Hearn v. Hearn

MEREDITH, J. This case arises from a post-divorce dispute between the parties, Peter C. Hearn, appellant, and Pamela Hearn, appellee, relative to terms upon which Mr. Hearn’s federal pension benefits will be divided. Shortly after the divorce was finalized, the parties negotiated a qualified domestic relations order to distribute a portion of Mr. Hearn’s federal pension to Mrs. Hearn when Mr. Hearn retires. Because Mr. Hearn’s pension is from the federal government, the order directing the distribution is a Civil Service Retirement and Survivor ⁵²⁸ Annuity Benefits Order (“CSRS order”). On February 10, 2001, in accordance with the joint request of the parties, the Circuit Court for Frederick County entered a CSRS order that directed a portion of Mr. Hearn’s retirement benefits be paid to Mrs. Hearn, using a calculation called a pro rata formula.

By letter dated May 3, 2001, the Office of Personnel Management (“OPM”) acknowledged receipt of the CSRS order, and advised the parties that the formula for calculating Mrs. Hearn’s portion of the pension benefit would be applied to the gross amount of the benefit that Mr. Hearn would be entitled to receive, if, as and when he was to receive it. On August 22, 2006, Mr. Hearn filed a motion requesting the circuit court to order that the pro rata formula in the CSRS order be applied to Mr. Hearn’s net annuity, rather than the gross amount of the retirement benefit. Mrs. Hearn opposed this motion. On November 28, 2006, the circuit court held a hearing and denied Mr. Hearn’s motion without taking any evidence or testimony.

Mr. Hearn noted a timely appeal. Mr. Hearn has raised the following questions: (1) Did the circuit court err in ruling that the pro rata formula used in the CSRS order applies to the gross payment and not the net payment received? (2) Did the circuit court err in denying Mr. Hearn’s request without permitting him to present any evidence in support of his motion? We conclude that the circuit court correctly ruled that the CSRS order, as entered, provides for Mrs. Hearn to receive a portion of the gross benefits.

The applicable federal regulations conclusively resolve any possible ambiguity in that regard. If Mr. Hearn had alleged that the CSRS order, when interpreted pursuant to the federal regulations, was not in accordance with his unilateral understanding to the contrary, the parol evidence rule would preclude further consideration of his request for reformation. But Mr. Hearn alleged that he and Mrs. Hearn both intended the formula for division to apply to his net benefit, and, therefore, if the CSRS order is not interpreted to apply to his net benefit, then he and Mrs. ⁵²⁹ Hearn were mutually mistaken as to the legal effect of the agreed language. Because the parol evidence rule does not preclude evidence of a mutual mistake, Mr. Hearn’s claim for reformation should have been addressed by the circuit court.

But the circuit court failed to make any factual findings or otherwise address Mr. Hearn’s contention that the language used in the consent order was based upon a mutual mistake as to its legal effect. Accordingly, we shall vacate the judgment of the circuit court and remand the case for further proceedings. Facts and Procedural History Mr. and Mrs. Hearn were divorced in 1999. A detailed separation agreement, signed by the parties on September 15, 1999, was incorporated, but not merged, into the final divorce judgment entered on September 15, 1999.

The separation agreement described how the pro rata formula for division of Mr. Hearn’s pension benefits would be calculated, stating: Husband’s interest in the pension shall be divided between the parties and Wife shall be designated as the Alternate Payee of Husband’s benefits and shall receive her share if, as and when Husband receives his benefits. The amounts of Wife’s portion shall be determined by multiplying the amount of each payment times Fifty percent (50%) of a fraction. The fraction shall be determined or designated as follows: the numerator shall be the number of years and months of the marriage during which contributions were made to the Plan through July 3, 1998 and the denominator shall be the total number of years and months of employment during which contributions were made to the Plan. The parties agree that this shall be deemed to be twenty-two years (22) and six (6) months is the numerator and the total number of years and months of employment credited toward retirement is the denominator.

The parties agree that Husband’s initial date of service with the United States Government for purposes of determining his retirement benefits is June 16,1968. ⁵³⁰ Thereafter, the parties negotiated a proposed consent order to require OPM to divide Mr. Hearn’s pension benefits in accordance with their separation agreement. The proposed CSRS order expressly indicated in the preamble that it was intended to carry out the parties’ agreement regarding the pension as the parties had previously set forth in their separation agreement. On February 10, 2001, the circuit court entered the jointly requested CSRS order that divided Mr. Hearn’s federal pension benefits between the parties “pursuant to the provisions of 5 CFR Section 838.101, et seq____” The CSRS order used the pro rata formula agreed upon by the parties in the separation agreement, quoted above, to calculate the amount of payment that Mrs. Hearn will receive when Mr. Hearn begins receiving retirement benefits. The CSRS order also stated: [Notwithstanding any language in any other Order of this or any other Court to the contrary, and notwithstanding any contrary or inconsistent terms contained in the above mentioned [Separation] Agreement or in the Judgment of Absolute Divorce, the language contained in this Order shall govern the determination of the matters addressed herein....

After being entered by the circuit court, the CSRS order was submitted to OPM. According to counsel for Mr. Hearn, OPM notified him (1) that OPM had accepted the Hearns’ CSRS order for processing, and (2) that OPM would apply the pro rata formula to the gross payment due to be paid to Mr. Hearn at retirement rather than the net annuity. Counsel for Mrs. Hearn represented to the circuit court that the notice from OPM was dated May 3, 2001, but no copy of the notice appears in the record. On August 22, 2006, Mr. Hearn filed a motion in the Circuit Court for Frederick County requesting that the court instruct OPM to enforce the CSRS order by applying the agreed fraction to Mr. Hearn’s net annuity, rather than the gross amount of the retirement annuity.

In the memorandum sub ⁵³¹ mitted in support of Mr. Hearn’s motion, he asserted that the court’s CSRS order was the result of a negotiation between the parties over division of all [marital] property. The parties discussed and agreed that Ms. Hearn’s share of the retirement benefit would be calculated from the net annuity payment received by Mr. Hearn. The parties believed that this intention was expressed in the CSRS Order by using the phrase “retirement annuity benefit payment that the Employee may hereafter become entitled to receive from the CSRS ...” ... However, OPM has indicated that unless corrective language is received it will apply the prorata formula to the gross retirement annuity benefit.

If OPM applies the formula in this fashion, it will not be carrying out the CSRS Order as the parties intended and will be an injustice to the parties. Although the above allegations were not supported by any documentary evidence, the motion was supported by an affidavit of Mr. Hearn that stated, in pertinent part: 2. When the Civil Service Retirement and Survivor Annuity Benefits Order was drafted, it was discussed how the formula used to determine Ms. Hearn’s payment was to be applied, and we agreed that it would be applied to the net payment that I received from CSRS. 3. I was informed and therefore believed that the language used in the order that was filed with the Court was sufficient to carry out this intention. 4.

I have been informed by OPM that it intends to apply the formula to the gross retirement annuity benefit, and requires further order from this Court to apply the formula as the parties intended. 5. If OPM were to apply the formula to the gross retirement annuity benefit, then OPM would not be executing the order in the way that I and Ms. Hearn intended and agreed. In opposition to Mr. Hearn’s motion, Mrs. Hearn denied that any action by the circuit court was required to carry out ⁵³² the intentions of the parties, and further asserted that all of her former husband’s claims for relief with respect to the terms of CSRS order were barred by laches. The opposition was supported by an affidavit of Mrs. Hearn stating under oath that the CSRS order was in accordance with her intent: 2.

The Order clearly establishes the Agreement between the parties. I have no recollection of “net” benefits even being discussed. 3. I always intended and expected to receive my marital share of the Defendant’s gross pension. The circuit court held a hearing on the motion on November 28, 2006.

Counsel for Mr. Hearn recounted that the CSRS order was intended to comply with the separation agreement. Counsel related that: The language of both the separation agreement and the [CSRS order] doesn’t use the word gross. However, because of OPM’s particular wording that they need in orders, because it didn’t use the word net or a few other particular phrases, the default that OPM uses is ... gross[.][S]o because the word payment was used and not another phrase, OPM is defaulting to gross even though the parties didn’t put gross in the order. * # * The language used in both the separation agreement and the [CSRS order] uses the words payment ... payment received by the employee____The parties did not use the word gross, and to allow OPM to apply it that way ... is not correct. It’s not applying it as the parties intended it to apply, as they negotiated it back in 2001.

At the conclusion of her opening argument on the motion, counsel for Mr. Hearn stated: “I would intend to call Mr. Hearn as a witness.... ” Arguing in opposition to the motion, Mrs. Hearn’s attorney asserted that the court was obligated to apply the provisions of the Code of Federal Regulations, which provide that if a CSRS order does not specify that it is to apply to the net ⁵³³ benefit, OPM will apply the order to gross benefits. Noting that it appeared that counsel for Mr. Hearn intended to call Mr. Hearn as a witness, and that he “intends to state what he believed and what Ms. Hearn believed,” Mrs. Hearn’s counsel pointed out that Mrs. Hearn’s affidavit disputed her former husband’s recollection. Counsel for Mrs. Hearn protested, “it’s inappropriate for [Mr. Hearn] to state in the affidavit or testify as to what she believed.” Without hearing any testimony from Mr. Hearn, the court denied Mr. Hearn’s motion. The court noted that the order is not ambiguous because the regulations by which OPM administers CSRS orders make clear that the agreement was to apply to gross benefits.

The court did not address Mr. Hearn’s contention that the CSRS order did not conform to the mutual intention of the parties. As a consequence of the court’s denial of the motion, it was not necessary for the court to consider Mrs. Hearn’s claim of laches. On November 29, 2006, the day after hearing on the motion, Mr. Hearn filed a “proffer in support of his motion.” The proffer attached two letters exchanged between counsel prior to entry of the CSRS order, and stated: Defendant proffers that had he been allowed to offer evidence in support of his motion, he would have offered the attached letters in support of his motion. Attachment A [letter dated January 26, 2001, from wife’s counsel to husband’s counsel] and B [letter dated December 14, 2000, from husband’s counsel to wife’s counsel].

These letters evidence that the parties specifically eliminated the term “gross” from the calculation of the formula for Plaintiff’s share of the pension benefit. These letters show that the interpretation of the Office of Personnel Management and the ruling of the Court are not consistent with the parties’ drafting of the order. The proffered letter from Mr. Hearn’s counsel commented that the separation agreement specified that the pro rata formula was to be applied to “the amount of each payment,” whereas the initial draft of the CSRS order stated that the ⁵³⁴ formula was to apply to “the gross annuity amount of each monthly retirement annuity payment____” The letter concluded: Thus, while the [separation] agreement provides that your client’s share will be taken from the amount of the payment itself, the proposal has the share coming off of the gross. If this can be rectified, I believe we will be able to agree to the proposal as submitted.

The proffered letter of response from counsel for Mrs. Hearn stated: “Enclosed please find the Civil Service Retirement and Survivor Annuity Benefits Order with your only requested change, stated in your letter attached.” In response to Mr. Hearn’s post-hearing proffer, counsel for Mrs. Hearn moved to strike the proffered material, arguing that the letters would have been inadmissible because they predated the CSRS order and would have been irrelevant to interpretation of that document. The circuit court entered its written order denying Mr. Hearn’s motion on January 11, 2007, and Mr. Hearn noted his timely appeal on February 1, 2007. On February 16, 2007, the circuit court entered an order granting the motion to strike Mr. Hearn’s proffer. Standard of Review “Consent judgments are ‘agreements entered into by the parties which must be endorsed by the court.’ ” Dennis v. Fire and Police Employees’ Ret.

Sys., 390 Md. 639, 655 , 890 A.2d 737 (2006) (quoting Chernick v. Chernick, 327 Md. 470, 478 , 610 A.2d 770 (1992)). They reflect the agreement of the parties “pursuant to which they have relinquished the right to litigate the controversy.” Dennis, supra, 390 Md. at 655-56 , 890 A.2d 737 (internal quotations and citations omitted). Accordingly, we look to the parties’ agreement as embodied in the judgment to interpret the order. Id. at 656 , 890 A.2d 737 .

In interpreting the parties’ agreement as embodied in a consent judgment, we have applied the ordinary principles of contract construction. Id. Under Maryland law, the interpretation of a contract, including the question of whether the language of a contract is ambiguous, is a question of law ⁵³⁵ subject to de novo review. Towson v. Conte, 384 Md. 68, 78 , 862 A.2d 941 (2004).

Discussion Parties to a contract are presumed to contract mindful of the existing law, and all applicable or relevant laws must be read into the agreement of the parties just as if expressly provided by them, except where a contrary intention is evident. As Judge Hammond wrote for the Court of Appeals in Griffith v. Scheungrab, 219 Md. 27, 33 , 146 A.2d 864 (1959): It is familiar principle often applied in the cases that “ * * * the laws which subsist at the time and place of making a contract enter into and form a part of it, as if they were expressly referred to or incorporated in its terms; and this rule embraces alike those which affect its validity, construction, discharge, and enforcement.” Brown v. Smart, 69 Md. 320, 330 , [ 14 A. 468 ]; Globe Slicing Machine Co., Inc. v. Murphy, 161 Md. 667, 671 , 158 A. 26 . The Court of Appeals has on numerous occasions applied the principle of contract law that reads into agreements all existing and applicable laws and regulations. See, e.g., Lema v. Bank of America, N.A., 375 Md. 625, 645 , 826 A.2d 504 (2003) (“parties are presumed to know the law when entering into contracts ...”); Auction & Estate Representatives, Inc. v. Ashton, 354 Md. 333, 344 , 731 A.2d 441 (1999) (“Maryland adheres to the general rule that parties to a contract are presumed to contract mindful of the existing law and that all applicable or relevant laws must be read into the agreement of the parties just as if expressly provided by them, except where a contrary intention is evident”); Wright v. Commercial and Sav.

Bank, 297 Md. 148, 153 , 464 A.2d 1080 (1983) (same); Dennis v. The Mayor and City Council of Rockville, 286 Md. 184, 189 , 406 A.2d 284 (1979) (“the laws subsisting at the time of the making of a contract enter into and form a part thereof as if expressly referred to or incorporated in its terms, and the principle embraces alike those provisions which affect the validity, construction, discharge and enforcement of the contract”). In this case, the applicable federal regulations resolve ⁵³⁶ any ambiguity with respect to whether the CSRS order should be construed to apply to Mr. Hearn’s gross annuity benefit. 5 C.F.R. § 838.101 governs the purpose and scope of court orders affecting retirement benefits. Specifically, that section regulates the Office of Personnel Management’s handling of court orders affecting the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), both of which are administered by the Office of Personnel Management (OPM). Generally, OPM must comply with court orders, decrees, or court-approved property settlement agreements in connection with divorces, annulments of marriage, or legal separations of employees, Members, or retirees that award a portion of the former employee’s or Member’s retirement benefits or a survivor annuity to a former spouse. 5 C.F.R. § 838.101 (a)(1).

Section 838.101(b) prescribes (1) The requirements that a court order must meet to be acceptable for processing under this part; ... (3) The procedures that OPM will follow in honoring court orders and in making payments to the former spouse or child abuse creditor; and (4) The effect of certain words and phrases commonly used in court orders affecting retirement benefits. In Pleasant v. Pleasant, 97 Md.App. 711 , 726 n. 8, 632 A.2d 202 (1993), this Court stated: “It is expected that, henceforth, when marital property includes a federal pension, the attorneys and the trial judge will have familiarized themselves with the information contained in 5 C.F.R. Part 838.” Part 838 of the Code of Federal Regulations addresses the requirements that a court order must meet to be acceptable for processing by the OPM. The regulations require the court order to specify the type of employee annuity to which the former spouse’s share calculation should be applied. 5 C.F.R. § 838.306 .

Three classifications of annuity are defined. The self-only annuity means recurring unreduced payments under CSRS to a retiree with no survivor annuity payable to anyone. ⁵³⁷ The gross annuity is the self-only annuity less deductions for the cost of survivor annuity benefits, but before any other deductions. The net annuity is the gross annuity less other deductions, such as health and life insurance and taxes. 5 C.F.R. § 838.103 . Most important for the purposes of this appeal is § 838.306, which reads: (a) A court order