McCue v. State Employes' Retirement Board

OPINION

CRUMLISH, Jr., Senior Judge.

John B. McCue, Robert F. Burkardt and William C. Fisher (claimants) appeal a State Employees’ Retirement Board (Board) order denying their requests to purchase retirement credits for active military service. We affirm. .

The claimants served in the United States military services and received a military reserve pension based on both active duty and service in the reserves. After active service, the claimants became employed by the Commonwealth and entered the Pennsylvania State Employes’ Retirement System (Retirement System). Prior to retirement, they sought to purchase retirement credit for military service. These requests were denied because the claimants all intended to apply for military reserve retirement benefits.

Under Section 5304(b) of the State Employees’ Retirement Code, 71 Pa.C.S. §§ 5101-5956, (Retirement Code), an active member was eligible to receive credit for non-state service only if he was not entitled to a retirement benefit for that service under a retirement plan administered by the federal government. 71 Pa.C.S. § 5304(b). After the claimants retired, the United States District Court for the Middle District of Pennsylvania ruled in Furgiuele v. Sheffler, No. 83-0039 (M.D.Pa. Jan. 19, 1984), aff'd, 749 F.2d 26 (3rd Cir.1984), that section 5304(b) was unconstitutional because it was in conflict with 10 U.S.C. § 1336.¹

Subsequently, the claimants again sought to purchase service credit based on the Furgiuele decision. Their requests were denied because they were no longer active members of the retirement system and only active members may purchase retirement credit for military service. 71 Pa.C.S. § 5304(a).

The primary issue presented by this appeal is whether the Furgiuele decision should be retroactively applied. The Board held that Furgiuele should not be applied retroactively. We agree.

There is no dispute that retroactive application of decisions holding statutes unconstitutional is the general rule. However, under certain circumstances decisions are not applied retroactively. In Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), the United States Supreme Court set out criteria for determining whether a decision will be prospectively applied:

First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed. Second, it has been stressed that “we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation.” Finally, we have weighed the inequity imposed by retroactive application, for “[w]here a decision ... could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the ‘injustice or hardship’ by a holding of nonretroactivity.” (citations omitted.)

Id. at 106-107, 92 S.Ct. at 355.

Chevron has been applied in Pennsylvania. August v. Stasak, 492 Pa. 550, 554, 424 A.2d 1328, 1330 (1981). Nonetheless, the claimants maintain that the Furgiuele decision does not meet the Chevron criteria and therefore should be applied retroactively. We disagree.

First, claimants assert that Furgiuele did not establish a new principle of law either by overruling clear past precedent, or by deciding an issue of first impression whose resolution was not clearly foreshadowed. This is plainly a case of first impression, however, since no other case has reached the issue of conflict between Section 5304 and 10 U.S.C. § 1336. Hence, we must ascertain whether the resolution of this conflict was clearly foreshadowed.

In support of their position, the claimants rely on Cantwell v. County of San Mateo, 631 F.2d 631 (9th Cir.1980), cert. denied, 450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981). In Cantwell, the Ninth Circuit invalidated a California statute, similar to Section 5304, because of its conflict with 10 U.S.C. § 1336. As a Ninth Circuit case, it cannot be said that Cantwell clearly foreshadowed the decision in Furgiuele. We agree with the Board that one decision of a federal circuit does not foreshadow the same resolution in another circuit. As the Board indicated in its opinion, the Third Circuit has refused to follow the Ninth Circuit on many occasions. See e.g. Jones & Laughlin Steel Inc. v. Mon River Towing Inc., 772 F.2d 62, 65, 66 (3rd Cir.1985); Gross v. G.D. Searle & Co., 738 F.2d 600, 604 (3rd Cir.1984). Thus, we conclude that Furgiuele did decide an issue of first impression not clearly foreshadowed.

Second, the claimants contend that the purpose of 10 U.S.C. § 1336 is served by a retroactive application of Furgiuele. They assert the statute’s purpose is two-fold: (1) to provide inducement to qualified personnel to remain active in the reserves; and (2) to express appreciation for the past active services of reservists. However, only future reserve service can be encouraged, and only a prospective application of Furgiuele is necessary to accomplish this goal. Moreover, as the District Court in Furgiuele noted, allowing claimants to purchase retirement credits permits a double credit for their military time.²

Finally, the claimants argue there is no inequity imposed on the Board or the retirement system by a retroactive application of Furgiuele. However, in Los Angeles Department of Water and Power v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978), the U.S. Supreme Court stated that rules applying to pension funds should not be applied retroactively because the liability to a fund could be devastating.³ The potential claims by retired military personnel if Furgiuele were retroactively applied would be substantial. We recognize the significant effect a change in the legal rules governing pensions could have on the reserves in those funds. Given the complexities of pension funding and the potential for fund instability, we are of the opinion that retroactive application would amount to a penalty on the retirement system (and its members) for not anticipating a court decision.⁴

The claimants additionally assert that, under the doctrine of equitable estoppel, the Board is barred from denying their right to purchase retirement credits. Equitable estoppel arises when a party has intentionally or negligently misrepresented some material fact. Central Dauphin School District v. Department of Education, 63 Pa.Commonwealth Ct. 48, 437 A.2d 527 (1981). Here, the retirement system did not intentionally or negligently misrepresent the law. Rather, its decision was based on the interpretation of the law at that time. Although the doctrine is one of fundamental fairness, it cannot be said that fairness requires us to apply equitable estoppel in this case. This is particularly true where the claimants did not appeal the retirement system’s refusal to allow them to purchase retirement credits or, as in Furgiuele, bring an action challenging Section 5304(b) in federal court.

Thus, for the reasons stated above, we hold the Board did not err when it refused to apply Furgiuele retroactively. We also hold that the Board cannot be estopped from denying claimants’ application too purchase creditable non-state service for their active military service time.⁵

ORDER

The decision of the State Employees’ Retirement Board denying the applications of John B. McCue, Robert F. Burkardt and William C. Fisher, dated April 2, 1990 is hereby affirmed.

1 . 10 U.S.C. § 1336 provides:

No period of service included wholly or partly in determining a person’s right to, or the amount of, retired pay under this chapter may be excluded in determining his eligibility for any annuity, pension, or old-age benefit, under any law, on account of civilian employment by the United States or otherwise, or in determining the amount payable under that law, if that service is otherwise properly credited under it.

2 . Id. slip op. at 9, n. 1.

3 . Compare Catania v. Commonwealth State Employees' Retirement Board, 498 Pa. 684, 450 A.2d 1342 (1982), in which our Supreme Court reasoned that actuarial soundness of a pension fund is considered insufficient grounds for impairing contractual rights established by vested membership in a retirement system.

4 . The United States Supreme Court has refused to retroactively apply federal court decisions changing gender-based rules applying to pension funds. Florida v. Long, 487 U.S. 223, 108 S.Ct. 2354, 101 L.Ed.2d 206 (1988).

5 . Claimants assert that the Board erred when it held that they had waived or otherwise prejudiced any judicial or contractual rights to purchase credits. As this was an alternative conclusion which is unnecessary to our disposition, we need not address it.