McKenzie v. Defense Office of Hearing and Appeals

Filing 23

MEMORANDUM AND OPINION as set forth in following order. Signed by Magistrate Judge H Bruce Guyton on 3/27/18. (ABF)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
CASSIE ELIZABETH MCKENZIE,
Petitioner,
v.
DEFENSE OFFICE OF HEARING
AND APPEALS,
Respondent.

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No. 3:17-CV-71-HBG

MEMORANDUM OPINION
This case is before the undersigned pursuant to 28 U.S.C. § 636(c), Rule 73(b) of the
Federal Rules of Civil Procedure, and the consent of the parties, for all further proceedings,
including entry of judgment [Doc. 13].
Now before the Court is Respondent’s Motion to Dismiss [Doc. 4]. Petitioner has filed a
Response [Doc. 18] in opposition to the Motion, and Respondent filed a Reply [Doc. 21]. Further,
Petitioner filed a Motion for Leave to File Surreply [Doc. 22], which the Court has also considered.
The Motions are ripe for adjudication. Accordingly, for the reasons further explained below, the
Court will GRANT Respondent’s Motion [Doc. 4] and will GRANT IN PART AND DENY IN
PART Petitioner’s Motion [Doc. 22].
I.

BACKGROUND
On December 5, 2016, Petitioner filed a Petition for Review in the United States Court of

Appeals for the Federal Circuit. [Doc. 1-2 at 2]. The Petition seeks “review of the reconsideration
(Claims No. 2016-WV-050304).” [Id.]. On February 23, 2017, the Federal Circuit transferred
Petitioner’s case to this Court, explaining that pursuant to 28 U.S.C. § 1295, it did not have
jurisdiction over the case. [Doc. 1 at 1]. Further, the Federal Circuit noted that “it appears judicial

review of at least aspects of DOHA decisions is available in federal district court.” [Id. at 2] (citing
Nickelson v. United States, 284 F. Supp. 2d 387 (E.D. Va. 2003), aff’d, 103 F. App’x 739 (4th Cir.
2004)). The Federal Circuit transferred all the filings in the case to this Court, including the
underlying agency’s decision that is in dispute.
Petitioner’s claim arises out of a debt that the Defense Finance and Accounting Service
(“DFAS”) and the Defense Office of Hearing and Appeals (“DOHA” or “Respondent”) declined
to waive. [Doc. 1-2 at 15-28]. Specifically, on November 3, 2004, Petitioner enlisted in the United
States Army Reserve (“USAR”) for a term of eight years, and in exchange, she would receive up
to $7,000.00 in nonprior service enlistment bonus (“NPEB”) payments. [Id. at 18]. In addition,
she was eligible for the student loan repayment plan and the Montgomery GI Bill (“MGIB”). [Id.].
Petitioner received $5,250.00 in NPEB payments and $2,811.00 in tuition assistance. [Id. at 1819]. Further, Petitioner received $116.00 for service member’s group life insurance (“SGLI”)
premiums. [Id. at 19]. She also received MGIB payments from the United States Department of
Veterans Affairs (“VA”). [Id.].
On June 28, 2007, Petitioner was discharged by the United States Army without completing
her eight-year enlistment term or her education, requiring recoupment of the following: pro rata
portion of the NPEB payments in the amount of $2,236.11, tuition assistance in the amount of
$2,811.00, SGLI premiums in the amount of $116.00, and $1,124.42 in MGIB payments from the
VA. [Id. at 18-19]. Petitioner became indebted to the United States in the total amount of
$6,287.53. [Id. at 19].
DFAS determined that Petitioner’s debt could not be waived pursuant to 10 U.S.C. § 2774
because her waiver request was not received within the five-year limitation set forth in the statute.
[Id. at 15]. On July 28, 2016, DOHA issued an Appeal Decision, explaining that Petitioner’s

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request to waive her debt was untimely pursuant to 10 U.S.C. § 2774. [Id. at 20]. DOHA explained
that under § 2774(b)(2), the Comptroller General or the head of the agency may not exercise his
authority to waive claims if the application for waiver is received after the expiration of five years,
following the date on which the erroneous payment was discovered. [Id. at 19]. DOHA further
explained that pursuant to 54 Comp. Gen. 133 (1974), the time begins “from the date the erroneous
payment was discovered by the administrative office,” which is the date “when it was definitely
determined by an appropriate official that an erroneous payment ha[d] been made.” [Id. at 20].
DOHA considered Petitioner’s argument that she did not become aware of the debt until 2015 or
2016 but explained that the date that she was put on notice was irrelevant. [Id.]. DOHA stated
that the debts were posted on her military pay account between February 3, 2008, and February 3,
2010, making her waiver application, filed on September 9, 2015, untimely under § 2774.
DOHA continued that even if Petitioner’s application was timely, it would not waive her
debt. [Id.]. DOHA explained that § 2774 specifically limits its authority to claims that arose from
an erroneous payment. [Id.]. DOHA stated that if the payments were correct when made,
regardless of the subsequent events, it had no authority to relieve Petitioner of her obligation to
the government. [Id.]. DOHA concluded that the payments were proper when they were issued.
[Id.].
Further, DOHA noted that with respect to Petitioner’s tuition assistance, such waiver
authority is granted by the Secretary of the Army pursuant to 37 U.S.C. § 303a(e) and not DOHA.
[Id. at 21]. In addition, with respect to the MGIB payments from the VA, DOHA stated that it had
no authority to waive that debt because the payments were made by another governmental

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agency—the VA.

[Id.].1

DOHA also considered Petitioner’s argument that unforeseen

circumstances prevented her from resolving the debt dispute, but the agency explained that it had
no authority over USAR’s or DFAS’s administrative processes and that if she had concerns
regarding the notification of the debt, she must pursue such issues with the army or DFAS. [Id. at
22]. Finally, with respect to Petitioner’s argument that the VA granted authority concerning
similar relief, DOHA explained that it was a separate agency and was not bound to follow the
decisions of other agencies. [Id.]. DOHA stated that the waiver standards and the authority to
grant waivers under 10 U.S.C. § 2774 was delegated to its office by the Secretary of Defense.
[Id.].
Petitioner appealed the decision to DOHA’s Claims Appeals Board (“Board”). [Id. at 25].
The Board issued its Reconsideration Decision (“Reconsideration”) on October 25, 2016. [Id. at
25-28]. The Board denied Petitioner’s claim for the same reasons as above. [Id.]. Specifically,
in the Reconsideration, the Board stated that Petitioner’s request was untimely under § 2774 but
that even if her request was timely, it had no authority to waive her debt because the debt was not
based on an erroneous payment. [Id. at 26-27]. The Board explained that the USAR paid Petitioner
in accordance with her enlistment contract agreements, and therefore, the payments were correct
when made. [Id. at 27]. Further, the Board found that it had no authority to waive the tuition
assistance payments because they were proper when made and because the waiver authority for
such payments was granted to each respective Service Secretary under 37 U.S.C. § 303a(e). [Id.].
In addition, the Board explained that the SGLI premiums were not paid erroneously and that it did

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DOHA also referred to a letter in Petitioner’s case file from the VA, which stated, “We
aren’t going to consider your waiver request because we reviewed your record, and it shows that
the debt was removed, when we restored your benefits for the debt period. Because you no longer
have a debt, a waiver decision is not necessary.” [Doc. 1-2 at 21].
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not have authority to consider the MGIB payments because those payments were made by the VA.
[Id.].
In the instant Petition, Petitioner seeks review of the Reconsideration, and Respondent has
moved to dismiss.
II.

POSITIONS OF THE PARTIES
In its Motion, Respondent argues [Doc. 4] that Petitioner’s waiver request was untimely.

Respondent claims that if an application for waiver is received after the expiration of five years
immediately following the date on which the erroneous payment was discovered, a claim is not
subject to waiver. Respondent states that the record is clear that Petitioner’s indebtedness was
discovered by the agency, at the latest, when it was posted to her military pay account between
February 2008 and February 2010. Respondent asserts that Petitioner did not request a waiver
until September 9, 2015. In addition, Respondent states that the wavier statute, 10 U.S.C. § 2774,
is inapplicable because Petitioner was not erroneously paid.

Respondent continues that if

Petitioner had completed her eight-year commitment and/or successfully completed her college
courses, then the debt would not have arisen. Finally, Respondent argues that the SGLI premium
payments and tuition assistance payments are not included in the waiver statute and that it does
not have authority over the MGIB payments.
Petitioner responds [Doc. 18] in opposition to the Motion. Petitioner asserts that her
response is in accordance with the Administrative Procedure Act (“APA”), 32 C.F.R. § 536.47, 10
U.S.C. § 2005, and 37 U.S.C. § 303a(e). Petitioner attaches a number of documents, asserting that
she was unaware that she would not be able to fulfill her military obligation. She continues that
she was under the impression that she would be able to fulfill her obligation and that she was not
aware of the debt until the Internal Revenue Service (“IRS”) put her on notice of the tax offset in

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2014. Petitioner argues that the date that “give[s] rise” to the claim is the date that she was notified
by the IRS. Petitioner repeats that this claim is governed under the APA. Further, Petitioner
asserts that under 10 U.S.C. § 2005, “ROTC disenrollment should have been directed to ‘active
duty’ if [she] failed to meet obligation requirements.” [Doc. 18 at 4]. Petitioner argues that under
10 U.S.C. § 2774(b), fault exists if the member should have known that an error existed. Petitioner
maintains that she was unaware of her misfortune until notification was provided by the IRS. With
respect to Respondent’s argument that she failed to complete her commitments, Petitioner asserts
that she assumed that upon her release from incarceration, she would be able to continue her
service. She explains that if she failed to continue her service after her release, then the
consequences in 37 U.S.C. § 303a(e) would have been triggered.
Respondent filed a Reply [Doc. 21], arguing that Petitioner’s response is primarily focused
on her discharge, which is not an issue before the Court and cannot be before the Court because
Petitioner did not exhaust her administrative remedies. Respondent continues that Petitioner
acknowledges that her failure to serve would lead to such consequences. Respondent states that
Petitioner’s true issue is with her initial discharge that triggered her obligation to repay the various
funds provided to her because of her service in the USAR but that this issue is not before the Court.
Further, Respondent argues that under the APA, Petitioner is required to show that Respondent’s
decision is arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with
the law. Respondent explains that the underlying decision is not arbitrary or capricious.
Petitioner filed a Motion for Leave to File a Surreply [Doc. 22], requesting that the Court
strike Respondent’s reference to the nature of the discharge process. Petitioner explains that she
referenced such matters to show that she exhausted all available remedies afforded in a timely
manner. She states that she introduced the APA “because during that time[,] she was under that

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umbrella and could not by-pass any other avenues of that nature given the status and place she was
being held and the authority she was released after receiving her sentence.” [Doc. 22 at 1]. She
asserts that 18 U.S.C. § 4042 limited any rights to adjudicate. Petitioner requests that the Court
disregard Respondent’s allegations relating to the manner of which she was discharged. In
addition, she requests that the Court address 32 C.F.R. § Pt. 282, App. C. She asserts that this
regulation shows that her application for waiver was timely because the date that gives rise to the
claim is the date that she was notified by the IRS in 2014. Petitioner argues that she was not served
with notification during her incarceration that she would be obligated with the debt after she served
her six-year sentence.
III.

STANDARD OF REVIEW
Respondent filed a Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

On a Rule 12(b)(6) motion, the Court considers not whether the plaintiff will ultimately prevail,
but whether the facts permit the court to infer “more than the mere possibility of misconduct.”
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). For purposes of this determination, the Court
construes the complaint in the light most favorable to the plaintiff and assumes the veracity of all
well-pleaded factual allegations in the complaint. Thurman v. Pfizer, Inc., 484 F.3d 855, 859 (6th
Cir. 2007). This assumption of veracity, however, does not extend to bare assertions of legal
conclusions, Iqbal, 556 U.S. at 679, nor is the Court “bound to accept as true a legal conclusion
couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986).
After sorting the factual allegations from the legal conclusions, the Court next considers
whether the factual allegations, if true, would support a claim entitling the plaintiff to relief.
Thurman, 484 F.3d at 859. This factual matter must “state a claim to relief that is plausible on its
face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Plausibility “is not akin to a

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‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556).
As mentioned above, both parties reference the APA. Under the APA, an agency’s
decision is upheld unless it is arbitrary and capricious. The arbitrary and capricious standard has
been described as “the most deferential standard of judicial review of agency action, upholding
those outcomes supported by a reasoned explanation, based upon the evidence in the record as a
whole.” Todd v. U.S. Department of Labor, 187 F. Supp. 3d 824, 826 (W.D. Ky. 2016) (quoting
Mich. Bell. Tel. Co. v. MCI Metro Access Transmission Servs., Inc., 323 F.3d 348, 354 (6th Cir.
2003)). “Under this deferential standard, when it is possible to offer a reasoned explanation, based
on the evidence for a particular outcome, that outcome is not arbitrary or capricious.” Cox v.
Standard Ins. Co., 585 F.3d 295, 299 (6th Cir. 2009).
IV.

ANALYSIS
Before turning to the merits of the dispute, the Court must address certain issues. First, the

Court observes that in a footnote, Respondent asserts that the Court’s jurisdiction is questionable.
Respondent further states that the Court does not need to decide jurisdiction in determining its
Motion. It is a fundamental principle of law, however, that the Court must have jurisdiction before
deciding the merits of the claim. In re: 2016 Primary Election, 836 F.3d 584, 587 (6th Cir. 2016)
(explaining that “courts must decide jurisdictional issues before merits issues”).
The Petition in this case is bare bones, asserting only that Petitioner seeks the Court’s
“review of the reconsideration (Claims No. 2016-WV-050304).” [Doc. 1-2 at 2]. The Court is
mindful, however, that Petitioner is proceeding pro se and that the Supreme Court has cautioned,
“A document filed pro se is to be liberally construed” and that “a pro se complaint, however
inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by

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lawyers.” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (other quotations and internal citations
omitted). Thus, despite the brevity of the Petition, the Court understands Petitioner to be seeking
review of DOHA’s Reconsideration because Petitioner believes DOHA’s interpretation of 10
U.S.C. § 2774 is arbitrary and capricious under the APA. In fact, Petitioner argues such in her
Response to Respondent’s Motion to Dismiss. [Doc. 18 at 4] (“This proceeding is governed under
the Administrative Procedure Act.”). Accordingly, given Petitioner’s representation, the Court
finds that the APA applies and the Court has jurisdiction thereunder. See 5 U.S.C. § 702 (“A
person suffering legal wrong because of agency action, or adversely affected or aggrieved by
agency action within the meaning of a relevant statute, is entitled to judicial review thereof.”). See
also Miglionico v. United States, 108 Fed. Cl. 512, 521 (Fed. Cl. 2012) (hearing plaintiff’s claim
that DOHA’s decision and its interpretation of a regulation was arbitrary and capricious).
In addition, the Court notes that Petitioner filed a document titled, “Petitioner’s Motion for
Leave to File Surreply.” [Doc. 22]. In the Motion, she requests that the Court strike Respondent’s
reference to the nature of her discharge. She explains that she did not reference her discharge to
“refocus the position of review” but only to show that she made her claim in a timely manner.
Although the Court will not strike Respondent’s references, the Court understands Petitioner’s
claim to be challenging DOHA’s Reconsideration and that the nature of her discharge is irrelevant.
Further, the Court has considered the issues raised in Petitioner’s Surreply.2

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As a final matter, the Court observes that Respondent filed a Motion to Dismiss under
Rule 12(b)(6). Typically, with respect to Rule 12(b)(6) motions, the Court is limited to the four
corners of the complaint. Trustees of Detroit Carpenters Fringe Benefit Funds v. Patrie Const.
Co., 618 F. App'x 246, 255 (6th Cir. 2015). The Sixth Circuit has observed, however, that “it may
consider items appearing in the record of the case, including exhibits, without converting a Rule
12(b)(6) motion into a motion for summary judgment, but only “so long as they are referred to in
the complaint and are central to the claims contained therein.” Id. (quoting Rondigo, L.L.C. v.
Twp. of Richmond, 641 F.3d 673, 681 (6th Cir.2011) (emphasis in Patrie Const. Co.) (other
citations omitted). Here, in the Petition, Petitioner specifically refers to the Reconsideration
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Turning to the merits of this case, the Court has reviewed DOHA’s decision and finds that
DOHA fully articulated the reasoning behind its decision and that its decision is not arbitrary and
capricious. Petitioner applied for a waiver of her debt pursuant to 10 U.S.C. § 2774(b)(2).
Specifically, § 2774 states as follows:
A claim of the United States against a person arising out of an
erroneous payment of any pay or allowances made before, on, or after
October 2, 1972, or arising out of an erroneous payment of travel and
transportation allowances, to or on behalf of a member or former
member of the uniformed services, the collection of which would be
against equity and good conscience and not in the best interest of the
United States, may be waived in whole or in part by . . .
10 U.S.C. § 2774. The statute continues, however, that authority may not be exercised to waive
any claim—
(1) if, in his opinion, there exists, in connection with the claim, an
indication of fraud, misrepresentation, fault, or lack of good faith
on the part of the member or any other person having an interest
in obtaining a waiver of the claim; or
(2) if application for waiver is received in his office after the
expiration of five years immediately following the date on which
the erroneous payment was discovered.
10 U.S.C. § 2774(b).
Relying on 54 Comp. Gen. 133 (1974), DOHA found that Petitioner’s request for a waiver
was untimely. [Doc. 1-2 at 26]. DOHA explained that for purposes of § 2774(b)(2), the time
began when the erroneous payment was discovered by the administrative office. DOHA stated
that Petitioner’s debts for NPEB, SGLI, and MGIB were discovered in February 2008, so she

(Claims No. 2016-WV-050304) and requests that the Court review the Reconsideration. [Doc. 12 at 2].

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would have had to request waiver of those debt amounts in February 2013. [Id. at 26]. In addition,
DOHA found that her debt for tuition assistance was discovered February 2010, so her request for
a waiver would have been due in February 2015. [Id.]. DOHA concluded that it did not have
authority to waive the debt given Petitioner’s untimely application. [Id.].
The parties dispute who is required to discover the erroneous payment in order to trigger
the time limitations set forth in the above statute. Petitioner states that she did not discover the
debt until the IRS notified her of the debt, which occurred in 2014 and 2015, making her
application timely under § 2774(b)(2). Respondent argues that Petitioner’s notice is irrelevant and
that the debt was discovered for purposes of § 2774 when it was posted to her military pay account
between February 2008 and February 2010. Respondent asserts that regardless, Petitioner should
have known of her debt when it was posted to her military pay account.
While Respondent’s position is consistent with the Comptroller General’s opinion, see In
the A Waiver of Indebtedness, 54 Comp. Gen. 133, 133 (Aug. 20, 1974), the Court finds that it
does not need to decide this issue because the Court agrees with DOHA that § 2774 is inapplicable
to Petitioner’s entire debt because she did not receive any erroneous payments.

In its

Reconsideration, DOHA explained, “If the payment was correct when made, regardless of the
subsequent events, we have no authority to relieve a member of her obligation to repay the
government.” [Doc. 1-2 at 27]. As mentioned above, § 2774 applies to claims “arising out of an
erroneous payment.” Petitioner does not dispute that when she received the payments (NPEB,
SGLI, MGIB, and tuition assistance), they were not erroneously paid. Accordingly, the Court
finds DOHA’s decision (i.e., the statute is not applicable to Petitioner’s request for a waiver) is not
arbitrary and capricious.

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Petitioner has requested that the Court review a provision in 32 C.F.R. § Pt. 282, App. C,
which provides as follows:
(ii) Claims under 31 U.S.C. 3702 (b), 10 U.S.C. 2771 and 32 U.S.C.
714 must be received within 6 years of the date the claim accrued.
(A claim accrues on the date when everything necessary to give rise
to the claim has occurred.) The time limit for claims of members of
the Armed Forces that accrue during war or within 5 years before
war begins, is 6 years from the date the claim accrued or 5 years
after peace is established, whichever is later.
32 C.F.R. § Pt. 282(f)(ii), App. C.
The Court finds Petitioner has not sufficiently explained why this statute would apply in
this case. First, the statute addresses a “demand for money or property against the Government.”
Petitioner has not demanded money or property but has requested a waiver of her own debt.
Further, as explained above, the Court agrees with DOHA that § 2774 applies to erroneous
payments and that even if Petitioner’s claim was timely, she would not be eligible for the debt
waiver as provided under § 2774.
Further, the Court observes that DOHA explained it did not have authority to consider
waiving the tuition-assistance payments because the debt did not arise from “pay or allowances”
as provided in the statute. See 10 U.S.C. § 2774 (titled, “Claims for overpayment of pay and
allowances and of travel and transportation”). DOHA explained that tuition assistance payments
are educational expenses. In addition, the Court agrees with Respondent that with respect to tuition
assistance payments, Petitioner was required to seek relief from the Secretary of the Army and not
DFAS or DOHA. Specifically, 10 U.S.C. § 2005(a)(3) provides that the Secretary concerned may
provide advanced education assistance to any person who enters into a written agreement with the
Secretary concerned but that if such person does not complete the terms of the agreement, he or
she may be subject to the repayment provisions of 37 U.S.C. § 303a(e). Section 303a(e) requires

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recoupment of bonuses or benefits “unless the Secretary concerned determines that the imposition
of the repayment requirement . . . would be contrary to a personnel policy or management
objective, would be against equity and good conscience, or would be contrary to the best interests
of the United States.” See also 10 U.S.C. § 101(a)(9) (defining “Secretary concerned” as the
“Secretary of the Army, with respect to matters concerning the Army”).
Similarly, with respect to the MGIB payments DOHA explained that it could only
consider waiver requests made by its agency, the Department of Defense, and that the MGIB
payments were made by the VA. Accordingly, the Court finds DOHA’s decision is not arbitrary
and capricious.
As a final matter, in DOHA’s Reconsideration, it addressed Petitioner’s argument that she
should have been given more time to report pursuant to USREC Regulation 601-56, Chapter 3.
[Doc. 1-2 at 27]. Although the parties did not brief this issue, the Court agrees with DOHA’s
interpretation that this regulation applies to “future solider” and discusses actions prior to
enlistment. Accordingly, the Court finds no reason to disturb DOHA’s finding.
V.

CONCLUSION
Accordingly, for the reasons cited above, the Court will GRANT Respondent’s Motion

to Dismiss [Doc. 4] and will GRANT IN PART AND DENY IN PART Petitioner’s Motion for
Leave to File Surreply [Doc. 22].
ORDER ACCORDINGLY:

United States Magistrate Judge

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