Oregon State Police Officers' Ass'n v. State, 1

• Decision Date: 21 June 1996
• Docket Number: B,C-14019,No. 48,No. 62,CC,C-13963,D,No. 1,1,48,62
• Parties: OREGON STATE POLICE OFFICERS' ASSOCIATION, Federation of Oregon Parole and Probation Officers and Association of Oregon Corrections Employees, Respondents, v. STATE of Oregon, Appellants. Richard TISSUE, LaRhette S. Swann, Darrell Wells and Garry McCorkle, Respondents, v. STATE of Oregon, By and Through the OREGON STATE CORRECTIONAL INSTITUTION and Public Employee Retirement Board, Appellant, and Portland School Districteaverton School District, and Oregon City School Districtefendants-Respondents. Dawn MORGAN, Michael Cullivan, Ann Logan and Paul Ferderber, Respondents, and Sterling Williver, Bruce Prunk and Alice Hatch, Plaintiffs, v. STATE of Oregon, By and Through OREGON VOCATIONAL REHABILITATION DIVISION; By and Through Oregon Department of Corrections; By and Through State Board of Higher Education, and City of Portland, Appellants, and Klamath County and Deschutes County, Defendants. SALEM POLICE EMPLOYEES UNION, Terry Locke and Jim Miller, Respondents, v. CITY OF SALEM, Appellant. 94-12-08563; CC 949495-C10338; SC S42333 (Control), SC S42511 and SC S42355.
• Court: Oregon Supreme Court

Page 765

918 P.2d 765

323 Or. 356

OREGON STATE POLICE OFFICERS' ASSOCIATION, Federation of

Oregon Parole and Probation Officers and

Association of Oregon Corrections

Employees, Respondents, v. STATE of Oregon, Appellants.

Richard TISSUE, LaRhette S. Swann, Darrell Wells and Garry

McCorkle, Respondents, v. STATE of Oregon, By and Through the OREGON STATE

CORRECTIONAL INSTITUTION and Public Employee

Retirement Board, Appellant,

and

Portland School District No. 1J, Beaverton School District

No. 48, and Oregon City School District No. 62,

Defendants-Respondents.

Dawn MORGAN, Michael Cullivan, Ann Logan and Paul Ferderber, Respondents, and Sterling Williver, Bruce Prunk and Alice Hatch, Plaintiffs, v. STATE of Oregon, By and Through OREGON VOCATIONAL

REHABILITATION DIVISION; By and Through Oregon Department

of Corrections; By and Through State Board of Higher

Education, and City of Portland, Appellants,

and

Klamath County and Deschutes County, Defendants.

SALEM POLICE EMPLOYEES UNION, Terry Locke and Jim Miller, Respondents, v. CITY OF SALEM, Appellant.

94-12-08563; CC 94C-14019, CC 94C-13963, CC 95-C10338; SC

S42333 (Control), SC S42511 and SC S42355.

Supreme Court of Oregon In Banc.

Argued and Submitted Oct. 25, 1995.

Decided June 21, 1996.

Michael D. Reynolds, Assistant Attorney General, Salem, argued the cause for appellants State of Oregon and Public Employees Retirement Board. With him on the briefs were Theodore R. Kulongoski, Attorney General, and Virginia L. Linder, Solicitor General, Salem.

Linda Meng, Chief Deputy City Attorney, Portland, argued the cause and filed the briefs for appellant City of Portland.

William G. Blair, Assistant City Attorney, Salem, argued the cause for appellant City of Salem. With him on the brief was Stephanie Smythe, City Attorney, Salem.

Daryl S. Garrettson, of Hoag, Garrettson, Goldbert & Fenrich, Portland, argued the cause and filed the brief for respondents Oregon State Police Officers' Association, Federation of Oregon Parole and Probation Officers, Association of Oregon Corrections Employees, Salem Police Employees' Union, Terry Locke, and Jim Miller.

Gregory A. Hartman, of Bennett, Hartman, Reynolds & Wiser, Portland, argued the cause and filed the brief for respondents Dawn Morgan, Michael Cullivan, Ann Logan, and Paul Ferderber. With him on the brief were James S. Coon and Lory J. Kraut, Portland.

James S. Coon, of Swanson, Thomas & Coon, Portland, argued the cause for respondents Richard Tissue, LaRhette S. Swann John W. Osburn, of Miller, Nash, Weiner, Hager & Carlsen, Portland, waived appearance for defendants-respondents Portland School District No. 1J, Beaverton School District No. 48, and Oregon City School District No. 62.

Darrell Wells, and Garry McCorkle. With him on the brief were Gregory A. Hartman and Lory J. Kraut, Portland.

Elden M. Rosenthal, of Rosenthal & Greene, P.C., and Richard H. Braun, Portland, filed a brief on behalf of amicus curiae Benefits Committee.

VAN HOOMISSEN, Justice.

The question presented by the appeals in these four consolidated cases is whether any part of Ballot Measure 8 (1994) ¹ impairs an obligation of plaintiffs' Public Employes' Retirement System (PERS) contract with their public employers in violation of the Contracts Clause of Article I, section 10, of the United States Constitution. ² Ballot Measure 8 amended the Oregon Constitution by adding three sections to Article IX. The circuit courts held that Sections 10 (six percent pick-up), 11 (guaranteed rate of return), and 12 (sick leave credit) of Article IX violate the federal Contracts Clause. We agree. We hold that Sections 10, 11, and 12 of Article IX violate the Contracts Clause of the United States Constitution. Accordingly, we declare Sections 10, 11, and 12 void. ³

The circuit courts' declarations that Sections 10, 11, and 12 of Article IX (Ballot Measure 8) violate the federal Contracts Clause are determinations on a question of law and are reviewable de novo. See Ragsdale v. Department of Revenue, 321 Or. 216, 217, 895 P.2d 1348 (1995); Post v. Oregonian Publishing Co., 268 Or. 214, 222, 519 P.2d 1258 (1974).

This court's resolution of these appeals involves few relevant facts: the enactment of Ballot Measure 8 in 1994, statutes concerning public sector employees, ⁴ and the existence of collective bargaining agreements and employment customs between the state ⁵ and its political subdivisions and employees thereof. Those matters are discussed below.

These cases were resolved on cross motions for summary judgment. ⁶ In Oregon State Police Officers' Association v. State of Oregon (OSPOA), plaintiffs challenged Sections 10, 11, and 12. The circuit court granted plaintiffs' motions for summary judgment on their claims that all three sections violate the federal Contracts Clause and entered judgments accordingly.

In Tissue v. State of Oregon (Tissue), plaintiffs challenged only Section 12. ⁷ The circuit court granted plaintiffs' motion for summary judgment on their claim that Section In Morgan v. State of Oregon (Morgan), plaintiffs challenged only Section 10. The City of Portland filed a cross-claim for indemnity against the state, asserting that the state is responsible for any liability the city might incur as a result of the passage of Measure 8. The circuit court granted plaintiffs' motion for summary judgment on their claim that Section 10 violates the federal Contracts Clause, granted the City of Portland's motion for summary judgment on its indemnity claim against the state, and entered judgment accordingly.

12 violates the federal Contracts Clause and entered judgment accordingly.

In Salem Public Employees Union v. City of Salem (SPEU), plaintiffs challenged Sections 10, 11, and 12. ⁸ The circuit court granted plaintiffs' motion for summary judgment on their claims that all three sections violate the federal Contracts Clause and entered judgment accordingly.

These disputes over the applicability of the federal Contracts Clause arise from the parties' markedly different view of Oregon pension law regarding the contract that the PERS represents. ⁹ The state contends that the circuit courts erred in declaring that Sections 10, 11, and 12 violate the federal Contracts Clause. Although the state acknowledges that the six percent pick-up, guaranteed rate of return, and sick leave credit are, or at least have been, terms of the PERS contract, the state argues that those contractual promises attach only for work already performed and that the state may modify unilaterally or even eliminate entirely any or all of those terms prospectively. ¹⁰ The state relies primarily on Hughes v. State of Oregon, 314 Or. 1, 838 P.2d 1018 (1992), arguing that this court in Hughes construed Oregon pension law by recognizing a new concept of past, present, and future "accrual" of retirement benefits that permits the state unilaterally and prospectively to reduce retirement benefits that it offered and that were accepted by its employees, either when they first commenced work or at a time thereafter.

Plaintiffs respond that, under Oregon pension law, the state has entered into permanent contractual obligations to them with respect to the six percent pick-up, guaranteed rate of return, and sick leave credit. Plaintiffs further argue that those obligations vested when plaintiffs accepted or continued employment and that they may not be modified or terminated unilaterally to plaintiffs detriment during the full term of their public service employment careers. ¹¹ Plaintiffs also argue that the prerequisites of a unilateral contract have accrued and that the state already has received the benefit of their reliance on the state's promises. Plaintiffs rely primarily on Taylor v. Mult. Co Analysis of the parties' argument under the federal Contracts Clause requires this court to determine: first, whether there is a contractual relationship between plaintiffs and the state; second, if so, the nature of the contractual promises that allegedly have been impaired; third, whether a state law (here a constitutional provision) impairs any of those contractual promises and, if so, whether the impairment is "substantial"; and fourth, if so, whether the state law creating the substantial impairment is justified by a significant and legitimate public purpose and whether the method used by the state to advance that public purpose constitutes an unnecessarily broad repudiation of its contractual obligation to private persons. ¹² General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 1109-10, 117 L.Ed.2d 328, 337 (1992); Keystone Bituminous Coal Assoc. v. DeBenedictis, 480 U.S. 470, 504, 107 S.Ct. 1232, 1251-52, 94 L.Ed.2d 472 (1987); Energy Reserves Group, Inc. v. Kansas Power & Light, 459 U.S. 400, 411, 103 S.Ct. 697, 704, 74 L.Ed.2d 569 (1983); United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92, reh'g den 431 U.S. 975, 97 S.Ct. 2942, 53 L.Ed.2d 1073 (1977). See Laurence H. Tribe, American Constitutional Law, 613-28 (2d ed 1988) (discussing federal Contracts Clause); see also R. Rotunda, J. Nowak, 2 Treatise On Constitutional Law, § 15.8 (3d ed 1992) (summarizing relevant United States Supreme Court cases).

Dep. Sher. Ret. Bd., 265 Or. 445, 510 P.2d 339 (1973).

The consolidated cases on appeal do not come to this court on a clean slate, without principle or case law to guide us. Rather, these cases call for a straightforward application of well-established Oregon case law. In order to understand the essential underpinnings of that law, it is instructive to review the following cases:

In Crawford v. Teachers' Ret. Fund Ass'n, 164 Or. 77, 99 P.2d 729 (1940), a retired public school teacher sought to compel the payment of an annuity that she claimed was due her on retirement. The defendant refused to pay the annuity, arguing that, because the by-laws of the association had been amended after the teacher had retired, she was...