Jump To Navigation

Plaintiffs' Reply to Defendants' Response to Plaintiffs' 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)

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' REPLY TO DEFENDANTS' RESPONSE TO 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. ARGUMENT............................................................... 2

A. Plaintiffs Have a Binding Enforceable Contractual Right to Deferred Compensation. ............................... 2

B. Toussaint Applies to the State Acting as a Contractor through the Office of Retirement Services................. 3

III. CONCLUSION AND RELIEF.................................... 5

I. INTRODUCTION

Plaintiff Thomas R. Okrie and the affected public employees are covered by the defined-benefit pension plans of the Public School Employees Retirement System ("MPSERS") or the State Employees Retirement System ("MSERS") administered by the Office of Retirement Services ("ORS"). A defined-benefit pension is a plan established and maintained "to provide systematically for the payment of definitely determinable benefits to employees over a period of years, usually for life, after retirement." 60A Am Jur 2d Pensions and Retirement Funds § 15, citing 26 CFR § 1.401-1(b)(1)(i). As such, the plan itself determines in advance the specific amount of benefits to which each employee is entitled upon retirement. Id. Here, for the purpose of advising public employees making irrevocable retirement and employment termination decisions, the ORS repeatedly made statements (consistent with the statutes in effect) in the Retirement Guidelines booklets and other documents issued to Mr. Okrie and the other affected public employees (born after 1945) that their defined-benefit pensions were exempt from state and city income tax. These clear, unambiguous, unqualified statements constituted a binding enforceable contract once Mr. Okrie and the other affected public employees retired after rendering service in reliance upon the State's promise of a tax-exempt pension. For the pension benefits earned through government employment constitute deferred compensation for work already performed, which is protected just as much as the right to receive a salary was protected and cannot be retroactively altered by the State without breaching the contract with them.

II. ARGUMENT

A. Plaintiffs Have a Binding Enforceable Contractual Right to Deferred Compensation.

The State's position is premised upon the antiquated view that deferred compensation is a mere "gratuity" that may be arbitrarily revoked by the State at any time. The State's "gratuity approach" represents the view expressed by the Supreme Court in Brown v Highland Park, 320 Mich 108 (1948) that was explicitly superseded by Const 1963, art 9, § 24. See Advisory Opinion re Constitutionality of 1972 PA 258, 389 Mich 659, 662 (1973).[1] Moreover, as explained by Justice Markman in In re Request for Advisory Opinion regarding Constitutionality of 2011 PA 38, 490 Mich 295, 315 (2011) ["Advisory Opinion],

A pension-tax exemption is not an "accrued" benefit because it does not "grow over time." During a state employee's working years, his or her pension-tax exemption, as opposed to the pension itself, cannot be said to be growing or accumulating because it does not even "come into existence" or "vest" until after the employee has retired and begins to collect his or her pension benefits. That is, one does not have a right to a tax exemption until one has received the funds that are subject to the exemption. Absent those funds, there is no tax exemption. And once a retiree has begun to receive his or her pension benefits, the tax exemption itself still does not "grow over time," but remains fixed. Therefore, a tax exemption is not an "accrued financial benefit." (Footnote omitted.)

Notwithstanding that the tax-exempt component of the pension is not considered to be an "accrued financial benefit" entitled to constitutional protection, it is clearly a financial benefit to which Plaintiffs are entitled once they begin to receive pension benefits. Like an annuity, it constitutes an enforceable contractual right to a specific income stream payable upon retirement until the death of the recipient.

B. Toussaint Applies to the State Acting as Contractor through the Office of Retirement Services.

Contrary to the State's unsupported position, the State of Michigan, acting as a contractor, is treated like any other contractor that enters the labor market. As a result, Michigan contract law and its principles are fully applicable, including the principles set forth in Toussaint v Blue Cross & Blue Shield of Michigan, 408 Mich 579 (1980).[2] In short, the State, acting as a contractor, is not above the law.

Accordingly, as stated in Toussaint, an employer's statements of policy that give rise to "legitimate expectations" create enforceable contractual rights. Further, it is important to underscore that the ORS explicitly instructed Mr. Okrie and the other affected public employees to structure their finances and made career and personal decisions in reliance upon their well-settled expectations of specific pension benefits. Their reliance upon the State's promise was that their pensions were exempt from state and local income tax for life after retirement. This was a promise of deferred compensation monetized in terms of a tax-exempt pension that their defined-benefit plan specifically determined as their retirement benefits. It was clearly not, as the State falsely claims, that all "state-sponsored pensions will forever be tax-exempt." (Df. Br., p 3)(Emphasis in original).[3]

Thus, the State confuses the issue by asserting that the ORS "is not authorized the bind the State in matters of taxation." (Df. Br, p 4). Here, the Legislature's exclusive power to change the statutory scheme relating to the taxation of public pensions is consistent with the existence of a contract promising Mr. Okrie and the other affected public employees a tax-exempt pension as deferred compensation since the ORS was clothed with apparent authority to bind the State in this regard.[4] Further, contrary to the State's assertion (Df. Br., p 7), the State's creation of such policies promising deferred compensation in the form of a tax-exempt pension for services rendered to the State does not forever bind the State in perpetuity. However, it does bind the State to those retired public employees, such as Mr. Okrie and the other affected public employees, who detrimentally relied upon it in making irrevocable retirement decisions. Further, contrary to the State's claim (Df. Br, p 8), this was no mere "subjective expectation" on the part of Mr. Okrie, but an unrebutted fact (as attested in his affidavit) that he detrimentally relied upon the State's promise. Finally, because the ORS, as "your partner in retirement," repeatedly directed public employees for decades to rely upon its representations in the Retirement Guidelines booklets for the purpose of making "benefit decisions" at the time of retirement, the State is now equitably estopped from contesting their actual reliance upon the State's unqualified promise not to tax their pensions. Hetchler v American Life Ins Co, 266 Mich 608, 613 (1934).

III. 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: October 9, 2013 (734) 276-6561


[1] As explained by Amy Monaghan,

The so-called gratuity approach to public pensions holds that the pensions of public employees are mere gratuities that do not vest and can be amended or modified at any time by the state (Public Employee Pensions in Times of Fiscal Distress, [90 Harvard L Rev 992 (1977)]. This approach has been rejected by a majority of states [including Michigan] either on policy grounds, or because of state constitutional requirements prohibiting a state from making a gift to an individual. Public Pension Plan Reform: The Legal Framework, p 4. http://ssm.com/abstract=1573864. (EX. 1)

Thus, as Monaghan notes, "Courts typically do not have difficulty in rejecting the gratuity approach as absurd. . ." Id. at 12. See also Christensen v Minneapolis Mun Employees Ret Bd, 331 NW2d 740, 747 (Minn 1983) (noting that the antiquated view that "[a] pension is a bounty springing from the graciousness and appreciation of sovereignty" is "language [that] is at best quaint, and at worst, demeaning").

[2] See Opinion of the Justices, 303 NE2d 320, 328 (Mass 1973) ("When . . . the characterization 'contract' is used, it is best understood as meaning that the retirement scheme has generated material expectations on the part of employees and those expectations should in substance be respected. Such is the content of 'contract.'").

[3] It should be noted that present class action does not cover current or future public employees, and thus does not concern the status of their pension benefits. It only concerns the already earned deferred compensation benefits of retired, fully vested state employees and public school employees.

[4] See Detroit v Detroit Police Officers Assoc, 408 Mich 410 (1980) (noting that an official may be may be clothed with authority to say when the 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).

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