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Thursday, April 28, 2011

Doctrine of Estoppel not available to bar an administrative action to correct an error notwithstanding its adverse impact on the individual

Doctrine of Estoppel not available to bar an administrative action to correct an error notwithstanding its adverse impact on the individual
Matter of Olick v D'Alessandro, 2011 NY Slip Op 50718(U), Supreme Court, New York County, Judge Manuel J. Mendez [Not selected for publications in the Official Reports]

Alice D. Olick filed petitions pursuant to Article 78 of the Civil Practice Law and Rules in an effort to annul and the determination by the New York Teachers’ Retirement and the New York City Employees’ Retirement Systems that reduced the amount of her retirement allowance and barring deductions from future retirement allowance payments for alleged “overpayments” made to her during the past seven years since her retirement.

For more than seven (7) years since her retirement Olick had been receiving an annual retirement allowance of $62,381. On March 16, 2009 she was advised that she would receive a "revised benefits letter" with a larger Annual Retirement Allowance. In addition in conversations had with NYCERS employees she was advised that she would receive a bulk payment for each of the seven years since her retirement.

In December 2009, however, Olick was advised that her retirement allowance informing her that her pension was not being increased, instead it was being decreased and she was responsible for the return of excess payments in the amount of $32,879.82 made to her over the past seven years.*  The Retirement System attributed the original mistaken pension calculation to "a programming error….”

Olick appealed NYCERS' reduction of her pension, contending, among other things, that the decision was arbitrary and capricious. She also argued that [1] NYCERS failed take into account that in reliance on the original calculation she and her husband had planned and budgeted for their retirement, making life altering decisions relying on the certainty that her pension would be $62,381, plus Social Security and that [2] she paid taxes on this amount and that she received the Annual Pension Allowance for seven years before any alleged error was detected.

In its defense the Retirement System said that Estoppel is not available against a governmental agency seeking to recoup overpayment of a benefit.

Judge Mendez said that the applicable statute, New York City Administrative Code §13-182 Retirement and Pensions, provides, in pertinent part: "Should any change or error in records result in any member or beneficiary receiving from the retirement system more or less than he or she would have been entitled to receive otherwise, on the discovery of any such error such Board shall correct such error, and as far as practicable, shall adjust the payments in such a manner that the actuarial equivalent of the benefit to which he or she was entitled shall be paid."

Accordingly, in the event an overpayment is made, the agency has authority to recoup the overpayment by withholding or reducing the current pension benefits to which the retiree would otherwise be entitled. As to applying the doctrine of estoppel in this case, Judge Mendez ruled that the doctrine could only be applied against a governmental entity if failure to apply the doctrine would defeat a right legally and rightfully obtained.
Citing Freda v. Board of Education of the City of New York, 224 AD2d 360, Judge Mendez said the statement of an employee of the agency later found to be incorrect, even if relied upon by the employee does not bar the agency from correcting an error later discovered and recouping any overpayment made to the retiree.

The bottom line: as Olick received a greater annual retirement allowance than she was entitled to receive, once the error was discovered, under the statute, NYCERS is entitled to recover the amount paid in excess of what Olick was entitled to receive. 

Further, the overpayment can be recovered by withholding or reducing the current pension benefit Olick is receiving.
  
In an Article 78 proceeding such as this one, the court's function is limited to a determination whether the administrative determination is arbitrary and capricious in that it is "without sound basis in reason and is generally taken without regard to the facts" and unless the decision is arbitrary, the court cannot substitute its judgment, even if it would have reached a different result if presented with the issue in the first instance.

Applying this standard, Judge Mendez denied Olick’s petition.

The decision is posted on the Internet at:
http://www.courts.state.ny.us/reporter/3dseries/2011/2011_50718.htm

* Olick’s monthly gross retirement allowance was reduced by almost $1,000 from $5,264.44 to $4,333.12.  


POSTSCRIPT: 

In his blog, Administrative Law Professor [ http://lawprofessors.typepad.com/adminlaw/ ], Edward M. McClure comments: 

In his New York Public Personnel Law blog, Harvey Randall reviews a case involving one kind of administrative law issue that often darkens an attorney's door: The government has given your client something by mistake and now intends to take it back. But your client, ignorant of the error, has spent the money or made plans or persuaded investors or otherwise reasonably relied on the erroneous decision and doesn't want to pay it back, change plans, return investments, or otherwise reverse course. In the case discussed by Mr. Randall in "Doctrine of Estoppel not available to bar an administrative action to correct an error notwithstanding its adverse impact on the individual", a retired city government lawyer finds out seven years after retirement that she has been overpaid almost $1000 per month, and the New York City Employees' Retirement System is going to deduct 25% of her (reduced) pension until it is repaid. She has spent the money and made all sorts of plans that depend on the original monthly payment. Sounds like a job for Equitable Estoppel!

Not. The opinion from the reviewing court cites to a lot of state precedent, but doesn't really get to the meat of the law here. The City is relying on a N.Y. statute:
Should any change or error in records result in any member or beneficiary receiving from the retirement system more or less than he or she would have been entitled to receive otherwise, on the discovery of any such error such Board shall correct such error, and as far as practicable, shall adjust the payments in such a manner that the actuarial equivalent of the benefit to which he or she was entitled shall be paid.
New York City Administrative Code §13-182 (emphasis added).

According to Mr. Randall,
Accordingly, in the event an overpayment is made, the agency has authority to recoup the overpayment by withholding or reducing the current pension benefits to which the retiree would otherwise be entitled. As to applying the doctrine of estoppel in this case, Judge Mendez ruled that the doctrine could only be applied against a governmental entity if failure to apply the doctrine would defeat a right legally and rightfully obtained.
Not just the authority to recoup the overpayment, but the obligation to recoup the overpayment. The court's opinion does not explain the law behind why estoppel fails in this case, but we can look at what is sometimes termed the first maxim of equity: "Aequitas sequiture legem" - "equity follows the law". 30A C.J.S. Equity § 128 (updated March 2011); Story, Joseph. Commentaries on equity jurisprudence : as administered in England and America (Boston, 1836), §64. This maxim means different things in different contexts. For our purposes in this case, equity will not contradict a statute or common law rule on point (subject to a bunch of exceptions that rarely apply against governments and that don't apply here). Here we have a statutory - a legal - requirement that the City get the money back.

I'm sorry but your client is, ummmm, going to be disappointed.

EMM




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