Court Opinion

ID: 9951012
Source: CourtListenerOpinion
Date Created: 2024-03-15 15:18:13.808383+00
Date Added: 2024-06-11T14:35:53.597748
License: Public Domain

RENDERED: MARCH 8, 2024; 10:00 A.M.
                         NOT TO BE PUBLISHED

                 Commonwealth of Kentucky
                            Court of Appeals

                               NO. 2023-CA-0041-MR

KENTUCKY PUBLIC PENSIONS AUTHORITY;
COUNTY EMPLOYEES RETIREMENT SYSTEM; AND
JOINT DISABILITY APPEALS COMMITTEE/
ADMINISTRATIVE APPEALS COMMITTEE                                   APPELLANTS

                 APPEAL FROM FRANKLIN CIRCUIT COURT
v.               HONORABLE PHILLIP J. SHEPHERD, JUDGE
                         ACTION NO. 18-CI-00180

JODY D. SHEA                                                              APPELLEE

                                      OPINION
                                     AFFIRMING

                                    ** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; ECKERLE AND KAREM, JUDGES.

ECKERLE, JUDGE: Appellants (hereinafter, “KPPA”)1 appeal an Opinion and

Order of the Franklin Circuit Court reversing a final, administrative decision that

1
 The Kentucky Public Pensions Authority was previously the Kentucky Employees Retirement
Systems.
required Appellee, Jody Shea (hereinafter, “Shea”) to repay more than $150,000 in

retirement benefits. We find no error with the Circuit Court’s application of the

doctrine of equitable estoppel. Thus, we affirm.

                                    BACKGROUND

              Shea is a long-term public servant. He served our country in the

United States Marine Corps prior to his service in law enforcement in Kentucky.

Shea is also a single father of a young boy who was seven years of age when Shea

sought to retire.

              Once he had acquired enough service credits, Shea explored his

retirement options. He met with Robbie Adkins (hereinafter, “Adkins”), a

retirement counselor for the KPPA.2 Adkins is also a long-time public servant. He

has counseled many retirees and potential retirees. No evidence was introduced

that Adkins had erred in his duties over the years.

              When questioned many years later about the meeting he had with

Shea, Adkins neither recalled the meeting nor Shea. Understandably, remembering

one of hundreds or thousands of such meetings many years later would be

challenging. Notably, Adkins could not even estimate how many similar meetings

he has had over the course of his approximately 20-year career working as a

2
  As the names of the retirement agencies have changed over the years, we use KPPA generically
to refer to all current and past iterations.

                                             -2-
retirement counselor for KPPA, and he conceded that he may have performed as

many as five per day.

               Adkins logged a brief note after the 29-minute meeting with Shea.

The note did not reference any questions Shea may have asked about

reemployment after retirement. Adkins summarily wrote, “member in office, went

over ests already done and checked, discussed options in detail, gave 6000 and

explained in detail how to fill out[.]”3 Adkins described his normal course of

business of logging notes after each counseling session. He believed that he would

have included a note about any questions regarding reemployment, but he also

admitted that it was possible that he would have failed to recall or record it.

               In contrast, Shea recalled the meeting in vivid detail. Specifically,

Shea remembered at the end of the meeting asking Adkins about the effects, if any,

reemployment would have on his retirement benefits. Shea testified that he was

informed that if he desired to return to part-time hazardous duty, he needed to wait

30 days after he retired, and if he desired to return to full-time hazardous or non-

hazardous duty, he needed to wait 90 days after he retired. Shea decided to retire

and later returned with the requisite paperwork.

3
  The “ests” seemingly refers to estimates of retirement benefits, and “6000” refers to one of the
forms a person must fill out to retire.

                                                -3-
               Shea retired on December 1, 2011. Shea was provided a Retiree

Handbook that stated, in relevant part:

               Duration of separation from service

               An employee retiring from a hazardous position and
               returning to a hazardous position that would otherwise be
               required to participate in CERS, KERS, or SPRS must
               observe a one (1) calendar month break in service before
               returning to work with a participating agency. Most
               other employees will be required to observe a three (3)
               month break in service before returning to work. If you
               do not observe your break in service, your retirement will
               be voided and you will have to repay all benefits you
               received . . . .

               Subsequently, Shea decided to return to part-time work. He spoke

with the Versailles Police Chief, who had part-time work available. Seeking to

avoid endangering his retirement, Shea called KPPA about his intent to return to

work. Shea said he was advised to submit a Form 6751 to seek reemployment with

a participating agency. On January 3, 2012, Shea filed with KPPA a Form 6751,

entitled “Member and Employer Certification Regarding Reemployment.” The

form contained signatures from Shea and Chief John Wilhoit of the Versailles

Police Department. Both men certified that there was no prearranged agreement

for Shea to return to work. Accompanying this form was a memo from Shea

noting he was “interested in re-applying for a hazardous position with an agency in

the [Kentucky Retirement System], and requesting that the [KPPA] acknowledge

my request.”

                                          -4-
             KPPA reviewed the form and issued to Shea a “Memorandum” dated

January 5, 2012 (hereinafter “2012 Memo”), stating in relevant part:

             Based upon the information you provided, I have
             determined that your employment with the City of
             Versailles, an agency that participates in the Kentucky
             Retirement Systems, will not affect your monthly
             retirement benefits provided that you do not begin your
             new employment until after you have observed the
             proper break in service. If you return to a Full Time
             Hazardous Duty position, you must observe a one (1)
             calendar month break in service and not begin
             employment until after January 1, 2012. If you are
             returning to a Part-Time or Non-Hazardous position, you
             are required to observe a three (3) calendar month break
             in service and not begin employment until after March 1,
             2012. For more information please contact Kentucky
             Retirement Systems.

             Shea then began working as a part-time police officer with the City of

Versailles on January 11, 2012, more than one month, but fewer than three months,

post-retirement. Shea claimed he was not making much money in his part-time

position, grossing (pre-tax) approximately $5,000 total during the approximately

two months he would later discover he was ineligible to return to work.

             KPPA did not catch the issue for many years, however. Due to a

change in the payroll system used by the City of Versailles, it did not report Shea’s

employment to KPPA until April 1, 2015, and it was not until January 21, 2016,

that the City of Versailles notified KPPA of Shea’s actual start date with the police

department. KPPA then investigated and determined that Shea had violated the

                                         -5-
terms of his retirement by becoming reemployed in a part-time position within

three months of his retirement. Accordingly, on March 16, 2016, KPPA notified

Shea by certified letter that his retirement was being voided, and that he would

have to repay all received benefits, including retirement and health insurance

benefits, totaling $157,513.09.

              Shea then sought and obtained injunctive relief against KPPA before

re-retiring under advice of counsel. Shea also requested an administrative hearing,

which was granted. At the hearing, Shea and KPPA presented the aforementioned

evidence.4

              In position statements, Shea argued that KPPA misinformed him

regarding when he could return to work following retirement. Shea claimed if he

were in technical violation of the reemployment rules, he was entitled to equitable

relief either through the doctrine of laches or equitable estoppel. KPPA argued

against Shea’s position, requesting Shea repay all received benefits. The Hearing

Officer then issued her Findings of Fact, Conclusions of Law, and Recommended

Order (hereinafter “Recommended Order”), advocating that the Board of Trustees

of Kentucky Retirement Systems (hereinafter, “Board”) deny Shea’s equitable

claims and find that KPPA met its burden of proof on voiding Shea’s retirement.

4
 The parties also introduced evidence regarding the statutory and regulatory scheme and
documents and internal memos from KPPA regarding manners of interpreting various
provisions. Shea attempted to show that the various legal provisions were confusing.

                                              -6-
The parties filed exceptions, and the Board issued its Final Order, adopting the

Recommended Order’s findings of fact and conclusions, save for two

typographical corrections.

             Shea appealed the administrative decision to the Franklin Circuit

Court. The Circuit Court ultimately entered an Opinion and Order reversing the

Final Order, finding both equitable estoppel and the doctrine of laches applied to

prevent KPPA from recoupment of the $157,513.09 in paid benefits. KPPA

appealed and raises multiple allegations of error on appeal. We address those

allegations of error below; additional details will be discussed as necessary.

   I.    Equitable estoppel and the weighing of evidence

             KPPA’s first two claims are that the Circuit Court erred by allegedly

reweighing the evidence and finding equitable estoppel should apply to bar KPPA

from recovering from Shea.

             Generally speaking, equitable estoppel may be invoked against a

governmental entity, but only “in unique circumstances where the court finds

exceptional and extraordinary equities involved.” Weiand v. Board of Trustees of

Kentucky Retirement Systems, 25 S.W.3d 88, 91 (Ky. 2000). The elements of

equitable estoppel are as follows:

             (1) conduct which amounts to a false representation or
             concealment of material facts, or, at least, which is
             calculated to convey the impression that the facts are
             otherwise than, and inconsistent with, those which the

                                         -7-
             party subsequently attempts to assert; (2) the intention, or
             at least the expectation, that such conduct shall be acted
             upon by, or influence, the other party or other persons;
             and (3) knowledge, actual or constructive, of the real
             facts. And, broadly speaking, as related to the party
             claiming the estoppel, the essential elements are (1) lack
             of knowledge and of the means of knowledge of the truth
             as to the facts in question; (2) reliance, in good faith,
             upon the conduct or statements of the party to be
             estopped; and (3) action or inaction based thereon of such
             a character as to change the position or status of the party
             claiming the estoppel, to his injury, detriment, or
             prejudice.

Id. (quoting Electric and Water Plant Board of City of Frankfort v. Suburban

Acres Development, Inc., 513 S.W.2d 489, 491 (Ky. 1974)). Equitable estoppel is

a question of fact for the Board to consider first. Board of Trustees, Kentucky

Retirement Systems v. Grant, 257 S.W.3d 591 (Ky. App. 2008).

             The standard of review to be applied to appeals from administrative

decisions depends upon whether the decision grants or denies relief to the party

bearing the burden of proof:

             When the decision of the fact-finder is in favor of the
             party with the burden of proof or persuasion, the issue on
             appeal is whether the agency’s decision is supported by
             substantial evidence, which is defined as evidence of
             substance and consequence when taken alone or in light
             of all the evidence that is sufficient to induce conviction
             in the minds of reasonable people. See Bourbon County
             Bd. Of Adjustment v. Currans, Ky.App., 873 S.W.2d 836,
             838 (1994); Transportation Cabinet v. Poe, Ky., 69
             S.W.3d 60, 62 (2001) (workers’ compensation case);
             Special Fund v. Francis, Ky., 708 S.W.2d 641, 643
             (1986). Where the fact-finder’s decision is to deny relief

                                         -8-
            to the party with the burden of proof or persuasion, the
            issue on appeal is whether the evidence in that party’s
            favor is so compelling that no reasonable person could
            have failed to be persuaded by it. See Currans, supra;
            Carnes v. Tremco Mfg. Co., Ky., 30 S.W.3d 172, 176
            (2000) (workers’ compensation case); Morgan v. Nat’l
            Resources & Environ. Protection Cabinet, Ky.App., 6
            S.W.3d 833, 837 (1999). “In its role as a finder of fact,
            an administrative agency is afforded great latitude in its
            evaluation of the evidence heard and the credibility of
            witnesses, including its findings and conclusions of fact.”
            Aubrey v. Office of Attorney General, Ky.App., 994
            S.W.2d 516, 519 (1998) (citing Kentucky State Racing
            Commission v. Fuller, Ky., 481 S.W.2d 298, 309 (1972)).
            . . . A reviewing court is not free to substitute its
            judgment for that of an agency on a factual issue unless
            the agency’s decision is arbitrary and capricious. See
            Johnson v. Galen Health Care, Inc., Ky.App., 39 S.W.3d
            828, 832 (2001).

McManus v. Kentucky Retirement Systems, 124 S.W.3d 454, 458-59 (Ky. App.

2003). Here, Shea bore the burden of proving entitlement to equitable relief.

Accordingly, we shall review the Board’s Final Order pursuant to a “two-step

approach by first considering whether the Board had issued a final order properly

supported by substantial evidence[,]” and, second considering “‘whether the

evidence in [the burden-bearing] party’s favor is so compelling that no reasonable

person could have failed to be persuaded by it[.]’” Kentucky Retirement Systems v.

Ashcraft, 559 S.W.3d 812, 819 (Ky. 2018) (quoting McManus, supra).

            In Shea’s case, the Hearing Officer recommended finding that Shea

failed to show, by a preponderance of evidence, that KPPA should be estopped

                                        -9-
from enforcing KRS5 61.685 and seeking repayment of benefits. Specifically, the

Hearing Officer suggested that:

                [Shea] has failed to establish the first element of
                equitable estoppel – that is, the conduct of [KPPA] herein
                does not amount to a false representation or concealment
                of material facts. [Shea] was specifically and clearly
                provided the correct information and advised of the dates
                after which he could properly return to work by virtue of
                the KRS memorandum dated January 5, 2012. As such,
                the record does not establish that [KPPA] engaged in
                conduct amount to a false representation or concealment
                of the fact that [Shea] was prohibited from returning to
                work in a part-time or nonhazardous position prior to
                March 1, 2012. Further, the record does not establish
                extraordinary circumstances which would merit the
                application of the equitable doctrine against a
                government agency.

The Board adopted this recommendation in its Final Order.

                The Circuit Court disagreed, finding that under the McManus

standard, the evidence in favor of Shea was so compelling that the Board should

have found for Shea because no reasonable person could have failed to be

persuaded by the evidence. The Circuit Court reasoned that the following facts

were compelling: the statutory scheme was ambiguous;6 there was no evidence

5
    Kentucky Revised Statutes.
6
  Shea has variously argued that the statutory scheme was ambiguous about the breaks in service
required when retirees from hazardous duty seek reemployment. The Circuit Court also found
some ambiguity, specifically because KRS 61.637(17)(a) provided for a three-month break of
service before re-employment “in a position that is not considered regular full-time” with state
agencies, and KRS 61.637(17)(c) provided that for a one-month break of service before re-
employment if the member was “receiving a retirement allowance from the State Police

                                              -10-
Shea acted in bad faith; “the financial consequences to [Shea] are potentially

catastrophic”; and Shea committed “at most an innocent mistake[.]” The Circuit

Court also held that Shea’s “premature” return to work “was the result of being

misled, or at least the result of confusion for which [KPPA] is responsible.” The

Circuit Court held that the Board erred by finding Shea’s testimony was self-

interested regarding the alleged misrepresentation that Shea only had to wait 30

days before returning to part-time, hazardous employment. The Circuit Court also

discounted the 2012 Memo:

               On the other hand, KRS does argue that the Memo it
               provided to Mr. Shea should have dispelled any
               confusion. The [2012] Memo, by itself, does represent
               substantial evidence that Mr. Shea was informed of how
               long he needed to wait before reemployment. But in
               combination with the information provided by
               [Counselor] Adkins, the [2012] Memo merely engenders
               confusion. Moreover, in combination with the inherent
               ambiguity of KRS 61.637(17)(c), any layperson would be
               utterly confused as to the proper retirement procedure.
               Mr. Shea could have interpreted the [2012] Memo to not
               address the issue of returning to part-time hazardous
               employment. Regardless of how the layman might
               interpret the [2012] Memo, Mr. Shea had no reason to
               analyze it closely, insofar as [Counselor] Adkins had
               informed him (wrongly) of how long he needed to wait.
               Therefore, the evidence in favor of Mr. Shea is so

Retirement system or from hazardous duty retirement coverage and is employed in a regular full-
time position required to participate in the State Police Retirement System or in a hazardous
duty position[.]” Opinion and Order at 4 (emphasis added). However, the relevance of this
alleged ambiguity is questionable, as Shea is neither a legal expert nor a lawyer, and it does not
appear that he investigated the applicable statutes and regulations before reemployment.

                                              -11-
            compelling that no reasonable person could fail to be
            persuaded by it.

Opinion and Order, pp. 7-8.

            We agree with the Circuit Court that this case presents a rare

circumstance in which the McManus standard necessitates reversal of the

administrative decision when the administrative board found against the party

bearing the burden of proof. Notably, the Circuit Court found the 2012 Memo was

substantial evidence in favor of KPPA, but its substantial value was limited by the

additional and conflicting advice Shea received from the KPPA.

            As our Supreme Court has stated, if the substantial evidence for both

sides is “in equipoise[,]” then the “the McManus ‘compelling evidence’ standard

properly breaks the tie.” Bradley v. Kentucky Retirement Systems, 567 S.W.3d

114, 120 (Ky. 2018). But the evidence here was not in equipoise. KPPA had the

2012 Memo on its side of the balance, but multiple, other, credible pieces of

evidence weighed on Shea’s side.

            Shea presented compelling, concrete, and substantial evidence about

an erroneous statement that was given to him during his retirement counseling

session. To minimize this evidence’s substantiality, KPPA relied on inferences

that could be drawn from the lack of evidence – Adkins could not recall the

conversation with Shea, and the de minimis log regarding the meeting was silent

about reemployment. KPPA’s employees presented generalities and normal-

                                        -12-
course-of-business testimony, but they could not specifically recall the actual

meeting, Shea personally, or any of the details discussed.

              Per McManus, the standard of review is high, but it does not simply

require a rubber stamp of administrative decisions. We must consider “whether the

applicant’s evidence was so compelling that no reasonable person could fail to be

persuaded.” Bradley, 567 S.W.3d at 119. Here, Shea’s evidence met that high

mark. Shea proved that: (1) he received misinformation about when he could

reemploy, and that misinformation was further compounded by the supplied

Retiree Handbook that indicated hazardous retirees needed only wait one month

before returning to hazardous employment; (2) KPPA should reasonably expect

that Shea would act upon the misinformation and obtain part-time, hazardous

employment during the three-month period; and (3) KPPA had knowledge of the

one-month and three-month rules. Weiand, supra. Additionally, Shea proved that:

(1) he lacked the knowledge of the one-month and three-month rules;7 (2) he acted

upon the misinformation in good faith, even submitting a Form 6751 and calling

KPPA prior to reemployment in an attempt to avoid jeopardizing his retirement

benefits; and (3) he incurred a substantial injury in the form of a $157,513.09

repayment penalty. Id. Moreover, equitable estoppel may apply against KPPA

7
  Even more, the Circuit Court found the applicable law was ambiguous. We do not agree that
the statutory and regulatory scheme was ambiguous, but we do agree that the statutes and
regulations would be difficult for a layperson to comprehend fully.

                                            -13-
given the “unique circumstances” and “exceptional and extraordinary equities”

involved because this case presents “a situation in which the agency has a direct,

immediate pecuniary interest in the matter[.]” Spalding v. Marion County Bd. of

Educ., 452 S.W.3d 611, 615-16 (Ky. App. 2014) (collecting cases).

             Regarding the elements of equitable estoppel, KPPA argues that the

Circuit Court’s Opinion and Order erroneously permits equitable estoppel based

solely on “confusion” that KPPA created by giving Shea conflicting,

reemployment dates. But any “confusion” was due to inconsistent positions taken

by KPPA regarding reemployment. “Equity will not allow the respondent to

benefit from the inconsistent position.” Laughead v. Commonwealth, Dep’t of

Transp., Bureau of Highways, 657 S.W.2d 228, 230-31 (Ky. 1983).

             Additionally, KPPA argues that Shea, not KPPA, had the superior

knowledge about the date that his part-time, hazardous employment began; thus, he

is not entitled to equitable relief. This argument is a non sequitur, as it ignores the

inconsistent positions it gave to Shea that would have led him to believe that there

was no error with his start date regardless of his supposed “superior knowledge.”

             Accordingly, the Circuit Court properly invoked equitable estoppel to

preclude KPPA from recoupment of the retirement and healthcare benefits. We

affirm the Circuit Court’s Opinion and Order on this issue.

                                         -14-
      II.    Laches8

                The Circuit Court also found that the doctrine of laches applied to bar

KPPA from recouping the expended monies because, that Court found, KPPA had

unreasonably delayed in pursuing its claim. KPPA has appealed this holding.

Because we are affirming on the equitable estoppel ground, we need not decide the

laches issue.

      III.   Complying with the plan/enabling statute and federal tax law

                Finally, KPPA argues that the Circuit Court erred by ignoring KPPA’s

legal obligation to comply with its plan/enabling statute and federal tax law.

Essentially, KPPA argues that estoppel cannot apply because KPPA must follow

its statutes and regulations in order to maintain its tax status. While KPPA’s

argument may be facially appealing, our Court and the Supreme Court have

already determined that estoppel claims are permitted against Kentucky

governmental entities. Weiand, 25 S.W.3d at 91. See also Fryrear, supra

(applying equitable estoppel to the voiding of retirement benefits). We are bound

to follow our Supreme Court’s established precedent. SCR9 1.030(8)(a); Bentley v.

8
 A similar question of whether laches applies to state agencies is currently pending before the
Kentucky Supreme Court, see Professional Home Health Care v. Commonwealth of Kentucky
Cabinet for Health & Family Services Department for Medicaid Services, No. 2023-SC-0226-
DR, and KPPA filed a motion to hold the instant appeal in abeyance pending the outcome of that
case. Because we elect not to decide the laches question, we have denied the motion by separate
order.
9
    Kentucky Rules of the Supreme Court.

                                             -15-
Bentley, 172 S.W.3d 375, 376 (Ky. 2005) (“Of course, neither a circuit court nor

the Court of Appeals has authority to overrule precedents of this Court or our

predecessor court.”). Hence, we affirm the Circuit Court’s Opinion and Order.

                                 CONCLUSION

            Shea received inaccurate information about when he could return to

work following his retirement, and he relied on incorrect statements when

returning to a part-time job in law enforcement. Shea was entitled to the

application of equitable estoppel under these facts. The Circuit Court correctly

held that this case represents one of the rare instances where the McManus

“compelling evidence” standard was met to overturn the Board’s Final Order on

the equitable estoppel claim. Hence, we AFFIRM the Opinion and Order below

inasmuch as it reverses and remands the Board’s Final Order for a finding in favor

of Shea on the equitable estoppel claim.

            ALL CONCUR.

BRIEFS FOR APPELLANTS:                     BRIEF FOR APPELLEE:

Katherine Rupinen                          Martha C. Gray
Frankfort, Kentucky                        Frankfort, Kentucky

                                        -16-