United States Court of Appeals for the Federal Circuit
06-3154
MICHAEL J. LUTZ,
Petitioner,
v.
UNITED STATES POSTAL SERVICE,
Respondent.
Robert B. June, Law Offices of Robert June, P.C., of Ypsilanti, Michigan, argued
for petitioner.
David G. Karro, Attorney, Law Department Civil Practice, United States Postal
Service, of Washington, DC, argued for respondent. With him on the brief were Robert
D. McCallum, Jr., Assistant Attorney General, Commercial Litigation Branch, Civil
Division, United States Department of Justice, of Washington, DC., and Lori J. Dym,
Chief Counsel, Law Department Civil Practice, United States Postal Service, of
Washington, DC. Of counsel were Franklin E. White, Jr., Assistant Director, and Sean
McNamara, Trial Attorney, Commercial Litigation Branch, Civil Division, United States
Department of Justice, of Washington, DC.
Appealed from: United States Merit Systems Protection Board
United States Court of Appeals for the Federal Circuit
06-3154
MICHAEL J. LUTZ,
Petitioner,
v.
UNITED STATES POSTAL SERVICE,
Respondent.
DECIDED: May 15, 2007
Before LOURIE, SCHALL, and GAJARSA, Circuit Judges.
SCHALL, Circuit Judge.
Michael J. Lutz petitions for review of the final decision of the Merit Systems
Protection Board (“Board”) that denied his petition for enforcement of a settlement
agreement between himself and the Unites States Postal Service (“agency”). Lutz v.
U.S. Postal Serv., No. CH-0752-03-0220-X-1 (M.S.P.B. Dec. 9, 2005) (“Final Decision”).
We reverse and remand.
BACKGROUND
I.
Mr. Lutz was an EAS-15 Postmaster, employed by the agency at its Pleasant,
Michigan, post office. In December of 2002, he was removed from the position of
Postmaster, was demoted to the position of PS-4 Mailhandler, and was assigned to the
Ann Arbor, Michigan, post office. This action followed the Postal District Manager’s
review of a proposal to fire Mr. Lutz based upon charges of failure to perform his
assigned duties and misconduct.
Mr. Lutz appealed the agency’s action to the Board. Thereafter, on April 22,
2003, he and the agency negotiated a settlement resolving the appeal. The settlement
agreement, which was made part of the record for enforcement purposes, Lutz v. U.S.
Postal Serv., No. CH-0752-03-02200-I-1 (M.S.P.B. Apr. 22, 2003), states in relevant
part as follows:
Within 30 days of the date this Settlement Agreement is fully executed,
Appellant agrees to take all necessary steps to apply for disability
retirement with [the Office of Personnel Management]. The Agency
agrees to take all necessary steps to cooperate and facilitate the
acceptance of Appellant’s application and agrees not to place negative
statements in the supervisor statement.
Settlement Agreement, ¶ 3c; Final Decision, slip op. at 2.
In accordance with the settlement agreement, Mr. Lutz applied for disability
retirement with the Office of Personnel Management (“OPM”). The Postmaster of the
Ann Arbor post office submitted a supervisor’s statement to OPM in connection with the
application. The supervisor’s statement included the following statements regarding Mr.
Lutz:
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Refused to work in his position as a mail handler. Brought in
documentation from Dr. was sent to Fitness for Duty [(“FFD”)] and was
found fit for duty. Refused to work still.
....
Sent to FFD [Fitness for Duty] and was found to have no issues. He
however refused to work and claimed an accident.
....
He supposedly hurt his back when working on carrier routed flats. This
then resulted in lifting restriction which we would have kept. However he
did not return to work due to other issues with MSPB settlements.
Supervisor’s Statement, p. 2; Final Decision, slip op. at 3.
By letter dated February 19, 2004, OPM denied Mr. Lutz’s application for
disability retirement. The letter stated, inter alia:
Your supervisor documents a deficiency in your performance and
attendance as of January 2003. He noted that you refused to work in your
position, and that you were sent to fitness for duty and found fit for full
duty. He also noted that you had a lifting restriction which the Post Office
would have kept, but you have not returned to work due to other issues
with MSPB settlements. The medical evidence submitted also does not
establish that your medical condition warrants continued restrictions from
performing the critical or essential duties of your position, or exclusion
from the workplace, altogether.
....
In summary, the evidence submitted does not establish that you have a
disabling medical condition, and we cannot conclude from the
documentation presented that you are disabled for useful and efficient
service or that a continued absence from the work site is medically
warranted. Thus, your request for disability retirement has been denied.
OPM Determination Letter, pp. 2-3 (Feb. 19, 2004).
II.
Mr. Lutz petitioned for enforcement of the settlement agreement, claiming that
the agency was in breach of the agreement by including negative remarks in the
supervisor’s statement submitted to OPM in support of the application for disability
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retirement. 1 On May 6, 2004, the administrative judge (“AJ”) assigned to the case
determined that the agency had breached the settlement agreement by including
negative remarks in the supervisor’s statement. The AJ recommended that the Board
order rescission of the settlement agreement and remand the case to the AJ for an
adjudication of the agency’s removal/demotion action. Lutz v. U.S. Postal Serv., No.
CH-0752-03-02200-C-1 (M.S.P.B. May 6, 2004) (“AJ’s Decision”). 2
The government filed a brief disagreeing with the AJ’s recommendation, urging
that the AJ erred when she found that the agency’s breach was material. The Board
agreed, holding that even if the agency had breached the settlement agreement by
including negative remarks in the supervisor’s statement—a determination the Board
found it unnecessary to reach—any breach by the agency was not material because it
did not affect the award of disability retirement benefits. Final Decision, slip. op at 3-4.
The Board concluded that OPM’s denial of Mr. Lutz’s application was based on his
failure to supply OPM with any relevant and credible medical records establishing his
1
Mr. Lutz petitioned for enforcement on January 5, 2004, before OPM’s
denial of his disability application.
2
The Board has jurisdiction to enforce a settlement agreement if the
underlying appeal is within the Board’s jurisdiction and the settlement was entered into
the record. See 5 C.F.R. §§ 1201.181-.183; Rivas v. U.S. Postal Serv., 72 M.S.P.R.
383, 388 (1996). When one party breaches a settlement agreement, the other party is
entitled to have the Board either enforce the agreement or rescind the agreement and
reinstate its original claim. Murphy v. U.S. Postal Serv., 54 M.S.P.R. 202, 206 (1992).
On a petition for enforcement of a settlement agreement, if the AJ finds that the alleged
noncomplying party has failed to take an action required under the agreement, he or
she will issue a recommendation containing findings, a statement of the actions required
by the party to be in compliance with the agreement, and a recommendation that the
Board enforce the agreement. See 5 C.F.R. § 1201.183(a)(5). The Board will consider
the AJ’s recommendation, the submissions of the parties, and additionally may hold a
hearing, prior to issuing a final decision on the petition for enforcement. Id.
§ 1201.183(b).
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disability, and that OPM would have denied the application regardless of any allegedly
negative remarks contained in the supervisor’s statement. Id. at 4. Accordingly, the
Board dismissed the petition for enforcement. Id.
Mr. Lutz now appeals the decision of the Board. We have jurisdiction pursuant to
28 U.S.C. § 1295(a)(9).
DISCUSSION
I.
Our scope of review in an appeal from a decision of the Board is limited.
Specifically, we must affirm the Board’s decision unless we find it to be arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law; obtained
without procedures required by law, rule, or regulation having been followed; or
unsupported by substantial evidence. 5 U.S.C. § 7703(c); Yates v. Merit Sys. Prot. Bd.,
145 F.3d 1480, 1483 (Fed. Cir. 1998).
Mr. Lutz argues that the statements in the supervisor’s statement were clearly
negative and that their inclusion in the statement was a breach of the settlement
agreement. He further argues that the Board abused its discretion by holding that the
agency’s breach was not material. He urges that the materiality of the negative
statements is evident from the fact that OPM cited the statements in support of its denial
of his application for disability retirement. The government counters that the Board was
entitled to find that OPM rejected Mr. Lutz’s application because he failed to provide
evidence that he was disabled. Therefore, the government argues, the statements in
the supervisor’s statement were immaterial because they did not affect the success of
Mr. Lutz’s application. Finally, the government urges that if the Board is held to have
06-3154 5
erred in finding the remarks in the supervisor’s statement immaterial, the case must be
remanded to the Board for it to consider the question it bypassed—whether the
statements constituted a breach of the agreement.
II.
“A settlement agreement is a contract, and its construction is a question of law
which this court reviews de novo.” Lary v. U.S. Postal Serv., 472 F.3d 1363, 1367 (Fed.
Cir. 2006) (quoting Conant v. Office of Pers. Mgmt., 255 F.3d 1371, 1376 (Fed. Cir.
2001)). In order to prevail, Mr. Lutz must show material non-compliance by the agency
with the terms of the settlement agreement. See Gilbert v. Dep’t of Justice, 334 F.3d
1065, 1071 (Fed. Cir. 2003) (“A party breaches a contract when it is in material non-
compliance with the terms of the contract.”). While the question of whether a breach of
contract is material is a mixed question of law and fact, where, as here, the facts are
undisputed the determination of whether there has been material non-compliance with
the terms of a contract necessarily reduces to a question of law. Lary, 472 F.3d at 1367
(citing Gilbert, 334 F.3d at 1071-72). 3
The agency explicitly agreed “not to place negative statements in the supervisor
statement.” Settlement Agreement, ¶ 3c. However, the statements the agency
included in the supervisor’s statement are indisputably negative in tone, asserting that
Mr. Lutz “refused” to work his position. Furthermore, the statements are rife with
innuendo, stating that Mr. Lutz “claimed” an accident and “supposedly” hurt his back. In
short, they imply that Mr. Lutz has no medical issues and was less than truthful in his
3
Thus, a remand to determine whether the supervisor’s statements
constituted a material breach of the settlement agreement is not necessary.
06-3154 6
disability claims. Under the terms of the settlement agreement, the agency was
foreclosed from employing such a negative tone in the supervisor’s statement and from
including statements that insinuated that Mr. Lutz faked an injury in order to refuse to
work. The agency agreed to “take all necessary steps to cooperate and facilitate the
acceptance of Appellant’s application.” Settlement Agreement, ¶ 3c. The negative
statements included in the supervisor’s statement did not “facilitate the acceptance” of
Mr. Lutz’s application and were more likely to impede and prejudice the application than
facilitate its acceptance. In short, the agency breached its obligation under the
settlement agreement.
The remaining question is whether the Board correctly concluded that the breach
was immaterial. “A breach is material when it relates to a matter of vital importance, or
goes to the essence of the contract.” Thomas v. Dep’t of Housing & Urban Dev., 124
F.3d 1439, 1442 (Fed. Cir. 1997); see also Lary, 472 F.3d at 1367. In Conant, we held
that the Internal Revenue Service breached its obligation under a settlement agreement
when it agreed to use its best efforts to effectuate an employee’s application for
disability retirement benefits, but instead, in response to the employee’s disability
application, submitted documents stating that the employee had no documented
medical condition and repeated the charges that had led to the initial removal
proceeding. 255 F.3d at 1376-77. We held the breach material because the
documents and statements submitted to OPM prejudiced the disability proceedings. Id.
The essential purpose of ¶ 3c in the settlement agreement here was to
accommodate Mr. Lutz’s application for disability retirement. As in Conant, the negative
statements contained in the supervisor’s statements prejudiced the disability
06-3154 7
proceedings. OPM explicitly relied on the supervisor’s statements as one of two factors
in denying the request for disability retirement, the other factor being a lack of medical
evidence to establish a disabling medical condition. This is evident from OPM’s
recitation of the supervisor’s statements that Mr. Lutz refused to work in his position;
that he was sent for a fitness for duty examination and found fit for duty; and that he had
a lifting restriction the agency would have honored, but that it could not because he
never returned to duty. While it is impossible to know precisely to what extent these
statements colored the analysis of OPM, it is clear that the statements did discourage
OPM’s acceptance of Mr. Lutz’s disability retirement application. Therefore, the breach
was not immaterial, and the Board erred in dismissing Mr. Lutz’s petition for
enforcement. Accordingly, the Board’s decision to the contrary is reversed.
III.
Typically, in cases where an agency breaches a settlement agreement, the
agreement is rescinded and the original claim on appeal to the Board is reinstated for
adjudication. This was the remedy recommended by the AJ. AJ’s Decision, slip op. at
4. On appeal, Mr. Lutz requests that we adopt the recommendation of the AJ that the
Board (i) order rescission of the settlement agreement and (ii) remand the case to the
AJ for adjudication of his challenge to the agency’s removal/demotion action. In the
alternative, Mr. Lutz requests that we remand the case to the Board for a further remand
to OPM for a redetermination of his disability retirement claim based on a clean record,
devoid of the negative remarks contained in the supervisor’s statement previously
submitted to OPM. We believe the best approach is to remand the case to the Board
and to allow the Board to decide how to proceed, after giving the parties the opportunity
06-3154 8
to express their views, including their views on a remand to OPM should Mr. Lutz
request that.
CONCLUSION
For the foregoing reasons, the decision of the Board denying Mr. Lutz’s petition
for enforcement is reversed. The case is remanded to the Board, which is instructed to
conduct further proceedings consistent with this opinion.
REVERSED and REMANDED
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