Killeen v. Office of Personnel Management

United States Court of Appeals for the Federal Circuit

2008-3079

JOHN M. KILLEEN,

Petitioner,

v.

OFFICE OF PERSONNEL MANAGEMENT,

Respondent.

Michael L. Spekter, of Washington, DC, argued for petitioner.

Tara K. Hogan, Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, for respondent. With her on the brief
were Jeanne E. Davidson, Director and Todd M. Hughes, Deputy Director. Of counsel
was Hillary A. Stern, Senior Trial Counsel.

Appealed from: Merit Systems Protection Board
 United States Court of Appeals for the Federal Circuit
2008-3079

JOHN M. KILLEEN,

Petitioner,

v.

OFFICE OF PERSONNEL MANAGEMENT

Respondent.

Petition for review of the Merit Systems Protection Board in CH0831070013-I-1.

___________________________

DECIDED: February 27, 2009
___________________________

Before RADER, PLAGER, and GAJARSA, Circuit Judges.

RADER, Circuit Judge.

Mr. Killeen is a retired air traffic controller entitled to annuity retirement benefits

under the Civil Service Retirement System. In its final decision, the Merit Systems

Protection Board (“the Board”) sustained the Office of Personnel Management’s

(“OPM’s”) reconsideration decision to award Mr. Killeen a basic retirement annuity of

$28,850.41. Killeen v. Office of Pers. Mgmt., 106 M.S.P.R. 666, 667-68 (2007) (“Final

Decision”). Because the Board did not account for Mr. Killeen’s total service in

computing the proration factor applied to the post-April 6, 1986, portion of Mr. Killeen’s

annuity, this court vacates the Board’s decision and remands with instructions below.
 I

Mr. Killeen served as an air traffic controller from September 6, 1981, until his

retirement in September 8, 2001. During this twenty-year span, Mr. Killeen worked in

both a full-time and part-time capacity. From the beginning of his service until March

30, 1997, Mr. Killeen worked full-time, logging eighty hours of work per eighty-hour pay

period. Mr. Killeen then reduced his schedule to forty-eight hours of work per eighty-

hour pay period.

Upon retirement, Mr. Killeen became eligible for annuity benefits under 5 U.S.C.

§ 8336(e):

An employee who is voluntarily or involuntarily separated from the service,
except by removal for cause on charges of misconduct or delinquency,
after completing 25 years of service as an air traffic controller or after
becoming 50 years of age and completing 20 years of service as an air
traffic controller, is entitled to an annuity.

5 U.S.C. § 8336(e) (2006). Under this provision, air traffic controllers with at least

twenty years of service may receive full benefits upon retirement at age fifty. This

provision also guarantees retirees a minimum annuity of 50 percent of their “average

pay” during the service period. 5 U.S.C. § 8339(e) (“The annuity of an employee retiring

under section 8336(e) of this title is computed under subsection (a) of this section. That

annuity may not be less than 50 percent of the average pay of the employee . . . .”).

Due to his retirement at the earliest eligibility, Mr. Killeen receives an annuity under that

minimum annuity formula.

The determination of this annuity amount, in particular the calculation of Mr.

Killeen’s “average pay,” is at the heart of a long running dispute between Mr. Killeen

2008-3079 2
and OPM. In 1986, Congress adopted a new method for calculating the average pay of

an employee providing both full- and part-time service after April 6, 1986:

In computing an annuity under this subchapter for an employee whose
service includes service that was performed on a part-time basis-

(A) the average pay of the employee, to the extent that it includes
pay for service performed in any position on a part-time basis, shall
be determined by using the annual rate of basic pay that would be
payable for full-time service in the position; and

(B) the benefit so computed shall then be multiplied by a fraction
equal to the ratio which the employee’s actual service, as
determined by prorating an employee’s total service to reflect the
service that was performed on a part-time basis, bears to the total
service that would be creditable for the employee if all of the
service had been performed on a full-time basis.

5 U.S.C. § 8339(p)(1) (2002) (emphases added).

Under this formula, OPM should have calculated the portion of Mr. Killeen’s

annuity accounting for his post-April 6, 1986, service using the highest annual pay rate

he would have received if he had worked full-time, and prorating that amount to account

for his part-time employment. OPM, however, calculated Mr. Killeen’s post-enactment

annuity portion using the highest three years of pay that Mr. Killeen actually received.

Killeen v. Office of Pers. Mgmt., 382 F.3d 1316, 1318 (Fed. Cir. 2004). The Board then

adopted this erroneous calculation. Killeen v. Office of Pers. Mgmt., No. CH–0831–02–

0608–I–1, 2003 WL 22248819 (M.S.P.B Sept. 23, 2003).

Relying on the language of § 8339(p)(1), this court reversed its earlier

consideration of this question. Killeen, 382 F.3d at 1317. In its opinion, this court

explained,

Subsection (p) unambiguously modifies the definition of “average pay”
when “computing” annuities under subchapter III of chapter 83 of Title 5—
a subchapter that includes the annuity calculations in section 8339(e)—if

2008-3079 3
 the work history of a retiring employee includes a period of part-time
service. Instead of considering only pay received, subsection (p)—without
exception—requires OPM to calculate the annuities using the annual rate
that would have been payable had that employee been employed in full-
time service.

Id. at 1322 (emphasis added). Accordingly, the court struck down the OPM regulation

at 5 C.F.R. § 831.703(f)(2), stating that the definition of “average pay” in § 8339(p) did

not apply to annuities calculated under the minimum annuity provision of § 8336(e), and

remanded the dispute to the Board for recalculation of Mr. Killeen’s annuity. Id. at 1324.

On remand, the Board ordered OPM to recalculate Mr. Killeen’s annuity. Killeen

v. Office of Pers. Mgmt., No. CH-0831-02-0608-M-1 (M.S.P.B. July 13, 2005) (“Remand

Order”). OPM then calculated Mr. Killeen’s annuity using the steps outlined in 5 C.F.R.

§ 831.703(a)-(e). Letter and Enclosures from Tanya Battle, Legal Admin. Specialist,

OPM, to John M. Killeen, Aug. 12, 2005 (“OPM Aug. 12, 2005, Decision”). That

regulation requires calculation of two separate average pays—one for the period of

service before April 7, 1986, and another for April 7, 1986, onward:

(c) Pre-April 7, 1986, basic annuity. The partial annuity for pre-April 7,
1986, service is computed in accordance with 5 U.S.C. 8339 using the
pre-April 7, 1986, average pay and length of service (increased by the
unused sick leave credit at time of retirement) prior to April 7, 1986.

(d) Post-April 6, 1986, basic annuity. The partial annuity for post-April 6,
1986, service is computed in accordance with 5 U.S.C. 8339 using the
post-April 6, 1986, average pay and length of service after April 6, 1986.
This amount is then multiplied by the proration factor.

5 C.F.R. § 831.703(c)-(d) (1987). The pre-April 7, 1986, average pay is “the largest

annual rate resulting from averaging, over any period of 3 consecutive years of

creditable service, an employee’s actual rates of basic pay during that period, with each

rate weighted by the time it was in effect.” 5 C.F.R. § 831.703(b). Mr. Killeen’s post-

2008-3079 4
April 7, 1986, average pay, in contrast, is “the largest annual rate resulting from

averaging, over any period of 3 consecutive years of creditable service, the annual rate

of basic pay that would be payable for full-time service by an employee during that

period, with each rate weighted by the time it was in effect.” Id.

Applying this methodology, OPM calculated Mr. Killeen’s annuity with a base of

$50,840 for the period before April 7, 1986, and a base of $67,887 for his work after that

date. OPM Aug. 12, 2005, Decision, ATC Minimum Annuity Worksheet. To determine

his pre-April 7, 1986, annuity, OPM simply multiplied the average of Mr. Killeen’s three

highest rates of pay actually received—$50,840—by a fraction representing the portion

of Mr. Killeen’s overall service prior to April 7, 1986, in relation to this total service, and

then multiplied that result by 50 percent. Id.

To determine the post-April 6, 1986 portion of Mr. Killeen’s annuity, OPM

multiplied the average of the three highest rates of pay he would have received for full-

time service—$67,887—by a fraction representing the portion of Mr. Killeen’s overall

service on and after April 7, 1986, in relation to this total service. Id. OPM then

multiplied that number by a “proration factor” of 88 percent determined by the ratio of

hours Mr. Killeen actually worked after April 6, 1986, to the hours he could have worked

had he maintained full-time status. Id. Finally, that number was multiplied by 50

percent. Id. OPM then totaled the two annuity numbers to arrive at Mr. Killeen’s total

annuity amount: $28,850.41 per year. Id.

Mr. Killeen disagreed with OPM’s calculation and filed a petition for enforcement

with the Board to force OPM to comply with the Board’s order to recalculate his annuity

in accordance with this court’s Killeen decision. Killeen v. Office of Pers. Mgmt., No.

2008-3079 5
CH-0831-02-0608-C-1 (M.S.P.B. Dec. 29, 2005) (“Recommendation”). The

administrative judge in that action overturned OPM and recommended that Mr. Killeen

be paid at the annuity rate of $30,803. Id. at 1. The administrative judge determined

that $67,699—Mr. Killeen’s average pay under the new, post-April 6, 1986

methodology—should be used as his average pay for all periods of service, including

those prior to April 7, 1986. The administrative judge predicated this decision on a

finding that § 15204(c) of Pub. L. No. 99-272, which states that 5 U.S.C. § 8339(p) is

only applied to service performed on or after 1986, was inapplicable because that

provision applied only when the annuitant performed part-time service before April 7,

1986, as well as on or after that date. Id. at 3. The administrative judge also used all of

Mr. Killeen’s service performed throughout his entire career to determine a proration

factor of 91 percent to account for his part-time service. Id.

In July 2006, the Board reversed and vacated the Recommendation. Killeen v.

Office of Pers. Mgmt., 102 M.S.P.R. 627, 631 (2006) (“Enforcement Decision”). The

Board based its decision on the fact that the only issue before the administrative judge

was calculation of the post-April 6, 1986, annuity that OPM had correctly performed. Id.

The Board further held that any additional issues related to the computation of Mr.

Killeen’s annuity were premature, pending OPM’s reconsideration decision. Id.

OPM issued its reconsideration decision in September 2006, upholding the OPM

Aug. 12, 2005, Decision. Letter and Enclosures from R. A. Kier, Legal Admin.

Specialist, OPM, to John M. Killeen (Sept. 10, 2006) (“OPM Reconsideration Decision”).

In January 2007, the Board’s administrative judge reversed the OPM Reconsideration

Decision, found that Mr. Killeen was entitled to his average pay under § 8339(p) for all

2008-3079 6
years of service, and used all of Mr. Killeen’s service performed throughout his entire

career to determine the proration factor for his part-time service. Killeen v. Office of

Pers. Mgmt., No. CH–0831–07–0013–I–1, slip op. at 5-6 (M.S.P.B. Jan. 16, 2007)

(Initial Decision). As in his earlier Recommendation, the administrative judge computed

Mr. Killeen’s annuity at $30,850.41 and used a proration factor of 91 percent.

In its Final Decision, the Board reinstated the OPM Reconsideration Decision,

which upheld the OPM Aug. 12, 2005, Decision awarding Mr. Killeen an annuity of

$29,850.41. Notably, the Board premised its decision on the doctrine of collateral

estoppel. Final Decision, 106 M.S.P.R. at 672. In particular, the Board held that the

only error identified by this court in Killeen was OPM’s failure to apply § 8339(p) to the

annuity computation for Mr. Killeen’s post-April 6, 1986, service. Id. at 671. The Board

determined that Mr. Killeen had “actually litigated” the issue of the proper computation

of his annuity in the enforcement proceeding, and that he had a full and fair opportunity

to litigate the issue. Id. at 670-71. The Board also “discern[ed] no error in the

calculations set forth in OPM’s reconsideration decision, which mirror the calculations

set forth in OPM’s initial decision.” Id. at 672. Mr. Killeen timely petitioned this court for

review.

II

This court’s review of the Board’s decisions is defined by statute. This court will

affirm the Board’s decision unless it is “(1) arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law; (2) obtained without procedures required by

law, rule, or regulation having been followed; or (3) unsupported by substantial

evidence.” 5 U.S.C. § 7703(c)(i)-(3) (2006); Cheeseman v. Office of Pers. Mgmt., 791

2008-3079 7
F.2d 138, 141 (Fed. Cir. 1986). However, this court reviews the Board’s statutory

interpretations without deference. Weatherby v. Dep’t of Interior, 466 F.3d 1379, 1383

(Fed. Cir. 2006).

Mr. Killeen asserts that the Board erred in finding him estopped from challenging

OPM’s annuity calculation. He further asserts that the Board erred in upholding OPM’s

reliance on two annuity calculations, one for pre-April 7, 1986 service, and one for post-

April 6, 1986, service, in computing his total annuity. Mr. Killeen also claims the Board

erred by including only post-April 6, 1986, service in the proration factor applied to the

post-April 6, 1986, annuity amount.

A.

Before proceeding to the merits of Mr. Killeen’s petition, this court must address

the Board’s primary holding under the doctrine of collateral estoppel. Collateral

estoppel, or issue preclusion, bars litigation of an issue if the identical issue was actually

litigated and necessarily decided in a prior case where the interests of the party to be

precluded were fully represented. Thomas v. Gen. Servs. Admin., 794 F.2d 661, 664

(Fed. Cir. 1986); see Mother’s Rest., Inc. v. Mama’s Pizza, Inc., 723 F.2d 1566, 1569

(Fed. Cir. 1983) (holding collateral estoppel may foreclose relitigation of issues that

were “actually litigated” and determined in a prior law suit.).

In its Enforcement Decision, the Board expressly declined to rule on the propriety

of OPM’s use of two different calculations for pre-April 7, 1986, and post-April 6, 1986,

service. Enforcement Decision, 102 M.S.P.R. at 630. The Board reasoned that it

“lack[ed] jurisdiction over a retirement issue until OPM issues a reconsideration

decision.” Id. at 630-31.

2008-3079 8
 A dismissal for lack of jurisdiction, however, does not constitute final judgment on

the merits. See Media Techs. Licensing, LLC v. Upper Deck Co., 334 F.3d 1366, 1369-

70 (Fed. Cir. 2003) (holding that res judicata does not apply to dismissals based on lack

of standing: “Because standing is jurisdictional, lack of standing precludes a ruling on

the merits.”); see also Schafer v. Dep’t of Interior, 88 F.3d 981, 990 (Fed. Cir. 1996)

(“This is a decision on the merits which, unlike dismissal for want of jurisdiction, has a

res judicata effect.”). Because it declined to reach the merits, the Board cannot

maintain that Mr. Killeen’s complaint about the computational methodology employed by

OPM was “actually litigated” or “necessarily decided.” Indeed, OPM acknowledged as

much in its brief, stating “Collateral Estoppel Did Not Bar The Board’s Consideration Of

Mr. Killeen’s Argument.” Resp. Br. at 16. Accordingly, this court reverses the Board’s

finding that Mr. Killeen’s challenge was barred by collateral estoppel.

B.

Despite estopping Mr. Killeen from challenging OPM’s methodology, the Board

briefly addressed the merits, stating that it “discern[ed] no error in the calculations set

forth in OPM’s reconsideration decision, which mirror the calculations set forth in OPM’s

initial decision.” Final Decision, 106 M.S.P.R. at 672. Accordingly, this court also

proceeds to evaluate the merits of Mr. Killeen’s annuity calculations.

Mr. Killeen contends that the Board erred in permitting OPM to compute two

annuity amounts to account for his pre-April 7, 1986, and post-April 6, 1986, service.

He argues that OPM should instead have calculated just one annuity value, applying the

post-April 6, 1986, annuity formula. The statute, however, does not permit this result,

particularly when all of Mr. Killeen’s part-time service occurred after April 6, 1986.

2008-3079 9
Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99-272, §

15204(a), 100 Stat. 335 (Apr. 7, 1986) (codified at 5 U.S.C. § 8339(p)(1) (2006)). By its

terms, that title precludes application of § 8339(p)(1) to service performed before April

7, 1986: “The amendments made by this section shall be effective with respect to

service performed on or after the date of the enactment of this Act.” Pub. L. No. 99-272,

§ 15204(c) (emphasis added). Accordingly, the statute required OPM to calculate two

annuity amounts to account for Mr. Killeen’s pre-enactment and post-enactment

employment periods. Moreover, because it did not alter the method for computing pre-

April 7, 1986, annuity amounts, § 15204(c) de facto left in place the pre-April 7, 1986,

system for calculating annuities for pre-enactment service. Thus, OPM appropriately

relied on the annuity computation methodology set forth in 5 U.S.C. § 8331(4) in setting

Mr. Killeen’s pre-April 7, 1986, annuity amount at $5825.41.

In addition to challenging the multiple annuity calculations for pre- and post-

enactment service, Mr. Killeen also asserts that OPM erred in its application of

§ 8339(p)(1) to determine his post-April 6, 1986, annuity amount. In particular, he

contends that OPM impermissibly narrowed the meaning of the term “total service” to

include only his post-April 6, 1986, service in the calculation of the proration factor

under § 8339(p)(1)(B). The statute indeed supports Mr. Killeen’s claim on this point.

Computation of an annuity for post-April 6, 1986, service that includes part-time

service is a two-step process under § 8339(p)(1). The first step requires determination

of the employee’s “average pay.” § 8339(p)(1)(A). As explained above, that “average

pay” is the average of the three highest annual rates of basic pay that the employee

would have earned had he worked full-time rather than part-time during a given year.

2008-3079 10
Id. The second step requires computation of a proration factor by which the average

pay from step one is discounted to account for the portion of the employee’s total career

spent working part-time. § 8339(p)(1)(B) (emphasis added). Section 8339(p)(1)(B)

explicitly provides that the proration factor is:

a fraction equal to the ratio which the employee’s actual service, as
determined by prorating an employee’s total service to reflect the service
that was performed on a part-time basis, bears to the total service that
would be creditable for the employee if all of the service had been
performed on a full-time basis.

Id. (emphases added). Stated differently, the statute specifies that the proration factor

is the employee’s actual “total service” divided by the “total service” that he could have

worked had he maintained full-time status throughout his entire career.

Nevertheless, OPM followed the narrower definition of “proration factor” set forth

in its regulations and urged this court to accord that method Chevron deference. To the

contrary, under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837 (1984), this court applies a “two-part inquiry in cases in which a court reviews

an agency’s construction of a statute that it administers.” Stearn v. Dep’t of Navy, 280

F.3d 1376, 1382 (Fed. Cir. 2002). The first, threshold inquiry is “whether Congress has

directly spoken to the precise question at issue. If the intent of Congress is clear, that is

the end of the matter; for the court, as well as the agency, must give effect to the

unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842–43. If the

intent of Congress is not clear, the court must assess “whether the agency’s answer is

based on a permissible construction of the statute.” Id. at 843.

The statutory analysis, of course, turns on the “language of the statute.” Killeen,

382 F.3d at 1321. In this case, the statute is abundantly clear: the proration factor must

2008-3079 11
account for an employee’s “total service.” Neither this court, nor OPM, can ignore the

word “total” in the statute. If the law included only service rendered after April 6, 1986,

then the statutory language would have simply used the word “service” alone.

However, by including the term “total,” the law directs that the proration factor account

for an employee’s lifetime service, not merely service rendered after April 6, 1986.

This inclusive understanding of the phrase “total service” gives full effect to

§ 8339(p)(1). This court explained earlier: “With subsection (p), Congress attempted to

eliminate the statutory windfall to part-time employees by creating parity in the average

pay calculation for full- and part-time employees and adjusting for part-time service later

at the annuity-calculation stage.” Killeen, 382 F.3d at 1322. Giving effect to the word

“total” in the phrase “total service” achieves this end. The use of an employee’s total

service means that § 8339(p)(1)(B) closes the loophole while still ensuring that retirees

are credited for the full term of their service to the government. Indeed, a proration

factor based on total service is the most accurate reflection of an employee’s service

provided to OPM.

Accordingly, because the statute calls for “total service” in § 8339(p)(1)(B), this

court reverses the Board’s final decision and instructs that a proration factor of 91

percent be applied in calculating the post-April 6, 1986, portion of Mr. Killeen’s annuity.

As explained in the Board’s Initial Decision, this 91 percent proration factor reflects “all

of the hours [Mr. Killeen] worked from 1981 until he retired in 2001.” Initial Decision,

No. CH–0831–07–0013–I–1, slip op. at 5-6.

Ordinarily, this court would remand for the Board to have OPM recalculate the

appropriate annuity. This matter, however, has been extensively litigated, the facts are

2008-3079 12
fully established, and it has now been before this court twice. In the interest of justice,

this court shall resolve the matter, subject only to a motion for panel rehearing on the

ground that there is an error in our calculations.

The court first uses the pre-April 7, 1986, average pay amount of $50,840,

multiplied by a fraction representing the portion of Mr. Killeen’s overall service prior to

April 7, 1986 in relation to his total service (i.e., September 6, 1981, to April 6, 1986,

divided by September 6, 1981, to September 8, 2001), and multiplied by 50 percent. It

then uses the post-April 6, 1986, average pay amount of $67,887, multiplied by a

fraction representing the portion of Mr. Killeen’s overall service after April 6, 1986, in

relation to his total service (i.e., April 7, 1986, to September 8, 2001, divided by

September 6, 1981, to September 8, 2001), multiplied by 50 percent, and then

multiplied by a proration factor of 91 percent for total service as determined by this

court. Mr. Killeen is, thus, entitled to an annuity rate of $29,635.36.

The decision of the Board is therefore

VACATED AND REMANDED WITH INSTRUCTIONS.

COSTS

Each party shall bear its own costs.

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