Virginia Retirement System v. Shelton

• Decision Date: 06 December 2022
• Docket Number: Record No. 0434-22-2
• Citation: 76 Va.App. 167,880 S.E.2d 820
• Parties: VIRGINIA RETIREMENT SYSTEM v. Joan B. SHELTON
• Court: Virginia Court of Appeals

76 Va.App. 167

880 S.E.2d 820

VIRGINIA RETIREMENT SYSTEM

v.Joan B. SHELTON

Record No. 0434-22-2

Court of Appeals of Virginia, Richmond.

December 6, 2022

Brian J. Goodman, Legal Affairs & Compliance Coordinator, Virginia Retirement System (Jason S. Miyares, Attorney General; Charles H. Slemp, III, Chief Deputy Attorney General; Steven G. Popps, Deputy Attorney General; Joshua N. Lief, Senior Assistant Attorney General/Section Chief; Elizabeth B. Myers, Assistant Attorney General, on briefs), for appellant.

Richard L. Locke, Richmond (Shannon S. Otto ; Locke & Otto, on brief), for appellee.

Present: Chief Judge Decker, Judges AtLee and Malveaux

OPINION BY JUDGE MARY BENNETT MALVEAUX

The Virginia Retirement System ("VRS") appeals an order of the City of Richmond Circuit Court ("circuit court") directing that VRS pay a survivor benefit to Joan B. Shelton ("Shelton") and ordering that VRS pay her $25,000 in attorney fees. On appeal, VRS argues that the circuit court erred in ordering VRS to pay a monthly survivor benefit to Shelton. VRS further contends that the circuit court erred by awarding Shelton attorney fees and costs. For the following reasons, we reverse the decision of the circuit court.

I. BACKGROUND

Shelton and Kenneth O. Shelton ("husband") were married on July 26, 1958. On December 15, 1997, the Loudoun County Circuit Court entered a final decree of divorce between the parties. Paragraph thirteen of the divorce decree stated that Shelton would receive fifty percent of the marital share of husband's VRS retirement plan. That paragraph further provided that "[husband] is directed to elect a Survivor's Option naming [Shelton] as the contingent annuitant. Division shall be effectuated by the entry of a VSR [sic] Approved Domestic Relations Order."

On the same day that the divorce decree was entered, the Loudoun County Circuit Court entered an approved domestic relations order ("ADRO") in relation to the VRS retirement provisions in the divorce decree. In paragraph six, titled "Member to name spouse as contingent Annuitant," the order states that husband "shall name [Shelton] as the only contingent Annutant [sic] (i.e., Survivor Option) which shall provide a monthly payment to the former spouse for her lifetime."

The ADRO further provided, in paragraph seven, that, "[t]he Virginia Retirement System is hereby ordered to disburse to [Shelton] the portions of distributions assigned under this [o]rder if, as and when such distributions are made as provided by VRS's governing laws and rules subject to the following limitations." The limitations included that the ADRO "shall not be interpreted in any way to require VRS to provide any type of benefit or any option not otherwise provided under the plan" and "shall not be interpreted in any way to require VRS to provide increased benefits."

In addition, the ADRO stated that "[m]ember and former spouse are ordered to complete and sign all VRS forms and provide all information necessary to effectuate the provisions of this Order." The ADRO further stated that "[t]he member's eligibility to receive retirement benefits from VRS and the amount of any such benefits are governed solely by the provisions of the Virginia Retirement Code."

In a letter addressed to Shelton's divorce attorney, dated January 14, 1998, a paralegal for VRS stated that Shelton and husband's ADRO "meets VRS requirements for an Approved Domestic Relations Order. The ADRO will become a part of [husband's] permanent VRS record." Another letter from VRS to Shelton's divorce attorney, dated November 20, 1998, informed counsel that the agency had the ADRO "on file."

Husband filed an application for service retirement with VRS on October 22, 1998. When a VRS member retires, they have several retirement benefit options. A member can select the basic benefit plan, which does not provide a survivor benefit. The member can also select from a variety of survivor benefit plans, under which VRS will continue to pay a benefit after the VRS member dies to a person the member has designated, known as the contingent annuitant. See Code § 51.1-165. The choices for a survivor benefit plan include a "100% Survivor Option," a "50% Survivor Option," or a "Special Survivor Option" allowing the applicant to choose a select percentage. On husband's retirement application, he selected the basic benefit plan, instead of choosing a plan with a survivor benefit option.

On January 1, 1999, husband retired. Shelton began receiving a portion of husband's retirement benefit on February 1, 1999. On April 14, 2019, husband died. Shelton received her last check from VRS on May 1, 2019. Shelton contacted VRS for an explanation as for why her payments had stopped, but failed to obtain one, so she retained counsel in the matter. Her attorney received an email from VRS indicating that husband had not designated Shelton as the contingent annuitant of a survivor option, thus her payments had ceased when husband died. VRS denied Shelton's request for continued payment of benefits.

After VRS denied her request, on January 9, 2020, Shelton asked for an informal fact-finding conference. At the informal fact-finding conference, which took place on July 22, 2020, before Michael A. Katzen, an independent fact finder, Shelton produced several documents that became a part of the agency record.

A May 1996 VRS document titled "VRS Retirement Benefits & Divorce" ("retirement guide") stated that it was a "guide ... designed to give VRS members, their spouses, attorneys and the judiciary a thorough understanding of how VRS retirement benefits may be divided as part of an equitable distribution" and that "[i]f there are any discrepancies between this information and the law, the provisions of law will prevail." Regarding a member's designation of a plan and a contingent annuitant, the retirement guide stated, "Although the divorce decree may require the member to choose a certain option and name the former spouse as a contingent annuitant, VRS cannot force a member to select a specific option, beneficiary or contingent annuitant." The guide further explained, "If the member selects an option at retirement that does not conform to the order, or fails to name the former spouse as contingent annuitant, and VRS has a copy of the order on file, VRS will notify the parties when the retirement application is filed."¹

A VRS document, titled "Approved Domestic Relations Order" and dated January 6, 1999, listed husband as the retiree and noted that there was a "lifetime benefit" connected to the order.

A VRS case note reflected that in April 2019 a VRS program specialist reviewed husband's VRS account and the ADRO. The program specialist noted that husband retired under the basic benefit plan, but "the ADRO that had been accepted and attached to the retiree's account stated he was to name his former spouse ... as the only contingent annuitant (i.e., Survivor Option)." The program specialist further noted that husband "failed to do so and as VRS was processing his retirement application it appears no one caught this fact; therefore, the member was not notified of his obligation under the court order to name her under such survivor option."

The record also included an email from VRS to Shelton's attorney after Shelton asked VRS to estimate what her payments would have been if husband had designated her as the contingent annuitant of a 100% survivor benefit option. The June 14, 2019 email stated that "[i]n this hypothetical scenario, Ms. Shelton would receive a new lifetime annuity of approximately $6,297.07 per month."

At the informal fact-finding conference, Shelton testified that she had not received notice in any form from VRS that husband had selected a retirement plan option that did not include a survivor benefit.

On September 30, 2020, Katzen issued a decision in which he found that VRS was "obligated to continue payments to Ms. Shelton in conformity with the ADRO, specifically as if [husband] had properly named her as a contingent annuitant." In making this decision, Katzen first found that husband's retirement application selection did not provide Shelton with a survivor benefit despite the ADRO requiring husband to do so. Katzen then rejected VRS's argument that it could only be required to pay retirement benefits under the actual retirement plan that the VRS member selected in his application because VRS itself "failed to follow the ADRO it approved and had on file or to notify the parties that [husband's] retirement application was inconsistent with the court's order." He also rejected VRS's argument that it was not obligated to act upon a court order to which it was not a party, instead finding that "[a] noticed non-party may be compelled to abide by a court's prescribed obligations under its order" and that "VRS, by its own admission, accepted the ADRO, made it a permanent part of [husband's] file and [was] bound by its terms." Katzen concluded, "Allowing a state agency to operate in contravention of its published guidance to the detriment of a third party flies in the face of sound public policy and reduces that guidance to a nullity."

On November 18, 2020, VRS issued a final case decision rejecting Katzen's recommendation and instead concluding that the agency had "no statutory basis or legal authority to pay [Shelton] since [she was] neither a VRS member nor a beneficiary designated to receive VRS benefits." VRS asserted that it did "not have any obligation or authority to act upon or enforce a court order to which it [was] not a party," referencing the ADRO in this case. VRS stated that after a party to a domestic relations order submits it for VRS's review of the order's retirement provision, "VRS may acknowledge an order as feasible within VRS plan provisions and accept it as an ADRO. However, this acknowledgement is predicated on the parties to the ADRO acting in accordance with the ADRO's provisions." The agency stated that "VRS does not and cannot agree to...