In the Matter of the Petition by

ROBERT P. GRAVES
P.O. Box 2045

at

Hollister, CA 95024-2045

P.S. Docket No. AO 01-67

APPEARANCE FOR PETITIONER:
Gordon J. Finwall, Esq.
1501 The Alameda
San Jose, CA  95126-2311

APPEARANCE FOR RESPONDENT:
Terry Beckstead
Labor Relations Specialist
United States Postal Service
P.O. Box 882290
San Francisco, CA  94188-2290

POSTAL SERVICE DECISION

            Petitioner, Robert P. Graves, a retired Postal Service employee, has filed an appeal from an Initial Decision of an Administrative Judge dismissing this administrative offset proceeding because Petitioner’s debt had been resolved during the course of a Debt Collection Act (DCA)[1] proceeding while Petitioner was still employed by the Postal Service.[2] 

BACKGROUND

           On March 11, 1998, Respondent issued a Notice of Involuntary Administrative Salary Offsets stating its intent to deduct $76,253.74 from Petitioner’s salary due to a shortage in the main stamp stock which occurred while Petitioner was the Postmaster and Main Stamp Stock Custodian at the Brisbane, CA Post Office (Initial Decision (I.D.), Finding of Fact (FOF) 1-2).  Petitioner filed a timely Petition for a hearing under Section 5 of the DCA to challenge the proposed collection (I.D., FOF 3), which was docketed as P.S. Docket No. DCA 98-157.

           On May 18, 1998, Petitioner and Respondent entered into two settlement agreements to resolve the contested debt and all other disputes between the parties.  The settlement agreement pertinent to this proceeding[3] (hereinafter settlement agreement or agreement) provided that Petitioner would retire from the Postal Service and that

"1.  Robert Graves…agrees to pay the United States Postal Service a total of $40,000.  A maximum of 15% will be deducted from his disposable annuity payment upon the implementation of his retirement from the United States Postal Service.

…

7.  This agreement represents full and final settlement of all and any issues relating to the debt and repayment of said Forty Thousand Dollar ($40,000) debt owed by Robert Graves to the United States Postal Service." (I.D., FOF 4-5).

            Based on the parties’ settlement, P.S. Docket No. DCA 98-157 was dismissed on May 20, 1998 (I.D., FOF 7).

            At the time of Petitioner’s retirement, which took effect on May 18, 1998, he was eligible to receive lump sum payments of $17,018.15 for his unused annual leave and $3,636.94 for the remaining balance in his Economic Value Added (EVA) reserve account (I.D., FOF 8).  Respondent unilaterally withheld the lump sum payments due Petitioner and applied that amount to the remaining $40,000 debt (I.D., FOF 9).  A July 29, 1998 Statement from Respondent’s Finance Office reflected that Petitioner’s debt had been reduced from $76,253.74 to $40,000 in accordance with the settlement agreement and that the $40,000 had been further reduced by the amount withheld from Petitioner's unused annual leave and the remaining EVA reserve account balance (I.D., FOF 9).[4]

            Petitioner did not object to the lump sum deduction, and Respondent took no action to collect the remaining amount due from Petitioner until January, 2001, when Respondent’s Accounting Service Center sent Petitioner a Notice of Intent to Collect Delinquent Debt (I.D., FOF 10).  After receiving the January, 2001 Notice, Petitioner filed a Petition for hearing under 39 C.F.R. Part 966, Rules of Practice in Proceedings Relative to Administrative Offsets Initiated Against Former Employees of the Postal Service (I.D., FOF 11), initially arguing that he should not be held liable for the losses at the Brisbane Post Office.  Respondent thereafter filed a Motion to Dismiss contending that the debt had been resolved in a DCA proceeding and that Petitioner is not entitled to challenge in an administrative offset proceeding a debt for which liability was established in a DCA proceeding (FOF 12).  In response to the Motion to Dismiss, Petitioner argued for the first time that Respondent had improperly withheld the lump sum payments due him upon his retirement and that based on the present value of the withholding, Petitioner had satisfied the entire debt (FOF 13-15).

            In his decision dismissing this matter, the Administrative Judge held that Respondent had not breached the settlement agreement by withholding the lump sum payments due Petitioner and that Petitioner was not entitled to an administrative offset hearing under 39 C.F.R. Part 966 since the matter had been resolved in the DCA proceeding.  In arriving at this result, the Administrative Judge found that Petitioner's pre-dispute failure to contest the lump sum withholding demonstrated his understanding that Respondent had not waived its right under its regulations to withhold the lump sum amount due Petitioner on his retirement in addition to collecting up to 15% of Petitioner’s monthly annuity payment under the settlement agreement.  The Administrative Judge also found that because the parties did not explicitly agree in their settlement agreement that deductions from Petitioner's annuity would be the sole avenue of recovery, the agreement read as a whole did not limit Respondent's collection efforts to Petitioner's annuity.

DECISION

            Petitioner renews his argument on appeal that Respondent breached the settlement agreement by withholding the lump sum amount due him upon his retirement.  Petitioner further argues that, under a present value stream of payments theory, the lump sum withholding should be considered payment in full of the entire $40,000 debt.

            While the parties resolved the DCA controversy by entering into the settlement agreement, the propriety of the implementation of that agreement through deductions from amounts owed Petitioner upon his retirement is an issue that may be decided in an administrative offset proceeding.[5]  Therefore, the Administrative Judge's dismissal of the administrative offset proceeding was improper. 

            The settlement agreement establishes the mutual obligations of the parties and expressly provides for how the debt owed by Petitioner to the Postal Service is to be repaid.  While the agreement does not specifically exclude other methods of repayment, it does not need to inasmuch as it clearly reflects the parties' agreement that repayment would be accomplished by the deduction of a “maximum of 15%…from [Petitioner's] disposable annuity payment upon the implementation of his retirement from the United States Postal Service.”  The agreement also states that it ”represents full and final settlement of all and any issues relating to the debt and repayment” (emphasis added).  Therefore, in agreeing to the settlement with Petitioner, Respondent chose to forego its rights under other regulations and, under the clear terms of the agreement, limit its recovery to deductions from Petitioner’s disposable annuity payment after his retirement.[6]

            The pre-dispute conduct of the parties does not require a contrary  conclusion.  Although Petitioner did not object to the lump sum deduction when he separated from the Postal Service, Respondent also did not attempt to collect the remaining amount due until almost 19 months after the execution of the settlement agreement.  Under such circumstances, neither parties' conduct was consistent with the terms of the settlement agreement or representative of a mutual intent that would support a construction of the settlement agreement contrary to its plain meaning.

            Notwithstanding Respondent's improper withholding of the lump sum payments due Petitioner, Petitioner is liable for the full amount owed to Respondent.  Petitioner's liability was agreed to by the parties and was the basis for the dismissal of the DCA proceeding.  Although Respondent's withholding was improper it did not constitute a material breach of the agreement which would relieve Petitioner of his repayment obligation.  Therefore, the liability issue will not be revisited in this proceeding.  However, Petitioner is entitled to challenge the administrative offset schedule and to present evidence to support the present value stream of payments theory to show that deductions from his monthly annuity would be improper.

CONCLUSION

            Petitioner's appeal is sustained in part and remanded to the presiding Administrative Judge for further processing in accordance with this decision.

                                                                                    James A. Cohen
                                                                                    Judicial Officer

[1]  5 U.S.C. §5514; 39 C.F.R. Part 961.

[2] The Administrative Judge also denied Petitioner’s alternative request to re-open the record in the DCA proceeding, P.S. Docket No. DCA 98-157.  Only the administrative offset proceeding is appealable to the Judicial Officer.

[3] The parties entered into a separate agreement which resolved a proposed disciplinary action against Petitioner (I.D., FOF 6).  The terms of that agreement are not relevant to this proceeding.

[4]  The statement reflected a remaining amount due of $19,972.29 after a deduction of $20,027.71, although the lump sum amounts owed Petitioner totaled $20,655.09 (I.D., n.1).  The statement did not explain the $627.38 discrepancy or reflect that any other action was being taken to collect the remaining amount.

[5]  The administrative offset rules apply to “any petition filed by a former Postal Service employee…[t]o challenge the administrative offset schedule proposed by the Postal Service…"  39 C.F.R. §966.2.

[6] See Greco v. Dep't of the Army, 852 F.2d 558, 560 (Fed. Cir. 1988).