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Okrie's Brief in Support of Motion for Summary Disposition

STATE OF MICHIGAN

IN THE COURT OF CLAIMS

______________________________________________________________________________

THOMAS R. OKRIE, et al.,

Plaintiffs,

Court of Claims No. 13-93-MK

v HON. Rosemarie E. Aquilina

STATE OF MICHIGAN,

GOVERNOR RICK SNYDER,

MICHIGAN DEPARTMENT

OF TECHNOLOGY, MANAGEMENT

AND BUDGET, OFFICE OF

RETIREMENT SERVICES,

STATE EMPLOYEES RETIREMENT

SYSTEM, MICHIGAN PUBLIC

SCHOOL EMPLOYEES RETIREMENT

SYSTEM, and MICHIGAN DEPARTMENT

OF TREASURY,

Defendants.

______________________________________________________________________

Gary P. Supanich (P45547)

LAW OFFICE OF GARY P. SUPANICH

Attorney for Plaintiffs

117 North First Street, Suite 111

Ann Arbor, MI 48104

(734) 276-656

www.michigan-appeal-attorney.com

Patrick M. Fitzgerald (P69964)

Joshua Booth (P53947)

Thomas Quasarano (P27982)

MICHIGAN DEPARTMENT OF ATTORNEY GENERAL

State Operations Division

Attorneys for Defendants

P.O. Box 30754

Lansing, MI 48909

(517) 373-1162

_____________________________________________________________________

BRIEF IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY DISPOSITION PURSUANT TO MCR 2.116(C)(10) and MCR 2.116(I)(1)

TABLE OF CONTENTS

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

II. STATEMENT OF FACTS................................ 2

A. The State, through the ORS, Regularly and Consistently Over Decades Promised Public School Employees and State Employees that Their Defined-Benefit Pensions Were Exempt from State and City Income Tax...................... 2

B. In Making His Irrevocable Retirement Decision and in Calculating His Retirement Benefits, Mr. Okrie Detrimentally Relied upon the State of Michigan's Promise that "Pensions . . . Are Exempt from Michigan State and City Income Tax.".................................................... 4

III. LEGAL STANDARD........................................ 7

IV. ARGUMENT: This Court Should Grant Plaintiffs' Motion for Summary Disposition under MCR 2.116(C)(10) or MCR 2.116(I)(1) Because There Is No Genuine Issue of Material Fact As to Plaintiffs' Breach of Contract Claim Based upon the Doctrine of Promissory Estoppel When the State Subjected Their Defined-Benefit Pensions to State and City Income Tax Pursuant to 2011 PA 38............... 8

A. The Elements of Promissory Estoppel............. 8

B. There is No Genuine Issue of Material Fact that the State Breached Its Contract with Mr. Okrie and Similarly Situated Public Employees Based Upon the Doctrine of Promissory Estoppel........................................ 9

(1) The State, through the ORS, effectuating the longstanding policy of the State, made an unqualified promise to Mr. Okrie and similarly situated public employees born after 1945 that their defined-benefit pensions were exempt from state and city income tax.... 9

(2) The State should reasonably have expected to induce action of a definite and substantial character on the part of Mr. Okrie and similarly situated public employees born after 1945 to whom these promises were made... 10

(3) In making irrevocable retirement and employment termination decisions, Mr. Okrie and similarly situated public employees born after 1945 detrimentally relied upon the State's promise to exempt their defined-benefit pensions from state and city income tax.... 13

 

(4) The State's promise to Mr. Okrie and similarly situated public employees born after 1945 not to tax their defined-benefit pensions must be enforced to avoid injustice.... 15

V. CONCLUSION AND RELIEF....................... 18

I. INTRODUCTION

Plaintiffs' claims arise from the gratuitous promise of the State of Michigan ("the State"), through the Department of Technology, Management and Budget, Office of Retirement Services ("ORS"), administering the pensions of public school employees covered by the Public School Employees Retirement System ("MPSERS") and state employees covered by the State Employees Retirement System ("MSERS") that was made to the affected public employees born after 1945 that their defined-benefit pensions were exempt from state and city income tax. The State broke this promise when it began to tax their pensions on January 1, 2012 pursuant to 2011 PA 38, which eliminated the statutory exemption for pension incomes. Although the Michigan Supreme Court in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011) ["Advisory Opinion] (EX. 1) held that 2011 PA 38 did not impair a contractual obligation in violation of Const 1963, art 1, § 10 or US Const, art I, § 10(1), the Court's decision opened the door to Plaintiffs to bring the present Breach of Contract action against the State based upon the doctrine promissory estoppel since the State broke its promise to Plaintiffs by subjecting their defined-benefit pensions to state and city income tax. As a result, Plaintiffs are entitled to judgment as a matter of law because there is no genuine issue of material fact on their Breach of Contract claim. Accordingly, Plaintiffs request that the Court enter judgment in their favor under MCR 2.116(C)(10) or MCR 2.116(I)(1), award damages and provide any equitable relief that is necessary and just, as well as attorney fees and costs.

II. STATEMENT OF FACTS

A. The State, Through the ORS, Regularly and Consistently Over Decades Promised Public School Employees and State Employees Born After 1945 that Their Defined-Benefit Pensions Were Exempt from State and City Income Tax.

For decades, MSERS and MPSERS, administered by the ORS, issued Retirement Guidelines advising public school employees and state employees that "It's never too early to begin planning a secure retirement." (EX. 2). As explained in the Introduction to the MPSERS Retirement Guidelines dated April 1998:

Retirement. You look forward to it as a time to enjoy the good life you've earned. To enjoy retirement to its fullest, you need financial security. The State of Michigan established a retirement plan to begin building that security for you. This retirement plan, together with Social Security contributions and your personal savings, can help you ensure financial security during your retirement years. (EX. 3, p 3)

It also informs public school employees:

Use the MPSERS Retirement Guidelines throughout your career to help you plan for retirement. When you're ready to retire, use it to help you make benefits decisions. [Id.]

The Introduction further states:

Remember, this book is a summary of the main features of the plan and not a complete description. The operation of the plan is controlled by the Michigan Public School Employees Retirement Act (Public Act 300 of 1980, as amended). If the provisions of the Act conflict with this summary, the Act controls. [Id.] [1]

Significantly, as "your 'partner in retirement' throughout your lifetime," MSPERS constantly reminded public school employees of the "Irrevocable nature of retirement." (EX. 3, pp, 11, 26, 34). As the 1998 Retirement Guidelines made unambiguously clear, without qualification: "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city income tax." (EX. 3, p 32)(Emphasis added.)[2] This statement reflected the statutory language contained in PA 300 of 1980 exempting pensions from state and city income tax.

In almost identical language, the ORS, administering the State Employees Retirement System ("SERA"), regularly and consistently promised state employees covered by SERA (civil service employees as well as appointed officials in the Executive branch and employees of the Legislature and Judiciary) that their pension benefits were exempt from state and city income tax. For example, the 2001 "Retirement Guidelines" booklet prepared by ORS ("your 'partner in retirement throughout your lifetime") that was furnished to state employees stated that the booklet should be carefully reviewed prior to retirement. (EX. 4, pp 3, 9, 28). Under the heading "Tax Obligations," the Guidelines booklet informed state employees:

TAX OBLIGATIONS

State and local income tax

Pensions paid by the State Employees' Retirement System are exempt from Michigan state and city income tax. Although you are exempt from paying Michigan income tax, you must file state and city (if applicable) tax returns acknowledging your state pension and claiming your exemptions. (Id. at 29)

The clear and unequivocal language in these statements conveys the unmistakable promise not to subject pensions to state or city income tax. Importantly, this promise to exempt pensions from state and city income taxes is in marked contrast to the statements making it clear that pensions were subject to federal income tax.

B. In Making His Irrevocable Retirement Decision and in Calculating His Retirement Benefits, Mr. Okrie and Similarly Situated Public Employees Born After 1945 Detrimentally Relied upon the State of Michigan's Promise that "Pensions . . . Are Exempt from Michigan State and City Income Tax."

Plaintiff Thomas R. Okrie, a public school teacher, retired effective July 1, 2000 from the Troy School District as a "Health/Social Studies Teacher." Mr. Okrie, who was born on October 16, 1946, was 53 years old when he retired. (EX. 6, Affidavit, ¶ 1). After more than 33 years in service credit and being less than 55 years old, Mr. Okrie was eligible for the "30 and Out" plan. Id. In the years before retiring, while he was still a public school teacher, Mr. Okrie regularly received and consulted the MPSERS Retirement Guidelines published by the ORS. Id. at ¶ 2. 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 benefit decisions." (EX. 3, p 3). It also reminded him of the "[i]rrevocable nature of nature." Id. at 26. The Guidelines that he regularly received and consulted while he was still a public school teacher made the unambiguous, unqualified statement that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city tax." Id. at 32.

In July 1999, the ORS sent Mr. Okrie retirement application forms and informational materials that he had requested, including the 1998 MPSERS Retirement Guidelines and the Retirement Pension Estimate Workbook. (EX. 6 ¶ 3). Before making the irrevocable decision to retire, Mr. Okrie consulted the 1998 Guidelines, which made the unambiguous, unqualified statement that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city tax." (EX. 3, p 32; EX. 6, ¶ 3). Mr. Okrie thus reasonably expected that, after retiring, his pension would be exempt from state and city income tax, relying upon this unqualified, unambiguous statement in the Retirement Guidelines in making his irrevocable retirement decision and in calculating his financial security. Id.

On August 18, 1999, Mr. Okrie submitted papers to the ORS stating that the effective date of his pension was July 1, 2000. Id. at ¶ 4. Among the forms that he submitted to the ORS was the form entitled "Income Tax Information" (EX. 7), which again stated:

MICHIGAN STATE AND CITY INCOME TAX

Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city income tax. Although you are exempt from paying Michigan income tax, you must still file state and city (if applicable) tax returns, acknowledge receipt of your MPSERS pension, and claim your exemptions on these forms. . . . (Emphasis in original).

Again, Mr. Okrie relied upon this unqualified, unambiguous statement by the ORS, in making his irrevocable decision to retire and in calculating his financial security, as MPSERS directed him to do. (EX. 6, ¶ 4). Significantly, 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." Id. Although his pension was exempt from state and city income tax, it was subject to federal taxation. Thus, he had to fill out the "Pension Recipient's Federal Income Tax Withholding Authorization" form. Id. Mr. Okrie elected "the straight life" - no survivor pension provided option, providing him with a monthly lifetime pension of $3,290.15, with a 3% increase of $98.70. Id. at ¶ 3.

On October 14, 1999, Mr. Okrie received a letter from the ORS informing him that his "retirement application is now being processed by the Michigan Public School Employees Retirement System (MPSERS)." Id. at ¶ 5. In the letter, Mr. Okrie was informed of the following:

Please contact MPSERS immediately if the data on the Benefit Application Summary is incorrect. The "Retirement Guidelines" booklet that accompanied your retirement application forms should be carefully reviewed prior to retirement. [EX. 8]

As the ORS directed him to do, Mr. Okrie again reviewed the Retirement Guidelines, which unambiguously state without qualification that "Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city income tax." (EX. 3, p 32; EX. 6, ¶ 5). The letter ends by congratulating Mr. Okrie "on your retirement" and telling him: "You will soon reap the rewards of your hard work over the years." (EX. 8). The rewards consisted of a pension exempt from state and city income tax.

On June 7, 2000, 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." (EX. 6, ¶ 6; EX. 9). On July 25, 2000, he received a "remittance advice" from the State, and no state tax was assessed against him, as promised. (EX. 6, ¶ 6; EX. 10). This continued uninterrupted every month for the next 11 years, as he received 132 check stubs confirming the promise that his pension was exempt from state and city income tax. (EX. 6, ¶ 6).

That, however, changed on January 1, 2012. With the entry in force of 2011 PA 38, as approved by the Michigan Supreme Court in the Advisory Opinion (EX. 1), the State broke its promise to Mr. Okrie and similarly situated public employees by subjecting their pensions to state and city income tax, despite the fact that they had already made irrevocable retirement and employment termination decisions in justifiable reliance upon the State's promise that their pension benefits were exempt from Michigan state and city income tax. (EX. 6, ¶ 7-8).

III. LEGAL STANDARD

MCR 2.116(C)(10) provides that judgment may be granted where "there is no genuine issue as to any material fact." In addition, MCR 2.116(I)(1) states that "If the pleadings show that a party is entitled to judgment as a matter of law, or if the affidavits or other proofs show that there is no genuine issue of material fact," then the court must "render judgment without delay." See Ford Motor Co v Bruce Twp, 264 Mich App 1, 15 (2004). Alternatively, this Court may order entry of judgment against the state or any of its departments based upon facts as stipulated by counsel after taking such proofs in support of the stipulations as may be necessary to satisfy the court as to the accuracy of the facts and upon being satisfied that the judgment is in accordance with applicable law. MCL 600.6437; River Investment Group, LLC v Casab, 289 Mich App 353, 357-358 (2010).

IV. ARGUMENT

This Court Should Grant Plaintiffs' Motion for Summary Disposition under MCR 2.116(C)(10) or MCR 2.116(I)(1) Because There Is No Genuine Issue of Material Fact That the State Breached the Contract with Mr. Okrie and Similarly Situated Public Employees Born After 1945 Based upon the Doctrine of Promissory Estoppel When The State Subjected Their Defined-Benefit Pensions to Michigan State and City Income Tax Pursuant to 2011 PA 38.

A. The Elements of Promissory Estoppel

"Promissory estoppel is a judicially created doctrine that was developed as an equitable remedy applicable in common-law contract actions." Crown Technology Park v D& N Bank, FSB, 242 Mich App 538, 548-49 n 4 (2000). 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 promisee; (3) which in fact produced reliance or forbearance of that nature; and (4) the circumstances such that the promise must be enforced if injustice is to be avoided. Id. at 548-49; see also Restatement (Second) of Contracts, § 90 (1981)(EX. 11). A "promise" is defined as "a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made." State Bank of Standish v Curry, 442 Mich 76, 85 (1993) (EX. 12), quoting 1 Restatement Contracts, 2d, § 2, p 8. To support a claim, the promise must be "clear and definite." State Bank, supra.

B. There is No Genuine Issue of Material Fact that the State Breached Its Contract with Mr. Okrie and Similarly Situated Public Employees Born After 1945 Based upon the Doctrine of Promissory Estoppel.

The principal issue in the Advisory Opinion was whether state employees' contractual rights as set forth in the State Employees Retirement Act ("SERA"), MCL 38.1 et seq. were impaired by the Legislature's enactment of 2011 PA 38 in violation of Const 1963, art 1, § 10 or the US Const, art I, § 10(1). As such, the Supreme Court did not address whether the Legislature's enactment of 2011 PA 38 violated common-law contractual rights protected under a promissory estoppel theory. See Const 1963, art 3, § 7. Thus, in the Advisory Opinion the Supreme Court did not address whether the State breached its contract to Mr. Okrie and similarly situated public employees, based on its gratuitous promise, when it began to tax their pensions pursuant to 2011 PA 38. By declaring that 2011 PA 38 did not impair contracts under the state or federal constitutions, the Supreme Court necessarily opened the door to the present breach of contract action. See Thompson v Auditor General, 261 Mich 624, 634 (1933)(recognizing "a distinction between a breach of contract and a law impairing the obligation of a contract") (EX. 13).

(1) The State, through the ORS, effectuating longstanding policy, made an unambiguous, unqualified promise to Mr. Okrie and similarly situated public employees born after 1945 that their defined-benefit pensions were exempt from state and city income tax,

The first element in showing a breach of contract based upon promissory estoppel is a promise that was "clear and definite." State Bank, supra. Here, there is indisputable evidence that the State made an unambiguously gratuitous promise not to tax state pensions, which is repeatedly found in the statements issued over decades by the ORS, administering MPSERS and MSERA, inter alia, that the defined-benefit pensions of Mr. Okrie and similarly situated public employees born after 1945 would not be subject to state or city income tax. Indeed, there was nothing vague or uncertain about the State's unqualified promise to Mr. Okrie and similarly situated public employees that their defined-benefit pensions were exempt from state and city income tax. Without question, the "clear and definite" language in these unequivocal statements conveys an unmistakable promise not to subject their defined-benefit pensions to state or local income tax.

(2) The State should reasonably have expected to induce action of a definite and substantial character on the part of Mr. Okrie and similarly situated public employees born after 1945 to whom these promises were made.

The second element that needs to be shown in establishing promissory estoppel is to demonstrate that the State should have reasonably expected to induce action of a definite and substantial character on the part of Mr. Okrie and similarly situated public employees. As recognized by the Court of Appeals in Davis v Mich Dep't of Treasury, 160 Mich App 98 (1987) (EX. 14), agreeing with the State's argument, the promise of tax-exempt pensions functioned as an economic inducement to attract and retain qualified state employees. Further, when Davis was appealed to the US Supreme Court, the State again argued that it had an "interest in hiring and retaining qualified civil servants through the inducement of a tax exemption for retirement benefits." Davis v Mich Dep't of Treasury, 489 US 803, 816 (1989).

The decisions in the Davis case recognized that tax exemptions are important employment tools that promised a substantial financial benefit to Mr. Okrie and similarly situated public employees who stay long enough to be eligible for retirement benefits. (EX. 15). Moreover, as reflected in the legal position taken in that litigation, the State financially benefited from this arrangement because the tax exemptions were relatively inexpensive inducements, at least compared to an equivalent salary or benefit increase. As noted in the Advisory Opinion:

Extending the tax exemption to all public employees provided an incentive that would attract much-needed professionals to critical jobs in public employment and partially compensated retirees for the comparatively lower compensation received during their years of service to the state. [490 Mich at 354].

Accordingly, as a matter of judicial estoppel, the State is barred from asserting a position in the present litigation that is inconsistent with the position taken in Davis. See Paschke v Retool Indus, 445 Mich 502, 509-510 (1994).

Given that the tax exemptions are treated as deferred compensation, the doctrine of promissory estoppel is properly applicable in determining that the State breached its promise to Mr. Okrie and similarly situated public employees when it began to tax their defined-benefit pensions pursuant to 2011 PA 38. As explained by the Michigan Supreme Court in Toussaint v Blue Cross & Blue Shield of Michigan, 408 Mich 579, 613-619 (1980) (EX. 16), relying upon Cain v Allen Electric & Equipment Co, 346 Mich 568 (1956) (EX. 17) and other cases, policy statements by the employer announcing a financial benefit concerning employee deferred compensation operate as inducements that an employer should reasonably have expected to induce reliance by the employee in joining or remaining in the employer's service.[3] This proposition applies with greater force here against the State, a public entity, which should reasonably have expected action or forbearance on the part of Mr. Okrie and similarly situated public employees to whom these gratuitous promises were made.

In fact, for decades, the State, through the Department of the Treasury, carried out this policy by not taxing their defined-benefit pensions.[4] The fact that this policy and practice went unaltered for decades clearly supports the proposition that the State should reasonably have expected to induce action of a definite and substantial character on the part of Mr. Okrie and similarly situated public employees that their pensions were exempt from state or city income tax.

(3) In making irrevocable retirement and employment termination decisions, Mr. Okrie and similarly situated public employees born after 1945 detrimentally relied upon the State's promise to exempt their defined-benefit pensions from state and city income tax.

The third element in establishing a breach of contract based upon promissory estoppel is detrimental reliance. Here, it is unquestionable that the unambiguous, unqualified promise gratuitously made by the State, through the ORS, not to subject defined-benefit pensions to state or city income tax was detrimentally relied upon by Mr. Okrie and similarly situated public employees in making irrevocable retirement and employment termination decisions. For even if the tax exemption itself were not an "accrued" financial benefit, as the Supreme Court determined in the Advisory Opinion, it is beyond question that the tax exemption represented a pecuniary benefit that figured into retirement decisions of Mr. Okrie and similarly situated public employees, as the ORS explicitly instructed them to do for decades in the Retirement Guidelines booklets.[5] Specifically, in planning for retirement or in deciding to terminate their public employment, Mr. Okrie and similarly situated public employees calculated what retirement income they should expect based in part upon the State's promise not to tax their state pension benefits.[6] Here, it is indisputable that Mr. Okrie and similarly situated public employees relied upon the State's gratuitous promise to exempt their defined-benefit pensions from state and city income tax because the promised exemption provided them with a financial benefit since it resulted in a greater net monetary payment to them as retirees. [7]

Further, because the ORS repeatedly directed Mr. Okrie and similarly situated public employees to rely upon its representations in the Retirement Guidelines in making "benefit decisions" at the time of retirement, the State is equitably estopped from contesting whether they actually relied upon the State's unqualified promise not to tax their pensions. As stated in Hetchler v American Life Ins Co, 266 Mich 608, 613 (1934), quoting Kole v Lampen, 191 Mich 156, 158 (1916):

It is a familiar rule of law that an estoppel arises when one by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.

Because Mr. Okrie and similarly situated public employees, at the time of making irrevocable employment termination and retirement decisions, reasonably relied upon the State's representations that their defined-benefit pensions were exempt from state and city income tax, the State cannot now contest that they actually relied upon such statements in making those decisions.

(4) The State's promise to Mr. Okrie and similarly situated public employees born after 1945 not to tax their defined-benefit pensions must be enforced to avoid injustice.

There is no question under the facts and circumstances of this case that it would be highly unjust not to enforce the State's promise of tax-exempt pensions made to Mr. Okrie and similarly situated public employees born after 1945 for "the facts are unquestionable and the wrong to be prevented undoubted." Marrero v McDonnell Douglas Capital Corp, 200 Mich App 438, 443 (1993). See Restatement Contracts, 2d, § 90, Comment b, p 243 ("Satisfaction of the . . . requirement [that enforcement must be necessary to avoid injustice] may depend . . . on the extent to which such other policies as the enforcement of bargains and the prevention of unjust enrichment are relevant.")[Emphasis added.](EX. 11).

First, it is necessary to enforce the State's bargain with Mr. Okrie and similarly situated public employees since the State has already received the benefits of their employment in exchange for its promise of tax-exempt pensions. As Justice Cavanagh noted in the Advisory Opinion:

A tax exemption does not represent money that the state must pay out; it only limits what the state may take in. Offering a tax exemption as a financial benefit for its employees allows the state to attract and retain talented and dedicated employees, without incurring any yearly funding obligation for the benefit given.

I think it important to emphasize that until the current fiscal crisis, the state of Michigan was perfectly content to receive the reciprocal benefits of the promise made to its prospective and current employees that, should they continue in service to the state long enough to be eligible for retirement, they would be rewarded with a tax exemption for the retirement benefits they had earned. Only now do our state employees and retirees learn that their reliance on Michigan's promise was unfounded . . . . Promises must be kept. [490 Mich at 359, 361-362.]

Simply put, a promise is a promise, which must be enforced in order to avoid manifest injustice. Indeed, the failure to enforce the State's promise would be clearly unjust under any contemporary theory of justice. See J. Rawls, A Theory of Justice (1971), as modified in Justice as Fairness: A Restatement (2001); R. Nozick, Anarchy, State, and Utopia (1974); A. Sen, The Idea of Justice (2009).

Second, it is necessary to enforce the State's promise to prevent unjust enrichment. Under Michigan law, the elements of a claim for unjust enrichment are (1) receipt of a benefit by the defendant from the plaintiff, and (2) an inequity resulting to the plaintiff because of the retention of the benefit by the defendant. Dumas v Auto Club Ins Ass'n, 437 Mich 521, 546 (1991). Here, the failure to enforce the State's promise to exempt pensions from state and city income tax directly entails unjust enrichment, as it is undisputed that the elimination of the statutory exemption in 2011 PA 38 provided a part of the $343 million that paid for the replacement of the Michigan Business Tax with the corporate income tax, thereby reducing business taxes by $1.7 billion. (EXs. 15 & 19). Unquestionably, enforcing the State's promise to exempt pensions from state and city income tax is necessary to avoid unjust enrichment in the form of a huge income transfer from middle-income taxpayers to the deep pockets of corporations, which are unfairly rewarded with a massive tax break at the expense of less-well off retired public employees. (EX. 18). Consequently, Mr. Okrie and similarly situated public employees are entitled to damages for the State's breach of contract.

In this regard, it is necessary to emphasize that Mr. Okrie and similarly situated public employees made irrevocable retirement and employment termination decisions, calculating their overall financial benefits in planning their future, as the ORS explicitly directed them to do, by reasonably and justifiably relying upon the State's promise that their defined-benefit pensions were exempt from state and city income tax. As poignantly stated by Chief Justice Neely in Booth v Sims, 458 SE2d 167, 188 (W Va, 1994):

Scores of thousands of little people have organized their lives around government pensions, and while in a democracy government has an opportunity for a new life and new direction every four years, these little people do not. While what was promised thirty years ago may not be of much concern to modernists elected to change the mix of government services, cut taxes, or instantiate a new morality, what was promised thirty years ago forms the core of life for those who once upon a time believed their elected leaders.

Finally, no private entity would be allowed to do what the State has done. See Touissant, supra; Dumas, supra. The State is measured by the same legal standard that applies to any private entity. Indeed, the State should be held to a higher standard as it represents the People of the State of Michigan in which we Michiganders have placed our trust to keep our word to our fellow citizens who have earned their tax-exempt pensions after working for us.[8]

V. CONCLUSION AND RELIEF

Accordingly, Plaintiffs respectfully request that this Court grant their motion for summary disposition under MCR 2.116(C)(10) and MCR 2.116(I)(1) as to their Breach of Contract claim based upon the equitable doctrine of promissory estoppel, award damages and any equitable relief that this Court deems necessary and just, as well as Plaintiffs' attorney fees and costs.

Respectfully Submitted,

LAW OFFICE OF GARY P. SUPANICH

__________________________

Gary P. Supanich (P45547)

Attorney for Plaintiffs

117 North First St., Suite 111

Ann Arbor, MI 48104

Dated: August 14, 2013 (734) 276-6561


[1] At all times relevant to this litigation, until 2011 PA 38 entered into effect on January 1, 2012, the Public School Employees Retirement Act ("PSERA"), MCL 38.1346(1) as well as the State Employees Retirement Act ("SERA"), MCL 38.40, exempted certain public-pension benefits from taxation, as did the Income Tax Act, MCL 206.1 et seq.

[2] This statement reiterated what was stated in the 1992 Retirement Guidelines (EX. 5, p 41) and repeated in many other years over the decades:

State and Local Income Tax Information

Pensions paid by MPSERS are exempt from Michigan state income tax and Michigan city income tax. Although you are exempt from paying Michigan income tax, you must still file state and city (if applicable) tax returns.

[3] See Dumas v Auto Club Ins Ass'n, 437 Mich 521 (1991), where the Court noted:

While Toussaint created a "legitimate expectations" claim in the wrongful-discharge setting, earlier cases held that written policy statements could give rise to contractual obligations outside the discharge context. Although some of the cases dealt with compensation policies, those policies created contract rights with regard to deferred compensation.

[4] For example, the Legislature amended the SERA more than 17 times between 1968 and 2010, but never opted to repeal the SERA tax exemption (at least until 2011).

[5] Given that public employees were instructed to rely on the Retirement Guidelines in making benefit decisions, it cannot be questioned that they acted in reliance upon the State's gratuitous promise that their pensions would not be taxed by the State at the time of distribution. It is also indisputable that tax-exempt pensions provide a financial benefit because they result in a greater net monetary payment.

[6] The ORS specifically directed state employees and public school employees to "review all facets of your retirement planning" before making the irrevocable decision to retire, such as "setting aside money for unanticipated expenses." (EX. 3, pp 30-32; EX. 4, pp 27-29)

[7] It is important to underscore that enforcing the State's gratuitous promise extends only to those in the defined benefit plan born after 1945 who detrimentally relied upon the promise made to them and whose pensions have been taxed since January 1, 2012 pursuant to 2011 PA 38. Essentially, this class of individuals consists of all those Tier I retirees and deferred (vested) public school employees (their spouses and surviving spouses) covered by MSPERS, administered by the ORS, and retired and deferred (vested) state employees (their spouses and surviving spouses) covered by MSERA, also administered by the ORS, who were born after 1945 and whose pension benefits had vested or accrued before January 1, 2012 when 2011 PA 38 went into effect. Thus, this class does not include active or current public school and state employees or retired federal employees.

[8] See Russell Hardin, Distrust, 81 BUL Rev 495, 517 (2001) (EX. 20) (observing that "Locke, an early democrat of the modern era, put trust and democracy together" and "supposed that governors are to act on trust.") Hardin remarks:

[Locke] was already an implicit advocate of wariness toward political leaders. He supposed that if leaders violate the tacit trust placed in them, they should be overthrown. [Id.]

As Hardin notes:

Locke held that society turns power over to its governors, "whom the society hath set over it self, with express or tacit Trust. That it shall be imployed for their good, and the preservation of their Property[.] John Locke, Two Treatises of Government at 399 (Peter Laslett, ed. Cambridge University Press, 2d ed., 1967)(1690) [Id. at n 73.]

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