Vagg v. Office of Personnel Management

• Decision Date: 03 August 1993
• Docket Number: No. 92-3529,92-3529
• Citation: 1 F.3d 1208
• Parties: William R. VAGG, Petitioner, v. OFFICE OF PERSONNEL MANAGEMENT, Respondent.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1208

1 F.3d 1208

William R. VAGG, Petitioner, v. OFFICE OF PERSONNEL MANAGEMENT, Respondent.

No. 92-3529.

United States Court of Appeals Federal Circuit.

Aug. 3, 1993.

Douglas B. Cone, Merced, CA, argued for petitioner.

Edmund W. Chapman, Atty., Commercial Litigation Branch, Dept. of Justice, Washington, DC, argued for respondent. With him on the brief were Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director and Thomas W. Petersen, Asst. Director. Franklin E. White, Jr., Dept. of Justice, represented respondent. Also on the brief were Arthur Troilo, III, Gen. Counsel and Earl A Sanders, Atty., Office of Gen. Counsel, Office of Personnel Management, of counsel.

Before PLAGER, Circuit Judge, SMITH, Senior Circuit Judge, and CLEVENGER, Circuit Judge.

SMITH, Senior Circuit Judge.

William R. Vagg appeals from the 25 June 1992 order of the Merit Systems Protection Board (Board) ¹ denying his petition for review of the Board's initial decision, ² which affirmed the 10 June 1991 reconsideration decision of the Office of Personnel Management (OPM). The Board held that Vagg's divorced spouse is entitled to 48.49% of Vagg's gross civil service retirement annuity computed on the basis of a hypothetical deferred annuity under 5 U.S.C. Sec. 8338, effective on the date of Vagg's actual retirement on the grounds of disability pursuant to 5 U.S.C. Sec. 8337, and increased by all cost-of-living-adjustments under 5 U.S.C. Sec. 8340. We affirm.

Issue

Whether the Board erred in computing, under California state law as interpreted by this court's prior decision, Levy v. Office of Personnel Management, ³ the apportionment, ordered by a California decree of divorce, of Vagg's civil service retirement annuity.

Background

William R. Vagg retired under the disability retirement provisions of the Civil Service Retirement System (CSRS), 5 U.S.C. Secs. 8331, 8337 ⁴ (1988 & Supp. I 1989, Supp. II 1990, Supp. III 1991), effective 30 October 1974 after more than 27 years of federal service. He immediately began to receive a disability annuity calculated according to his years of service under 5 U.S.C. Sec. 8339(a) (1988). ⁵ The amount of Vagg's disability annuity was increased by periodic cost-of-living-adjustments (COLA's).

At the time of his separation from federal service, Mr. Vagg had not met the eligibility requirements for an immediate non-disability retirement--30 years of service and age 55. 5 U.S.C. Sec. 8336(a) (1988). ⁶ Vagg had completed 27 years of service and was 46 years old. If Vagg had resigned from federal service in 1974 rather than retiring on disability, he would not have received any retirement benefits until 1990 when he would have met the minimum requirements for a non-disability deferred retirement annuity--5 years of service and age 62. 5 U.S.C. Sec. 8338(a) (1988). ⁷ The amount of a non-disability deferred retirement annuity under section 8338 is not increased by COLA's in the interim of time between separation from federal service and the future date when the former employee reaches age 62 and begins receiving retirement payments.

Facts

Vagg and his former spouse, Barbara, residents of California, divorced in 1984. On 11 December 1987, pursuant to the decree of divorce, the Superior Court of California for the County of Nevada issued a judgment which, in part, directed that Vagg's civil service retirement benefits be subject to a division in accord with the following terms:

1. Retirement Benefits. Petitioner BARBARA L. VAGG has a vested interest in respondent's deferred ⁸ retirement benefits in the civilian federal civil service retirement system by reason of his employment with McClellan Air Force Base said interest having a value of .50 X .9697% [sic] of the monthly entitlement of respondent's retirement installment benefits commencing March 23, 1990 when respondent achieves age 62.

The divorce settlement, in addition to awarding Barbara an interest in Vagg's civil service benefits, directed Vagg to pay Barbara the sum of $300.00 per month in alimony. The portion of the settlement agreement awarding the alimony is not at issue in this appeal.

Vagg became 62 years of age on 23 March 1990. Barbara Vagg filed a formal application with OPM for apportionment of Vagg's annuity under 5 U.S.C. Sec. 8345(j) (1988) on 30 April 1990.

In its final reconsideration decision of 10 June 1991, ⁹ OPM concluded that Barbara Vagg was entitled to 48.49% of Vagg's gross annuity as of 23 March 1990, the day he turned 62 years of age. In calculating the amount of Barbara Vagg's share of Vagg's deferred annuity, OPM computed a hypothetical deferred annuity under 5 U.S.C. Sec. 8338. The amount of the hypothetical deferred annuity was identical to the amount of disability retirement that Vagg was actually receiving as of 23 March 1990 because OPM: (1) calculated the base amount for both annuities according to Vagg's years of service as of the date of Vagg's actual disability retirement; and (2) included in the computation of the hypothetical deferred annuity all COLA increases actually received by Vagg between 1974, the year he separated from federal service, and 1990, the year he attained age 62. See 5 U.S.C. Sec. 8339(a), (g). OPM reasoned that this result was dictated by California law as applied by this court in Levy v. Office of Personnel Management, 902 F.2d 1550 (Fed.Cir.1990).

Vagg appealed the final reconsideration decision of OPM to the Board. The Board affirmed OPM's decision by its initial decision of 10 March 1992. By its order of 25 June 1992, the Board denied Vagg's petition for review of the initial decision because it did not meet the criteria set forth at 5 C.F.R. Sec. 1201.115 (1992).

Discussion

This court must apply California community property law in deciding whether the Board properly apportioned Vagg's retirement benefits under the divorce judgment. We must affirm the Board's action unless it was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 7703(c) (1988). See Cheeseman v. Office of Personnel Management, 791 F.2d 138, 140 (Fed.Cir.1986), cert. denied, 479 U.S. 1037, 107 S.Ct. 891, 93 L.Ed.2d 844 (1987); Hayes v. Department of the Navy, 727 F.2d 1535, 1537 (Fed.Cir.1984). Further, this court is bound by its prior interpretation of California law in Levy.

In Levy, as in this case, the issue on appeal was whether the Board properly apportioned a federal civil service retirement annuity pursuant to a California divorce judgment. The facts in Levy, however, are distinguishable from the facts of the case at hand. In Levy, the husband had retired on disability under section 8337 after only six years of federal service. Levy, 902 F.2d at 1551. The divorce judgment entered by the Orange County Superior Court of the State of California awarded the former wife one-half of Levy's civil service retirement benefits effective upon Levy's attaining the age of 62. The Board concluded that Levy's former spouse was entitled to one-half of the total monthly benefits Levy was receiving as of his 62nd birthday. Id. at 1552.

The Federal Circuit reversed and remanded the case to the Board for a recalculation of the amount of retirement benefits that Levy's former spouse was entitled to pursuant to the California divorce judgment. Id. at 1555. Because Levy's length of federal service had been relatively short, Levy's monthly benefits would have been significantly smaller if he had retired under section 8338. ¹⁰ The court concluded that "[o]nly the amount attributable to retirement is properly subject to division; the remaining amount is attributable to Levy's disability, not retirement, and therefore his sole and separate property." Id. at 1553.

The outcome in this case turns on the construction of the last operative sentence in Levy, which states:

[T]he Board is to enter an order requiring respondent OPM to calculate the amount of regular longevity benefits to which Levy would have been entitled had he retired in 1966 under 5 U.S.C. Sec. 8338 and to pay Mrs. Levy one-half of that amount.

Id. at 1554-55. The Levy decision leaves open the question whether the hypothetical deferred annuity of a disability annuitant that is subject to apportionment is increased by COLA's between the date that the annuitant is deemed to have retired (the date of the disability retirement) and the date the annuitant attains the age of 62.

Vagg urges an interpretation of the operative sentence in Levy that would not include COLA increases to the hypothetical deferred annuity between 1974, the year he retired on disability, and 1990, the year Vagg reached 62 years of age. According to Vagg's calculations, his former spouse is entitled to 48.49% of $665.00. The base of $665.00 is the amount of the deferred annuity Vagg would have received under 5 U.S.C. Sec. 8338 upon reaching age 62 had he resigned from federal service in 1974 rather than retiring on disability. Vagg argues that the COLA increases he received between 1974 and 1990 are attributable solely to his disability annuity, which is his separate property under California law.

The government asserts that OPM properly apportioned Vagg's annuity under California law as interpreted by this court in Levy. Under Levy, the government argues, a civil service annuitant whose disability annuity is exempt from division as marital property under California law until he reaches eligibility for deferred retirement, based on age and service at age 62, is nevertheless deemed to have "retired" on a deferred annuity under section 8338(a) effective on the date of the individual's actual disability retirement under section 8337. Because Levy directs that an annuitant in such a case must be deemed to have "retired" as a deferred annuitant on the date of his actual disability retirement, the deferred annuity must be deemed to have commenced on the same date.

The government further argues, if Vagg's deferred annuity under ...