Appoloni v. U.S.
| Decision Date | 07 June 2006 |
| Docket Number | No. 04-2068.,No. 05-1049.,04-2068.,05-1049. |
| Citation | 450 F.3d 185 |
| Parties | Donald F. APPOLONI, Sr., Russell C. Bergemann, and Charles Bryce Engle, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. Phyllis F. Klender, William B. Rase, and Roger J. Petri, Plaintiffs-Appellees, v. United States of America, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: John M. West, Bredhoff & Kaiser, Washington, D.C., for Plaintiffs. Ellen Page Delsole, United States Department of Justice, Washington, D.C., for Defendant. ON BRIEF: John M. West, Bredhoff & Kaiser, Washington, D.C., Suzanne K. Clark, Lee & Clark, Southfield, Michigan, for Plaintiffs. Ellen Page Delsole, Kenneth L. Greene, United States
Department of Justice, Washington, D.C., for Defendant.
Before: KENNEDY, COOK, and GRIFFIN, Circuit Judges.
KENNEDY, J., delivered the opinion of the court, in which COOK, J., joined. GRIFFIN, J. (pp. 196-205), delivered a separate opinion concurring in part and dissenting in part.
In these cases consolidated on appeal, we address whether payments made to public school teachers, who relinquished their statutory tenure rights and resigned from their positions upon accepting the payments, constitute "wages" taxable under the Federal Insurance Contribution Act ("FICA"). Appoloni v. United States was filed in the United States District Court for the Western District of Michigan; Klender v. United States was filed in the United States District Court for the Eastern District of Michigan. In each case, both parties filed cross-motions for summary judgment. In Appoloni, the district court granted summary judgment for the government; in Klender, the court granted summary judgment for the Plaintiffs. For the following reasons, we hold that the payments made in exchange for the relinquishment of statutorily granted tenure rights constitute "wages" taxable under FICA. Thus, we REVERSE the district court's judgment in Klender, and we AFFIRM the court's judgment in Appoloni.
On March 27, 2002, three taxpayers filed suit in the Eastern District of Michigan. On November 21, 2002, three taxpayers brought suit in the Western District of Michigan. Both lawsuits were certified as class actions and differ only in minor respects not relevant here. In general, the class encompasses all former employees of Michigan school districts and public post-secondary education institutions, residing in the Eastern (Klender) and Western (Appoloni) Districts of Michigan who received early retirement incentive payments from their respective school districts and who unsuccessfully applied to the Internal Revenue Service ("IRS") for refunds of FICA taxes withheld from those payments.
Plaintiffs, Donald Appoloni, William Bergemann, and Sandra Engle, were tenured public school teachers employed by the Dowagiac Union Public School District (the "School District"). All three had been granted tenure by the School District pursuant to the Michigan Teachers' Act ("Tenure Act") Mich. Comp. Laws § 38.71. In Michigan, a teacher automatically earns tenure by successfully completing a probationary period. See Mich. Comp. Laws § 38.71. As tenured teachers, Plaintiffs were entitled to continued employment with their respective school districts absent "reasonable and just cause" and subject to the procedural protections set forth in the Tenure Act.
During the 2000-2001 school year, the School District offered an early "employee severance plan" ("ESP") to its most senior teachers. Teachers who had at least ten years of service with the School District and were at a high step in the pay scale, were eligible to participate in the plan. Participation in the plan was voluntary, and the plan provided that if more than 30 eligible teachers applied, eligibility to participate would be determined on the basis of seniority. The purpose of this plan was to "help prevent teacher layoffs and to lessen the Board's economic responsibility in the area of staffing." J.A. at 77.
Participants in the ESP were required to resign as of June 30, 2001, and to agree to a waiver providing that the teacher "waived all claims arising out of employment with the District, including claims... under the Tenure Act." Additionally, participating teachers agreed to "waive... all entitlement to future wage and benefit increases, all rights to participate in any district sponsored benefit plans" and agreed to not "apply for reemployment" without the School District's consent. J.A. at 81. Participating teachers received the equivalent of their 1999-2000 annual base salary (but not more than $53,021) in 60 monthly payments over a five-year period. J.A. at 25.
The School District withheld FICA taxes from the installment payments. Relying on the Eighth Circuit's decision in North Dakota State Univ. v. United States, 255 F.3d 599 (8th Cir.2001), the taxpayers filed claims for refunds of the FICA taxes withheld, and when the IRS denied those claims, the taxpayers filed suit in the Western District of Michigan.
Both the Plaintiffs and the government filed motions for summary judgment. The district court granted the government's motion and denied the Plaintiffs' motion. Plaintiffs filed this timely appeal.
The Klender litigation similarly involves tenured teachers who were offered an "Employee Severance Plan" designed to induce tenured teachers to retire. In Klender, all three Plaintiffs — Phyllis F. Klender, Roger J. Petri, William B. Rase — were employed as Michigan public school teachers and also had been granted tenure pursuant to the Tenure Act.
Plaintiff Klender accepted a buyout that the Pinconning Area School District offered her during the 1999-2000 school year. The buyout was offered to teachers with 20 or more years of service with the district. Any eligible teacher who agreed to retire as of June 30, 2000, would receive a payment of $46,800 made in 72 monthly installments over six years. In exchange, teachers were required to "waive ... all future employment rights," to agree not to apply for re-employment in the district without the district's consent, and to "waive and release the District forever from rights to re-employment and from any claims based, inter alia, on her `tenure rights.'" J.A. at 47.
Plaintiff Petri accepted a "Voluntary Teacher Severance Incentive Program" offered by the Pinconning Area School District to teachers with ten or more years of service. If an eligible teacher agreed to "voluntarily resign his or her employment with Pinconning Area Schools [and] forfeit all seniority rights," the teacher would receive a minimum guaranteed payment of $2,000. That payment increased to a total of $37,500 if ten or more eligible teachers opted to participate in the program. Plaintiff Petri accepted the buyout offer on February 17, 1997.
Plaintiff Rase also accepted a buyout that was offered pursuant to an "early retirement" provision in a collective bargaining agreement between the West Branch-Rose City Area School District and the West Branch-Rose City Education Association. Teachers with a minimum of 20 years' service in the District and 25-29 years' credit under the Michigan Public School Employees' Retirement Plan qualified for an early retirement incentive. Incentive payments began at $30,00 for teachers with 25 years and decreased by $5,000 for each additional year of retirement credits up to 29. On January 24 2001, Plaintiff Rase announced his retirement.
In making these buyout payments to Plaintiffs Klender, Petri, and Rase, the school districts withheld FICA taxes from the amount paid. Between August and October of 2001, all three Plaintiffs filed claims for refunds with the IRS. The IRS denied the claims. Plaintiffs then filed this action in the Eastern District of Michigan. Both parties filed cross motions for summary judgment. The district court denied the government's motion and affirmed the Plaintiffs'. This appeal followed.
We review a district court's grant of a motion for summary judgment de novo. Wojcik v. City of Romulus, 257 F.3d 600, 608 (6th Cir.2001). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 243, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "The fact that the parties have filed cross-motions for summary judgment does not mean, of course, that summary judgment for one side or the other is necessarily appropriate." Parks v. LaFace Records, 329 F.3d 437, 444 (6th Cir.2003). "When reviewing cross-motions for summary judgment, we must evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the nonmoving party." Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir.2003).
This case presents an issue of first impression in this circuit: are payments made by school districts to public school teachers in exchange for the relinquishment of those teachers' statutorily granted tenure rights considered "wages" taxable under FICA?
FICA, codified in Chapter 21 of the Internal Revenue Code, Sections 3101 through 3128, imposes a tax upon the wages of employees to fund Social Security and Medicare Benefits. This tax is collected by the employer by deducting the tax from wages at the time of payment. Section 3111 imposes a matching tax on the employer with respect to wages paid to the employee.
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