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Plaintiffs' Motion for Reconsideration

STATE OF MICHIGAN

IN THE COURT OF CLAIMS

______________________________________________________________________________

THOMAS R. OKRIE, et al.,

Plaintiffs,

Court of Claims No. 13-93-MK

v

STATE OF MICHIGAN,

GOVERNOR RICK SNYDER,

MICHIGAN DEPARTMENT

OF TECHNOLOGY, MANAGEMENT

AND BUDGET, OFFICE OF

RETIREMENT SERVICES,

STATE EMPLOYEES RETIREMENT

SYSTEM, MICHIGAN PUBLIC

SCHOOL EMPLOYEES RETIREMENT

SYSTEM, and MICHIGAN DEPARTMENT

OF TREASURY,

Defendants.

______________________________________________________________________

Gary P. Supanich (P45547)

LAW OFFICE OF GARY P. SUPANICH

Attorney for Plaintiffs

117 North First Street, Suite 111

Ann Arbor, MI 48104

(734) 276-656

www.michigan-appeal-attorney.com

Patrick M. Fitzgerald (P69964)

Joshua Booth (P53947)

Margaret Nelson (P30342)

MICHIGAN DEPARTMENT OF ATTORNEY GENERAL

State Operations Division

Attorneys for Defendants

P.O. Box 30754

Lansing, MI 48909

(517) 373-1162

_____________________________________________________________________

PLAINTIFFS' MOTION FOR RECONSIDERATION OF THIS COURT'S NOVEMBER 5, 2013 OPINION AND ORDER AND BRIEF IN SUPPORT

NOW COME the Plaintiffs, THOMAS R. OKRIE, et al. by and through GARY P. SUPANICH, ESQ. (P45547), move this Court for reconsideration of its Opinion and Order dated November 5, 2013, denying 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 promissory estoppel (Count I), granting the State of Michigan's motion for summary disposition as to Count I and dismissing as moot Plaintiff's Motion for Class Certification.

For this Court to grant a motion for reconsideration, "[t]he moving party must [1] demonstrate a palpable error by which the court and the parties have been misled; and [2] show that a different disposition of the motion must result from correction of the error." MCR 2.119(F)(3); Conlin v Scio Twp, 262 Mich App 3796 (2004). Thus, even if the motion presents the same issues initially argued and decided, the court rule allows this Court considerable discretion in revisiting its previous order. In re Estate of Moukalled, 269 Mich App 708 (2006). "If a trial court wants to give a "second chance" to a motion it has previously denied, it has every right to do so, and this court rule does nothing to prevent this exercise of discretion." MCR 2.119(F)(3); Kokx v Bylenga, 241 Mich App 655, 659 (2000). As a result, the trial court is allowed "to correct mistakes, to preserve judicial economy, and to minimize costs to the parties." Id. Here, this Court should grant the motion for reconsideration because its order contains numerous "palpable errors" mandating a completely different result. Churchman v Rickerson, 240 Mich App 223, 233 (2000).

First, throughout its Opinion and Order, this Court treated the Supreme Court's decision in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295 (2011) ["Advisory Opinion"] as though it were binding authority. This was a "palpable error." As explained by In re Certified Question Co, 432 Mich 438, 467-471 (1989), advisory opinions are not precedentially binding since the court addresses questions without having before it adverse parties to existing controversies. Thus, the Supreme Court does not act like a court, but as the constitutional adviser of the other departments of government. Id. Accordingly, to the extent that this Court regarded the Advisory Opinion as binding, it failed to exercise its own independent judicial power in deciding the questions before it. But even assuming arguendo that the Advisory Opinion were binding authority, it did not preclude Plaintiffs' breach of common-law contract claim based upon the doctrine of promissory estoppel. As Plaintiffs set forth, there is "a distinction between a breach of contract and a law impairing the obligation of a contract." Thompson v Auditor General, 261 Mich 624, 634 (1933).

Second, unlike the Advisory Opinion, this Court is bound by Toussaint v Blue Cross & Blue Shield of Michigan, 408 Mich 579 (1980). As was made clear in Toussaint:

An employer who establishes no personnel policies instills no reasonable expectations of performance. Employers can make known to their employees that personnel policies are subject to unilateral changes by the employer. Employees would then have no legitimate expectation that any particular policy will continue to remain in force. Employees could, however, legitimately expect that policies in force at any given time will be uniformly applied to all. If there is in effect a policy to dismiss for cause only, the employer may not depart from that policy at whim simply because he was under no obligation to institute the policy in the first place. Having announced the policy, presumably with a view to obtaining the benefit of improved employee attitudes and behavior and improved quality of the work force, the employer may not treat its promise as illusory. (Id. at 619; emphasis added.)[1]

Given that Toussaint is the centerpiece of Plaintiffs' analytical argument underpinning their breach of contract claim based upon promissory estoppel, this Court's failure to make any mention of it in its Opinion and Order amounts to palpable error. Moreover, at no time during these proceedings has the State demonstrated why Toussaint does not apply to the State in its role as a contractor (as opposed to lawgiver). Specifically, Plaintiffs are claiming that they had a legitimate expectation to the deferred compensation represented by the financial value of a tax-exempt pension based upon the fact that they made irrevocable retirement and employment termination decisions in justifiable reliance upon the statements made for decades by the Office of Retirement Services ("ORS") that their pensions were exempt from state and local income tax.[2] The statements by the ORS, acting as an agent of the State, contained in the Retirement Guidelines booklets accurately reflected the language of the applicable statutes in force at the time Plaintiffs made their irrevocable retirement and employment termination decisions.[3] Accordingly, the State's adoption of the policy to exempt the pensions of state and public school employees from taxation was not a gratuity, but represents deferred compensation for the performance of past governmental services and a material recognition of their past value after Plaintiffs had vested and retired.[4]

Fourth, this Court also committed palpable error in accepting as true the State's false characterization that Plaintiffs are claiming a "permanent tax exemption." (Order, p 6). As already stated, Plaintiffs were not seeking a "perpetual tax exemption," but rather were claiming that the State must keep its promise to pay deferred compensation to Plaintiffs in the form of a tax-exempt pension after they made irrevocable retirement and employment termination decisions in detrimental reliance upon the State's promise. To hold otherwise contravenes Toussaint's holding that "the employer may not treat its promise as illusory." Id. at 619.

Fifth, because Plaintiffs have never asserted a claim to a "perpetual [sic] tax exemption," this Court also palpably erred in accepting as true the State's contention that "Plaintiffs must find the perpetual [sic] tax exemption for public pensions expressly stated in the Constitution." (Order, pp 6-7). As an initial matter, it must be again underscored that Plaintiffs are not challenging the Legislature's exclusive power to tax or to eliminate the statutory tax exemption for public pensions. Moreover, this Court's false belief that Plaintiffs must show a tax exemption expressly stated in the Constitution simply ignores the fact that Plaintiffs' contract claim based upon the doctrine of promissory estoppel arises from the unqualified statements made by the ORS that accurately reflected the language of the applicable statutes in force at the time, promising that pensions were exempt from state and local income tax. Thus, the source of Plaintiffs' entitlement to deferred compensation represented by the financial value of a tax-exempt pension arises from the common law and not the Michigan Constitution.

In any case, this Court's observation that "[s]ince the 1963 Constitution was ratified, no person or group has attempted to amend the Constitution to create a permanent exemption for public pension distributions" overlooks the fact that there was no need to amend the Constitution to guarantee explicitly the promise of a tax-exempt pension since such long standing entitlements arose from statutes that preceded the enactment of the 1963 Constitution. (Order, p 7). [5] Moreover, after the enactment of the MITA in 1967 and until 2011 PA 38 and the related legislation went into effect on January 1, 2012, the Legislature exempted public pensions from state and local income tax. Finally, in addition to the statutory protection, Michigan courts have recognized that the tax-exempt component of the pension benefits is an "accrued financial benefit" under Const 1963, art 9, § 24. Specifically, the Court of Appeals in Davis, supra, 160 Mich App at 102, observed:

The State Employees' Retirement Act, MCL 38.1 et seq.; MSA 3.981(1) et seq., which predates the MITA, also exempts from taxation the right of a person to a pension or retirement allowance accruing pursuant to the act. Further, the Michigan Constitution provides that the accrued financial benefits of each pension plan and retirement system of this state and its political subdivisions are declared to be contractual obligations thereof which cannot be diminished or impaired. Const 1963, art 9, § 24. Michigan law does not extend similar status to federal pensions.

Sixth, because Plaintiffs' breach of contract claim in Count I arises from the common law, Plaintiffs are also not claiming that the source of their contractual entitlement to deferred compensation represented by the financial value of a tax-exempt pension is based upon a statutory right to a tax-exempt pension, as this Court wrongly supposed. (Order, p 7). Rather, Plaintiffs' contract claim set forth in Count I is a contractual right to deferred compensation represented by the financial value of a tax-exempt pension based upon promises made to them by the ORS that were consistent with the applicable statutes in effect at the time they made irrevocable retirement and employment decisions after having rendered government service and fully vested. Again, this is a common-law contractual claim based upon the doctrine of promissory estoppel, not a statutory contract claim, although the statutes then in force were necessarily incorporated into the policies and practices governing the relationship between the State and the affected state and public school employees when the affected public employees made their irrevocable retirement and employment termination decisions.[6]

Seventh, while Plaintiffs do not contest the fact that the statutory tax exemption was revocable, what is consequential is whether the revocation of the statutory tax exemption may be applied retroactively to those state and public school employees after they made irrevocable retirement and employment termination decisions in detrimental reliance upon the State's promise that their pensions were exempt from state and local income tax. As already stated, the State's promise reflected accurately the language of the statutes in force at the time the affected state and public school employees made their irrevocable decisions to retire or terminate their employment. Further, the State's promise, through the ORS, was made without any qualification so as to put state and public employees on notice that any changes to the applicable statutes might be applied retroactively to them after they had made irrevocable retirement and employment termination decisions.[7] In answering the retroactivity question in the aftermath of the Davis litigation, the Attorney General thus responded in 1991 as follows:

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.)

By now claiming that the statutes revoking the tax exemption for public pensions may be retroactively applied to state and public school employees who made irrevocable retirement and employment termination decisions in detrimental reliance upon the ORS's unqualified promise not to tax their pensions, the Attorney General is repudiating, without any apparent legal basis or justification, its own position that was relied upon by the State and its citizens for decades.

Eighth, because of its palpable errors, this Court thus erred in granting the State's motion for summary disposition under MCR 2.116(C)(8) and (10) but denying Plaintiffs' 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 promissory estoppel stated in Count I. At no point was the Legislature's inherent power to tax at issue, as this Court wrongly concluded. Indeed, Plaintiffs have clearly stated numerous times that the Legislature has the power to tax the pensions of the state and public school employees who made irrevocable retirement and employment termination decisions in detrimental reliance upon the clear and unqualified promises of the ORS that their pensions were exempt from state and local income tax. What the State does not have the power to do is breach its contracts. See Lynch v United States, 292 US 571 (1934)("When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.") As a result, Plaintiffs are owed damages that are equivalent to, or greater than, the value of financial value of a tax-exempt pension.

Ninth, this Court also committed palpable error in granting the State's motion for summary disposition as to Plaintiffs' motion for class certification as "moot." Even assuming arguendo that this Court did not err in granting the State's motion for summary disposition as to Plaintiffs' contract claim stated in Count I, their motion for class certification was hardly moot considering that this Court granted their motion to amend their verified complaint to add claims for breach of employment contract and unjust enrichment under state law, as well as claims for the violation of the Contract Clause, the Takings Clause and the Substantive and Due Process Clauses under the state and federal constitutions. Clearly, given that the added claims presented in Plaintiffs' amended verified complaint are still pending, Plaintiffs' motion for class certification cannot possibly be considered moot. To say otherwise is palpable error.

WHEREFORE, Plaintiffs respectfully request that this Court grant their motion for reconsideration, grant their motion for summary disposition under MCR 2.116(C)(10) and MCR 2.116(I)(1) but deny the State's motion for summary disposition as to their breach of contract claim based upon the equitable doctrine of promissory estoppel; grant their motion for class certification; and 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: November 25, 2013 (734) 276-6561


[1] See Cain v Allen Electric & Equipment Co, 346 Mich 568, 579 (1956), quoting 1 Corbin on Contracts, § 13. ("A promise is an expression of intention that the promisor will conduct himself in a specified way or bring about a specified result in the future, communicated in such manner to a promise that he may justly expect performance and may reasonably rely thereon.").

[2] See Davis v State of Michigan, 160 Mich App 98, 105 (1987)(agreeing with the State's argument that the "income tax exemption is an integral part of the retirement benefits conferred upon state employees, functioning as an "economic inducement" for "attracting and retaining []qualified employees"), rev'd on other grounds, Davis v Michigan Dep't of Treasury, 489 US 803, 808 (1989) ("We have no difficulty concluding that civil service retirement benefits are deferred compensation for past years of service rendered to the Government.").

[3] Contrary to the State's contention, the ORS acted with actual or apparent authority as an agent of the State in making these promises. See Detroit v Detroit Police Officers Assoc, 408 Mich 410 (1980) (noting that an official may be clothed with authority to say when law shall operate, or as to whom, or upon what occasion, provided that standards prescribed for guidance are as reasonably precise as subject matter requires or permits).

[4] See Psutka v Michigan Alkali Co, 274 Mich 318, 319 (1936)(holding that pension and death benefit plan for employees to which they contributed no monetary consideration was a contract supported by ample consideration in order attract more competent workers, induce better and more continuous services and avoid expense of labor turnover"); Gaydos v White Motor Corp, 54 Mich App 143, 148 (1974)("We cannot agree that the severance pay provision was merely a 'unilaterally promulgated policy' or a gratuity. The adoption of the described policy by defendant constituted an offer of a contract.").

[5] As already noted, before the adoption of the 1963 Michigan Constitution, the State Employees' Retirement Act, 1943 PA 240, § 40, MCL 38.40, provided the right to an exemption from state and local taxes since 1943; the Public School Employees Retirement Act of 1979, 1980 PA 300, § 46(1); MCL 38.1346(1), amending predecessor act, 1945 PA 136, Ch 1, § 25, provided an exemption for retirement benefits from state or local taxation for only Chapter I members starting in 1945; the Michigan Legislative Retirement System Act, MCL 38.1057(1) added an exemption with 1961 PA 167; and the City Library Employees' Retirement Systems, 1927 PA 339, MCL 38.705, had an exemption since 1927. It is also important to underscore one more time that state pensions under these four retirement systems were not subject to state taxation at all until the enactment of the Michigan Income Tax Act of 1967 ["MITA"], 30(1)(f), MCL 206.30(1)(f), which exempted retirement and pension benefits from taxation.

[6] See Seneca Nursing Home v Kansas, 490 F2d 1324 (CA10 1974) (holding that plaintiffs, by performing the required services, became entitled to the statutory payment amounts since the method of compensation set forth in the statutes was part of the terms and conditions of the contract); Payne v Bd of Trs of the Teachers' Ins & Ret Fund, 35 NW2d 553, 556 (ND 1948); Bakenhus v City of Seattle, 296 P2d 536, 538 (Wash 1956)('"But, where . . . services are rendered under such a pension statute, the pension provisions become a part of the contemplated compensation for those services, and so in a sense a part of the contract of employment itself.'"), quoting O'Dea v Cook, 169 P 366, 367 (Cal 1917).

[7] For example, under the Employment Retirement Income Security Act ("ERISA"), an amendment to any ERISA plan may not operate retroactively if that amendment deprives a beneficiary of a vested benefit. See Wheeler v Dynamic Eng'g Inc, 62 F3d 634, 640 (CA 4, 1995).

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