Alabama Supreme Court 1040139.
The Employees' Retirement System of Alabama ("ERS") and its Board of Control appeal from a summary judgment entered in favor of R. Marcus Givhan, as executor of the estate of Marion Callen Stothart. We reverse and remand.
During her lifetime, Stothart was a employee of the State of Alabama and a member of ERS; she was diagnosed with lung and brain cancer on February 17, 2002. On May 31, 2002, Stothart, who was 64 years old at the time, completed a form application for retirement benefits. Because Stothart had indicated to ERS her intent to retire, ERS prepared a written estimate of the potential benefits Stothart could expect to receive; that document disclosed that Stothart could expect to receive $649.06 per month for the remainder of her life, with "all benefits ceasing at" her death, if she elected the "maximum retirement allowance" permitted by law. On July 23, 2002, Stothart executed a verified "Member's Election of Retirement Benefits" form in which she indicated that she had been advised of the estimated maximum retirement allowance to which she was entitled and of "certain optional modifications thereof"; she requested the maximum retirement allowance.
Stothart retired from her employment on September 1, 2002, and died one month later on October 1, 2002. Stothart received one benefit payment in the amount of the maximum monthly retirement benefit before her death on October 1, 2002. Following Stothart's death, Givhan, Stothart's son and the executor of her estate (hereinafter "the executor"), contacted ERS; the executor was informed that Stothart had elected to receive the maximum retirement allowance and that Stothart's estate was therefore entitled only to a "one time prorata payment for the number of days that [Stothart] lived in the month of her death."
On November 19, 2002, the executor appealed from that determination to the ERS Board of Control, pursuant to Rule 800-2-3-.06, Ala. Admin. Code (Retirement Sys. of Alabama); he requested that ERS provide benefits to the estate in accordance with the actuarial equivalent benefit such that Stothart's estate would receive the amount of money Stothart had contributed to ERS during her employment plus interest. On December 4, 2002, the ERS Board of Control denied the request. On January 3, 2003, the executor filed a notice of appeal with ERS and a petition for judicial review of ERS's decision in the Montgomery Circuit Court; in his petition, the executor averred that Stothart "lacked capacity" to make an election of benefits at the time she had executed the election-of-benefits form.
On July 23, 2003, ERS filed a cross-motion for a summary judgment based on Ex parte Employees' Retirement System Board of Control, 767 So.2d 331 (Ala.2000) ("Ex parte ERS"), a case in which the Alabama Supreme Court reversed a judgment permitting the widow of a state employee to receive retirement benefits from ERS despite her deceased husband's election to receive a maximum retirement allowance. In support of the motion, ERS presented the affidavit of Don Nelson, its director of benefits, who stated that Stothart had elected to receive the maximum retirement allowance, and the exhibits to that affidavit, which included Stothart's application for retirement, the benefits statement prepared by ERS, and Stothart's election-of-benefits form. In its summary-judgment motion, ERS argued that even if Stothart had not made an election, she would have automatically received the maximum retirement allowance pursuant to § 36-27-16(a), Ala.Code 1975.
Following a hearing on the parties' motions, the circuit court determined that Stothart, in 1991, had executed a durable power of attorney appointing the executor to act as her lawful agent in the event of her incapacity. The circuit court deemed Stothart's election-of-benefits form invalid on the basis that Stothart had lacked the mental capacity to make intelligent and voluntary decisions on her own when she signed the election-of-benefits form on July 23, 2002, and on the basis that that form had not been signed by any individuals that Stothart had authorized to act on her behalf in the event of her incapacity. Although the circuit court acknowledged the Supreme Court's decision in Ex parte ERS, the circuit court distinguished that decision on two bases: (1) the employee in Ex parte ERS lived longer than Stothart after his retirement; and (2) the employee in Ex parte ERS had not been incapacitated at the time he elected to receive the maximum retirement benefit.
The circuit court also rejected ERS's argument that, even assuming that Stothart was incapacitated at the time she signed the election-of-benefits form, she would have been due to receive, by default, the maximum retirement allowance pursuant to § 36-27-16(d). Asserting that "a court sitting in equity has broad power to fashion remedies which are equitable under given circumstances," the circuit court concluded that equity would be served by allowing the executor to choose the actuarially equivalent retirement-benefits option that the estate had requested in its petition for review; the circuit court awarded Stothart's estate the "unpaid balance" of "annuity savings" in Stothart's ERS account.
Section 36-27-16(a)(1)a., Ala.Code 1975, provides, in pertinent part, that any member of the ERS who withdraws from service after reaching the age of 60 years "may retire upon written application to the [ERS] Board of Control." Section 36-27-16(a)(2), Ala.Code 1975, specifies the "maximum" service-retirement allowance payable to a retired state employee. That allowance "is paid for life and does cease at death." Employee's Retirement Sys. Of Alabama v. McKinnon, 349 So.2d 569, 573 (Ala.1977).
In lieu of receiving that maximum allowance, any ERS member may choose from among the following actuarially equivalent reduced-retirement allowance "options": (1) electing to receive annuity payments that are payable to the member and to the member's nominee(s) if the member dies before receiving payments equal to "the present value of [the] annuity as it was at the time of [the member's] retirement"; (2) electing a reduced-retirement allowance that is payable to the member and, after the member's death, to another designated person over that person's remaining lifetime; (3) electing that one-half of a member's reduced-retirement allowance be paid after the member's death to another designated person over that person's remaining lifetime; or (4) electing some other reduced-retirement-payment plan that is certified to be of equivalent actuarial value to the member's retirement allowance and approved by ERS's Board of Control. See § 36-27-16(d), Ala.Code 1975. However, that statute also provides that any election to receive a reduced-retirement benefit is to be made "prior to retirement." Ala.Code 1975, § 36-27-16(d) (emphasis added); accord, Ala. Admin. Code (Retirement Sys. of Alabama) r. 800-2-1-.03(1) (members electing to receive an optional allowance must make that election on a form duly prescribed by ERS "no later than the first of the month during which their retirement is to be effective"). ERS regulations provide that if ERS "is not notified of a member's election to receive an optional allowance, then such member shall automatically receive the maximum retirement allowance." Ala. Admin. Code (Retirement Sys. of Alabama) r. 800-2-1-.03(2).
Assuming, without deciding, that the circuit court correctly concluded on the record before it that Stothart's incapacity rendered her July 23, 2002, election-of-benefits form void, neither Stothart nor any other person that may have been authorized to elect any of the four optional reduced-retirement allowances pursuant to § 36-26-17(d) on her behalf elected any of those allowances and notified ERS of that election before Stothart retired on September 1, 2002. Because no such election was made at that time, the executor, whether purporting to act pursuant to his agency created under Stothart's power of attorney
We note that the circuit court was clearly moved in this case to "do equity,"
The decision of the ERS Board of Control denying payment of benefits to Stothart's estate was correct as a matter of law and should have been upheld, not reversed, by the circuit court. The judgment of the Montgomery Circuit Court is reversed, and the cause is remanded with instructions to enter a judgment in favor of ERS.
REVERSED AND REMANDED WITH INSTRUCTIONS.
CRAWLEY and PITTMAN, JJ., concur.
MURDOCK, J., concurs specially, with writing.
YATES, P.J., dissents, with writing, which THOMPSON, J., joins.
MURDOCK, Judge, concurring specially.
I concur in the well-reasoned analysis of the main opinion. My agreement with the main opinion is bolstered by my threshold observations that (1) the Legislature clearly must have intended that a retiring member of the Employees' Retirement System be entitled to receive retirement benefits even if he or she does not exercise one of the options given to them in § 36-27-16(d), Ala.Code 1975, to select reduced retirement payments during their life in return for certain benefits payable after their death, and (2) accordingly, the Legislature likewise must have intended there to be a default as to what an employee's retirement allowance would be in the absence of such an election. The main opinion correctly identifies that default.
I write separately to explain my understanding of one particular portion of the main opinion. Specifically, near the end of the opinion is found the following:
907 So.2d at 1046-47. I write separately to explain that I construe the foregoing not as a statement that this case is governed by equity, rather than law, but instead as merely a comment that, even if equity were somehow to govern the outcome of this case, that equity would have to "follow the law." Given the particular facts in this case, it is unfortunate for the beneficiaries of Stothart's estate that the
YATES, Presiding Judge, dissenting.
Section 36-27-16, Ala.Code 1975, provides, in pertinent part:
I disagree with ERS's argument that § 36-27-16(a) and (d) requires that Stothart receive the maximum retirement allowance in the event her election was void. Section 36-27-16 provides for payment of the maximum retirement allowance when a retiree fails to make an election. Here, Stothart did not fail to make an election; rather, she executed an election form while she was mentally incapacitated. Stothart timely submitted an election-of-benefits form before her retirement, as required by the statute; however, she was without the mental capacity to understand the nature of the form. Section 36-27-16(d) provides that a retiree may make an election to select an actuarial equivalent of his retirement allowance "in lieu of his retirement allowance payable throughout life." There is nothing in § 36-27-16 that addresses the factual situation where a retiree makes a timely election but that election is void because of mental incapacity. Further, ERS's benefit-selection form seems to contradict its position, because there would be no reason for an employee to affirmatively select "maximum retirement allowance" on the form before retirement. Also, I note that in Employee's Retirement System of Alabama v. McKinnon, 349 So.2d 569 (Ala.1977), the employee filled out two forms concerning retirement benefits, selecting a different benefit payment on each form. The supreme court stated that the parties could on remand further develop the factual issue whether the retiree was mistaken in marking conflicting choices on his retirement forms.
349 So.2d at 573. Nothing in McKinnon indicates that § 36-27-16(d) is automatically triggered if the election form is conflicting, void, or invalid. Accordingly, I must respectfully dissent.
I also write to note that I disagree with ERS's argument that Ex parte Employees' Retirement System Board of Control, 767 So.2d 331 (Ala.2000), addresses the same factual situation as the present case. In Ex parte Employees' Retirement System Board of Control, the State employee executed a selection-of-benefits form in December 1992, selecting the maximum retirement benefit before he retired on January 1, 1993. In October 1995, the employee died, and his widow asked ERS to change the election; the ERS Board of Control denied the widow's request. The employee's widow sought review, alleging that the employee suffered from hepatic encephalopathy when he elected his retirement benefits. One doctor testified that hepatic encephalopathy can cause loss of
The trial court in Ex parte Employees' Retirement System Board of Control, supra, entered a judgment in favor of the widow, finding that the employee had elected the maximum retirement allowance by mistake. The trial court concluded that when the employee "made his election he was suffering from the effects of hepatic encephalopathy and that he had lost some of his intellectual and reasoning capacity as a result of his illness." 767 So.2d at 333. This court affirmed the trial court's judgment without an opinion.
ERS sought certiorari review, arguing that this court's affirmance conflicted with McKinnon, 349 So.2d 569. In McKinnon, the employee filled out two forms concerning retirement benefits, selecting a different benefit payment on each form. The supreme court in McKinnon reversed the trial court's judgment and noted that on remand the parties could further develop the factual issue of the employee's intent.
The supreme court discussed McKinnon in Ex parte Employees' Retirement System Board of Control, 767 So.2d at 334-35, and ultimately concluded:
The supreme court also noted that McKinnon was distinguishable from the facts in Ex parte Employees' Retirement Board of Control, because in McKinnon there was no indication that anyone from the retirement system personally explained the retirement-benefit choices available to the employee.
For a contract to be void on the ground of mental incapacity, the person alleged to have been incompetent at the time of the contract was executed must have "`had no reasonable perception or understanding of the nature and terms of the contract.'" Lloyd v. Jordan, 544 So.2d 957, 959 (Ala.1989)(quoting Williamson v. Matthews, 379 So.2d 1245, 1247 (Ala.1980)). In Lloyd, the daughters of the deceased, who owned an annuity, petitioned the probate court for an order designating them as beneficiaries of their father's annuity. The daughters presented testimony from their father's physician that at the time their father changed his beneficiary form he was incapable of understanding and appreciating the nature and effect of the change-of-beneficiary form.
In Queen v. Belcher, 888 So.2d 472 (Ala.2003), the father executed a power of attorney, as well as partnership and trust agreements. Three of the father's four children challenged the standard the trial court used in determining that the father had the mental capacity to execute the documents. Our supreme court held that the correct standard for determining whether the father had the mental capacity to execute the power of attorney as well as the partnership and trust agreements was whether the father "`was unable to understand and comprehend what he was doing' at the time he signed the power of attorney and the partnership and trust agreements." Queen, 888 So.2d at 477 (quoting Thomas v. Neal, 600 So.2d 1000, 1001 (Ala.1992)).
In Morris v. Jackson, 733 So.2d 897 (Ala.Civ.App.1999), an action was brought to set aside a power of attorney executed in favor of the testator's granddaughter. The trial court set aside the power of attorney, finding that the testator was incompetent when he executed the form.
733 So.2d at 898. The testator's physician in Morris testified that the testator had lung cancer and was on such heavy pain medication that he was incompetent. This court held that the record supported the trial court's finding of incompetency.
On a motion for a summary judgment, when the nonmovant offers no evidence to
I cannot say that it was outside the circuit court's jurisdiction to grant the equitable relief sought by Givhan. "The trial court has the power to mold its decree `so as to adjust the equities of all parties and to meet the obvious necessities of each situation.'" Clark v. Cowart, 445 So.2d 884, 888 (Ala.1984)(quoting Coupounas v. Morad, 380 So.2d 800, 803 (Ala.1980)). "There is no doubt that any retirement system depends for its soundness on an actuarial experience based on the purely prospective selections of benefits and mortality rates among the covered group, and that retrospective or adverse selection after the fact would be destructive of a sound system." Ortelere v. Teachers' Retirement Bd. of the City of New York, 25 N.Y.2d 196, 198, 250 N.E.2d 460, 461, 303 N.Y.S.2d 362, 364 (1969)(allowing retiree's husband to set aside retiree's election because of mental illness). Although ERS needs to be able to rely on choices made by its members, "`[a] court of equity guards with jealous care all contracts with persons of unsound mind.'" Lloyd v. Jordan, 544 So.2d at 959 (quoting 17 C.J.S. Contracts § 133(1) at 855-57 (1963)).
THOMPSON, J., concurs.