Bailey v. State
| Decision Date | 08 May 1998 |
| Docket Number | No. 53PA96.,53PA96. |
| Citation | 500 S.E.2d 54,348 N.C. 130 |
| Parties | James H. Pou BAILEY, A. Pilston Godwin, Harry L. Underwood, Henry L. Bridges, Rosalie T. Adams, Jesse M. Almon, Helen L. Andrews, Worth B. Skew, Billy A. Baker, Parker N. Bare, Arthur C. Beaman and Grace G. Beaman, Joseph G. Binkley, Robert L. Blevins, Ellie L. Boyles, Chancel T. Brown and Joan W. Brown, Elizabeth S. Butler, Dorothy T. Carmichael, John Carricker, Harold D. Coley, Sr., Anna L. Cooper, Charles C. Cooper and Bertie S. Cooper, T.J. Duncan and Esther P. Duncan, Dan R. Emory, Martin W. Ericson, Fred W. Gentry, Ivey B. Gordon and Izoria S. Gordon, Louis N. Gosselin, Earl T. Green, Bob Hammons, Darius B. Herring, Ray F. Holcomb, Tille M. Holcomb, Kay C. Hurt, John I. Kiger and Marie K. Kiger, Clarence T. Leinbach, Walter G. Leming and Barbara C. Leming, Yates Lowe, Harriette B. McCormick, Virginia H. Mickey, William F. Morgan, Harrietta B. McCormick, Earl Ray Parker, Calvin C. Pearce, Michael Pelech, Diane S. Peoples, Mildred R. Poindexter, Winnie D. Potts, Patsy M. Reynolds, Glenn D. Russell, Blanche S. Shipp, Clyde R. Shook, Harold E. Simpson, Sonnie B. Simpson, Lenora S. Smith, Frances J. Snow, Charles A. Speed, Justus M. Tucker, Walter P. Upright, Ralph B. Walker and Martha M. Walker, Jean A. Watson, Robert I. Weathersbee, Ruby Webster, Harry Lee Williams, Daniel W. Williams, Elizabeth H. Wilson, Wilbur G. Wilson, Ernest B. Wood, Thomas S. Worsham, Individually for the benefit and on behalf of all others similarly situated, Petitioner-Plaintiffs, and W.K. Aubry, Jr., James Bryan Barrett, Norman W. Cash, Roberta M. Cook, John Ed Davis, Daniel M. Dyson, Edwin C. Guy, Samuel L. Harmon, John Marshall Hartley, Donald Elliot Hartle, Martha M. Lawing, Douglas Lamar Mason, Delma Dalton Respass, Jr., William Elmer Riggs, Paul L. Salisbury, Jr., Richard A. Sharpe, Nelson Leroy Shearouse, Francis C. Simmons and Mary E. Simmons, Ned Raeford Smith, G. Vance Solomon and Eulalia T. Solomon, Thomas Lash Transou and Wilbur Eugene Young, Additional Petitioner-Plaintiffs, v. STATE of North Carolina, the North Carolina Department of Revenue, Janice Faulkner, in her capacity as Secretary of the North Carolina Department of Revenue, the North Carolina Department of State Treasurer, Harlan E. Boyles, in his capacity as Treasurer of the State of North Carolina, Respondent-Defendants. |
| Court | North Carolina Supreme Court |
Womble Carlyle Sandridge & Rice, P.L.L.C. by G. Eugene Boyce, Raleigh, for petitioner-appellants and -appellees.
Michael F. Easley, Attorney General by Edwin M. Speas, Jr., Senior Deputy Attorney General, Norma S. Harrell, Special Deputy Attorney General, and Marilyn R. Mudge, Assistant Attorney General, for respondent-appellants and -appellees.
Marvin Schiller, Raleigh, on behalf of The State Employees Association of North Carolina, Inc., amicus curiae.
This is an appeal from an order entered essentially in plaintiffs' favor by the Honorable Jack A. Thompson in Superior Court, Wake County, pursuant to assignment and designation of the case as an exceptional case under Rule 2.1 of the General Rules of Practice. Following a two-week trial, including the testimony of twenty-four witnesses and 1,689 pages of transcript, and subsequent proceedings before the trial court, a final order on all issues was entered 25 September 1995.
This class action was initiated by the filing of plaintiffs' complaint on 2 October 1992. Many of the plaintiffs in this suit had previously brought a virtually identical suit, which resulted in certification of the class and partial summary judgment for plaintiffs. This ruling was reversed on appeal by this Court for failure of plaintiffs to comply with mandatory protest or demand requirements contained in N.C.G.S. § 105-267, which the Court held was the exclusive method for challenging unconstitutional or invalid income taxes in North Carolina. Bailey v. State, 330 N.C. 227, 412 S.E.2d 295 (1991),cert. denied, 504 U.S. 911, 112 S.Ct. 1942, 118 L.Ed.2d 547 (1992) ("Bailey I"). Plaintiffs took a voluntary dismissal in Bailey I before filing this action.
Plaintiffs' motion for class certification was again allowed by an order filed 10 October 1994, certifying a class of state and local government retirees and beneficiaries with claims for tax years 1989, 1990 and 1991 who had complied with North Carolina requirements for refund claims.
The trial court's judgment for plaintiffs was contained in two orders, the import of which held that the 1989 legislation which partially taxed state and local government retirement benefits was an unconstitutional impairment of contract under the United States Constitution. The trial court also ruled that the taxation was a material breach of contract, was an unconstitutional retroactive tax, violated judges' state constitutional rights not to have their salaries diminished during office, and violated other state and federal constitutional provisions.
On 25 September 1995, the trial court entered an Amended Order in Wake County Superior Court. The amended order made further findings of fact and conclusions of law and ruled on certain of plaintiffs' claims which were previously unaddressed. The amended order also provided for retirees who had five or more years of retirement system service as of 12 August 1989 to recover income taxes paid on retirement benefits since 1989 in the form of tax credits or refunds, if they had filed timely "protests." It also enjoined defendants to cease collecting income taxes on state and local government retirement benefits attributable to service prior to 1989. The amended order further provided for fifteen percent of the refund or credit amount for each plaintiff class member to be paid to a common fund for payment of plaintiffs' attorney's fees and various expenses and costs, with any excess remaining in the common fund to be paid to the State Employees' Association. Finally, the amended order stayed, pending appeal, the relief awarded to plaintiffs, including refunds, credits, and injunctive relief, except for notice to class members and preservation of relevant records.
Defendants filed notice of appeal on 25 September 1995. On 5 February 1996, defendants filed with this Court a petition for discretionary review prior to determination by the Court of Appeals. This petition was allowed by this Court on 3 April 1996.
The facts relevant to this appeal as established at trial are as follows. Beginning in 1939, the North Carolina General Assembly established numerous programs for the provision of retirement benefits to North Carolina state and local government employees. As of 12 August 1989, the date on which the General Assembly enacted chapter 792 of the 1989 Session Laws, the legislation which is the subject of this case, at least thirteen different public employee retirement systems were operating for the purpose of providing public servants with retirement benefits. These various systems are set forth in chapters 58, 120, 127A, 128, 135, 143, 143B, 147 and 161 of the North Carolina General Statutes (). The Retirement Systems include three different benefit and contribution schemes: mandatory defined benefit plans with mandatory contribution, optional defined contribution plans or defined benefit plans to which employees may contribute, and noncontributory defined benefit plans.
The mandatory defined benefit systems include the Legislative Retirement System (LRS), the Consolidated Judicial Retirement System (CJRS), the Teachers' and State Employees' Retirement System (TSERS), the Local Government Employees' Retirement System (LGERS), and the Disability Income Plan (DIP). During the period relevant to this appeal, all full-time state and local government employees had to be a member of at least one of these systems and were required to contribute a specified percentage of their salary to the system through payroll deduction. Prior to 12 August 1989, an exemption from state and local taxation was allowed for each of the above systems, providing:
the right of a person to a pension, an annuity, or a retirement allowance, to the return of contributions, the pension, annuity or retirement allowance itself, any optional benefit or any other right accrued or accruing to any person under the provisions of [the primary deferred benefit retirement acts], and the moneys in the various funds ... are hereby exempt from any state or municipal tax, and exempt from levy and sale, garnishment, attachment, or any other process whatsoever....
N.C.G.S. § 128-31 (1986) (LGERS); accord N.C.G.S. § 120-4.29 (1986) (LRS); N.C.G.S. § 135-9 (1988) (TSERS); N.C.G.S. § 135-111 (1988) (DIP); N.C.G.S. § 135-52(a) (1988) (CJRS).
The optional defined contribution or defined benefit plans include the Supplemental Retirement Income Plan (SRIP), the Deferred Compensation Plan (DCP), and the Supplemental Retirement Income Plan for State Law Enforcement Officers (SRIPLEO). For each of these plans, employees could contribute during the course of their employment but were not required to contribute. An exemption from taxation was allowed for benefits accruing as a result of participation in these plans prior to 12 August 1989 in one of the following forms: "These benefits are ... exempt from all State and local taxation," N.C.G.S. § 147-9.4 (1987) (DCP), or "[t]he right ... to the benefits... is nonforfeitable and exempt from levy, sale, garnishment, and the benefits payable under this Article are hereby exempt from any State and local government taxes," N.C.G.S. § 143-166.30(g) (1987) (SRIPLEO); accord N.C.G.S. § 135-95 (1988) (SRIP).
The noncontributory defined benefit plans include the National Guard Pension Fund (NGPF), the Register of Deeds Supplemental Pension Fund (RofDSPF), the Separate Insurance Benefits Plan (SIBP), and the Sheriffs' Supplemental Pension Fund (SSPF). Employees were neither required to nor...
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