American Fed., State, County v. City Benton, Ark.

• Decision Date: 25 January 2008
• Docket Number: No. 07-1589.,07-1589.
• Citation: 513 F.3d 874
• Parties: AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, Local 2957, et al., Plaintiffs-Appellees, v. CITY OF BENTON, ARKANSAS, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

513 F.3d 874

AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, Local 2957, et al., Plaintiffs-Appellees, v. CITY OF BENTON, ARKANSAS, et al., Defendants-Appellants.

No. 07-1589.

United States Court of Appeals, Eighth Circuit.

Submitted: November 15, 2007.

Filed: January 25, 2008.

David M. Fuqua, argued, Little Rock; AR, for appellant.

James E. Nickels, argued, North Little Rock, AR, Pamela D. Walker, on the brief, Little Rock, AR, for appellee.

Before WOLLMAN and BENTON, Circuit Judges, and DOTY,¹ District Judge.

DOTY, District Judge.

The American Federation of State, County and Municipal Employees, Local 2957 (the "Union") and Terry White (collectively "plaintiffs") sued the City of Benton (the "City"), Arkansas; its Aldermen Doug Strancener, Phillip Montalvo, Karla J. Haley, Willie Floyd, Ray Freemen, Leroy Allen, Ann Hall, Robin Berry, Claudine Ramsey and Charles Cuningham, in their official capacities as members of the City Council; and its mayor, Rick Holland (collectively "defendants"), to enjoin the City to continue paying retiree health insurance premiums. The district court² granted plaintiffs' motion for judgment on the pleadings and, after a bench trial to determine the appropriate remedy, ordered the City to pay health insurance premiums for the specified Union-represented city employees upon retirement. Defendants appeal, and we affirm.

I. BACKGROUND

Beginning in 1976, the Union negotiated collective bargaining agreements ("CBA") with the City on behalf of nonuniform Benton city employees. The parties entered into the CBA at issue in this action on June 14, 2002, and it expired on December 31, 2004. The CBA established rates of pay, hours of work, conditions of employment and provided for various types of insurance for employees upon retirement. In relevant part, Appendix B to the CBA provides that "[r]etirement coverage is 100% paid by the City of Benton." (Appellant App. at 236.) Since 1989, the City has paid the premiums on the health insurance for its retired nonuniform employees.

At the recommendation of its personnel committee, the City Council passed a resolution on October 13, 2003, altering health insurance coverage for its retired employees. The resolution declared that effective January 1, 2004, the City would continue paying 100% of health insurance premiums for retired employees only for employees having more than 28 years of service, cease paying any portion of health insurance premiums for employees with less than ten years of service, and reduce payments to 3% of the premium for each year of service for all of the remaining employees. On March 22, 2004, the City Council again addressed the issue of retiree health insurance. Based on its belief that Arkansas Code § 24-12-129 required retirees to pay their own premiums, the City Council passed a resolution terminating any City payment of retiree health insurance premiums.

Two months later, on May 17, 2004, plaintiffs filed an action seeking to enjoin defendants from enforcing the March 22 resolution. Before answering, defendants moved to dismiss the complaint on June 7, 2004. Plaintiffs moved for judgment on the pleadings on July 22, 2004. On August 2, 2005, the district court granted plaintiffs' motion for judgment on the pleadings in part and denied defendants' motion to dismiss. The City then filed an answer to plaintiffs' complaint on January 10, 2006.

On January 27, 2006, the district court amended its order to certify the case for interlocutory appeal. We considered and denied defendants' petition for permission to file an interlocutory appeal on February 17, 2006. On January 9, 2007, the district court held a one-day bench trial to address plaintiffs' remedy. After trial, each side moved the court to amend its pleadings to conform to the evidence. Plaintiffs sought to include the City Council's October 2003 resolution altering retirement health insurance premium coverage as an additional breach of the CBA. Defendants opposed that addition and in the alternative moved the court to add the defense of illegality to its answer. On January 31, 2007, the district court granted plaintiffs' motion and denied defendants' motion. Two weeks later, on February 13, 2007, the district court issued an order affirming its prior ruling that the City Council's October 2003 and March 2004 resolutions were unconstitutional impairments of the CBA. The court nullified the City Council resolutions and enjoined defendants from enforcing them against city employees with a vested right to the retiree health insurance premiums.

On appeal, defendants argue that the district court erroneously concluded that the October 2003 and March 2004 resolutions violated the United States Constitution. Defendants further argue that the district court abused its discretion by denying their motion to amend the pleadings and that the remedy ordered by the district court was clearly erroneous. We disagree.

II. DISCUSSION

The district court granted plaintiffs' motion for judgment on the pleadings before defendants answered but failed to treat the motion as one for summary judgment. See Season-All Indus., Inc. v. Turkiye Sise Ve Cam Fabrikalari, A.S., 425 F.2d 34, 36 (3d Cir.1970) (motion for judgment on the pleadings before answer is improper and should be treated as motion for summary judgment). Nevertheless, any error in a district court's "failure to treat a motion for judgment on the pleadings as one for summary judgment `is harmless if the nonmoving party had an adequate opportunity to respond to the motion and material facts were neither disputed nor missing from the record.'" Surgical Synergies, Inc. v. Genesee Assocs., Inc., 432 F.3d 870, 873 (8th Cir.2005) (quoting Kerr v. Fed. Emergency Mgmt. Agency, 113 F.3d 884, 885 (8th Cir.1997)). Here, the court granted defendants ample opportunity to respond to plaintiffs' motion and eventually allowed defendants to file an answer. Further, material facts were neither disputed nor missing. By filing a motion to dismiss, defendants averred that all facts in the complaint should be taken as true. Moreover, when they answered, defendants admitted all relevant facts save the legitimacy and continued existence of the CBA—matters of law for the court to determine. Defendants, therefore, received comparable review and treatment despite the procedural impropriety, and any error by the district court was at most harmless. However, because the district court should have construed plaintiffs' filing as a motion for summary judgment, we review the case under the summary judgment standard.

We review de novo the district court's grant of summary judgment in favor of, plaintiffs. Mayer v. Nextel W. Corp., 318 F.3d 803, 806 (8th Cir.2003). Summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). We view all evidence and inferences in a light most favorable to the nonmoving party. See id. at 255, 106 S.Ct. 2505. The nonmoving party, however, may not rest upon mere denials or allegations in the pleadings but must set forth specific facts sufficient to raise a genuine issue for trial. See Celotex v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

A. Contractual Impairment

The Contract Clause of the United States Constitution provides that no state shall "pass any Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, el. 1. A three-part test determines whether state action violates the Contract Clause. First, we ask whether "the state law has, in fact, operated as a substantial impairment on pre-existing contractual relationships." Equip. Mfrs. Inst. v. Janklow, 300 F.3d 842, 850 (8th Cir.2002). This first prong involves a three-part inquiry: "[1] whether there is a contractual relationship, [2] whether a change in law impairs that contractual relationship, and [3] whether the impairment is substantial." Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992). If substantial impairment existed, we determine whether the state has a "significant and legitimate public purpose behind the regulation." Educ. Employees Credit Union v. Guar. Corp., 50 F.3d 1432, 1438 (8th Cir.1995) (internal citation omitted). If there is no significant and legitimate public purpose, the state law is unconstitutional under the Contract Clause. See Equip. Mfrs., 300 F.3d at 850. If, however, the state identifies such a public purpose, we lastly consider "whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption." Energy Reserves Group, Inc. v. Kan. Power & Light Co., 459 U.S. 400, 412, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983) (internal quotations and alterations omitted).

1. The Contractual Relationship

The district court found that the CBA was a valid agreement between the City and the Union. Defendants challenge this threshold determination. Specifically, they argue that the language of the agreement never required the City to pay retiree health insurance premiums, that the CBA's health insurance provision was illegal under Arkansas law, that the City did not have the authority to enter into a multi-year agreement with the Union and that the payment of retiree health insurance premiums is a matter of city policy that cannot be contracted away.

The plain language of the CBA states that "[r]etirement coverage is 100% paid." (Appellant App. at 236.) Defendants maintain that this provision does not obligate the City to pay retiree health benefits because "retirement coverage" was not defined...