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, 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
Mr. Okrie now brings this action on his own behalf and on behalf of those similarly situated former state employees (their spouses and surviving spouses) covered by MSERA, as administered by the ORS, and 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.
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. An Amended Verfied Class Action Complaint will be filed shortly. 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 September 26, 2013, the Court of Claims received my Amended Verified Class Action Complaint 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.
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."
On October 9, 2013, Judge Aquilina held a hearing on our cross motions for summary disposition and my motion for class certification. 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.
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 maintain that Mr. Okrie and the other affected state and public school employees 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 entitlment without paying damages or making restitution in an amount equivalent or greater than what was being taxed. In short, I present 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. Please mark your calendars if you plan to attend. At the same time, Judge Aquilina will also be deciding on the State's Motion for Summary Disposition, which will be filed shortly. After I receive the State's Motion for Summary Disposition, I will file a Brief in Opposition as before. Again, I encourage anyone interested in the outcome of this lawsuit to attend this crucial hearing. Your support is vital to Mr. Okrie and me. I also welcome any ideas, thoughts or criticisms about the approach and arguments that I've made so far on behalf of Mr. Okrie and similarly affected state employees and public school employees.
The Court of Claims Jurisdiction
Since I filed my Motion for Summary Disposition in the Court of Claims in Lansing on November 1, 2013, the Michigan Legislature has taken action in record time to shift all cases brought against the State of Michigan in the Court of Claims from the Ingham County Circuit Court to the 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 present purposes, 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 apparently 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.
In the meantime, on November 5, 2013 (the date on which the House conducted a 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. I am in the process of preparing a Brief in Opposition to the State's Motion for Summary Disposition, but have set aside this work to prepare a complaint challenging the transfer of the Court of Claims from the 30th Circuit to the Court of Appeals. As already noted, this Complaint will be filed in the Court of Appeals, which was given original jurisdiction in these matters.
The principal contention in my Complaint will be that 2013 PA 64 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. In my view, it 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. I encourage others to join the effort challenging the constitutionality of 2013 PA 64.
Participation and Support
If you are in doubt as to whether you are similarly situated to Mr. Okrie (or you know someone else who may be), please get in touch with me. Also please contact me if you have any copies of the Retirement Guideline Booklets or any Pension Workbooks published by the ORS through MSERS or MPSERS, wherein the State of Michigan stated that pensions were exempt from state and local taxation Finally, please contact me if you are interested in providing financial support for this litigation. There is no question that financial support is necessary if Plaintiffs -- People of the State of Michigan -- are going to win this against the State itself. As Judge Aquilina made clear, this case is going on appeal, and so it will require financial help to sustain this effort to a succesful conclusion. This is particularly true now that the jurisdiction of the Court of Claims from Ingham Circuit Court -- a trial court -- has shifted to four handpicked judges on the Court of Appeals -- an appellate court. Finally, I am available to make presentations before any interested groups regarding the claims and arguments in support of this class action lawsuit against the State of Michigan and to answer questions that people may have about it. Thank you.
Gary P. Supanich, PLLC
117 N. First Street, Suite 111
Ann Arbor, MI 48104
(734) 661-0742 (FAX)