City of Hous. v. Hous. Mun. Emps. Pension Sys., 17–0242

Citation549 S.W.3d 566
Decision Date08 June 2018
Docket NumberNO. 17–0242,17–0242
Parties CITY OF HOUSTON, Sylvester Turner, Kelly Dowe, Chris Brown, Brenda Stardig, Jerry Davis, Ellen Cohen, Dwight Boykins, Dave Martin, Steve Le, Greg Travis, Karla Cisneros, Robert Gallegos, Mike Laster, Larry Green, Mike Knox, David Robinson, Michael Kubosh, Amanda Edwards, and Jack Christie, Petitioners, v. HOUSTON MUNICIPAL EMPLOYEES PENSION SYSTEM, Respondent
CourtSupreme Court of Texas

Fernando De Leon Jr., David L. Red, Donna Lynn Edmundson, Ronald C. Lewis, Houston City Attorney, Judith L. Ramsey, Chief, General Litigation Section, City of Houston Legal Department, Houston TX, for Petitioner.

Travis J. Sales, Joe Robert Fowler II, Tina Q. Nguyen, Baker Botts L.L.P., Houston TX, Thomas R. Phillips, Baker Botts LLP, Austin TX, for Respondent.

Justice Johnson delivered the opinion of the Court.

In this case, the City of Houston maintains that it has governmental immunity from a suit by the Houston Municipal Employees Pension System. The trial court denied the City's plea to the jurisdiction, and the court of appeals affirmed in part and reversed in part. We agree with the trial court that the City's plea should be denied in full. Accordingly, we affirm the judgment of the court of appeals in part and reverse it in part.

I. Background

The appeal before us involves a relationship that is not working out well. The controversy concerns the City of Houston's creation of local government corporations to which it transferred some of its employees. Specifically at issue is the adoption of resolutions by the Houston Municipal Employees Pension System's Board of Trustees (the board) related to those employees, their status regarding the City's pension fund, and interpretation of the governing statute; and the Houston Municipal Employees Pension System's (the Pension System or System) attempts to enforce what it views as the City's obligation to make contributions to the pension fund. We begin with a brief review of the statute involved and a partial history of the conflict.

A. The Pension Statute

The Pension System was organized and operates under article 6243h of the Texas Revised Civil Statutes. It is a defined-benefit pension plan that provides retirement, survivor, and disability benefits for employees of the City. See TEX. REV. CIV. STAT. art. 6243h. Article 6243h applies only to cities with a population of greater than 2 million, id. § 1(4), and currently, Houston is the only city in Texas to which it applies. The statute defines a "member" of the pension fund as an "active employee included in the pension system," except for statutorily ineligible employees. Id. § 1(13). An "employee" is "any [eligible] person ... who holds a municipal position[,] ... whose name appears on a regular full-time payroll of a city[,] ... and who is paid a regular salary for services." Id. § 1(11). Under the statute, the City must make contributions to the pension fund and pick up payments on behalf of employees. See id. §§ 8(a), (c), 8A. Pick up payments are contributions to the pension fund made by the City in lieu of direct contributions by the members; the City may "pick up" those contributions via a deduction from each member's salary. Id. § 8(c).

Article 6243h requires the City to provide information to the board so that it may administer the fund and provide benefits properly. See id. § 2(u). The board is granted broad authority to "interpret and construe" article 6243h. See id. § 2(x)(2). The statute includes an express mandate that "[t]he determination of any fact by the pension board's interpretation of this Act [is] final and binding on any interested party, including members, deferred participants, retirees, eligible survivors, beneficiaries, and the city." Id. § 2(y). The statute specifically allows the City and the Pension System to enter into a written meet-and-confer agreement (MCA) regarding pension issues and benefits. See id. § 3(n). The City and the Pension System entered into an MCA on July 1, 2011.

B. Prologue: Klumb v. The Pension System

Since its creation, the City's Convention and Entertainment Facilities Department has operated and maintained municipally owned properties such as theaters, convention centers, and parking lots. In May 2011, the City announced plans to transfer the Convention and Entertainment Facilities Department's 100 or so employees from the department into a local government corporation named the Houston First Corporation (HF Corporation). HF Corporation is city-controlled and tax-funded with a budget approved by the Houston City Council and a board appointed by the mayor. After the announcement, the Pension System's board adopted a resolution interpreting the definition of "employee" in article 6243h to include "a full-time employee of a Texas local government corporation ... controlled by the City, upon a determination by the External Affairs Committee of the Board of Trustees that such [local government corporation's] employees are Employees for purposes of the [Pension System] Plan." The External Affairs Committee is a standing committee of the board. The pension plan documents were amended to incorporate this construction of the term "employee."

The City then formed a nonprofit entity, the Houston First Foundation (HF Foundation), and notified the board that HF Foundation was to employ those employees originally set to be transferred to HF Corporation. The board shortly adopted another resolution restating its definition of "employee" and additionally providing that "employees of any entity controlled, directly or indirectly, by [the City] are considered Employees for purposes of membership in [the Pension System], unless the External Affairs Committee expressly determines otherwise." That resolution triggered action by the City to form a nonprofit corporation named Convention and Cultural Services, Inc. (CC Services), which was to operate in conjunction with the HF Foundation. HF Corporation was to provide convention and entertainment services to the City using CC Services employees, and who were in turn leased to HF Corporation. The City attorney explained in a letter to the Pension System's executive director that following the transition of the convention department's employees to CC Services, the employees (1) would no longer be municipal employees or members of the Pension System, and (2) the City would not make contributions to the pension fund based on those employees' salaries. The External Affairs Committee of the board then adopted a resolution to the effect that these leased employees "would be in a control group and would remain as members of the plan."

The transfer of services and employees proceeded as planned by the City. A few employees who were eligible to retire did so and sought full retirement benefits from the Pension System on the basis that their employment with the City had ended upon their transition to CC Services. A few employees sought to defer their retirement, yet stop the Pension System from taking deductions from their paychecks, asserting that their being transferred to CC Services effected a termination of their employment with the City. Per its previous resolution, the External Affairs Committee determined that the transfer did not cause a separation from municipal service. These employees (the Klumb plaintiffs) sued the Pension System, challenging its board's authority to take such actions. The suit eventually reached this Court. See Klumb v. Hous. Mun. Emps. Pension Sys. , 458 S.W.3d 1 (Tex. 2015).

In this Court, the Klumb plaintiffs alleged violations of the Texas Constitution and breach of contract as well as ultra vires claims against board members who voted in support of the resolution altering the definition of "employee" as set out in section 1(11) of the statute and authorizing the External Affairs Committee to determine who qualifies as an "employee." Involved in that appeal was the provision of the MCA by which the parties had agreed the City could pay a lesser contribution rate (27.36%) than that required by article 6243h, section 8. The MCA contained the following provision:

Except for meet and confer decisions and personnel decisions, no committee shall have authority to make final approvals, but shall only make recommendations to the full board.

But the board's resolutions regarding the definition of "employee" provided that the External Affairs Committee had final authority to determine employee eligibility. And while section 3(k) of the statute permitted the board to delegate authority in the manner provided for in the resolutions, the Klumb plaintiffs contended that the MCA amended the statute and divested the board of the ability to delegate final decision-making authority to a committee. The Klumb plaintiffs sought monetary damages and a declaration that they were no longer City employees as defined in article 6243h. The Pension System countered with a plea to the jurisdiction, arguing that the trial court lacked subject matter jurisdiction because (1) the constitutional claims were facially invalid, (2) governmental immunity barred the breach of contract claims regarding the MCA and could not serve as the basis of an ultra vires claim, and (3) article 6243h precludes judicial review because the board's interpretations of the statute and determination of the facts at hand were "final and binding." See TEX. REV. CIV. STAT. art. 6243h, § 2(y). The City joined as to the ultra vires claims, generally aligning itself with the Klumb plaintiffs and seeking similar injunctive and declaratory relief. The trial court granted the Pension System's plea to the jurisdiction and the court of appeals affirmed. Klumb v. Hous. Mun. Emps. Pension Sys. , 405 S.W.3d 204, 228 (Tex. App.—Houston [1st Dist.] 2013), aff'd , 458 S.W.3d 1 (Tex. 2015).

On review, this Court affirmed the court of appeals' judgment on the basis that the Klumb plaintiffs and the City failed to plead actionable ultra...

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