Pepe v. State, DOCKET NO. A-0074-17T2
| Decision Date | 14 May 2019 |
| Docket Number | DOCKET NO. A-0074-17T2 |
| Parties | LINDA J. PEPE, KIM M. REILLY, TERRY A. DOBLOW, SR., and THE NEW JERSEY EDUCATION ASSOCIATION, Plaintiffs-Appellants, v. STATE OF NEW JERSEY, PHILIP D. MURPHY as GOVERNOR of the STATE OF NEW JERSEY, ELIZABETH MAHER MUOIO, TREASURER, STATE OF NEW JERSEY, DEPARTMENT OF THE TREASURY, DIVISION OF PENSIONS & BENEFITS, and THE BOARD OF TRUSTEES OF THE NEW JERSEY SCHOOL EMPLOYEES' HEALTH BENEFITS COMMISSION, Defendants-Respondents. |
| Court | New Jersey Superior Court — Appellate Division |
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
Before Judges Messano, Gooden Brown and Rose.
On appeal from Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2504-15.
Flavio L. Komuves argued the cause for appellants (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Richard A. Friedman, of counsel and on the briefs; Flavio L. Komuves and Edward M. Suarez, Jr., on the briefs).
Jean P. Reilly, Assistant Attorney General, argued the cause for respondents (Gurbir S. Grewal, Attorney General, attorney; Jean P. Reilly, of counsel and on the brief; Elspeth L. Faiman Hans, Valentina M. Di Pippo, Angela J. Bezer, Ragner Jaeger, and Alexander J. Falciani, Deputy Attorneys General, on the brief).
This appeal requires us to consider once again provisions of the Pension and Health Care Benefits Act, L. 2011, c. 78 (Chapter 78). On its effective date, Chapter 78 immediately imposed premium-sharing obligations on public employees' health benefits pursuant to a matrix or "grid" based on an employee's annual earnings, L. 2011, c. 78, § 39 (codified as N.J.S.A. 52:14-17.28c), implemented over four years. L. 2011, c. 78, § 40 (codified as N.J.S.A. 52:14-17.28d). The grid also applied to school employees who "accrue[d] [twenty-five] years of service credit" after Chapter 78's effective date, "and retire[d] on or after that . . . date . . . ." Ibid. (codified as N.J.S.A. 52:14-17.28d(b)(2)(c)).
By its own terms, Chapter 78 included a sunset provision, meaning the grid expired on June 28, 2015, four years after the statute's effective date. L. 2011, c. 78 § 83. Chapter 78 explicitly exempted only one category of public workers from its premium-sharing obligations — those "who ha[d] [twenty] or more years of creditable service" on June 28, 2011, Chapter 78's effective date. L. 2011, c. 78, § 40(b)(3) (now codified as N.J.S.A. 52:14-17.28d(b)(3)).
However, the Legislature delayed commencement of Chapter 78's grid for those public employees subject to an existing collective negotiations agreement (CNA). N.J.S.A. 52:14-17.28d(c). For those employees, the grid became effective "upon the expiration of any applicable binding [CNA] . . . ." Ibid. Regardless, once public employees were "subjected to the contribution requirements," the Legislature compelled every public employee to reach full "contribution levels . . . ." Ibid. And, "notwithstanding" the sunset provision in Chapter 78, or the "expiration date" of any CNA, the Legislature required "full implementation" of the grid. Ibid.
To address situations in which a CNA lasted beyond those four years, the Legislature enacted § 77 of Chapter 78, (now codified as N.J.S.A. 52:14-17.28e). That statute requires implementation of the grid's contribution scheme for all public employees that were "subject to any [CNA] in effect on" Chapter78's effective date, and for those in bargaining units then in negotiations "for the next [CNA] . . . ." Ibid. The provisions implementing the grid expressly apply notwithstanding the grid's statutory expiration in 2015 "until the full amount of the contribution required . . . has been implemented . . . ." Ibid. The statute also provides:
"After full implementation," contribution levels "shall then be subject to collective negotiations . . . ." Ibid.
Plaintiffs Linda J. Pepe, Kim M. Reilly, and Terry A. Dolbow, Sr., all retired after July 1, 2015, and are members of the School Employees' Health Benefits Program (SEHBP). See N.J.S.A. 52:14-17.46.1. They did not have twenty years of service credit as of June 28, 2011, and therefore could not benefit from Chapter 78's "grandfather" provision. See N.J.S.A. 52:14-17.28d(b)(3). Each plaintiff, however, purchased additional service credit and had twenty-fiveyears or more of service credit upon retirement, which, in all three instances, occurred after the expiration of Chapter 78's grid provisions.
The State of New Jersey began deducting premium-sharing payments from plaintiffs' retirement pension benefits. Together with the New Jersey Education Association (NJEA), plaintiffs filed suit against the State and various public officials and offices alleging defendants "denied [them] premium-free health insurance coverage" in retirement.
This was not the first time the issue arose. In 2012, NJEA and other groups challenged various provisions of Chapter 78. N.J. Educ. Ass'n v. State, No. L-771-12 (Law Div. June 13, 2013) (NJEA I).1 They argued, in part, that the Legislature had granted vested members of the Teachers' Pension and Annuity Fund (TPAF) medical benefits in retirement without premium sharing. See N.J.S.A. 52:14-17.46.9(d) (2007) (). The plaintiffs argued that § 40 divested TPAF members of their free medical benefits in retirement. The State moved to dismiss the complaint, asserting in part that because the grid expired by its own terms on June 28, 2015, any future harm to NJEA members was speculative.
Accepting the State's assertion, Judge Mary C. Jacobson concluded that the plaintiffs "failed to demonstrate in what manner any employee, whether covered by a collective bargaining agreement or not, who is entitled to benefits as a retiree, and can or will retire on or before June 30, 2015, will be affected and harmed by [§ 40]." She dismissed their complaint in this regard for lack of standing.
The deduction of premium-sharing payments from the since-retired individual plaintiffs' pension benefits, of course, supplied the individualized harm previously missing, and plaintiffs' 2015 complaint alleged defendants' implementation of § 40 violated their constitutionally-protected "vested contractual rights" under N.J.S.A. 52:14-17.46.9(d), and the due process provisions of the Federal and State Constitutions. Plaintiffs also alleged the State was estopped from asserting § 40 applied to those who retired more thanfour years after the enactment of Chapter 78, because the State asserted in NJEA I that § 40 expired by its own terms.
Defendants again moved to dismiss, and plaintiffs cross-moved for partial summary judgment. In a detailed oral opinion, Judge Jacobson granted defendants' motion and dismissed the complaint with prejudice.
Judge Jacobson noted that Chapter 78 contained only one explicit provision exempting school employees from contribution obligations, i.e., N.J.S.A. 52:14-17.28d(b)(3), which exempted only those who had twenty years or more of service on Chapter 78's effective date. The judge observed that while she accepted the State's argument in NJEA I regarding § 40's expiration, this case involved retirees whose benefits became payable after expiration and implicated the "post-grid provision of Chapter 78," in particular § 77 of Chapter 78, (codified as N.J.S.A. 52:14-17.28e).
Judge Jacobson properly framed plaintiffs' contention. Because "school retirees do not have [CNAs] regarding health benefits in retirement[,]" N.J.S.A. 52:14-17.28e did not apply, and, upon expiration of the grid, "they reverted back to premium-free health benefits in retirement . . . ." After citing appropriate case law regarding the standards for dismissing a complaint for failure to state a claim under Rule 4:6-2(e), the judge considered defendants' motion.
She noted the Legislature specifically decided that § 39 (N.J.S.A. 52:14-17.28c), the grid which computed the amount of each employee's contribution based on earnings, applied to school employees. See ibid. (). The judge then noted that § 40 (N.J.S.A. 52:14-17.28d) specifically addressed school retirees who retired after the effective date of Chapter 78, making them subject to the premium-sharing deductions. See N.J.S.A. 52:14-17.28d(b)(1) (); see also N.J.S.A. 52:14-17.28d(b)(2)(c) ().
Judge Jacobson then acknowledged that Chapter 78 significantly amended the lynchpin of plaintiffs' arguments, N.J.S.A. 52:14-17.46.9(d), which now reads:
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