Recovery of Annuity Overpayment Waived
Wednesday, November 20, 2013
On September 13, 2013, the U.S. Court of Appeals for the Federal Circuit reversed the Merit Systems Protection Board’s denial of a waiver of recovery of overpayment of survivor annuity benefits in King v. Office of Personnel Management, Docket No. 2012-3061. In the MSPB’s decision, appellant Kathryn King was ordered to reimburse OPM for $41,939.13 she had received in survivor annuity funds she received after filing an application with OPM for the funds and claiming to be the lawful widow of deceased U.S. Forest Service employee Don King. Survivor annuity payments are paid to the surviving spouse of a federal employee where the surviving spouse was married to the employee when he or she died.
The appeal was bound up with Don’s complicated marital history which involved a dispute over who Don’s surviving wife was at the time of his death in 2004. Two separate women, appellant Kathryn King and Diana King, claimed to be Don’s wife at the time of his death and claimed his federal survivor benefits. Don first married Diana in 1967. After divorcing Diana twice, Don and Diana continued to share a home with their two children and held themselves out to the community as husband and wife from the early 1980s until 2002. In 2002, Don moved out of the home he shared with Diana and married appellant Kathryn in a civil ceremony. Don passed away in 2004, and prior to his death, he designated Kathryn to receive his lump-sum accrued federal annuity. After Don’s death, Kathryn claimed she was entitled to Don’s federal survivor benefits since she was married to Don at the time of his death. However, Diana maintained that she was the common law wife of Don at the time he attempted to marry Kathryn, that Don’s marriage to Kathryn was void as a matter of law since Don did not dissolve his common law marriage prior to marrying Kathryn and that she was entitled to Don’s survivor benefits.
Later in 2004, with the marriage issue unresolved, Kathryn and Diana executed a handwritten settlement agreement in which Kathryn stipulated to Diana’s claim that Diana and Don had a common law marriage and further agreed to assign to Diana any rights Kathryn had in Don’s retirement and insurance policies. After signing the 2004 settlement agreement, Kathryn changed her mind and requested that a Montana district court vacate the agreement. During the litigation over the 2004 settlement agreement, Kathryn requested survivor annuity funds from OPM, and OPM paid the funds to Kathryn for nearly three years.
In 2005, the Montana court ruled that the 2004 settlement agreement was valid and enforceable. In 2008, the Montana court also found that Diana was Don’s wife at the time of his death, declared Don’s marriage to Kathryn void as a matter of law and found that Diana was entitled to all rights, benefits and privileges commensurate with her status as Don’s lawful spouse. OPM then determined that Diana was eligible for the survivor annuity benefits, and it paid Diana the full annuity amount, less taxes. OPM also determined that the money paid to Kathryn was an overpayment, and it sought to recover the funds from Kathryn. By then, Kathryn had transferred to Diana the funds she received from OPM, believing this to be in accordance with the 2004 settlement agreement.
Kathryn appealed OPM’s decision to the Board, requesting a waiver of the overpayment. In 2009, an administrative judge refused to grant a waiver, rejecting both a theory of detrimental reliance and unconscionability. The full Board reviewed the AJ’s initial decision and remanded the case, but the AJ again found in favor of OPM. The full Board evaluated Kathryn’s appeal, and in a split decision, affirmed the denial of waiver, finding that Kathryn’s repayment of annuity funds to OPM was not unconscionable or manifestly unfair in light of the settlement agreements and litigation history. Kathryn appealed the Board’s decision to the Federal Circuit, which found that Kathryn was entitled to a waiver of the overpayment under a theory of detrimental reliance since returning the annuity funds to OPM would place Kathryn in a worse financial position than if she had never received the funds. In doing so, the court found that the Board failed to address the substantial evidence demonstrating that recovery of the overpayment was against equity and good conscience.