Pontiac Police & Fire Retiree Prefunded Grp. Health & Ins. Trust Board of Trs. v. City of Pontiac No. 1., Docket No. 316418.

• Decision Date: 17 March 2015
• Docket Number: Docket No. 316418.
• Citation: 873 N.W.2d 121,309 Mich.App. 590
• Parties: PONTIAC POLICE AND FIRE RETIREE PREFUNDED GROUP HEALTH AND INSURANCE TRUST BOARD OF TRUSTEES v. City of PONTIAC No. 1.
• Court: Court of Appeal of Michigan — District of US

309 Mich.App. 590

873 N.W.2d 121

PONTIAC POLICE AND FIRE RETIREE PREFUNDED GROUP HEALTH AND INSURANCE TRUST BOARD OF TRUSTEES

v.City of PONTIAC No. 1.

Docket No. 316418.

Court of Appeals of Michigan.

Submitted July 15, 2014.

Decided March 17, 2015.

Sullivan, Ward, Asher & Patton, PC, Southfield (by Matthew I. Henzi ), for plaintiff.

Giarmarco, Mullins & Horton, PC, Troy (by Stephen J. Hitchcock and John L. Miller ), for defendant.

Before: MARKEY, P.J., and OWENS and FORT HOOD, JJ.

PER CURIAM.

Plaintiff Board of Trustees of the City of Pontiac Police and Fire Retiree Prefunded Group Health and Insurance Trust (trustees) appeals by right Oakland Circuit Judge Daniel Patrick O'Brien's order granting defendant's motion for summary disposition of plaintiff's complaint to require the city to pay its required annual contribution to the trust for the fiscal year ending June 30, 2012. The trust was established in 1996 as a tax-exempt voluntary employees' beneficiary association (VEBA), 26 USC 501(c)(9), to hold the contributions of police and firefighter employees and those of the city pursuant to collective bargaining agreements (CBAs) between the city and the various unions of the city's police officers and firefighters. The trust held and invested these contributions to provide health, optical, dental, and life-insurance benefits to police and firefighters who retired on or after August 22, 1996, as required by the various CBAs. At issue is the efficacy of Executive Order 225 issued on August 1, 2012, pursuant to § 19(1)(k) of 2011 PA 4, MCL 141.1519(1)(k), by the city's emergency manager (EM), Louis H. Schimmel, which purported to amend the trust to remove the city's annual obligation to contribute to the trust agreement "as determined by the Trustees through actuarial evaluations." The trial court accepted defendant's argument that the city's EM properly modified the city's obligation to contribute to the trust for the fiscal year ending June 30, 2012, by modifying the existing CBAs between the city and police and firefighter unions. The trial court also ruled that plaintiff's claim under Const. 1963, art. 9, § 24, was without merit under Studier v. Mich. Pub. Sch. Employees' Retirement Bd., 472 Mich. 642, 698 N.W.2d 350 (2005). We conclude, even assuming that Executive Order 225 was properly adopted pursuant to § 19(1)(k), that it did not retroactively eliminate the city's obligation to contribute to the trust for the fiscal year ending June 30, 2012; consequently, we reverse and remand for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

On August 8, 2012, the Board of Trustees of the City of Pontiac Police and Fire Retirement System and plaintiff trustees filed their complaint in circuit court, asserting that defendant funded the City of Pontiac Police and Fire Retirement System (PFRS), which provided retirement benefits to retired employees of the police and fire departments. In addition, plaintiffs asserted that defendant funded the trust, a tax-exempt VEBA, 26 USC 501(c)(9), which provided health, optical, dental, and life-insurance benefits to police and firefighters who retired on or after August 22, 1996.

The trust is administered by its five-member board of trustees, which consists of the city's mayor, the city's finance director, a firefighter, a police officer, and a fifth trustee whom the other trustees would select and who could participate in the trust. Declaration of Trust, Art. IV, § 1. Plaintiffs alleged that defendant, through its EM, failed to pay its required contribution to the trust for the fiscal year between July 1, 2011 and June 30, 2012, which was actuarially determined to be $3,473,923.28. The trust includes the following relevant provisions:

ARTICLE I

Definitions

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Section 3: Contributions —The term Contributions as used herein, shall mean the payment required to be made to the Trustees and to the Trust Fund by the City under the authority such as ordinance or City Council resolution or under any applicable existing Collective Bargaining Agreements or any future Collective Bargaining Agreements for the purpose of providing group health, hospitalization and dental and optical and group life insurance for employees, retirees and beneficiaries covered by the Plan.

* * *

ARTICLE II

Establishment of Trust

Section 1: The purpose of this Trust Fund ... is to provide health and insurance benefits to eligible participants and beneficiaries of the Plan.... The Grantor ^[1] intends the benefits provided by this Trust to be considered a benefit guaranteed by Article IX, Section 24 of the State of Michigan Constitution.

ARTICLE III

Contributions to the Trust Fund

Section 1: (a) The City–Employer shall be required to pay to the Trust Fund such amounts as the Trustees may determine are actuarially certified and are actuarially necessary to fund the Trust and provide benefits provided by the Plan consistent with actuarial valuations and calculations made by the Actuary for the Trust to result in a Prefunded Plan.

Such contributions shall also be made in accordance with the Collective Bargaining Agreements between the collective bargaining associations and the employer City and this Trust Agreement, and such other regulations of the Board of Trustees as are not inconsistent with the aforesaid authority.

(b) In addition to the amounts paid by the City on behalf of Participants as set forth above and in the Collective Bargaining Agreements, the City shall contribute to the Trust Fund such additional moneys which together with those contributions and return on investments shall be sufficient to fund the benefits provided on a sound actuarial basis. Participants shall contribute those amounts required for additional extended Family Riders in effect as of 8–22–96 and otherwise as determined by the trustees.

* * *

Section 2. The Trustees may compel and enforce payments of contributions in any manner they deem proper.

The Trustees may make such additional rules and regulations for the enforcement of the collection payments as they deem proper.

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ARTICLE V

Powers and Duties of the Trustees

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Section 2: The Trustees shall carry out the purposes of this Trust Agreement, and may maintain any health benefit programs and insurance policy or policies now in force and effect and available to Police and Fire retirees of the City of Pontiac or may substitute other comparable or superior policies in lieu thereof. In providing group life insurance to the Participants of this Plan so as to effectuate the purposes of this Trust Agreement, the Trustees shall be bound by the terms of this Trust Agreement and any applicable Collective Bargaining Agreements between the City and the collective bargaining associations and shall comply with all applicable laws.

* * *

ARTICLE VII

Liabilities of the Parties

Section 1: The City shall not be liable for payment to the Trust of any amounts other than those required of it by this Trust Agreement or any applicable Collectible [sic] Bargaining Agreement. The City shall not be liable to make contributions to the Trust or pay any expenses whatsoever in connection therewith, except as provided by the terms of the Collective Bargaining Agreements between the collective bargaining association and the City and the terms of this Trust Agreement....

* * *

ARTICLE X

Amendments

Section 1: The provisions of this Declaration of Trust and Agreement may be amended at any time, by (A) collective bargaining between the collective bargaining associations identified in Article 1, Section 8 and the City of Pontiac (B) by a unanimous vote of the five (5) Trustees, concurred in by the City Council of the City of Pontiac provided, however, that such Amendments are not inconsistent with any applicable Collectible [sic] Bargaining Agreements and do not adversely affect the tax exempt status of the 501(c)9 Trust.... [Declaration of Trust, executed January 30, 1997 (emphasis added).]

Although the plain language of the trust does not directly state when a required contribution is due, plaintiff asserts and defendant agrees that the actuarially required contribution to the trust for the fiscal year commencing July 1, 2011 and ending June 30, 2012 was due on or before June 30, 2012. It is also undisputed that during the fiscal year ending June 30, 2012, the city's EM entered termination collective bargaining agreements with the various police and firefighter unions. The city also contracted to receive police services from Oakland County effective August 1, 2011, and fire services from Waterford Township, effective February 1, 2012.

On August 1, 2012, the city's EM issued Executive Order (EO) 225, which purported to amend the trust pursuant to § 19(1)(k) of 2011 PA 4, to terminate the city's annual actuarially required contribution to the trust for the fiscal year ending June 30, 2012. The substantive provision of the order read as follows:

Article III of the Trust Agreement, Section 1, subsections (a) and (b) are amended to remove Article III obligations of the City to continue to make contributions to the Trust as determined by the Trustees through actuarial evaluations.

The Order shall have immediate effect.

The issuance of EO 225 was preceded by the EM's letter of July 10, 2012 to State Treasurer Andrew Dillon, seeking concurrence in the EM's plan to invoke the authority of § 19(1)(k) of 2011 PA 4 to modify the trust by modifying existing CBAs to eliminate the city's obligation to contribute to the trust. The letter outlined the provisions of the trust regarding contributions, Art. III, §§ (1)(a) and (b), and its provisions regarding amendments, Art. X, § (1). The EM also stated in the letter that he "anticipated that the City will be required by the Trustees of the VEBA to contribute $3,915,371 during the fiscal year ending June 30, 2013."

In further making the case for the exercise of authority under § 19(1)(k) of 2011 PA 4, the EM wrote that he was unable to negotiate with local police and firefighter unions because...