C. Eddie Shoffner v. Tenneseee Consolidated Retirement System

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
October 24, 2014 Session
C. EDDIE SHOFFNER v. TENNESSEE CONSOLIDATED RETIREMENT
SYSTEM
Appeal from the Chancery Court for Davidson County
No. 130557II Carol L. McCoy, Chancellor
No. M2014-00070-COA-R3-CV - Filed December 29, 2014
An individual employed by Claiborne County as Director of Schools was terminated over
two years earlier than the employment term set forth in the parties’ contract. The county and
the individual entered into another contract (“modified contract”) whereby the individual
agreed to work as Safety Coordinator for five months and be compensated in an amount
equal to the amount he would have been paid had the prior contract not been terminated.
This resulted in a salary increase of nearly $40,000 per month for each of the five months the
individual was employed as Safety Coordinator. The modified contract provided that the
employee would be paid whether he performed any work or not, and the employee agreed
to waive and release any claims he might have against the county. When the employee
applied for retirement benefits, the agency in charge of calculating the amount of benefits did
not treat the nearly $40,000 increase in compensation as “earnable compensation” because
the additional compensation was not for “services rendered,” as required by the statute. The
employee contested this decision, and the administrative law judge (“ALJ”) ruled in favor
of the agency, granting the agency’s motion for summary judgment. The employee filed a
petition for judicial review, and the trial court affirmed the ALJ’s decision. The employee
appeals the trial court’s judgment to this Court, and we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
A NDY D. B ENNETT, J., delivered the opinion of the court, in which R ICHARD H. D INKINS, and
W. N EAL M CB RAYER, JJ., joined.
C. David Briley and Susan High-McAuley, Nashville, Tennessee, for the appellant, C. Eddie
Shoffner.
Robert E. Cooper, Jr., Attorney General and Reporter; Joseph F. Whalen, Acting Solicitor
General; and Mary Ellen Knack, Senior Counsel, for the appellee, Tennessee Consolidated
Retirement System.
OPINION
C. Eddie Shoffner (“Dr. Shoffner”) was employed by Claiborne County as Director
of Schools pursuant to a two-year contract beginning July 1, 2007. At the end of the two-
year term, Claiborne County and Dr. Shoffner agreed that Dr. Shoffner would continue as
Director of Schools for another four years. They executed another contract extending Dr.
Shoffner’s position as Director of Schools for four more years, from July 1, 2009, through
June 30, 2013. Both contracts set Dr. Shoffner’s compensation at $97,964 per year, which
was to be paid in equal monthly installments of $8,163.67.
At a meeting on September 7, 2010, the Claiborne County Board of Education (the
“Board”) voted to terminate Dr. Shoffner’s position as Director of Schools. The only reason
given for the termination was that it was “what the voters in their district wanted.”
Thereafter, the Board voted in December 2010 to approve a contract modification agreement.
The modification agreement was dated February 5, 2011, and provided that Dr. Shoffner
would be employed by Claiborne County “in the position of Safety Coordinator and not as
Director of Schools.” The term of Dr. Shoffner’s employment as Safety Coordinator was
September 1, 2010, through June 30, 2011.
Dr. Shoffner’s total compensation as Safety Coordinator was to be $236,746.43,
which equaled the twenty-nine months of pay remaining on his prior contract as Director of
Schools. The compensation was to be paid in five equal monthly installments of $47,349.29.
These monthly payments were $39,185.62 more than Dr. Shoffner had been paid under his
earlier contract as Director of Schools.
The modified contract provided that Dr. Shoffner could not be terminated; he was to
be paid regardless of whether or not he was relieved of his duties. Paragraph four of the
modified contract stated:
Employee may not be terminated for any reason prior to June 30, 2011, but he
may be relieved of any or all duties at any time. Employee shall be solely
responsible for development of employment duties during the term of this
agreement.
Dr. Shoffner agreed to release any claims he might have in paragraph five of the
modified contract. The relevant language provided:
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The parties agree that this modification of the contract of employment,
previously entered into between the parties, . . . shall act as a full release and
compromise of all contractual claims that could have otherwise been brought
by the employee under the terms of the contract as previously entered between
the parties as against anyone, including the Board, Claiborne County, and its
subdivision and its employees or former employees, commissioners, boards,
and officials of any type.
Then, paragraph six continued in the same vein:
Employee specifically acknowledges that he is waiving and releasing any
rights he may have under the federal Age Discrimination in Employment Act
in addition to any and all other federal or state statutes and any and all common
law actions. . . .
In accordance with the modified contract, Dr. Shoffner received monthly payments
in the amount of $47,349.29 in February, March, April, May, and June 2011, for a total of
$236,746.45. In March 2011, Dr. Shoffner filed an application for retirement benefits with
the Tennessee Consolidated Retirement System (“TCRS”). Dr. Shoffner stated that his
monthly compensation for the final five months of his employment was $47,349.29.
TCRS determined that the increase of $39,185.62 in monthly payments Dr. Shoffner
received for each of the last five months immediately preceding his retirement did not
constitute “earnable compensation,” as that term is defined in Tenn. Code Ann. § 8-34-
101(14)(A), and should not be considered in calculating Dr. Shoffner’s monthly retirement
benefits. Instead, TCRS determined that these payments were
payoffs of the remaining three years left on [Dr. Shoffner’s] original contract
in exchange for [Dr. Shoffner’s] agreement (i) to retire from the School
System earlier than he otherwise would have and (ii) to release or otherwise
waive any contractual or other common law actions he may have against the
Board of Education for terminating him without cause from the position of
director of schools.
TCRS calculated Dr. Shoffner’s retirement benefits based on the monthly salary of
$8,163.67 that Dr. Shoffner received as Director of Schools, prior to his termination. Dr.
Shoffner disagreed with the refusal by TCRS to treat the full amount of his five final monthly
payments as earnable compensation and requested an informal conference pursuant to Rules
1700-3-2-.03 and 1700-3-2-.06 of the Rules of the Treasury Department, Division of the
Tennessee Consolidated Retirement System.
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An informal conference hearing was held on July 3, 2012. The issue to be decided
was “whether the [TCRS] was in error in finding that the $39,185.62 monthly pay increase
received by Dr. Shoffner during each of the last five (5) months immediately preceding his
retirement from the Claiborne County School System should not be included as earnable
compensation for retirement purposes.” In a ruling issued on July 12, 2012, the Deputy
Treasurer of TCRS concluded that “TCRS was not in error in concluding that the $39,185.62
monthly pay increase received by Dr. Shoffner during each of the last five (5) months
immediately preceding his retirement . . . should not be included as earnable compensation
for retirement purposes.”
Dr. Shoffner initiated contested case proceedings with the TCRS Board of Trustees
on September 7, 2012. TCRS filed a motion for summary judgment, which the
administrative law judge (“ALJ”) granted on February 4, 2013. According to the ALJ,
On February 5, 2011[the date of the modified contract], there were twenty-nine
(29) months left on his original contract (29 x $8,163.67 = $236,746.43). The
$236,746.45 was the exact amount of compensation stated in the modified
contract. Commencing in February 2011, when the modified contract was
signed, Dr. Shoffner was paid $47,349.29 per month for the last five months of
the modified contract, which totaled the remaining $236,746.43 left on his
original contract (5 x $47,349.29 = $236,746.45). The $47,349.29 per month
payments received by Dr. Shoffner for the last five months immediately
preceding his retirement from the School System were almost five times, or
500%, more than what Dr. Shoffner was receiving prior to his termination as
director of schools.
....
[S]ummary judgment should be granted in favor of TCRS as it is clear that the
additional $195,928.10 the Petitioner received in his modified contract for the
final five months of his employment was not earnable compensation as defined
by law and was thus properly excluded by TCRS when calculating the
Petitioner’s retirement benefits. The additional sum paid to the Petitioner in the
modified contract was not intended to be compensation paid to him for services
rendered to the Board, but rather was a settlement between the parties for the
termination of the Petitioner’s contract. The Contract Modification Agreement
entered into by the Petitioner and the Board on February 5, 2011, was
essentially a “buy out” of his original four year contract that was to end June 30,
2013.
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The ALJ continued:
It defies logic that the Board would pay the Petitioner $39,185.62 more per
month as the Safety Coordinator than it was paying him as the Director of
Schools. This would mean that the Board was paying the Petitioner
$236,746.43, for five months as Safety Coordinator while it was paying him
only $97,964.00 per year as Director of Schools. The absurdity of that
contention requires no additional comment.
(Emphasis in original.)
The ALJ agreed with the TCRS that the compensation Dr. Shoffner was paid pursuant
to the modified contract was not for “services rendered,” but was a “mutually agreed upon
settlement of his termination as Director of Schools and a buy out of his original contract.”
Thus, the ALJ concluded, TCRS was correct in determining that the extra $39,185.62 per
month Dr. Shoffner was paid did not constitute “earnable compensation” and should therefore
be excluded from the calculation of his retirement benefits. The ALJ approved the decision
by TCRS to calculate Dr. Shoffner’s benefits based on a monthly salary of $8,163.67 for the
final five months of his employment because that is the amount Dr. Shoffner earned as
Director of Schools and is the monthly salary Dr. Shoffner would have received through June
2013 had he not been terminated in September 2010.
T RIAL C OURT P ROCEEDINGS
Dissatisfied by the ALJ’s decision, Dr. Shoffner filed a petition for judicial review in
the chancery court pursuant to Tenn. Code Ann. § 4-5-322. Noting the narrow standard of
review it was required to employ in reviewing the administrative decision, the trial court
affirmed the ALJ’s decision. The trial court concluded that the modified contract was not a
contract to compensate Dr. Shoffner for any services he provided as Safety Coordinator, but
rather was an agreement to buy out his second employment contract and to induce him to
retire early, in 2011 rather than 2013.1 The court further concluded that a purpose of the
modified contract was to pretermit any legal claims that might arise from Dr. Shoffner’s
termination as Director of Schools.
The trial court explained its reasoning as follows:
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The trial court noted that if TCRS had included the extra $39,185.62 in its calculation of Dr.
Shoffner’s retirement benefits, Dr. Shoffner would have received a higher monthly retirement benefit than
he had received as compensation when he was serving as Director of Schools.
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While Dr. Shoffner focuses on his performance as Safety Coordinator,
the compensation under the Modified Contract Agreement ($236,746.43) equals
the exact amount of compensation due him for the three years remaining on his
second contract had he not been terminated as Director of Schools. This
identical amount provides a strong indicator that the intent of the parties in
entering the Modified Contract Agreement was to pay off the remaining three
years on Dr. Shoffner’s second contract.
In addition to the specific amount of compensation, the parties’
agreement was to buy out Dr. Shoffner’s second contract. The Contract
Modification Agreement stated that while the Petitioner “may not be terminated
for any reason prior to June 30, 2011, he may be relieved of any or all of his
duties at any time.” In other words, the Board was obligated to pay the
Petitioner the remaining $236,746.43 whether he rendered services or not.
Finally, other substantive provisions in the Modified Contract Agreement
manifest that the parties intended the $47,349.29 monthly payments as a pay off
of the remaining three years of his second contract in exchange for Dr.
Shoffner’s agreement: (1) to retire from the school system earlier than he
otherwise would have -- on June 30, 2011, rather than June 30, 2013; and (2) to
release any contractual and other employment-related legal actions he may have
had against the Board for terminating him without cause as Director of Schools.
Dr. Shoffner appeals from the trial court’s judgment, arguing that the ALJ’s decision
was in violation of statutory provisions, made upon unlawful procedure, arbitrary and
capricious, and unsupported by any substantial or material evidence.
A NALYSIS
The Tennessee Administrative Procedures Act sets out the standard of review we must
apply when reviewing an administrative decision. Tennessee Code Annotated section 4-5-322
provides, in pertinent part, the following:
The court may affirm the decision of the agency or remand the case for further
proceedings. The court may reverse or modify the decision if the rights of the
petitioner have been prejudiced because the administrative findings, inferences,
conclusions or decisions are:
(1) In violation of constitutional or statutory provisions;
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(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion; or
(5)(A) Unsupported by evidence that is both substantial and material in the light
of the entire record.
(B) In determining the substantiality of evidence, the court shall take into
account whatever in the record fairly detracts from its weight, but the court shall
not substitute its judgment for that of the agency as to the weight of the evidence
on questions of fact.
Tenn. Code Ann. § 4-5-322(h).
There is no question that the ALJ was authorized to decide the case on summary
judgment grounds. See Tenn. Code Ann. § 4-5-308(a); Yokley v. State Bd. of Educ., 305
S.W.3d 523, 526-27 (Tenn. Ct. App. 2009); T ENN. C OMP. R. & R EGS. 1360-4-1-.01(3); T ENN.
C OMP. R. & R EGS. 1360-4-1-.09(2). When the Court of Appeals reviews a trial court’s review
of an administrative agency’s decision, “this Court essentially is to determine ‘whether or not
the trial court properly applied the . . . standard of review’ found at Tenn. Code Ann. § 4-5-
322(h).” Jones v. Bureau of TennCare, 94 S.W.3d 495, 501 (Tenn. Ct. App. 2002) (quoting
Papachristou v. Univ. of Tenn., 29 S.W.3d 487, 490 (Tenn. Ct. App. 2000)). A reviewing
court generally defers to an administrative agency that has acted within its area of specialized
knowledge, experience, and expertise. Parker v. Shelby Cnty. Gov’t Civil Serv. Merit Bd., 392
S.W.3d 603, 611-12 (Tenn. Ct. App. 2012); Jones, 94 S.W.3d at 501; Willamette Indus., Inc.
v. Tenn. Assessment Appeals Comm’n, 11 S.W.3d 142, 146 (Tenn. Ct. App. 1999).
The ALJ’s decision to grant TCRS summary judgment is supported by substantial and
material evidence if the record contains “‘such relevant evidence as a reasonable mind might
accept to support a rational conclusion and such as to furnish a reasonably sound basis for the
action under consideration.’” Clay Cnty. Manor, Inc. v. State, Dep’t of Health & Env’t, 849
S.W.2d 755, 759 (Tenn. 1993) (quoting S. Ry. Co. v. State Bd. of Equalization, 682 S.W.2d
196, 199 (Tenn. 1984)). The evidence supporting the administrative decision must be “more
than a scintilla or glimmer,” but it need not rise to the level of a preponderance of the evidence.
Jones, 94 S.W.3d at 501 (quoting Gluck v. Civil Serv. Comm’n, 15 S.W.3d 486, 490 (Tenn. Ct.
App. 1999)).
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The requirements for a grant of summary judgment are well known. Summary judgment
may be granted only “if the pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of law.” T ENN R.
C IV. P. 56.04; see Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76, 83 (Tenn. 2008); Penley v.
Honda Motor Co., 31 S.W.3d 181, 183 (Tenn. 2000). “Summary judgments are appropriate
in virtually any civil case that can be resolved on the basis of legal issues alone.” CAO
Holdings, Inc. v. Trost, 333 S.W.3d 73, 81 (Tenn. 2010) (citing B & B Enters. of Wilson Cnty.,
LLC v. City of Lebanon, 318 S.W.3d 839, 844 (Tenn. 2010)). Because the award of summary
judgment involves a question of law, we apply a de novo standard of review to the ALJ’s
decision, with no presumption of correctness. Martin, 271 S.W.3d at 84.
Before addressing the merits of Dr. Shoffner’s appeal, we believe it would be helpful
to review briefly how an eligible individual’s retirement benefits are calculated. Chapter 36
of Title 8 of the Tennessee Code Annotated governs retirement benefits of public officers and
employees. An eligible individual’s retirement benefits are calculated by first determining an
individual’s “average final compensation.” Tenn. Code Ann. § 8-36-206(1). “Average final
compensation” is defined as:
the average annual earnable compensation of a member during the five (5)
consecutive years of the member’s creditable service affording the highest such
average, or during all of the years in the member’s creditable service if less than
five (5) years . . . .
Tenn. Code Ann. § 8-34-101(4)(A) (emphasis added).
“Earnable compensation” is defined as “compensation payable to a member for services
rendered to an employer.” Tenn. Code Ann. § 8-34-101(14)(A). The General Assembly gives
TCRS discretion in determining what constitutes earnable compensation. The statute provides
that “[i]n all cases of doubt, the retirement system shall determine whether a certain payment
is includable as earnable compensation.” Tenn. Code Ann. § 8-34-101(14)(F).
There are no material facts in dispute in this case. The only issue is the legal question
of whether the $39,185.62 increase in Dr. Shoffner’s compensation during the final five
months of his employment was for services Dr. Shoffner rendered to Claiborne County as its
Safety Coordinator or whether this increase had some other purpose. Dr. Shoffner argues that,
looking at the language used in the modified contract alone, there can be no other interpretation
but that the full $47,349.29 Dr. Shoffner was paid in his final five months of employment
constituted payment for his services as Safety Coordinator. Dr. Shoffner’s argument is based
on the following language of the modified contract: “The compensation shall be for services
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rendered after the date of this agreement until the end of the term of this agreement.” Dr.
Shoffner contends that he performed the work he was engaged to perform in exchange for the
compensation he was promised and that “[t]he mere fact that there is language in the Contract
Modification Agreement which relieves Claiborne County of future liability relative to the
prior contract does not change the fact that Dr. Shoffner was employed by Claiborne County
to perform agreed-upon work in exchange for services rendered.”
When interpreting a contract, “‘[t]he cardinal rule . . . is to ascertain the intention of the
parties and to give effect to that intention, consistent with legal principles.’” Maggart v.
Almany Realtors, Inc., 259 S.W.3d 700, 703-04 (Tenn. 2008) (quoting Bob Pearsall Motors,
Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975)). The contract as
a whole must be considered, and all provisions of the contract should be given “reasonable
meaning” in an effort to avoid “rendering portions of it neutralized or without effect.”
Maggart, 259 S.W.3d at 704.
Taking into consideration all parts of the modified contract, it is apparent that the
increase in Dr. Shoffner’s pay was compensation for more than Dr. Shoffner’s services as
Safety Coordinator. The express terms of the modified contract reveal that Dr. Shoffner (1)
was to be paid whether or not he performed any services as Safety Coordinator, and (2) agreed
to release any contractual and other employment-related legal actions he may have had against
the Board for terminating him without cause as Director of Schools.
TCRS was not a party to the modified contract, and we are not limited to the four
corners of the agreement to determine whether or not TCRS acted appropriately in calculating
Dr. Shoffner’s retirement benefits. Although we do not dispute the importance of the
agreement, we find the circumstances leading up to the modified contract are relevant and
necessary to consider as well in resolving the ultimate issue of whether the $39,185.62 increase
was “earnable compensation” for purposes of calculating Dr. Shoffner’s retirement benefits.
The record indicates that at a meeting on November 11, 2010, the Board voted in favor of a
resolution which stated:
WHEREAS, the Claiborne County Board of Education requests to reallocate a
portion of their 2010-2011 budget for the purpose of paying the remainder of the
former Director of Schools contract.
The Claiborne County Commission did not adopt the resolution passed by the Board because
the commission deemed it unacceptable to authorize payment to Dr. Shoffner when nothing
would be received in return. Less than a month later, however, during a meeting on December
9, 2010, the Board met again and voted to approve the modified contract. As the trial court
found, “This identical amount provides a strong indicator that the intent of the parties in
9
entering the Modified Contract Agreement was to pay off the remaining three years on Dr.
Shoffner’s second contract.”
Dr. Shoffner acknowledges the statutory provision giving TCRS discretion to determine
whether a certain payment is includable as earnable compensation. He focuses, however, on
another section of the statute governing retirement benefits specifying that “earnable
compensation” includes any bonus or incentive payment so long as it is not made for the
purpose of increasing a member’s retirement benefits or inducing a member to retire. See
Tenn. Code Ann. § 8-34-101(14)(B)(i)(a). Dr. Shoffner asserts that the ALJ and trial court
erred because, when viewed in a light most favorable to Dr. Shoffner, the facts did not
establish that the payments were meant to increase his retirement benefits or to induce him to
retire. The trial court did not address this argument by Dr. Shoffner other than to state that the
argument lacked merit.
We agree that Dr. Shoffner’s reliance on this provision is misplaced. Even if Dr.
Shoffner could show the increase in pay was neither a bonus nor incentive to retire, that does
not mean that the increase is earnable compensation. The increase in pay must be “for services
rendered to an employer” before it can rise to the level of earnable compensation. Tenn. Code
Ann. § 8-34-101(14)(A). Both the ALJ and the trial court determined that the increase was not
for services Dr. Shoffner rendered as Safety Coordinator, but instead was a buyout of Dr.
Shoffner’s earlier contract and consideration for his agreement to waive and release any claims
he may have had against the county.
The General Assembly explicitly granted TCRS the discretion to determine whether a
payment is “earnable compensation,” and TCRS is an agency with expertise in the area of
calculating an individual’s retirement benefits. We are not authorized to second-guess the
discretion TCRS exercised in this case where there was substantial and material evidence to
support the ALJ’s decision to exclude the $39,185.62 monthly increase in Dr. Shoffner’s
compensation from the calculation of his retirement benefits.
Dr. Shoffner has not established that the ALJ’s decision or the trial court’s affirming
ruling violated any statutory provision, that they were made upon unlawful procedure, that they
were arbitrary or capricious, or that they were unsupported by substantial or material evidence.
Accordingly, we affirm the ALJ’s decision and conclude the trial court properly applied the
standard of review set forth in Tennessee’s Uniform Administrative Procedures Act when it
affirmed the ALJ’s decision to grant TCRS summary judgment and dismiss Dr. Shoffner’s
petition.
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C ONCLUSION
The trial court’s judgment is affirmed. Costs of this appeal shall be assessed against the
appellant, C. Eddie Shoffner, for which execution shall issue, if necessary.
_________________________
ANDY D. BENNETT, JUDGE
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