Breach Settlement Agreement

On May 15, 2007, the United States Court of Appeals for the Federal Circuit reversed the Merit Systems Protection Board's decision in Lutz v. United States Postal Service, No. 06-3154, finding that the agency materially breached a settlement agreement that was to resolve his Board appeal. The court remanded the case to the Board for further proceedings.

The settlement agreement that Mr. Lutz and the agency entered into provided that Lutz agreed to apply for disability retirement and the agency agreed to "take all necessary steps to cooperate and facilitate the acceptance of appellant's application" and not to place negative statements in the supervisor's statement. Lutz applied for disability retirement as promised. However, the postmaster's statement to OPM included the following:

Refused to work in his position as a mail handler. Brought in documentation from Dr. was sent to Fitness for Duty and was found fit for duty. Refused to work still.

Sent to FFD [Fitness for Duty] and was found to have no issues. He however refused to work and claimed an accident.

He supposedly hurt his back when working on carrier routed flats. This then resulted in lifting restriction which we would have kept. However he did not return to work due to other issues with MSPB settlements.

OPM denied Mr. Lutz's application for disability retirement, concluding that the documentation did not show he was "disabled for useful and efficient service or that a continued absence from the work site is medically warranted." Lutz then petitioned for enforcement of the settlement agreement, asserting the agency breached the agreement by including negative remarks in the supervisor's statement to OPM. The administrative judge agreed, determining that the agency had breached the settlement agreement. The agency then filed a petition for review with the Board.

The Board sided with the agency and held that even if the agency had breached the settlement agreement by including negative remarks in the supervisor's statement (a determination the Board found unnecessary to reach), any breach by the agency was not material because OPM's denial of Lutz's application was based on his failure to supply medical records establishing his disability, not the supervisor's statement. Lutz then appealed the Board's decision to the Federal Circuit.

To prevail before the Federal Circuit, Lutz had to show material non-compliance by the agency with the terms of the settlement agreement. The court agreed with him that the agency breached the agreement, holding that the "supervisor's statement are indisputably negative in tone, asserting that Mr. Lutz 'refused' to work his position" which "did not 'facilitate the acceptance'" of Mr. Lutz's application. The remaining question was whether the Board correctly concluded that the breach was immaterial, i.e., relates to a matter of vital importance or goes to the essence of the contract. The Federal Circuit held that the "essential purpose" of the settlement agreement "was to accommodate Mr. Lutz's application for disability retirement," and that the negative statements by the supervisor prejudiced the disability proceedings. The court found that OPM "explicitly relied" on the supervisor's statements which was evidenced by OPM's direct reference to the supervisor's statements, and, therefore, that the breach was material.

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