United States Court of Appeals for the Federal Circuit 

06-3050 

ROBERT H. LARY, JR., 

Petitioner, 

v. 

UNITED STATES POSTAL SERVICE, 

Respondent. 

Paul F. Prentiss, Timmermier, Gross & Prentiss, of Omaha, Nebraska, argued for 

petitioner. 

Ray E. Donahue, Attorney, Law Department Civil Practice, United States Postal 

Service, of Washington, DC, argued for respondent. With him on the brief were Peter D. 

Keisler, Assistant Attorney General, Civil Division, United States Department of Justice, 

of Washington, DC, and Lori J. Dym, Chief Counsel, Law Department Civil Practice, 

United States Postal Service, of Washington, DC. Of counsel were David M. Cohen, 

Director, James D. Colt and Kathryn A. Bleecker, Attorneys, Commercial Litigation 

Branch, Civil Division, United States Department of Justice, of Washington, DC. 

Appealed from: United States Merit Systems Protection Board 
 

United States Court of Appeals for the Federal Circuit 

06-3050 

ROBERT H. LARY, JR., 

 Petitioner, 

v. 

UNITED STATES POSTAL SERVICE, 

 Respondent. 

 ___________________________ 

 DECIDED: December 21, 2006 

 ___________________________ 

Before NEWMAN, DYK, and PROST, Circuit Judges. 

DYK, Circuit Judge. 

 Robert H. Lary, Jr. (“Lary”) seeks review of the decision of the Merit Systems 

Protection Board (“Board”) in DE0752020233-C-1, denying his petition for enforcement 

of a prior settlement agreement with the United States Postal Service (“the USPS”). 

Because we hold that the USPS breached the settlement agreement by not providing 

needed documents in a timely fashion and that the breach was material, we vacate the 

Board’s decision and remand for entry of a decree of specific performance and an order 

of back pay and other relief consistent with this opinion. 
BACKGROUND 

Lary, a longtime employee of the USPS, suffers from Obstructive Sleep Apnea, a 

disorder that affects his breathing and thereby disrupts his sleep, often causing 

excessive drowsiness. As a consequence of this disorder, Lary was frequently late for 

his job as a Tour 2 Window Technician at the Benson United States Postal Station in 

Omaha, Nebraska. 

On February 6, 2002, the USPS issued Lary a Notice of Proposed Removal 

charging him with “Unacceptable Conduct—Failure to Maintain a Regular Work 

Schedule/Tardy”. On March 4, 2002, Lary was removed from his position effective 

March 8, 2002. Pursuant to 5 U.S.C. § 8337(b), Lary had until one year after his 

effective termination date, or March 8, 2003, to file a disability retirement application 

with the Office of Personnel Management (“OPM”). 

On or about April 5, 2002, Lary appealed his removal to the Board, charging the 

USPS with violating the Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12101-

12213 (2000), and the Family and Medical Leave Act of 1993, 29 U.S.C. §§ 2601-2654 

(2000). On July 12, 2002, the parties entered into a “Stipulation and Settlement 

Agreement,” pursuant to which Lary agreed to withdraw with prejudice his appeal and 

all other claims filed, never to seek or accept reinstatement to the USPS, and to accept 

a non-disciplinary removal for medical inability to perform his job duties due to sleep 

apnea. 

The USPS made a number of return promises in the agreement. It agreed to 

vacate the March 4, 2002, Decision Letter removing Lary and the earlier Notice of 

Proposed Removal, and it agreed that those documents would be “removed & 

06-3050 2 
expunged from [Lary]’s Official Personnel Folder and all other official files of the 

Agency.” Resp’t App. 26. The USPS also agreed to “issue a new PS Form 50 that will 

indicate medical inability to perform as the reason for [Lary]’s removal.” Id. Crucially,

the USPS agreed to provide Lary three documents “in connection with [Lary]’s 

application for disability retirement within two weeks” of the execution of the settlement. 

Id. at 27 (emphasis added). Those documents were the Supervisor’s Statement, the 

Agency Certification of Reassignment and Accommodation Efforts and the Disability 

Retirement Checklist. Under the disability retirement regulations, these three 

documents are required “in order to determine whether the individual meets the 

eligibility requirements set forth in [5 C.F.R.] § 844.103.” 5 C.F.R. § 844.203(a) (2006); 

see also OPM Standard Form 3112, “Documentation in Support of Disability Retirement 

Application” (1995), available at http://www.opm.gov/forms/html/sf.asp (requiring the 

forms as part of the disability retirement application process). 

The USPS thus agreed to provide Lary, in the documents, with the statements 

necessary for Lary to meet the eligibility requirements of 5 C.F.R. § 844.103, including 

that the applicant was being removed for medical reasons; that accommodation efforts 

had been futile; that Lary’s performance was deficient; and that the deficiency in Lary’s 

performance was expected to continue indefinitely. See 5 C.F.R. § 844.103. The 

parties agreed to cooperate and communicate in good faith to implement the terms of 

the settlement. Pursuant to 5 C.F.R. § 1201.41(c)(2)(i) (2006), the Board accepted the 

settlement agreement into the appellate record and retained jurisdiction to enforce the 

terms of the agreement.

06-3050 3 
The USPS, as called for in the settlement agreement, issued a new PS Form 50 

indicating medical inability to perform as the reason for removal. However, it is 

undisputed that the USPS did not provide the three documents in connection with Lary’s 

disability retirement application within two weeks of the settlement agreement, as 

provided for by the agreement. In fact, the agency did not provide the three documents, 

completely and correctly filled out, until May 13, 2003, well after the March 8, 2003, 

deadline for Lary’s disability retirement application, and after Lary’s counsel had 

contacted the USPS several times to request the documents. 

Ultimately the USPS itself filed Lary’s disability retirement application with OPM, 

but this was not until May 13, 2003. On August 26, 2003, OPM rejected the application 

by letter because it was filed more than one year from Lary’s separation on March 8, 

2002. Lary did not seek review of OPM’s decision. However, on July 16, 2003, Lary 

filed a petition for enforcement with the Board, alleging that the USPS had breached its 

obligations under the settlement agreement. 

The Administrative Judge (“AJ”) rejected all of Lary’s claims. The AJ held that 

the USPS’s failure to provide the needed documents in a timely fashion was not 

material because Lary was ultimately responsible for prosecuting his retirement 

application and, under OPM regulations, he could have filed an incomplete application 

with OPM before expiration of the one-year deadline and that application would still 

have been timely. The AJ also rejected Lary’s claim that the USPS violated the terms of 

the settlement agreement when, in the new PS Form 50, the USPS referenced the first 

Board decision, which, in turn, had made reference to Lary’s being removed for 

06-3050 4 
attendance-related reasons. The AJ reasoned that the settlement agreement did not 

contain language precluding the USPS from referencing the first Board action. 

Lary appealed the AJ’s decision to the full Board, and an equally divided Board 

affirmed. Board member Sapin dissented, urging that the USPS had materially 

breached the agreement because it had prevented Lary from timely applying for 

disability retirement benefits, which was the “essential purpose” of the settlement 

agreement. Pet’r App. at 28. Addressing the question whether Lary unreasonably 

delayed in filing his application, Board member Sapin reasoned that the agency did 

nothing to inform Lary that he alone was responsible for making the one-year deadline 

and that Lary reasonably believed that the agency would file his application for him. 

Lary timely appealed to this court. We have jurisdiction pursuant to 28 U.S.C. 

§ 1295(a)(9) (2000). 

DISCUSSION 

The Board’s decision must be affirmed unless it is found to be arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law; obtained 

without procedures required by law, rule, or regulation; or unsupported by substantial 

evidence. 5 U.S.C. § 7703(c) (2000); Yates v. Merit Sys. Prot. Bd., 145 F.3d 1480, 

1483 (Fed. Cir. 1998). “A settlement agreement is a contract, and its construction is a 

question of law which this court reviews de novo.” Conant v. Office of Pers. Mgmt., 255 

F.3d 1371, 1376 (Fed. Cir. 2001). The question whether a breach of a contract is 

material is a mixed question of law and fact. Gilbert v. Dep’t of Justice, 334 F.3d 1065, 

1071 (Fed. Cir. 2003). At the same time, “[w]here, as here, the facts are undisputed, 

06-3050 5 
the determination of whether there has been material non-compliance with the terms of 

a contract . . . necessarily reduces to a question of law.” Id. at 1072. 

I 

We first consider whether there was a material breach of the settlement 

agreement. That there was a breach is clear, and the government itself does not 

dispute this fact. The government failed to provide the three documents referenced in 

the agreement within the specified two-week timeframe. Thus the question becomes 

whether the breach was material. 

In determining materiality courts often look to whether the breached obligation is 

an important part of the contract. See Thomas v. Dep’t of Hous. and Urban Dev., 124 

F.3d 1439, 1442 (Fed. Cir. 1997) (“A breach is material when it relates to a matter of 

vital importance, or goes to the essence of the contract.”) (citing 5 Arthur L. Corbin, 

Corbin on Contracts § 1104 (1964)). Here the government’s failure to timely provide the 

three documents was central to the settlement agreement. The agreement expressly 

stated that the USPS would complete the required documents “in connection with 

[Lary]’s application for disability retirement.” Resp’t App. at 27. The documents were 

the very same ones that OPM required the USPS to complete before Lary’s application 

could be considered complete. See OPM Standard Form 3112, “Documentation in 

Support of Disability Retirement Application” (1995), available at 

http://www.opm.gov/forms/html/sf.asp (listing the forms as required). Under these 

circumstances it is clear that the government breached an important obligation. 

In determining whether a breach is material, we have also considered the 

Restatement factors: 

06-3050 6 
In determining whether a failure to render or to offer performance is 

material, the following circumstances are significant: 

(a) the extent to which the injured party will be deprived of the benefit 

which he reasonably expected; 

(b) the extent to which the injured party can be adequately compensated 

for the part of that benefit of which he will be deprived; 

(c) the extent to which the party failing to perform or to offer to perform 

will suffer forfeiture; 

(d) the likelihood that the party failing to perform or to offer to perform will 

cure his failure, taking account of all the circumstances including any 

reasonable assurances; 

(e) the extent to which the behavior of the party failing to perform or to 

offer to perform comports with standards of good faith and fair dealing. 

Restatement (Second) of Contracts, § 241 (1981); see also Hansen Bancorp, Inc. v. 

United States, 367 F.3d 1297, 1311-1312 (Fed. Cir. 2004). Here Lary has been 

deprived of the opportunity to timely file for disability retirement benefits, which he could 

reasonably expect from the settlement agreement. Since the Board does not have 

authority to grant damages, the second factor is also not met. See Wonderly v. Dep’t of 

the Navy, 68 M.S.P.R. 529, 532 (1995). There is no risk that the government will suffer 

forfeiture, and the government is not likely to take steps to cure its failure. Finally, under 

the fifth factor, the government offers no justification for failing to perform in a timely 

way. 

The AJ nonetheless held, and the government argues on appeal, that the breach 

was not material because, under OPM regulations, Lary could have filed an incomplete 

application and avoided missing the deadline. See 5 C.F.R. § 844.201(a)(3) (“An 

application . . . that is filed . . . within 1 year after the employee’s separation, and that is 

incompletely executed . . . is deemed timely filed.”); see also OPM Standard Form 3112 

(“OPM must receive your application not more than one year after the date you 

06-3050 7 
separated from your position. If you are unable to get all the information requested, do 

not delay submitting your Standard Form 3112A to OPM.”). 

We reject this conclusion for two reasons. First, the argument that Lary could 

have timely filed an incomplete application is relevant only to the question whether he 

could have mitigated damages and not to the materiality of the breach. Even the 

detailed Restatement factors on materiality nowhere suggest that the nonbreaching 

party’s failure to take steps that could mitigate damages is relevant to determining 

whether the breach was material. The government has cited no authority suggesting 

that the failure to take mitigation steps bears on the materiality of the breach. As the 

government did not make a mitigation argument below, and does not make one on 

appeal, we hold that the AJ erred in considering this ground. 

The second reason we reject the government’s argument is that, even if Lary had 

filed an incomplete application and thus avoided missing the one-year deadline, he 

would still have been irreparably harmed by the government’s breach. This is because 

disability benefits do not begin to accrue until all application requirements have been 

met and the application is complete. OPM Standard Form 3112-2, at 7 (“Disability 

annuity benefits begin accruing on the first day after your pay as an employee stops and 

disability and service requirements have been met.”) (emphasis added); see also OPM 

Standard Form 3112 (describing the documents that the USPS agreed to provide in the 

settlement as required). Thus the government’s delay here cost Lary retirement benefits 

which he had no way of recouping. The breach was clearly material.1

 1 Lary also argues that the USPS materially breached the contract by 

referencing the first Board action in the new PS Form 50 that it issued pursuant to the 

settlement agreement. Here the AJ found that the USPS did not violate its obligations 

06-3050 8 
II 

We now consider which remedy is appropriate here. The government admits 

that the MSPB can order rescission of the agreement and reinstatement of petitioner’s 

claim on appeal or enforce the agreement. See Wonderly, 68 M.S.P.R. at 532 (1995). 

“In a rescission, the parties are restored to their respective positions prior to the 

transaction.” Blanco v. United States, 602 F.2d 324, 327 (Ct. Cl. 1979). Here 

rescission is not an adequate remedy. Rescinding the settlement agreement and 

reinstating Lary’s appeal would not change the fact that Lary has missed the OPM 

deadline, since he had only one year from his separation date of March 8, 2002, to file 

his application with OPM. 

The second remedy that the government agrees is available in this case is 

enforcement of the agreement. Enforcement by specific performance is intended to 

have “the same effect that the performance due under a contract would have produced.” 

Restatement Second of Contracts § 357 cmt. a; see also id. at § 358(1) (“An order of 

specific performance . . . will be so drawn as best to effectuate the purposes for which 

the contract was made.”). We hold that the appropriate remedy in this case is specific 

performance. An order of specific performance does not have to order the exact 

performance contemplated by the contract. The order “will be so drawn as best to 

effectuate the purposes for which the contract was made and on such terms as justice 

requires. It need not be absolute in form and the performance that it requires need not 

 

under the settlement agreement because the agreement “did not contain language 

precluding the agency from referencing the Board as the authority for the removal for 

medical-inability-to-perform reasons.” Resp’t App. 19. In light of our holding that the 

USPS committed a material breach by withholding the documents, we need not address 

Lary’s alternate argument on breach, as it would not affect the result. 

06-3050 9 
be identical with that due under the contract.” Id. § 358(1); McFarland v. Gregory, 322 

F.2d 737, 739 (2d Cir. 1963) (“In framing such a decree the performance that it requires 

need not be identical with that promised in the contract.”). Rather, [t]he court should so 

mold its decree as best to effectuate the purposes for which the contract was made.” 

12 Margaret N. Kniffin, Corbin on Contracts § 1137 (Joseph M. Perillo ed., rev. ed. 

1993); see also Restatement (Second) of Contracts § 358 cmt. a (describing the goal of 

“assur[ing] the expectations of the parties”). 

Here, it is simply impossible to order that the documents be timely provided. 

Rather, in order to effectuate the purpose of the settlement agreement, which was to 

give Lary the opportunity to timely file for disability retirement with the full support of the 

USPS, the MPSB should order the USPS to take again all steps contemplated by the 

original agreement. Thus the MSPB should order the USPS to vacate any and all of 

Lary’s prior removals, proposed removal letters and PS Form 50’s and expunge them 

from the records, and to issue a new letter of decision removing Lary (effective on the 

date the new letter issues) and a new PS Form 50 indicating medical inability to perform 

as the reason for removal. It should further order the USPS to provide the three 

documents (the Supervisor’s Statement, the Agency Certification of Reassignment and 

Accommodation Efforts and the Disability Retirement Checklist) within two weeks of the 

order of specific performance. These newly-issued documents should reference only 

the date of the removal entered pursuant to the order of specific performance, and not 

any earlier removals. Under OPM policy, Lary will then be able to file for disability 

retirement benefits within one year of the new removal entered pursuant to the decree 

of specific performance. 

06-3050 10 
Since Lary’s previous removals will be expunged, the agency on remand should 

also award Lary any back pay and other relief that he may be due under 5 U.S.C. 

§ 5596 (2001). See also 5 C.F.R §§ 550.801 et seq. (2006). In order to avoid a windfall 

to Lary, any back pay should not exceed the amount of disability payments that Lary 

would have received in the relevant time period if the USPS had complied with the 

settlement agreement.2

 See Old Stone Corp. v. United States, 450 F.3d 1360, 1378 

(Fed. Cir. 2006) (“[T]he non-breaching party should not be placed in a better position 

through the award of damages than if there had been no breach.”) (internal citations 

and quotation marks omitted).3

CONCLUSION 

For the foregoing reasons, we vacate and remand to the Board for the entry of a 

decree of specific performance and an order of back pay and other relief consistent with 

this opinion. 

VACATED AND REMANDED

COSTS 

 No costs. 

 2 Of course, in the event that OPM determines, on the merits, that Lary is 

not entitled to disability retirement payments, Lary shall not be entitled to back pay. 

3 The government alternatively contends that we should deny relief because 

Lary’s petition for enforcement was untimely, on the theory that Lary did not file within a 

reasonable time because he did not file promptly after the settlement agreement’s twoweek deadline for providing the documents had elapsed. We see no basis for holding 

that his petition was untimely. 

06-3050 11