Jump To Navigation

CHRONICLE OF THE CLASS ACTION LAWSUIT - OKRIE, ET AL. v STATE OF MICHIGAN

On July 9, 2013, I filed a VERIFIED CLASS ACTION COMPLAINT in the Ingham County Court of Claims -- Thomas R. Okrie v State of Michigan, Governor Rick Snyder, Michigan Department of Technology, Management and Budget, Office of Retirement Services (ORS), Michigan State Employees Retirement System (MSERS), Michigan Public School Employees Retirement System (MPSERS), and Michigan Department of Treasury, Court of Claims No. 13-93-MK.  You or someone you know may be a member of the proposed class of affected public employees, both former state employees and public school employees born after 1945, whose pensions were subject to state and local taxation after January 1, 2012 pursuant to 2011 PA 38 that Governor Snyder signed into law. Please read the Information below so you may take appropriate steps to protect your interests and those of any intended spouse beneficiary.

Facts of the Case

Thomas R. Okrie, a public school teacher, retired effective July 1, 2000 from the Troy School District. Before retiring, while he was still a public school teacher, Mr. Okrie regularly received and consulted the MPSERS Retirement Guidelines published by the ORS. The ORS, through the MPSERS Guidelines, instructed him to "Use the MPSERS Retirement Guidelines" and "When you're ready to retire, use it to help you make benefits decisions." It also reminded him of the "[i]rrevocable nature of retirement." The MPSERS' Guidelines that Mr. Okrie regularly received and consulted while he was still a public school teacher and before he retired made the unambiguous, unqualified statement that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city tax."

In July 1999, the ORS, through MPSERS, sent Mr. Okrie retirement application forms and informational materials that he had requested, including the 1998 MPSERS Guidelines and the Retirement Pension Estimate Workbook. Before making the irrevocable decision to retire, Mr. Okrie consulted the 1998 MPSERS Guidelines, which made the unambiguous, unqualified statement that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city tax." Mr. Okrie thus reasonably expected that, after retiring, his pension would be exempt from state and local taxation and relied upon the unqualified, unambiguous statement in the Retirement Guidelines, as backed up by MCL 38.1346(1), which exempted public-pension benefits from taxation, in making his irrevocable retirement decision and in calculating his financial security.

Mr. Okrie then submitted papers to MPSERS stating that the effective date of his pension was July 1, 2000. Among the forms that he submitted to MPSERS was the form entitled "Income Tax Information," which again stated that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city income tax." Mr. Okrie again relied upon this unqualified, unambiguous statement by the ORS administering MPSERS in making his irrevocable decision to retire and in calculating his financial security, as MPSERS directed him to do. There was no statement anywhere in the documents sent to him stating that "the tax exemption could be eliminated at any time, so figure that into your retirement decision."

Subsequently, Mr. Okrie received a letter from the ORS stating that "[y]our application for retirement has been processed and you will receive your first pension check . . . at the end of July, 2000." Thereafter, Mr. Okrie received a tax-exempt pension every month for the next 12 years. That, however, changed on January 1, 2012. After the entry in force of 2011 PA 38, which was signed into law by Michigan Governor Rick Snyder, the State of Michigan broke its promise to Mr. Okrie and many similarly situated former state employees and public school employees by subjecting their pensions to state and local taxation after they made irrevocable retirement and employment termination decisions in justifiable reliance upon the State of Michigan's promise that their pension benefits were exempt from state and local taxation.

Verified Class Action Complaint

On July 9, 2013, I filed a Verified Class Action Complaint on behalf of Mr. Okrie and similarly situated retired state employees (their spouses and surviving spouses) covered by MSERA, as administered by the ORS, and retired public school employees (their spouses and surviving spouses) covered by MSPERS, who were born after January 1, 1946 and whose pension benefits had vested or accrued before January 1, 2012 when 2011 PA 38 went into effect and who made irrevocable retirement and employment termination decisions in justifiable reliance upon the State of Michigan's promise that their pension benefits were exempt from state and local taxation.

The Verified Class Action Complaint consists of two counts. Count I is for Breach of Contract based upon the equitable doctrine of Promissory Estoppel and Count II is for Equitable Relief. The elements of Promissory Estoppel are (1) a promise; (2) that the promisor should reasonably have expected to induce action of a definite and substantial character on the part of the promise; (3) which in fact produced reliance of that nature; and (4) the circumstances such that the promise must be enforced if injustice is to be avoided. Here, the State of Michigan made a promise not to tax pensions that state employees and public school employees relied upon when making irrevocable employment termination and retirement decisions. The State of Michigan broke that promise when it started to tax state pensions on January 1, 2012 pursuant to 2011 PA 38, which was signed into law by Governor Rick Snyder.  Thus, Mr. Okrie and those similarly situated to him have suffered damages since January 1, 2012 when the State of Michigan Department of Treasury began to tax their pensions.  Count II for Equitable Relief requests, among other things, that the State of Michigan CEASE and DESIST from taxing the pensions of the affected public employees.

It must be noted that although the Michigan Supreme Court in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011) ruled that 2011 PA 38 did not impair contracts in violation of the state or federal constitutions, the Supreme Court left the door open to a cause of action based upon the non-constitutional ground of Breach of Contract based upon the equitable doctrine of Promissory Estoppel.

Cross-Motions for Summary Disposition on Claims Asserted in Verified Class Action Complaint

After service of the Verified Complaint, the State of Michigan, through the Michigan Attorney General, asked for an extension until August 9, 2013 to respond, and I stipulated to their request. On August 9, the State filed a Motion for Summary Disposition under MCR 2.116(C)(8) and (C)(10) essentially claiming that there was no breach of contract based upon the fact that the Legislature had the exclusive power over taxation, and thus the Office of Retirement Services (ORS) could not enter into a contract binding the State as to a tax-exempt pension. In addition, the State argued that the Legislature always retained the power to eliminate or reduce the statutory tax exemption and that Mr. Okrie and other affected public employees ran the risk exclusively that the law could be changed to their detriment. The State's Motion for Summary Disposition was noticed for a hearing in Judge Aquilina's courtroom in Ingham Circuit Court in Lansing on September 25, 2013.

On August 14, 2013, I also filed a Motion for Summary Disposition pursuant to MCR 2.116(C)(10) and MCR 2.116(I)(1) and a Brief in Support essentially claiming that there was no genuine issue of material fact that the State breached its contract under the doctrine of promissory estoppel. I also filed a Motion for Class Certification and a Brief in Support stating this case is suitable for treatment as a class action. My Motions were noticed for a hearing in Judge Aquilina's courtroom in Ingham Circuit Court in Lansing on October 9, 2013 at 2:30 p.m. Thereafter, the Attorney General agreed to move the hearing on their Motion to October 9 at 2:30 p.m. in Judge Aquilina's courtroom in Lansing. Thus, all the motions will be heard in Judge Aquilina's courtroom in Lansing on October 9 at 2:30 p.m.

On September 20, 2013, I filed with the Court of Claims my Brief in Opposition to the State's Motion for Summary Disposition. Briefly, I took issue with the State's mischaracterization of my Breach of Contract Claim since the Legislature's exclusive power to tax is consistent with a breach of contract action based upon promissory estoppel. Relying upon the Michigan Supreme Court's decision in Toussaint, I maintain that the State created a longstanding policy providing for deferred compensation in the form of a tax-exempt pension. As deferred compensation, the State could not renege on its deal with the affected public employees after they had detrimentally relied upon the promises stated in the Retirement Guideline booklets issued by the ORS for decades.

In addition, I argued that the State assumed all the risk in the event that the Legislature changed the law that had been in effect for decades. Thus, even though the Legislature has the power to tax the public employee pensions of the affected individuals, the State could not breach its contract with them by not paying deferred compensation in the form of a tax-exempt pension.  Further, I made it known that I was amending the complaint to allege claims for unjust enrichment and breach of an employment contract under traditional contract law, as well as claims under both the state and federal constitution for violations of the contract clause, takings clause, and due process clause, including both substantive and procedural due process.  As relief, I thus asked the Court of Claims to deny the State's Motion for Summary Disposition under MCR 2.116(C)(8) and (10) but rule that Plaintiffs are entitled to Summary Disposition under MCR 2.116(I)(2).

On October 2, 2013, the State filed its Response in opposition to Plaintiffs' Motion for Summary Disposition pursuant to MCR 2.116(C)(10) and MCR 2.116(I)(1). Essentially, the State claimed that there was no promise made to Mr. Okrie that his pension would forever be tax-exempt and that any expectation on his part was purely "subjective."

On October 4, 2013, the State filed its Response in Opposition to Plaintiffs' Motion for Class Certification pursuant to MCR 3.501, claiming that Mr. Okrie's claims are not typical of the class and that class certification would not promote the "convenient administration of justice" because of the need for "individualized inquiries" and that the "class action is fraught with practical problems."

Amended Verified Class Action Complaint

On September 26, 2013, I filed an Amended Verified Class Action Complaint with the Court of Claims, adding claims for unjust enrichment and breach of employment contract under state law, as well as claims under the state and federal constitution for violations of the contract clause, the "takings" clause, and substantive and procedural due process.

Hearing on Cross-Motions for Summary Disposition on Claims Asserted in Verified Class Action Complaint

On October 9, 2013, Judge Aquilina held a hearing before a packed court-room on the cross motions for summary disposition and my motion for class certification.  The court room was packed with members of the State Employees Retirement Association ("SERA"), which has thrown its support behind this lawsuit, largely due to the unfailing efforts of its president, Bob Kopasz, and its legislative representative, Mary Pollock.  Before the hearing, I had filed my Reply briefs to the State's Responses to my motions for summary disposition and class certification.  Before taking argument on the cross motions, the Court, ruling from the bench, granted my motion to amend the complaint to add the new claims.  During the argument, the State essentially maintained that there was no breach of contract because Mr. Okrie did not have a contractual right to a tax-exempt pension.  In response, I essentially maintained that Mr. Okrie's retirement benefits arose from the defined benefit pension plan that promised a tax-exempt pension, which was a financial benefit that he had earned after many years of service, and thus a binding, enforceable contract right upon retirement.  After the conclusion of argument, Judge Aquilina observed that her decision would be immediately appealed and that it presented difficult legal issues that required diligent analysis.  Thus, she did not make a ruling from the bench, but stated that she would issue a written opinion before December 4.

Cross-Motions for Summary Disposition on Claims Added in Verified Class Action Complaint

On November 1, 2013, I filed another Motion for Summary Disposition pursuant to MCR 2.116(C)(10) and MCR 2.116(I)(1) and a Brief in Support as to the claims added in the Amended Verified Class Action Complaint regarding the breach of an employment contract and unjust enrichment under state law, and for claims under the state and federal constitutions for violations of the Contract Clause, the Takings Clause and the Substantive and Procedural Due Process Clauses.  The arguments presented in this brief maintained that Mr. Okrie and the other affected state and public school employees born after 1945 have a legal entitlement to a tax-exempt pension, or alternative benefits that are equal to or greater than those represented by a tax-exempt pension, and that the State could not retroactively take away that legal entitlement without paying damages or making restitution in an amount equivalent or greater than what was being taxed. In short, I presented arguments clearly showing that this is a right that is entitled to legal protection, whether as a contract or property right.  To hold otherwise would be to treat the legal entitlement to a tax-exempt pension as a mere gratuity, which it is not, as the State has conceded.  In the course of my argument, I rely heavily upon the scholarly expertise of various legal authorities on the legal protection afforded public pensions.  In addition, the case law from other jurisdictions, notably, Oregon, North Carolina and Minnesota, which have addressed the legality of eliminating tax-exemptions on public pensions, supports the positions taken in this motion for summary disposition.  In the end, to protect or not to protect, that is the question that must be answered in this litigation.  It is a question that Attorney General Frank Kelley raised but did not completely answer in an AG Opinion issued in 1991.  In that Opinion, the then Attorney General recognized that while the State could eliminate the tax exemption for public pensions, it had to provide financial benefits that were equal to or greater than those provided by a tax-exempt pension.  Because the State must  provide equivalent or greater financial benefits in exchange for the elimination of the tax-exemption, Plaintiffs are thus entitled to contract damages or restitution from the State.  The Court of Claims scheduled a hearing on my next Motion for Summary Disposition for 9:00 a.m. on Friday, December 13, 2013.

Actus Interruptus: 2013 PA 164 -- Transferring the Court of Claims to the Court of Appeals

Unbeknownst to the public, subsequent to the hearing on October 9, 2013 before Judge Aquilina, the Michigan Legislature was in the process of taking action in record time to transfer the Court of Claims from the Ingham County Circuit Court to the Michigan Court of Appeals.  Specifically, Senate Bill 652, restructuring the Court of Claims and altering its jurisdiction, was introduced on October 24, 2013, and referred to the Committee  on Judiciary.  On October 30, 2013, a substitute bill was reported favorably by the Committee, with a recommendation for immediate effect.  After suspending the rules, the Senate passed the bill with immediate effect (46 in favor, 11 opposed, 1 excused) on October 30.  It then went to the House of Representatives, which referred the bill to the Committee on Governmental Operations on October 31, 2013.  That Committee recommended it without amendment on November 5, 2013, and the bill immediately went for a hearing in the House, with public commentary, on that date.  On November 6, 2013, it passed the House with immediate effect (57 in favor, 52 against). After a full title was inserted, it returned to the Senate, where it was enrolled on November 7, 2013.  On November 12, it was presented to  Governor Snyder, who signed it on November 13, 2013 as Public Act 164 of 2013, with immediate effect.

For the purposes of this lawsuit, the key elements of 2013 PA 164 are: (1) the transfer of the Court of Claims from the jurisdiction of the 30th Circuit Court (Ingham Circuit Court) to the Court of Appeals (COA); (2) the composition of the Court of Claims: four COA judges from at least two COA districts, who are handpicked the Supreme Court; (3) the transfer of all matters pending in the Court of Claims as of the amendatory act's effective date (November 12, 2013) to the clerk of the Court of Appeals, acting as the clerk of the Court of Claims, for assignment to a Court of Appeals judge sitting as a Court of Claims judge; and (4) granting the Court of Appeals original jurisdiction over challenges to the transfer of the Court of Claims from the 30th Circuit to the Court of Appeals. As already noted, the day after the bill was signed, the Michigan Supreme Court, pursuant to the Act, issued an order appointing four judges of the Court of Appeals to sit as the Court of Claims for terms expiring May 1, 2015. They are: Hon. Michael J. Talbot (Court of Appeals District 1); Hon. Pat M. Donofrio (Court of Appeals District 2); Hon. Deborah A. Servitto (Court of Appeals District 2); and Hon. Amy Ronayne Krause (Court of Appeals District 4). Judge Talbot was appointed chief judge. Because  2013 PA 164 went into effect immediately, it retroactively applies to all pending cases in the Court of Claims, including this one that was before Judge Aquilina.

On November 14, 2013, an Order was issued (but not disseminated to the affected parties in violation of elementary principles of due process) from the "State of Michigan Court of Claims" regarding "All Matters Pending in the Court of Claims as of November 13, 2013." The Order provides:

Michael J. Talbot, Chief Judge, acting under MCL 600.6419 (as amended by 2013 PA 164 effective November 12, 2013) orders:

Proceedings in all matters pending in the Court of Claims as of the [sic] November 12, 2013, effective date of 2013 PA 164 are STAYED for a period of 30 days from the date of the clerk's certification of this order."

The order is signed by Michael J. Talbot, Chief Judge, and "[a] true copy [was] entered and certified by Jerome W. Zimmer Jr., Clerk, on November 14. 2013.  Given this Order, it would appear that the hearing scheduled for December 13, 2013 will have to be rescheduled.

Opinion and Order granting the State's Motion for Summary Disposition, denying Plaintiffs' Motion for Summary Disposition, and dismissing Plaintiffs' Motion for Class Action Certification

Previously, on November 5, 2013 (the date on which the House conducted the hearing on SB 652), Judge Aquilina signed an Opinion and Order denying my motion for summary disposition on the breach of contract claim based upon the doctrine of promissory estoppel but granting the State's motion for summary disposition as to this cause of action and dismissing the class action.  On November 25, 2013, I timely filed a Motion for Reconsideration of that Opinion and Order with the Court of Appeals acting as the Court of Claims in compliance with the Court's November 14, 2013 order. In pertinent part, I stated the numerous "palpable errors" of law in that Opinion and Order, with the principal error being the court's failure even to mention Toussaint (let alone address it), which was the centerpiece of my argument for a breach of contract based upon the doctrine of promissory estoppel.

On November 6, 2013 (the date on which the House passed SB 652), the State filed a Motion for Summary Disposition as to the claims asserted in my amended verified complaint alleging breach of employment contract and unjust enrichment under state law, as well as violations of the Contracts Claus, Takings Clause, and Substantive and Procedural Due Process Clauses under the state and federal constitutions.  While I was in the midst of preparing a Brief in Opposition to the State's Motion for Summary Disposition,  I set aside that work in order to prepare a Petition challenging the constitutionality of transferring the Court of Claims from the 30th Circuit to the Court of Appeals. As already noted, this Petition will be filed in the Court of Appeals, which was given original jurisdiction in this matter.

Petition in the Court of Appeals Challenging the Constitutionality of 2013 PA 164

As promised, on December 13, 2013, I filed a Petition and a Brief in Support with the Michigan Court of Appeals challenging the constitutionality of the Act, asking the Court of Appeals to stay proceedings in the Class Action Lawsuit until these constitutional issues are resolved.  The filing date of December 13 was chosen because it was the expiration date of the order entered by Judge Talbot, acting as the Chief Judge of the Court of Claims, staying proceedings of the cases pending in the Court of Claims at the time that 2013 PA 164 was enacted.  Presumably, because the Court of Appeals judge to be assigned to our case was thereby authorized to resume the proceedings in this matter, it became necessary for me to challenge immediately the jurisdiction of the Act.  The underlying contention is that 2013 PA 164 represents an unconstitutional move on the part of the Legislature, the Governor and the Attorney General, threatening the integrity of the judicial system in this State, calling into question its fidelity to the principles of law and justice.  Specifically, the Act makes a mockery of the idea of an independent judiciary, particularly calling into question the integrity of the Michigan appellate process, in violation of the doctrine of separation of powers under the state constitution and due process under the state and federal constitutions.  It also violates the Incompatible Offices Act, which prevents a judge from holding another office where the two offices are incompatible or where their functions are inconsistent, thus precluding conflicts of governmental interests that threaten the free, disinterested and impartial exercise of the judicial function.  As I set forth in my Brief, the Act seeks to redesign the constitutional architecture of state government, interfering with the institutional independence of the judiciary as a separate and co-equal branch of government, which it is not allowed to do under the Michigan Constitution. As the Michigan Supreme Court observed in Transport Workers Union v Genesee Circuit Judge, 322 Mich 332, 346-347 (1948),

"[T]he absolute independence of the judiciary from executive or legislative control is of transcendent import. Our form of government cannot be maintained without an independent judiciary; and, if we as a people submit to a mingling of governmental power, we then accept in fact that which we most abhor - one man autocratic control - and the constitutional safeguards of our Nation and State would then be abrogated."

Developments after the Filing of the Petition

Because the Petition is an "original proceeding" in the Court of Appeals, it is treated as though it were an Application for Leave to Appeal, with the opposing side allowed 28 days to file an answer.  However, on January 3, 2014, the date on which its Answer was due, the State of Michigan filed a Motion seeking a 28-day extension until January 31, 2014 to file its Answer.  Afterwards, I contacted Mr. Gerald Zimmer, the Chief Clerk of the Court of Appeals as well as Court of Claims, to inquire about the status of the Class Action lawsuit and the procedure in the Court of Appeals for the Petition.  Even though the order staying proceedings in the Class Action Pension Lawsuit expired on December 13, 2013, I had yet to receive any notice from Court of Claims about the status of the case, in violation of elementary principles of due process.  At any rate, Mr. Zimmer informed me that Court of Appeals Judge Deborah Servitto had been randomly assigned to the case, even though I had not received any written notice to that effect.  As for the Petition, Mr. Zimmer confirmed my understanding that the Petition, being an "original proceeding," is assigned to a Court of Appeals Commissioner for a report before going to a randomly selected three-judge panel of the Court of Appeals for a decision.  According to the court rule, MCR 7.206(D), oral argument is not available "on a preliminary hearing of a complaint," and "the court may deny relief, grant peremptory relief or allow the parties to proceed to a full hearing on the merits in the same manner as an appeal of right . . . ."

Thereafter, on January 21, 2014, I filed a Motion to Stay the Proceedings in the Court of Claims in order to ensure that no proceedings were conducted in the Class Action lawsuit by Court of Appeals Judge Servitto before the constitutionality of 2013 PA 164 was definitively resolved.  Then, on January 29, 2014, the Court of Appeals granted the State's Motion for an Extension of Time to file its Answer.  On the following day, I filed a Motion for Oral Argument in the Court of Appeals as to the Petition.  While oral argument is typically unavailable in such cases, I believe that this case has special jurisprudential significance, particularly affecting judicial independence in ensuring the democratic rule of law in Michigan.  Given that the Legislature rammed the Act through in record-setting time with virtually no public deliberation, I hope that the Court of Appeals would grant the motion so that the merits of the respective positions may be debated in public, allowing interested parties to file amicus briefs for or against, and thus enabling the Court of Appeals to make the most reasoned decision possible under the circumstances.  On January 31, 2014, the State filed its Answer to the Petition.  Essentially, the State's position is that the Legislature had the power to assign the Court of Claims to the Court of Appeals without running afoul of the Michigan Constitution in violation of the separation of powers doctrine and the due process clauses under the state and federal constitutions.

Rulings in the Class Action Lawsuit

After hearing nothing from the Court of Claims for months, as if the due process clause had been suspended, Court of Appeals Judge Deborah A. Servitto, acting as a judge on the Court of Claims, issued an Opinion and Order on February 10, 2014 denying Plaintiffs' Motion for Reconsideration of Judge Aquilina's November 5, 2013 order denying the promissory estoppel claim  and dismissing the motion for class certification as "moot." Recall that the Motion for Reconsideration was timely filed on November 25, 2013.  In a letter dated the same, Judge Servitto addressed the Motion to Stay the Proceedings in the Class Action Lawsuit pending the Court of Appeals' determination of the Petition challenging the constitutionality of 2013 PA 164, which transferred the Court of Claims from Ingham Circuit Court to the Court of Appeals.  Specifically, Judge Servitto said that "[t]he motion shall be heard on February 25, 2014," but "[t]he Court shall dispense with oral argument," and that the State could file an answer by February 18, 2014. On February 14, 2014, the State filed an Answer in Opposition to Plaintiffs' Motion for Stay of Proceedings, basically on the ground the 2013 PA 164 is constitutional.

Because I wanted to amend the Class Action lawsuit and because the Motion for Class Certification had been dismissed unless I filed an amended motion, I filed a Second Amended Verified Class Action Complaint and an Amended Motion for Class Certification on February 21, 2014.  The Amended Complaint added two counts: one for breach of the investment contract regarding the purchase of service credit by retired state and public school employees and the other for breach of the Member Investment Plan (MIP) contract by retired public school employees. The Second Amended Verified Class Action Complaint now consists of ten counts. What is significant about these added counts is that they involve individual investment decisions -- not state employment contracts -which were conditioned upon the investment returns being tax-exempt.

In any event, as expected, Judge Servitto denied the Motion to Stay the Proceedings in the Class Action lawsuit in an order entered on February 25, 2014, but inexplicably stated that "no constitutional challenge has been raised in the case at bar" and that "[t]o delay this case would be contrary to the interests of justice and could potentially halt on all matters pending in the Court of Claims for several months." Considering that the Petition challenging the constitutionality of 2013 PA 164 had been appended, it was hard to comprehend Judge Servitto's statement that "no constitutional challenge has been raised in the case at bar." As for delay, it was entirely attributable to the Legislature and the Governor for stopping this litigation in its tracks for months.

In any case, if 2013 PA 164 is unconstitutional, then Court of Appeals Judge Servitto has no legal authority to act as a Court of Claims judge, and all her rulings in such a capacity are therefore legally invalid.  For that reason, I filed in the Court of Appeals a Motion to Stay the Proceedings in the Class Action lawsuit on March 11, 2014.  In view of the constitutional importance of this case, I also filed a Motion for Immediate Consideration with the Court of Appeals.

Afterwards, Court of Appeals Judge Servitto, acting as a judge of the Court of Claims, sent me a letter dated March 12, 2014, stating that the State of Michigan filed a second motion for summary disposition on November 6, 2013, but that there was no record of Plaintiffs' answer, and that the State had yet to respond to Plaintiffs' Second Amended Verified Class Action Complaint. Interestingly, the letter failed to mention that Plaintiffs also filed a second motion for summary disposition in this matter on November 1, 2013, and that these cross-motions were noticed for a hearing before Judge Aquilina on December 13, 2013, which was canceled and never rescheduled. (Nor was there any mention in the letter of Plaintiffs' Amended Motion for Class Certification and Brief in Support). The letter, however, informed me that Plaintiffs' Motion to file a Second Amended Verified Class Action Complaint and Defendants' Motion for Summary Disposition was to be decided by Judge Servitto on March 25, 2014, but without a hearing or any oral argument, despite the fact that the parties' cross-motions for summary disposition had previously been noticed for a hearing on December 13, 2013, which was canceled after the Legislature and Governor transferred the Court of Claims to the Court of Appeals.  The letter further stated that Plaintiffs' answer to Defendants' Motion for Summary Disposition must be received by Court of Appeals Judge Servitto in her office in Troy, Michigan by Tuesday, March 18, 2014.

Consequently, I prepared a Brief in Opposition to the State's Motion for Summary Disposition and sent it by priority mail for filing by the due date.  In response, I respectfully requested that Court of Appeals Judge Servitto recognize that she lacks constitutional authority to act as a judge of the Court of Claims in this matter, attaching as an exhibit the Motion to Stay and supporting brief that I had just filed with the Court of Appeals on Tuesday. But even if Court of Appeals Judge Servitto did have authority to act as a Court of Claims judge, the abrupt nature of her letter, ignoring that Plaintiffs have a pending Motion for Summary Disposition, directing Plaintiffs to file an answer with virtually no notice and then cancelling oral argument on Defendants' Motion for Summary Disposition and Plaintiffs' Motion to Amend their Verified Class Action Complaint  was violative of due process under the state and federal constitutions.  In any event, I asked that the State's Motion for Summary Disposition be denied, and that Plaintiffs' Motion for Summary Disposition be granted, and that Plaintiffs be allowed to amend their complaint to add two claims for breach of investment contracts regarding the purchase of service credit and the Member Investment Plan (MIP) and that this Court grant their Amended Motion for Class Certification.

Developments in the Petition Lawsuit

While the Petition case challenging the constitutionality of the transfer of the Court of Claims to the Court of Appeals was pending in the Court of Appeals, the State of Michigan filed an Answer on March 24, 2014 in opposition to my Motion to Stay the proceedings before Court of Appeals Judge Servitto acting as a judge of the Court of Claims until the constitutional challenge was resolved.  Then, on April 1, 2014, the Court of Appeals submitted my motion for oral argument in the Petition case to a special motion docket for a determination of whether to allow argument on the constitutional challenge.  In an order issued on April 17, 2014, the Court of Appeals granted my motion for oral argument, scheduling it for 9 am. on July 8, 2014 in the Court of Appeals' courtroom on the 14th Floor of the Cadillac Place in Detroit.  The order specified that each side would be allowed one-half hour to address the Court of Appeals in a special session.  In addition, the Court of Appeals invited interested groups to file amicus briefs.

Summary Dismissal of the Class Action Pension Lawsuit

As foreshadowed by her previous rulings, Court of Appeals Judge Servitto, acting as a Court of Claims judge, issued an Opinion and Order on April 21, 2014, granting the State's Motion for Summary Disposition as to the claims asserted in my First Amended Complaint and denying my Motion for Summary Disposition as to those claims, my Motion to File a Second Amended Complaint to add claims for breach of the Member Investment Plan contract (MIP) and breach of the contract to purchase service credit time, as well as my Amended Motion for Class Certification.  In her Opinion and Order, Judge Servitto essentially relied upon the Supreme Court's decision in In re Request for Advisory Opinion Regarding the Constitutionality of 2011 PA 38, despite the fact that advisory opinions are not binding on the courts.  More surprisingly, Judge Servitto denied the Motion to File a Second Amended Complaint as "futile" on the ground that "Plaintiff's proposed claims are simply variations on the theme of the previous two complaints" based upon a "perpetual tax exemption."

Motion for Reconsideration of the Summary Dismissal of the Class Action  Lawsuit

Within 21 days of the date of the Opinion and Order on April 21, 2014, I filed a Motion for Reconsideration on May 7, 2014 with Judge Servitto challenging the summary dismissal of the class-action lawsuit.   First, as before, I challenged the jurisdictional authority of Judge Servitto to sit simultaneously on the Court of Appeals and Court of Claims and rule as a Court of Claims judge on this case.  Second, I claimed that Judge Servitto abused her discretion by not rescheduling the hearing date for the parties' cross-motions for summary disposition. Third, I maintained that the Michigan Supreme Court's decision in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011) ["Advisory Opinion"] could not be considered "persuasive authority" because it did not address the specific arguments that Plaintiffs raise on behalf on their claims in this case. Fourth, I again argued that the United States Supreme Court's decision in Winstar supports Plaintiffs' claim that the State cannot deny the financial benefits of their tax-exempt pensions by subsequently changing the tax law in this respect. See United States v Winstar Corp, 518 US 839 (1996)(holding that the government is liable for damages when a subsequent, targeted change in the tax law is made that deprives a contracting party of favorable tax treatment that the government specifically used as an inducement or consideration).  Again, it was reiterated that Plaintiffs were not contesting whether the statutory tax exemption was revocable as to active or current public employees, but rather whether the revocation of the statutory tax exemption may be applied to them without the payment of comparable financial benefits, relying upon the Attorney General's formal opinion from 1991, stating:

It is my opinion, therefore, that the Legislature may, without violating Const 1963, art 9, § 24, limit or repeal the tax exemptions now found in the four retirement statutes as to current retirees and members if it provides alternative benefits in their place that are equal to or greater than the pension benefit[s] that would be limited or withdrawn since there would be no constitutionally cognizable impairment of the pension benefit[s]. [OAG No. 6697, p 6; 1991 AG LEXIS 39](emphasis added.)

The Motion for Reconsideration also claimed that Plaintiffs' proposed counts for breaches of the Michigan Investment Plan (MIP) Contract and the Purchase of Service Credit Contract were not "futile," and that absent any briefing or argument, Plaintiffs simply were not given an opportunity under the Due Process Clause to demonstrate whether their proposed amendments were "futile."  Finally, I claimed that Plaintiffs' should be permitted to amend their Complaint to add proposed counts for fraud in the inducement and gross negligent misrepresentation.

At the time, I believed that the motion would be quickly dispatched, making way for an appeal as of right of the Class Action case to the Court of Appeals, probably in June, 2014.  But no opinion and order was issued, posted or publically docketed by the Court of Claims, so the Class Action lawsuit officially was held in abeyance, apparently pending the outcome of the Petition case, which called into question the constitutional authority of Judge Servitto to act as a Court of Claims judge in this matter.  

Oral Argument on July 8, 2014 before the Court of Appeals in the Petition Case

On July 8, oral argument was held before a special session of the Michigan Court of Appeals (Judges Hoekstra, Beckering, Fort-Hood) on whether the Michigan Legislature's passage of 2013 PA 164, which was signed into law by Governor Snyder on November 13, 2013, transferring the Court of Claims to the Court of Appeals, was unconstitutional in violation of the separation of powers doctrine under the Michigan Constitution and the Due Process Clauses of the state and federal constitutions. For the oral argument, I primarily confined my presentation to the separation of powers argument; on rebuttal, I addressed the due process argument.

In what follows, I have reproduced (for those who are interested) much of what I prepared to say about the separation of powers argument for the oral argument, only some of which I was able to deliver directly or in response to the Court's questions in the limited time available.

First, as the point of departure for deciding the separation of powers question, I asked the Court to begin by interpreting the text of the constitutional provisions at issue, Art 3, § 2, Article VI, § 1, § 8 and § 10 of the 1963 Michigan Constitution.

Article III, § 2, Separation of powers of government, provides:

The powers of government are divided into three branches: legislative, executive and judicial. No person exercising powers of one branch shall exercise powers belonging to another branch except as expressly provided in this constitution.

Article VI, § 1, Judicial power in court of justice; divisions, provides:

The judicial power of the state is vested exclusively in one court of justice which shall be divided into one supreme court, one court of appeals, one trial court of general jurisdiction known as the circuit court, one probate court, and courts of limited jurisdiction that the legislature may establish by a two-thirds vote of the members elected to and serving in each house.

Article VI, § 8, Court of appeals; election of judges, divisions, provides:

The court of appeals shall consist initially of nine judges who shall be nominated and elected at non-partisan elections from districts drawn on county lines and as nearly as possible of equal population, as provided by law. The supreme court may prescribe by rule that the court of appeals sit in divisions and for the terms of court and the times and places thereof. Each such division shall consist of not fewer than three judges. The number of judges comprising the court of appeals may be increased, and the districts from which they are elected may be changed by law.

Article VI, § 10, Jurisdiction, practice and procedure of court of appeals, provides:

The jurisdiction of the court of appeals shall be provided by law and the practice and procedure therein shall be prescribed by rules of the supreme court.

For interpreting the constitution, the Michigan Supreme Court, as reaffirmed in the recently decided case of Makowski v Governor, slip op, p 6; quoting Soap & Detergent Assn v Natural Resources Comm, 415 Mich 728, 745 (1982), has developed two rules of construction.

First, the interpretation should be "the sense most obvious to the common understanding; the one which reasonable minds, the great mass of the people themselves would give it, in ratifying the proposed 1963 Constitution. Thus, we look to the common understanding of the voters in the April 1, 1963 election who ratified the proposed Constitution that was presented to them after the Constitutional Convention of 1961 and 1962.

Second, we consider "the circumstances surrounding the adoption of the constitutional provisions at issue and the purpose sought to be accomplished." To this end, this Court looks to the debates in the Constitutional Convention record and related contemporaneous documents published about the proposed Constitution. While the Constitutional Convention record and the contemporaneous documents about the proposed Constitution are not controlling or determinative, they may be considered to be "illuminating, affording a sense of direction. " Makowski, supra, quoting from House Speaker v Governor, 443 Mich 560, 581 (1993).

The sense most obvious to the common understanding of these Articles (Art. III, sec. 2 and Art. VI, secs. 1 and 10) is that what was created in the 1963 Constitution was an integrated judicial structure ("one court of justice"), which is divided into separate and distinct levels of judicial administration, with the newly-created Court of Appeals having constitutional status as an intermediate appellate court between the Supreme Court and circuit courts and other trial-level courts -- probate courts, and legislatively created courts of limited jurisdiction. Thus, the 1963 Constitution confers appellate jurisdiction upon the Court of Appeals, with the Legislature given the power to enact statutes (i.e., provide by law), which specify the scope of the Court of Appeals' appellate jurisdiction, and with the Supreme Court conferred the power to provide the rules of practice and procedure of the Court of Appeals. What stands out prominently is that the 1963 Constitution created the Court of Appeals as an intermediate appellate court, conferring upon it appellate jurisdiction, authorizing the Legislature to implement that appellate jurisdiction and the Supreme Court to provide the rules of practice and procedure for this Court.

This common understanding of these Constitutional provisions is thoroughly supported by the circumstances surrounding the adoption of the constitutional provisions at issue and the purpose sought to be accomplished. Specifically, this common understanding was made clear to the people of Michigan by their elected delegates to the Constitutional Convention of 1961-1962 in the Address to the People, which was distributed to all the voters before the election and which recognized that one of the major points of the Convention was "a desire to strengthen, each in its proper sphere, the three co-ordinate branches of state government - executive, legislative and judicial." Address, p 3. As to the Judicial Branch, the Address stated that one of the changes was a "unified state court system" that established a "New Court of Appeals," an intermediate appeal court of nine elected justices immediately below the supreme court to promote the speed and administration of state justice." Address, pp 6-7.

More specifically, the Address noted that Article VI, § 1, "creates a 'court of justice,' incorporating the concept that the state has a single court with several divisions, each devoting its attention to a certain level of judicial administration." The Address further noted that Article VI, § 1 "creates an intermediate appellate court between the circuit courts and the supreme court," and that "[s]uch a court would share part of the present work of the supreme court and becomes necessary, it is believed, because of a mandate in Article 1 (§ 20) of this new document which grants an appeal as a matter of right in criminal cases. " Address, p 55. The Address also provides that Article VI, § 10 is "a new section providing that jurisdiction of the court of appeals shall be established by the legislature. Practice and procedure are to be provided by rules of the supreme court."

The Address to the People crystalized the efforts of the delegates in formulating the proposed Constitution. This is spelled out in the Citizens' Advisory Committee Report on "The Judicial Department," which was prepared for Governor John B. Swainson in September 1961. Specifically, it notes that the proposed new judicial article (Article VII) for the Judicial Department "would add an intermediate Court of Appeals to our Judicial structure" and "lay the groundwork for a unified Court system," and that "[t]here is, under the present Constitution and statutes, a very diversified Court structure." (CAC Report, p 1). As for the Jurisdiction of the Court of Appeals, the CAC Report stated that the proposed Article VII, § 9 would provide the following.

The Court of Appeals shall have no original jurisdiction, except that it may be authorized by rules of the Supreme Court to review directly decisions of administrative agencies of the State and it may be authorized by rules of the Supreme Court to issue prerogative writs either as original jurisdiction or as necessary and appropriate to its appellate jurisdiction. In all other cases, it shall exercise appellate jurisdiction under such terms and conditions as the Supreme Court shall by rule prescribe. Such rules prescribe authority for the Court of Appeals to review and revise sentences in criminal cases.

The Comment provides

The proposed draft assumes that the Court of Appeals shall be the final Court of appellate jurisdiction in all cases except those which the Supreme Court chooses to review. It also assumes that the Supreme Court may grant jurisdiction to the Court of Appeals to review directly decisions of administrative agencies in the State. It also assumes that the Supreme Court can and will authorize the Court of Appeals to issue prerogative writs, either as original jurisdictions or as necessary for tis appellate jurisdiction. It leaves to the Supreme Court the power to prescribe the scope of the appellate jurisdiction. This is consistent with the earlier section which theoretically gives the Supreme Court power to indicate where appeals shall lie from each Court of original jurisdiction. (CRC Report, p 13).

The circumstances surrounding the adoption of the constitutional provisions at issue and the purpose sought to be accomplished are also addressed in many contemporaneous analyses by the Citizen Research Council of Michigan. For example, in its Memorandum No. 202, issued in October 1961, The State Constitution: Its Nature and Purpose by Mr. Paul Kauper provides in pertinent part the following about the Judiciary:

Here the important questions relate to the organization of the judicial department; the structure of the court system; . . . and the general authority of the Michigan Supreme Court in respect to such matters as rule making and the supervision of the lower courts. A primary consideration that affects a number of these questions is to assure as far as practicable by constitutional means the independence of the judiciary. An important problem requiring attention is whether the judicial system (the types of courts and their respective jurisdictions) shall be spelled out or whether the constitution shall outline the general structure and vest power in the legislature to fill in the details. (Memorandum, p 18).

In the Conclusion, the Memorandum notes:

The constitutional convention of 1961 will not be starting from scratch. The state of Michigan has an extended constitutional history and tradition that began with the adoption of the first constitution in 1835. Any revised constitution must keep faith with the adoption of the first constitution in 1835. Any revised constitution must keep faith with the past and with what has been determined by experience to be the enduring values of a government resting on the consent of the people . . . (Memorandum, p 25).

Prior the election on April 1, 1963 in which the proposed new state constitution was to be ratified or rejected by the state voters, the CRC also issued An Analysis of the Proposed Constitution (No. 2) on December 17, 1962. One of the major changes that it noted was that "a new feature guarantees an appeal as a matter of right in all criminal prosecutions." (CRC Analysis, No. 2 , p 1). The CRC also issued An Analysis of the Proposed Constitution (No. 6) on December 28, 1962 as to The Judicial Branch. It noted:

The proposed constitution makes the following major changes with respect to the judicial article:

1. Provisions to effectuate a unified judicial system.

2. Increased judicial and administrative authority for supreme court as head of the state court system.

3. A new court is established - an intermediate court of appeals - subordinate only to the supreme court. (CRC Analysis, No. 6, p 1)

The Analysis specifically observed:

Under the proposed constitution, the state judicial power is "vested exclusively in one court of justice" - divided into the supreme court, the court of appeals, the circuit court (designated as a trial court of general jurisdiction), the probate court, and "courts of limited jurisdiction" which may be established by law for which a two-thirds vote of the legislature is required. . . .

The intermediate court of appeals provided for in the proposed constitution is intended to relieve the supreme court of some of its appellate load and permit the supreme court greater discretion to sift judicial cases and concentrate on those involving more important questions. This and other features intended to increase the supreme court's judicial and administrative supervision of the other courts would emphasize the supreme court's role as head of a unified state judicial system. (CRC Analysis, No. 6, p 2)

As to the powers of the Supreme Court, the Analysis stated in pertinent part:

The supreme court retains unchanged its "general superintending control" over all courts and under its original jurisdiction the power to issue, hear and determine prerogative and remedial writs. Various changes have been made affecting the powers of the supreme court:

1. The court's appellate jurisdiction would be specifically under its own control - "as provided by the rules of the supreme court." (CRC Analysis, No. 6, p 3)

As to the Court of Appeals, the Analysis stated in pertinent part:

The new intermediate court of appeals, inferior only to the supreme court, would have nine judges, but this number could be increased by law.

***

4. The court of appeals' jurisdiction would be prescribed by law.

5. The sessions of the court of appeals and its practice and procedure would be prescribed by the supreme court. . . . (CRC Analysis, No. 6, p 3)

Finally, in its 1963 publication, A Digest of the Proposed Constitution, the CRC noted:

The Judicial Branch

Considerable contention surrounded the judicial branch proposals. . . .

Underlying the final decisions was the concept of a unified court system - one court of justice divided into a four-tier system of constitutional courts, with a fifth tier of "courts of limited jurisdiction" permitted by a two-thirds vote of the legislature. (CRC Digest, p 15).

Interpreting the Constitutional provisions at stake in accordance with these two criteria - the common understanding of the electors and the circumstances surrounding the adoption of the Constitution - leads to the ineluctable conclusion that while the Legislature has the power to specify the scope of the Court of Appeals' appellate jurisdiction, it does not have the power under the 1963 Constitution to add to or expand to the appellate jurisdiction of the Court of Appeals by combining it with a legislatively-created court of limited jurisdiction, an inferior trial-level court whose judgments and orders are subject to appellate review by the Court of Appeals, an intermediate appellate court.

The text of Article VI, § 1 makes this abundantly clear: there is "one court of justice which shall be divided into different courts, which have different judicial functions assigned to them. As the Supreme Court noted in Buback v Governor, 380 Mich 209, 226 (1968):

For the first time, the judicial article speaks of the judiciary in terms of one court of justice. That one court of justice is the judicial branch. The courts which make up the one court of justice do not exercise identical or corresponding jurisdiction. Each has its particular level of judicial administration.

Tellingly, there is no mention whatsoever in the 1963 Constitution of combining the Court of Appeals with a lower court. But if the 1963 Constitution wanted to allow the Legislature to combine the Court of Appeals with an inferior court, it certainly knew how to do it. See Giannotta v Governor, 71 Mich App 15, 18 (1976) (noting that "the Supreme Court has approved the interpretive method of comparing related provisions of the law in order to reach an understanding of what the drafters actually intended by their use or omission of terms"), citing Viculin v Dep't of Civil Service, 386 Mich 775, 390-392 (1971) and Evans v US Rubber Co, 379 Mich 457, 460-463 (1967).

For example, Art 6, § 15 provides in pertinent part:

In each county organized for judicial purposes there shall be a probate court. The legislature may create or alter probate court districts or more than one county if approved in each affected county by a majority of the electors voting on the question. The Legislature may provide for the combination of the office of probate judge with any judicial office of limited jurisdiction within a county with supplemental salary as provided by law. The jurisdiction, powers and duties of the probate court and of the judges thereof shall be provided by law. . .

As the Court in Buback noted:

The Constitution of 1963 does not define the entire jurisdiction of probate courts. This responsibility is left to the Legislature by article, 6, § 15:

"The jurisdiction, powers and duties of the probate court and of the judges thereof shall be provided by law."

The committee on style and drafting of the constitutional convention of 1961 made a distinction in the use of the words "prescribed by law" and the words "provided by law." Where "provided by law" is used, it is intended that the legislature shall do the entire job of implementation. Where only the details were left to the legislature and not the overall planning, the committee used the words "prescribed by law." See 2 Official Record, Constitutional Convention of 1961, pp 2673-2674.

The provision of the 1963 Constitution last quoted above placed the responsibility on the legislature to draft the law but did not grant authority for departure from the requirements and proscriptions of the Constitution. It does not have the effect of permitting disregard of the separation of powers article. [380 Mich at 226-227.]

The same is true here. Unlike probate courts, the Constitution made no provision for the Legislature to combine the Court of Appeals, or the functions of its judges with another judicial office of limited jurisdiction, as the Legislature did here with the enactment of 2013 PA 164, which incidentally provided for combining judicial offices but with no supplemental salary to the judges designated by the Supreme Court to serve concurrently two-year renewable terms as Court of Claims' judges. Moreover, while the Constitution commanded the Legislature to implement the Court of Appeals' appellate jurisdiction, see MCL 600.308, it did not provide that the Legislature could increase or expand that appellate jurisdiction to include the jurisdiction of a legislatively-created court with limited jurisdiction. In short, there is no authority in the Michigan Constitution permitting the Legislature to combine the Court of Appeals with the Court of Claims. Therefore, the Act violates the separation of powers article of the 1963 Michigan Constitution.

Further, under the doctrine of the separation of powers, the Legislative cannot encroach on or unduly burden or interfere with, the judicial department in the exercise of judicial functions. Thus, courts cannot be hampered or limited in the discharge of their functions by the legislative branch. See Michigan Civil Rights Com v Clark, 390 Mich 717 (1973); State Bar of Michigan v Galloway, 124 Mich App 271 (1983), aff'd 422 Mich 188 (1985); Gray v Hakenjos, 366 Mich 588 (1962). By adding to or expanding the appellate jurisdiction of the Court of Appeals, the Legislature is interfering with the Court of Appeals in the exercise of its appellate decision-making functions, removing four judges designated by the Supreme Court (as ordered to do so by the Legislature pursuant to the Act -- another violation of the separation of powers doctrine) from full-time work as appellate judges -- which the voters elected them to do -- assigning them to work as well as unelected trial court judges on the Court of Claims.

Finally, Article VI, § 8 provides that "the supreme court may prescribe by rule that the court of appeals sit in divisions," and that "Each such division shall consist of not fewer than three judges." See Justice O'Hara's dissenting opinion in In re Application of Governor, Jurisdiction of Court of Appeals, 381 Mich 1, 12 (1968)(no answer given by opinions released)("We construe this section of the judicial article as some indication that judges of the appellate Court were not intended to sit individually as one-man grand jurors."); See also Justice Adams' opinion for denial of jurisdiction, 381 Mich at 16)(no answer given by opinions released)("Lacking jurisdiction as a court, for any reason, over the suspected criminal offense, the judge may not proceed as a grand juror. The point is, it is the jurisdiction of the court that controls the power of a judge to proceed under the statute." ); ("Every grant of jurisdiction to the Court of Appeals, it is to be noted, is one of appellate or supervisory jurisdiction.") ("It is beyond question that the purpose of the creation of the Court of Appeals was to create an intermediate appellate court to provide speedy, adequate, and final review of the majority of appeals of cases from the trial courts of this State. Because of the large number of such appeals, almost from the very inception of the present 9-man Court of Appeals, the Court has found itself without the necessary manpower to execute that mission.') ("The Court of Appeals is without jurisdiction to entertain the application or designate one of its members as a grand juror.").

The Court of Appeals' Decision in the Petition Case; the Supreme Court's Denial of the Leave Application

On August 19, 2014, the Court of Appeals issued a published opinion denying the Petition and finding that 2013 PA 164 ("the Act"), which transferred the Court of Claims to the Court of Appeals,  was constitutional.  Okrie v. State, 2014 Mich. App. LEXIS 1539 (2014)(Docket No. 319550).  In principal part, the Court of Appeals rejected the claim that the transfer violated the separation of powers doctrine "because the Legislature has authority over the Court of Claims, it could transfer the functions of that court from the circuit court to this Court."  The Court of Appeals also found that there was no showing that its jurisdiction was exclusively appellate jurisdiction as an intermediate appellate court or that 2013 PA 164 "fundamentally altered this Court's jurisdiction" and that the Court of Claims is functioning as a trial court within the Court of Appeals since its transfer.  In addition, the Court of Appeals rejected the claim that there was no meaningful appellate review since there was an internal procedure to avoid conflicts.  The Court of Appeals also denied that there was a violation of the due process clauses under the state and federal constitutions because there was no appearance of impropriety, even though "the statute lends itself to lay criticism that an appeal as of right for Court of Claims cases is nothing more than a horizontal or lateral appeal."

On September 19, 2014, I  filed an Application for Leave to Appeal with the Michigan Supreme Court in Lansing, Michigan requesting that the Supreme Court reverse the Court of Appeals' decision and declare the Act as unconstitutional. (Okrie v. State of Michigan, Mich. Sup. Ct., No. 150111).

The principal argument was that 2013 PA 164 ("The Act") violated the separation of powers provision under the 1963 Michigan Constitution, Art 3, § 2, by transferring the Court of Claims from the 30th judicial circuit court (Ingham Circuit Court) to the Court of Appeals and ordering the Supreme Court to appoint four elected judges of the Court of Appeals to serve simultaneously as unelected judges of the Court of Claims for two-year renewable terms. First, the Legislature does not have constitutional authority under Art VI, § 26 to transfer the Court of Claims to the Court of Appeals or to order this Court to appoint four elected Court of Appeals' judges to serve simultaneously as unelected judges on the Court of Claims. Further, the Supreme Court does not have the power of appointment under Art VI, § 27. Moreover, combining the Court of Claims with the Court of Appeals by statute alters the constitutional character of the Court of Appeals as an intermediate appellate court in violation of Article VI, § 1 of the Michigan Constitution. The Act also violated Art VI, § 8, which requires that Court of Appeals' judges be elected by district and sit in divisions of not fewer than three judges; thus, Court of Appeals' judges cannot sit individually as Court of Claims judges.  In addition, the Act violates the Due Process Clause under the Fourteenth Amendment to the U.S. Constitution and Art 1, § 17 of the Michigan Constitution by depriving Mr. Okrie of his right to an objective, deliberate and reasoned adjudication before a neutral decision maker.

Even though there were at least five jurisdictionally significant issues arising under the 1963 Michigan Constitution calling into question the transfer of the Court of Claims to the Court of Appeals, the Michigan Supreme Court in an order dated February 3, 2015 denied the Application for Leave to Appeal in the Petition case "because we are not persuaded that the questions presented should be reviewed by this Court."

Filing Appeal in the Court of Appeals in the Class Action Lawsuit

After the Supreme Court denied the Application for Leave to Appeal in the Petition case, I assumed that because there was a pending, undecided Motion for Reconsideration in the Class Action case (which I had filed on May 7, 2014), Judge Servitto (the Court of Appeals judge acting also as a Court of Claims assigned to the pension case) would issue an order sometime in February denying the motion, which would then allow the Class Action case to be appealed as of right to the Court of Appeals.  Well, that did not happen.  After waiting several weeks, I finally called the Court of Appeals/Court of Claims Clerk's Office to find out about the status of the pending Motion for Reconsideration, as reflected in the Court of Claims docket.  In early March, the Clerk's Office informed me that Judge Servitto had actually denied the motion in a summary order dated June 17, 2014, but had not made her action publically known by officially entering the order in the Register of Actions for the Court of Claims.  That did not happen until March 12, 2015 when the Clerk's Office officially entered the order on the record, thereby triggering the 21-day period for an appeal as of right.  Thereafter, on March 26, 2015, I filed a timely claim of appeal on behalf of Mr. Okrie and similarly situated retired state and public school employees born after 1945 (Mr. Okrie et al.) from the Court of Claim's orders dismissing their claims.

On May 11, 2015, I e-filed the appeal brief with the Court of Appeals.  The principal theme of the appeal brief is that Mr. Okrie et al. earned deferred compensation after providing decades of governmental services, vesting in defined benefit pension plans administered by the State, through the Office of Retirement Services, retiring and residing thereafter in the State of Michigan. The deferred compensation was payable in the form of tax-exempt defined-benefit pensions in retirement. As the State argued in the Davis litigation, tax exemptions were used as economic inducements to attract and retain individuals to work for the State of Michigan and its political subdivisions.  Thus, tax exemptions functioned as an integral part of the retirement benefits conferred upon state and public school employees. Thus, according to a 1991 Opinion of the Michigan Attorney General issued in the aftermath of the U.S. Supreme Court's decision in Davis, if the State eliminated the tax exemptions then found in the four retirement statutes, it would have to provide alternative benefits in their place to retired state and public school employees that are equal to or greater than the pension benefits taken away from them. Mr. Okrie et al. concur with the view expressed in the Attorney General's Opinion and simply ask that the State of Michigan keep its word to them and their fellow citizens.

Accordingly, I argued that the State breached the employment contracts of Mr. Okrie et al. by taking away their deferred compensation, which was payable in the form of tax-exempt pensions, without providing alternative benefits in their place that are equal to or greater than the value of the tax-exemptions themselves.   Alternatively, absent express employment contracts, the State breached the implied contracts with Mr. Okrie et al. under the doctrine of promissory estoppel.   Further, the State's retention of Mr. Okrie et al.'s deferred compensation constitutes unjust enrichment.   In addition, applying 2011 PA 38, and the related legislation, to Mr. Okrie et al. violates the Contract Clauses of 1963 Const, art 1, § 10 and US Const, art 1, § 10(1) and  the Takings Clauses under 1963 Const Art 10, § 2 and US Const Am V and US Const Am XIV.  Specifically, the Act, as applied to Mr. Okrie et al.,  violates the Contract Clauses because the State abrogates the contracts as to the payment of retirement benefits that they earned in the course of their employment with the State and its political subdivisions.  The Act also constitutes a "Takings" because it simply takes away their deferred compensation without just compensation for the loss of their property.  I also claimed that Mr. Okrie et al. should be allowed to amend the Verified Class Action Complaint to allege Claims for the Breach of the Service Credit Purchase Contract, Breach of the Member Investment Plan (MIP) Contract, Fraud in the Inducement and Gross Negligent Misrepresentation on the part of the State.  Finally, I asked the Court of appeals to remand the case to the Court of Claims for Certification as a Class Action

After filing the appeal brief with the Michigan Court of Appeals on behalf of Mr. Okrie and similarly situated retired state and public school employees born after 1945 (Mr. Okrie et al.), the State of Michigan filed its response on June 15, 2015. Essentially, the State's argument on appeal boils down to the repeated assertion that Mr. Okrie et al. had no right to a tax-exempt pension and that the Legislature could eliminate tax-exemptions for public pensions at any time, even for retired state and public school employees.

On July 1, 2015, I e-filed a Reply Brief with the Michigan Court of Appeals in response to the State of Michigan's appeal brief.  Essentially, the Reply reasserts that the crux of the case is about the payment of deferred compensation that Mr. Okrie et al. earned for their years of governmental service to the State and its subdivisions. What stands out about the State's position on appeal is its steadfast refusal to address Mr. Okrie et al.'s actual contention that the State could not take away their deferred compensation, which was payable in the form of tax-exempt pensions or alternative financial benefits equal to, or greater than, the value of tax-exempt pensions. It is as though the State realized that it had no answer to our actual claim, and so the State simply ignored it.

What is important to understand is that the legal underpinnings of Mr. Okrie et al.'s principal contention that the State may not take away their deferred compensation that they earned for years of governmental service relies heavily upon the Attorney General's own position and argument presented in the Davis litigation (Davis v State of Michigan, 160 Mich App 98 (1987); Davis v Mich Dep't of Treasury, 489 US 803 (1989); Davis v Dep't of Treasury, 179 Mich App 683, 688 (1989)) and the 1991 Attorney General Opinion (1991 OAG No. 6697). In a sense, this case could be called "State v State" since I am using the State's longstanding legal position (Michigan Court of Appeals adopted in its own rulings), Attorney General's arguments and formal opinion, and decades of statements by the Office of Retirement Services) that tax-exempt pensions were economic inducements to attract and retain state employees, representing deferred compensation for years of governmental service, which was considered to be "an integral part of retirement benefits conferred upon state employees," and that if the State eliminated the tax-exemption for public pensions, it would have to pay financial benefits equal to, or greater than, the value of tax-exempt pensions. As a matter of law, the State, through the Attorney General, is judicially estopped from repudiating in this litigation its former legal position adopted in the Davis litigation, which was binding upon state agencies and officers, including the Office of Retirement Services and the Department of Treasury, and which was relied upon by state and public school employees when making employment termination and retirement decisions.

On the surface, this appears to be a contest over which legal narrative will win out or how the dispute is "framed." Probably for that reason, the State portrays the issue as though Mr. Okrie et al. are claiming the special right to tax-exempt pensions, rather than recognize that the actual claim is for the payment of deferred compensation payable in the form of a tax-exempt pensions or equivalent financial benefits. Clearly, Mr. Okrie et al.'s argument does not turn on the preservation of tax-exempt pensions ("perpetual tax exemption"), but rather the payment of deferred compensation earned for years of governmental service. In short, eliminating the tax-exemption for public pensions did not eliminate Mr. Okrie et al.'s vested right to deferred compensation that was equal to, or greater than, the financial value of the tax-exemption.

But not only is the State's position in this case at odds with the Attorney General's own longstanding legal position and Michigan law, it is also contrary to U.S. Supreme Court precedents interpreting the Contract Clause and the "Takings" Clause of the U.S. Constitution. In particular, the U.S. Supreme Court in United States v Winstar, 518 US 839 (1996) held that the government cannot unilaterally renege on a promise of favorable tax treatment relied upon by the intended beneficiary of the promise. However, that is precisely what the State has done by unilaterally taking away the deferred compensation in the form of tax-exempt pensions relied upon by Mr. Okrie et al. Finally, as the U.S. Supreme Court made clear in United States Trust Co of New York v New Jersey, 431 US 1 (1977) and Winstar, the government cannot force some people (i.e., retired state and public school employees) to bear public burdens that should be shared by the public as a whole.

In any case, the briefs having been filed in the Court of Appeals, the next step in the proceedings is oral argument before a randomly selected panel of three judges of that court.  Because that could be months away, I will be using the lull in the proceedings in the coming months to switch from mere reportage in order to comment critically on various aspects of the State's legal position to show that it is indefensible, and that the State Attorney General should be on our side in this dispute.

Participation and Financial Support

As I have throughout this case, I must ask for financial support to sustain the effort on appeal in the Michigan appellate courts, and if necessary, the U.S. Supreme Court. But financial support is also necessary to enable me to spend the time in a public campaign to counter the State's "false narrative" that distorts our actual claims and arguments and to make the public in Michigan and elsewhere aware that this case represents an huge income transfer of more than $1 billion (and counting) from retired lower and middle income people to pay for tax breaks awarded to profitable corporations and businesses.  As always, donations in any amount are greatly appreciated and needed, especially given the magnitude of this case and forces arrayed against us. To donate through a Pay Pal account or by credit card, please press the "Pay Me" button. My thanks in advance.

 

Gary P. Supanich, PLLC

117 N. First Street, Suite 111

Ann Arbor, MI 48104

(734) 276-6561

(734) 661-0742 (FAX)

www.michigan-appeal-attorney.com

Do You Have a Case?

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Contact Information

Law Office of Gary P. Supanich
117 North First Street, Suite 111
Ann Arbor, MI 48104
Toll Free: 800-419-7310
Fax: 734-661-0742
Map and Directions