STATE OF NORTH CAROLINA



STATE OF NORTH CAROLINA IN THE OFFICE OF

ADMINISTRATIVE HEARINGS

COUNTY OF DURHAM 05 DST 0251

________________________________________________________________________

DONALD C. MCCASKILL, )

Petitioner, )

)

v. ) DECISION

)

DEPARTMENT OF STATE TREASURER, )

RETIREMENT SYSTEMS DIVISION, )

Respondent. )

________________________________________________________________________

On August 21 and August 22, 2007, Administrative Law Judge Melissa Owens Lassiter heard this contested case in Raleigh, North Carolina. On October 10, 2007, Respondent filed its proposed Decision, and on October 12, 2007, Petitioner filed its proposed Decision with the Office of Administrative Hearings. On November 26, 2007, Chief Administrative Law Judge Julian Mann, III issued an Order extending the deadline for filing a Decision in this case until January 4, 2008.

APPEARANCES

For Petitioner: Seth Neyhart

Thomas H. Stark

Stark Law Group

6011 Farrington Road, Suite 300

Chapel Hill, North Carolina 27517

For Respondent: Robert M. Curran

Assistant Attorney General

N.C. Department of Justice

9001 Mail Service Center

Raleigh, North Carolina 27699-9001

ISSUES

1. Whether Respondent properly denied Petitioner’s application for long-term disability benefits, because Petitioner failed to meet the statutory requirement of having at least five years of membership service in the Teachers’ and State Employees’ Retirement System?

2. Whether Respondent is estopped from denying Petitioner long-term disability benefits?

STATUTES AND RULES AT ISSUE

N.C. Gen. Stat. §§ 135-1, 135-4, 135-106

25 N.C.A.C. 1B.0436

25 N.C.A.C. 1E.1112

EXHIBITS

For Petitioner: 1 – 4, 6 – 8, 10

For Respondent: 1 – 7

FINDINGS OF FACT

Background Facts

1. On December 17, 2004, Respondent denied Petitioner’s application for long-term disability benefits under North Carolina’s Disability Income Plan, because Petitioner did not have five (5) years of membership service in the NC Teachers’ and State Employees’ Retirement System.

a. Respondent acknowledged that Petitioner had sufficient unused, accrued sick and vacation leave to qualify Petitioner for membership credits from January 1, 2002 through May 30, 2002. However, after crediting Petitioner with those 4 months of service, Petitioner’s membership service totaled only 4 years and 8 months, and still less than the required 5 years of membership service to be eligible for long-term disability benefits. (P Ex 7, R Ex 3)

b. In addition, Respondent could not find any record in Petitioner’s member record indicating that Petitioner had consulted Respondent regarding his settlement agreement with DHHS, before DHHS and Petitioner signed such agreement on July 8, 2002. Without finding any record that Respondent was aware of that settlement agreement, Respondent had no basis to determine that Petitioner was entitled to long-term disability benefits. (P Ex 7, R Ex 3)

2. On February 5, 2005, Petitioner filed a contested case petition with the Office of Administrative Hearings appealing Respondent’s December 17, 2004 denial of long-term disability benefits. In that petition, Petitioner alleged that Respondent deprived him of property, otherwise substantially prejudiced his rights, acted erroneously, acted arbitrarily or capriciously, or failed to act as required by law or rule in denying his long-term disability benefits.

Adjudicated Facts

3. On or about October 1997, Petitioner began employment with the Department of Health and Human Services ("DHHS"), Dorothea Dix Hospital, and began contributing membership in the Teachers’ and State Employees’ Retirement System. Petitioner worked at least 40 hours per week, and made retirement contributions to the Retirement System each month from October 1997 through December 31, 2001. (T-I, p. 112)

4. Near the end of his employment at Dix Hospital, Petitioner began experiencing hearing loss.

5. On December 6, 2001, DHHS terminated Petitioner from employment. At the time of his dismissal, Petitioner had four years, three months of membership service in the Retirement System, including the month of December 2001.

6. Petitioner filed an internal grievance appealing his termination from employment. Petitioner pursued his appeal through Steps 1 and 2 of DHHS’ internal grievance process, and initiated a Step 3 grievance.

7. By this time, Petitioner had experienced a full and permanent hearing loss. He sought short-term disability benefits based on his hearing impairment. On Petitioner’s application for short-term disability, DHHS certified that Petitioner had 30 days of vacation and 42 days of sick leave standing to his credit. (T-I, pp. 116-17)

8. In approximately March 2002, attorney Bennett Hollers, a DHHS employee, was assigned as the DHHS hearing officer for Step 3 of Petitioner’s internal grievance.

9. However, before Hollers conducted any evidentiary hearing, Petitioner and DHHS agreed on a settlement of Petitioner’s grievance against DHHS. DHHS employees drafted the settlement agreement, then submitted the agreement to Petitioner’s attorney for input, and to Mr. Bill Guy with DHHS for an informal review.

10. Mr. Bill Guy was DHHS’ Human Resources Assistant Director and Employee Relations Manager. Mr. Guy reviewed the proposed settlement agreement between DHHS and Petitioner to ensure the agreement complied with the State Personnel rules for settlements. (T p 38) He also consulted with DHHS employees Carolyn Williams and Dianne Hoffman to ensure that the settlement agreement complied with the applicable North Carolina rules, statutes, and regulations on retirement issues. Williams worked in the Dix Human Resources Office. Hoffman was a long-time human resources person with DHHS who was very knowledgeable about many human resources subjects. (T p 39)

11. Guy relied on Williams’ assurances that the settlement agreement did not violate the retirement statutes, rules, and regulations before he approved the settlement agreement. Guy would not have approved such agreement if he thought the agreement violated any rules, regulations, or statutes. Guy did not know whether anyone from DHHS actually contacted the Retirement Systems Division concerning the agreement. (T-I, pp. 39-40, 52, 55, 178)

12. During his review of such agreement, Mr. Guy was unaware of any formal process of Respondent, that required DHHS submit settlement agreements to Respondent for approval before the parties signed an agreement. Neither had Guy seen any written regulations of Respondent that required him, in his official capacity, to submit a settlement agreement to Respondent before the parties signed such an agreement.

13. Guy was also unaware of any requirement under the rules and regulations of the Office of State Personnel that required Petitioner to exhaust his sick and vacation leave continuously.

14. On June 17, 2002, Petitioner signed the settlement agreement resolving his grievance against DHHS. On July 2, 2002, Secretary Carmen Hooker Odom signed the settlement agreement for DHHS. (P Ex. 3; R Ex. 5) The settlement agreement contained no signature lines for approval by either the Office of State Personnel or the Retirement System.

15. According to the terms of the settlement agreement, the purpose of the agreement was that Petitioner:

be reinstated to employment with the Hospital for the purpose of allowing him to use his accumulated sick and vacation leave hours to maintain his employment until he has attained five (5) years of contributing service in the Retirement System.

(Emphasis added, P Ex 3)

16. Specifically, the agreement provided that Petitioner be reinstated to a full-time permanent position, being retroactively effective December 7, 2001. It established that:

From December 1, 2001 through December 31, 2001, [Petitioner] shall be in full-time employment status (40 hours per week), and will use his accumulated sick and vacation leave to cover that time. From January 1, 2002, until September 9, 2002, and for 3 ½ hours on September 9, 2002, [Petitioner] will be placed on three-quarter time (30 hours per week) during which time he will exhaust his accumulated sick and vacation leave; provided, the total number of work days from January 1, 2002, through September 9, 2002, for which Grievant does not have sufficient sick or vacation leave will be equally apportioned to each month during this period and treated as leave without pay.

(P Ex 3)

18. Pursuant to their settlement agreement, DHHS paid Petitioner for leave taken 16 days in January 2002, 11 days in February 2002, 11 days in March 2002, 12 days in April 2002, 12 days in May 2002, 11 days in June 2002, 13 days in July 2002, 12 days in August 2002, and 6 days in September 2002. The remaining days of each month were shown as “leave without pay.” DHHS’ Payroll representative completed pay forms authorizing and documenting that pay. (R Ex. 3; P Ex. 4)

19. In exchange for DHHS’ actions as described in the settlement agreement, Petitioner agreed to “voluntarily withdraw his pending grievance against” DHHS and “waive any and all appeal rights he might have under State and Federal law” arising from Petitioner’s December 6, 2001 separation from employment. Petitioner also agreed to release DHHS and Dix Hospital and their employees of “any and all liability or responsibility for any and all claims arising out of his December 6, 2001” separation from employment. (P Ex 3, p 3)

20. On or about July 31, 2002, DHHS made a lump-sum payment of $20,296.40 to Petitioner in accordance with subject settlement agreement. DHHS’ records showed that DHHS did not submit any retirement contributions to Respondent, on Petitioner’s behalf, for the months of January through July 2002. Nevertheless, DHHS’ records established that on July 31, 2002, DHHS submitted a $1217.78 retirement contribution to Respondent, on Petitioner’s behalf.

21. On September 11, 2002, DHHS’ benefit representative submitted a written statement to Respondent showing “a breakdown of the amounts [by DHHS] to Mr. McCaskill and the 6% retirement contribution. Please credit to his account.” The attached documentation showed the specific amounts DHHS paid to Petitioner, and the 6% retirement contributions DHHS made on Petitioner’s behalf to Respondent. DHHS paid all such amounts to Respondent on July 31, 2002 with the retirement contribution being $1217.78. (P Ex 4, p1)

22. On February 19, 2003, Petitioner submitted an application for long-term disability benefits to Respondent. On his application, Petitioner certified that the effective date of long-term disability benefit would be February 5, 2003. He also certified that his last day of actual work was December 6, 2001, and his date of termination from permanent full-time employment was September 9, 2002. (R Ex 1)

23. On Petitioner’s long-term disability application, DHHS certified that December 6, 2001 was the last day Petitioner worked, and was the date Petitioner’s disability began. DHHS also certified that September 9, 2002 was the “date through which sick and/or vacation leave was paid or exhausted.” (Emphasis added; R Ex. 1, p 1) On page 2 of that application, DHHS certified that September 9, 2002 was the “effective date the employee terminated employment as a permanent full-time teacher or employee.” (R Ex 1, p 2)

24. On February 28, 2003, Respondent received Petitioner’s application. Respondent processed Petitioner’s long-term disability application, and approved Petitioner’s application. Specifically, the process entailed a clerk entering Petitioner’s information into the computer, a second person making a quick eligibility determination, and the Plan’s Medical Board reviewing the application, and confirming the medical disability. At that point, Respondent approved Petitioner’s application for long-term disability benefits. (T pp 108-109) However, after Respondent’s benefit analyst reviewed Petitioner’s application file to determine the amount of long-term disability benefit, she questioned Petitioner’s service eligibility. (T p 109, 111)

25. On August 29, 2003, Respondent notified Petitioner by letter that it was denying his long-term disability benefits, because:

you do not meet the eligibility requirements for Long Term benefits because you do not have five (5) years of membership service. Furthermore, we regret to inform you that our findings indicated that the salary paid to you from January 2002 through September 2002 will not [be] counted towards your service. . . . Benefits Section Retirement Systems Division.

(R Ex 2)

26. On September 15, 2003, Carolyn Williams sent additional documentation to Respondent’s Chief of Benefits Section, Marie Hinton. This documentation explained how DHHS paid Petitioner his monthly income, from January 2002 through September 9, 2002. These payments were made in accordance with the subject settlement agreement. (P Ex 4, pp 3- 19)

27. By letter dated November 7, 2003, Petitioner’s attorney requested Marshall Barnes, Deputy Director of Respondent’s Retirement Systems Division, to retract the previous denial of Petitioner’s long-term disability application, and approve such benefits for Petitioner. In that letter, Petitioner’s attorney explained in detail the reasons why Respondent should approve long-term disability benefits for Petitioner. (R Ex 4)

28. More than one year later, by letter dated December 17, 2004, Marshall Barnes issued Respondent’s response and final agency decision to Petitioner’s attorney, and upheld the denial of Petitioner’s long-term disability benefits. (P Ex 7, R Ex 6)

29. In its December 17, 2004 letter to Petitioner’s attorney, Mr. Barnes acknowledged that Respondent Division “does not contest the actions that placed Mr. McCaskill on three-quarter time effective January 1, 2002.” (P Ex 7) Respondent did not contest that Petitioner was an “employee” as that term is defined in N.C. Gen. Stat. § 135-1(10)(2002). (T pp 131, 139) Thus, the validity of the settlement agreement and Petitioner’s status as an “employee” are not in dispute.

30. Respondent contended that the retirement contributions detailed in the settlement agreement between DHHS and Petitioner were not an approved method for Petitioner to receive retirement service credit with Respondent. At hearing, Mr. Barnes explained that Respondent did not accept Petitioner’s settlement agreement, because

Petitioner did not have enough sick leave and vacation leave to get him to five years by exhausting that continuously, then there would have been a problem, but there was an inherent manipulation here to play the system to get him . . . to qualify him for the benefit.

(T p 122) Barnes based his decision on Respondent’s past policies in granting services, his knowledge of the intent of the drafters of the Disability legislation, and prior personnel policy that “at one time required a person to exhaust all of their accumulated leave before they were even permitted to go onto short-term.” (Tpp 133-134)

31. However, Barnes also acknowledged that the personnel policies have changed over time, and he didn’t know exactly what the policy was, that was in effect at that time [2001-2002]. (T p 134)

32. Barnes explained that during the relevant period, Respondent Division had a procedure in place for reviewing settlement agreements. This procedure required Respondent’s staff forward to Mr. Barnes for his review, any settlement agreements received by Respondent where retirement service credit was at issue. (T-I, p. 106)

33. According to Mr. Barnes, there was no verification in Petitioner’s member file that DHHS or Petitioner had consulted Respondent about the settlement agreement before Petitioner and DHHS executed that agreement. Barnes did not find a copy of the settlement agreement between Petitioner and DHHS in Petitioner’s member record when he received Petitioner’s attorney November 7, 2003 letter. (T pp. 105, 119) As a result, Barnes explained that he did not give prior approval to the agreement or talk with anyone at DHHS about the proposed settlement agreement. (T p 107) However, Barnes’ testimony is inconsistent with his December 17, 2004 letter to Petitioner’s attorney when he wrote:

I have received Mr. McCaskill’s member record and find that the first copy of the settlement agreement we received was received after it was executed by all parties and was received on July 8, 2002.

(R Ex 6, p 2) Additionally, Barnes opined that had the parties asked him to approve the subject agreement, he would not have approved such an agreement. (T-I, pp. 107-08, 118, 126)

34. A preponderance of the evidence established that since at least 1982, Respondent’s practice is to grant a member a full month retirement credit for any part of the month in which the member works, and for which retirement contributions are made. Respondent authorizes this practice, although there is no statute or administrative rule which provides for such a practice.

35. At hearing, Barnes acknowledged this practice, and noted that he didn’t know where that practice came from, that:

. . . there is not anything specific in the statute that says that nor in the administrative rules, to my knowledge, that speaks to that specifically.

(T p 123) Under that practice, Barnes admitted that an employee would earn one month of contribution if he were employed for twelve days a month, and on leave for the remainder of the month. Whether Respondent would grant retirement service credit for two months under those same circumstances, “would be dependent upon the circumstances surrounding that.” If an employee worked under that same arrangement for twelve months, Respondent “would have to make a decision as to those circumstances and how those statutes would apply to those circumstances.” (T pp 142-43)

36. In June/July of 2002, when Petitioner and DHHS signed its settlement agreement, N.C. Gen. Stat. § 135-4(v) allowed a member of the Retirement System, who had been terminated from a covered position and later reinstated, to purchase credit for omitted service. The cost to purchase the omitted service varied depending on whether the service was purchased within 90 days of the omission, after 90 days but prior to three years, or after three years. Neither DHHS nor Petitioner requested Respondent provide, pursuant to N.C. Gen. Stat. § 135-4(v), the cost to purchase the omitted service in Petitioner’s case. (T-I, pp. 105, 140) Barnes explained that Respondent interpreted the retirement provisions so that in 2002, N.C. Gen. Stat. § 135-4(v) was the only statutory provision under which Petitioner could purchase retirement service.

37. According to state personnel records on Petitioner, Petitioner was a contributing employee for 60 consecutive months. (Barnes testimony)

38. According to DHHS records, Petitioner was a contributing employee for 60 consecutive months. (Guy testimony)

39. DHHS did not submit Petitioner’s settlement agreement to OSP for approval, because Guy believed that Section 7, page 45 of the State Personnel Manual did not require OSP’s approval in this instance. Specifically, he relied upon the following statement from the Manual: “This provision shall also not be construed to require approval of any settlement, the terms of which allow an employee to substitute a resignation for a dismissal and to withdraw a grievance or a contested case action.” (p. 180)

40. A preponderance of the evidence at hearing proved that DHHS and Petitioner signed their settlement agreement in good faith, believing their agreement resolved Petitioner’s internal grievance with DHHS, and complied with North Carolina personnel and retirement statutes, rules and regulations. Petitioner relied on the assurances of the DHHS employees and agents, and his attorney, regarding the validity of the settlement agreement. Based on such reliance, Petitioner released any and all claims against DHHS regarding Petitioner’s December 6, 2001 termination.

41. A preponderance of the evidence showed that Respondent accepted DHHS retirement contributions on Petitioner’s behalf, and never returned those contributions to Petitioner. Petitioner also relied on Respondent’s acceptance of those retirement contributions, although after the agreement’s execution as verification, that the settlement agreement between Petitioner and his employer had been approved by Respondent.

CONCLUSIONS OF LAW

1. The parties are properly before the Office of Administrative Hearings, and the Office of Administrative Hearings has subject matter and personal jurisdiction.

2. North Carolina appellate courts have long held that the intent of N.C. Gen. Stat. § 135:

is not to exclude, but to include state employees under an umbrella of protections designed to provide maximum security in their work environment and to afford ‘a measure of freedom from apprehension of old age and disability.’

Stanley v. Ret. Benefits Div., Dept. of State Treasurer, 55 N.C. App. 588, 591, 286 S.E.2d 643, 645 (1982) (quotations omitted). As part of this umbrella of protections, N.C. Gen. Stat § 135 sets forth a scheme of payments for short-term and long-term disability benefits.

3. N.C. Gen. Stat. § 135-106(a) describes the long-term disability benefit process:

Upon the application of a beneficiary or participant or of his legal representative or any person deemed by the Board of Trustees to represent the participant or beneficiary, any beneficiary or participant who has had five or more years of membership service may receive long-term disability benefits from the Plan upon approval by the Board of Trustees.

(Emphasis added)

4. N.C. Gen. Stat. § 135-1(14), under the Teachers and State Employees Retirement System section, defines "membership service" as “service as a teacher or State employee rendered while a member of the Retirement System." N.C. Gen. Stat. § 135-101(12) under the Disability Income Plan defines “membership service” as any service as defined in N.C. Gen. Stat. § 135-1(14).

5. N.C. Gen. Stat. § 135-1(10) defines "employee” as:

all full time employees . . . but shall not include . . . any part-time or temporary employee. . . . Employees of state agencies. . . who are employed in permanent job positions on a recurring basis and who work 30 or more hours per week for nine or more months per calendar year are covered by the provisions of this subdivision."

6. N.C. Gen. Stat. § 135-106(a)(2002) specifies the requirements for obtaining long-term disability benefits. That section provides that:

. . . beneficiary or participant who has had five or more years of membership service may receive long-term disability benefits from the Plan upon approval by the Board of Trustees, . . .

As to the requirement of five years of membership service, any participant or beneficiary who does not have five years of membership service within the 96 calendar months prior to conclusion of the short-term disability period or cessation of salary continuation payments, whichever is later, shall not be eligible for long-term disability benefits.

(Emphasis added)

7. Full-time employees who are on approved leave without pay are considered full-time employees. Wiebenson v. Bd. of Trustees, Teachers' and State Employees' Ret. Sys., 345 N.C. 734, 738-39, 483 S.E.2d 153, 155 (1997) (quoting the North Carolina Administrative Code that "[p]eriods of leave without pay do not constitute a break in service.").

8. 25 NCAC 01E .1101 provides that:

LEAVE WITHOUT PAY MAY BE GRANTED TO A FULL-TIME OR PART-TIME PERMANENT, TRAINEE OR PROBATIONARY EMPLOYEE FOR ILLNESS, EDUCATIONAL PURPOSES, VACATION, OR FOR ANY OTHER REASONS DEEMED JUSTIFIED BY THE AGENCY HEAD.

(EMPHASIS ADDED)

9. IN THIS CASE, PURSUANT TO ITS AUTHORITY UNDER THE STATE PERSONNEL RULES, DHHS AUTHORIZED PETITIONER TO CONTINUE TO BE A FULL-TIME EMPLOYEE FROM DECEMBER 1, 2002 THROUGH SEPTEMBER 9, 2002. IN A SETTLEMENT AGREEMENT WITH PETITIONER, DHHS DESCRIBED UNDER WHAT TERMS PETITIONER WOULD CONTINUE TO BE A FULL-TIME EMPLOYEE; TO WIT, APPORTIONING PETITIONER’S VACATION/SICK LEAVE TIME FOR EACH MONTH FROM JANUARY 2002 THROUGH SEPTEMBER 9, 2002, AND PLACING HIM ON LEAVE WITHOUT PAY FOR THE REMAINING PORTIONS OF EACH MONTH. DHHS’ INTERNAL RECORDS AND THE OFFICE OF STATE PERSONNEL RECORDS REFLECTED THAT PETITIONER WAS A FULL-TIME EMPLOYEE FOR 60 CONTINUOUS MONTHS. DHHS MADE CONTRIBUTIONS TO RESPONDENT ON PETITIONER’S BEHALF FOR EACH OF THOSE 60 MONTHS. RESPONDENT ACCEPTED AND NEVER RETURNED PETITIONER’S RETIREMENT CONTRIBUTIONS.

10. On September 9, 2002, Respondent ceased Petitioner’s salary continuation payments. On that date, Petitioner had five years of membership service. Under the plain and ordinary language of N.C. Gen. Stat. § 135-106(a)(2002), Petitioner qualified for long-term disability benefits as Petitioner had five years of membership service upon “cessation of salary continuation payments” by his employer.

11. In Smith v. State, the North Carolina Supreme Court held that "whenever the State of North Carolina, through its authorized officers and agencies, enters into a valid contract, the State implicitly consents to be sued for damages on the contract in the event it breaches the contract." Smith v. State, 289 N.C. 303, 320, 222 S.E. 2d 412, 423-24 (1976).

12. In Simpson v. N.C. Local Gov't Employees' Ret. Sys., 88 N.C. App. 218, 363 S.E.2d 90 (1987), the NC Court of Appeals reaffirmed the principle that state government employees "had a contractual right to rely on the terms of the retirement plan as these terms existed at the moment their retirement rights became vested." Id. At 223-24, 363 S.E.2d at 94; see also Peverall v. County of Alamance, 154 N.C. App. 426, 431, 573 S.E.2d 517, 520-21 (2002) (quoting Simpson and holding that doctrine of sovereign immunity did not bar claim that the defendant breached its employment contract by denying plaintiff disability retirements it agreed to provide in exchange for five years of continuous service when plaintiff originally contracted for employment with defendant).

13. Here, Respondent failed to present any statutory or regulatory authority which would preclude the arrangement set up by DHHS or upon which Respondent could refuse to honor the terms of that contract. Respondent failed to present any statutory or regulatory authority that required Petitioner to continuously exhaust his sick and vacation leave. Moreover, Mr. Barnes acknowledged in his December 14, 2002 letter that Respondent did not contest the validity of DHHS' act of allowing Petitioner use leave for more than one-half of the month, and take leave without pay for the remainder of month to keep Petitioner on pay status until September 9, 2002.

14. At hearing, Respondent contended that, at the time of Petitioner’s dismissal and grievance, N.C. Gen. Stat. § 135-4(v) was the only provision under which Respondent could have allowed Petitioner any retirement service credit. However, the fact scenario in Petitioner’s case was not the result of Petitioner being “omitted from contribution membership through error” by DHHS. It resulted from settlement of an employment or personnel dispute between a state agency and its employee. Moreover, N.C. Gen. Stat. § 135-104 authorizes state agencies flexibility in making salary continuation after the onset of disability in short and long-term disability scenarios. N.C. Gen. Stat. § 135-104 explicitly authorizes state agencies to use sick leave, vacation leave or "any other salary continuation."

15. Neither did N.C. Gen. Stat. § 135-4(v) prevent either Petitioner or DHHS from currently paying any deficiency in interest payments required by N.C. Gen. Stat. § 135-4(v)(2) and (3) to receive membership service credit earned under the terms of Petitioner’s settlement agreement. RSD's refusal to grant McCaskill long term disability payments or to allow him or his employer to make up any deficiency in the payments to RSD required by the June 17, 2002 agreement is arbitrary and capricious.

16. While it apparently has been Respondent’s practice to grant a member a full month retirement credit for any part of the month in which the member works and for which retirement contributions are made, there is no statute, rule, or written policy which directs such a result. Mr. Barnes acknowledged that Respondent employs this practice based on the circumstances of each case.

17. 25 NCAC 1D .0114 provides in part:

. . . An employee is in pay status when working, when on paid leave, or when on worker’s compensation leave. . . . Periods of leave without pay do not constitute a break in service.

18. In this case, Petitioner was in full pay status with DHHS from January 1, 2002 through September 9, 2002. Respondent acted arbitrarily and capriciously when it refused to allow Petitioner to benefit from Respondent’s practice of granting full month retirement credit for those months when DHHS paid Petitioner for more than one-half of the work days.

19. Quasi-estoppel is based upon the acceptance of benefits, and provides that where one having the right to accept or reject a transaction or instrument, takes and retains benefits there under, he ratifies it, and cannot avoid its obligations or effect by taking a position inconsistent with it. Redevelopment Commission of City of Greenville v. Hannaford, 29 N.C.App. 1, 222 S.E.2d 752 (1976).

20. In Fike v. Bd. of Trs., Teachers' and State Employees' Ret. Sys., 53 N.C. App. 78, 279 S.E.2d 910 (1981), the Court held that the Retirement System was estopped from denying benefits, because of the representations it made to the employee through its publications. The reasoning in Fike is instructive in this case.

21. In this case, a preponderance of the evidence proved that DHHS and Petitioner signed their settlement agreement in good faith, believed their agreement resolved Petitioner’s internal grievance with DHHS, and believed their settlement agreement complied with North Carolina personnel and retirement statutes, rules and regulations. Petitioner relied on the assurances of the DHHS employees and agents that their settlement agreement was valid regarding personnel and retirement statutes, rules and regulations. Based on such reliance, Petitioner released any and all claims against DHHS regarding Petitioner’s December 6, 2001 termination.

22. The preponderance of the evidence showed that Respondent accepted DHHS retirement contributions on Petitioner’s behalf, and never returned those contributions to Petitioner. By accepting and never returning Petitioner’s retirement contributions, Respondent ratified DHHS’ retirement contributions for Petitioner, and indicated that Petitioner was still a participating member of the Retirement System. Further, in his December 17, 2004 letter, Marshall Barnes acknowledged that Respondent did “not contest the actions that placed Petitioner on three quarter time effective January 1, 2002.”

23. For the foregoing reason, Petitioner is also entitled to retirement benefits from Respondent under the doctrine of quasi-estoppel.

24. For the foregoing reasons, Respondent deprived Petitioner of property, acted arbitrarily and capriciously, and substantially prejudiced Petitioner’s rights when it denied Petitioner’s long-term disability benefits.

DECISION

Based upon the above Findings and Conclusions, the undersigned determines that

Respondent should REVERSE its initial decision to deny Petitioner long-term disability benefits, and grant Petitioner long-term disability benefits.

ORDER AND NOTICE

The North Carolina Board of Trustees of the Teachers’ and State Employees’ Retirement System will make the Final Decision in this contested case. N.C. Gen. Stat. § 150B-36(b), (b1), (b2), and (b3) enumerate the standard of review and procedures the agency must follow in making its Final Decision, and adopting and/or not adopting the Findings of Fact and Decision of the Administrative Law Judge.

Pursuant to N.C. Gen. Stat. § 150B-36(a), before the agency makes a Final Decision in this case, it is required to give each party an opportunity to file exceptions to this decision, and to present written arguments to those in the agency who will make the Final Decision. N.C. Gen. Stat. 150B-36(b)(3) requires the agency to serve a copy of its Final Decision on each party, and furnish a copy of its Final Decision to each party’s attorney of record and to the Office of Administrative Hearings, 6714 Mail Service Center, Raleigh, NC 27699-6714.

This the 4th day of January, 2008.

_______________________________

Melissa Owens Lassiter

Administrative Law Judge

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