State Retirement & Pension System v. Thompson

⁵⁵ WILNER, J. The Circuit Court for Prince George’s County, through a writ of mandamus, effectively enjoined the State Retirement and Pension System of Maryland (SRPS) from complying with a statutory mandate to reduce disability retirement benefits payable to respondent, Patrick Thompson, by amounts equivalent to workers’ compensation benefits that Thompson is receiving by reason of the same work-related disability that served as the basis for his retirement. Two issues are presented here: (1) whether the court should have dismissed Thompson’s complaint for failure to exhaust an available administrative remedy before resorting to court, and (2) whether the court’s ruling was substantively incorrect. We shall answer both issues in the affirmative and, as a result, reverse the judgment and direct that the complaint be dismissed. BACKGROUND Regrettably, the record in this case is convoluted and confusing, in part because the issues arise from the interrelationship of two parallel proceedings — a workers’ compensation claim and proceedings involving SRPS — and in part because the record itself is deficient in a number of respects.

Maryland law precludes a government employee from collecting duplicative benefits for the same work-related disability under both the workers’ compensation law and the employer’s retirement system. If the employee is covered by SRPS, the basic disability benefits payable by SRPS are reduced by the amount of workers’ compensation benefits received by the employee. Maryland Code, § 29 — 118(b)(1) of the State Personnel and Pensions Article (SPP) requires the Board of Trustees of SRPS to reduce disability retirement benefits otherwise payable to the former employee by the amount of any related workers’ compensation benefits paid or payable after the effective date of retirement. If the employee is covered by some other public employment plan that provides disability benefits, it is the workers’ compensation benefits that get reduced.

Section 9-601 (a) of the Labor & Employ ⁵⁶ ment Article (LE) provides, in that situation, that payment of the disability retirement benefit satisfies, to the extent of the payment, the employer’s liability for workers’ compensation benefits. Because Mr. Thompson was covered by SRPS, we are concerned here with the reduction required by SPP § 29-118(b)(1). Thompson was a maintenance employee of the University of Maryland. On December 5, 1989, while removing topsoil from a flower bed, he slipped, fell, and injured his back.

Although he sought immediate medical attention, he was able to continue working until March, 1990. In June, 1990, he filed a workers’ compensation claim and, commencing January 8, 1991, began receiving temporary total disability benefits of $204/week, which, on a monthly basis, amounted to $884 [ ($204 x 52) -r- 12]. That continued until May, 1996. At some point, which is not clear from the record, Thompson retired on disability and was awarded disability retirement benefits that, at various places in the record, have been asserted to be $980/month, $960/month, $908/month, $920/ month, and $l,045/month.

The record reveals that the retirement was deemed “effective” as of May 1,1994, but there is no evidence of when that decision was made, and there is some indication that there may have been a considerable delay, of up to two years. It appears to be the case that, notwithstanding that the disability retirement benefits, whatever they were, exceeded the $884/month that Mr. Thompson was collecting in workers’ compensation benefits, no disability retirement benefits at all were paid to Mr. Thompson until some time in 1996. That, too, is not entirely clear, however. In August, 1996, following a hearing, the Workers’ Compensation Commission determined that Thompson was permanently and totally disabled and, accordingly, it terminated the temporary total benefits and replaced them, retroactive to May, 1996, with permanent total disability payments, in the same amount of $204/week ($884/month).

That sum was then reduced temporarily by $24/week in order to reimburse the ⁵⁷ employer’s insurer, Injured Workers’ Insurance Fund (IWIF), for a lump sum attorneys’ fee payment of $7,500. The University and IWIF sought judicial review of that award. In July, 1997, while that matter was pending in the Circuit Court for Prince George’s County, Thompson filed, in the judicial review action, a petition for temporary ex parte injunctive relief. Though acknowledging several times that SRPS had the right to set off any workers’ compensation benefits received by him, Thompson complained that, if it was allowed to do so, he would be destitute and unable to meet his obligations, and he therefore asked that the court enjoin SRPS from setting off the workers’ compensation benefits.

As best we can tell from some of the statements made at the hearing on the motion, Thompson was hoping to arrange a lump sum settlement of the workers’ compensation case, and he wanted SRPS to continue paying the full amount of retirement benefits, without setoff, until such a settlement could be effected, at which point he might be able to reimburse SRPS for any funds that, due to the statutory right of setoff, he was not entitled to receive. In essence, he was looking for an interest-free loan from SRPS, although he Rid not articulate his request in that manner. He estimated his chance of effecting such a settlement as no better than even. 1 ⁵⁸ The court granted the requested injunctive relief. In an order entered September 10, 1997, it made a number of findings regarding what Thompson had received in workers’ compensation benefits and what, in the court’s view, he was entitled to receive in disability retirement benefits, and, upon those findings, the court, (1) enjoined SRPS from exercising a setoff against monies that represented pension benefits due Thompson until January 21, 1998 (later extended to April 30, 1998), but (2) directed that Thompson fully reimburse SRPS “so as to reduce [Thompson’s] disability retirement benefit ‘by any related workers’ compensation benefits paid or payable after’ May 1, 1994, including any and all duplicative benefit payments that [SRPS] may make to [Thompson] in accordance with this Order after August 1, 1997.” The apparent basis of the order was entirely one of sympathy — that if SRPS were allowed to effect the credit mandated by the statute, the net amount payable to Thompson would be insufficient to meet his needs.

Several things occurred in relatively short order thereafter. SRPS appealed the injunctive order entered by the Circuit Court. On January 21, 1998, the Circuit Court affirmed the order of the Workers’ Compensation Commission. SRPS moved to dissolve the injunctive order, which, on January 26, 1998, the court denied.

SRPS then filed an answer to the August petition and noted an appeal from the court’s refusal to dissolve the injunctive order. It requested the Circuit Court to stay the injunction pending a decision by the Court of Special Appeals. After a hearing, the Circuit Court said that it would enter a stay of the injunctive order until April 30, 1998, which was the date it was due to expire, although the record does not reveal that any such order was ever signed or docketed. On May 28, 1998, J. Barry Schaub, the Director of Benefits Processing for SRPS, informed Thompson by letter that he ⁵⁹ would soon receive a check for $432, representing a refund of “the non-State portion of the retroactive retirement benefits held on [his] account.” The letter then set forth a number of calculations, leading to the conclusion that Thompson owed SRPS over $18,000.

Schaub calculated the total workers’ compensation benefits paid for the period May 1, 1994 through August 1, 1997, as being $36,924, and the total retroactive disability retirement benefits held for his account as being $26,770, of which $26,337 was the “State portion.” The letter advised that, because of the injunctive order entered by the Circuit Court, he had been overpaid $7,956 for the period August, 1997 through April, 1998, and that SRPS intended to recover that amount plus $10,586 in workers’ compensation benefits paid or payable between May 1, 1994 and August 1, 1997, for a total of $18,542. Accordingly, Schaub advised that, beginning with the May, 1998 retirement check, SRPS would be applying a setoff of $884/month, which would remain in effect until termination of the workers’ compensation benefits. The letter ended by informing Thompson that, subject to the pending appeal in the Court of Special Appeals, he had a right to request an administrative appeal of the setoff decision. There was no immediate response to that letter.

In its appeals to the Court of Special Appeals, SRPS argued that, (1) the Circuit Court had no “jurisdiction” in the matter because Thompson had failed to exhaust an available administrative remedy, and (2) the court erred on the merits because SRPS was prohibited by SPP § 29-118 from making duplica-tive payments. In an unreported opinion filed September 15, 1998, the intermediate appellate court found no merit in either argument and thus affirmed the injunctive order entered by the Circuit Court. With respect to the exhaustion argument, the court cited SPP §§ 10-207 and 10-208 as requiring SRPS to give reasonable notice of its intended action prior to making a setoff and of the time and place of a hearing, which the court concluded the agency failed to do. 2 Because, in its view, ⁶⁰ Thompson never received notice that SRPS intended to set off the workers’ compensation benefits, the administrative remedy of a hearing before the SRPS Board of Trustees was rendered “inadequate,” thereby allowing Thompson to go directly to court. On the merits, the court viewed the issue as whether SRPS could withhold disability retirement benefits in order to recoup duplicative payments it had already made, and it concluded that the court could preclude SRPS from doing that if the effect were to render Thompson destitute. “We see no reason,” it said, “why [Thompson] cannot reimburse the Retirement System in a manner that will not place his family in economic peril.” It does not appear that this ruling by the Court of Special Appeals had any legal effect, and, indeed, the appeal should have been dismissed as moot.

The injunctive order at issue had expired, by its own terms, on April 30, 1998 — almost five months before the opinion was filed. Given that fact, and in accordance with Schaub’s May, 1998 letter, SRPS again began setting off the workers’ compensation benefits of $884/month against the State portion of the disability retirement benefits. Although on this point as well the record is not at all clear, we are advised in SRPS’s.brief that Thompson’s gross retirement benefit, including cost-of-living increases, at that point was $1,045, that SRPS set off against that amount the $884 Thompson was receiving in workers’ compensation benefits, that it was sending to him the difference of $161/month, and that, when coupled with the $884 he received from IWIF, Thompson was receiving the full amount he was entitled to receive on account of his disability. ⁶¹ In August, 1999, counsel for Thompson wrote to the Executive Director of SRPS, Mr. Peter Vaughn, requesting his assistance. He advised that Thompson was receiving $687/ month in workers’ compensation benefits, that he had received no disability retirement benefits since April, 1998, and that he was then in negotiation with IWIF to secure a lump sum payment. 3 Counsel informed Vaughn that, if SRPS denied relief, he would return to the Circuit Court.

Vaughn responded that the agency had informed Thompson in May, 1998, that the setoff was required by law and allowed by the expiration of the injunctive order. He noted that Schaub’s letter had outlined Thompson’s appeal rights and that he had received nothing further from Thompson over the course of the past fifteen months. Though expressing “empathy” with Thompson’s economic plight, Vaughn advised that “the only way to stop administering the offset would require either a ruling by the Board of Trustees or a court order.” Thompson’s attorney also received a response from the Assistant Attorney General who was temporarily serving as counsel to SRPS. She too made reference to Schaub’s letter notifying him of the agency’s intention and of his administrative remedies.

She enclosed a copy of the Board of Trustees regulations relating to hearing procedures and stated that Schaub’s letter and her current letter “undoubtedly provide you and your client with formal notice of the Agency’s action and the administrative remedies that you may pursue to prevent the offset of his disability retirement benefits.” The letter noted that, although counsel’s August letter appeared to be a request for relief from the setoff, it did not specify whether Thompson wished to pursue his administrative remedies, and it invited counsel to contact the Assistant Attorney ⁶² General assigned to this case upon his return from vacation “about the Agency procedures available to an individual who is adversely affected by an Agency’s action.” Nothing more occurred until February 15, 2001, when Thompson filed, in the same workers’ compensation judicial review action that had been terminated in October, 1998, with the entry of the mandate from the Court of Special Appeals affirming the injunction issued by the Circuit Court, a complaint for writ of mandamus and ex parte order. In his complaint, Thompson noted that his negotiations with IWIF to arrange a lump sum settlement of the workers’ compensation claim were ongoing, although “effective resolution [was] not expected for a period of 3 to 6 months.” He asserted that he was receiving $289 bi-weekly from IWIF, and that he was destitute and in pain. On that basis alone, he asked for a writ of mandamus “declaring that [he] receive duplicative payment benefits from [SRPS] and [IWIF] The next day, apparently without a hearing, the court entered an order directing SRPS to reinstitute payments “in the amounts currently due including the cost of living allowances and consideration for health insurance beginning with the payment of March 1, 2001 for a period of 6 months or until further Order of this Court ending September 1, 2001.” The order stated also that Thompson “shall fully reimburse [SRPS] as required by [SPP § 29-118] including any and all duplicative benefit payments barring an Order to the contrary by the Pension Review System or barring resolution between the parties.” Though dated February 16, the order was not entered on the docket until March 14, 2001. Before the order’s entry, SRPS filed a motion to dissolve the order, which it regarded as a temporary restraining order.

In that motion, SRPS alleged that Thompson had failed to exhaust his administrative remedies and that he was unable to show any likelihood of success in his demand that he receive duplicative payments that the law prohibited. Six days after the order’s entry, SRPS filed an answer to the complaint, as well as an ⁶³ appeal. 4 Finally on April 30, 2001, SRPS filed a summary judgment motion and, in support, submitted an affidavit from Mr. Schaub, accompanied by various worksheets, attesting that, after the deduction of $884 for the workers’ compensation benefits, Thompson had received from SRPS $123/month for the period January, 1999 — June, 1999, $138/month for the period July, 1999 — June, 2000, and, except for the one full payment in March, 2001, $161/month from and after July, 2000. At a hearing held on August 3, 2001, the court denied SRPS’s motion for summary judgment and granted a writ of mandamus ordering SRPS to continue making duplicative payments. Reciting the reasoning and some of the language in the earlier Court of Special Appeals opinion, the court, fully aware of the statutory mandate, simply decided that to enforce the statute would “lead to an oppressive, absurd or unjust consequence.” An order directing SRPS to commence full payment, retroactive to April, 2001, was entered August 21, 2001.

SRPS noted an appeal and sought a stay in the Court of Special Appeals. When that court denied the stay, SRPS sought certiorari and a stay in this Court. We granted both requests. DISCUSSION Exhaustion of Administrative Remedy SRPS is subject to the contested case provisions of the Administrative Procedure Act.

See Maryland Code, § 10-202(b) of the State Government Article and SPP, § 21 — 111(b). Under the State Government Article (SG) provisions, SRPS is required, (1) to adopt regulations governing procedures under the APA and practice before the agency (SG § 10 — 206(b)), (2) to give reasonable notice of the agency’s action or proposed ⁶⁴ action (SG § 10-207), and (3) to afford the opportunity for a hearing and give reasonable written notice of the time, place, and nature of the hearing and of the rights and procedures applicable to the hearing (SG § 10-208). In conformance with SG § 10-206(b), SRPS has adopted regulations governing APA hearings. See COMAR 22.03.04.

When SRPS first acted to set off Thompson’s workers’ compensation benefits against his disability retirement benefits, it gave no notice of its intent to do so and gave no notice of any right to a hearing. It was on that basis that the Court of Special Appeals held that Thompson’s direct resort to court was not inappropriate. Whether that decision was right or wrong is of no moment at this point. For one thing, SRPS did not seek review in this Court; for another, more recent events have made that determination moot.

In May, 1998, through Schaub’s letter, SRPS clearly informed Thompson not only of SRPS’s intent to recommence the setoff but of its intent to recoup the overpayments noted in the letter. As we observed, that letter also