Federal Appeals Court upholds NC’s collection of 86K in retiree overpayments

A federal Appeals Court has upheld North Carolina’s decision to recoup more than $86,000 in retirement overpayments to a Beaufort County teacher. The unanimous decision Friday upholds a trial court’s decision in the case.

“’There is no such thing as a free lunch.’ This appeal illustrates this old adage,” Judge Marvin Quattlebaum wrote for the 4th US Circuit Court of Appeals. “For over eight years, North Carolina paid Patsy Talley $857 more in monthly retirement benefits than she was supposed to receive. All told, Talley was overpaid to the tune of $86,173.93.”

“When North Carolina finally realized its mistake, it notified Talley that going forward, her monthly benefits would be reduced to recoup the overpayment. Then, it began doing just that,” Quattlebaum added. “In response, Talley sued, asserting several constitutional theories all premised on North Carolina’s failure to provide a hearing before it began reducing her monthly retirement payments.”

“She never denied that she was overpaid or disputed the amount. She instead complained that the way North Carolina went about recouping its overpayment failed to provide her due process rights. The district court dismissed all her claims,” the 4th Circuit opinion continued. “We agree that Talley failed to plead any plausible claims.”

Talley retired from the Beaufort County schools in 2008 after teaching in the district “for over 25 years,” according to the court opinion.

Problems with Talley’s retirement payments started in 2010. “[T]hings began to go awry,” Quattlebaum wrote.

The Teachers’ and State Employees’ Retirement System was supposed to change the amount of her monthly benefits at age 62, when she would start receiving Social Security benefits. The system made multiple adjustments in 2010 that ended up leading to monthly overpayments from May 2010 through August 2018.

The state reduced her monthly checks by $926 in April 2019 to recover the overpyaments. The retirement system agreed later to make a smaller cut in Talley’s monthly payment.

A state administrative law judge ruled against Talley at the state level. Rather than appeal that decision in state court, she filed a federal suit against the state, the retirement system, then-state Treasurer Dale Folwell, and 12 current and former retirement system board members.

“She asserted claims for (1) deprivation of due process under the U.S. Constitution; (2) deprivation of due process under the North Carolina Constitution; (3) deprivation of equal protection and substantive due process under the U.S. Constitution; and (4) deprivation of equal protection and substantive due process under the North Carolina Constitution,” Quattlebaum wrote. “Talley primarily complained that reducing her monthly benefits checks without any sort of pre-deprivation hearing and without any set protocol for how overpayments should be recouped violated her due process and equal protection rights.”

US District Judge Terrence Boyle ruled against Talley. Appellate judges upheld Boyle’s decision.

“To sum up our ruling, Talley received an unexpected windfall when she began receiving inflated monthly benefit checks,” Quattlebaum wrote. “Having enjoyed the $86,173.93 of extra cash she received over eight years, she naturally did not want North Carolina to recoup it. But the state had a statutory obligation to do so.”

“And recouping its overpayment under North Carolina law did not violate Talley’s constitutional rights,” he added. “Talley’s procedural due process claim against the defendants in their official capacities is barred by Eleventh Amendment immunity; her procedural due process claim against the defendants in their individual capacities is barred by qualified immunity; she has failed to state a substantive due process claim; and she has similarly failed to state an equal protection claim.”

Judges Steven Agee and Allison Jones Rushing joined Quattlebaum’s opinion.

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