Layman v. State, 26146.
| Decision Date | 04 May 2006 |
| Docket Number | No. 26146.,26146. |
| Parties | Nancy S. LAYMAN, David M. Fitzgerald, Vicki K. Zelenko, Wyman M. Looney and Nancy Ahrens, on behalf of themselves and all others similarly situated, Petitioners, v. The STATE of South Carolina and The South Carolina Retirement System, Respondents. |
| Court | South Carolina Supreme Court |
A. Camden Lewis, Keith M. Babcock, and William E. McKinnon, all of Lewis & Babcock, of Columbia; and Richard A. Harpootlian, of Columbia, for Petitioners.
Stephen Van Camp and Sarah G. Major, of Columbia; and Thornwell F. Sowell, Robert E. Stepp, Roland M. Franklin, Jr., and Tina Cundari, all of Sowell Gray Stepp Todd & Laffitte, of Columbia, for Respondents.
Andrew F. Lindemann and William H. Davidson, III, of Davidson Morrison & Lindemann, of Columbia, for Amicus Curiae State Retirees Association.
Eric C. Schweitzer, of Ogletree Deakins Nash Smoak & Stewart, of Columbia, for Amicus Curiae South Carolina Chamber of Commerce.
Philip J. Mace, of Columbia, for Amicus Curiae State Employees Association.
Petitioners1 brought this action in response to the enactment on July 1, 2005 of the State Retirement System Preservation and Investment Reform Act2 (Act 153). Act 153 amends several statutes relating to the operation of the South Carolina Retirement System. Specifically, Act 153 brought about significant changes for employees who participate in TERI.3 In addition, Act 153 affected employees who are not TERI participants but have retired and returned to work for the State in positions covered by the retirement system (working retiree program).4
In January of 2001, the South Carolina General Assembly enacted the Teacher and Employee Retention Incentive Program (TERI). Hereinafter, we will refer to this statute as "old TERI." In addition, we will refer to those who elected to participate in the old TERI program before July 1, 2005 as "old TERI participants." Further, those eligible to retire but not participating in TERI could participate in the working retiree program. We will refer to this program as the "old working retiree program" and its participants as "old working retirees."
Pursuant to the old TERI program, old TERI participants could retire, but continue to work for the State for up to five years following their retirement. During these five years, the State withheld the normal pension benefits due to old TERI participants. Under the old TERI program the State paid these accrued benefits either as a lump sum at the end of five years or the old TERI participant could roll the accrued benefits over into a qualifying retirement fund. Under the old TERI statute, an old TERI participant made no further employee contributions to the retirement system. In return, the State was able to utilize experienced, well-trained employees for up to five years after they retired. In addition, the old TERI participants did not accrue further service credit during their participation in the old TERI program and were not eligible for group life insurance or disability retirement benefits.
In contrast, under the old working retiree statute, the statute considered a working retiree to be retired and did not require the old working retiree to make further employee contributions to the system. However, the old working retiree statute limited the old working retiree to making no more than $50,000 per year in salary.
Petitioners (old TERI program participants and old working retiree participants) who retired before July 1, 2005 under the old TERI program or pursuant to the old working retiree statute brought this action against the State of South Carolina and South Carolina Retirement System (Respondents or the State), alleging breach of contract. In addition, the old TERI program participants and old working retiree participants argue the State should be estopped from retroactively applying new legislation to Petitioners. Finally, the old TERI program participants and old working retiree participants claim violations of the Takings and Due Process Clauses of the State and Federal Constitutions. This Court granted Petitioners' request for the case to be heard in the Court's original jurisdiction. We hold that the State unlawfully breached its contract with those Petitioners participating in the old TERI program. In addition, we remand the old working retiree participants' breach of contract claim to the trial court for action consistent with this opinion.
The portion of Act 153 at the center of this controversy pertains to a financial contribution that old TERI and old working retiree participants are now required to submit to the retirement system. The changes wrought by Act 153 dramatically alter the former versions of the TERI and working retiree statutes. Under the prior enactment of the TERI and working retiree programs, neither the old TERI participants nor the old working retiree participants were required to contribute to the retirement system. Under the terms of the prior programs, for all intents and purposes, both the old TERI participants and the old working retiree participants were considered to be retired.
Petitioners claim that the requirement that they now contribute 6.25% of their annual salary to the retirement program constitutes a breach of contract.5 In the alternative, if no contract is found, Petitioners assert that the State should be estopped from requiring further contributions due to Petitioners' reliance on the terms of the former TERI and working retiree programs. Further, Petitioners claim that the enactment of Act 153 constitutes an unconstitutional taking and a deprivation of their property without due process of law.
Previously, Petitioners sought a temporary restraining order seeking to enjoin the State from collecting Petitioners' contributions to the retirement system. The circuit court granted the motion, preventing the State from collecting contributions from the four named Petitioners in this case. Respondents appealed and petitioned for a writ of supersedeas. However, while the motions were pending in the circuit court, the case was certified to the Supreme Court pursuant to Rule 204(b), SCACR. As a result, Petitioners filed a petition for original jurisdiction.
This Court denied the State's petition for supersedeas, but granted the petition for original jurisdiction. In addition, Petitioners filed a motion for class certification, which the Court granted. The class was deemed to consist of all participants who had retired under the old TERI program under the former version of § 9-1-2210, and all those participants considered old working retirees under the previous version of § 9-1-1790; all of whom elected to participate in the programs before July 1, 2005. Further, the Court ordered all contributions withdrawn from the class members be transferred into an interest bearing account and escrowed pending the outcome of this litigation. As a result, the following issues are before the Court:
I. Do the statutory provisions of the former versions of the TERI and the working retiree programs create contracts?
II. Is the State estopped from requiring Petitioners to make contributions to the retirement system?
III. Does the enactment of Act 153 constitute an unconstitutional taking under either the State or Federal Constitution?
IV. Does Act 153 violate the Due Process Clause of the State or Federal Constitution?
I. Breach of Contract
Old TERI program participants argue that the statutory provisions governing old TERI participants created contracts which the State breached by requiring previously enrolled TERI participants to contribute to the retirement system. We agree.
Generally, statutes do not create contractual rights. Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465-66, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985). However, if the statute indicates that the legislature intended to bind itself contractually, a contract may be found to exist. Id. In South Carolina, contractual rights are created by statute only when they are expressly found in the language of the legislation. See S.C. Public Serv. Auth. v. Summers, 282 S.C. 148, 318 S.E.2d 113 (1984).
With the above guidelines in mind, we turn to the prior version of the TERI statute, enacted in 2001, to determine if a contract existed. In the present case, the relevant portions of the prior statute provide that a member of the State Retirement System eligible to retire may:
[e]lect to participate in the Teacher and Employee Retention Incentive Program (program). A member electing to participate in the program retires for purposes of the system, and the member's normal retirement benefit is calculated on the basis of the member's average final compensation and service credit at the time the program period begins. The program participant shall agree to continue employment with an employer participating in the system for a program period, not to exceed five years.
. . . .
(B) During the specified program period, receipt of the member's normal retirement benefit is deferred. The member's deferred monthly benefit must be placed in the system's trust fund on behalf of the member. No interest is paid on the member's deferred monthly benefit placed in the system's trust fund during the specified program period.
. . . .
(D) A program participant is retired from the retirement system as of the beginning of the program period. A program participant makes no further employee contributions to the system, accrues no service credit during the program period, and is not eligible to receive group life insurance benefits or disability retirement benefits. Accrued annual leave and sick leave used in any manner in the calculation of the program participant's retirement benefit is deducted from the amount of such leave accrued by the...
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