Vine v. Com., State Employees' Ret. Bd.

• Decision Date: 21 December 2010
• Citation: 9 A.3d 1150
• Parties: Teresa M. VINE, Appellant v. COMMONWEALTH of Pennsylvania, STATE EMPLOYEES' RETIREMENT BOARD, Appellee.
• Court: Pennsylvania Supreme Court

9 A.3d 1150

Teresa M. VINE, Appellant

v.COMMONWEALTH of Pennsylvania, STATE EMPLOYEES' RETIREMENT BOARD, Appellee.

Supreme Court of Pennsylvania.

Argued Dec. 1, 2009.

Re-Submitted Nov. 22, 2010.

Decided Dec. 21, 2010.

James J. West, West Long LLC, Harrisburg, for Teresa M. Vine.

Michael A. Budin, Salvatore Anthony Darigo, Jr. and Samuel Sangman Yun, PA State Employees' Retirement System, for State Employees' Retirement Board.

CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

OPINION

Justice SAYLOR.

This appeal involves the statutory immunity afforded to third parties who act on the instructions of an attorney-in-fact. More specifically, we consider the position of the State Employees' Retirement System Board that immunity is conferred even where the power of attorney is void or voidable.

Appellant Teresa Vine worked for the Commonwealth for 29 years and is a member of the State Employees' Retirement System ("SERS"). On January 24, 1998, she was involved in an automobile accident in Virginia and sustained severe injuries resulting in paraplegia. Two days later, on January 26, 1998, Appellant suffered a stroke that left her with right side weakness and global aphasia, a condition that rendered her unable to speak or comprehend. She did not respond to family members who visited her several weeks after the accident, and she has no memory of the time following the accident.¹

Four days after her stroke, on January 30, 1998, Appellant purportedly executed a power of attorney (the "POA"), making her then-husband, Robert Vine ("Robert"), her attorney-in-fact and giving him authority to, among other things, engage in retirement-plan transactions on her behalf. Appellant's signature on the POA consisted of an "x" marked on the appropriate line, accompanied by the notation, "hermark." A nurse at the hospital in Virginia signed as a witness, and the document was notarized. According to the testimony of Appellant's physician in Pennsylvania, who reviewed the medical records from her hospitalization in Virginia, at the time Appellant supposedly executed the POA she: was suffering from a traumatic brain injury; was intubated (meaning that a machine was breathing for her); was being treated with sedatives which affected her reasoning and judgment; and was unable to make important life decisions due to her aphasia. Appellant has now recovered mentally, but remains a paraplegic. See In re Account of Theresa M. Vine, SERS No.2004-21, at 2-3 (Opinion of Hearing Examiner, Sept. 20, 2006) ("Proposed Report").²

Appellant retired from state employment on February 13, 1998.³ On February 23, 1998, Robert met with a SERS retirement counselor. The counselor, who knew that Appellant had been involved in an automobile accident but was unaware of Appellant's particular health condition, reviewed the POA and discussed various retirement options available to Appellant. Robert selected Retirement Option 4, which allowed him to withdraw an amount equal to Appellant's total accumulated deductions, rolling over the taxable contributions and receiving payment of Appellant's non-taxable contributions. Although the terms of the disability retirement option were explained to Robert, he did not select that option on Appellant's behalf. If he had done so, Appellant's monthly payments would have been greater, but her accumulated deductions would not have been available for Robert to withdraw. As to survivor benefits, Robert selected Option 2, which entitled him to receive the same monthly payment as Appellant if she predeceased him.⁴

In 2003, Robert filed for divorce, at which time Appellant discovered that she had not been retired on disability. She therefore wrote to SERS, asking to change her election to disability retirement based on her permanent physical disability. SERS denied the request, noting that, while Appellant could select another survivor option in view of her divorce, she could not change to disability retirement. Appellant's request ultimately reached the SERS Board (the "Board"), which scheduled an administrative hearing before a hearing examiner. At the hearing, Appellant asserted that she was incapacitated at the time she allegedly placed an 'x' on the POA, thereby rendering the document invalid. In support of her allegation of incapacity, Appellant testified and also presented numerous medical records, a physician's deposition testimony interpreting those records, and testimony from a relative. In opposition, SERS adduced the testimony of three employees who had previously handled Appellant's claim.

The hearing examiner filed his proposed report, see supra note 2, reflecting a findingthat Appellant was incapacitated at the time she allegedly signed the POA. He explained, in this regard, that an incapacitated person is "an adult whose ability to receive and evaluate information effectively and communicate decisions in any way is impaired to such a significant extent that he is partially or totally unable to manage his financial resources or to meet essential requirements for his physical health and safety." Proposed Report at 6 (quoting 20 Pa.C.S. § 5501). In light of Appellant's incapacity, the examiner concluded that the POA was invalid, thereby rendering ineffective any retirement selection made by Robert. See id. at 7 (citing Wilhelm v. Wilhelm, 441 Pa.Super. 230, 238-40, 657 A.2d 34, 38-39 (1995) (holding that, if a power of attorney is executed when the principal lacks the capacity to sign such a document, in the sense that he cannot understand and appreciate the nature of his actions, it is void and may not be utilized by the purported agent to effectuate financial transactions)). That being the case, the hearing examiner stated that SERS must now return Appellant to the position she occupied prior to Robert's use of the invalid POA, thus allowing her to make her own retirement elections. He elaborated, however, that such relief should be conditioned on Appellant returning all withdrawals taken since her accident, so that SERS would not incur any liability as a result of its reliance on the POA. See id. at 8.

In taking exceptions to the proposed report, SERS did not challenge the hearing examiner's finding that Appellant lacked the capacity to execute a valid POA, or that the POA was, in fact, invalid. Rather, SERS asserted that Section 5608 of the Probate, Estates and Fiduciaries Code (the "Code"), ⁵ see 20 Pa.C.S. § 5608, supplied it with immunity for good-faith reliance on a power of attorney.⁶ SERS argued that it should not be put in a position where it must investigate the facts underlying a facially valid POA. SERS proffered that the imposition of such an investigatory duty would place it in an untenable position, as the undertaking of any inquiry into the circumstances of the POA's execution could cause it to risk incurring liability under Section 5608(a) of the Code, a provision that requires third parties to follow the instructions of an agent designated in a POA. See id. § 5608(a). Finally, SERS noted its disagreement with the hearing examiner's suggestion that returning the parties to the status quo ante would not result in SERS suffering any liability, as granting such relief might cause administrative difficulties. See SERS' Brief on Exceptions to the Opinion of the Hearing Examiner at 4.

In a six-to-five decision, the Board declined to accept the proposed report and issued its own opinion instead. See In re Account of Teresa M. Vine, No.2004-21 (SERS Board Sept. 21, 2007) ("Adjudication"). The Board observed, preliminarily, that retirement applications are contracts with SERS, which are generally binding and irrevocable. The Board noted thatSERS was provided with a facially valid POA that designated Robert as Appellant's attorney-in-fact and authorized him to conduct retirement transactions on her behalf. In light of this circumstance, the Board stated:

We conclude that, regardless of the underlying facts, we do not have the authority or jurisdiction to reach the issue of whether or not as a matter of law involving the mental capacity and competency of Claimant, the POA is valid. Robert had the apparent authority to act as agent for Claimant in this matter, and thus his actions are binding.

Adjudication at 8 (footnote omitted); see also id. at 8 n. 7 ("Because of our conclusion that we do not have the legal authority to grant relief on a challenge to action taken under a facially valid POA, we do not need to make fact findings regarding Claimant's mental or physical condition, capacity or competence in January or February 1998."). Thus, the Board considered the POA's facial validity to be unassailable and determined, accordingly, that Section 5608(b) prevented it from granting Appellant's request regardless of hardship or possible inequities, as that statutory provision immunized SERS from liability. See id. at 8. The Board did acknowledge that, as a general proposition, it retained the power to retroactively alter retirement benefits, and that it has considered doing so in prior cases where the retiree was alleged to have lacked the capacity to form a contract at the time he or she applied for benefits. It distinguished those cases, however, on the basis that the retiree was the individual who signed the application in person; thus, the Board stated that, in such circumstances, "SERS is a direct party to the contract involving pension benefits and probably can agree to release the other party (the member) from his or her putative contract obligations" based upon a finding of incapacity. Id. at 9.⁷

The Commonwealth Court affirmed. See Vine v. SERS, 956 A.2d 1088 (Pa.Cmwlth.2008). The court indicated that, under Pennsylvania common law, the POA and transactions undertaken pursuant to it were voidable. It placed substantial emphasis on the distinction between void and voidable transactions, developing that void acts have no significance and are nullities, whereas voidable acts are valid until...