BOARD OF TRUSTEES, KENTUCKY RETIREMENT SYSTEMS v. ERWIN D. RAYAnnotate this Case
JANUARY 24, 2003; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
BOARD OF TRUSTEES, KENTUCKY
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 99-CI-00928
ERWIN D. RAY
** ** ** ** **
BUCKINGHAM, McANULTY, AND SCHRODER, JUDGES.
McANULTY, JUDGE: The Board of Trustees of the Kentucky Retirement
Systems (AKentucky Retirement Systems@) appeals from an opinion
and order of the Franklin Circuit Court which reversed a hearing
officer=s determination that Edwin D. Ray (ARay@) was not entitled
to receive full retirement benefits.
In order to supplement his income as a Christian
minister, Ray commenced his employment with the Warren County
Board of Education as a school bus driver at the beginning of the
1975-1976 educational year.
During the course of his employment,
Ray drove numerous school bus routes for the Board of Education.
Ray retired from his driving duties effective February 1, 1997.
By virtue of his employment with the Warren County Board of
Education, Ray was a member of the County Employees Retirement
CERS is managed and administered by Kentucky
In July 1993, Ray traveled to Frankfort to meet with a
Kentucky Retirement Systems benefit counselor concerning the
status of his retirement account.
During this meeting, Ray
received a projection based upon a retirement date of July 1,
1998, when Ray intended to retire because he would be sixty-five
(65) years of age.
The counselor informed Ray that, if he
purchased seventeen (17) months of service credit, he would
accumulate 242 months of service credit on the date of his
The counselor recommended that Ray
purchase the 17 months of credit and accumulate at least 240
months of total credit so that Kentucky Retirement Systems would
completely pay his health insurance premiums.
Ray, desiring to
have his health insurance premiums paid in their entirety by
Kentucky Retirement Systems, followed this recommendation.
Near the end of 1993, Ray met again with a benefits
counselor to check on the status of his retirement account.
this time, Ray was informed that, with a projected retirement
date of December 1, 1996, he would accumulate 240 months of total
service credit and that his health insurance premiums would be
paid in their entirety.
The projection was marked ACorrected@ in
order to indicate the change in his total months of service
credit by two months.
In July 1996, Ray returned to Kentucky Retirement
Systems= Frankfort office to met with another benefits counselor
concerning the status of his retirement account.
informed Ray that, with a projected retirement date of January 1,
1997, he would possess 241 months of total service credit.
benefits counselor did not indicate to Ray that these figures
were inaccurate in any manner.
On December 30, 1996, Ray visited the Kentucky
Retirement Systems office for the final time.
During this visit,
a benefits counselor reviewed Ray=s account status and informed
Ray that he had earned 240 months of service credit.
benefits counselor assured Ray that this information was correct
and encouraged Ray to retire immediately.
Ray informed the
counselor that he wanted to provide his employer with notice of
his intent to retire.
Thus, having no reason to believe that his
account was incorrect, Ray set February 1, 19971 as the effective
date of his retirement.
decision to retire.
Ray then informed his employer of his
In subsequent conversations with officials
of Kentucky Retirement Systems and the Warren County Board of
Kentucky Retirement Systems asserts that Ray set January 1, 1998
as the effective date of his retirement. The record does not support this
Education, Ray was assured that all of his retirement
information, including his service credit, was correct.
After notifying his employer of his decision to retire,
Kentucky Retirement Systems Account Manager Gerri Miller notified
Ray that his service credit was being reduced by 41 months.
Miller explained to Ray that his service credit was being reduced
because an audit of his account found that the Warren County
Board of Education inaccurately reported the number of hours that
he actually worked between 1976 and 1982.
Further, the school
board was not able to document the actual number of days Ray
Thus, according to all of the methods used by Kentucky
Retirement Systems to calculate the amount of time a member
actually works, Ray=s account was improperly credited.
a result of the audit, Kentucky Retirement Systems eventually
reduced Ray=s total service credit from 242 months to 203 months.
This reduction in service credit meant that Ray was responsible
for a portion of his health insurance premium.
Ray requested and
was granted an administrative hearing to review this matter.
An administrative hearing was commenced on July 8,
During this hearing, Miller testified that she selected
Ray=s file for an audit because the information used to calculate
his retirement benefits was Ablatantly low.@
her audit, Miller reasserted that the Warren County Board of
Education failed to accurately record the time Ray actually
Thus, using figures provided by the employer concerning
Ray=s annual salary, daily salary, hourly salary and approximate
days worked each month, Miller determined that Ray worked less
than 80 hours per month, as mandated by Kentucky Revised Statutes
(KRS) 78.615, for 41 months from 1976 until 1982.
On cross-examination, Miller could not explain exactly
what information in Ray=s file was Ablatantly low.@
also unable to explain why an audit was not requested after Ray=s
previous status requests in 1993 or July 1996, even though the
same information was used each time to project Ray=s retirement
Further, Miller confirmed that Ray never formally
requested that an audit be conducted on his account because the
members of Kentucky Retirement Systems are not aware that an
audit would be conducted upon request.
However, if a member
inquires as to the correctness of his file, Kentucky Retirement
Systems will automatically conduct an audit.
desire to ensure that his retirement account was accurate, no
audit was ever conducted until after Ray informed his employer of
Finally, Miller admitted that, prior to 1996,
Kentucky Retirement Systems was aware that numerous school
districts, including Ray=s employer, erroneously reported the
service credit of their bus drivers.
The result was that these
employees were improperly given credit for time which was not
Ray was never informed that he was improperly
given unearned service credit until after he retired.
The hearing officer recommended that the Board of
Trustees affirm Kentucky Retirement Systems= determination that
Ray was entitled to only 203 months of service credit after
determining that the calculations were proper.
The Board of
Trustees of the Kentucky Retirement Systems concurred and
dismissed Ray=s appeal.
Ray appealed to the Franklin Circuit
Court, which sustained his appeal and reversed the decision of
the hearing officer.
The circuit court held that equitable
estoppel applied in this matter because Ray relied on prior
assurances from at least four benefit counselors that he had, in
fact, attained the required service credit.
Retirement Systems was equitably estopped from reducing Ray=s
service credit below 240 months.
This appeal followed.
On appeal, Kentucky Retirement Systems argues that the
trial court erred in applying the doctrine of equitable estoppel
to prohibit it from reducing Ray=s service credit and retirement
In support of this argument, Kentucky Retirement
Systems asserts that the circuit court lightly invoked equitable
estoppel against it, a governmental agency, without evidence of
exceptional or extraordinary circumstances.
Thus, according to
this appellant, the circuit court improperly substituted its own
judgment of the evidence for that of the hearing officer, who
determined that Ray failed to prove entitlement to full
After reviewing the record and the
arguments herein, we disagree.
In reviewing an administrative decision, the court must
determine whether the agency based its decision upon substantial
Kentucky Commission on Human Rights v. Fraser, Ky.,
625 S.W.2d 852 (1981).
AThe test of substantiality of evidence
is whether . . . it has sufficient probative value to induce
conviction in the minds of reasonable men.@
Racing Commission v. Fuller, Ky., 481 S.W.2d 298, 308 (1972).
The court=s role is to review the administrative decision, not to
reinterpret or reconsider the merits of the claim.
Unemployment Ins. Commission v. King, Ky. App., 657 S.W.2d 250,
As long as there is substantial evidence in the
record supporting the agency=s decision, the court must defer to
the agency, even if there is conflicting evidence.
S.W.2d at 856.
However, the reviewing court is not required to
uphold an administrative decision if that decision is arbitrary
or unsupported by substantial evidence in the record.
In this matter before us, KRS 78.615(1) provides the
correct rule of law for this case:
(1) Employee contributions shall be deducted
each payroll period from the credible
compensation of each employee of an agency
participating in the system while he is
classified as regular full-time as defined in
KRS 78.510 unless the person did not elect to
become a member as provided by KRS 61.545(3)
or by KRS 78.540(2). After August 1, 1982,
employee contributions shall be picked up by
the employer pursuant to KRS 78.610(4).
. . .
(b) For noncertified employees of school
boards, for service prior to July 1, 2000,
service credit shall be allowed for each
month contributions are deducted or picked up
under the employee=s employment contract
during a school year determined by dividing
the actual number of contracted days worked
by twenty (20) and rounded to the nearest
whole month if the employee received
creditable compensation for an average of
eighty (80) or more hours of work per month
based on the employee=s employment contract.
The school board shall certify the number of
days worked, the rate of pay, and the hours
in a work day for each employee monthly or
annually. . . .
1. If the employee works fewer
than the number of contracted days,
the employee shall receive service
credit determined by dividing the
actual number of contracted days
worked by twenty (20) and rounded
to the nearest whole month,
provided that the number of hours
worked during the period averages
eighty (80) or more hours.
2. If the employee works fewer
than the number of contracted days
and the average number of hours
worked is less than eighty (80) per
month, then the employee shall
receive service credit for each
calendar month in which he worked
eighty (80) or more hours.
3. The retirement system shall
refund contributions and service
credit for any period for which the
employee is not given credit under
The record clearly reveals that the Warren County Board
of Education did not accurately certify the amount of time Ray
worked from 1976 to 1982.
After making the calculations required
by this statute, Ray was improperly granted 41 months of service
Thus, we agree with Kentucky Retirement Systems that
Ray=s service credit was correctly calculated at 203 months.
hearing officer=s findings in this regard, as Kentucky Retirement
Systems correctly points out, were based upon substantial
evidence from the record.
Thus, the only question for the
circuit court on review is whether the hearing officer properly
rejected Ray=s equitable estoppel argument.
Kentucky law is very clear concerning the doctrine of
A panel of this Court has held that
equitable estoppel may be invoked against a governmental agency
only under exceptional circumstances.
Sizemore v. Madison County
Fiscal Court, Ky. App., 58 S.W.3d 887, 891 (2000).
Kentucky case clearly delineates what constitutes exceptional or
special circumstances, this Court refers to circumstances Aso
exceptional@ as to work a Agross inequity@ between the parties.
Shelbyville, ex rel. Shelbyville Municipal Water & Sewer Com. v.
Commonwealth of Kentucky, Natural Resources and Environmental
Protection Cabinet, Ky. App., 706 S.W.2d 426 (1986).
matter, Ray was informed by at least four benefit counselors that
his service credit was equal to or above 240 months.
Ray was advised during his meetings with these benefits
counselors that his file contained no problems.
first learned of his 41 months of unearned service credit after
he notified his employer of his retirement plans.
this deficiency after submitting his retirement date prevented
Ray from resuming his employment with the school board.
believe that these circumstances are sufficiently unique to
warrant the invocation of equitable estoppel.
Gray v. Jackson Purchase Production Credit Association,
Ky. App., 691 S.W.2d 904, 906 (1985) set forth the elements of
Those elements include:
(1) Conduct, including acts, language and
silence, amounting to a representation or
concealment of material facts; (2) the
estopped party is aware of these facts; (3)
these facts are unknown to the other party;
(4) the estopped party must act with the
intention or expectation his conduct will be
acted upon; and (5) the other party in fact
relied upon this conduct to his detriment.
Additionally, the Kentucky Supreme Court has stated, A[o]ne
who knows or should know of a situation or a material fact is
precluded from denying it or asserting the contrary where by his
words or conduct he has mislead or prejudiced another person or
induced him to change his position to his detriment.@
Branch Coal Company v. Canada, Ky., 599 S.W.2d 154, 155 (1980)
We agree with the circuit court that the record clearly
shows that each element of equitable estoppel is met in Ray=s
Agents and employees of Kentucky Retirement Systems acted
inconsistently by assuring Ray on at least four different visits
and numerous telephone communications that his service credit was
sufficient to obtain full retirement benefits.
In fact, during
each meeting, Ray clearly informed the benefit counselors that he
would retire only if his service credit was 240 months because
having his health insurance premiums paid in full by his
retirement was extremely important to him.
Systems knew that Ray was relying on the information presented
during these meetings in order to make an informed decision about
By urging Ray to retire immediately on December 30,
1996, the benefit counselor falsely represented to Ray that his
service credit was correct, meaning that Ray was entitled to full
By actively soliciting Ray=s decision to
retire, the benefit counselor intended Ray to act upon inaccurate
Also, Kentucky Retirement Systems, not Ray, was
aware that an audit was never conducted on Ray=s file even though
it knew that service credit for school bus drivers had been
miscalculated for several years due to inaccurate reporting
Thus, Kentucky Retirement Systems was in the best
position of correcting this error prior to February 1, 1997, the
date Ray set for retirement.
In fact, Miller testified while an
audit of a file may be conducted at a member=s request, this
service is not communicated to the membership.
relied upon the incorrect assertions of the benefit counselors to
his detriment because he believed their information was accurate.
Thus, these facts clearly demonstrate that all elements necessary
for invocation of equitable estoppel are present in this matter.
Instead of basing his decision upon this evidence, the
hearing officer gave significant weight to his own conclusion
that Ray actually retired because he was having difficultly
driving his bus due to a pinched nerve.
This conclusion is
completely unsupported by the record because, while Ray did admit
this was a factor in determining what type of employment he could
perform with the school system, Ray began inquiring into his
retirement status in 1993, a full three years before he pinched
Thus, we believe that the record clearly reveals that
Ray had good reason to accept the assertions of the Kentucky
Retirement Systems office as true and accurate and submitted his
retirement plans to his detriment in accordance with these
Since all of the elements were present, the
hearing officer=s rejection of Ray=s equitable estoppel argument
was arbitrary and unsupported by the record.
Prior Kentucky decisions also support our holding that
Ray is entitled to invoke the doctrine of equitable estoppel
against Kentucky Retirement Systems.
In Laughead v. Commonwealth
of Kentucky Department of Transportation, Bureau of Highways,
Ky., 657 S.W.2d 228 (1983), the Commonwealth argued that a ferry
boat operator failed to meet the continuous operation requirement
of a statute which permitted compensation to ferries located
within five miles of new bridges and in continuous operation for
The Supreme Court held that the Commonwealth was
equitably estopped from asserting that a ferry boat operator was
barred from collecting damages under the statute because, by
informing the ferry operator that the statute was not
constitutional, it lulled the ferry operator into failing to
renew his franchise for an additional term before the statute was
We believe that the case presently before us is similar
to Laughead because the appellant induced Ray to retire under the
representation that he earned sufficient credit for full
retirement benefits while knowing Ray=s credit calculation was
Like Laughead, Ray was lulled into
retirement even though Kentucky Retirement Systems was aware that
Ray=s service credit, by virtue of inaccurate reporting, was
Laughead clearly establishes that equity
will not allow any party to benefit from its own intentional,
However, if the hearing officer=s decision
is allowed to stand, Kentucky Retirement Systems obtains a
benefit at Ray=s expense because this appellant, through its own
misconduct, will be permitted to provide Ray with fewer
Thus, we believe that the facts of this
matter herein, as well as Laughead, clearly justify the circuit
court=s application of equitable estoppel to prevent a major
inequity from occurring.
Further, we find this appellant=s reliance on J.
Branham Erecting & Steel Service Co., Inc. v. Kentucky
Unemployment Insurance Commission, Ky. App., 880 S.W.2d 896
(1994), to be misguided.
In J. Branham Erecting, a panel of this
Court found that the Unemployment Insurance Commission was not
estopped from requiring the payment of additional unemployment
contributions from companies engaged in contract construction
business when the correct contribution rates were clearly
specified by statute, but erroneously applied by the agency.
Id., at 898.
The improper assessments at issue in J. Branham
Erecting were merely the result of a mistake in applying rates
which were available to the parties.
In Ray=s matter, however,
the reduction of service credit resulted from the assessing
Ray was encouraged to retire despite the
fact that Kentucky Retirement Systems knew that service
calculations from school bus drivers were systematically
Ray had no access to this information because he
reasonably relied on the Frankfort office to keep accurate data.
An audit conducted during any of Ray=s numerous inquiries into
the correctness of his account status, which Miller admits should
have been done automatically, would have quickly revealed this
At that point, Ray could have been given the choice to
return to his employment with the Warren County Board of
Education or retire with less than full benefits.
appellant=s intentional misrepresentation of material facts
distinguishes this case at bar from J. Branham Erecting because
Ray=s reliance on the information disclosed by the benefit
counselors was not the result of a mere mistake.
Since it is
apparent that the balance of equities is clearly weighed in Ray=s
favor, we reach the same conclusion as the trial court.
Retirement Systems= conduct herein does indeed rise to the level
of conduct necessary to require an estoppel.
For the foregoing reasons, we affirm the judgment of
the Franklin Circuit Court.
BRIEF AND ORAL ARGUMENT FOR
BRIEF FOR APPELLEE:
ORAL ARGUMENT FOR APPELLEE:
J. Follace Fields, II