AFT Mich. v. State

• Citation: 825 N.W.2d 595,297 Mich.App. 597
• Decision Date: 16 August 2012
• Docket Number: 303706.,303704,Docket Nos. 303702
• Parties: AFT MICHIGAN v. STATE of Michigan. Johnson v. Public School Employees Retirement System. McMillan v. Public School Employees Retirement System.
• Court: Court of Appeal of Michigan — District of US

297 Mich.App. 597

825 N.W.2d 595

AFT MICHIGAN

v.STATE of Michigan.

Johnson

v.Public School Employees Retirement System.

McMillan

v.Public School Employees Retirement System.

Docket Nos. 303702, 303704, 303706.

Court of Appeals of Michigan.

Submitted Oct. 5, 2011, at Lansing.

Decided Aug. 16, 2012, at 9:00 a.m.

Mark H. Cousens, Southfield, for AFT Michigan and others.

Miller Cohen, P.L.C., Detroit (by Bruce A. Miller and Keith D. Flynn), for Timothy L. Johnson and others.

White, Schneider, Young & Chiodini, P.C., Okemos (by James A. White, Kathleen Corkin Boyle, and Timothy J. Dlugos), and Arthur R. Przybylowicz, for Deborah McMillan and others.

Bill Schuette, Attorney General, John J. Bursch, Solicitor General, Richard A. Bandstra, Chief Legal Counsel, and Frank J. Monticello and Larry F. Brya, Assistant Attorneys General, for the state of Michigan, the Public School Employees Retirement System, the Public School Employees Retirement Board, the Department of Technology, Management, and Budget, and others.

Before: SHAPIRO, P.J., and SAAD and BECKERING, JJ.

Opinion of the Court

SHAPIRO, P.J.

In these three cases consolidated for appeal, plaintiff public school employees and their representative organizations raise various constitutional challenges to MCL 38.1343e. This provision was adopted in 2010 and amended article 3 of the Public School Employees Retirement Act, MCL 38.1341 et seq., which governs the Michigan Public School Employees Retirement System (MPSERS), MCL 38.1321. MCL 38.1343e requires that public school districts and other reporting units ¹ withhold three percent of each employee's wages and remit the amount to the MPSERS as “employer contributions” to the trust that funds retiree health care benefits.

We conclude that MCL 38.1343e violates multiple constitutional rights set forth in both the United States and Michigan Constitutions and is therefore invalid. Specifically, we conclude that the statute violates federal and state constitutional protections against the impairment of contracts by the state and the taking of private property by the government without compensation, as well as the constitutional guarantee of substantive due process. The prohibition against governmental impairment of contracts is violated because the statute requires that school employees be paid three percent ² less than the amount they and their employers freely agreed on in contracts. The prohibition against the taking of private property is violated because MCL 38.1343e does not merely create a general obligation on the part of active employees to pay a certain sum, but instead directs that unique and definable monies in which plaintiff employees have a property interest be confiscated by their governmental employers. Moreover, the confiscated wages are then used to pay the statutorily mandated employers' contributions to a state fund. Finally, while the fund in question funds health care benefits for present retirees, the active employees whose wages are taken have no vested right themselves to the receipt of health care benefits upon their own retirement.

I. BACKGROUND

MCL 38.1343e became effective in 2010 and reads as follows:

(1) Except as otherwise provided in this section, beginning July 1, 2010, each member shall contribute 3% of the member's compensation to the appropriate funding account established under the public employee retirement health care funding act [MCL 38.2731 et seq.]. For the school fiscal year that begins July 1, 2010, members who were employed by a reporting unit [i.e., school district] and were paid less than $18,000.00 in the prior school fiscal year and members who were hired on or after July 1, 2010 with a starting salary less than $18,000.00 shall contribute 1.5% of the member's compensation to the appropriate funding account established under the public employee retirement health care funding act. For each school fiscal year that begins on or after July 1, 2011, members whose yearly salary is less than $18,000.00 shall contribute 3% of the member's compensation to the appropriate funding account established under the public employee retirement health care funding act. The member contributions shall be deducted by the employer and remitted as employer contributions in a manner that the retirement system shall determine.

(2) As used in this act, “funding account” means the appropriate irrevocable trust created in the public employee retirement health care funding act for the deposit of funds and the payment of retirement health care benefits.

A provision of 2010 PA 77, codified as MCL 38.2733(6), provides in pertinent part: “This act shall not be construed to define or otherwise assure, deny, diminish, increase, or grant any right or privilege to health care benefits or other postemployment benefits to any person....” Accordingly, MCL 38.1343e cannot be read to grant any “right or privilege” to retiree health care benefits beyond that already in place. And as determined by the Michigan Supreme Court in Studier v. Michigan Pub. Sch. Employees' Retirement Bd., 472 Mich. 642, 698 N.W.2d 350 (2005), school employee retiree health care benefits are not guaranteed by contract and do not constitute an accrued benefit protected from impairment or elimination by Const. 1963, art. 9, § 24.³

After the effective date of MCL 38.1343e, school districts began to withhold three percent of their employees' wages for remittance as employer contributions to the MPSERS. Plaintiffs brought suits in the Court of Claims to enjoin further withholding, to obtain a declaratory ruling that the statute was unconstitutional, and to have the withheld wages returned to them with statutory interest. The court ordered that the withheld wages be placed in an interest-bearing account, rather than the MPSERS trusts, and that they be maintained there until the legal challenge was resolved. The court later granted summary disposition or partial summary disposition in favor of plaintiffs in each of the three cases, two of which were brought by individual school employees and one by an array of labor organizations representing school employees.

The court rejected defendants' motion to dismiss the labor organizations as plaintiffs, holding that they had standing to challenge the statute. It also rejected defendants' assertion that the claims were not ripe for review.

With regard to the substance of the constitutional challenges, the court held that the statute violated plaintiffs' rights under both the Takings Clauses and the Due Process Clauses of the federal and state Constitutions. The trial court held that the statute did not violate the constitutional provisions barring the impairment of contracts by the state and also dismissed a common-law breach of contract claim.

II. STANDING

Defendants argue that the plaintiff labor organizations in Docket No. 303702 do not have standing to bring suit. Whether a party has standing is a question of law that this Court reviews de novo. Glen Lake–Crystal River Watershed Riparians v. Glen Lake Ass'n, 264 Mich.App. 523, 527, 695 N.W.2d 508 (2004). In reviewing a motion under MCR 2.116(C)(5), this Court considers the pleadings, affidavits, depositions, admissions, and any other documentary evidence submitted by the parties to determine whether the moving party was entitled to judgment as a matter of law. MCR 2.116(G)(5); Kuhn v. Secretary of State, 228 Mich.App. 319, 332–333, 579 N.W.2d 101 (1998).

“It is not disputed that, under Michigan law, an organization has standing to advocate for the interests of its members if the members themselves have a sufficient interest.” Lansing Sch. Ed. Ass'n v. Lansing Bd. of Ed., 487 Mich. 349, 373 n. 21, 792 N.W.2d 686 (2010). Defendants concede that if the organizational plaintiffs represent public school employees, then they have standing. The organizational plaintiffs assert that they represent public school employees. Defendants complainthat these plaintiffs have not produced evidence of their memberships. However, defendants do not provide any evidence to the contrary and it is plain that these plaintiffs represent public school employees. They have names such as “AFT Michigan” (American Federation of Teachers—Michigan) “Dearborn Federation of School Employees,” and “Detroit Association of Educational Office Employees.” Certainly defendants have not demonstrated that they are entitled to judgment on this point as a matter of law.

III. RIPENESS

Defendants also argue that the substantive issues in these cases are not ripe for decision. “A claim is not ripe if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all.” Mich. Chiropractic Council v. Office of Fin. & Ins. Servs. Comm'r, 475 Mich. 363, 371 n. 14, 716 N.W.2d 561 (2006) (quotation marks and citations omitted), overruled on other grounds by Lansing Sch., 487 Mich. at 371 n. 18, 792 N.W.2d 686 (2010). Defendants argue that it is speculation to suggest that plaintiff employees will fail to receive health care benefits when they retire. However, plaintiff employees have not brought a claim to require the provision of health care benefits upon their retirement. Rather, plaintiff employees complain that currently three percent of their salaries are being withheld to pay for the health care of others, i.e. present school retirees. This Court addressed a similar situation in AFSCME Council 25 v. State Employees' Retirement Sys., 294 Mich.App. 1, 7–8, 818 N.W.2d 337 (2011):

Although defendants characterize plaintiffs' claims as seeking relief from a hypothetical event, plaintiffs allege a current confiscation of their compensation without adherence to the provisions of Const. 1963, art. 11, § 5 and in violation of their [collective-bargaining agreement] and contractual rights. Specifically, irrespective of the future availability of retiree health benefits to current employees, plaintiffs challenge the reduction in wages from November 1, 2010,...