Brown v. Fire & Police Employees' Retirement System

RAKER, J. Petitioners, all former Baltimore City police officers, in a declaratory judgment action, ask this Court to decide whether ⁶⁶⁴ a “deferred retirement option plan” compensation retirement benefit is marital property pursuant to the Baltimore City Code (2000' Supp.) Article 22 1 and the parties’ judgments of divorce and qualified domestic relations orders. We granted certiorari, and we added the following additional questions: “I. Whether actions for a declaratory judgment and injunctive relief, to determine whether certain benefits constituted marital property, were appropriate in this case. “II. If an action for a declaratory judgment was appropriate, particularly in light of Maryland Code (1974, 2002 Repl.Vol.), Sections 3-409(b) and 3-409(d) of the Courts and Judicial Proceedings Article, whether the Circuit Court erred in ordering that the ‘Amended Complaint is dismissed with prejudice____’ ” Brown v. Ret. Sys., 372 Md. 685 , 814 A.2d 571 (2003).

We conclude that actions for declaratory judgment were not appropriate in this case because petitioners failed to exhaust their statutory administrative remedies. We thus vacate the trial judge’s dismissal and direct the Circuit Court to dismiss the matter for failure to exhaust administrative remedies. I. Facts Petitioners Herbert Brown, Elmer Dennis, Edmund Lubinski, Joseph S. Moore, Robin Thacker, Dwight Thomas, Essex Weaver, Kenneth Welsh and Randolph E. Wynn, Jr. are current or retired officers with the Baltimore City Police Department. Respondents are the Fire and Police Employees’ Retirement System (“Retirement System”) and the May- or and City Council of Baltimore City.

Denise Brown, Catherine Dennis, Edna Sullivan, Adrienne Johnson, Barbara Thacker, Lorraine Thomas, Kathleen Weaver, Barbara Ann Dailey and Linda Pearlman, petitioners’ former wives, also are respondents. ⁶⁶⁵ Petitioners filed in the Circuit Court for Baltimore City on June 29, 1999, a Complaint for Declaratory and/or Injunctive Relief, seeking a declaration that their benefits under the City’s Deferred Retirement Option Plan (“DROP”) are not marital property and should be disbursed solely to them. 2 On April 19, 2000, petitioners filed an Amended Complaint for Declaratory and/or Injunctive Relief, joining their former spouses as necessary parties under Maryland Rule 2-211. 3 Respondents argued that the Circuit Court lacked jurisdiction to determine marital property and that the ex-spouses were entitled to a share of petitioners’ DROP benefits. Motions by both sides for summary judgment were denied. The Retirement System is a governmental pension plan offered by Baltimore City and is codified in Baltimore City Code (2000 Supp.) Article 22. The Retirement System provides several different types of benefits, including service retirement benefits, line-of-duty disability benefits, line-of-duty death benefits, ordinary disability benefits, and ordinary death benefits.

Membership in the Retirement System is mandatory for all police employees as a condition of employment. § 31(1). The Retirement System is funded by the mandatory contributions of its members, by the contributions of Baltimore City, and by the System’s investment earnings. All benefit-funding assets are held under the Retirement ⁶⁶⁶ System’s name and are managed by a Board of Trustees. The Board establishes rules and regulations for the administration of the Retirement System’s funds and for the transaction of its business. § 33(g).

The Retirement System was amended in 1996 to add the DROP, effective July 1, 1996. § 36B. Members with at least twenty years of service under the Retirement System may elect to participate in the DROP for a maximum of three years. Eligible members who do not participate in the DROP may either retire and collect pension benefits, or continue to work and accrue service credit which will be used to calculate their retirement income. The DROP consists of three components: (1) An amount equal to the annual retirement allowance (or prorated annual retirement allowance for partial years) the member would have received if he had retired from service at that time and actually begun receiving his maximum retirement allowance; (2) An amount equal to the mandatory contributions the member is required to make to the Retirement System for his retirement benefits; and, (3) Interest at 8.25% compounded annually until the member actually retires. § 36B(d).

All mandatory contributions to the DROP are paid to the Board and commingled with all other contributions to the Retirement System. No actual separate account is established, and no funds are segregated. The Retirement System is a tax-qualified plan under the Internal Revenue Code. See 26 U.S.C. § 401 (a) et seq.

(2000). All DROP payments are reported to the IRS on Form 1099R as having been paid from the Retirement System. The Board takes the position that, if a qualifying court order requires payment to a former spouse of an employee-member of the Retirement System, a percentage of the Member’s benefits under the System (the former spouse’s portion) will be based on all of the benefits payable to the Member under the System, including the DROP. ⁶⁶⁷ During the period of DROP participation, the Member’s regular pension is “frozen,” i.e., the Member will not acquire new service credit toward the regular pension. At the conclusion of the DROP period, the Member’s regular service retirement benefit remains the same as when he or she entered the DROP.

Various forms of additional service credits and a bonus accrual can be earned after participating in the DROP. Distribution of the DROP benefit depends on how and when the Member retires. If the Member elects an ordinary retirement, he or she may receive the DROP benefit as a lump sum or as part of the regular monthly annuity payment. No part of the DROP benefit is payable in the event of a line-of-duty disability or a line-of-duty death.

In such cases, the Member or the qualifying beneficiary receives only the benefit otherwise payable under the Retirement System. § 36B(k) and (i). The circuit court granted each couple a final judgment of absolute divorce from which no appeal was taken; the judgments of divorce had never been subject to a request for revision or modification. Under each judgment of divorce and, in most cases, a subsequently entered consent Qualified Domestic Relations Order (“QDRO”) or Amended QDRO, each respondent was granted a share of her husband’s pension benefits from the Retirement System “if, as and when” benefits become payable. Some of the parties also entered into settlement agreements that were incorporated into their judgments of divorce and that agreed to a division of the former husbands’ benefits under the Retirement System “if, as and when” such benefits become payable.

Each petitioner was eligible to retire with a regular pension prior to the date of the divorce decree or QDRO, and each participated in the DROP. Most of the petitioners entered into their QDROs before the implementation of the DROP program in July 1996. 4 In a letter dated January 20,1999, the ⁶⁶⁸ Retirement System informed each petitioner that a portion of the DROP benefits would be dispersed to each respondent as marital property under the terms of the respective judgment of divorce and QDRO. For example, the Retirement System’s letter to petitioner Dwight Thomas reads as follows: “In noting that you are presently a participant in the Deferred Retirement Option Plan (DROP), this office recently reviewed the Qualified Domestic Relations Order (QDRO) which you have on file with the Fire and Police Employees’ Retirement System (F & P). Please be advised that because your QDRO does not direct the disposition of your DROP benefit, at the time of your retirement your ex-spouse will receive the marital property portion of any lump-sum payment made to you from your DROP account.

If you do not wish your ex-spouse to receive the marital property portion of any lump-sum payment you may receive from your DROP account at the time of your retirement, your QDRO must specifically state this intention. “For your convenience, we have included a copy of our model QDRO for the F & P. You should note that provisions throughout this Order address either the inclusion or exclusion of the member’s DROP account.” As a result of the letters, petitioners filed their Complaint for Declaratory and/or Injunctive Relief with the Circuit Court. In lieu of testimony, the Circuit Court received the parties’ trial briefs, stipulations, and documentary evidence and heard oral argument in April 2001. Respondents asked for a dismissal of the amended complaint and a judgment that petitioners be required to pay DROP benefits to their former spouses in accordance with the orders in the divorce proceedings. In a written order issued April 11, 2001, the Circuit Court dismissed, with prejudice, the petitioners’ complaint, but quixotically ordered the Retirement System to “treat all DROP benefits as ordinary pension benefits for the purposes of payments pursuant to the parties’ Judgments of Divorce.” ⁶⁶⁹ Petitioners noted a timely appeal to the Court of Special Appeals.

In an unreported opinion, that court affirmed the trial court’s determination that the DROP should be treated as an ordinary pension benefit for the purposes of payments pursuant to the parties’ judgments of divorce. 5 The officers filed a petition for a writ of certiorari, and we granted the petition.

II

Discussion This Court adheres firmly to the rule that statutorily prescribed administrative remedies ordinarily must be pursued and exhausted. See, e.g., Moose v. Fraternal Order of Police, 369 Md. 476, 492-93 , 800 A.2d 790, 801 (2002); Josephson v. City of Annapolis, 353 Md. 667, 677 , 728 A.2d 690, 695 (1998); Comm’n on Human Rel. v. Mass Transit, 294 Md. 225, 230 , 449 A.2d 385, 387 (1982). Moreover, pursuant to the Uniform Declaratory Judgment Act, “[i]f a statute provides a special form of remedy for a specific type of case, that statutory remedy shall be followed in lieu” of a declaratory action proceeding. Maryland Code § 3-409(b) (1973, 2002 Repl.Vol.) of the Courts and Judicial Proceedings Article; see Moose, 369 Md. at 486 , 800 A.2d at 796-797 .

This principle that statutory administrative remedies normally must be exhausted is a policy embedded in various enactments by the General Assembly and is supported by sound reasoning. See Mass Transit, 294 Md. at 231 , 449 A.2d at 388 . The exhaustion doctrine enforces the notion that an administrative agency should have the opportunity to exercise its expertise first to resolve an issue. In Soley v. State Commission on Human Relations, 277 Md. 521, 526 , 356 A.2d 254, 257 (1976), we observed as follows: “The rule requiring exhaustion of administrative or statutory remedies is supported by sound reasoning.

The decisions of an administrative agency are often of a discretionary nature, and frequently require an expertise which the ⁶⁷⁰ agency can bring to bear in sifting the information presented to it. The agency should be afforded the initial opportunity to exercise that discretion and to apply that expertise. Furthermore, to permit interruption for purposes of judicial intervention at various stages of the administrative process might well undermine the very efficiency which the Legislature intended to achieve in the first instance. Lastly, the courts might be called upon to decide issues which perhaps • would never arise if the prescribed administrative remedies were followed.” Additionally, following the general rule, a party may appeal only from a final decision of an administrative agency.

To effect this important public policy requiring exhaustion of administrative remedies, an appellate court ordinarily will notice the issue