Case: 22-1365   Document: 32     Page: 1   Filed: 05/30/2023




   United States Court of Appeals
       for the Federal Circuit
                 ______________________

                 MATTHEW R. KELLY,
                   Plaintiff-Appellant

                            v.

                   UNITED STATES,
                   Defendant-Appellee
                 ______________________

                       2022-1365
                 ______________________

     Appeal from the United States Court of Federal Claims
 in No. 1:20-cv-00579-KCD, Judge Kathryn C. Davis.
                  ______________________

                 Decided: May 30, 2023
                 ______________________

    JASON W. MANNE, Manne Law Office, Pittsburgh, PA,
 argued for plaintiff-appellant.

     WILLIAM PORTER RAYEL, Commercial Litigation
 Branch, Civil Division, United States Department of Jus-
 tice, Washington, DC, argued for defendant-appellee. Also
 represented by BRIAN M. BOYNTON, PATRICIA M.
 MCCARTHY, DOUGLAS K. MICKLE.
                  ______________________

    Before NEWMAN, REYNA, and STOLL, Circuit Judges.
 REYNA, Circuit Judge.
Case: 22-1365     Document: 32      Page: 2    Filed: 05/30/2023




 2                                                  KELLY   v. US



     Matthew R. Kelly appeals from a decision by the
 United States Court of Federal Claims sustaining a deter-
 mination by the Board for Correction of Naval Records that
 denied Mr. Kelly’s request for military disability retire-
 ment pay. Mr. Kelly served eight years in the U.S. Navy
 as a diver. In December 2013, he was separated from ser-
 vice “Under Honorable Conditions” based on misconduct.
 Years later, he sought and received from the Board for Cor-
 rection of Naval Records an upgrade in his discharge char-
 acterization to “Honorable,” and a change in narrative
 reason for separation that omitted the “misconduct” basis.
 Mr. Kelly contends that once he obtained the upgrade and
 the change in narrative, he became eligible for military dis-
 ability retirement pay. The Board for Correction of Naval
 Records disagreed, finding that Mr. Kelly was not eligible
 for military disability retirement pay. The Court of Fed-
 eral Claims affirmed. We vacate the Court of Federal
 Claims’ affirmance and remand for a determination con-
 sistent with this opinion.
                         BACKGROUND
                Naval Separation and Disability
     U.S. military service members are potentially eligible
 for two types of post-service disability benefits: military
 disability retirement pay and veteran disability benefits.
 The Department of Defense administers military disability
 retirement pay, see 

, and the Department
 of Veterans Affairs (“VA”) administers veteran disability
 benefits, see 

. This appeal involves the
 military disability retirement pay administered by the De-
 partment of Defense, specifically the U.S. Navy.
     Generally, each branch of the military is required to
 develop a military disability retirement procedure, includ-
 ing evaluating service members’ medical conditions, their
 ability to continue service, and their eligibility for military
 disability retirement pay or severance payments. See 

(a). The evaluation process may result in a
Case: 22-1365     Document: 32     Page: 3    Filed: 05/30/2023




 KELLY   v. US                                               3



 disability rating percentage, which is then used to deter-
 mine whether the service member is entitled to military
 disability retirement pay. See 

 §§ 1201(a)–(b).
     To receive military disability retirement benefits, a ser-
 vice member determined “unfit to perform the duties of the
 member’s office, grade, rank, or rating because of a physi-
 cal disability” must have at least 20 years of service or a
 disability rating greater than 30%. Id. § 1201(a); id.
 §§ 1201(b)(3)(A)–(B). A disability rating percentage less
 than 30% means the service member is eligible for only a
 one-time severance payment, but no continuing benefits.
 Id. §§ 1203(a)–(b). The disability rating percentages are
 based on “the schedule for rating disabilities in use by the
 [VA]” and “take into account all medical conditions,
 whether individually or collectively, that render the mem-
 ber unfit to perform the duties of the member’s office,
 grade, rank, or rating.” Id. § 1216a.
     The existence of a VA rating alone does not mean a ser-
 vice member is entitled to military disability retirement
 pay. Under the statute, there must also be a finding that
 the disability is: (a) of a permanent nature or such a degree
 to preclude return to that service member’s military duty
 within a reasonable period of time, (b) not be the result of
 intentional misconduct or willful neglect, and, for service
 members with less than 20 years of service, (c) not have
 been incurred during a period of unauthorized absence. Id.
 §§ 1201, 1203.
     The Navy implemented these statutory mandates in its
 policies and regulations, including the Secretary of the
 Navy Instruction (“SECNAVINST”).             Specifically,
 SECNAVINST 1850.4E sets out the regulatory regime for
 making disability retirement determinations. 1 For this



     1The  Secretary of the Navy                   “canceled”
 SECNAVINST 1850.4E on June 27,                    2019, in
Case: 22-1365     Document: 32     Page: 4    Filed: 05/30/2023




 4                                                 KELLY   v. US



 regime, the Secretary of the Navy designated the Physical
 Evaluation Board (“PEB”) as the entity responsible “to act
 on behalf of the [Secretary of the Navy] to make determi-
 nations of fitness to continue naval service, entitlement to
 benefits, disability ratings, and disposition of service mem-
 bers referred” to it from the Navy. SECNAVINST 1850.4E
 at 2–3. The process itself is known as the Disability Eval-
 uation System (“Evaluation System”).
      The Evaluation System process is triggered when a ser-
 vice member is referred for medical evaluation by the com-
 manding officer, the commanding officer of the medical
 treatment facility treating the service member, or the ser-
 vice member’s individual medical or dental officer.
 SECNAVINST 1850.4E § 3106. A service member cannot
 self-refer to the Evaluation System.
      There are other restrictions that affect whether a ser-
 vice member can be referred to the Evaluation System.
 Two such restrictions are pertinent here: SECNAVINST
 1850.4E § 1002 and § 3403. Under §§ 1002 and 3403, dis-
 ciplinary and misconduct separation “takes precedence
 over” any contemporaneous disability separation or refer-
 ral to the Evaluation System. As a result, any service
 member being processed for misconduct that could result
 in, inter alia, administrative discharge due to misconduct
 cannot also be referred to the Evaluation System at the
 same time. Id. at §§ 1002, 3403. For those already referred
 to the Evaluation System, the “disability evaluation shall
 be suspended” while the service member is processed for
 misconduct. Id. at § 3403. Then, and only if “a punitive
 discharge or administrative discharge for misconduct does
 not result,” can the Evaluation System process advance.


 SECNAVINST 1850.4F. SECNAVINST 1850.4F does not
 explicitly state it is retroactive and neither party has ar-
 gued it is retroactive for this appeal. Thus, relevant to this
 appeal is the pre-canceled SECNAVINST 1850.4E.
Case: 22-1365    Document: 32      Page: 5    Filed: 05/30/2023




 KELLY   v. US                                              5



 Id. at § 1002. In other words, service members separated
 from service for misconduct are foreclosed from receiving a
 disability evaluation from the Evaluation System.
      If a service member is referred to the Evaluation Sys-
 tem, the PEB is tasked with determining whether the ser-
 vice member can reasonably be expected to perform the
 requirements and duties of his or her office, grade, rank or
 rating in light of the disability. Id. at §§ 3301–3302. The
 SECNAVINST provides four considerations to assess in de-
 termining whether a service member can reasonably per-
 form his or her duties: (1) common military tasks, i.e.,
 whether, due to the disability, the member is unable to rea-
 sonably perform routine duties expected of his or her office,
 grade, rank or rating; (2) physical readiness/fitness tests,
 i.e., whether the member’s disability prohibits him or her
 from taking all or part of physical readiness/fitness tests;
 (3) deployability, i.e., whether the member’s disability pre-
 vents him or her from being deployed; and (4) special qual-
 ifications, i.e., whether the member’s disability causes the
 loss of any specialized qualifications part of the service
 member’s current duty. Id. at § 3304.
     A finding of fitness or unfitness should be supported by
 a preponderance of the evidence. Id. at § 3306. In some
 circumstances, performance evaluations are relevant evi-
 dence in determining whether a service member can per-
 form the duties reasonably expected of him or her. Id. at
 §§ 3205, 3303.
     If the PEB and relevant medical providers determine
 the service member’s conditions rendered him or her unfit
 to continue naval service or contributed to the unfitness,
 the service member may be assigned a disability rating. Id.
 at §§ 3301–3304.
                    Naval Review Boards
    The U.S. Navy abides by a statutory framework to use
 administrative boards to adjudicate various petitions by
Case: 22-1365    Document: 32      Page: 6    Filed: 05/30/2023




 6                                                KELLY   v. US



 current or former service members. 

,
 1553, 1554, 1554a. Two naval review boards are: the Navy
 Discharge Review Board (“Discharge Review Board”) (id.
 § 1553) and the Board for Correction of Naval Records
 (“Record Correction Board”) (id. § 1552). The Discharge
 Review Board is tasked with reviewing the discharge or
 dismissal of former service members and reclassifying a
 discharge characterization where necessary.         See id.
 § 1553(a); SECNAVINST 5420.174D. The Record Correc-
 tion Board is tasked with “correct[ing] any military record”
 when “necessary to correct an error or remove an injustice.”
 See 

(a)(1).
     “Where a service member has not been considered or
 has been rejected for disability retirement prior to leaving
 active service, the service member can pursue disability re-
 tirement before a [Record Correction B]oard.” LaBonte v.
 United States, 

, 1361 n.4 (Fed. Cir. 2022) (La-
 Bonte II) (citing Chambers v. United States, 

 (Fed. Cir. 2005)).
                 Discharge Characterization
     A former service member’s discharge status can be de-
 terminative of eligibility for benefits. 2 Every service mem-
 ber is assigned a status—Honorable, Dishonorable, or an
 intermediate status (e.g., general or other than honora-
 ble)—upon discharge.
     In the Navy, there are two categories of separations
 (also referred to as discharges) for enlisted service


     2    Discharge characterization impacts a former ser-
 vice member’s eligibility for a variety of significant bene-
 fits, including VA health care, VA disability payments,
 education under the G.I. Bill, and the VA home loan pro-
 gram. See, e.g., 

; 

; Garvey
 v. Wilkie, 

, 1336–37 (Fed. Cir. 2020).
Case: 22-1365      Document: 32    Page: 7   Filed: 05/30/2023




 KELLY   v. US                                             7



 members: administrative and punitive. There are three
 types of administrative discharges: Honorable, Under Hon-
 orable Conditions (also termed General Discharge), and
 Under Other Than Honorable Conditions. 

. A discharge “Under Honorable Conditions (also
 termed General)” is “contingent upon military behavior
 and performance of duty which is not sufficiently meritori-
 ous to warrant an Honorable Discharge.”            

 at
 § 724.109(a)(2). There are also two types of punitive dis-
 charges: Bad Conduct and Dishonorable. Id. at § 724.111.
                 “Liberal Consideration” Policy
     On September 3, 2014, the Secretary of Defense issued
 guidance to the various military branches’ Record Correc-
 tion Boards directing “liberal consideration” for requests
 for discharge upgrade where the service member suffered
 from Post-Traumatic Stress Disorder (“PTSD”) or related
 mental conditions. Memorandum from Secretary of De-
 fense Charles Hagel to Secretaries of the Military Depart-
 ments (Sept. 3, 2014). 3 Under this guidance, a service
 member suffering from mental health issues could present


    3    Historical context preceding this liberal considera-
 tion policy is worthy of note. A 1980 report, surveying dec-
 ades of military discharges across services, determined
 that “[d]ifferent philosophies and practices among the ser-
 vices for imposing and upgrading discharges have led to
 wide disparities, which erode the integrity of the system.”
 General Accounting Office, FPCD-80-13, Military Dis-
 charge Policies and Practices Result in Wide Disparities:
 Congressional Review Is Needed, at Foreword (1980). In
 fact, “[m]any of those receiving less than honorable dis-
 charges are the ones who can afford it the least—the less
 educated and minorities—who are already at a competitive
 disadvantage in the labor market.” Id. at 50. In light of
 these disparities, Congress sought for a standardized basis
 for discharge characterizations. See id. at 92.
Case: 22-1365    Document: 32      Page: 8    Filed: 05/30/2023




 8                                                KELLY   v. US



 evidence to mitigate a finding of misconduct, if the evidence
 existed at the time of discharge and might have mitigated
 the misconduct. See SECNAV M-5420.1. In such in-
 stances, the military board assessing the characterization
 of discharge must afford the service member liberal consid-
 eration. J.A. 1476–78. “[T]his liberal consideration applies
 not only to upgrades to the character of a discharge, but
 also to requests for changes to the narrative reason for sep-
 aration . . . .” LaBonte II, 

. Changes to the
 narrative reason for separation can be granted on equity,
 injustice, or clemency grounds. 

 (citing Memorandum
 from Under Secretary of Defense Robert Wilkie to Secre-
 taries of the Military Departments (July 25, 2018)).
      On December 12, 2017, the liberal consideration stand-
 ard was codified in 

(h) to require “review
 [of] the claim with liberal consideration to the claimant
 that post-traumatic stress disorder or traumatic brain in-
 jury potentially contributed to the circumstances resulting
 in the discharge or dismissal or to the original characteri-
 zation of the claimant’s discharge or dismissal.” Its effect
 is retroactive. Doyon v. United States, 

 (Fed. Cir. 2023) (rejecting argument that Ҥ 1552(h) cannot
 be retroactively applied to [Mr. Doyon’s] application”).
                    Factual Background
      Mr. Kelly served as a Second Class diver with a E4
 rank in the United States Navy. He served from November
 12, 2008, to December 20, 2013, during which time he re-
 ceived numerous accolades. For example, after Mr. Kelly
 was deployed in Haiti, he received an award of the Navy
 and Marine Corps Achievement medal and Humanitarian
 Service medal for meritorious service. He also participated
 in salvage operations off the coasts of Corpus Christi,
 Texas and Cherry Point, South Carolina. When he was
 first deployed to the Persian Gulf, Mr. Kelly participated
 in 41 anti-terrorism force protection inspection dives. His
 evaluation for that deployment stated that he was “devoted
Case: 22-1365    Document: 32     Page: 9    Filed: 05/30/2023




 KELLY   v. US                                             9



 and [a] tireless performer—[who] ensures mission accom-
 plishment.” J.A. 1375; J.A. 1165. Mr. Kelly’s second de-
 ployment to the Persian Gulf resulted in 103 dives in a ten-
 month period, and an evaluation stating that he was an
 “effective team member with job accomplishment as a top
 priority” and that he had “excellent performance” such that
 he was “recommended for advancement and retention.”
 J.A. 1375.
     The type of diving performed by Mr. Kelly is extremely
 hazardous both because it requires descending into the
 ocean at any depth and working in hostile environments.
 Navy divers are therefore at risk of numerous injuries, in-
 cluding decompression sickness. J.A. 1374. Mr. Kelly suf-
 fered various injuries as a result of his dives. J.A. 1372.
     In 2010, Mr. Kelly experienced a head trauma after
 striking his head during a dive. During a 2012 dive mis-
 sion in Nova Scotia, Mr. Kelly’s diving partner was trapped
 at 130 feet, so Mr. Kelly climbed 120 feet to the surface to
 retrieve a device to free the trapped diver. Mr. Kelly then
 descended the 130 feet and successfully freed his diving
 partner. This rescue, however, meant Mr. Kelly was below
 the surface for an excessive amount of time. As a result,
 Mr. Kelly lost consciousness and suffered from hypoxia—a
 condition in which the body is deprived adequate oxygen—
 and type-2 decompression. He received 6 hours of hyper-
 baric chamber treatment afterward.
     Following these events, Mr. Kelly reportedly began ex-
 periencing emotional and behavioral changes. At the end
 of 2012, Mr. Kelly was transferred to the Naval Academy.
 In early 2013, Mr. Kelly was counselled for an unauthor-
 ized absence and substandard appearance. During this pe-
 riod, he was diagnosed with an adjustment disorder,
 depressed mood, and anxiety. Between March and July
 2013, Mr. Kelly was cited for incidents and/or arrests for
 reckless driving, negligent driving, driving while intoxi-
 cated, theft (related to an unpaid restaurant bill),
Case: 22-1365    Document: 32     Page: 10   Filed: 05/30/2023




 10                                              KELLY   v. US



 disorderly conduct, and resisting arrest. During this pe-
 riod, he was also dealing with marital problems.
     Following these incidents, the Navy removed Mr.
 Kelly’s Second Class Navy Diver classification and as-
 signed him the duties of a maintenance technician.
                  Procedural Background
     On December 6, 2013, the Navy notified Mr. Kelly that
 it had commenced an administrative separation against
 him for commission of a serious offense resulting from his
 disorderly conduct and resisting arrest. On December 20,
 2013, Mr. Kelly was administratively separated and dis-
 charged with a characterization of Under Honorable Con-
 ditions (general). The narrative reason for Mr. Kelly’s
 separation recited “misconduct” for commission of a “seri-
 ous offense.” J.A. 1242.
      On February 3, 2015, Mr. Kelly requested that, under
 the “liberal consideration” policy, the Discharge Review
 Board upgrade his discharge characterization and dispense
 of the misconduct-related reason for separation. Mr. Kelly
 specifically requested a discharge upgrade from an “under
 honorable conditions (general)” to an “honorable” charac-
 terization.
     On October 14, 2015, the Discharge Review Board
 granted Mr. Kelly’s request for relief for equitable reasons
 under the “liberal consideration” policy and noted that it
 found no procedural error in his initial misconduct-related
 separation. J.A. 1028–31. Thereafter, Mr. Kelly’s dis-
 charge characterization was honorable, and the reason for
 his separation was “[s]ecretarial [a]uthority.” J.A. 1170.
 Misconduct was no longer associated with Mr. Kelly’s dis-
 charge status.
      On December 20, 2016, Mr. Kelly requested that the
 Record Correction Board correct his military records to re-
 flect disability retirement under 

. In sup-
 port, he cited the Discharge Review Board’s decision to
Case: 22-1365    Document: 32     Page: 11    Filed: 05/30/2023




 KELLY   v. US                                             11



 upgrade his characterization to a fully honorable discharge
 and his VA disability rating. 4
     On July 19, 2017, the Record Correction Board re-
 quested the Director of the Navy Council of Review Boards
 to provide comments and recommendations on Mr. Kelly’s
 request. In response, an advisor of the Senior Medical Of-
 ficer issued an advisory opinion. The medical advisor
 stated that the evidence supported that Mr. Kelly was fit
 to perform his duties at the time of his separation and that
 his misconduct did not result from “a legal[ly] exculpating
 level of psychological impairment incident to a potentially
 compensable psychiatric condition.” J.A. 1130. The advi-
 sor also opined that if Mr. Kelly had been referred to the
 Evaluation System, Mr. Kelly would have likely still been
 found fit to perform his duties.
     On December 12, 2017, Mr. Kelly challenged the advi-
 sory opinion. He argued that he suffered from cognitive
 and emotional impairment and PTSD that “are more likely
 than not” attributable to his service injuries. He also ar-
 gued that, under SECNAVINST 1850.4E, he should have
 received a referral to the Evaluation System instead of be-
 ing administratively separated.
     On February 5, 2018, the Record Correction Board de-
 nied Mr. Kelly’s request, finding that no error or injustice
 warranted correction to his record. First, the Record Cor-
 rection Board “found objective evidence in [Mr. Kelly’s]



     4    While separately seeking VA disability benefits,
 Mr. Kelly received an initial VA Rating Decision in 2014,
 which awarded him a 40% disability rating for cognitive
 deficits, 30% for major depressive disorder, and 10% for tin-
 nitus. These rating percentages were later increased “to
 50% and then 70% in Jul[y] 2017.” To receive these rating
 percentages, the disabilities themselves had to have been
 connected to his service. See 

.
Case: 22-1365    Document: 32     Page: 12   Filed: 05/30/2023




 12                                              KELLY   v. US



 military record that convinced [the Record Correction
 Board] that [Mr. Kelly was] able to perform the duties of
 [his] office, grade, rank or rating despite the existence of
 [his] diagnosed disabilities.” J.A. 1006. In coming to this
 conclusion, the Record Correction Board “relied on the last
 two performance evaluations from 2013 which showed [Mr.
 Kelly] met acceptable performance standards from 13 May
 2013 through [his] discharge on 20 December 2013.” 

      The Record Correction Board agreed with the findings
 made by the Discharge Review Board that Mr. Kelly had
 been “properly processed and discharged [for his] miscon-
 duct.” 

 The Record Correction Board also “found no ev-
 idence that supported an argument [that Mr. Kelly was]
 not criminally responsible for [his] misconduct” or evidence
 “to indicate any mental incompetence.” 

 “This led the
 [Record Correction Board] to conclude, even if evidence of
 unfitness for continued naval service existed, [Mr. Kelly]
 would have been ineligible for disability processing since
 [his] misconduct processing would have taken precedence
 over a referral to the [Evaluation System].” 

     Mr. Kelly appealed the Record Correction Board’s deci-
 sion to the Court of Federal Claims. Mr. Kelly and the gov-
 ernment cross-moved for judgment on the administrative
 record. The Court of Federal Claims granted the govern-
 ment’s motion on the merits. Kelly v. United States, 

, 124–35 (2021). In doing so, it reached two
 alternative decisions. First, the Court of Federal Claims
 found that the Record Correction Board’s decision concern-
 ing Mr. Kelly’s fitness to perform his duties was unsup-
 ported by substantial evidence. 

 at 124–30. The Court
 of Federal Claims determined that remand was appropri-
 ate so that the Record Correction Board could consider
 whether Mr. Kelly was able to reasonably perform common
 duties expected of his office, grade, rank or rating. 

. In its alternative finding, however, the Court of Fed-
 eral Claims reasoned that remand was unnecessary be-
 cause Mr. Kelly could not under any circumstance be
Case: 22-1365    Document: 32     Page: 13    Filed: 05/30/2023




 KELLY   v. US                                             13



 referred to the Evaluation System (and, hence, be eligible
 for disability retirement pay) because misconduct was cited
 as the cause for his separation from service. See 

 at 130–
 33. The Court of Federal Claims also concluded that Mr.
 Kelly was not deprived due process by the Record Correc-
 tion Board’s decision because there is no recognized prop-
 erty interest for military disability retirement under 

. 

 at 133–35.
    Mr. Kelly timely appealed. We have jurisdiction under
 

(a)(3).
                    STANDARD OF REVIEW
      We review legal determinations by the Court of Federal
 Claims, including judgment on the administrative record,
 de novo. Roth v. United States, 

 (Fed.
 Cir. 2004). We apply the same standard applied by the
 Court of Federal Claims, and do not disturb a determina-
 tion of the Record Correction Board’s unless it was arbi-
 trary, capricious, contrary to law, or unsupported by
 substantial evidence. 

 An agency’s decision is arbitrary
 and capricious when the agency decision-maker “entirely
 fail[s] to consider an important aspect of the problem, of-
 fer[s] an explanation for its decision that runs counter to
 the evidence before the agency, or is so implausible that it
 could not be ascribed to a difference in view or the product
 of agency expertise.” Motor Vehicle Mfrs. Ass’n v. State
 Farm Mut. Auto. Ins. Co., 

 (1983). “We may
 not supply a reasoned basis for the agency’s action that the
 agency itself has not given.” 

 (quoting SEC v. Chenery
 Corp., 

 (1947)).
                         DISCUSSION
     Mr. Kelly argues on appeal that the Record Correction
 Board erred in its denial to correct his military records to
 reflect military disability retirement under 

. Appellant Br. 10. He also argues that the Record
 Correction Board’s decision violated his Due Process rights
Case: 22-1365    Document: 32     Page: 14    Filed: 05/30/2023




 14                                               KELLY   v. US



 when it refused to grant him a post-separation hearing.
 Appellant Br. 10, 17. We address each argument in turn.
                  Denial to Correct Records
     The Record Correction Board denied Mr. Kelly’s re-
 quest for a correction in his military records on two sepa-
 rate grounds. The Record Correction Board found that Mr.
 Kelly was fit to perform his duties at the time of separation
 and that, even if he were unfit, his separation for miscon-
 duct precluded a referral to the Evaluation System. J.A.
 39. For the following reasons, we hold that the Record Cor-
 rection Board’s decision to deny Mr. Kelly’s request to cor-
 rect his military record to reflect military disability
 retirement pay under 

 was arbitrary and
 capricious and unsupported by substantial evidence.
           Mr. Kelly’s Fitness to Perform Duties
     We first address the Record Correction Board’s decision
 that Mr. Kelly was fit to perform his duties at the time he
 was separated from service. In reaching its determination,
 the Record Correction Board relied on Mr. Kelly’s last two
 performance evaluations conducted in 2013 and found
 them conclusive on the question of Mr. Kelly’s fitness. See
 J.A. 39. The Court of Federal Claims found that basing the
 fitness determination solely on Mr. Kelly’s final two perfor-
 mance evaluations produced a deficient and erroneous re-
 sult. Kelly, 157 Fed. Cl. at 126–27. We agree.
      Mr. Kelly’s “penultimate performance evaluation—cov-
 ering the period of March 2013 to May 2013—indicate[d]
 that [he] was at the ND2 rating primarily performing the
 duties of a Second Class Navy Diver, which included the
 ‘operation, maintenance, and repair of diving life support
 equipment.’” Kelly, 157 Fed. Cl. at 126. The evaluation
 explains that Mr. Kelly “met the standards in all categories
 of performance traits except for ‘military bearing/charac-
 ter,’ in which he fell below standards due to his drunken
 operation of a vehicle,” but the evaluation “did not include
Case: 22-1365    Document: 32     Page: 15    Filed: 05/30/2023




 KELLY   v. US                                             15



 comments on performance providing any further detail
 about [Mr. Kelly’s] duties during this period.” Id. Mr.
 Kelly’s final evaluation—covering May 2013 to December
 2013—indicated that he was at a different rating, ND3,
 “primarily performing the duties of a Maintenance Techni-
 cian”—not a Second Class Navy Diver. Id. Again, Mr.
 Kelly “met the standards in all categories of performance
 traits except for ‘military bearing/character,’” and “no fur-
 ther information about his duties during this period was
 provided in the comment section.” Id.
     We conclude that the Record Correction Board failed to
 evaluate all relevant criteria under SECNAVINST
 1850.4E § 3304 (common military tasks, physical readi-
 ness/fitness tests, deployability, special qualifications).
 The Court of Federal Claims correctly found that the two
 performance evaluations failed to sufficiently address
 whether Mr. Kelly was able to perform the common duties
 of a Second-Class Navy Diver at the E4 grade. Id. at 127.
 “[C]ommon duties of a Navy diver include descending into
 the ocean at any depth and working in, among other condi-
 tions, hostile environments that include cold muddy water
 where tasks can be completed only by feel.” Id. (citations
 and internal quotations omitted). The Court of Federal
 Claims determined “that [whether Mr. Kelly] was main-
 taining diving equipment . . . does not necessarily equate
 to a finding that he was fit to perform work that a member
 in his office, grade, rank, or rating would reasonably be ex-
 pected to perform.” Id. (citations and internal quotations
 marks omitted). The Court of Federal Claims further de-
 termined that “[t]he deficiencies in the [Record Correction]
 Board’s consideration of [Mr. Kelly]’s common military
 tasks are more pronounced given the extra importance it
 accorded to his final performance evaluation,” which was
 completed at a time when he was “performing duties of a
 maintenance technician—not a Second Class Navy Diver.”
 Id.
Case: 22-1365    Document: 32     Page: 16    Filed: 05/30/2023




 16                                               KELLY   v. US



      The Court of Federal Claims concluded that the Record
 Correction Board failed to consider “whether [Mr. Kelly]’s
 medical condition affected his deployability or special qual-
 ifications as a Navy Diver” as required by SECNAVINST
 1850.4E § 3304. Id. at 129–30. Based on the foregoing, the
 Court of Federal Claims found that “[r]emand would be ap-
 propriate for the [Record Correction Board] in the first in-
 stance to reconsider [Mr. Kelly’s] performance evaluation
 reports and further explain its determination with respect
 to [his] common military tasks.” Id. at 128; see also id. at
 130.
      We agree with the Court of Federal Claims’ decision to
 the extent it found that the Record Correction Board failed
 to consider all relevant criteria enumerated in
 SECNAVINST 1850.4E § 3304. The full evaluation of all
 the criteria set out in SECNAVINST 1850.4E § 3304 is im-
 portant, including because a decision under that section af-
 fects other related determinations, such as the
 establishment of a final disability rating under 10 U.S.C.
 § 1216a(b) (accounting for all medical conditions that ren-
 der a member unfit to perform the duties “of the member’s
 office, grade, rank, or rating”), and under 10
 U.S.C. §§ 1201–1203. Consequently, we conclude that the
 Record Correction Board’s decision was arbitrary and ca-
 pricious and not supported by substantial evidence.
     We also agree with the Court of Federal Claims that
 remand is necessary for the Record Correction Board to de-
 termine whether Mr. Kelly’s medical condition affected his
 deployability or special qualifications as a Navy Diver as
 required by SECNAVINST 1850.4E § 3304. This court has
 previously found that remand is necessary where the deci-
 sion under review fails to address required findings. See
 Byron v. Shinseki, 

 (Fed. Cir. 2012)
 (holding that “[w]hen there are facts that remain to be
 found in the first instance, a remand is the proper course”).
 On this basis, we agree with the Court of Federal Claims’
 decision to remand to the Record Correction Board to make
Case: 22-1365     Document: 32     Page: 17     Filed: 05/30/2023




 KELLY   v. US                                               17



 the required findings and consider all related arguments of
 the parties.
             Mr. Kelly’s Separation for Misconduct
     We next turn to the Court of Federal Claims’ alterna-
 tive finding that remand was ultimately unnecessary be-
 cause Mr. Kelly’s separation for “misconduct” precluded
 him from referral to the Evaluation System. Kelly, 157
 Fed. Cl. at 124–30. Mr. Kelly argues that the Record Cor-
 rection Board never explained why he was precluded from
 a record correction when his records show that he was
 granted a fully Honorable discharge and that “misconduct”
 was removed as the reason for separation. Appellant Br.
 10.
     The government appears to argue that the Record Cor-
 rection Board is entitled to ignore the updates to Mr.
 Kelly’s record. See Appellee Br. 19, 25, 38–43. Even as-
 suming that the Record Correction Board did not ignore the
 updated record, it failed to explain its rationale that an up-
 grade in discharge characterization has no legal effect in
 future related determinations reached by the Record Cor-
 rection Board. The decision is silent as to any analysis con-
 cerning the legal impact the upgrade in discharge coupled
 with the removal of misconduct had on eligibility for an
 Evaluation System referral. Instead, the Record Correc-
 tion Board focused on SECNAVINST 1850.4E’s policy that
 “misconduct processing would have taken precedence over
 a referral to the Evaluation System.” See J.A. 38–40.
     We acknowledged that upgrade changes can be rele-
 vant in determining eligibility for military disability retire-
 ment processing in LaBonte II, 

. The Court
 of Federal Claims in that case addressed the question pre-
 sented in this appeal: whether a discharge upgrade affects
 the application of a military regulation that is triggered un-
 der certain separation circumstances. LaBonte v. United
 States, 

, 561 (2020) (LaBonte I) (analyzing
 Army Regulation 635.40). Mr. Robert J. LaBonte pleaded
Case: 22-1365    Document: 32      Page: 18    Filed: 05/30/2023




 18                                                KELLY   v. US



 guilty in a court-martial proceeding to a charge of desertion
 and was separated from the Army with a Bad Conduct Dis-
 charge. LaBonte I, 150 Fed. Cl. at 555. He was later
 granted clemency and received an upgraded discharge
 characterization to “General, Under Honorable Condi-
 tions” after it was determined that he suffered from ser-
 vice-related PTSD and traumatic brain injury (TBI). Id.
 Mr. LaBonte requested that the Army Record Correction
 Board correct his records to reflect retroactive military dis-
 ability retirement pay. Id. at 556. The Army Record Cor-
 rection Board denied the request. Id.
     Mr. LaBonte appealed the Army Record Correction
 Board’s denial to the Court of Federal Claims. Id. at 555.
 The government moved to dismiss on two grounds: (1) that
 Mr. LaBonte was not eligible for disability processing un-
 der Army Regulation 635-40, and (2) that the Army Correc-
 tion Board is without authority under 

(f) 5
 to correct Mr. LaBonte’s DD-214 Form to reflect military
 disability retirement. 

.
     Army Regulation 635-40—similar to SECNAVINST
 1850.4E—barred referral to the Evaluation System when
 certain separation circumstances linked to delinquent or
 bad behavior existed. Specifically, Army Regulation 635-
 40 provided that a solider “may not be referred for, or con-
 tinue, disability processing if under sentence of dismissal
 or punitive discharge.” LaBonte II, 

 (quot-
 ing Army Regulation 635-40 at ¶ 4-2).



      5  Under 

(a)(1), “[t]he Secretary of a
 military department may correct any military record of the
 Secretary’s department when the Secretary considers it
 necessary to correct an error or remove an injustice.” Sec-
 tion 1552(f) relates to corrections that involve “records of
 courts-martial and related administrative records pertain-
 ing to court-martial cases.”
Case: 22-1365    Document: 32      Page: 19     Filed: 05/30/2023




 KELLY   v. US                                               19



      The Court of Federal Claims determined that a dis-
 charge upgrade from “punitive” to “general, under honora-
 ble conditions” meant that Mr. LaBonte was no longer
 barred from disability-retirement processing under Army
 Regulation 635-40. LaBonte I, 150 Fed. Cl. at 560–61. The
 Court of Federal Claims dismissed the case, however, be-
 cause it agreed that the Army Record Correction Board
 lacked statutory authority to grant Mr. LaBonte relief—
 i.e., correct his DD-214 Form—under 

(f).
 

 at 561–64. Mr. LaBonte appealed the Court of Federal
 Claims’ dismissal to this court. LaBonte II, 

.
     Although the discharge upgrade determination was not
 on appeal before this court, we found in LaBonte II no error
 in the Court of Federal Claims’ ruling on that issue. 

 (“discern[ing] no error” in the Court of Federal
 Claims’ determination that because the “punitive dis-
 charge—Bad Conduct Discharge—was no longer reflected
 in his official record, AR 635-40, in effect at the time of his
 discharge, did not bar him from disability-retirement pro-
 cessing.”).
     Thus, at a minimum, LaBonte 6 is instructive on the is-
 sue in this appeal. See Co-Steel Raritan, Inc. v. Int’l Trade
 Comm’n, 

, 1307 (Fed. Cir. 2004) (“[D]icta,
 which describes statements made by a court that are ‘un-
 necessary to the decision in the case, and therefore not
 precedential (though [they] may be considered persua-
 sive).’” (quoting BLACK’S LAW DICTIONARY (7th ed. 1999)));
 see also In re Lalu, 

 (Fed. Cir. 1984) (find-
 ing two cases about a different legal issue and with differ-
 ent facts contained dicta that “[wa]s helpful as a guide”).
 LaBonte suggests that upgrade changes are a relevant



     6 This opinion refers to “LaBonte” when referring to
 “LaBonte I” and “LaBonte II” collectively.
Case: 22-1365    Document: 32      Page: 20    Filed: 05/30/2023




 20                                                KELLY   v. US



 consideration in determining eligibility for military disabil-
 ity retirement processing.
     Like the service member in LaBonte, Mr. Kelly re-
 ceived an upgraded discharge characterization. In fact,
 Mr. Kelly’s upgrades changes were significantly more fa-
 vorable than those of Mr. LaBonte. Mr. Kelly’s discharge
 characterization was upgraded to “Honorable” and his rea-
 son of separation changed from “misconduct (serious of-
 fense)” to “secretarial authority.” Also, Mr. Kelly was not
 seeking correction following any court-martial proceedings
 or court-martial convictions.
     We see no reason, nor did we receive arguments, as to
 why the circumstances surrounding Mr. Kelly’s request
 should be treated fundamentally differently than those
 surrounding Mr. LaBonte’s request in LaBonte. Both the
 Navy and the Army regulations are based on the same stat-
 utory framework and both servicemen permissively re-
 ceived changes to their discharge characterization and/or
 narrative reason for separation under the Liberal Consid-
 eration Policy. 7 Under that policy, Congress sought a
 standardized basis for discharge characterizations. See su-
 pra note 3. The policy sought to permit service members to


      7   The government argues that Mr. Kelly waived the
 argument that the liberal consideration policy applies here
 because he failed to explicitly raise it in his papers before
 the Record Correction Board. Appellee Br. 39. We disa-
 gree. Mr. Kelly sought liberal consideration in his effort to
 change his discharge characterization and narrative rea-
 son for separation. J.A. 1372; J.A. 1381. The Discharge
 Review Board applied the liberal consideration policy in
 granting Mr. Kelly his requested relief. Based on those
 changes, Mr. Kelly permissibly sought a record correction
 to reflect his potential qualification for military disability
 retirement pay. We find no basis for imposing a waiver in
 this case.
Case: 22-1365     Document: 32      Page: 21    Filed: 05/30/2023




 KELLY   v. US                                                21



 present evidence mitigating a finding of misconduct where
 such evidence existed at the time of separation.
     When the Record Correction Board reviewed Mr.
 Kelly’s request for a correction to his military record, the
 record reflected that he was discharged with an Honorable
 characterization. Importantly, the narrative for the dis-
 charge did not (any longer) state that the reason for the
 discharge was due to misconduct. And there was mitigat-
 ing evidence that Mr. Kelly’s injuries incurred during ser-
 vice existed at the time of separation. Yet the Record
 Correction Board does not adequately discuss or explain
 why it continued to treat Mr. Kelly’s record as containing a
 separation for misconduct.
      We hold that the Record Correction Board’s failure to
 review or evaluate the effect the upgrade change in Mr.
 Kelly’s record had on his eligibility for military retirement
 disability pay was arbitrary and capricious. When a mili-
 tary correction board fails to evaluate the full and complete
 record before it, as is the case here, it is acting in violation
 of its statutory mandate to correct records when “necessary
 to correct an error or remove an injustice.” 

(a)(1). Such a violation is arbitrary and capricious
 because it amounts to “offer[ing] an explanation for the
 agency’s decision that runs counter to the evidence before
 the agency.” State Farm, 

.
     The Record Correction Board’s decision is also incon-
 sistent with how the Veteran’s Administration treats
 changes in discharge characterization. See 

. Under the VA framework, provided all other appli-
 cable conditions for VA benefits are met, a change in dis-
 charge characterization can lead to veteran disability
 benefits. For example, “[a]n honorable discharge or dis-
 charge under honorable conditions [later] issued through a
 board for correction of records . . . is final and conclusive on
 the [VA]. The action of the board sets aside any prior bar
 to benefits imposed.” 

 § 3.12(e); see also id. § 3.12(h).
Case: 22-1365    Document: 32     Page: 22    Filed: 05/30/2023




 22                                              KELLY   v. US



     To be clear, VA regulations and VA decisions concern-
 ing disability are not binding on matters involving military
 disability retirement pay. But we see no principled reason
 for such disparate treatment in how the Navy treats
 changes in discharge characterization from how the VA
 treats those same type of changes. Indeed, the liberal con-
 sideration policy was instituted to eliminate such differ-
 ences.    See General Accounting Office, FPCD-80-13,
 Military Discharge Policies and Practices Result in Wide
 Disparities: Congressional Review Is Needed, at Foreword
 (1980).
      We hold that the Record Correction Board’s decision re-
 jecting Mr. Kelly’s request to correct his record was arbi-
 trary and capricious. 8 We vacate and remand for further
 proceedings consistent with this opinion.
                        Due Process
     Since further proceedings to determine Mr. Kelly’s fit-
 ness are required, we think it useful and appropriate to
 consider Mr. Kelly’s challenge to the Court of Federal
 Claims’ decision that Mr. Kelly has no recognized property
 interest for military disability retirement under 

, and therefore was not entitled to a post-separation
 hearing. Appellant Br. 10. 9



      8  Mr. Kelly also argues that the Record Correction
 Board should have retroactively applied a 2016 Navy pol-
 icy, which allowed service members who were “being pro-
 cessed for any type of involuntary administrative
 separation, to be referred to the [Evaluation System],” to
 his 2017 claim. J.A. 28; Appellant Br. 14. We need not
 reach this issue where we find the Record Correction
 Board’s disregard of Mr. Kelly’s record was arbitrary and
 capricious.
      9  The Due Process Clause of the U.S. Constitution
 guarantees that an individual will not be deprived of life,
Case: 22-1365    Document: 32     Page: 23    Filed: 05/30/2023




 KELLY   v. US                                             23



     Mr. Kelly argues that the requisite interest exists for
 military disability benefits for the same reasons we held
 such an interest exists for veteran disability benefits in
 Cushman v. Shinseki, 

 (Fed. Cir. 2009).
 Appellant Br. 17. The Court of Federal Claims and the gov-
 ernment distinguish Cushman because it “involved veter-
 ans benefits from the Department of Veteran Affairs,
 which are based on a wholly distinct statutory scheme.”
 Appellee Br. 44; Kelly, 157 Fed. Cl. at 134. We agree with
 Mr. Kelly.
     In Cushman, we concluded that entitlement to veteran
 disability benefits under 

 confers a prop-
 erty interest protected by the Due Process Clause. Cush-
 man, 576 F.3d at 1296–98. We held that due process
 attaches to benefits that are nondiscretionary and statuto-
 rily mandated. 

 at 1297–98. As to veteran disability
 benefits, we noted that “entitlement to veteran’s benefits
 arises from a source that is independent from the [VA] pro-
 ceedings themselves . . . . Th[e] statutes provide an abso-
 lute right of benefits for qualified individuals.” 

      Military disability retirement benefits under 

 are nondiscretionary and statutorily mandated.
 The language of the statute reads: “Upon a determination
 by the Secretary concerned that a member described in
 subsection (c) is unfit to perform the duties of the member’s
 office, grade, rank, or rating because of physical disability
 incurred while entitled to basic pay . . . the Secretary may
 retire the member, with retired pay.” 

(a).
 This court has held that the statute, despite employing the
 word “may,” is not discretionary. Sawyer v. United States,


 liberty, or property without due process of law. U.S.
 CONST. amend. V. “To raise a due process question, the
 claimant must demonstrate a property interest entitled to
 such protections.” Cushman v. Shinseki, 

 (Fed. Cir. 2009).
Case: 22-1365    Document: 32     Page: 24    Filed: 05/30/2023




 24                                               KELLY   v. US



 

 (1991) (“The word ‘may’ in section
 1201 does not convey discretion whether or not to pay . . . .
 [The service member] would [be] statutorily . . . entitled to
 money, unless the disability is not in the line of duty.”).
 And like the statutes providing veteran disability benefits,
 

 provides a right to military disability re-
 tirement benefits to qualified individuals. Thus, if a ser-
 vice member is eligible under 

, the service
 member’s military disability retirement benefits are non-
 discretionary and statutorily mandated. See 

     Because § 1201 military disability retirement benefits
 are nondiscretionary and statutorily mandated, they con-
 fer a property interest protected by the Due Process
 Clause. We reject the Court of Federal Claims’ determina-
 tion that Mr. Kelly lacked a recognized property interest in
 his military disability requirement pay.
     Mr. Kelly claims that he was denied due process rights
 when the government refused his request for a post-sepa-
 ration hearing. Appellant Br. 10, 17. We remand for the
 Record Correction Board to conduct a new evaluation of fit-
 ness at which Mr. Kelly will be free to reassert his request
 for a post-separation hearing, if necessary.
                        CONCLUSION
      We agree with the Court of Federal Claims’ finding
 that the Record Correction Board’s fitness determination
 was arbitrary and capricious and unsupported by substan-
 tial evidence. We vacate the Court of Federal Claims’ de-
 termination that the Record Correction Board properly
 denied Mr. Kelly’s request to correct his record for military
 disability retirement because Mr. Kelly’s separation for
 misconduct precluded his referral to the Evaluation Sys-
 tem. In so doing, we reject the Court of Federal Claims’
 conclusion that Mr. Kelly lacked a recognized property in-
 terest in his military disability retirement benefits. We re-
 mand for the Record Correction Board to explain, in the
 first instance, its determination in this case in view of Mr.
Case: 22-1365     Document: 32    Page: 25   Filed: 05/30/2023




 KELLY   v. US                                            25



 Kelly’s change in discharge characterization and narrative
 reason for separation, to determine Mr. Kelly’s fitness un-
 der all relevant considerations set out in SECNAVINST
 1850.4E § 3304, and to address Mr. Kelly’s eligibility under
 the relevant military disability retirement pay statute, 

, 1203.
                 VACATED AND REMANDED
                           COSTS
 No costs.