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SENIOR EXECS. ASSN. v. UNITED STATES

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA


December 15, 1983

SENIOR EXECUTIVES ASSOCIATION, et al., Plaintiffs,
v.
UNITED STATES, et al., Defendants

The opinion of the court was delivered by: GREENE

MEMORANDUM

 Plaintiffs, an association of federal employees most of whom are in the Senior Executive Service (SES), and six individual career appointees to the SES, brought this suit challenging the legality of statutory and regulatory restrictions which reduced the number of performance awards which federal agencies may issue to SES employees under 5 U.S.C. § 5384. The action also challenges restrictions imposed by the Office of Personnel Management (OPM) which reduced the number of incentive awards agencies may issue pursuant to 5 U.S.C. § 4503. Plaintiffs seek a judgment awarding them the performance and incentive awards they were allegedly unlawfully denied in fiscal years 1980 and 1981 or, in the alternative, an order directing the defendants to require the agencies to reconsider the issuance of the awards without regard to the Congressional and OPM restrictions. Defendants have filed a motion to dismiss or for summary judgment, and plaintiffs have filed a cross motion for partial summary judgment. For the reasons stated below, defendants' motion will be granted.

 I

 There is no genuine issue as to any material fact. In Title IV of the Civil Service Reform Act of 1978 (CSRA), Congress established the SES in order to afford federal agencies the flexibility needed to recruit and retain highly qualified executives for service in the higher management positions of the government. *fn1" Congress did not assign any federal employees to the new SES; instead, it offered employees serving in GS-16 through GS-18 level positions and those holding Executive Level IV and V positions the choice of either converting to the SES or remaining in the competitive or excepted civil service. *fn2" As an inducement to convert, Congress offered several benefits to SES employees, including opportunities for increased compensation. *fn3"

 Specifically, the statute authorized agency heads (1) to increase the basic rate of pay or salary of SES employees on the basis of their performance, 5 U.S.C. § 5383(c); (2) to recommended career appointees for the rank of Meritorious Executive for "sustained accomplishment" or the rank of Distinguished Executive for "sustained extraordinary accomplishment" and thereby to become eligible for lump sum payments of $10,000 or $20,000 respectively, 5 U.S.C. § 4507; and (3) to pay lump sum performance awards to SES career appointees whose performance rating was "fully successful" and who had been recommended for an award by a performance review board. 5 U.S.C. § 5384. With regard to the performance awards, the statute provided that the awards could not "exceed 20% of the career appointee's basic pay" and that the number of awards issued by an agency in a fiscal year could not exceed "50% of the number of [SES] positions in that agency." 5 U.S.C. § 5384(b)(3). *fn4" In its information publication of February 1979, OPM stated that "on average, the typical competent executive can expect to receive a [performance award] about twice every three years." *fn5"

 On July 13, 1979, the effective date of SES, 6,836 or 98.8 percent of the eligible federal employees decided to convert, and over 6,300 of these joined the SES as career appointees. The decision to convert was not rescindable.

 Approximately one year later, Congress reduced the percentage limitation on the number of SES performance awards an agency could issue from 50 percent to 25 percent. Section 303 of the Supplemental Appropriation Act of 1980, Pub. L. 96-304, 94 Stat. 857 (July 24, 1980). *fn6" Thereafter, OPM, which was assigned the responsibility for implementing the SES, issued a memorandum to heads of departments and agencies advising them to limit bonuses to 20 percent of the eligible career employees. *fn7" OPM elaborated that "if the agency head feels a higher proportion is essential, he or she must consult with the Director of OPM." Finally, OPM established guidelines to aid agencies in deciding the amount of the bonus to be paid. *fn8"

 In a second memorandum to heads of departments and agencies, OPM stated that agencies must not use incentive awards to circumvent the statutory restriction or OPM guidelines concerning the number and distribution of performance awards. *fn9"

 Plaintiffs allege that they had constitutionally protected property and contractual rights in the performance award system established by section 5384, including the right to compete in fiscal years 1980 and 1981 for performance awards numbering up to as many as 50 percent of an agency's SES positions, and that the limitations imposed by Congress and the OPM infringed these rights in violation of the Fifth Amendment. In response, defendants argue that (1) plaintiffs lack standing to sue because their claim of injury is too speculative; (2) plaintiffs have no vested property right or implied contractual right in the SES bonus provisions to invoke the protections of the Fifth Amendment; and (3) OPM's further limitations on the number of SES performance awards and incentive awards an agency should issue was merely guidance, and therefore did not directly affect any of plaintiffs' rights. The Court will address these issues seriatim.

 II

 One aspect of the constitutional requirement of a "case or controversy" is that plaintiff must have standing to sue. At a minimum, a party who invokes the court's jurisdiction must show that he personally suffered some actual or threatened injury as a result of the alleged illegal conduct and that the injury can fairly be traced to the challenged conduct and is likely to be redressed by a favorable decision. Valley Forge College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472, 70 L. Ed. 2d 700, 102 S. Ct. 752 (1982); Gladstone Realty v. Village of Bellwood, 441 U.S. 91, 99, 60 L. Ed. 2d 66, 99 S. Ct. 1601 (1979); Simon v. Eastern Kentucky Welfare Rights Org., 426 U.S. 26, 38, 41, 48 L. Ed. 2d 450, 96 S. Ct. 1917 (1976). Defendants argue that, because the award of bonuses was left to the discretion fo the agency heads, plaintiffs have failed to show that they suffered any "injury in fact" when Congress and OPM subsequently reduced the number of possible awards.

 According to the defendants, the government never guaranteed plaintiffs that they would receive SES bonuses even if they were among those employees recommended by their supervisor or their agency's Performance Review Board. *fn10" From this, defendants deduce that plaintiffs' alleged injury is too remote and too speculative to establish standing; that plaintiffs have failed to show that their alleged loss of bonuses is causally connected to the percentage limitations imposed by Congress and OPM; and that in any event, it has not been shown that the alleged injury -- the diminished opportunity to compete -- would be remedied by the relief requested.

 In ruling on a motion to dismiss for want of standing, the Court must accept as true all material allegations of the complaint, and it must construe the complaint in favor of the plaintiff. Warth v. Seldin, 422 U.S. 490, 501, 45 L. Ed. 2d 343, 95 S. Ct. 2197 (1975). On the basis of this standard, the Court finds that plaintiffs have alleged facts from which it could reasonably be inferred (1) that absent the limitations imposed by Congress and OPM, there is a substantial probability that the agencies would have awarded more bonuses to plaintiffs that were actually granted, and (2) that if the Court affords the relief requested, there is a substantial likelihood that at least some of the plaintiffs may receive awards for fiscal years 1980 and 1981. *fn11" Warth v. Seldin, supra, 422 U.S. at 504.

 To be sure, plaintiffs cannot demonstrate an absolute right to receive performance awards. But that is not necessary for standing purposes. The alleged injury to their right to compete for a discretionary award is sufficient injury to confer standing. *fn12" According to the complaint based on defendants' allegedly unconstitutional restrictions, the federal agencies cut back substantially on the number of performance awards actually issued, *fn13" and at least some of the plaintiffs did not receive performance awards they would otherwise have obtained. *fn14" These allegations, in the view of the Court, provide a causal connection between the challenged conduct of defendants and plaintiffs' injury sufficient for standing purposes. Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 42-43, 48 L. Ed. 2d 450, 96 S. Ct. 1917 (1976).

 III

 It is well settled that a constitutionally protected property right exists only when the person claiming such a right has a "legitimate claim of entitlement." Board of Regents v. Roth, 408 U.S. 564, 577, 33 L. Ed. 2d 548, 92 S. Ct. 2701 (1972). Moreover, in the case of government benefits, an entitlement is determined by a review of the applicable statute or regulation. Plaintiffs concede that SES employees do not have a Fifth Amendment property right to, and are not entitled to receive, performance awards. Rather they claim that SES employees have a constitutionally protected property interest in competing for performance awards which may number as many as 50 percent of their agency's SES positions. *fn15"

 In the view of the Court, the existence of a mere opportunity to compete for awards numbering up to 50 percent of the agency's SES positions did not create a vested property in plaintiffs which the federal government could not defeat, for the following reasons. *fn16"

 First. Plaintiffs argue that the opportunity to compete for performance awards numbering up to 50 percent of their agencies' SES positions was a vested form of deferred compensation guaranteed them by their employment contracts with the federal government. Plaintiffs argue that the language of the statute and the OPM representations, *fn17" promising them this opportunity to compete constituted consideration for their conversion to SES positions, and that they gave consideration on their part by accepting SES positions and giving up substantial rights and benefits associated with their civil service positions. *fn18" Because these representations, plaintiffs' alleged reliance, and the mutual exchange of benefits contain all the elements of an implied in fact contract or promissory estoppel, plaintiffs argue that their right to compete for performance awards numbering up to 50 percent of an agency's SES position protected by the Fifth Amendment.

 Although this contention might have merit in the context of private employment, it is not relevant here. In Kizas v. Webster, 227 U.S. App. D.C. 327, 707 F.2d 524 (D.C. Cir. 1983), a case which is close on the governing facts to this case, FBI clerical and support employees had challenged the Bureau's modification of a program which provided preferential consideration to plaintiffs for jobs as special agents. The plaintiffs there argued that their expectation of special consideration was a property interest which could not be unilaterally revoked without compensation or procedures as required by the Fifth Amendment. In support of this argument, they suggested that the preference was an element of deferred compensation "due and owing them," and further that their legitimate expectations in receiving the preference was an indefeasible property right protected by the due process clause. The Court of Appeals rejected both arguments and held that the employees had no vested rights in the former special preference. With respect to the issue here under consideration, the Court noted, quoting Kania v. United States, 227 Ct. Cl. 458, 650 F.2d 264, 268 (Ct. Cl. 1981) that

 

Federal employees serve by appointment, and their rights are therefore a matter of "legal status even where compacts are made." *fn19"

 In short, any entitlement plaintiffs have to pay and other benefits, including the opportunity to compete for performance awards, is determined by statutes and regulations, rather than by ordinary contract principles. United States v. Larionoff, 431 U.S. 864, 869, 53 L. Ed. 2d 48, 97 S. Ct. 2150 (1977); Riplinger v. United States, 695 F.2d 1163, 1164 (9th Cir. 1983).

 It also follows that any representations by OPM *fn20" or the agencies did not create enforceable property rights. This is so regardless of whether plaintiffs gave consideration for or detrimentally relied on these assurances. Kizas v. Webster, 707 F.2d at 535-36. *fn21"

 Second. Plaintiffs argue that they have an indefeasible property right in the opportunity to compete for awards numbering up to 50 percent of the agencies' SES positions. Again, as was the case of the plaintiffs in Kizas v. Webster, supra, plaintiffs here confuse the two separate "property interests" which are protected by the two separate clauses of the Fifth Amendment. For purposes of procedural due process guarantees, a person has a property interest in a governmentally conferred benefit if he has a "legitimate claim of entitlement" to the benefit. Kizas v. Webster, supra, 707 F.2d at 539. *fn22" This legitimate claim of entitlement does not, however, always rise to the level of "property" protected by the takings clause of the Fifth Amendment.

 

"The fifth amendment employes two independent clauses to address two independent issues. A claim of deprivation of property without due process of law cannot be blended as one and the same with the claim that property has been taken for public use without just compensation." A "legitimate claim of entitlement" to a government benefit does not transform the benefit itself into a vest right. Rather, due process "property interests" in public benefits are "limited, as a general rule, by the governmental power to remove, through prescribed procedures, the underlying source of those benefits."

 Id. (footnotes omitted).

 While Congress did provide in section 5384 of the CSRA that agencies could make performance awards up to 50 percent of the number of their SES positions, it amended this section in the appropriations bill of 1980 by reducing the percentage limitation to 25 percent. In AFGE v. Campbell, 212 U.S. App. D.C. 111, 659 F.2d 157 (D.C. Cir. 1980), the court held that an appropriations bill could effectively and validly amend the prevailing rate statute covering employees to provide that their wages could not be increased by more than 5.5 percent for fiscal year 1979. *fn23" As in the Campbell case, plaintiffs have no vested right to be considered for performance awards numbering up to 50 percent of their agencies' SES positions since the appropriations bill reducing the percentage limitation to 25 percent was signed into law before plaintiffs were considered for and the agencies issued performance awards. *fn24"

 To be sure, plaintiffs may have had an expectation that they would be considered for performance awards under the 50 percent limitation provided in § 5384(b), and it may also be that this expectation was reasonable given the statutory language and agency action prior to the passage of the appropriations bill. *fn25" But a reasonable expectation does not constitute a property interest *fn26" nor does a legitimate claim of entitlement to a government benefit transform the benefit itself into a vested property right. *fn27"

 The Court holds that, since an individual plaintiff's right to be considered for a performance award vested only when the head of the agency or department actually decided to make such an award and took whatever steps were necessary to carry out this decision, there was no unconstitutional taking. If particular plaintiffs had arbitrarily been denied the opportunity to compete for performance awards, their claim of an entitlement to compete for awards numbering up to 50 percent might have guaranteed them minimum procedural safeguards. Here, however, the underlying entitlement -- the right to compete for performance awards numbering up to 50 percent of the agencies' SES positions -- was itself modified.

 Plaintiffs' right to compete for performance awards can be determined only by reference to the statute or regulations in effect at the time the agencies actually made their decisions. Congress could have eliminated the performance awards provision altogether and the Court, under the decisions, would have been obliged to uphold such an action. "Public benefits are not held in fee simple." O'Bannon v. Town Court Nursing Center, 447 U.S. 773, 796, 798, 100 S. Ct. 2467, 65 L. Ed. 2d 506 (1980) (Blackmun, J., concurring in the judgment). It follows that Congress could legally decide, as it did, to reduce the possible number of performance awards an agency might issue.

 IV

 Plaintiffs also challenge OPM's further limitations on the number of performance awards for which SES appointees could compete. These limitations appeared in two OPM memoranda directing heads of agencies and departments (1) to limit the number of performance awards to only 20 percent of their "eligible career employees" *fn28" and (2) to curtail the use of incentive awards under 5 U.S.C. § 4503 as performance award substitutes. *fn29" Plaintiffs allege that these limitations are invalid because they are inconsistent with the statutory provisions upon which they purportedly rely. *fn30"

 The Court finds that the OPM limitations are not invalid under the statute. That fact that OPM recommended that fewer performance awards be issued than permitted under section 5384 as amended by the appropriations bill of 1980 does not render the limitations invalid as a matter of law. Congress specifically authorized the OPM to issue guidance *fn31" to agencies in implementing the performance award program:

 

The Office of Personnel Management may issue guidance to agencies concerning the proportion of Senior Executive Service salary expenses that may be appropriately applied to payment of performance awards and the distribution of awards.

 5 U.S.C. § 5384(d). In another section Congress again directed OPM to prescribe such regulations as it deemed necessary in order to carry out the purposes of the provisions governing pay for the SES. 5 U.S.C. § 5385. It is pursuant to its oversight responsibilities that OPM circulated the memoranda challenged by plaintiffs. The Court concludes not only that were the OPM memoranda authorized by Congress, but also that the guidance contained therein was not inconsistent with the statutory language and the Congressional intent.

 The 25 percent maximum authorized by Congress was clearly meant to be an outer limit on the number of awards an agency could issue, not a goal to be achieved. In reporting the Supplemental Appropriations Act of 1980, the Conference Committee stated that, in light of "reports that an excessive number of SES employees are being designated to receive bonuses, *fn32" and that bonuses are being denied to all other senior appointed and elected officials of the government," it was providing that "no more than 25 percent of the number of Senior Executive Service positions . . . may receive performance awards" for fiscal year 1980. H. Rep. 96-1149, 96th Cong., 2d Sess. 68 (1980). Moreover, three Senators who were key members of the Appropriations Committee and who participated in the decision to impose the 25 percent limit, advised the Director of OPM that agencies should take a cautious approach in implementing the awards program. *fn33" Although this letter does not qualify as "legislative history," it is evidence of the concerns facing Congress when the appropriations bill was passed. *fn34" In light of these Congressional actions, the Court finds that OPM's advice to agencies to employ a conservative and cautious approach in issuing performance and incentive awards to SES employees was reasonable. Accordingly, the OPM limitations will likewise be upheld.

 V

 The Court obviously lacks the authority to review the wisdom of congressional decisions to reduce the number of places available for performance awards or bonuses. It may be that the Congress felt that the new system had been abused in certain departments or agencies and that only an across-the-board reduction could solve the problem these abuses had created. See notes 32 and 33 supra. In any event, it is settled law that no contractual or property rights accrue from a mere expectation of civil service-type benefits; Congress, because of its power over legislation and over the purse, has the power at any time to extinguish those expectations unless they have actually vested. No vesting had occurred here.

 This conclusion is supported also by practial considerations. If it were to be held that, as a matter of constitutional law, plaintiffs now possess an indefeasible property right to compete for awards numbering up to fifty percent of the agencies' SES positions, it would follow that Congress could never reduce this inchoate benefit to any federal employee by a subsequent change in the law. This theory -- that Congress may increase civil service benefits but that it is prevented by a ratchet-like mechanism inherent in the Constitution from ever reducing them -- makes no sense. The action will accordingly be dismissed.

 [EDITOR'S NOTE: The following court-provided text does not appear at this cite in 576 F. Supp.]

 ORDER

 For the reasons stated in the Memorandum filed this date, it is this 15th day of December, 1983,

 ORDERED That plaintiffs' motion for partial summary judgment be and it is hereby denied, and defendants' motion for summary judgment be and it is hereby granted, and it is further

 ORDERED That this aaction be and it is hereby dismissed.


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