In the Matter of the Administrative Offset Petition

ADAM TAYLOR v. UNITED STATES POSTAL SERVICE

P.S. Docket No. AO 19-223

APPEARANCE FOR PETITIONER
Adam Taylor

APPEARANCE FOR RESPONDENT
Sheena Hazel
Labor Relations Specialist
United States Postal Service

INITIAL DECISION

The Postal Service promised to provide Adam Taylor with training costing $15,000, but only provided training costing $9,813.22. The Postal Service then assessed Adam Taylor with a $15,000 debt because he left the Postal Service before completing a two-year employment commitment. Because of material breaches of the enrollment agreement and the continued service agreement by both the Postal Service and Mr. Taylor, the Postal Service may only collect $8,068.12.

FINDINGS OF FACT

Background

1. Mr. Taylor worked for the Postal Service as a manager of job classifications with the human resources department at all times relevant to this litigation (Tr. 225-26).
2. On November 17, 2017, Mr. Taylor signed an Enrollment Agreement as a condition for his participating in the Advanced Leadership Program (ALP). The Enrollment Agreement was also signed by Jeffrey C. Williamson, who was an Executive Vice President and the Postal Service’s Chief Human Resources Officer. (Resp. Exh. 1 at 1-3).
3. On November 17, 2017, Mr. Taylor also signed a Continued Service Agreement (CSA) (Resp. Exh. 1 at 4-5).¹
4. The clauses in both the Enrollment Agreement and CSA are repetitive with regard to key terms relating to the cost of the ALP and Mr. Taylor’s continued commitment to work for the Postal Service.

Contract Clauses

5. The Enrollment Agreement and CSA included a series of clauses relevant to this dispute. Specifically, the Enrollment Agreement provided: “The Advanced Leadership Program (ALP) is a three-week class designed to provide high performing managers with the leadership skills necessary to lead this organization into the future . . . .” (Resp. Exh. 1 at 1).²
6. “The Advance Leadership Program costs . . . $15,000 including tuition and lodging at the Bolger Center . . . .” (Resp. Exh. 1 at 2).
7. Mr. Taylor “will continue serving in the Postal Service for . . . 2 years for programs . . . to include . . . ALP . . . .” (Resp. Exh. 1 at 4).
8. “I [Mr. Taylor] understand that the obligated years of service will begin at the start of business on my first workday after completing the program. I further understand that if I begin the program and do not complete it and then voluntarily leave the Postal Service, I am liable for all costs incurred by the Postal Service for me to attend and participate in the program up to the time of departure.” (Resp. Exh. 1 at 4).
9. The agreement repeats this statement in slightly different terms: “In the event [Mr. Taylor] separates from [the] USPS within the two year period associated with the accompanying Continued Service Agreement, he/she will be responsible for the entire cost of the ALP program, which equals $15,000.” (Resp. Exh. 1 at 2).
10. “This Continued Service Agreement (Agreement) is entered into between Adam Taylor . . . and the United States Postal Service concerning the Postal Service’s payment of expenses in connection with employee’s participation in the Advanced Leadership Program (ALP).” (Resp. Exh. 1 at 4).
11. The CSA provided: “I agree that after completing the program identified above [ALP] I will continue serving in the Postal Service for . . . 2 years for programs that have a cost range from $20,000 to $50,000 (to include MLP and ALP).” (Resp. Exh. 1 at 4).
12. “I [Mr. Taylor] agree to reimburse the Postal Service for the full cost of all expenses incurred by the Postal Service in connection with this program which are in addition to my salary, pay or compensation if any of the following occur prior to my completion of the [two year period] . . . : I voluntarily terminate my employment with the Postal Service for any reason . . . .” (Resp. Exh. 1 at 4).
13. The Enrollment Agreement provided that Mr. Taylor’s supervisor would (1) “[r]elease the participant [Mr. Taylor] from his/her work obligations during the three non-consecutive weeks designated for the ALP . . . and [2] provide a delegate to fulfill the role of the participant during his/her absence . . . .” (Resp. Exh. 1 at 1).
14. The Postal Service also promised in the Enrollment Agreement that Mr. Taylor would meet with a member of the Executive Leadership Team (ELT) to discuss why he was selected for ALP and the ELT member’s expectations. The ELT member was to “[s]hare [his or her] expectations of continued development. Provide ongoing support and when possible provide opportunities and experiences that will accelerate growth.” (Resp. Exh. 1 at 2).

Contract Performance

15. The Postal Service identified Mr. Taylor’s immediate manager as his delegate (Tr. 135).
16. Mr. Taylor attended the class at the Postal Service’s William F. Bolger Center for Leadership Development during the weeks of April 16-20, June 11-15, and August 27-31, 2018. The course substantially complied with the course description provided to Mr. Taylor. (Resp. Exh. 10; Tr. 85-86, 94-95, 149-51, 163-65).
17. Notwithstanding the Enrollment Agreement’s language, the Postal Service did not release Mr. Taylor from his work obligations while he was in training. Mr. Taylor worked an additional 30 hours at his regular job while attending training. (Tr. 44-52, 231, 234, 286).³
18. While Mr. Taylor attended ALP, he was earning approximately $121,000 a year. Using 2,080 hours in a year, Mr. Taylor’s hourly rate would be $58.17.⁴ (Tr. 123, 233, 260).
19. Mr. Taylor completed the course on August 31, 2018 (Resp. Exh. 10; Tr. 94-96, 197).
20. As part of the course, Mr. Taylor met with Executive Vice President Williamson. Mr. Williamson heard a presentation by Mr. Taylor and Mr. Williamson made handwritten notes on the PowerPoint presentation itself. (Tr. 108-11; Resp. Exh. 13).
21. Mr. Taylor then voluntarily left the Postal Service for a job with a different employer on October 19, 2018, which was 49 days after he completed the course (Resp. Exh. 6; Tr. 95-96, 290).

The Assessed Debt

22. On February 25, 2019, the Postal Service invoiced Mr. Taylor for a $15,000 debt because he did not complete the two-year service obligation (Resp. Exh. 7).
23. On March 21, 2019, the Postal Service issued Mr. Taylor a Notice of Debt Determination for the $15,000 (Resp. Exh. 7).
24. Mr. Taylor filed a timely request for reconsideration. In response, the Postal Service reduced the assessed debt from $15,000 to $9,938 based on the actual cost of the training (Pet. Exhs. 3, 9; Tr. 134, 200).
25. The Postal Service calculated the total cost by adding 38 different costs which totaled to $248,837.79 and then divided the amount by 28 (the number of students) in Mr. Taylor’s class. The Postal Service then added Mr. Taylor’s travel costs to reach $9,937.99 (Resp. Exh. 8; Pet. Exh. 9; Tr. 197-98).⁵
26. The largest expenses were for (1) room and board at the Postal Service’s training facility and (2) outside contractors to teach approximately 75% of the course (Resp. Exhs. 8, 10, 11; Tr. 164, 198, 204).
27. After a second request for reconsideration and denial by the Postal Service, Mr. Taylor filed a timely Petition challenging the assessed debt (Pet. Exh. 11; Petition).
28. At trial, the Postal Service revised its $9,937.99 calculation to $9,813.22 based on a further review of the costs for the class (Resp. Exh. 14; Tr. 66, 105-06).

DECISION

Breaches By Both Parties
The issue in this case is whether the Postal Service is entitled to a decision in its favor based on the terms of the Enrollment Agreement and CSA. As the agreements indicate, they are contractual agreements between the Postal Service and Mr. Taylor. These types of agreements are enforceable. See Anzalone v. United States Postal Service, AO 13-378, 2014 WL 12767825 (I.D. May 15, 2014); see also Anaya v. United States Department of Veterans Affairs, VA 17-145, 2018 WL 1606057 (March 20, 2018); Frost v. United States Department of Veterans Affairs, VA 15-29, 2015 WL 13647668 (June 12, 2015). Thus, for the purpose of deciding the parties’ rights and obligations under the agreements, this decision will rely heavily on the principles of contract law. Anzalone, AO 13-378.
Contract interpretation begins with the plain language of the contract. See, e.g., Minesen Co. v. McHugh, 671 F.3d 1332, 1337 (Fed. Cir. 2012). If the terms of the contract are clear and unambiguous, they must be given their ordinary and customary meaning. See, e.g., Bell/Heery v. United States, 739 F.3d 1324, 1331 (Fed. Cir. 2014). Contract interpretation is governed by the objective intent of the parties as embodied by the words of the contract. See, e.g., Epistar Corp. v. Int’l Trade Comm’n, 566 F.3d 1321, 1332 (Fed. Cir. 2009).
At a basic level, the parties agree that the Postal Service did not provide a course costing $15,000 and Mr. Taylor did not continue to work for the Postal Service for two years after he completed the ALP course. The issue in this case is whether the Postal Service may collect money from Mr. Taylor, and, if so, how much.

Mr. Taylor’s Main Defenses
Mr. Taylor contends that the Postal Service materially breached the contract in three ways precluding the Postal Service from collecting money from him. In considering his arguments, an understanding of the term “material breach” is important. “[A] material breach is one that goes ‘to the root of the contract.’ In other words, a material breach ‘deprive[s] the injured party of the benefit that the party justifiably expected from the exchange.” RW Power Partners, L.P. v. Virginia Elec. & Power Co., 899 F. Supp. 1490, 1496 (E.D. Va. 1995) citing Neely v. White, 177 Va. 358, 366, 14 S.E. 2d 337, 341 (1941), also citing Farnsworth on Contracts, Material Breach and Suspension, § 8.16; see also Restatement (Second) of Contracts § 237 (1981).
Mr. Taylor makes three material breach arguments. First, the Postal Service promised to provide a three-week leadership course costing $15,000.⁶ The Postal Service provided a course which cost $9,813.22, not $15,000. The Postal Service does not disagree with the argument. To the extent Mr. Taylor’s Petition challenged the initial invoice of $15,000 and Notice of Debt Determination, he has been successful in reducing the assessment by more than $5,000 to “costs incurred” of $9,813.22.
Second, Mr. Taylor argues that the Postal Service did not release him from his normal work obligations while he attended the class as required by the Enrollment Agreement. Mr. Taylor testified that he was not released from his normal work obligations and had to work an additional 30 hours because of this breach. The Postal Service did not provide evidence to counter Mr. Taylor’s testimony even though the Postal Service knew it would be an issue at trial (Tr. 67-68).
Mr. Taylor requested copies of the emails he sent and received during the three separate weeks he attended ALP (Pet. Exhs. 4 at 1, 5 at 1 and 3; Pet. Exh. 12; Tr. 10, 12). He believed that these emails would show that he worked a substantial number of hours while also attending the course. The applicable law requires that the Postal Service produce relevant agency documents. See 31 U.S.C. § 3716(a)(2)(the former employee shall have “an opportunity to inspect and copy the records of an agency related to the claim . . . .”); see also Rules of Practice, 39 C.F.R. § 966.7 (the Postal Service shall attach to the answer “all relevant records”). The request was proportional to the needs of the case. See Fed. R. Civ. Pro. 26(b)(1). On the record, the Postal Service confirmed that it could produce the emails within a week (Tr. 22).⁷ I recessed the trial for two weeks and ordered the Postal Service to produce the emails by November 1, 2019. The November 1, 2019 date was based on the Postal Service’s representation that it could produce the emails within a week. See October 25, 2019 Order; see also Rules of Practice, 39 C.F.R. § 966.8 (“The Hearing Official may require either party . . . to submit additional evidence on any relevant matter . . . .”). On November 1, 2019, the Postal Service explained that the request could take up to three additional days and the documents would be produced by November 7, 2019. The Postal Service did not produce the emails on November 7, 2019.
Instead of complying with the Order and its representation that the emails would be produced by November 7, 2019, Postal Service filed a new brief on November 7, 2019, arguing that the “2,393 emails involving Petitioner” during the course’s three weeks were irrelevant and it opted not to produce them. See Respondent’s Supplemental Response dated November 7, 2019 at 3-5; Tr. 46. The relevancy argument was not persuasive. Because the Postal Service failed to produce the emails as ordered, I draw an adverse inference that they would provide credible evidence supporting Mr. Taylor’s argument that he was not released from his work obligations and worked 30 additional hours. Helman v. United States Department of Veterans Affairs, VA 14-397, 2015 WL 13647663 (September 16, 2015) quoting UAW v. NLRB, 459 F.2d 1329, 1336 (D.C. Cir. 1972)(“Simply stated, the [adverse inference] rule provides that when a party has relevant evidence within its control which he fails to produce, that failure gives rise to an inference that the evidence is unfavorable to him.”).
Mr. Taylor also argued that I should rule in his favor because of the Postal Service’s flaunting of the Rules of Practice, 39 C.F.R. Part 966, and filing documents late if at all. Having considered the argument and the relative severity of the infraction, I conclude that the adverse inference for failure to file the emails is sufficient.
Third, Mr. Taylor argues that the Postal Service breached the contract by not providing a meeting with a member of the Executive Leadership Team (ELT). The record includes a PowerPoint presentation by Mr. Taylor with an ELT members’ handwritten notes. A meeting occurred, so I am not persuaded on the facts before me that there was a material breach relating to an ELT meeting. Moreover, the Postal Service does not include additional costs for the ELT member’s mentoring time (see Pet. Exh. 9). So even if Mr. Taylor could show that he was not mentored by Mr. Williamson, the Postal Service has not included additional costs for such mentoring in the $9,813.22 it now seeks to collect.
In summary, Mr. Taylor has proven his first two arguments that the Postal Service did not provide a $15,000 course and he was not released from his work obligations. I am not persuaded by Mr. Taylor’s third argument that he did not meet with an ELT member and, even if the Postal Service did not provide the promised mentoring, it did not include the costs for such mentoring in the $9,813.22 it now seeks to collect.

Damages
Both parties have breached the contract. When there is a mutual breach, the judge has the discretion to determine offsetting damages and return the parties to their pre-contract positions. See Restatement (Second) of Contracts (1981) §§ 237, 246, 384 (1981); Uniform Commercial Code § 2-608; see also First Nationwide Bank v. United States, 51 Fed. Cl. 762, 765 (2002)(“The real purpose of restitution is to put the parties back into their respective pre-contract circumstances.”).
To put the parties back to their respective positions requires reviewing both sides’ costs and claims for reimbursement. The claims may offset each other.
The Postal Service admits that it only spent $9,813.22 on the course; therefore, it admits that it is not entitled to the $15,000 identified in the Enrollment Agreement, the February 25, 2019 invoice, and referenced in the Notice of Debt Determination. Mr. Taylor cannot return the $9,813.22 benefit he received from taking the course.
The Postal Service did not “release” Mr. Taylor from his work obligations as required by the Enrollment Agreement which caused him to work an additional 30 hours at a rate of $58.17, which is worth $1,745.10. I agree that the assessed debt should be adjusted based on the Postal Service’s failure to release Mr. Taylor from his other work obligations which offsets the actual costs incurred by the Postal Service. Based on this adjustment, Mr. Taylor owes $8,068.12.⁸

Mr. Taylor’s Additional Defenses
Mr. Taylor raises four additional arguments explaining why he should be totally absolved of the assessed debt.
1. Fraudulent Inducement
Mr. Taylor argues that the Postal Service fraudulently induced him to enter into the agreements and such fraud precludes the Postal Service from collecting on the contract. As a starting point, Postal Service employees are presumed to act in good faith in discharging their duties. Rd. and Highway Builders, LLC v. United States, 702 F.3d 1365, 1367 (Fed. Cir. 2012) citing Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239-40 (Fed. Cir. 2002). A litigant seeking to show that an employee acted in bad faith must prove a specific intent to harm by the government employee by clear and convincing evidence. Id. This standard applies to fraud or the alleged quasicriminal wrongdoing by a government employee. Id.
To be clear, the Postal Service was required by the Enrollment Agreement to provide a class costing $15,000 and the CSA to provide a class costing $20,000. The Postal Service breached the agreements by providing a class costing less than $10,000. However, the error in determining the value of the course was detected when Mr. Taylor asked about the specific cost for the course after he filed his waiver request.
The record does not show that the Postal Service employees implementing the training program had not previously calculated the specific cost of the program. Nothing in the record shows that the ALP managers knew the exact cost of the course when Mr. Taylor signed the Enrollment Agreement or CSA. Because they lacked knowledge, I conclude that they lacked specific intent to harm Mr. Taylor. Furthermore, the course description and course materials were available to Mr. Taylor before he signed the agreements. The Postal Service provided a course which largely complied with the course description and course materials. Because the Postal Service delivered a course which substantially complied with the materials, I do not find fraudulent inducement in this case.
The CSA also included a clause in which Mr. Taylor agreed to waive his rights under the Debt Collection Act in the event that he left the Postal Service. The Postal Service raised the waiver as a defense in its Answer, but subsequently abandoned its argument. Because it abandoned the affirmative defense, I do not address it except to note that this is another instance in the recent past in which the Postal Service has opted not to invoke the waiver. See Kline v. United States Postal Service, AO 17-98, 2018 WL 1606048, fn. 2 (P.S.D. March 23, 2018).
2. Prior Material Breach
Mr. Taylor argues that the Postal Service breached the contract first when it did not spend $15,000 on the training thus obviating the entire debt. To support his argument, Mr. Taylor relies on Federal Circuit’s holding in Long Island Sav. Bank, FSB v. United States, 503 F.3d 1234, 1251 (Fed. Cir. 2007). However, his reliance on this decision is unfounded. Generally, for a prior material breach to be a defense, the other party must return any benefits it received. See Post Holdings Inc. v. NPE Seller Rep LLC, C.A. No. 2017-0772-AGB, 2018 WL 5429833 (Del. Ch. Oct. 29, 2018); 14 Williston on Contracts § 43:15 (4th ed. 2018); Restatement (Second) of Contracts §§ 246, 384 (1981).
While the Postal Service breached the contract first, Mr. Taylor has not and cannot return the training benefit he received; thus, the argument is not persuasive. See Restatement (Second) of Contracts § 246 (1981); see also DNC Parks and Resorts at Yosemite, Inc. v. United States, 133 Fed. Cl. 314, 321 (2017)(“[The] court declines to adopt defendant’s position that a prior material breach necessarily means that [defendant] would avoid liability to compensate plaintiff pursuant to the termination clause in the contract.”).
As a corollary to this argument, Mr. Taylor complains that the training was specifically designed for the Postal Service and that it was of an inferior quality. The courses were presented by third party consultants who provide similar training to other government agencies and corporations. While the case studies used in the training were focused on the Postal Service, the training still had value and, therefore, Mr. Taylor’s argument is not persuasive.
3. Unlawful Penalty
Mr. Taylor’s next argument is that the Postal Service seeks to collect an unlawful penalty. He relies on the Supreme Court’s analysis in Priebe & Sons v. United States, 332 U.S. 407, 411 (1947). The Supreme Court did not prohibit liquidated damages clauses in contracts. Id. The Court held that liquidated damages clauses should not be used to assess a penalty. Id. at 411-13.
At the outset of the dispute underlying this case, the Postal Service sought to collect $15,000, which was not tied to the actual costs for the course. Had the Postal Service persisted, Mr. Taylor’s argument might have merit; however, the Postal Service revised its position and sought only to collect the actual costs for the course. Because the debt is based on actual costs, it is not a penalty.
4. FLSA Rule
Mr. Taylor argues that he may not be required to reimburse for training if it forces him below a minimum wage rate, thus violating the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-19 (2012); 29 C.F.R. § 531.5; Ketner v. Branch Banking & Trust Co., 143 F. Supp. 3d 370 (M.D.N.C. 2015). The Postal Service failed to provide any response to this argument. While I appreciate Mr. Taylor’s argument, I am not persuaded by it.
Under FLSA, employees who work in a bona fide executive, administrative, or professional capacity are exempt from FLSA's minimum wage and overtime compensation requirements; these exemptions are commonly known as the “white collar exemptions.” 29 U.S.C. § 213(a)(1). Mr. Taylor was a salaried employee; thus, the minimum wage requirements do not apply to him. Mr. Taylor also argues that because the training is only applicable to the Postal Service, the white collar exemption does not apply. Having reviewed the curriculum, I conclude that while it is true the case studies focused on Postal Service issues, the curriculum was similar to what is offered by private consultants to private sector businesses and government agencies. Moreover, Mr. Taylor’s reliance on Ketner is misplaced. The training in Ketner cost almost the same as Mr. Ketner’s annual salary. 143 F. Supp. 3d at 384. Thus, recoupment would have forced Mr. Ketner below the minimum wage level. In the present case, the cost is nowhere close to Mr. Taylor’s annual salary. In summary, I am not persuaded by Mr. Taylor’s FLSA argument because he was a “white collar” worker with the Postal Service, who received the training which had broad applicability, and Mr. Taylor’s calculations do not show that the assessed debt would bring him below the minimum wage rate when spread over an entire year.

ORDER

The Petition is denied in part and granted in part. The Postal Service may collect $8,068.12 from Mr. Taylor through administrative offset.

Peter F. Pontzer
Administrative Judge