Equitable estoppel applicable to government only under exceptional circumstances and case remanded to board for factual determination: KENTUCKY RETIREMENT SYSTEMS v. GRANT (COA 6/20/2008)

GOVERNMENT:  Equitable estoppel applicable to government only under exceptional circumstances and case remanded to board for factual determination

DATE RENDERED: 6/20/2008

The Board of Trustees of the Kentucky Retirement Systems (KERS) appeals from an order of the Franklin Circuit Court reversing its decision to reduce the monthly retirement benefit payable to James Grant following a review of his employment compensation history pursuant to Kentucky Revised Statute (KRS) 61.595(4) in which the  Franklin Circuit Court found that KERS was equitably estopped from reducing Grant’s benefit.

Because estoppel presents a question of fact which the Board of Trustees improperly refused to consider, the COA vacated the circuit court and remanded the case to the Board of Trustees for a factual determination as to the existence of estoppel.

Grant retired and received a one-time lump sum payment of $19,881.04 in addition to his regular monthly income which was not properly coded as back pay due to a payroll clerical error.

When KERS learned that Grant’s additional income in February 2001 was actually back pay, KERS recalculated Grant’s annual income which resulted in a smaller monthly benefit than he had been getting.

Grant argued that KERS should be equitably estopped from reducing his benefit, and  KERS argued that the hearing officer lacked statutory authority to consider estoppel. The hearing officer agreed that an administrative agency has no authority to address issues of estoppel, but on appeal to the Franklin Circuit Court, KERS continued to argue that equitable estoppel did not apply to cases involving the Retirement Systems. The circuit court found the hearing officer was required to consider equitable estoppel arguments.

It is well established that equitable estoppel can be applied against a state agency. Laughead v. Commonwealth of Kentucky, Dept. of Transp., Bureau of Highways, et al., 657 S.W.2d 228, 230 (Ky. 1983). However, as noted above, equitable estoppel cannot be applied against a state agency absent exceptional circumstances

Circumstances that are so exceptional  must include some gross inequity between the parties.  If Grant was dealt an injustice, eliminating that injustice should not occur at too great an expense to the public interest protected by KERS.  The Board must balance how significantly that public interest will be affected if estoppel is applied against the injustice Grant will experience if it is not.

“Extraordinary circumstances,” then, must be truly extraordinary and must go beyond what would be acceptable facts when the target of estoppel is not a government agency.

The existence of an equitable estoppel claim is a question of fact, and the determination of that fact is first the responsibility of the hearing officer, KRS 13B.090(1), .110(1), and then the Board. KRS 13B.120(2), (3).

Thus, the COA was required to remand this case to the Board of Trustees with directions that it make a factual finding as to whether Grant has proven equitable estoppel.

Digested by Michael Stevens

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