16-004657 Miami-Dade County vs. Department Of Management Services, Division Of Retirement Status: Closed Recommended Order on Wednesday, February 8, 2017.

Summary: DMS setoff funds from consolidated pension deduction remittals to Dade County to recover pension benefits paid to a retiree who had forfeited his pension benefits. Dispute not of a type to be determined by an agency, so no administrative jurisdiction.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MIAMI - DADE COUNTY,

Petitioner,

vs. Case No. 16 - 4657

DEPARTMENT OF MANAGEMENT

SERVICES, DIVISION OF

RETIREMENT,

Respondent.

_______________________________/

RECOMMENDED ORDER

On November 16 , 2016 , Robert E. Meale, Administrative Law

Judge of the Division of Administrative Hearings (DOAH),

conducted the final hearing by videoconference in Miami and

Tallahassee, Florida.

APPEARANCES

For Petitioner: Joni A. Mosely, Esquire

Assistant County Attorney

Miami - Dade County AttorneyÓs Office

Stephen P. Clark Center, Suite 2810

111 Northwest 1st Street

Miami, Florida 33128 - 1993

For Respondent : Veronica E. Donnelly, Esquire

Offices of the General Counsel

Department of Management Services

4050 Esplanade Way, Suite 160

Tallahassee, Florida 32399 - 0950

STATEMENT OF THE ISSUE

T he issue is whether a retiree's forfeiture of Florida

Retirement System (FRS) benefits authorizes Respondent to seize

from unrelated remittals due Petitioner the sum of $18,271.75 ,

which is the amount that Respondent had previously deducted from

the retiree's pension benefits and remitted to Petitioner for

the payment of the retiree's insurance premiums.

PRELIMINARY STATEMENT

On March 31, 2016, Respondent setoff $18,271.75 from a

consolidated monthly remittal to Petitioner of premium s that

Respondent deducted from retirees' pension benefits . T he setoff

represented a portion of a retiree's now - forfeited retirement

benefits that , pursuant to the retiree's directions, Respondent

had previously remitted to Petitioner, so Petitioner could pay

the retiree's insurance premiums ; ho wever, the consolidated

monthly remittal against which Respondent claimed the setoff

contained no remittals on behalf of the retiree who had

forfeited his pension benefits . In response to an inquiry from

Petitioner, Respondent first advised Petitioner of the existence

and reason for the setoff on April 1, 2016.

On August 17, 2016, Petitioner filed a Petition Requesting

an Administrative Hearing to recover the withheld money .

Respondent transmitted the file to DOAH on August 17, 2016 .

At the start of the h earing, Respondent moved for a summary

recommended order of dismissal for a lack of subject matter

jurisdiction. The Administrative Law Judge reserved ruling.

The legal issues raised by this motion are addressed in the

Conclusions of Law.

At the hearing, Petitioner called two witness es and offered

into evidence four exhibits : Petitioner Exhibits 1 - 4.

Respondent called one witness and offered into evidence three

exhibits: Respondent Exhibits 1 - 3. All exhibits were admitted.

The court reporte r filed the transcript on December 7,

2016 . Each party filed a proposed recommended order by

January 5, 2017.

FINDINGS OF FACT

1. E mployed by Petitioner in April 1974, Garfield Perry

participated in the FRS pension plan. On or about October 31,

2009, Mr. P erry terminated his employment and began receiving

his monthly FRS pension benefit. Two months earlier , Mr. Perry

had entered into an agreement with Petitioner for it to provide

post - retirement life insurance for Mr. Perry and medical and

dental insurance for Mr. Perry and his wife with all three

policies commencing in November 2009. W hil e these policies were

in effect, pursuant to an agreement between Petitioner and

Respondent that is described below, Respondent remitted to

Petitioner a portion of Mr. Pe rry's FRS pension benefit equal

to $17,429.47 for medical and dental premiums and $842.28 for

life insurance premiums, for a total of $18,271.75.

2 . Petitioner is a self - insurer for medical insurance, so,

on receipt of medical insurance premiums, Petitio ner pays a

portion of the premiums to a third - party administrator for

insurance - related services and reserves the remainder for the

payment of claims . For dental and life insurance, Petitioner

remits the premiums to the respective insurers.

3 . On May 7, 2014, Mr. Perry pleaded guilty to one count

of bribery and extortion in the United States District Court,

Southern District of Florida , in connection with his employment

in Petitioner's Public Works Department. O n or about July 29,

2014, the court adjudi cat ed Mr. Perry guilty. By letter dated

August 6, 2014, Respondent advised Mr. Perry that, pursuant to

article II, section 8(d), of the Florida C onstitution, and

sections 112.3173 and 121.091(5), Florida Statutes, his FRS

benefits were forfeited due to hi s guilty plea .

4 . Mr. Perry requested an administrative hearing on the

forfeiture , and Respondent transmitted the file to DOAH, which

designated the case as DOAH Case No. 14 - 4195. On December 31,

2014, Mr. Perry voluntarily dismissed his request for hearing

prior to the final hearing, and, on January 9, 2015, Respondent

issued a Final Order of Dismissal that find s, among other

things, that Mr. Perry committed the criminal offenses "from in

or about 2006 through in or about October 2009." The final

o rder formally declares a forfeiture of Mr. Perry's FRS pension

benefits , evidently including benefits already paid .

5 . Respondent did not provide Petitioner with a copy of

the August 6, 2014, letter, the Final Order of Dismissal, or any

of the pleadings in DOAH Case No. 14 - 4195. The present record

does not indicate if Petitioner had actual n otice of the

forfeiture process . However, this case likely represents the

first time that Respondent has attempted to recover insurance

premiums that it has remitte d to an agency or company following

the retiree's forfeiture of retirement benefits, and it is

unlikely that Petitioner was aware of its potential liability to

repay these amounts until April 1, 2016, as described below .

6 . This potential liability arg uably arises from a Payroll

Deduction Agreement entered in to by Petitioner and Respondent.

The agreement allows a retiree to authorize Respondent to deduct

monthly from his pension benefit an amount equal to his

insurance premiums and to remit this sum to Petitioner, so that

it can pay the retiree's premiums. In this case, Respondent

remitted insurance premiums to Petitioner from November 2009

through October 2012 and allocated them in the manner set forth

above in paragraph 2 . T hree and one - half years after the last

remittal that included any sums for Mr. Perry's insurance

premiums , almost two years after Mr. Perry's guilty plea , and

about 15 months after the final order declaring the forfeiture,

Respondent wit hheld $18,271.7 5 from Respondent's March 2016

consolidated remittal to Petitioner on the account of other

retirees in an attempt to recover the remittals that Respondent

had made to Petitioner to pay Mr. Perry's insurance premiums.

7 . The Payroll Deductio n Agreement is a form prepared by

Respondent that is signed by the agency or company seeking to

receive remittals for its FRS retirees. Under the agreement,

which has a signature line only for the agency or company and

not Respondent, the agency or compan y agrees to preserve the

confidentiality of the information, assume responsibility for

the accuracy of the premium deductions, and notify Respondent

timely of the discontinuation of this payroll deduction service.

An employee of Petitioner signed the Payr oll Deduction Agreement

on April 27, 2009.

8 . The Payroll Deduction Agreement requires the agency or

company to accept the "Procedures for Admitting Insurance

Providers for R etired Payroll Deduction." The procedures

document states that Respondent offers the convenience of

payroll deduction of insurance premiums as a service to FRS

pension recipients. Only two paragraphs of this document

address post - deduction adjustments :

11. If a retiree's insurance premium is

de ducted incorrectly for any reason (i.e. --

overpayment of amount, policy cancelled,

administrative error, etc.), the Insura nce

provider company or FRS agen cy is

responsible for refunding the premium amount

to the retiree.

13. [1] If a retirement benefit i s

cancelled by the Division of Retirement, the

corresponding insurance premium that was

deducted from that same dated payment is

recovered from the following month's

consolidated insurance payment.

[2] Reasons for cancellations include payee

deaths, [sic ] cancelling retirement.

[3] When determining the amount of

insurance premiums to be reimbursed to

families of deceased members, please note

that the Division cannot determine when a

death will be reported or when funds will be

funds will be returned [si c] from banks

(resulting in cancellations). [4] There

are occasions when a report of death is

received months after a retiree's death.

[5] If payments for the deceased are still

outstanding, they most likely will be

cancelled. A common example follows :

Example: Payee dies 1/5/09. Family

reports death to the Division on

4/1/09. Retiree was only due payments

through the month of January. Since

the February and March payments are

still outstanding, these paper checks

are cancelled by the D i vis i on of

Retirement. This cancellation action

recovers the 2/27/09 and 3/31/09

premium deductions from the 4/30/09

consolidated payment. A credit entry

will also appear on the April 2009

report of retiree insurance deductions.

Please Note: We recommend that you

contact the Division of Retirement to

inquire about possible payment

cancellations prior to processing

premium reimbursements.

9 . Paragraph 11 of the Payroll Deduction Agreement

requires that an ag ency or company repay the retir ee any

excessive premium deduction, so is irrelevant in the case of

forfeiture .

10 . Paragraph 13 of the Payroll Deduction Agreement

applies to the situation in which a premium de duction is

unfunded because of the cessation of the pension benefit from

which it is deducted. In its proposed recommended order,

Petitioner argues that the application of paragraph 13 is

prospective only, so it would not apply to a retroactive setoff

of the type that has occurred in this case.

11 . The first sentence identifies the co ntingency of the

cancelation of a retirement benefit and authorizes Respondent to

recover its remittal of any premiums deducted from the cancelled

pension benefit, but mentions a recovery or setoff only in the

month following the cancelation. This establi shes the kind of

liability that Respondent seeks to impose on Petitioner, but

only for the brief period of one month. Obviously, the

willingness of an agency or company to assume this minor

liability for the convenience of its retirees does not imply a

wi llingness to assume a much larger liability spanning several

month s or even years of remittals.

12 . The second sentence cites two common reasons for

cancelation: the death of the retiree and the cancellation of

the pension benefit by the retiree. The u se of "includes," as

well as the insertion of a comma in place of "and" or "or,"

suggests that these two reasons are illustrative, not

exhaustive. Even so, the second sentence does not add the

reason of forfeiture, and , at this point in paragraph 13 , the

details of the parties' agreement concerning a forfeiture has

not been explicitly addressed.

13 . The third and fourth sentence s address only the

contingency of the death of the retiree, in which case

Respondent recovers unearned premiums that Respondent intends to

remit to the estate of the retiree -- in most cases, one assumes,

indirectly to the families of the deceased member. Typically,

insurers are not exposed to the risk of insured losses after the

death of a retiree -- even a life insurer's exposure ends after

the insured's death and payment of the death benefits -- so any

premiums paid after death are unearned and should be refunded to

the proper party. The warning that Respondent may not learn of

the retiree's death f or many months suggests a longer period may

be available for retroactive adjustments, but this warning

applies only to the contingency of death, again, where the

insurers are obligated to refund unearned premiums.

14 . The fifth sentence also addresses onl y the contingency

of the death of a retiree and seems to provide only that

Respondent will cancel any pension benefits or premium remittal s

still outstanding at the time of the retiree's death. The

example illustrates a three - month delay in the receipt of

notification of a retiree's death followed by the cancellation

of the pension benefits issued in the preceding two months,

which presumably could not have been lawfully presented for

payment by anyone besides the deceased retiree . In this case,

Responden t would issue a corresponding credit entry on the next

month's report of premium deductions made on account of the

retiree.

15 . The procedures document thus fails to address the

contingency of forfeiture. The provisions applicable to the

contingencies of the death of the retiree and the retiree's

cancellation of pension benefits are a poor fit for the

contingency of forfeiture.

16. Respondent has previously recovered income tax

withheld on paid pension benefits following a forfeiture, but

the recovery was limited to the period during which an amended

personal income tax return could be filed -- the effect being that

the amount could be effectively recovered in the form of a tax

refund from the Internal Revenue Service, rather than from an

agency or compan y.

CONCLUSIONS OF LAW

17 . Administrative j urisdiction is limited to a

"proceeding. . . in which the substantial interests of a party

are determined by an agency." § 120.569(1), Fla. Stat. If

a disputed issue of material fact exists, DOAH has jurisdiction

to conduct a formal hearing under section 120.57(1) ; if not

and absent a contrary agreement between the parties , the agency

has jurisdiction to conduct an informal hearing under

section 120.57(2). Id.

18 . Respondent primarily argues that this is not a

proceeding in which the substantial interests of a party are

determined by a n agency. I n the alternative, though, Respondent

argues that no disputed issue of material fact exists, so, if a

right to an administrative proceeding exists, it is a right to

an informal hearing conducted by Respondent, not a formal

hearing conducted by DOAH. The more extensive analysis required

to resolve Respondent's primary argument is more clearly

presented by first dismissing Respondent's alternative argument.

19 . The parties agree on the basic facts of the case, but

dispute whether, after Mr. Perry forfeited his pension benefits,

the Payroll Deduction Agreement authorizes Respondent's seizure

of $18,271.75 from monies otherwise due to be remitted by

Responden t to Petitioner. The resolution of this dispute is the

fact question that would provide the right to a formal hearing,

under section 120.57(1), provided the other jurisdictional

requirements of section 120.569 had been met.

2 0 . If an agreement contains a patent ambiguity, it cannot

be resolved without improperly writing the contract for the

parties, but, if an agreement that is not obviously ambiguous

fails merely to address a certain contingency, it contains a

latent ambiguity that can be resolved. See, e.g. , Hunt v. First

Nat'l Bank , 381 So. 2d 1194, 1197 (Fla. 2d DCA 1980). Various

rules govern the resolution of disputes under a latently

ambiguous contract: for instance, a reasonable interpretation

is preferred over an unreasonable interpretation, and an

equitable interpretation is preferred over an inequitable

interpretat ion. Id. at 1197.

21 . The Payroll Deduction Agreement contains a latent

ambiguity because it fails to address the contingency of

forfeiture. Determining the proper treatment of the premiums

that Respondent deducted from Mr. Perry's pension benefits an d

remitted to Petitioner, it is necessary to imply the parties'

contract in fact. A contract in fact

is based on a tacit promise, one that is

inferred in whole or in part from the

parties' conduc t, not solely from their

words. Where an agreement is arrived at by

words, oral or written, the contract is said

to be "express." A contract implied in fact

is not put into promissory words with

sufficient clarity, so a fact finder must

examine and interpret the parties' conduct

to give definition to their unspoken

agreement. It is to this process of

defining an enforceable agreement that

Florida courts have referred when they have

indicated that contracts implied in fact

"rest upon the assent of the parties."

Gem Broadcasting, Inc. v. Minker , 763 So. 2d 1149, 1150 (Fla.

4th DCA 2000) .

22 . Both Petitioner and Respondent suffered losses from

the criminal acts of Mr. Perry. As Mr. Perry's employer,

Petitioner suffered the loss of the honest administration of

public works contracts a nd Mr. Perry's usurpation of property

rights that belonged to Petitioner. As the administrator of

Mr. Perry's pension plan, Respondent suffered the loss of paying

benefits to a retiree who had abused the public trust in the

course of his FRS - covered emplo yment and thus forfeited his

retirement benefits . In this proceeding, Respondent attempts to

shift a portion of the economic burden of its loss on to

Petitioner, even though the equities lie entirely with

Petitioner.

23. It is unreasonable and inequitab le to extend an agency

or company's casual assumption of liability for one or two

months of remitted premiums to an assumption of liability for

several years of remitted premiums. Not surprisingly, this is

likely the first time that Respondent has constru ed the Payroll

Deduction Agreement to authorize a post - forfeiture setoff of

deducted premiums remitted to a third party; this is almost

certainly the first time that Respondent has construed the

Payroll Deduction Agreement to authorize a setoff three and

o ne - half years following the last of a lengthy period of

remittals to a third party . Lastly , the remittals that

Respondent has "recovered" no longer exist because, years

earlier, they were expended on Mr. Perry's insurance coverage .

Respondent has instea d merely seized from unrelated money due to

be remitted to Petitioner an amount equal to the amount that,

years earlier, it had remitted to Petitioner for Petitioner to

expend on Mr. Perry's insurance coverage .

24 . Even though the present proceeding presents a disputed

issue of material fact, administrative jurisdiction exists only

if the present proceeding is a "proceeding. . . in which the

substantial interests of [Petitioner] are determined by

[Respondent] ." A cl aim of right to money is a substantial

interest. O'Connor v. Zane , 79 So. 3d 105 (Fla. 1st DCA 2012)

(dictum). C ases failing the substantial - interests test often do

so because the nonagency party is pursuing a unilateral

expectation of receiving a benefi t in a transaction that has not

been statutorily recognized as a basis for an administrative

hearing. See, e.g. , Univ. of S. Fla. Coll. of Nursing v. Dep't

of Health , 812 So. 2d 572, 574 (Fla. 2d DCA 2002) (due to health

care exemption to statutory bid law , as set forth in former

section 287.057(4)(f)6. (now section 287.057(3)(e)5.),

frustrated bidder with "mere unilateral expectation of receiving

a benefit" lacks a substantial interest); Herold v. Univ. of S.

Fla. , 2002 Fla. App. LEXIS 1449 (Fla. 2d DCA 2002) (university

professor's unilateral expectation of promotion to full

professor does not constitute a substa ntial interest).

Petitioner's claim to recover the money that Respondent has

seized is not a unilateral expectation of receiving a benefit.

25 . However, the substantial interests of Petitioner are

not of a type that may be determined by Respondent. Within the

meaning of section 120.569, substantial interests are determined

by an agency only when the agency is substantially exercising

its core regulatory duties.

26 . A dispute may not involve the core regulatory duties

of an agency. For example, i n Vincent J. Fasano, Inc. v. Sch.

Bd. , 436 So. 2d 201 (Fla. 4th DCA 1983) (per curiam), a

contractor and school board entered into a contract for the

construction of a school, and the contractor failed to complete

construction within the time specified in the contract.

Following a formal administrati ve hearing conducted by the

school board, the school board entered a final order assessing

liquidated damages for tardy performance. The court quashed the

final order on the ground that the school board lacked

jurisdiction.

27 . The Fasano opinion state s:

A breach of contract is normally a matter

f or judicial rather than administrative or

quasi - judicial consideration.

What an agency may hear and determine must

be within the framework of the powers

conferred upon the agency. [citation

omitted] An age ncy has no authority "to

administratively adjudicate claims made

against it by persons with whom it has

contracted for the purchase of materials or

the rendition of services. Disputes such as

these are traditionally settled in the

courts of this state by adversary

proceedings in which the agency as a

contracting party is treated as any other

citizen." [citation omitted]

Id. at 202 - 03. See also State Road DepÓt v. Cone Bros.

Contracting Co. , 207 So. 2d 489 (Fla. 1st DCA 1968).

28 . Or an agency may exercise its core regulatory duties,

but insubstantially. In Diaz v. State , 65 So. 3d 78 (Fla. 3d

DCA 2011), a provider agreement between an operator and Agency

for Persons with Disabilities (APD) was terminable at any time

without cause. As provided by the agreement , APD terminated the

agreement without cause , and the operator filed a request for a

formal administrative hearing. APD declined the request,

reasoning that, because the provider agreement was terminable

without cause, a court, not an agency , was the forum for the

adjudication of a dispute involving a voluntary contract.

29 . S ustaining APD's decision, the Diaz court stated that

the relevant statute designated the provider agreement as a

"voluntary contract" and that APD terminated the cont ract in

accordance with its express conditions. The court rejected as

irrelevant the operator's argument for administrative

jurisdiction based on various statutory provisions specifying

administrative hearings for the imposition of certain sanctions

and f or the imposition of certain sanctions and recovery of

Medicaid overpayments . The court's use of "voluntary" seems to

have meant a contract with a term only as long as both parties

desired, as distinguished from a binding contract that mandated

the mutual performance of contractual undertakings over a

preagreed term. Because the provider agreement was terminable

at any time and for any or no reason, the agreement and APD's

exercise of its core regulatory duties were both insubstantial .

30 . A s relevant to this case, the core regulatory duties

of Respondent include the calculation and payment of pension

benefits. §§ 121.025 and 121.031. When substantial interests

of a party are determined by Respondent -- meaning the

determination of matters su ch as the calculation and payment of

pension benefits -- administrative jurisdiction attaches under

sections 120.569 and 120.57(1).

31. Respondent's entering into premium deduction

agreements with third parties is not an exercise of a core

regulatory duty or, if it were, it is not a substantial exercise

of a core regulatory duty . Respondent's agreeing to remit a

portion of a pension benefit to an agency or company to pay a

retiree's insurance resembles Responden t's agreeing to pay a

publisher for a subscr iption to a pensi on administration

periodical. In either transaction, i f a dispute arises, a

court, not Respondent or DOAH, determines the substantial

interests of the parties.

RECOMMENDATION

It is

RECOMMENDED that the Department of Management Services

enter a final order dismissing the Petition Requesting an

Administrative Hearing filed on August 17 , 2016.

DONE AND EN TERED this 8th day of February , 2017 , in

Tallahassee, Leon County, Florida.

S

____________________________________

Robert E. Meale

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

t his 8th day of February , 2017 .

COPIES FURNISHED:

Veronica E. Donnelly, Esquire

Offices of the General Counsel

Department of Management Services

4050 Esplanade Way, Suite 160

Tallahassee, Florida 32399 - 0950

(eServed)

Joni A. Mosely, Esquire

Assistant County Attorney

Miami - Dade County Attorney's Office

Stephen P. Clark Center, Suite 2810

111 Northwest 1st Street

Miami, Florida 33128 - 1993

(eServed)

Elizabeth Stevens, Director

Division of Retirement

Department of Management Services

Post Office Box 9000

Tallahassee, Florida 32315 - 9000

(eServed)

J. Andrew Atkinson, General Counsel

Office of the General Counsel

Department of Management Services

4050 Esplanade Way, Suite 160

Tallahassee, Florida 32399 - 0950

(eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.