PATRICIA DIGNAN V MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT BD
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STATE OF MICHIGAN
COURT OF APPEALS
PATRICIA J. DIGNAN,
FOR PUBLICATION
October 29, 2002
9:00 a.m.
Petitioner-Appellee,
v
MICHIGAN PUBLIC SCHOOL EMPLOYEES
RETIREMENT BOARD,
Respondent-Appellant.
No. 231533
Washtenaw Circuit Court
LC No. 00-000392-AA
Updated Copy
January 31, 2003
Before: Holbrook, Jr., P.J., and Zahra and Owens, JJ.
ZAHRA, J.
Respondent Michigan Public School Employees Retirement Board appeals by leave
granted from a circuit court order modifying respondent's decision in this claim disputing the
calculation of petitioner Patricia J. Dignan's retirement benefits. We reverse and remand.
I. Facts and Procedure
Petitioner was employed by the Milan Public School District for approximately 7 1/2
years. She retired in September 1995. For the first five years, petitioner was employed as an
assistant superintendent, and for the remaining 2 1/2 years she served as superintendent.
Petitioner was employed pursuant to a contract she signed in March 1993. The contract covered
customary matters such as petitioner's salary, fringe benefits, and duties. Paragraph 15 of the
contract was entitled "Terminal allowance" and provided for $2,000 for each year of service.
Paragraph 15 reads:
15. Terminal allowance. At termination of employment with Milan Area
Schools sick leave allowance will be granted to the Superintendent at the rate of
$75 for each unused sick leave day up to a maximum of $12,000. At termination
of employment, $2,000 per year of service as administrator at Milan Area Schools
will be granted.
The contract was amended by the board of education on April 13, 1994, in some respects.
Petitioner signed the amendment on May 11, 1994. The following language in the amendment
pertains to ¶ 15 of the original contract: "The original contract, (paragraph 15-Terminal
Allowance) unused sick leave days will no longer be compensated ($75/unused day) upon
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termination of employment. However, $2,000 per year of service as administrator at Milan Area
Schools will still be granted." (Emphasis in original.)
In January 1997, petitioner objected to the manner in which the Michigan Public School
Employees Retirement System (MPSERS) calculated her "final average compensation" (FAC) in
determining the amount of her retirement pension.1 Petitioner claimed that several payments she
had received as superintendent were erroneously omitted from her FAC. The only issue in this
case concerns petitioner's claim that a $14,500 payment made pursuant to the "Terminal
allowance" provision constituted longevity pay.
Petitioner's complaint was treated as a contested case and administrative proceedings
before a hearing referee were conducted. Petitioner presented a January 29, 1997, letter from
Norm Kreager, the former director of business and finance for Milan Area Schools. Among
other things, the letter stated Kreager's understanding that petitioner's contract provided $2,000
for each year of service "for longevity payments." Petitioner testified that she understood the
contract to provide for longevity pay. The MPSERS argued that the "Terminal allowance"
provision of the contract did not provide for longevity pay and the $14,500 payment should not
be included in computing petitioner's FAC.
The hearing referee found that the $14,500 payment was not reported to the MPSERS as
longevity pay and that retirement contributions were not made in connection with that payment.
Nonetheless, the referee accepted petitioner's testimony and Kreager's letter in finding that the
$14,500 "was intended to cover the $2,000 per year longevity pay that [petitioner] was entitled
to, but had not received for 7 1/2 years." On that basis, the referee concluded that the $14,500
payment should be included in petitioner's compensation for purposes of determining her
pension.
The MPSERS timely filed with respondent exceptions to the hearing referee's findings
and conclusions. Respondent found Kreager's correspondence to be "unsubstantiated."
Respondent also determined that the 1994 contract addendum left in place the original contract
language regarding the terminal allowance and, therefore, by its terms, provided for a "terminal
allowance, not longevity payments." Respondent noted that under the contract, the payment was
to be made only at the end of petitioner's employment. Respondent further noted that the school
district had not treated the sum as longevity payments and did not make retirement contributions
based on the sum. Respondent concluded that the preponderance of the evidence showed the
$14,500 was either a bonus or remuneration paid for the purpose of increasing petitioner's final
average compensation.2
1
Under the Public School Employees Retirement Act, MCL 38.1301 et seq., the amount of a
pension is based, in part, on the retiree's FAC. See MCL 38.1304(12) and MCL 38.1303a(2).
The FAC is determined by averaging the retiree's compensation for the last thirty-six months of
employment. MCL 38.1304(12). Longevity pay is included in "compensation," while payments
such as bonuses are not. MCL 38.1303a(2)(d) and MCL 38.1303a(3)(b).
2
Bonus payments and remuneration paid for the purpose of increasing FAC are not included in
(continued…)
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Petitioner appealed to the circuit court. The circuit court reasoned that the hearing
referee had the opportunity to hear the testimony and observe the witnesses, whereas respondent
had only a record to review. The circuit court ruled that respondent failed to afford the hearing
referee's decision proper deference, and reversed respondent's decision concerning the terminal
allowance issue. This appeal followed.
II. Analysis
A. Standard of Review
1. Court of Appeals review of the circuit court decision
This Court reviews a lower court's review of an agency decision to determine "whether
the lower court applied correct legal principles and whether it misapprehended or grossly
misapplied the substantial evidence test to the agency's factual findings." Boyd v Civil Serv
Comm, 220 Mich App 226, 234; 559 NW2d 342 (1996). This standard of review is the same as a
"clearly erroneous" standard of review. Id. at 234-235. A finding is clearly erroneous when, "on
review of the whole record, this Court is left with the definite and firm conviction that a mistake
has been made." Id. at 235.
2. Circuit court's review of the agency's decision
A circuit court's review of an administrative agency's decision is limited to determining
whether the decision was contrary to law, was supported by competent, material, and substantial
evidence on the whole record, was arbitrary or capricious, was clearly an abuse of discretion, or
was otherwise affected by a substantial and material error of law. Const 1963, art 6, § 28; MCL
24.306; Boyd, supra at 232. "Substantial" means evidence that a reasoning mind would accept as
sufficient to support a conclusion. Kotmar, Ltd v Liquor Control Comm, 207 Mich App 687,
689; 525 NW2d 921 (1994). Courts should accord due deference to administrative expertise and
not invade administrative fact finding by displacing an agency's choice between two reasonably
differing views. MERC v Detroit Symphony Orchestra, 393 Mich 116, 124; 223 NW2d 283
(1974); In re Kurzyniec Estate, 207 Mich App 531, 537; 526 NW2d 191 (1994).
B. The Relevant Statutes
The Public School Employees Retirement Act empowers respondent to determine what
remuneration should be considered part of a retiree's final compensation. MCL 38.1303a(5). A
petitioner who seeks to have remuneration included in his final compensation has the burden of
proof. MCL 38.1303a(6).
Disputes concerning the calculation of final compensation are resolved by initiating a
contested case under the Administrative Procedures Act. MCL 24.201 et seq. A "contested
case" is any proceeding in which a determination of legal rights, duties, or privileges is made
after an opportunity for an evidentiary hearing. MCL 24.203(3). A "presiding officer" at such a
(…continued)
"compensation" when calculating FAC. MCL 38.1303a(3)(b) and (e).
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hearing must be impartial, but may be a member of the agency or a hearing officer designated
and authorized by the agency. MCL 24.279. The powers of a presiding officer are provided in
MCL 24.280. A presiding officer is required to prepare a written "proposal for decision"
containing reasons and findings necessary to the proposed decision. MCL 24.281(2). The
proposal becomes the "final decision of the agency" only if exceptions are not filed or there is no
other review or action by the agency. MCL 24.281(3). "On appeal from or review of a proposal
of decision the agency . . . shall have all the powers which it would have if it had presided at the
hearing." Id.
The agency makes the "final decision or order" in a contested case. MCL 24.285. The
decision must be based on the record as a whole and supported by and in accordance with the
competent, material, and substantial evidence. Id. The official record of the agency includes any
decision, opinion, order, or report of a presiding officer. MCL 24.286(1)(f). Judicial review is
of an agency's final decision or order in a contested case. MCL 24.301; MCL 24.306(1).
C. The Circuit Court's Erroneous Review
The foregoing statutes establish a scheme by which an agency's final decision is subject
to judicial review. The circuit court in this case erroneously applied the judicial standard of
review of an agency decision to respondent's "review" of the hearing referee's decision. The
agency decision to be reviewed by the circuit court was respondent's final decision, not
respondent's rejection of the hearing referee's conclusions. The hearing referee's proposal for
decision was just that, a proposal for respondent to consider. Indeed, the hearing referee's
findings and conclusions were forwarded to respondent as a "recommendation." Respondent
was not required to accept the hearing referee's proposed findings even if those findings were
supported by substantial evidence. Respondent was free to accept, reject, or modify the referee's
proposal.
The sole question before the circuit court was whether respondent's decision was
supported by the law and the facts. Const 1963, art 6, § 28; MCL 24.306; Boyd, supra at 232.
The circuit court erroneously elevated the hearing referee's proposed findings to the status of a
final decision. Given the circuit court's application of an improper standard of review, we
conclude that the court clearly erred in failing to apply correct legal principles when reviewing
respondent's decision. Boyd, supra at 234. We find additional error in the circuit court's
misapprehension and gross misapplication of the substantial evidence test to respondent's
findings. Id. The evidence supports respondent's decision. The clear, unambiguous contract
language characterized the disputed payment as a "Terminal allowance." The amendment to ¶
15 left in place the requirement that the $2,000 a year payment be treated as a terminal
allowance. Nothing in the plain language of the contract suggests the amount should instead be
considered longevity pay. When the terms of a contract are unambiguous, the meaning of the
contract is interpreted from the language alone. Hubbell, Roth & Clark, Inc v Jay Dee
Contractors, Inc, 249 Mich App 288, 291; 642 NW2d 700 (2001).3 The fact that the school
district did not treat the $14,500 payment as longevity pay is consistent with the contract's
3
Given that the contract in this case is unambiguous, the circuit court incorrectly determined that
"sole determinant of the longevity pay issue was the credibility of the parties."
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unambiguous language. Given that respondent's decision was supported by competent, material,
and substantial evidence, the circuit court was prohibited from substituting its discretion for that
of respondent, even if the court might have reached a different result. In re Grant, 250 Mich
App 13, 19; 645 NW2d 79 (2002). Deference is afforded to an agency's choice between two
alternative views because of the agency's administrative expertise. MERC, supra; In re
Kurzyniec Estate, supra.
III. Conclusion
The circuit court applied an erroneous standard of review with respect to respondent's
final decision. Respondent's decision was supported by the evidence. Under these
circumstances, the circuit court clearly erred in failing to apply correct legal principles and in
misapprehending and grossly misapplying the substantial evidence test to respondent's findings.
Boyd, supra.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Brian K. Zahra
/s/ Donald Holbrook, Jr.
/s/ Donald S. Owens
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