Opinion ID: 1985209
Heading Depth: 1
Heading Rank: 2

Heading: The Propriety of Restitution

Text: With respect to whether the trial justice was correct in ordering Romano to reimburse the state for those pension benefits he received that should not have been paid to him because of his full-time municipal employment, we remand this case to the Superior Court for a new trial on this issue. The trial justice ordered Romano to reimburse the state sua sponte  even though the board never asked for this relief and even though Romano never had the chance to demonstrate why such a remedy would be inequitable. Thus, the parties never had the chance to introduce evidence concerning whether such relief would be appropriate in this case. Moreover, the trial justice did not distinguish between the retirement benefits paid to Romano from the date of his retirement in 1989 through 1996, when the board notified him of its decision to suspend his benefits in accordance with state law, and those paid thereafter from 1997 to 1999, when Romano continued to receive such benefits after seeking and obtaining a temporary injunction preventing the board from suspending his benefits. In this case, from 1989 to 1996 the state mistakenly paid retirement benefits to Romano, money that he was ineligible to receive under state law because of his full-time municipal employment. Thereafter, until 1999, it continued to pay retirement benefits to Romano pursuant to a court order requiring it to do so. But the board did not discover Romano's full-time municipal-employment status until 1996. Even if the board was at fault for failing to discover this information sooner, a party who has conferred a benefit upon another by mistake is not precluded from maintaining an action for restitution because the mistake was caused by that party's own lack of care. See Toupin v. Laverdiere, 729 A.2d 1286, 1289 (R.I.1999) (holding that a party has a cognizable action to seek the return of his money even though the overpayment might have been the product of his own negligence); see also Woonsocket Teachers Guild Local Union 95 v. Woonsocket School Committee, 694 A.2d 727, 729 (R.I.1997). [8] Although § 36-10-36 allowed Romano and other retired state employees to accept work from municipalities while continuing to receive their full state pension benefits, it also required in return that they work no more than seventy-five days in a calendar year (or 150 half days) and that they send monthly notices to the retirement board of any municipal employment they obtained. Romano worked for the town for more than seventy-five days in every calendar year after he retired from the state in 1989, but the record contains no indication that he ever filed any notices of his full-time municipal employment with the board as § 36-10-36(b) required him to do. Presumably, the General Assembly included the monthly notice requirement in the law so that the board could track the municipal employment of working retirees like Romano and ensure that they did not evade the law as Romano did for many years. Having failed to comply with the statute's burden, Romano, like the teacher in Woonsocket Teacher's Guild, might well be found after a retrial to have forfeited his right to retain all or certain portions of the pension overpayments  benefits he should not have been able to obtain in the first place had he (1) heeded the retirement counselor's injunction to go to the retirement board to stay out of trouble concerning any post-retirement reemployment questions and (2) filed the requisite monthly notices with the board of his continuing municipal employment beyond the statutory seventy-five-day cap. See Woonsocket Teachers' Guild, 694 A.2d at 729. On the other hand, Romano may have so changed his circumstances in reliance upon his receipt of the excessive pension payments that requiring him to reimburse the state in whole or in part for this money would be unjust and inequitable. But this calculus depends on the results of a factual and equitable inquiry before the trial court that has yet to occur in this case. This Court addressed a similar situation some years ago in the case of Jonklaas v. Silverman, 117 R.I. 691, 370 A.2d 1277 (1977). Jonklaas involved a stockbroker's suit against a customer to recover a mistaken overpayment of stock-sale proceeds. Id. at 692, 370 A.2d at 1279. The stockbroker brought suit against the customer some five years after the mistaken overpayment. Id. This Court, in a three-to-two decision, reversed the trial justice's restitution order and remanded the case for a new trial because the trial justice overlooked the law which provides that where there is a change of circumstances that could make restitution unjust and inequitable the loss must be borne by the party making the mistake. Id. at 698-99, 370 A.2d at 1282. Because the trial justice excluded evidence tending to show that the recipient of the mistaken overpayment had experienced a change in circumstances that would have made restitution unjust and inequitable, the Jonklaas court ordered a new trial. Id. at 699, 370 A.2d at 1282. Justices Joslin and Kelleher, however, dissented  even though they agreed with the majority that money paid under a mistake of fact may not be recovered if the recipient has so changed his or her position by reason of the overpayment as to make it inequitable to require restitution. Id. The dissenting justices were of the opinion that what constitutes a requisite change of circumstances under that rule is often a very close question, and the answer will turn on the facts of the particular case. (Joslin, J., dissenting). Id. Because the recipient of the mistaken overpayment had failed to make an offer of proof concerning why he was not unjustly enriched and showing that the alleged change in his circumstances had rendered inequitable the stockbroker's claim for restitution, they believed that the trial justice's ruling ordering reimbursement of the overpayment should have been upheld. Id. at 700-01, 370 A.2d at 1282-83. Significantly for our purposes, Justices Joslin and Kelleher noted that not every change of circumstances is available as a defense to a restitution claim. Id. at 699, 370 A.2d at 1252. [T]he recipient will not be required to make restitution if by reason of the mistaken payment he has assumed liabilities and obligations that he would not otherwise have assumed,    or if he has turned over the money to a third party to whom he was under a legal or contractual obligation to pay all or part of the funds so received.    It follows that evidence to establish those facts is admissible. On the other hand, restitution will be required if the recipient has used the money to cover living expenses or to pay preexisting debts.    Consequently, the recipient is not entitled to introduce evidence to establish such use of the erroneous payment. Id. at 699-700, 370 A.2d at 1282. Moreover, in this case, unlike Jonklaas, we are dealing with excessive pension payments involving public funds. Hence, all the more reason why we should be very careful before concluding that the government is not entitled to recover any of the overpayments. Indeed, the case law that restricts the availability of the equitable-estoppel doctrine for use against governmental entities ensures that public funds will be spent according to the letter of the difficult judgments reached by [the elected legislature] as to the common good and not according to the individual favor of [unelected and unauthorized] government agents or the individual pleas of litigants. Office of Personnel Management v. Richmond, 496 U.S. 414, 428, 110 S.Ct. 2465, 2473, 110 L.Ed.2d 387, 395 (1990). In any event, the present record is simply inadequate to determine whether restitution is appropriate. The reason for this is because the trial justice ordered the remedy of restitution sua sponte  even though the board never asked for this relief and even though the evidence was insufficient to determine, as a matter of law, whether the board was entitled to restitution. For example, we have no idea what Romano did with the pension overpayments, yet he bore the burden to prove that it will be inequitable to require restitution. Jonklaas, 117 R.I. at 698, 370 A.2d at 1281. And because the board had not asked either Romano or the court for this relief, Romano had no notice that restitution was at issue  at least before the board notified Romano in 1996 of its intention to suspend his benefits. Thus, the trial justice ordered restitution out of the blue without giving the parties any notice that this relief was in the offing. [9] Thus, the record is barren of the facts and circumstances that should have informed the trial justice's decision on this point under the Jonklaas case. See id. at 699-700, 370 A.2d at 1282. To rule on this issue with an appropriate factual predicate, the parties should have been directed to introduce and the trial justice should have obtained evidence on at least the following issues, among others, that may be pertinent to the equities of this situation: what has Romano done with the pension overpayments? Has he assumed liabilities and obligations that he would not have otherwise assumed? Has he turned over the money to a third party to whom he was under a legal or contractual obligation to pay all or part of the funds received? If so, it may be inequitable to require him to make restitution. Id. Or, conversely, has he merely stockpiled the funds in a savings account or used the money to cover his living expenses or to pay his preexisting debts? If so, then restitution may not be inequitable, especially during the period from 1997 to 1999 when the Superior Court had enjoined the board from suspending his benefits during the pendency of Romano's administrative appeal. Id. [10]