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Brief in Support of Amended Motion for Class Certification

STATE OF MICHIGAN

IN THE COURT OF CLAIMS

______________________________________________________________________________

THOMAS R. OKRIE, et al.,

Plaintiffs,

Court of Claims No. 13-93-MK

v HON. Deborah A. Servitto

STATE OF MICHIGAN,

GOVERNOR RICK SNYDER,

MICHIGAN DEPARTMENT

OF TECHNOLOGY, MANAGEMENT

AND BUDGET, OFFICE OF

RETIREMENT SERVICES,

STATE EMPLOYEES RETIREMENT

SYSTEM, MICHIGAN PUBLIC

SCHOOL EMPLOYEES RETIREMENT

SYSTEM, and MICHIGAN DEPARTMENT

OF TREASURY,

Defendants.

______________________________________________________________________

Gary P. Supanich (P45547)

LAW OFFICE OF GARY P. SUPANICH

Attorney for Plaintiffs

117 North First Street, Suite 111

Ann Arbor, MI 48104

(734) 276-656

www.michigan-appeal-attorney.com

Patrick M. Fitzgerald (P69964)

Joshua Booth (P53947)

Margaret Nelson (P30342)

MICHIGAN DEPARTMENT OF ATTORNEY GENERAL

State Operations Division

Attorneys for Defendants

P.O. Box 30754

Lansing, MI 48909

(517) 373-1162

_____________________________________________________________________

BRIEF IN SUPPORT OF PLAINTIFFS' AMENDED MOTION FOR CLASS CERTIFICATION PURSUANT TO MCR 3.501

TABLE OF CONTENTS

I........ INTRODUCTION............................................ 1

II...... LEGAL STANDARD........................................ 2

III..... ARGUMENT.................................................... 4

A....... The Prerequisites of Class Action Certification under MCR 3.501(A)(1).................................... 4

B....... This Action Satisfies the Conditions for Class Action Certification under MCR 3.501(A)(1)... 6

(1) Numerosity.... 7

(2) Commonality... 8

(3) Typicality... 9

(4) Adequacy... 10

(5) Superiority... 11

C....... Notice to Class Members. 13

D....... Attorney Fees and Costs. 14

IV..... CONCLUSION AND RELIEF....................... 15

I. INTRODUCTION

The purpose of a class action lawsuit is to serve the interests of those who have common claims and to allow them to pursue their remedies which might otherwise be unavailable because of the small size of their claims and resulting diseconomy of recovery. Kass v H B Shaine & Co, 71 Mich App 101 (1976). That description perfectly fits this case. Here, Plaintiffs' claims arise from the broken contracts of State of Michigan, through the Department of Technology, Office of Retirement Services (ORS), administering the defined benefit pensions of state employees covered by the Michigan State Employees Retirement System (MSERS) and public school teachers covered by the Michigan Public School Employees Retirement System (MPSERS) when the State of Michigan, under Governor Rick Snyder, subjected their pensions, or portions thereof, to state and local taxation beginning on January 1, 2012 and continuing to the present. Consequently, Plaintiff Thomas R. Okrie, a former public school teacher, brings this class action against the State of Michigan on behalf of all similarly affected former public employees - state employees and public school employees born after 1945 - seeking monetary damages and injunctive relief arising from the State of Michigan's taxation of their pensions, or portions thereof, beginning on January 1, 2012. Specifically, the class consists of state employees and public school employees who were born after 1945 who made irrevocable retirement and employment termination decisions based upon the State of Michigan's promise that their defined benefit pensions, or portions thereof, were exempt from state and city income tax, suffering damages when their pensions were subject to state and local tax since January 1, 2012 and continuing to this day, pursuant to 2011 PA 38 that was signed into law by Governor Snyder.

The Court of Claims has exclusive jurisdiction under MCL 600.6419a to hear and determine ex contractu claims against the state, including class actions, as well as concurrent jurisdiction with the circuit courts of a demand for equitable relief or declaratory judgment that is ancillary to a claim filed within the court's exclusive jurisdiction. See Oakland County v Dep't of Human Services, 290 Mich App 1 (2010), rev'd on other grds, 489 Mich 978 (2011), citing Parkwood v State Housing Development Authority, 468 Mich 763, 767 (2003) (noting that the term "ex contractu" does not merely describe traditional breach-of-contract claims and claims arising from express contracts, but also encompasses quasi-contract claims and causes of action arising from contracts implied in fact and law); Grunow v Sanders, 84 Mich App 578 (1978)(noting that Court of Claims is not precluded from hearing class action suits where statutory jurisdiction otherwise exists under MCL 600.6419(1)); Behnke, Inc. v State, 278 Mich App 114 (2008) (noting that the jurisdiction of the Court of Claims is not exclusive of the jurisdiction of a circuit court over actions for declaratory or equitable relief). Plaintiffs thus request that this Court grant their Motion for Class Certification.

II. LEGAL STANDARD

State courts, including the Court of Claims, have broad discretion to determine whether a class will be certified. Henry v Dow Chem Co, 484 Mich 483 (2009). The plain language of MCR 3.501(A)(1) states that representative plaintiffs may pursue a class action suit "only if" the enumerated prerequisites are met. Id.; see also A&M Supply Co v Microsoft Corp, 252 Mich App 580, 597 (2002). Thus, the party seeking class certification bears the burden of establishing that each of the prerequisites for class certification in MCR 3.501(A)(1) is in fact satisfied. Neal v James, 252 Mich App 12, 16 (2002). When it is necessary to look beyond a party's assertions in order to assess whether the prerequisites for class certification are met, a certifying court should do so without delving into the merits of the underlying claims involved. Henry, supra. However, a court must certify a class in circumstances where the court has actually been shown that the prerequisites for class certification are satisfied. Id. While Michigan's requirements for class certification are nearly identical to the federal requirements, Michigan courts are not bound by any decision requiring a rigorous analysis. Id.

Given that MCR 3.501(A)(1) expressly conditions a class action on satisfaction of the prerequisites, a party seeking class certification is required to provide the certifying court with information sufficient to establish that each prerequisite for class certification in MCR 3.501(A)(1) is in fact satisfied. In this case, this Court may base its decision on the pleadings alone only if the pleadings set forth sufficient information to satisfy the court that each prerequisite is in fact met. The averments in the pleadings of a party seeking class certification are only sufficient to certify a class if they satisfy the burden on the party seeking certification to prove that the prerequisites are met, such as in cases where the facts necessary to support this finding are uncontested or admitted by the opposing party. Henry, supra. If the pleadings are not sufficient, the court must look to additional information beyond the pleadings to determine whether class certification is proper without abandoning the well-accepted prohibition against assessing the merits of a party's underlying claims at this early stage in the proceedings. Id.

III. ARGUMENT

A. The Prerequisites of Class Action Certification under MCR 3.501(A)(1)

Certification of a class is controlled by MCR 3.501(A)(1), which provides that one or more members of a purported class may file suit on behalf of all members only if:

(a) the class is so numerous that joinder of all members is impracticable

(b) there are questions of law or fact common to the members of the class that predominate over questions affecting only individual members;

(c) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(d) the representative parties will fairly and adequately assert and protect the interests of the class; and

(e) the maintenance of the action as a class action will be superior to other available methods of adjudication in promoting the convenient administration of justice.

Consequently, to maintain a class action there must be numerous persons, adequate representation, common questions of fact or law affecting rights of several class members, common relief requested by class, and superior or manageable class action brought as class. Magid v Oak Park Racquet Club Associates, Ltd. 84 Mich App 522 (1978). "These prerequisites are often referred to as numerosity, commonality, typicality, adequacy and superiority." Michigan Ass'n of Chiropractors a/k/a Chiropractors Association of Michigan and Toby A. Mitchell, D.C. v Blue Cross Blue Shield, 300 Mich App 577, 586 (2013), citing Henry, supra, 484 Mich at 488. "The action must meet all the requirements in MCR 3.501(A)(1); a case cannot proceed as a class action when it satisfies only some, or even most of these factors." Michigan Ass'n of Chiropractors, supra, quoting A & M Supply Co, supra, 252 Mich App at 597 (Emphasis in original)(internal quotation marks omitted). As explained by the Michigan Court of Appeals in Michigan Ass'n of Chiropractors:

Although the federal "rigorous analysis" approach does not apply under our state law, "a certifying court may not simply 'rubber stamp' a party's allegations that the class certification prerequisites are met." Henry, 484 Mich at 502. The court's decision to certify may be based on the pleadings alone only if the averments therein satisfy the party's burden of proving that the requirements of MCR 3.501 are met, "such as in cases where the facts necessary to support this finding are uncontested or admitted by the opposing party." Id. at 502-503. The court "may not simply accept as true a party's bare statement that a prerequisite is met" without making an independent determination that basic facts and law are stated adequately to support that prerequisite. Id. at 505. "If the pleadings are not sufficient, the court must look to additional information beyond the pleadings to determine whether class certification is proper." Id. at 503. The court should analyze asserted facts, claims, defenses, and relevant law, but "should avoid making determinations on the merits of the underlying claims at the class certification stage of the proceedings." Id. at 488; see also id. at 504.

B. This Action Satisfies the Conditions for Class Action Certification under MCR 3.501(A)(1)

What is being proposed is that Mr. Okie represents the class of all the affected public employees, i.e., state employees and public school employees who were born after 1945 and whose defined benefit pensions, or portions thereof, were subject to state and city income tax pursuant to 2011 PA 38, which went into effect on January 1, 2012. The proposed class is suitable for certification because the class definition does not require a determination of the merits of each individual claimant's case. That is because their pensions, or portions thereof, were exempt from state and local income tax at the time of retirement, whether they were executive branch employees (including nurses, doctors, secretaries, probation and parole officers, social workers, mental health workers et al.) covered by the State Employment Retirement Act "(MSERA"), MCL 38.40, or public school employees, such as Mr. Okrie, covered by the Public School Employees Retirement Act ("MPSERA"), MCL 38.1346 et seq. Each of these retirement systems explicitly provided a tax exemption for defined benefit pensions, or portions thereof. Thus, under an objective standard, the affected public employees who constitute the members of the class reasonably and detrimentally relied upon the State's promise not to tax their pensions at the time of retirement, and thus have suffered damages when their pensions were subject to state and local income tax upon the effective date of 2011 PA 38 on January 1, 2012.

Thus, Mr. Okrie, a member of the class covered by the MPSERA, represents all such affected public employees born after 1945 because they are all in the same boat, having been promised by the State that their defined benefit pensions, or portions thereof, were exempt from state and local income tax at the time of retirement. Here, the proposed class easily meets the individual requirements of numerosity, commonality, typicality, adequacy and superiority under MCR 3.501(A)(1).

(1) Numerosity

First, the class is so numerous that joinder of all qualifying members covered by MSERA and MPSERS is impracticable: There are in excess of 100,000 such affected public employees. As the Court of Appeals explained in Zine v Chrysler Corp, 236 Mich App 261, 287-288 (1999) and quoted in Michigan Ass'n of Chiropractors, supra:

There is no particular minimum number of members necessary to meet the numerosity requirement and the exact number of members need not to be known as long as general knowledge and common sense indicate that the class is large. Because the court cannot determine if joinder of the class members would be impracticable unless it knows the approximate number of members, the plaintiff must adequately define the class so potential members can be identified and must present some evidence of the number of class members or otherwise establish by reasonable estimate the number of class members. [Citations omitted.]

Here, the proposed class may be precisely defined so that potential members can be easily identified. Specifically, as requested, this Court should order the State of Michigan, through the ORS and the Department of Treasury, to identify the members of this class given that they are in possession of the names and addresses of all the affected public employees born after January 1, 1946 (both former state employees covered by MSERS and public school employees covered by MPSERS) who suffered damages when their tax-exempt pensions, or portions thereof, were subject to taxation starting on January 1, 2012 and continuing to the present.

This request is pursuant to MCL 600.6428, which provides that "[t]he court of claims is hereby given the same power to . . . require the production of books, papers, records, document and other evidence . . as the circuit courts of this state now have or may hereafter have." It is also fully consistent with MCR 1.105, which provides that the "[court] rules are to be construed to secure the just, speedy, and economical determination of every action. . . ." Indeed, the ORS, the governmental agency empowered with the administration of the pension programs at issue, is in the best and most cost-effective position to identify and provide notice, in coordination with Plaintiffs' counsel, to all the members of the proposed class and the damages that they have suffered as a result of the State's breach of contract.

(2) Commonality

Second, there are common questions of law or fact to all the members of the class that predominate over questions affecting only individual members. In Zine, supra, 236 Mich App at 290, quoting Kerr v West Palm Beach, 875 F2d 1546, 1557-1558 (CA 11, 1989), the Court of Appeals explained the commonality requirement:

"It requires that "the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, must predominate over those issues that are subject only to individualized proof."

Further, as the Court of Appeals set forth in Michigan Ass'n of Chiropractors, supra at 592, quoting Tinman v BCBSM, 264 Mich App 546, 563-564 (2004):

The common question factor is concerned with whether there is a common issue the resolution of which will advance the litigation . . . . It requires that the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, must predominate over those issue that are subject only to individualized proof.

. . . It is not every common question that will suffice, however, at a sufficiently abstract level of generalization, almost any set of claims can be said to display commonality. A plaintiff seeking class-action certification must be able to demonstrate that all members of the class had a common injury that could be demonstrated with generalized proof, rather than evidence unique to each class member. . . [T]he question . . . is whether the common issues [that] determine liability predominate. [Citations and internal quotation marks omitted; alterations by Tinman.]

In this case, there is generalized proof that can establish the claims premised upon their entitlement to tax-exempt pensions, or portions thereof. As a result, all the members of the class have suffered damages as a result of the State of Michigan's action in taxing their pensions.

(3) Typicality

Third, the claims made by Mr. Okrie, the class representative, are typical of the claims of the class. As the Court of Appeals explained in Neal, supra, 252 Mich App at 21-22, the class representative's claims must have arisen from the same claim, event, practice, or course of conduct that gave rise to the claims of all the class members and must be based on the same legal theory or theories and must contain a common core of facts. Here, Plaintiff class members' legal theories are the same, and all suffered damages as a result of the State's taxation of their tax-exempt pensions, or portions thereof. MCR 3.501(A)(1)(c). Further, there is no question that Mr. Okrie's "legal remedial theories were typical of those of the class." Henry, supra, 484 Mich at 506 n 40. Any differences pertain only to the amount of damages suffered by individual class members. Hill v City of Warren, 276 Mich App 299 (2007).

(4) Adequacy

Fourth, Mr. Okrie will fairly and adequately assert and protect the interests of the class. MCR 3.501(A)(1)(d) requires that counsel must be sufficiently qualified to pursue the class action, and that the representative plaintiff must have the same interests as the members of the class in pursuing the class action. Neal, 252 Mich App at 22-23; see also Smolen v Dahlmann Apartments, Ltd., 127 Mich App 108 (1983) (holding that a named plaintiff seeking to represent a class in a class action is an adequate class representative only if he will pursue the rights of the class vigorously through qualified counsel). As a matter of record, Mr. Okrie repeatedly wrote letters to Governor Snyder requesting a response to his contention that the State is unlawfully taxing his pension, or portion thereof, but the Governor has never seen fit to reply to him, but simply archived the letters. Further, undersigned counsel, a highly-regarded appellate attorney with over 20 years' experience, including more than 12 years as a staff attorney with the Michigan Court of Appeals where he worked on the most difficult civil that are presented in that court, including class actions, as well as almost one year as a law clerk for Judge Eric L. Clay on the Court of Appeals for the Sixth Circuit, where he also confronted complicated federal class action litigation. See www.michigan-appeal-attorney.com Undersigned counsel, who has previously represented Mr. Okrie successfully, is thus thoroughly qualified to prosecute this action to a successful conclusion, which essentially presents compelling issues of law. As a member of the Michigan Supreme Court Historical Society and the Advocates Guild, undersigned counsel regularly appears in the Michigan Supreme Court, making him eminently suited to maintain and argue the present action at the highest possible level, if necessary. Thus, there is no question that Mr. Okrie, through undersigned counsel, will vigorously assert and protect the interests of all those who are similarly situated to him.

(5) Superiority

Fifth, there is compelling support for the proposition that a class action is superior to other available methods of adjudication in promoting the convenient administration of justice. See Grigg v Michigan Nat'l Bank, 405 Mich 148 (1979), later proceeding 132 Mich App 298 (1984), app den 422 Mich 916 (1985) (noting that the trial court, in determining whether cause of action should be allowed to proceed as class action promoting convenient administration of justice, must take into account practical problems which will arise in event particular cause of action is allowed to proceed on representative basis). Given the size of the class and the corresponding payouts to each individual class member, there is no question that this litigation is best conducted as a class action. Thus, there is little doubt that the maintenance of a class action will be superior to other available methods of adjudication in promoting the convenient administration of justice since questions of law or fact are common to the members of the proposed class so as to make a class action suit completely manageable. Zine, 236 Mich App at 290; Lee v Grand Rapids Bd of Educ, 184 Mich App 502 (1989); Edgcumbe v Cessna Aircraft Co, 171 Mich App 573 (1988).

Moreover, a class action conveniently serves the purposes of the administration of justice where the class well exceeds 100,000 members who are all known to the State of Michigan and who may be easily informed of action by the State of Michigan, and where computation of damages is relatively simple and recovery for each member is comparatively small in relation to the overall damages. Male v Grand Rapids Education Ass'n, 98 Mich App 742 (1980); Kass v H. B. Shaine & Co, 71 Mich App 101 (1976) (noting that due process requires that actual notice be given to all potential members where class is limited in number and names and addresses of potential members are readily ascertainable in a class action). Here, there is a ready at hand mechanism for the fluid recovery to avoid any management problems by use of the following general format: (1) the amount of damages incurred by the class as a whole is determined in a single adjudication, creating a damage fund; (2) individual member claimants are identified in establishing their share of the fund; and (3) the unclaimed portion of the fund is applied to the class's benefit. Cicelski v Sears, Roebuck & Co. 132 Mich App 298 (1984).

C. Notice to Class Members

Pursuant to MCR 3.501(C), notice must be provided to all the class members as a matter of due process. See Schroeder v New York City, 371 US 208, 212 (1962). In this regard, it must be underscored that this Court retains the discretion in determining the adequacy of the notice. Although the cost of notice is usually the responsibility of Plaintiffs, this is a special case where it is entirely appropriate for this Court to require the State of Michigan to assist in the notice process, without the unnecessary expenses of discovery in order to achieve, in a cost-effective manner, the same goals of identifying and notifying all the class members. Moreover, as explained by J. Douglas Peters and David Parker in The History, Law, and Future of State Class Actions in Michigan, 44 Wayne L. Rev 135, 170-172 (1998):

The court's power to require that notice "be given through another method" allows judges to shift costs of notice de facto. For example, if the court determines . . . that there is an appreciable likelihood that the plaintiff will prevail or that the defendant was unjustly enriched through probable acts of wrongdoing, the court may require that the defendant, through posting to hypothetical employee class members, give actual notice to the class. The court may also consider allowing notice primarily or solely by publication to lower the plaintiffs' costs of notice in the appropriate case.

* * *

In sum, the modern trend is moving away from the strict imposition of costs on plaintiffs, and towards a balancing test under which a court may consider the merits of the case. Courts will look at factors such as the defendant's wrongdoing, the amount of unjust enrichment to the defendant, the numerosity and geographical dispersion of the class, and the assets of the class and class counsel before deciding who will pay for the costs of notice. (Footnotes omitted).

Thus, as a matter of equity consistent with the goal of "secur[ing] the just, speedy and economical determination of every action" as required by MCR 2.105, Plaintiffs request that this Court order the State of Michigan to pay for the costs of notice.

D. Attorney Fees and Costs

Finally, in determining attorney fees and costs, members of the class of affected public employees should properly be required to contribute equally to litigation expenses and attorney fees incurred by Plaintiff's law firm's successful prosecution of the class action for the recovery of the damages resulting from the State of Michigan's unlawful actions of subjecting their pensions to state and local taxes since January 1, 2012. See Cicelski v Sears, Roebuck & Co, 132 Mich App 298 (1984) (noting that while attorney fees generally may not be awarded unless authorized by statute or court rule, attorney fees may be awarded under the "common fund" exception to a party who has created or protected a common fund for the benefit of others as well as himself). Because any recovery would result in monetary benefits to all members of the class, such benefits could properly be cumulated into fund under equitable or common fund doctrine. In re Attorney Fees of Kelman, Loria, Downing, Schneider & Simpson, 406 Mich 497 (1979).

IV. CONCLUSION AND RELIEF

Because all the prerequisites set out in MCR 3.501(A)(1) are met, Plaintiffs respectfully request that this Court grant their Motion for Class Certification under MCR 3.501.

Respectfully Submitted,

LAW OFFICE OF GARY P. SUPANICH

__________________________

Gary P. Supanich (P45547)

Attorney for Plaintiffs

117 N. First St., Suite 111

Ann Arbor, MI 48104

(734) 276-6561

Dated: February 21, 2014

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