In the Matter of the Petition by

DORINDA TOLSON
           at
Randallstown, MD

P.S. Docket No. AO 11-10

APPEARANCE FOR PETITIONER:
Dorinda Tolson

APPEARANCE FOR RESPONDENT:
Sherri Garner

INITIAL DECISION

            Petitioner, Dorinda Tolson, filed a Petition for Hearing on January 13, 2011, pursuant to 39 C.F.R. Part 966. Respondent, United States Postal Service, previously collected $6,824.71 from Petitioner’s retirement annuity for an alleged overpayment of salary. A hearing was held on June 2, 2011, and the record in this matter closed on June 16, 2011.[1]

 FINDINGS OF FACT

            1. On October 29, 2008, Petitioner received, as part of a class action grievance settlement, a gross payment of $10,876 representing past wages due to her (Respondent’s Exh. A–D).[2]

            2. On December 31, 2008, partly in reliance upon receipt of the funds discussed in Finding 1, Petitioner retired (Respondent’s Exh. H; Tr., pp. 22; 61-62).

            3. In February 2009, Respondent noticed that an error had been made in its calculation of the payment to Petitioner, as well as numerous other employees involved in the class action grievance settlement (Respondent’s Exh. F; Tr., pp. 22; 46).

            4. At some point after February 2009, a subsequent class action grievance was filed (# K06C-1K-C09439253) by Petitioner’s union contesting collection of the overpayment to Petitioner and her colleagues (Respondent’s Exh. K; Tr., pp. 40-41).

            5. On April 29, 2009, Respondent’s Accounting Service Center in Eagan, Minnesota (Accounting Service Center) issued to Petitioner an Invoice in the amount of $10,718.30 (Respondent’s Exh. G).[3]

            6. At the time, Petitioner erroneously believed that she was still a party to the pending class action grievance filed subsequent to her retirement (Finding 4; Respondent’s Exh. K; Tr., pp. 13-14; 137).

            7. On June 8, 2009, Gary M. Laurant, Supervisor of Respondent’s Accounting Service Center, executed Office of Personnel Management (OPM) Form 2805 seeking to collect by administrative offset from Petitioner’s retirement annuity the debt that was the subject of the April 29, 2009 Invoice (Petitioner’s Exh. 7).

            8. In August 2009, OPM sent a notice to Petitioner entitled Schedule for Collecting Government Debt from your Annuity dated August 14, 2009 (OPM Notice), stating OPM’s intent to collect the debt by offset from Petitioner’s retirement annuity (Petitioner’s Exh. 6).

            9. The Invoice (Finding 5) and subsequent OPM Notice (Finding 8) sparked a series of inquiries by Petitioner to Mr. Laurant, Respondent’s local Labor Relations Representative, Petitioner’s union, and numerous public officials in which Petitioner repeatedly expressed her confusion about the collection activity and reiterated her desire to contest the debt (Petitioner’s Exh. 8-10, 15).

            10. At no time was Petitioner ever informed by Respondent of her rights under the Debt Collection Act, the Federal Claims Collection Standards, or Respondent’s regulations to contest the debt (Tr., pp. 22; 103; 139-40).

            11. By July 31, 2010, the entire debt was collected through OPM by administrative offset from Petitioner’s retirement annuity (Petitioner’s Exh. 14).[4]

            12. Petitioner was subsequently informed by her union of her right to seek review of the debt in this forum under 39 C.F.R. Part 966 (Petitioner’s Petition; Tr., pp. 138-39).[5]

DISCUSSION

            This Petition asks me to decide whether Respondent may collect an alleged debt owed by Petitioner by involuntary offset against her retirement annuity. Petitioner contends that Respondent denied her due process rights in the collection of this debt and that the debt should be waived. Respondent argues that Petitioner was given all due process to which she is entitled under applicable regulations.

Procedures for Administrative Offset under Section 10
of the Debt Collection Act and its Implementing Regulations

            Administrative offset is the process by which the United States may collect a debt due to a federal agency by “withholding funds payable by the United States to, or held by the United States for, a person to satisfy [the debt].” 31 U.S.C. §3701(a)(1). Under the Debt Collection Act, federal agencies, including the Postal Service, may collect debts owed to them by any debtor through the process of administrative offset. 31 U.S.C. §3711(a)(9)(A). When an offset is sought from a former government employee debtor through the employee’s monthly retirement annuity under either the Civil Service Retirement System (CSRS), or Federal Employee Retirement System (FERS), the procedural requirements of Section 10 of the Debt Collection Act apply. Veterans Administration, 64 Comp. Gen. 907 (1985); 5 C.F.R. §831.101 et seq. (CSRS); 5 C.F.R. Part 845 (FERS).

            Administrative offset of a former employee’s retirement annuity must be accomplished through OPM. To do so, Respondent must file OPM Form 2805 (Form 2805), which requires that Respondent’s agent certify the following:

Due Process

            I hereby certify that the individual identified above owes the United States a debt in the amount certified; that procedures in 31 CFR 901, et. (sic) seq., and in 5 CFR 8301.1801 et. (sic) seq., or 5 CFR 845 have been followed; and if ordered by a competent administrative or judicial authority, we will reimburse OPM or repay the debtor the amount received from OPM within 15 days of the date of the order.

            This certification informs OPM that the Postal Service has complied with OPM’s regulations pertaining to the collection of debts from retirement annuities. Lashley v. Office of Personnel Management, 45 M.S.P.R. 360, 366 (1990)(“These requirements . . . conform to fundamental due process principles that a person should have notice and the opportunity to present reasons, either in person or in writing, why the proposed action should not be taken.”). Upon receipt of Form 2805, OPM notifies the former employee debtor of its intent to collect the debt by administrative offset by mailing a copy of Schedule for Collecting Government Debt from your Annuity to the debtor at his or her address of record.[6] Thereafter, OPM commences with the offset of the debtor’s retirement annuity. The offset continues until the debt amount specified in the Schedule for Collecting Government Debt from your Annuity is collected in full.

            31 C.F.R. Part 901 (formerly 4 C.F.R. Part 102) establishes the Federal Claim Collections Standards (FCCS) and implements Section 10 of the Debt Collection Act. FCCS requires that before agencies may request administrative offset from a former employee’s annuity through OPM, the agency must adopt regulations that ensure that the debtor has been provided the minimum due process required by 31 C.F.R. §901.3(b)(4). See 31 U.S.C. §3716(b); 31 C.F.R. §901.3(d).[7] This requires that agency regulations provide that offsets may be initiated only after the debtor:

            (A) Has been sent written notice of the type and amount of the debt, the intention of the agency to use administrative offset to collect the debt, and an explanation of the debtor's rights under

31 U.S.C. 3716; and

            (B) The debtor has been given:

            (1) The opportunity to inspect and copy agency records related to the debt;

            (2) The opportunity for a review within the agency of the determination of indebtedness; and

            (3) The opportunity to make a written agreement to repay the debt.

31 C.F.R. §901.3(b)(4).

            Agencies are permitted to adopt their own regulations under the Debt Collection Act, but the regulations adopted must be “consistent” with FCCS regulations:

            Before collecting a claim by administrative offset, the head of an executive, judicial, or legislative agency must either—

            (1) adopt, without change, regulations on collecting by administrative offset promulgated by the Department of Justice, the Government Accountability Office, or the Department of the Treasury; or

            (2) prescribe regulations on collecting by administrative offset consistent with the regulations referred to in paragraph (1).

31 U.S.C. §3716(b)(emphasis added).

            In addition to an appropriate regulatory scheme, to commence collection under FCCS, a demand letter must be issued to the debtor prior to seeking offset through OPM. The demand letter must contain the following information:

            Demand letters shall inform the debtor of:

            (1) The basis for the indebtedness and the rights, if any, the debtor may have to seek review within the agency;

            (2) The applicable standards for imposing any interest, penalties, or administrative costs;

            (3) The date by which payment should be made to avoid late charges (i.e. interest, penalties, and administrative costs) and enforced collection, which generally should not be more than 30 days from the date that the demand letter is mailed or hand-delivered; and

            (4) The name, address, and phone number of a contact person or office within the agency.

31 C.F.R. §901.2(b).

            FCCS procedures are intended to insure “that the debtor has notice of the intent to offset and that he or she was given an opportunity to respond.” Malone v. Office of Personnel Management, 52 M.S.P.R. 655, 659 (1992).

Respondent’s Current Collection Procedures are Inconsistent with
Section 10 of the Debt Collection Act

            Respondent’s current process for collection of former employee debts by administrative offset generally commences when Respondent’s Accounting Service Center is informed by an entity within the Postal Service that the former employee owes a debt (Tr., p. 66). The Accounting Service Center then delivers to the debtor at his or her address on file with Respondent an invoice for the debt (Tr., p. 67). In general, the invoice states the amount of the debt with a brief description of the reasons why Respondent seeks collection of the debt (Tr., p. 95). The extent of the description may vary from case to case and is provided to the Accounting Service Center by the entity within the Postal Service that seeks collection of the debt (id.). No other notice or form is included with the invoice (Tr., p. 102). After delivery of the invoice to the debtor, Respondent waits thirty (30) days before submission of Form 2805 to OPM to collect the debt by administrative offset (Tr., p. 66).

            As discussed, Form 2805 requires that Respondent provide OPM with a certification that it has complied with the FCCS. In addition, Respondent certifies the date when the demand letter required by 31 C.F.R. §901.2 was sent as evidence of its compliance with the due process rights of the debtor under FCCS. Lashley, 45 M.S.P.R. at 366. Mr. Laurant testified that it is common practice to place the date of the invoice in that portion of Form 2805 that asks for the date of the demand letter (Tr., pp. 86-87). He further admits that the invoice sent to a former employee debtor is the only notice provided to the debtor prior to initiation of the administrative offset procedures through OPM (Tr., p. 82). Mr. Laurant also testified that he believes that the invoice is the demand letter contemplated by 31 C.F.R. §901.2 (Tr., p. 88).

            In this case, after learning of the alleged debt owed by Petitioner, Respondent’s Accounting Service Center issued an Invoice to Petitioner in the amount of $10,718.30 (Finding 5).[8] After receipt of the invoice, Petitioner contacted Respondent at the telephone number provided (Tr., p. 67). At that time, Petitioner inquired as to the nature of the debt (Tr., pp. 121; 128). Petitioner was told by Respondent’s agent that inquiry regarding the details of the debt must be made to Labor Relations, the entity within the Postal Service that initiated the debt collection (Tr., pp. 68; 74). Petitioner next contacted Labor Relations to discuss the debt at issue (Tr., pp. 136-37). Although Petitioner at that time believed that the debt was related to an ongoing grievance of which she was a party, Petitioner was mistaken. See Finding 6; Respondent’s Exh. K. Petitioner was not a party to the class action grievance pertaining to the circumstances that led to this debt as she was retired and no longer represented by her union (id.).

            Following these initial contacts with Respondent, Petitioner began a campaign of letter writing to various government officials in an attempt to understand the process by which her retirement annuity was being offset (Finding 9). At no time in her discussions with Respondent’s agents, or with any of the government officials to whom she wrote, was Petitioner told of her right to request reconsideration of the debt under 39 C.F.R. §966.4(a)(3), or of her right to file a Petition with the Judicial Officer under 39 C.F.R. §966.4(b) for review of the debt by an impartial adjudicator (Finding 10).[9] No mention was made to Petitioner about the regulations regarding offset that provide for minimal due process rights under FCCS (Tr., p. 103). In fact, Petitioner was not informed of her rights to challenge the debt until a conversation with a union representative that led to the filing of this Petition (Finding 12).

            I conclude that the invoice provided to Petitioner did not satisfy the requirements of the demand letter necessary under the FCCS. Nothing in the invoice informs the debtor of her rights under 39 C.F.R. Part 966. Of the four requirements for an adequate demand letter under FCCS, the invoice provides Petitioner only with the amount of the debt and a contact person to discuss the debt. See 31 C.F.R. §901.2. There is no mention in the invoice of Petitioner’s right to seek reconsideration, her right to review documentation pertaining to the claim, her right to enter into a payment plan with the agency, or of her right to Petition under 39 C.F.R. Part 966. See 31 U.S.C. § 3716; 31 C.F.R. §901.3(b)(4).[10]

            I also conclude that Respondent’s certification to OPM that it had complied with the due process requirements of the FCCS was false. The certification on Form 2805 is not pro forma. It requires that Respondent ensure that the former employee has been properly informed of his or her rights.[11] As discussed herein, Respondent’s Accounting Service Center failed to satisfy Respondent’s legal obligations prior to certification to OPM that it had complied with federal law. Such an unmistakably false certification cannot withstand judicial scrutiny. Based on the foregoing, I find that Respondent denied Petitioner the due process to which she was entitled under Section 10 of the Debt Collection Act and its implementing regulations.

Remedy

            Having determined that Petitioner was denied her due process rights under 31 U.S.C. §3716, 31 C.F.R. Part 901, 5 C.F.R. §831.101 et seq., and 39 C.F.R Part 966, both by failure of Respondent to issue an appropriate demand letter, and by Respondent falsely certifying that it had given Petitioner required due process, I turn to the appropriate remedy.[12] In this case, Petitioner was diligent in her attempts to determine how to contest this debt. Respondent had ample opportunity to correct its deficient notice by informing Petitioner of her rights at any time during this process. Respondent did not do so.

            Petitioner testified that this administrative offset process caused her some financial distress, and the process was mentally exhausting, frustrating, and stressful (Tr., p. 140). Petitioner also states that she changed her position, from active employee to retired employee, on the basis of the original payment that was later determined to have been in error (Tr., pp. 140-41). She notes that if she had known the amount of the payment was significantly less than the amount she received in 2009, she would not have retired at that time (Tr., p. 141). Additionally, had Petitioner remained employed by Respondent she would have remained as a grievant in the pending class action grievance that involves the overpayment at issue in this Petition, and thus no collection of the debt could have commenced during the pendency of that grievance (Tr., pp. 13-14).[13] Based on the foregoing, Petitioner asks that the debt sought to be collected herein be waived, that the funds be returned to her, and that she be compensated for the stress of her ordeal (Tr., p. 140).

            Remedies such as damages for mental stress or related injury are not compensable under the Debt Collection Act. 31 C.F.R. §900.8. However, violations of Petitioner’s due process rights are remediable. The traditional remedy for violation of procedural due process is to award to Petitioner the right to the proper process she was denied. In this case, such relief includes repayment to Petitioner of the debt collected by Respondent, and prevention of Respondent from collecting the debt until such time as Respondent provides to Petitioner her full due process rights. This approach makes Petitioner whole, in that it places her in the position she would have been in the absence of the due process violation, and protects against future due process violations by Respondent in further collection of the debt.

            Accordingly, Respondent shall refund the sum of $6,824.71 to Petitioner within thirty (30) days of the date of this Decision. Petitioner retains her right for review of any future collection activity under FCCS, and any new regulations or procedures adopted by Respondent, if Respondent seeks to collect this debt at some time in the future.[14]

ORDER

            The Petition is GRANTED.

            Respondent shall refund the sum of $6,824.71 to Petitioner within thirty (30) days of the date of this Decision. Respondent may not collect the debt by administrative offset from Petitioner’s retirement annuity until it complies with the due process provisions of Section 10 of the Debt Collection Act, and the implementing regulations cited herein, including the Federal Claims Collection Standards.

James G. Gilbert
Chief Administrative Law Judge

[1] The record remained open for the submission of additional legal argument by both parties. Both parties were specifically invited to seek legal assistance for such a post-trial brief. Although both parties did offer additional submissions, neither submitted argument from counsel concerning the legal issues discussed in this Decision.

[2] Respondent’s Exhibits are referred to by their letter designation as “Respondent’s Exh. __.” Petitioner’s Exhibits are referred to by their numeric designation as “Petitioner’s Exh. __.” References to the transcript appear as “Tr., p. __.”

[3] The cited $10,876 overpayment in Finding 1 was reduced by $157.70 apparently as the result of a Medicare payment reflected in Respondent’s Exh. D, p. 4.

[4] Respondent recalculated Petitioner’s settlement amount as $3,893.59. This amount was applied as a credit against the original $10,718.30 Invoice figure. The remaining $6,824.71 was collected by administrative offset from Petitioner’s retirement annuity. Tr., p. 50; see also Respondent’s Exh. C.

[5] 39 C.F.R. §966.4(b) requires that a Petition be filed within 30 days after Petitioner’s receipt of a denial of a request for reconsideration under 39 C.F.R. §966.4(a)(3). As I find that Respondent failed to follow its own regulations in this matter, including the notice provisions of 39 C.F.R. Part 966 that give rise to the date from which to calculate the 30 days for an appeal, and based upon Petitioner’s diligent pursuit of her rights, I deem the Petition timely filed.

[6] Although Respondent must certify its compliance with due process on Form 2805, there is no mention in OPM’s Schedule for Collecting Government Debt from your Annuity, which is sent to the debtor, of any of debtor’s rights under the Debt Collection Act or the regulations cited. This is presumably because the agency has already certified to OPM that the debtor has received notice of these rights prior to its execution and submission of Form 2805.

[7] Respondent promulgated regulations at 39 C.F.R. Part 966 that implement certain procedural requirements for administrative offset from a former employee debtor. However, 39 C.F.R. Part 966 is not consistent with the FCCS. See 31 C.F.R. §901.3; 31 U.S.C. §3716(b). Part 966 specifically addresses the scope of a pre-deprivation hearing to be afforded an employee who requests such a hearing. What is missing from Respondent’s regulatory scheme is guidance regarding appropriate notice and explanation to the former employee of his or her rights under Part 966 and Section 10 of the Debt Collection Act, including the specifics of the FCCS. For example, ELM §452.3 includes copies of form demand letters and letters pertaining to Notice of Involuntary Administrative Salary Offsets, as well as detailed procedures to insure compliance with Section 5 of the Debt Collection Act for current employees. There exist no similar provisions in the ELM to implement Section 10 of the Debt Collection Act as a supplement to the general hearing procedures found in 39 C.F.R. Part 966 for former employees. Respondent did submit certain provisions of Respondent’s Handbook F-16, Accounts Receivable, which address the procedures to be taken internally prior to administrative offset from former employees (Respondent’s Exh. M). After review of Respondent’s online publications, I was unable to locate Handbook F-16, Accounts Receivable to determine if the handbook is still in existence or to determine which of Respondent’s personnel have access to this handbook. In any event, unlike ELM §452.3, the portions cited fail to elaborate on the specific procedural requirements of the due process owed to a debtor in such circumstances, or to provide sample notices that comply with FCCS. Additionally, this internal accounting policy offers no notice to former employees of their due process rights, and is routinely ignored by Respondent’s Accounting Service Center to the extent it cites to the FCCS. See discussion infra Notes 10-11 and accompanying text. As the only published regulation that relates to collection of debts from former employees, Part 966 should comply with the minimum standards of FCCS, as reflected by 31 C.F.R. §901.3(b)(4), which currently it does not, or additional regulations may be necessary that meet existing statutory requirements. See, e.g., Malone v. Office of Personnel Management, 52 M.S.P.R. 655, 658 (1992)(procedural rights to be afforded to debtor by an agency under Section 10 of Debt Collection Act “include notice and an opportunity to be heard.”).

[8] The debt amount was later adjusted to $6,824.71. See Note 4 supra.

[9] In a response from James K. Cari, Respondent’s Government Relations Representative, to an inquiry from United States Senator Barbara Mikulski (Maryland) on behalf of Petitioner, there is a reference to 39 C.F.R. Part 966 and the reconsideration provisions contained therein. This letter is the only evidence in the record of Respondent’s citation to the regulations applicable in this case. I find this obscure reference to a third party does not suffice to meet the notice requirements of Section 10 of the Debt Collection Act or implementing regulations cited herein.

[10] Mr. Laurant testified that Respondent does not set up payment plans for former employees and that “no option” exists for such a plan (Tr., pp. 75-76). This ongoing practice is inconsistent with the plain language of 31 U.S.C. §3716, which requires that such a plan be offered to a debtor. 31 U.S.C. §3716(a)(4).

[11] Mr. Laurant testified that his department processes hundreds of Form 2805s per pay period (Tr., p. 84). Each Form 2805 requires a separate certification of compliance with the debtor’s due process rights. In practice, as testified to by Mr. Laurant, the Accounting Service Center routinely ignores the procedural requirements set forth under the FCCS, and routinely certifies erroneously to OPM that the agency has complied with the due process rights of the debtor (Tr., pp. 82-83; 86; 89). Based upon Mr. Laurant’s testimony, it can be reasonably inferred that former employees other than this Petitioner receive inadequate notice of their alleged debt and of their opportunity to respond before a Form 2805 is sent to OPM to affect an annuity offset. It is equally clear that this unfortunate pattern of deprivation of due process has been in place long before the date of this Decision. As discussed earlier in this Decision, both Respondent’s regulatory scheme and the Accounting Service Center’s collection practices fail to provide meaningful notice and an opportunity for a former employee to be heard before an annuity offset is initiated.

[12] The question of whether Respondent may satisfy minimum due process requirements of Section 10 of the Debt Collection Act, and the FCCS, by providing procedural due process in the absence of published regulations is not before me and I make no finding in that regard. See generally, Need for Regulations Under 31 U.S.C. §3716, 64 Comp. Gen. 816 (1985)(“so long as debtors are accorded the substantial equivalent of the procedural rights specified in 31 U.S.C. §3716(a), agencies are not precluded from taking administrative offset under section 10 prior to finalization of their regulations.”)

[13] Respondent’s local Labor Relations Representative confirmed that the grievance is pending and no current similarly situated employees have been required to pay the debt at issue (Tr., pp. 20-21).

[14] As I find that Respondent violated Petitioner’s due process rights under 31 USC §3716, I need not reach the issue of validity of the debt Respondent seeks to collect in this matter.