensation which is defined as "all salaries and wages paid by an employer ... for personal services rendered", RCW 41.32.010(11). The Department's authority to determine earnable compensation, however, could not impinge upon a contractual relationship with the employee which creates the expectation of deferred benefits. See Washington Fed'n of State Employees, Coun. 28 v. State, 101 Wash.2d 536, 541, 682 P.2d 869 (1984) (reviewing cases). Such a relationship may arise by estoppel. That doctrine is employed to prevent a manifest injustice where there has been an admission, statement, or act which has been relied upon to the employee's injury because of an inconsistent claim thereafter asserted. Beggs v. Pasco, 93 Wash.2d 682, 689, 611 P.2d 1252 (1980).

Here, the Department concluded estoppel did not apply because the doctrine cannot be used to require a result which is contrary to statute. It is true estoppel will not be applied to frustrate the clear purpose of state laws. See Noel v. Cole, 98 Wash.2d 375, 378-79, 655 P.2d 245 (1982); Washington Educ. Ass'n v. Smith, 96 Wn.2d 601, 638 P.2d 77 (1981); State v. O'Connell, 83 Wash.2d 797, 523 P.2d 872 (1974); Marquardt v. Federal Old Line Ins. Co., 33 Wash.App. 685, 658 P.2d 20 (1983); Hasan v. Eastern Wash. Univ., 24 Wash.App. 829, 604 P.2d 191 (1979). But, including fringe benefits in earnable compensation is not clearly contrary to the retirement statute. In Washington Ass'n of Cy. Officials v. Washington Pub. Employees' Retirement Sys. Bd., 89 Wash.2d 729, 575 P.2d 230 (1978), the court addressed a similar issue under the Washington Public Employees' Retirement System (PERS), RCW 41.40. There, PERS had consistently included termination payments, which included accumulated and unused sick and vacation leave as well as severance pay, in computing "average final compensation" for retirement benefits. The Legislature subsequently amended RCW 41.40 to exclude those...