Klumb v. Hous. Mun. Emps. Pension Sys.

• Decision Date: 20 March 2015
• Docket Number: NO. 13–0515,13–0515
• Citation: 458 S.W.3d 1
• Parties: John Klumb, Veronica McClelland, Vivian Montejano, John Gonzalez, Anita Robles, and Charmaine Pilgrim, on behalf of themselves and all others similarly situated, and the City of Houston, Petitioners, v. Houston Municipal Employees Pension System, Barbara Chelette, David L. Long, Lenard Polk, Roy Sanchez, and Lonnie Vara, Respondents
• Court: Texas Supreme Court

458 S.W.3d 1

John Klumb, Veronica McClelland, Vivian Montejano, John Gonzalez, Anita Robles, and Charmaine Pilgrim, on behalf of themselves and all others similarly situated, and the City of Houston, Petitioners

v.Houston Municipal Employees Pension System, Barbara Chelette, David L. Long, Lenard Polk, Roy Sanchez, and Lonnie Vara, Respondents

NO. 13–0515

Supreme Court of Texas.

Argued November 6, 2014

OPINION DELIVERED: March 20, 2015

Katherine D. Mackillop, Reagan M. Brown, Norton Rose Fulbright, 1301 McKinney Street, Suite 5100, Houston TX 77010–3095, for Petitioner John Klumb.

John B. Wallace, Senior Assistant City Attorney, Judith Lee Ramsey, Chief, General Litigation Section, David M. Feldman, Lynette Fons, City of Houston Legal Department, P.O. Box 368, Houston TX 77002–0368, for Petitioner City of Houston.

Adam Milasincic, Ahmad Zavitsanos, Anaipakos, Alavi & Mensing PC, 1221 McKinney, Suite 3460, Houston TX 77010, Michelle Stratton, Thomas R. Phillips, Travis J. Sales, Baker Botts L.L.P., 910 Louisiana Street, One Shell Plaza, Houston TX 77002, for Respondent Houston Municipal Employees Pension System.

Opinion

Justice Guzman delivered the opinion of the Court.

The dispute in this case arises in the context of a unique statutory scheme that confers expansive administrative authority and broadly prohibits judicial review. At issue is whether Houston Municipal Employees Pension System (HMEPS) board members violated HMEPS's enabling statute by requiring the petitioners' continued participation in the City of Houston's defined-benefit pension plan. As provided by statute, the pension board has exclusive, final, and binding authority to interpret, construe, and supplement omissions in the statute and to determine all questions pertaining to eligibility for membership, services, and benefits. Tex. Rev. Civ. Stat. Ann. Art . 6243h, § 2(x) -(y). Consistent with this legislative mandate, we have held that HMEPS's enabling statute precludes judicial review of such matters. Houston Mun. Emps. Pension Sys. v. Ferrell, 248 S.W.3d 151, 158–59 (Tex. 2007). To defeat the presumptive jurisdictional bar, the petitioners assert that subject-matter jurisdiction exists here because the pension-board members acted ultra vires and violated the Texas Constitution by augmenting the statute rather than interpreting it.

The underlying dispute arose when the City of Houston attempted to remove a division of employees from the pension system by forming quasi-governmental entities to perform the same governmental functions using the same employees. Contemporaneously with the City's restructuring efforts, the pension board determined that those employees remained under the City's effective control and payroll and therefore fell within the ambit of the statutory definition of “employee,” which defines an individual's status as a HMEPS member. See Tex. Rev. Civ. Stat. Ann. Art . 6243h, §§ 1(11) (defining “employee”), (13) (defining “member”). The board's decision resulted in otherwise eligible members being denied “retiree” status and further required affected employees to continue making contributions to the pension fund despite being under the immediate employ of a third-party entity. See id. §§ 1(22) (defining “retiree”), (24) (defining “separation from service”). The individual petitioners and the City assert that the pension board unlawfully redefined the term “employee” to capture these employees after they had ceased working for the City. Considering HMEPS and the board members' plea to the jurisdiction, the trial court found jurisdiction to be lacking, and the court of appeals affirmed. 405 S.W.3d 204, 209 (Tex. App.—Houston [1st Dist.] 2013).

We conclude the trial court lacks subject-matter jurisdiction over the claims asserted because (1) the pension board acted within the scope of its broad statutory authority in construing the term “employee” and (2) the individual petitioners have not asserted viable constitutional claims. Accordingly, we affirm the court of appeals' judgment.

I. Background

HMEPS is organized and operated under Article 6243h of the Texas Revised Civil Statutes, which requires cities with a population of more than 1.5 million to make contributions to an employee pension fund in an amount based in part on the combined salary of the pension system's members.¹ Tex. Rev. Civ. Stat. Ann. Art . 6243h, §§ 1–28 ; see also id. § 8(d). The statute defines a “member” of the pension fund as “each 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).

HMEPS is governed by a Board of Trustees imbued with broad authority to administer, manage, and operate the pension fund. See id. § 2(x). Among other powers, the pension board can (1) adopt written rules and guidelines for the administration of the pension fund; (2) interpret and construe the Act and any summary-plan documents and procedures, provided such construction is consistent with section 401 of the Internal Revenue Code of 1986, as amended (IRC); (3) “correct any defect, supply any omission, and reconcile any inconsistency” in the statute in the manner and to the extent the board deems “for the greatest benefit of all members”; and (4) determine all legal and factual questions pertaining to the fund's administration and eligibility for membership, services, and benefits. Id. So broad is the board's authority that the statute expressly mandates that “[t]he determination of any fact by the pension board and the pension board's interpretation of [the] Act are final and binding on any interested party, including members, deferred participants, retirees, ... and the city.” Id. § 2(y). But though the board's authority under the statute is indisputably broad, the allegation in the underlying lawsuit is that the pension board crossed the line between interpreting the statute, which it is expressly authorized to do, and unlawfully altering it by supplementing the statutory definition of “employee” in a manner that encompasses personnel the City has outsourced to a third-party entity.

At the heart of the dispute is the City's effort to reduce its pension-fund contributions by using outsourcing as part of a comprehensive cost-saving initiative. Historically, the City has employed more than 100 people in its Convention and Entertainment Facilities Department (convention department) to operate municipally-owned properties such as theaters, convention centers, and parking lots. In May 2011, however, the City announced plans to remove those employees from the municipal payroll—and thus the pension system—by outsourcing convention and entertainment municipal functions to Houston First Corporation, a City-controlled, tax-funded local government corporation. Among other indicia of control, Houston First's budget is approved by the Houston City Council, and its board is appointed by the mayor and confirmed by the city council.

In response to the City's transition plan, the pension board announced in August 2011 that the definition of “employee” in Article 6243h “includes 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 [HMEPS] Plan.” Thereafter, the board amended the pension-plan documents to incorporate this construction of the term “employee.”

Undeterred, the City formed a nonprofit entity named Houston First Foundation and notified the pension board that the newly formed entity would employ all the City employees who had been slated to join Houston First Corporation. Believing Houston First Foundation to be a wholly-owned and controlled subsidiary of Houston First Corporation—and by extension, the City—the pension board adopted a resolution in October 2011 that reiterated the previously adopted construction of the term “employee” and further announced that “employees of any entity controlled, directly or indirectly, by [the City] are considered Employees for purposes of membership in HMEPS, unless the External Affairs Committee expressly determines otherwise.”

Subsequently, the City abandoned Houston First Foundation and formed another nonprofit corporation called Convention and Cultural Services, Inc. (CCSI) to operate in conjunction with Houston First to provide convention and entertainment services to the City. Although Houston First would still provide those services to the City, it would not employ the service personnel directly. Instead, CCSI would employ and lease the workforce to Houston First, its only client. By agreement, Houston First was obligated to fully reimburse CCSI for “all internal and external costs and expenses associated with” the provision of personnel. CCSI purported to operate independently, but Houston First and CCSI had overlapping executives, some of whom had been City employees.

In a letter to the pension system's executive director, the City Attorney expressly disavowed any right or ability of the City to control CCSI, stating “[n]either the City, the Mayor, nor City Council will have any appointment authority or control over the corporation or its board of directors.” Instead, CCSI was described as “a non-governmental, non-profit corporation whose board will be self perpetuating.” The letter further explained that “[CCSI] will be contracting for its own employee benefits, including a [401(k) ] plan, and will not participate in any City of Houston benefit programs.” The City thus took the position that following transition of convention department employees to CCSI, the employees would no longer be City employees or HMEPS members and, as a result, the City would not be obligated to make contributions to...