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Evans v. Tennessee Valley Authority Retirement System

United States District Court, M.D. Tennessee, Nashville Division

March 2, 2017

CHARLES T. EVANS, DAVID MCBRIDE, RONALD E. FARLEY, LARRY J. SIMPSON, ROBERT B. BONDS, and STEVE HINCH, Plaintiffs,
v.
TENNESSEE VALLEY AUTHORITY RETIREMENT SYSTEM and TENNESSEE VALLEY AUTHORITY, Defendants.

          MEMORANDUM

          ALETA A. TRAUGER, United States District Judge

         Pending before the court are three motions: 1) a Motion for Judgment on the Administrative Record as to All Remanded Claims (Docket No. 240), filed by the defendant the Tennessee Valley Authority (the “TVA”), to which the plaintiffs have filed a Response in opposition (Docket No. 248); 2) a Motion to Amend the Complaint and Modify the Scheduling Order filed by the plaintiffs (Docket No. 244), to which the TVA has filed a Response in opposition (Docket No. 246), and the plaintiffs have filed a Reply (Docket No. 253); and 3) a Motion for Summary Judgment filed by the plaintiffs (Docket No. 247), to which the TVA has filed a Response in opposition (Docket No. 251), the Tennessee Valley Authority Retirement System (the “TVARS”) has filed a Response in opposition (Docket No. 258), and the plaintiffs have filed a Reply (Docket No 259). For the reasons discussed herein, the TVA's Motion for Judgment on the Record will be granted, and the plaintiffs' Motion to Amend and Motion for Summary Judgement will be denied.

         BACKGROUND AND PROCEDURAL HISTORY

         The TVA was created by Congress in the 1930s to manage electric power production, navigation, and flood control in the Tennessee River region. The TVARS was subsequently created by the TVA in 1939 to provide retirement income to TVA employees and their families. The TVARS is governed by Rules and Regulations that have been held to have the force of legislation (the “Rules”). This action, brought by beneficiaries of the TVARS, challenges amendments to the Rules that were passed by the TVARS Board on August 17, 2009 and went into effect On January 1, 2010 (the “Amendments”).

         The Amendments made four primary changes to the TVARS Rules: 1) the annual Cost-of Living Adjustments (“COLAs”) given to eligible TVA retirees, which had previously been determined by the Consumer Price Index (“CPI”), were capped at zero for 2010, 3% for 2011, zero for 2012, and 2.5% for 2013; 2) the eligibility age to receive COLAs was raised from 55 to 60 for employees who retired after January 1, 2010; 3) the interest rate on members' contributions to the system's Annuity Savings Account was lowered from 7.25% to 6%; and 4) a new provision was added to the Rules, which suspended the requirement for the TVA to make contributions to the TVARS for years 2010-2013, in exchange for a lump-sum contribution of $1 billion. Following the Amendments, the TVARS Board did not ask for any contributions from the TVA to fund the retirement system for the years 2010 through 2013 but, instead, debited an account known as the Excess COLA Account (a sub-account of the system's Accumulation Account) to cover benefit payouts over those years. The plaintiffs take the position that the defendants violated both the substantive and procedural provisions of the Rules by passing the Amendments.

         This lawsuit was initially filed on March 5, 2010 (Docket No. 1.) After the court granted an early Motion to Dismiss (Docket No. 44), the plaintiffs filed the Amended Complaint, which is the current operative pleading, on September 21, 2010 (Docket No. 47). The Amended Complaint brings claims against the TVARS and the TVA for violation of the Administrative Procedures Act (the “APA”), violation of the Takings clause of the United States Constitution, breach of fiduciary and other duties owed by the TVARS to the TVARS beneficiaries, and equitable estoppel, and seeks both declaratory and compensatory relief.[1]

         After a period of protracted litigation, on August 19, 2015, the court issued an Order granting summary judgment in favor of the defendants as to all claims and dismissing the action with prejudice. (Docket No. 235.) A brief overview of the facts and procedural history up to that point in time can be found in the court's Memorandum accompanying that Order. (Docket No. 234 (the “Prior Opinion”).) Briefly, in the Prior Opinion, the court held that summary judgment in favor of the defendants was warranted because the Rules do not create contractual or fiduciary duties owed by the defendants nor do they create a property right, the APA does not apply, and there is no cognizable private right of action pursuant to which the plaintiffs can challenge a violation of the Rules.

         The plaintiffs appealed the court's dismissal of the action and, on August 12, 2016, the Sixth Circuit Court of Appeals affirmed in part, reversed in part, and remanded the action back to the district court. (Docket No. 238 (Duncan v. Muzyn, No. 15-6019 (6th Cir. Aug. 12, 2016).) Specifically, the Sixth Circuit agreed that the APA does not apply to this action and also agreed that the Rules do not give rise to a right in contract or create a fiduciary duty. The Sixth Circuit held, however, that the plaintiffs have the right to bring an action challenging a violation of the Rules, which is essentially what the plaintiffs have done, regardless of the labeling of the claims in the Amended Complaint. The Sixth Circuit cited Mach Mining, LLV v. EEOC, 135 S.Ct. 1645, 1651 (U.S. 2015), for the presumption in favor of reviewing agency action even where the APA does not apply and held that the defendants are agencies for this purpose. The Sixth Circuit further held that the COLAs are not vested under the Rules and, as a result, a reduction of the COLA benefits does not violate the Rules' prohibition against amendments that reduce accrued and vested benefits, nor can the reduction of the COLAs support a Takings Clause claim.[2] As a result, the Sixth Circuit affirmed the district court's dismissal of the Takings Clause claim and remanded the action for the court's consideration of the plaintiffs' remaining claims for violation of the Rules. On September 7, 2016, the Sixth Circuit issued the Mandate in this action. (Docket No. 239.)

         On September 30, 2016, the TVA filed its Motion for Judgment on the Administrative Record as to All Remanded Claims (Docket No. 241), along with a Memorandum in Support (Docket No. 242). The TVA identified five bases for the plaintiffs' claims that the defendants violated the Rules: 1) the allegations that the defendants violated the provision of the Rules requiring notice to the TVA and to TVARS members of proposed amendments; 2) the allegation that, by reducing the COLA benefits, the Amendments violated the provision in the Rules prohibiting the reduction of certain accrued benefits; 3) the allegation that, by reducing the Annuity Interest Rate, the Amendments again violated the prohibition against reducing certain accrued benefits; 4) the allegation that suspending the TVA's contributions for 2010 through 2013 violated the Rules; and 5) the allegation that debiting the Excess COLA Account during the years the TVA was not contributing to the TVARS violated the Rules. The TVA raises substantive arguments that none of these things, in fact, constitutes a violation of the Rules. The TVA also argues that the plaintiffs' claim arising from the debiting of the Excess COLA Account is not properly before the court because the plaintiffs did not adequately allege such a claim in the Amended Complaint.

         On October 12, 2016, the plaintiffs filed their Motion to Amend the Complaint and Modify the Scheduling Order (Docket No. 244), along with a Memorandum in support (Docket No. 245). By this motion, the plaintiffs seek to add language to the pleadings clarifying their intent to bring a claim that the defendants violated the Rules by debiting the Excess COLA Account. The plaintiffs take the position that this claim was properly pled in the Amended Complaint and an amendment is unnecessary but state that they wish to amend the Amended Complaint anyway, so as to “put TVA's procedural objection to rest and avoid the possibility of another remand.” (Docket No. 245, p. 2.) On October 31, 2016, the TVA filed a Response in opposition to the plaintiff's Motion to Amend. (Docket No. 246.)

         Also on October 31, 2016, the plaintiffs filed their Motion for Summary Judgment (Docket No. 247), along with a Statement of Undisputed Material Facts (Docket No. 249). On that day, the plaintiffs also filed a Response in opposition to the TVA's Motion for Judgment on the Record. (Docket No. 248.) In their opposition, the plaintiffs concede that they are not actually pursuing a claim that the four-year suspension of the TVA's contributions to the TVARS violated the Rules. On November 11, 2016, the TVA filed a Response in opposition to the plaintiffs' Motion for Summary Judgment. (Docket No. 251.) On November 14, 2016, the plaintiffs filed a Reply in support of their Motion to Amend. (Docket No. 253.) On November 16, 2016, the TVA filed a Response to the plaintiffs' Statement of Undisputed Material Facts in support of their Motion for Summary Judgment. (Docket No. 254.) On November 28, 2016, the TVARS filed a Response to the plaintiffs' Motion for Summary Judgment (Docket No. 258) and a Response to the plaintiffs' Statement of Undisputed Material Facts in support of their Motion for Summary Judgment (Docket No. 257). On December 2, 2016, the plaintiffs filed a Reply in further support of their Motion for Summary Judgment. (Docket No. 259.)

         Because the facts at issue in this case have been the subject of several prior opinions, the court will not recount in this section all of the facts relevant to the analysis but, instead, will discuss the facts in the analysis section as necessary to explain the court's findings on the merits.

         ANALYSIS

         As the parties agree, there are now four claims at issue: 1) the defendants violated the procedural requirements of the Rules by not providing proper notice of the Amendments to the TVARS members; 2) the defendants violated the substantive provisions of the Rules by reducing the COLAs; 3) the defendants violated the substantive provisions of the Rules by reducing the interest rate on the Annuity Account; and 4) the defendants violated the Rules by improperly debiting the Excess COLA Account. The parties dispute whether this fourth claim is properly before the court and, as a result, the plaintiffs have filed a Motion to Amend the Pleadings. The court will turn first to this motion and then will analyze the claims on the merits.

         I. MOTION TO AMEND

         The TVA correctly points out that the plaintiffs do not expressly allege in the Amended Complaint that the debiting of the Excess COLA Account violates the Rules. Nevertheless, the court finds that this claim was adequately pleaded such that the court may review this basis for finding that the defendants violated the Rules. The Amended Complaint has been interpreted by this court, and by the Sixth Circuit, to essentially bring one claim against the defendants for violating the Rules, with several different violations alleged. Moreover, the Amended Complaint outlines in detail the entire course of proceedings that began with the consideration of the Amendments by the TVARS Board, continued through the TVARS Board's vote on the Amendments and notification to the TVARS members, and culminated in the implementation of the Amendments and the actions of the TVARS Board in continuing to operate the retirement system in light of the Amendments over the following years. The Amended Complaint asserts that the Excess COLA Account was debited to cover the operations of the System between 2009 and 2013, and links this debiting to the suspension of contributions by the TVA that was mandated by the Amendments.

         Reading the Amended Complaint in the light most favorable to the plaintiff, the court finds that it is proper for the court to review whether any of this conduct violates the Rules, including the debiting of the Excess COLA Account. In addition, the Sixth Circuit opinion on appeal indicates that this action involves claims that the TVARS Board “violated provisions related to an account called the ‘Excess COLA Account.'” (Docket No. 238, p. 8.) Indeed, for this reason, the plaintiffs also concede that their Motion to Amend is truly unnecessary and that a claim for violating the Rules by debiting the Excess COLA Account is already before the court. The court agrees that the Motion to Amend is unnecessary and will, therefore, deny this motion as moot without considering the question of whether an amendment would be appropriate at this time. For the same reasons, the court rejects the TVA's argument that a claim for violating the Rules by debiting the Excess COLA Account is not properly before the court and will address the merits of this claim in the subsequent analysis.

         II. MOTIONS FOR JUDGMENT ON THE RECORD AND SUMMARY JUDGMENT

         By filing the pending motions, the parties appear to agree that the claims in this action can be decided based on the undisputed facts in the record and the Rules themselves. The TVA argues that the court should look only to the “administrative record” in deciding the pending motions, referencing a number of documents the TVA manually filed in the record in September of 2014 (Docket No. 185). Subsequent to that filing, however, the TVA itself filed a previous motion for summary judgment, which was granted by the court prior to the appeal and remand. The defendants point to no authority to support limiting the court's review to these documents, nor is it entirely clear from the record the source of this particular group of documents. Moreover, the Sixth Circuit's decision on appeal did not suggest that the court should limit its analysis to a review of whether the defendants, as agencies, acted in an arbitrary and capricious manner when amending the Rules or implementing the Amendments. Rather, the Sixth Circuit simply instructed that this court should review the question of whether the Rules were violated. There has been no impartial administrative agency that has previously adjudicated this issue and to which the court must give deference. For these reasons, the court will treat the pending motions as cross-motions for summary judgment and will consider all evidence in the record cited by the parties to determine whether the defendant agencies have acted in violation of the Rules.

         The TVARS argues that the court should give deference to its interpretation of the Rules, but this argument has already been expressly rejected by the Sixth Circuit. (Docket No. 238, pp. 18-20.) To support its position, the TVARS cites to Rule 3.7, in a section of the Rules entitled “Administration of the System, ” which states that “[t]he board shall have sole and exclusive responsibility for determining under the [Rules] what benefits are payable by the retirement system and to whom they shall be paid; and the board's interpretation of and application of the [Rules] in these and all other matters pertaining to the System's operations and its determination of the facts in making any such application shall be final and conclusive as to all parties.” It is clear from the text of this language, however, that this provision refers to the TVARS Board's discretion with respect to carrying out the functions of the retirement system, not to interpreting the Rules in the course of litigation. As a result, the court will conduct its own interpretation of the Rules as needed to determine the plaintiffs' claims on the merits.

         A. Legal Standard ...


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