Shannon v. UNITED STATES CIVIL SERVICE COM'N, C-76-1364 SW.

• Decision Date: 22 December 1977
• Docket Number: No. C-76-1364 SW.,C-76-1364 SW.
• Court: U.S. District Court — Northern District of California
• Parties: Donn C. SHANNON, on behalf of himself and all others similarly situated, Plaintiff, v. The UNITED STATES CIVIL SERVICE COMMISSION, Robert E. Hampton, Jayne B. Spain, and L. J. Andolsek, as Commissioners of Civil Service, Defendants.

444 F. Supp. 354

Donn C. SHANNON, on behalf of himself and all others similarly situated, Plaintiff, v. The UNITED STATES CIVIL SERVICE COMMISSION, Robert E. Hampton, Jayne B. Spain, and L. J. Andolsek, as Commissioners of Civil Service, Defendants.

No. C-76-1364 SW.

United States District Court, N. D. California.

December 22, 1977.

COPYRIGHT MATERIAL OMITTED

Gill Deford, Neal S. Dudovitz, Bruce K. Miller, National Senior Citizens Law Center, Los Angeles, Cal., for plaintiff.

James L. Browning, Jr., U. S. Atty., William T. McGivern, Jr., Asst. U. S. Atty., Civ. Div., San Francisco, Cal., for defendants.

OPINION AND ORDER

SPENCER WILLIAMS, District Judge.

This class action challenges the procedures used by the Civil Service Commission to recover alleged prior overpayments of annuities to retired federal employees. Jurisdiction exists under 28 U.S.C. § 1331.

Retired employees receive annuities pursuant to Subchapter III of the Civil Service Retirement Act, 5 U.S.C. §§ 8331-8348. The amount of an individual's entitlement may change periodically, and is dependent upon numerous individual circumstances such as marital status, length of service, income during service and family size and age.

The amount of the basic, or gross, annuity is computed pursuant to rules laid out in the subchapter, see, e. g., 5 U.S.C. § 8339. The amount of the annuity which the annuitant receives, or net annuity, is determined by adjustments to the gross entitlement as a result of such factors as optional health and life insurance deductions or payments.

From time to time, an annuitant may receive more money in the monthly check than he/she is entitled to receive. Upon discovery of the error, the Commission notifies the annuitant of the error and attempts to recover the overpaid amount by reducing future payments until the full overpayment has been recouped. It is the Commission's policy not to reduce future payments by more than 25% in any single month.

Under 5 U.S.C. § 8346(b), the Commission shall not recover overpayments made under the subchapter when, "in the judgment of the Civil Service Commission, the individual is without fault and recovery would be against equity and good conscience." Also, 5 U.S.C. § 8347(d) provides that an individual may appeal an administrative action under the subchapter.

At the time this action was filed, July 1, 1976, annuitants subject to recoupment of overpayments were not notified of a right to contest the determination of the overpayment or to seek administrative waiver of the overpayment pursuant to § 8346(b), although the waiver and appeals sections of the Civil Service Retirement Act were in effect at that time.

Donn Shannon, the named plaintiff in this action, received notice of an $1,813 overpayment in his retirement check on November 17, 1975. In May, 1976, he was notified by letter that this overpayment would be recouped by deductions of $60 per month from his $350 annuity check for a period of thirty months. Neither communication from the Bureau of Retirement, Insurance and Occupational Health (BRIOH), which administers the annuity program, informed him of a right to challenge the fact of overpayment or the availability of waiver. Plaintiff protested the recoupment by letter and requested waiver. After getting no response from the Commission he filed suit in this court for declaratory and injunctive class relief.

In its Order and Preliminary Injunction of February 18, 1977, this court certified a nationwide class and found the Commission's recoupment procedures constitutionally inadequate. The court held that plaintiffs' interests in annuity payments and waiver were statutory entitlements amounting to property interests, protected by the due process clause.

Following an analysis of the relevant factors and case authority, the court ordered the defendants to accord annuitants certain procedural guarantees. The Commission was enjoined from recouping overpayments to Civil Service annuitants without 1) giving notice of intended recoupment and the reasons therefor, 2) giving notice of the right to waiver and the factors entering into the waiver determination, 3) giving notice of the right to a written protest to the overpayment determination and the right to request waiver, 4) informing annuitants of the decision on written submissions before commencing recoupment and 5) giving notice that a de novo oral evidentiary hearing will be held after recoupment has begun, at which the annuitant may be represented by counsel, present evidence and cross examine witnesses.

The court deferred its final decision on the full requirements of due process, especially on the issue of whether the waiver hearing is required before recoupment begins, pending the decision of the Ninth Circuit in Elliott v. Weinberger, 564 F.2d 1219 (9th Cir. 1977).

Elliott has now been decided, and this case is prepared for final resolution. Plaintiff has moved for summary judgment and the defendants have moved for an order clarifying or modifying the court's Order of February 18, 1977. The parties have raised several issues to be resolved at this time: 1) whether the waiver statute, 5 U.S.C. § 8346(b), applies to overpayments which occur by reason of the Commission's failure to adjust annuities to account for health and life insurance premiums, pursuant to the REHB, FEHB, and FEGLI programs¹; 2) whether a de novo reconsideration or waiver hearing is required prior to commencement of recoupment; and 3) what relief, if any, should be granted to annuitants who suffered recoupments before the new procedures were implemented pursuant to the court's preliminary injunction.

I. THE SCOPE OF 5 U.S.C. § 8346(b)

This court's order of February 18, 1977, stated that: "Section 8346(b), the waiver provision, applies to all payments made to plaintiff as an annuity. The reason for the overpayment is not a factor in § 8346(b)." Defendants, in their Motion to Clarify or Modify, have asked for reconsideration of this finding. Defendants assert that § 8346(b) is not applicable where recoupment is sought for uncollected health benefits or life insurance premiums which are normally deducted from the basic annuity entitlement.

The exact language of 5 U.S.C. § 8346(b) is as follows:

Recovery of payments under this subchapter may not be made from an individual when, in the judgment of the Civil Service Commission, the individual is without fault and recovery would be against equity and good conscience.

The scope of the statute is determined by the language "recovery of payments under this subchapter." This refers to the monthly payment received by the retired individual under Subchapter III of the Act, 5 U.S.C. §§ 8331-8348.

However, the gross amount is not the amount of payment that the annuitant ultimately receives. The annuity may be reduced by the amount of an annuitant's FEHB health benefits premium, 5 U.S.C. § 8906, or by optional deductions for continued life insurance coverage under the FEGLI program pursuant to 5 U.S.C. §§ 8701 and 8714a(c)(2). Also, in the case of annuitants who retired before 1960, the total payment may be increased by the federal contribution to an annuitant's private health plan under REHB, Pub.L. 86-724, 74 Stat. 849 (1960), amended by Pub.L. 91-418, 84 Stat. 869 (1970). Each of these programs is administered by the Commission and financed from a different fund.

Defendant argues that "recovery of payments under this subchapter" refers only to recovery of amounts overpaid because of miscalculation of the basic annuity entitlement, i. e., errors in application of the gross annuity formulas set out in the subchapter. For the second time, the court rejects this interpretation.

The agency interpretation of a statute is generally entitled to great deference and should be sustained unless it is plainly erroneous or inconsistent with the statute. Udall v. Tallman, 380 U.S. 1, 85 S.Ct. 792, 13 L.Ed.2d 616 (1964). Assuming arguendo that the Commission's interpretation is longstanding and entitled to deference, it is plainly inconsistent with the statute.

The defendants assert that under-deduction of health benefit or life insurance charges creates a debt owed to the respective fund, either FEHB or FEGLI, and that the statutes creating these programs do not explicitly provide for waiver. They conclude from this that the waiver statute applies only to overpayments which are reflected in the Civil Service Retirement Fund and cannot be applied to waive debts to other funds.

First, defendants misperceive the nature of the debt created. When an annuity is miscalculated and results in an overpayment, a "debt" is created which is owed to the Commission. This is true regardless of the source of the overpayment. The debt is not owed to the respective fund in which the deficit appears, but rather to the Commission. The funds are merely accounts administered by the Commission, see 5 U.S.C. §§ 8340, 8714, 8909.

Even if defendants' characterization of the overpayment as a debt to a fund were correct, its conclusion is too narrow. The obvious purpose of § 8346(b) is to avoid the hardship that can result from recovering overpayments from a blameless annuitant. The cause of the overpayment is immaterial to the impact on the annuitant. By the language of the statute, Congress did not differentiate the various funds within the Commission when it authorized waiver of recovery from an innocent retired employee.

The language of § 8346(b) is clear in its application to Commission recovery of any amounts incorrectly paid to an annuitant in his retirement check. "Payments under this subchapter" refers to the whole check the retired person receives monthly (or in a lump sum under 5 U.S.C. § 8342). The statute directs a limitation on recoupment of "payments." It does not direct a limitation on recovery for particular Commission mistakes. The statute's clear language cannot be reasonably construed to apply only to recoveries or...