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In the Matter of the Application for PERA Retirement Benefits of Michael A. McGuire: RETIREMENT - PERA cannot be equitably estopped from denying, rescinding payments

STATE OF MINNESOTA

IN COURT OF APPEALS

A07-2066



In the Matter of the
Application for PERA Retirement Benefits of
Michael A. McGuire



Filed October 7, 2008

Affirmed

Worke, Judge



Public Employees Retirement Association of Minnesota

File No. 225866



Lori Swanson, Attorney General, Jon K. Murphy, Assistant Attorney General, 1800
Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101 (for respondent Public
Employees Retirement Association of Minnesota)



Patrick J. Kelly, Trevor S. Oliver, Christine Swanson, Kelly & Lemmons, P.A., 2350
UBS Plaza, 444 Cedar Street, St. Paul, MN 55101 (for appellant Michael A. McGuire)



Considered and decided by Connolly, Presiding Judge; Worke, Judge; and
Schellhas, Judge.

S Y L L A B U S

The Public Employees Retirement Association of Minnesota cannot be equitably
estopped from denying or rescinding unauthorized payments.

O P I N I O N

WORKE, Judge

Appellant challenges a determination by respondent Public Employees Retirement
Association of Minnesota (PERA) that he is ineligible for retirement benefits because he
did not complete a continuous separation for 30 days from employment as a public
employee as required by Minn. Stat. 353.01, subd. 28(a) (2006), and argues that PERA


abused its discretion when it rescinded his annuity payments without considering his
equitable-estoppel claim. Because appellant does not meet the statutory requirements for
receiving PERA benefits and because PERA cannot be equitably estopped from
rescinding unauthorized payments, we affirm.

FACTS

In September 2004, appellant Michael A. McGuire notified his employer, the City
of Bayport, that he intended to resign from his position as city administrator. The
Bayport city council accepted appellants resignation and agreed that the resignation
would be effective April 30, 2005. Appellant was a member of the Public Employees
Retirement Association of Minnesota (PERA) and, based on his years of service, PERA
determined that he was eligible for unreduced early-retirement benefits. PERA began
paying appellant retirement benefits on May 1, 2005. At that time, appellants former
wife also began receiving a portion of his PERA benefits pursuant to the terms of their
dissolution decree.

In July 2007, PERA notified appellant that it intended to cease the payment of
PERA annuity benefits to you and your ex-spouse effective September 1, 2007 and that
it also intended to recover all PERA annuity payments paid to you and your ex-spouse,
a total of 2,969.20. PERA explained that its reason for terminating and recovering
benefits was that appellant had started working for Bayport as an independent contractor
within 30 days after his resignation date. By providing paid services to Bayport within
the 30-day period, appellant violated a statutory requirement that he completely and
continuously separate for 30 days from employment as a public employee and from the


provision of paid services to [the public] employer. Minn. Stat. 353.01, subd. 28(a)
(2006).

Appellant petitioned for review of the decision to terminate and rescind his
benefits. In his petition, appellant explained that, despite his diligent efforts to prepare
for retirement, he did not know that the 30-day separation requirement precluded work as
an independent contractor. He explained that he was never told about the 30-day
separation requirement even though he attended a PERA-sponsored pre-retirement
session and met twice with PERA staff.

Appellant presented his case orally to the PERA board of trustees on September
13, 2007. At the meeting, the president of the board inquired whether appellant ever
specifically asked PERA staff if his plan to work for Bayport as an independent
contractor within a week of his retirement would create a problem with [his] 30-day
break. Appellant answered, Actually, I did. Appellant further explained that he was
confused by language in the PERA materials explaining that the separation requirement
applied to PERA-covered employment. Because he did not consider independent-
contract work to be PERA-covered employment, he assumed that he could begin work
immediately as an independent contractor.

Following appellants testimony, the board discussed the matter and determined
that, because appellant did not completely and continuously separate for 30 days from his
employment as a public employee, he was ineligible to receive retirement benefits and
must repay all the PERA annuity payments he has received. The board did not address


appellants claim that PERA should be equitably estopped from rescinding appellants
benefits. This appeal follows.

ISSUE

Did PERA abuse its discretion by rescinding appellants PERA annuity payments
without addressing his equitable-estoppel claim?



ANALYSIS

Appellant argues that PERA acted arbitrarily and capriciously by rescinding his
PERA annuity payments without addressing his equitable-estoppel claim. We disagree.

The PERA board of trustees administers a pension plan for public employees, and
the boards decisions shall not be disturbed unless found to be arbitrary and capricious.
Minn. Stat. 353.18 (2006). An agencys ruling is arbitrary and capricious if it

(a) relied on factors not intended by the legislature;
(b) entirely failed to consider an important aspect of the problem;
(c) offered an explanation that runs counter to the
evidence; or
(d) the decision is so implausible that it could not be
explained as a difference in view or the result of the
agencys expertise.




White v. Minn. Dept. of Natural Res., 567 N.W.2d 724, 730 (Minn. App. 1997)
(quotation omitted), review denied (Minn. Oct. 31, 1997).

Minnesota courts have long held that estoppel cannot be applied when doing so
would cause an agency to act outside the bounds of its authority. See Bd. of Educ. of
Minneapolis v. Sand, 227 Minn. 202, 211, 34 N.W.2d 689, 695 (1948) (declining to estop
school board from denying tenure because governing statute did not authorize granting
tenure). The supreme court adopted this rule out of concern that a contrary rule would


lead to chaos: absent a prohibition against estoppel, states and municipalities would
repeatedly find themselves bound by the unauthorized acts of officers and agents
possessing only limited authority. Alexander Co. v. City of Owatonna, 222 Minn. 312,
324, 24 N.W.2d 244, 251-52 (1946), overruled in part on other grounds by Johnson v.
City of Plymouth, 263 N.W.2d 603 (Minn. 1978).

Over the years, the supreme court has to some extent revised its position regarding
the application of estoppel against the government. The supreme courts interest in
avoiding chaos and preserving governmental integrity initially led it to adopt a broad rule
that equitable estoppel is not available against the government when [it] acts in its
prerogative of sovereignty[.] State v. Horr, 165 Minn. 1, 4, 205 N.W. 444, 445 (1925).
By contrast, estoppel could be applied against the government when it acts in a
proprietary capacity, such as when it undertakes a commercial or industrial enterprise.
Id. But the supreme court later rejected this distinction between sovereign acts and
proprietary acts. Mesaba Aviation Div. of Halvorsen of Duluth, Inc. v. County of Itasca,
258 N.W.2d 877, 880 (Minn. 1977). In Mesaba, the supreme court held that, in applying
estoppel, the equities of the circumstances should be examined rather than the character
of the governments actions. Id. Thus, the supreme court abandoned one limitation on
estoppel claims against the government.

The Mesaba court, however, explicitly retained the authorized-act limitation on
estoppel claims against the government. Id. at 879. The court explained that an
important consideration in determining whether the government should be estopped is
[w]hether an administrative officer is authorized to make a representation. Id. The


supreme court later clarified its post-Mesaba position by emphasizing that where an
agency has no authority to act, agency action cannot be made effective by estoppel.
Axelson v. Minneapolis Teachers Ret. Fund Assn, 544 N.W.2d 297, 299-300 (1996)
(quotation omitted). Consequently, despite the supreme courts rejection of the
sovereign-proprietor distinction in Mesaba and its emphasis on the equities of the
circumstances, it did not alter the rule that, regardless of the equities involved, a
government agencys unauthorized act cannot be made effective by estoppel.

Appellant does not dispute that he failed to meet the statutory requirements for
receiving PERA annuity benefits. He concedes that, by returning to work for Bayport
within 30 days of retiring from his position as city administrator, he failed to comply with
the statutory requirement that he separate completely and continuously for 30 days from
employment as a public employee and from the provision of paid services to that
employer. Minn. Stat. 353.01, subd. 28(a); see also Minn. Stat. 353.01, subd. 28(b)
(2006) (An individual who separates from employment as a public employee and who,
within 30 days of separation, returns to provide service to a governmental subdivision as
an independent contractor or as an employee of an independent contractor, has not
satisfied the separation requirements under paragraph (a).). Therefore, because
appellant concedes that the payments he received were unauthorized and estoppel cannot
be applied so as to cause an agency to make unauthorized payments, PERA cannot be
estopped from rescinding the erroneous payments.


D E C I S I O N

Because PERA cannot be equitably estopped from rescinding unauthorized
payments, it did not act arbitrarily and capriciously by rescinding appellants retirement
benefits without addressing his equitable-estoppel claim.

Affirmed.



 

 
 
 

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