Opinion
1245-06.
Decided October 4, 2006.
Aswad Ingraham, By: Richard N. Aswad, Esq., Attorney for the Petitioner, Binghamton, NY.
State of New York, Office of the Attorney General, By: Dewey Lee, Esq., Assistant Attorney General, Poughkeepsie, NY.
By Notice of Petition and Petition, dated April 25, 2006, the Petitioner brought the above-captioned Article 78 proceeding, pursuant to Sections 7803(1)(3) and (4), to annul and dismiss Respondent's determination, dated January 6, 2006, and to direct that the excluded salary amount of $69,274.00 ($72,939-$3,655) be reinstated in determining the Petitioner's final average salary. In response, the Respondent asserts, as objection in points of law, that (1) the Petition fails to state a cause of action, and (2) the Petition was not properly served upon the Respondent, New York State Teachers' Retirement System (hereinafter the "Retirement System" or NYSTRS) nor was it served upon an Assistant Attorney General in accordance with CPLR § 7804(c) and CPLR 307.
Thereafter the Petitioner submitted an Order to Show Cause seeking an extension of time pursuant to CPLR § 306-b to serve the Notice of Petition and Petition upon the Respondent, and to oppose a request for a change of venue sought by the Respondent. The Respondent had requested the change of venue on the grounds that "the determination complained of was made in Albany, Respondent's offices are in Albany, and the material events took place in Albany."
The Respondent argues in response to the Order to Show Cause that the Petition was not properly served upon them pursuant to CPLR § 307, and the Petition should be dismissed because the statute of limitations has expired.
The Court finds that venue was properly placed in Sullivan County pursuant to CPLR 506(b) which provides that a "proceeding against a body or officer shall be commenced in any county within the judicial district where the respondent made the determination complained of." Since both parties have asserted that the NYSTRS's determination was made in Albany County, and both Sullivan County and Albany County are located within the same judicial district, the Court shall not disturb the Petitioner's choice of venue.
Section 307 governs personal service upon the State and requires either personal service upon the Attorney General (or his assistant), or requires service upon the chief executive officer of the state agency (or his or her designee). The pleadings may be served upon the agency by certified mail, return receipt requested, but, in that case, personal service must also be made on the Attorney General.
It is undisputed that no attempt was made to effect service of the Petition upon the Attorney General.
The Petitioner did attempt to serve the NYSTRS, which service was made by serving the Petition DHL/Airborne Express. But that service did not comply with CPLR § 307(2), however, nor did the Petitioner satisfy the requirement of CPLR § 312-a, which provides an alternate method of service by mail. Service by mail pursuant to CPLR § 312-a requires two copies of a statement of service by mail and an acknowledgment of receipt.
The Respondent argues that the attempt at service by overnight mail did not satisfy the statutory requirements for service by certified mail. Therefore, it is argued that personal jurisdiction was not acquired over the Retirement System.
The Petitioner has requested that he be granted an extension of time, pursuant to CPLR § 306-b to serve the Notice of Petition and Petition upon the Respondent. Petitioner's counsel indicates the determination which Petitioner seeks to review was dated January 4, 2006, and the Petitioner filed the Notice of Petition and Petition at the Sullivan County Clerk's office on April 26, 2006. The Notice of Petition and Petition was thereafter mailed to Rosemarie Hewig, Esq., an Assistant General Counsel for the Retirement System by DHL/Airborne Express on April 28, 2006, and it was signed for by an employee in Ms. Hewig's office on May 1, 2006.
Petitioner's counsel states that, at the time of service, he did not believe that Section 307 of the CPLR was applicable to service upon the Retirement System. He argues that Section 502 of the Education Law provides that the New York State Teacher's Retirement System is a public corporation, and therefore, is not a "division, department or commission" of the State of the New York He asks that, if the Court finds that service was not properly effected, that he be permitted a brief extension of time to re-serve.
The New York State Teacher's Retirement System has been found to be an agency of the State ( East Hill, Inc. v. New York State Teachers' Retirement System, 80 AD2d 670, 436 NYS2d 392 [3rd Dept., 1980]); New York State Teachers' Retirement System v. Srogi, 84 AD2d 912, 447 NYS2d 57 [4th Dept., 1981]; Belscher v. New York State Teachers' Retirement System, 45 AD2d 206, 357 NYS2d 241 [4th Dept., 1974]), and therefore, the Court finds that service upon the NYSTRS must comply with CPLR § 307.
The Court finds, therefore, that the Petitioner has failed to comply with the requirement of CPLR § 307 when he attempted service by express mailing the Petition and Notice of Petition only to an Assistant General Counsel for the NYSTRS ( NW Liquidating Corp. v. Industrial Bd. of Appeals, 213 AD2d 549, 624 NYS2d 46 [2nd Dept., 1995]; Stephens v. New York State Executive Bd. of Parole Appeals Unit, 297 AD2d 408, 746 NYS2d 109 [3rd Dept., 2002]). The Petitioner did, however, timely commence this proceeding within four months of final determination by the NYSTRS (CPLR § 217) by filing the Notice of Petition and Petition with the Office of the Court Clerk on April 26, 2006 (CPLR § 304, Mendon Ponds Neighborhood Ass'n. v. Dehm, 98 NY2d 745, 751 NYS2d 819).
Section 306-b of the CPLR requires that, where the applicable statute of limitations is four months or less, service of the petition with a notice of petition or order to show cause shall be made not later than fifteen days after the date on which the applicable statute of limitations expires. This section further provides, however, that if service is not made upon a defendant within the time provided in this section, the court, upon good cause shown or in the interest of justice, may extend the time for service.
In the case at bar, although the Petitioner's attempt at service by express mail was flawed, it was made promptly after timely commencing the action, and the application for an extension of time to serve was made one month after the improper service. In addition, the Respondent received actual notice of the action and has not demonstrated any prejudice as a result of this relatively minor delay ( Scarabaggio v. Olympia York Estates Co., 278 AD2d 476, 718 NYS2d 392 [2nd Dept., 2000]). Furthermore, the Respondent submitted an answer to the Petition and contested it on merits. Therefore, the Court shall permit the Petitioner to properly serve the Notice of Petition and Petition nunc pro tunc.
The issue before this Court on the Article 78 is whether the determination of the NYSTRS, dated January 4, 2006, was arbitrary and capricious or without a rational basis ( Pell v. Board of Ed. of Union Free School Dist. No. 1 of Towns of Scarsdale and Mamaroneck, Westchester County, 34 NY2d 222, 356 NYS2d 833). This is the standard to review an administrative determination made without a hearing ( Moraghan v. New York State Teachers' Retirement System, 237 AD2d 703, 654 NYS2d 852 [3rd Dept., 1997], Connor v. Deer Park Union Free School Dist., 195 AD2d 216, 607 NYS2d 742 [3rd Dept., 1994]).
The NYSTRS had determined that $72,939.99 which the Petitioner received during the period starting with the 2000-2001 school year and ending on the Petitioner's retirement in August of 2003 were "excess salary increases" and were not includable in the calculation of his final average salary.
The Petitioner seeks to have $69,274.00 of the "excess salary increases" included in the calculation of his retirement benefits. The Petitioner also challenged the determination of the NYSTRS which found the $5,000.00, paid by the District during the 1999-2000 school years in "tax-sheltered annuity contributions" on Petitioner's behalf, did not constitute "regular salary" and were not included in the calculation of the Petitioner's retirement benefits.
Findings of Fact
The Petitioner was employed as the Superintendent of the Fallsburg Central School District from August of 1996 until August 31, 2003 (when he retired). His base salary for the first three years was as follows:
In addition to his base salary, the initial contract (Petition, Exhibit "A", dated August 21, 2006) provided for reimbursement of transportation expenses, and for a buyout of his entitlement to health insurance coverage. The Petitioner indicates that, during this initial three-year period he received the insurance buyout, as he received his health insurance through his wife's employer. It is undisputed that the transportation reimbursement and health insurance buyout was not included in the calculation of his salary for the purposes of his retirement benefits.School Year 1999-2000 : Petitioner's contract provided that his base salary was increased to $91,000.00, in addition to which he was given a $5,000.00 per year tax sheltered annuity. The contract also provided, in Article V, ¶ C that:
Mr. Holbert will be given the option to place any compensation, tax sheltered annuity, health buyout, mileage, etc., in his regular salary that would be subject to taxes and be part of the Teacher's Retirement System.
The Contract further provided that the Petitioner would be reimbursed at the rate of $80.00 per month for his transportation expenses, and would be entitled to health insurance buyout.
School Year 2000-2001 : Petitioner's contract provided that his base salary was increased to $118,855.00, and did not provide any provision for reimbursement of transportation expenses, nor for any health insurance buyout.
School Year 2001-2002 : Petitioner's contract provided that his base salary was increased to $130,320.00, and did not provide any provision for reimbursement of transportation expenses, nor for any health insurance buyout.
School Year 2002-2003 : Petitioner's contract provided that his base salary was increased to $140,816.00, and did not provide any provision for reimbursement of transportation expenses, nor for any health insurance buyout.
School Year 2003-2004 : The base salary for this period was $143,816.00, prorated from July 1, 2003 to August 31, 2003 when he retired.
The Petitioner asserts that, for the year 1999-2000, his annual salary for retirement benefits should have been $96,000.00. He claims that the fact that $5,000.00 was paid through a tax sheltered annuity, rather than as regular compensation, should not affect whether it was included in income for the calculation of his pension. The Petitioner also argues that the Respondent should not be permitted to question if an employee chooses to invest his earned salary in a legal financial vehicle. The Petitioner further asserts the school district's contribution to the Retirement System was based on the full amount of $96,000.00.
The Respondent, in its final determination, did not include the $5,000.00 tax sheltered annuity in the Petitioner's salary for the year 1999-2000.
For the year 2000-2001, the Petitioner's salary increased to $118,855.00, which the Petitioner asserts was in recognition of the quality of his work, as well as the competitive market for school superintendents. The Petitioner indicates that he was not contemplating retirement when his salary was increased to $118,855.00.
The Petitioner indicates that the calculation of the percentage of increase in his salary in 2000-2001 should have been based on a salary for the 1999-2000 of $96,0000.00, which represents a 23.8% increase (118,855 — 96,0000 = 28,855 ÷ 96,000 = 23.8%). The Petitioner does concede, however, that his 2000-2001 salary for retirement purposes should have been limited to $115,200.00, which represents a 20% increase over his previous year's salary ( 21 NYCRR § 5003). Therefore, the Petitioner has conceded that $3,655.00 (118,855-115,200) should have been excluded from the calculation of his final average salary.
The Section of the Retirement System's regulations defines the "three year final average salary", and excludes any earnings in excess of 120% of the earnings of the of the preceding year of credit service
The Respondent calculated the percentage of the increase in Petitioner's salary for 2000-2001 to be 30.6%, using the $91,000.00 salary figure for 1999-2000. It then reduced the permitted raise to 7.6 %, which Respondent indicated was the next highest salary increase received by any other administrator in the Fallsburg Central School District that year.
The Respondent has argued that "unquestionably * * * * employer contributions to tax sheltered annuities would not constitute 'regular salary' for the purpose of the three-year final average salary calculation." ( See, Hewig Affirmation, dated May 20, 2005, ¶ 32).
Although this amount would be included in a five-year average salary calculation ( 21 NYCRR § 5003.2) There was no argument presented in this case that the use of the three-year final average salary calculation was in error.
The Petitioner then argues that during the year 2000-2001 he received neither health insurance benefits, nor a buyout for same , and that for the years 2001-2002, 2002-2003, and 2003-2004 he received his salary plus health insurance benefits at no cost to himself. The Petitioner argues that the Respondent erroneously considered the health insurance premiums made by the District on Petitioner's behalf, starting on January 1, 2002 as buy-out payments. The Petitioner argues that the evidence support his assertion that he received health insurance coverage paid for by the School District commencing on January 1, 2002, and that he did not receive a buyout (See, Petition Exhibits, O and X).
The Petitioner indicates that he paid for his own health insurance benefits from July 1, 2002 to December 31, 2000 and from January 1, 2001 to December 31, 2001 he was insured through his wife's employment.
It appears that the NYSTRS did not reduce the Petitioner's salary for the period starting in July of 2001 to reflect some purported buyout of medical insurance. Instead, the NYSTRS calculated the actual percentage of increase in the Petitioner's salary for the years 2001-2002 (9.6%), 2002-2003 (8.0%) and 2003-2004 (2.13%), and then applied these percentages to the reduced salary which the Retirement System calculated for the year 2000-2001, $97,916.00 (which represents a 7.6 % increase over the $91,000.000 base salary for the year 1999-2000).
The adjustments were contained in the following chart in the NYSTRS's final determination:
School Year Percentage Increase Percentage Increase Difference Total Excess Salary Increases $72,939
Reported Salary Adjusted Salary 1999-200 $ 91,000 ___ ___ 2000-2001 $118,855 (30.6 %) $ 97,916 (7.6 %) $ 20,939 2001-2002 $130,320 (9.6 %) $107,316 (9.6 %) $ 23,004 2002-2003 $140,816 (8.0 %) $116,009 (8.0%) $ 24,807 2003-2004 $ 23.969 (2.13%) $ 19,780 (2.1%) $ 4,189* Contract Salary for the 2003-2004 school year was reported as $143,816. The figures stated reflect the .167 portion of the 2003-2004 school year that the Petitioner worked.
Therefore, all of the adjustments to Petitioner's salary were made as a consequence of the recalculation of his 2000-2001 salary.
Conclusions of Law
It is long-standing public policy in the State of New York to prohibit the inflation of earnings in the final years of public service and to prevent retiring teachers from engaging in schemes designed to funnel additional compensation to themselves in the years preceding retirement ( Weingarten v. Board of Trustees of New York City Teachers' Retirement System, 98 NY2d 575, 750 NYS2d 573). The purpose of Education Law § 501 is in furtherance of this policy to prevent artificial inflation of final average salary by payments made in anticipation of retirement ( Horowitz v. New York State Teachers' Retirement System, 293 AD2d 861, 740 NYS2d 158 [3rd Dept., 2002]).
As was set forth above, the standard of review in this case is whether the determination of the NYSTRS was arbitrary and capricious, or without a rational basis. This requires a determination whether the action in question was taken "without sound basis in reason and * * * without regard to the facts ( Pell v. Board of Ed. of Union Free School Dist. No. 1 of Towns of Scarsdale and Mamaroneck, Westchester County, supra . at p. 231). The Courts will defer to an agency's interpretation of its regulations and determinations where that interpretation is not irrational or contrary to statute, even if a different conclusion might be reached on the same evidence ( County of Monroe on Behalf of Monroe Community Hosp. v. Kaladjian, 83 NY2d 185, 608 NYS2d 942, Hurst v. Board of Educ. for Ithaca City School Dist., 242 AD2d 130, 672 NYS2d 928 [3rd Dept., 1998]), and reasonable doubts will be resolved in favor of the administrative determination ( Bronx-Lebanon Special Care Center, Inc. v. DeBuono, 269 AD2d 195, 704 NYS2d 20 [1st Dept., 2000], High Point Hosp. v. Surles, 218 AD2d 874, 630 NYS2d 391 [3rd Dept., 1995]).
The Court finds that the Petitioner has failed to establish that the Respondent's determination to excludethe amount of the contribution into a tax deferred annuity on behalf of the Petitioner was arbitrary and capricious, or without a rational basis ( Wallon v. New York State Teachers' Retirement System, 294 AD2d 644, 741 NYS2d 597 [3rd Dept., 2002]). The Contract specifically provided that the annuity was in addition to the Petitioner's base salary, and the Court does not find it in error that the Respondent determined that such contribution should not be included in the calculation of Petitioner's "average regular compensation" (Education Law § 501(11)(b)).
The beginning of the three-year period before Petitioner's retirement was the 2000-2001 when his base salary increased from $91,000.00 to $118,855.00, an increase of 30.6% over the previous year. During the three preceding years, the Petitioner received raises of 6.25%, 2.35%, and 4.6 %
The Respondent had determined that the increase in salary in 2000-2001 represented an increase of salary on the eve of retirement with the effect of inflating the Petitioner's final average salary. The Respondent relied on the fact that prior to the 2000-2001 school year, the Petitioner had been entitled to a reimbursement for transportation expenses, health insurance coverage, or a buyout for same, and a tax sheltered annuity. It is asserted that in 2000-2001, the Petitioner's contract did not provide for these entitlements, and instead he traded them for additional compensation in an effort to inflate his three-year final average salary. The Respondent further argues that, although the Petitioner has indicated that the School District provided him with medical insurance, at no cost to himself, starting on January 1, 2002, the NYSTRS is entitled to rely on the fact that this arrangement is not authorized by the 2001-2004 Employment agreements.
The Court finds that the Petitioner has not established that the Respondent's determination to recalculate the Respondent's salary for the year 2000-2001 was arbitrary or capricious and or without a rational basis. The percentage of increase, 30.6% is clearly in excess of the amount permitted by regulation ( 21 NYCRR § 5003.1) and would need to be adjusted in any case. The Respondent reduced the increase to 7.6% commensurate with the next highest salary increase received by any other administrator in the Fallsburg Central School District that year.
In Adler v. New York State Teachers' Retirement System, 188 AD2d 732, 590 NYS2d 930 [3rd Dept., 1992] the Court found it was reasonable to exclude a substantial increase in compensation under Education Law § 501(11) where it was given in exchange for the elimination of Petitioner's right to receive $40,500 in termination pay upon his retirement, as the amendment to Petitioner's contract "served to artificially inflate petitioner's final average salary before his retirement" ( id. at p. 733).
The Respondent argues that, even if there was no quid pro quo for Petitioner receiving the large salary increase in 2000-2001, such a substantial increase in salary during the three-year pre-retirement period would not constitute "regular compensation" within the meaning of Section 501(11) of the Education Law. See, Martone v. New York State Teachers' Retirement System, 105 AD2d 511, 481 NYS2d 781 [3rd Dept., 1984], in which the Court found that a "longevity option giving teachers an additional payment equal to 30% of one year's salary was a bonus, rather than regular compensation and was excludable from the retirement calculations ( See also, Simonds v. New York State Teachers' Retirement System, 42 AD2d 470, 349 NYS2d 140 [3rd Dept., 1973]). In Davies v. New York State and Local Police and Fireman Retirement System, 259 AD2d 912, 686 NYS2d 882 [3rd Dept., 1999], the Court upheld the Retirement System's determination to exclude compensation for accumulated sick leave credits, and finding that retirement benefits must be computed on the basis of an employee's regular salary, and not on any kind of termination pay or other form of additional compensation paid in anticipation of retirement.
The Court finds that the Respondent's conclusion that the increase in Petitioner's compensation represented an artificial inflation of Petitioner final average salary was rational, and that it was appropriate to limit the percentage of increase to the highest amount received by other administrators in the district ( Cooper v. New York State Teachers' Retirement System , 19 AD3d 724 , 795 NYS2d 802 [3rd Dept., 2005]). The Court finds that the Respondent's conclusion that the increase in Petitioner's salary was in exchange for the elimination of the contract provisions providing for reimbursement of travel expenses and a health insurance buyout is rational, especially since the Petitioner incurred an actual out-of-pocket expense for medical insurance during a portion of the 2000-2001 school year ( Moraghan v. New York State Teachers' Retirement System, 237 AD2d 703, 654 NYS2d 852 [3rd Dept., 1997]).
Once it is determined that it was appropriate to reduce the Petitioner's salary for the year 2000-2001, the commensurate reduction of his salary over the subsequent years is also found to have a rational basis. The Respondent in this case applied the percentage of increase which Petitioner actually received in subsequent years to the recalculated income for 2001-2001. If the subsequent years were not reduced, then the percentage of increase between the 2000-2001 and 2001-2002 would be 33.09% (130,320 — 97,916 = 34,404 ÷ 97,916 = 33.09%), which would exceed the increase permitted by regulation ( 21 NYCRR § 5003.1). This would then result in an artificial inflation of Petitioner's final average salary.
The Retirement System has a fiduciary obligation to prevent "artificial inflation of final average salary by payments made in anticipation of retirement" and the legislative intent of Education Law § 501 is to insure that retirement benefits are based upon "a percentage of regular salary' earned over a period of years" ( Cooper v. New York State Teachers' Retirement System , 19 AD3d 724 , 795 NYS2d 802 [3rd Dept., 2005] Horowitz v. New York State Teachers' Retirement System, 293 AD2d 861, 740 NYS2d 158 [3rd Dept., 2002], lv. to appeal denied 98 NY2d 614, 751 NYS2d 169).
Wherefore, based on the foregoing, the Court finds that the Petitioner has failed to establish that the Respondent's determination dated January 4, 2006 was arbitrary or capricious, or without rational basis, and the Petition is dismissed.
This memorandum shall constitute the Decision and Order of this Court. The original Decision and Order, together with the motion papers have been forwarded to the Clerk's office for filing. The filing of this Order does not relieve counsel from the obligation to serve a copy of this order, together with notice of entry, pursuant to CPLR § 5513(a).