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Motion for Reconsideration from the COA's June 16, 2016 Opinion

STATE OF MICHIGAN

IN THE COURT OF APPEALS

(On Appeal from the Michigan Court of Claims)

______________________________________________________________________________

THOMAS R. OKRIE, and SIMILARLY

SITUATED RETIRED STATE AND PUBLIC

SCHOOL EMPLOYEES BORN AFTER 1945,

Plaintiffs-Appellants,

COA No. 326607

LC No. 13-000093-MK

v

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-Appellees.

______________________________________________________________________

Gary P. Supanich (P45547)

LAW OFFICE OF GARY P. SUPANICH

Attorney for Plaintiffs-Appellants

117 N. First Street, Suite 111

Ann Arbor, MI 48104

(734) 276-6561

www.michigan-appeal-attorney.com

Patrick M. Fitzgerald (P69964)

Matthew Schneider (P62190)

Aaron D. Lindstrom (P72916)

MICHIGAN DEPARTMENT OF

ATTORNEY GENERAL

State Operations Division

Attorneys for Defendants

P.O. Box 30754

Lansing, MI 48909

(517) 373-1162

_____________________________________________________________________

PLAINTIFFS-APPELLANTS' MOTION FOR RECONSIDERATION

TABLE OF CONTENTS

TABLE OF AUTHORITIES. i

INTRODUCTION............................................................................................. 1

ARGUMENT 3

(1) Pursuant to Associated Builders and Contractors v City of Lansing, this Court is Bound to Follow Campbell v Judges' Retirement Bd, 378 Mich 169 (1966). 3

(2) Mr. Okrie et al.'s Contractual Right to an Integral Part of their Retirement Benefits, Payable as Deferred Compensation in the Form of Tax Exemptions or Financial Benefits Equal to, or Greater than, the Tax Exemptions Arises from Employment Relationships with the State or One of Its Political Subdivisions. 6

(3) Alternatively, Mr. Okrie et al.'s Contractual Right to an Integral Part of their Retirement Benefits, Payable as Deferred Compensation in the Form of Tax Exemptions or Financial Benefits, Equal to or Greater than, the Tax Exemptions is Based upon the Doctrine of Promissory Estoppel. 8

(4) United States Trust Corp and Winstar Support Mr. Okrie et al.'s Contract Claim.. 9

CONCLUSION AND RELIEF. 10

TABLE OF AUTHORITIES

Cases

Associated Builders and Contractors v City of Lansing, Docket No. 149622, Decided May 17, 2016.................................................................................. 3-5

Campbell v Judges' Retirement Bd, 378 Mich 169 (1966).......................... 2-5

Davis v Dep't of Treasury, 179 Mich App 683 (1989)........................... passim

Davis v Mich Dep't of Treasury, 489 US 803(1989)............................. passim

Davis v State of Michigan, 160 Mich App 98 (1987)............................ passim

Fahey v Mallonee, 332 US 245 (1947). ......................................................... 7

Frey v Dep't of Management & Budget, 429 Mich 315 (1987)...................... 9

Herald Co v Tax Tribunal, 258 Mich App 78 (2003)...................................... 1

In re Certified Question (Bankey v Storer Broadcasting Co, 432 Mich 438(1989).. 5

In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011).............................................................................. 5, 6

Indenbaum v Michigan Bd of Medicine (After Remand), 213 Mich App 263 (1995).... ................................................................................................... 9

Indiana ex rel Anderson v Brand, 303 US 95 (1938)...................................... 7

Landgraf v USI Film Prods, 511 US 244 (1994)............................................. 8

Maxwell v Bay City Bridge Co, 41 Mich 453 (1879) .................................... 8

Mississippi ex rel Robertson v Miller, 276 US 174 (1928). .......................... 6

Paschke v Retool Indus, 445 Mich 502 (1994)................................................ 9

Seitz v Probate Judges Retirement System, 189 Mich App 445 (1991)...... 2, 4

Sniecinski v Blue Cross & Blue Shield, 469 Mich 124 (2003)........................ 7

State Bank of Standish v Curry, 442 Mich 76 (1993)...................................... 8

Studier v Mich Pub Sch Employees' Retirement Bd, 472 Mich 642 (2005).. 5, 6

Traverse City School Dis v Attorney General, 383 Mich 390 (1971)............. 9

United States Trust Co of NY v New Jersey, 431 US 1 (1977)................. 9, 10

United States v Winstar Corp, 518 US 839 (1996.................................... 9, 10

Constitutional Provisions

1963 Mich Const, art 1, § 10.................................................................. passim

1963 Mich Const, art 1, § 17............................................................................ 8

US Const, Art I, § 10 ............................................................................. passim

US Const Art VI, Cl. 2. ........................................................................ 6, 9, 10

US Const, AM XIV.......................................................................................... 8

Statutes

4 USC § 111 ................................................................................................... 2

Court Rules

MCR 7.215(I)(1) ............................................................................................ 1

MCR 7.215(J)(1) ............................................................................................ 5

Other Authority

1991 OAG No. 6697............................................................................... passim

2011 PA 38 ........................................................................................ passim



INTRODUCTION

Pursuant to MCR 7.215(I)(1), Plaintiffs-Appellants now bring this Motion for Reconsideration asserting that this Court palpably erred by affirming the Court of Claims' orders in Okrie v State of Michigan, unpublished per curiam opinion of the Michigan Court of Appeals, issued June 16, 2016 (Docket No. 326607) (EX.). See Herald Co v Tax Tribunal, 258 Mich App 78, 82 (2003). Before addressing the substance of these errors, it is necessary to recapitulate that the principal question of this class-action lawsuit is whether the State of Michigan may eliminate the tax exemptions for the public pensions of Mr. Okrie and similarly situated state and public school employees ("Mr. Okrie et al."), who were born after 1945 but retired before the entry into force of 2011 PA 38 on January 1, 2012, without providing financial benefits equal to, or greater than, the monetary value of the tax exemptions that were eliminated.

First, as argued throughout the present litigation, the Okrie case is a continuation of the Davis case, and its aftermath. Davis v State of Michigan, 160 Mich App 98 (1987) (Davis I); Davis v Mich Dep't of Treasury, 489 US 803 (1989)("Davis II"); Davis v Dep't of Treasury, 179 Mich App 683 (1989)("Davis III") and 1991 OAG No. 6697, issued December 18, 1991, 1991 Mich AG LEXIS 39. Specifically, in Davis I, the State of Michigan successfully argued, and this Court held, the following propositions:

· Tax exemptions were offered as inducements to attract and retain qualified employees. (160 Mich App at 105)

· Tax exemptions were recognized as an integral part of retirement benefits conferred upon state employees. (160 Mich App at 105)

In Davis II, the State of Michigan argued the following propositions to the U.S. Supreme Court in defense of its differential treatment of retired state and federal employees with respect to state tax exemptions:

· Tax exemptions were offered as inducements to hire and retain qualified civil servants. (489 US at 816)

· Tax exemptions were provided to retired state employees, but not to retired federal employees, because "[the State's] retirement benefits are significantly less munificent than those offered by the Federal Government. . ." (489 US at 816)

In finding that the State's differential treatment was violative of the intergovernmental immunity statute, 4 USC § 111, the U.S. Supreme Court recognized the following proposition:

· The State of Michigan could have provided "the same after-tax benefits to all retired state employees by means of increased salaries or benefit payments instead of tax exemptions." (489 US at 815 n 4)

Subsequently, on remand, this Court in Davis III, acting as if it were the State Legislature in determining whether to extend the tax exemptions to retired federal employees or eliminate them for retired state employees, agreed with the State Attorney General, acting on behalf of the State of Michigan, and held the following:

· Extending the tax exemptions to retired federal employees was favored because elimination of the tax exemptions for retired state employees would have "deleterious effect" upon "the reliance interests and financial well-being of those employees." (179 Mich App at 688)(Emphasis added.)

· "Equitable considerations favor an extension" of the tax exemptions to retired federal employees, as opposed to an elimination of the tax exemptions of retired state employees. (179 Mich App at 688)(Emphasis added.)

In the aftermath of the Davis decisions, the State Attorney General issued a formal opinion (1991 OG No. 6697) in response to Senator Schwarz's question whether the Legislature may limit or withdraw the tax exemptions, making the following legal ruling that was binding upon all state agencies and officers until courts make a pronouncement on the issue:

· The Legislature may limit or repeal the tax exemptions found in the four retirement statutes as to current retired public employees and members "if it provides alternative benefits in their place that are equal to or greater than the pension benefit that would be limited or withdrawn" (1991 OG No. 6697, 1991 Mich AG LEXIS at p 9), citing Seitz v Probate Judges Retirement System, 189 Mich App 445, 456 (1991), which, in turn, relied upon Campbell v Judges' Retirement Bd, 378 Mich 169 (1966).

These legal rulings established in the Davis litigation and the subsequent formal opinion of the State Attorney General form the legal backdrop for Okrie et al.'s contention that the tax exemptions were not gratuities but represented an integral part of their retirement benefits (given in lieu of higher salaries, and hence higher pensions) earned by Mr. Okrie et al. as deferred compensation for their years of governmental services to the State of Michigan or one of its political subdivisions. To receive the deferred compensation payable in the form of tax exemption or financial benefits equal to, or greater than, the value of the tax exemption, they had to satisfy these conditions: (1) vest in one of the four defined benefit systems administered by the State of Michigan, through the Office of Retirement Services ("ORS"); (2) make irrevocable decisions to terminate their state employment and retire; (3) reside in the State of Michigan (or another state with a reciprocity agreement with the State). Here, the State, through the application of 2011 PA 38 and the related legislation that eliminated the tax exemptions for public pensions without providing alternative financial benefits equal to, or greater than the monetary value represented by the tax exemptions, abrogated an integral part of the retirement benefits earned by Mr. Okrie, et al. in violation of 1963 Const, art 1, § 10, and US Const, Art I, § 10, which prohibit the State from enacting any law that impairs the obligation of contracts.

ARGUMENT

(1) Pursuant to Associated Builders and Contractors v City of Lansing, this Court is Bound to Follow Campbell v Judges' Retirement Bd, 378 Mich 169 (1966).

In Associated Builders and Contractors v City of Lansing, Docket No. 149622, Decided May 17, 2016 ("ABC"), the Michigan Supreme Court expressly held:

The Court of Appeals is bound to follow decisions by this Court except where those decisions have clearly been overruled or superseded, and is not authorized to anticipatorily ignore our decisions where it determines that the foundations of a Supreme Court decision have been undermined. (Id. at slip op p 13) (Emphasis in original; footnotes omitted)

Pursuant to ABC, this Court is bound by the decision in Campbell, supra, 378 Mich at 169.

As already observed, the Attorney General's formal opinion (1991 OG No. 6697) recognized that Seitz, supra, 189 Mich App at 445, citing Campbell, supra at p 180, held that the provisions of Const 1963, art 1, § 10, and US Const, art 1, § 10, "provide that vested rights acquired under a contract may not be destroyed by subsequent state legislation." Referencing Campbell, supra at pp 181-182, Seitz held:

In a nutshell, the principle of law to be applied is that the Legislature may increase pension benefits but not reduce them with respect to those individuals who have accrued rights under the pension plan at the time of the legislative enactment. . . Thus, while the Legislature may change public pension plans from time to time, including adding restrictions on benefits, the state may not reduce the pension benefit of any state employee or official, or local employee or official, once a pension right has been granted. (189 Mich App at 455-456).

Specifically, in Campbell, the Supreme Court recognized that "[v]ested rights acquired under contract may not be destroyed by subsequent State legislation or even by an amendment of the State Constitution." 378 Mich at 180. Thus, the Supreme Court ruled:

We hold that a valid contract was entered between judges and the State, and that the State's agreement thereunder to pay the judges certain benefits created vested rights for the judges upon their retirement, that these are enforceable and cannot be impaired or diminished by the State. This should be deemed to include not only the benefits provided by statute at the time of entry into the contract and of retirement, but, also, those later added by statutory amendment. The legislature may add to but not diminish benefits without running afoul of [the] constitutional prohibition against impairment of the obligation of a contract. [Id. at 181-182 (Emphasis added)].

In the present case, the State, through the application of 2011 PA 38 and the related legislation eliminating the tax exemption for public pensions of Mr. Okrie et al. without providing alternative benefits equal to, or greater than, the value of the tax exemptions themselves, abrogated an integral part of the retirement benefits earned by Mr. Okrie et al. as deferred compensation for their years of governmental services to the State or one of its political subdivisions. In accordance with Campbell and Seitz, the State's elimination of the tax exemptions for Mr. Okrie et al., without providing them with financial benefits equal to, or greater than, the value of the tax exemptions themselves, violated the provisions of Contract Clauses under Const 1963, art 1, § 10, and US Const, art I, § 10.

Both the Supreme Court's opinion in Campbell (pursuant to ABC) and this Court's published opinion in Seitz (pursuant to MCR 7.215 (J)(1)) are binding on this Court in this case and must be followed, as they apply with equal force to retirement benefits earned by Mr. Okrie et al. in the form of tax exemptions, or their equivalent value, which cannot be diminished "without running afoul of [the] constitutional prohibition against impairment of the obligation of a contract. Campbell, supra at pp 181-182. Specifically, this Court is bound by Campbell because the Michigan Supreme Court has never "clearly overruled or superseded" its decision in that case. ABC, supra at slip op p 13 (Emphasis in original). Consequently, this Court is "not authorized to anticipatorily ignore" Campbell just because "it determines that the foundations of a Supreme Court decision have been undermined. Id.

Neither In re Request for Advisory Opinion Regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011) nor Studier v Mich Pub Sch Employees' Retirement Bd, 472 Mich 642, 661-662 (2005) change this result. First, as an advisory opinion, the Supreme Court's decision is not binding in the present litigation. See In re Certified Question (Bankey v Storer Broadcasting Co, 432 Mich 438, 467-471 (1989) (noting that advisory opinions are not precedentially binding since the Court addresses questions without having before it adverse parties to existing controversies and thus acts not as a court but as the constitutional adviser of the other departments of government). Further, the Advisory Opinion did not address the precise claims and legally supported arguments being made by Mr. Okrie, et al. in this case, most particularly, their contractual right based upon the doctrine of promissory estoppel.

Second, this Court's reliance upon the Studier is misplaced because that case dealt with amendments to the MPSERS health care plan that increased deductibles, and not the vested rights to an integral part of the retirement benefits earned by Mr. Okrie, et al. as deferred compensation for their years of governmental services to the State and one of its political subdivisions. As Studier itself recognized, "vested rights" is a term associated with contractual relationships with the State, such as here. Studier, supra, 472 Mich at 663-664. Thus, Studier is distinguishable from this case and does not "clearly overrule[] or supersede[]" Campbell.

In any case, it is a fundamental proposition of American law recognized by the U.S. Supreme Court that public employees have a constitutionally protected right to compensation that has been earned through services rendered. Mississippi ex rel Robertson v Miller, 276 US 174, 178-179 (1928). This right is not based upon statutory language but rather is implied from the fact the employee rendered services in exchange for the promised compensation. Id. at 179 ("But after services have been rendered by a public officer under a law specifying his compensation, there arises an implied contract under which he is entitled to have the amount so fixed."). Pursuant to the Supremacy Clause, US Const, Art. VI, Cl. 2, this Court is bound by the U.S. Supreme Court's holding in Miller, which fully applies to this case.

(2) Mr. Okrie et al.'s Contractual Right to an Integral Part of their Retirement Benefits, Payable as Deferred Compensation in the Form of Tax Exemptions or Financial Benefits Equal, to or Greater than, the Tax Exemptions Arises from Employment Relationships with the State or One of Its Political Subdivisions.

This Court also committed palpable error by not recognizing that Mr. Okrie et al.'s contractual right to deferred compensation is embodied in unilateral employment contracts that arise from employment relationships in which they provided governmental services to the State or one of its political subdivisions in exchange for tax-exempt pensions or their equivalent value upon vesting in one of the four defined-benefit plans administered by the State of Michigan, through the ORS, making irrevocable decisions to terminate their employment with the State or one of its political subdivisions and henceforth retiring and residing in the State of Michigan. See Sniecinski v Blue Cross & Blue Shield, 469 Mich 124, 138 n 9 (2003) (noting that, as a general rule, employment contracts are considered to be unilateral and may only be accepted by performance). Thus, for all legal purposes pertinent to this litigation, the State of Michigan is the employer in these unilateral employment relationships. Accordingly, contrary to the State's argument, the contractual right to deferred compensation in the form of tax-exempt pensions, or financial benefits equal to, or greater than, the value of the tax exemptions themselves, did not arise from any statute, but rather from the employment relationships themselves with the State or one of its political subdivisions, such as the Troy Public School System in the case of Mr. Okrie.

But even assuming arguendo that Mr. Okrie et al.'s contractual rights have a statutory basis, the U.S. Supreme Court has made it clear that "it is established that a legislative enactment may contain provisions, which when accepted as the basis of actions by individuals, become contracts between them and the State or its subdivisions within the protection of Art I, sec. 10. " Indiana ex rel Anderson v Brand, 303 US 95, 100 (1938)(Emphasis added.). Under the Supremacy Clause, US Const Art VI, Cl. 2, Brand is binding upon this Court.

In any case, it is a well-settled rule that one who proceeds under a statute and claims benefits thereby conferred will not be heard to question its constitutionality in order to avoid its burdens. Fahey v Mallonee, 332 US 245, 255 (1947). Here, the State has benefitted for decades from the statutes providing tax exemptions to retired state and public school employees by inducing those employees to work for the State for lower wages and hence lower pensions, and then, after having received the benefits of their governmental services, has reneged on the deal to avoid its burdens by eliminating the tax exemptions, without providing comparable financial benefits. This is not permitted under Fahey. Finally, the retroactive application of the statute to Mr. Okrie et al. "impairs rights a party possessed when he acted," in violation of the Due Process Clauses under 1963 Const, Art 1, § 17, and US Const, AM XIV. Landgraf v USI Film Prods, 511 US 244, 280 (1994).

(3) Alternatively, Mr. Okrie et al.'s Contractual Right to an Integral Part of their Retirement Benefits, Payable as Deferred Compensation in the Form of Tax Exemptions or Financial Benefits Equal to, or Greater than, the Tax Exemptions is Based upon the Doctrine of Promissory Estoppel.

Alternatively, this Court committed palpable error by failing to recognize the full force of Mr. Okrie et al.'s contractual right based upon the doctrine of promissory estoppel. In State Bank of Standish v Curry, 442 Mich 76, 95 (1993), the Supreme Court observed that Justice Cooley explained the underlying principle of the doctrine of promissory estoppel in Maxwell v Bay City Bridge Co, 41 Mich 453, 467 (1879):

The doctrine of estoppel rests upon a party having directly or indirectly made assertions, promises, or assurances upon which another has acted under such circumstances that he would be seriously prejudiced if the assertions were suffered to be disproved or the promises or assurances to be withdrawn. (Emphasis added.)

Here, there can be little doubt that the "assertions, promises or assurances" made by the State, through the ORS, as backed up by the binding legal rulings by this Court's opinion in Davis v Dep't of Treasury, 179 Mich App 683 (1989)("Davis III") and the Attorney General's formal opinion, 1991 OAG No. 6697, issued after Davis III, reinforced Mr. Okrie et al.'s justifiable reliance on the State's promise to pay deferred compensation in the form of tax exemptions or provide financial benefits, equal to, or greater than, the value of the tax exemptions.

Specifically, this Court in Davis III held that retired state employees had "reliance interests" in the continuation of the tax exemptions and implied that it would be "inequitable" for the State to eliminate them. Surely, this Court's legally binding opinion in Davis III was entitled to "reasonable reliance" by Mr. Okrie et al.? Further, although Davis III's decision was based on "what would the enacting Legislature have done if it had known that its statute was flawed by the unconstitutional classification," it is legally significant that the Legislature acquiesced to this decision for more than 20 years, lending yet more "reasonable reliance" upon Davis III since the Legislature left it untouched for so many years. Moreover, although Attorney General opinions are not binding upon the courts, they are binding upon the state agencies and officers until courts make a pronouncement on the issue, and thus may be relied upon in good faith as carrying "great weight" as they can be regarded as "persuasive authority" by the judiciary. Frey v Dep't of Management & Budget, 429 Mich 315, 338 (1987); Traverse City School Dis v Attorney General, 383 Mich 390, 407 n 2 (1971); Indenbaum v Michigan Bd of Medicine (After Remand), 213 Mich App 263 274 (1995). Thus, Mr. Okrie, et al. had every reason to believe that they were entitled to financial benefits equal to, or greater than, those represented by the tax exemptions if the Legislature eliminated the tax exemptions, which this Court in Davis I, agreeing with the State Attorney General, recognized as an integral part of their retirement benefits that they earned for their years of governmental services upon vesting in one of the defined-benefit plans administered by the State and then making the irrevocable decision to retire and reside in the State of Michigan. Indeed, as a matter of judicial estoppel, the State Attorney General should not be permitted "to play fast and loose" with the courts by asserting positions in the present litigation that are inconsistent with their previous successes in this Court in Davis I and Davis III. See Paschke v Retool Indus, 445 Mich 502, 509-510 (1994).

(4) United States Trust Corp and Winstar Support Mr. Okrie et al.'s Contract Claim.

Finally, this Court palpably erred by failing to recognize constitutional provisions and doctrines permit an earlier legislature to impose legal contractual obligations upon a future legislature. See United States Trust Corp of New York v New Jersey, 431 US 1 (1977). Specifically, the decision in U.S. Trust imposes a substantial limit on the power of legislatures to change course when the policy of a prior legislature has been implemented in the form of a contract. As the U.S. Supreme Court made abundantly clear in U.S. Trust, "particular scrutiny of legislative action is warranted when, as here, a state seeks to impair a contract to which it is a party and its interest in avoiding the contract or changing its terms is financial." This principle was reaffirmed in United States v Winstar Corp, 518 US 839 (1996), which held that government cannot abrogate contractual promises of favorable tax treatment the government made to induce investors to buy failing savings and loans. As noted in Winstar, the U.S. Constitution "bars Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Both United States Trust Corp and Winstar must be followed under the Supremacy Clause, US Const, Art. VI, Cl. 2.

CONCLUSION AND RELIEF REQUESTED

Based upon the foregoing, and their previous appellate briefs, Plaintiff-Appellant Thomas R. Okrie and similarly-situated retired state and public school employees born who were born after 1945 and who retired before 2011 PA 38 went into effect on January 1, 2012, request that this Court reverse the opinions and orders dismissing their claims, grant their motion for summary disposition and their motion to file a Second Amended Verified Class Action Complaint, and remand this case to the trial court for certification as a class action. Mr. Okrie et.al. also request attorney fees and costs.

Respectfully Submitted,

By: ____________________________

Gary P. Supanich (P45547)

Attorney for Plaintiffs-Appellants Thomas Okrie et al.

117 N. First Street, Suite 111

Ann Arbor, MI 48104

Dated: June 29, 2015 (734) 276-6561

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