Pierce v. State

• Decision Date: 11 December 1995
• Docket Number: No. 22264,22264
• Citation: 910 P.2d 288,121 N.M. 212
• Parties: George PIERCE, William O. Jordan, Virginia A. Jordan, Estell J. Allen, Orval Hughes, Edith Hughes, Robert L. Moore, Virginia I. Moore, Drew Cloud, Bobbie J. Cloud, Leon Karelitz, James L. Sutton, and Claretta Sutton, Plaintiffs-Appellants, v. STATE of New Mexico, State of New Mexico, Through its Agency, The New Mexico Taxation and Revenue Department, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 288

910 P.2d 288

121 N.M. 212

George PIERCE, William O. Jordan, Virginia A. Jordan, Estell J. Allen, Orval Hughes, Edith Hughes, Robert L. Moore Virginia I. Moore, Drew Cloud, Bobbie J. Cloud, Leon Karelitz, James L. Sutton, and Claretta Sutton, Plaintiffs-Appellants, v. STATE of New Mexico, State of New Mexico, Through its Agency, The New Mexico Taxation and Revenue Department, Defendants-Appellees.

No. 22264.

Supreme Court of New Mexico.

Dec. 11, 1995.

[121 N.M. 216] James F. Hart, Robert Brack, P.A., Robert Brack, Lisa Conly Cronin, Clovis, for Appellants.

Tom Udall, Attorney General, Frank D. Katz, Bruce J. Fort, Assistant Attorneys General, Santa Fe, for Appellees.

OPINION

BACA, Chief Justice.

1. This is an appeal from a summary judgment entered in favor of Appellee State of New Mexico, Department of Taxation and Revenue, dismissing a class action lawsuit filed on behalf of two classes of retirees. Class A Appellants are those persons who received a pension prior to January 1, 1990, under the Public Employees Retirement Act (PERA), NMSA 1978, §§ 10-11-1 to -141 (Repl.Pamp.1992 & Cum.Supp.1994), the Judicial Retirement Act (JRA), NMSA 1978, §§ 10-12B-1 to -17 (Repl.Pamp.1992 & Cum.Supp.1994), the Magistrate Retirement Act (MRA), NMSA 1978, §§ 10-12C-1 to -16 (Repl.Pamp.1992 & Cum.Supp.1992), and the Educational Retirement Act (ERA), NMSA 1978, §§ 22-11-1 to -52 (Repl.Pamp.1993). Class B Appellants are those persons who received a pension prior to January 1, 1990, as a result of employment by the U.S. Armed Forces or the Federal Civil Service system. The court took under advisement whether Class B Appellants would be allowed to intervene in the action. Therefore, we do not address the claims of Class B Appellants.

2. Prior to March 1, 1990, retirement benefits paid to state retirees under each of the four Acts listed above were tax exempt. Retirement benefits paid to federal retirees were not tax exempt, however. The United States Supreme Court, in Davis v. Michigan Department of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989), found this disparate treatment of federal retirees was violative of the intergovernmental tax immunity doctrine and 4 U.S.C. § 111 (1994) (prohibiting discriminatory tax treatment of federal employees). The New Mexico legislature, addressing the violation of the intergovernmental tax immunity doctrine, passed Senate Bill 310, S 310, 39th Leg., 2d Sess., 1990 N.M.Laws, ch. 49, repealing the longstanding tax exemptions for state retirement benefits. Class A Appellants filed this class-action lawsuit alleging, among other things, an unconstitutional impairment of contract. We address four issues on appeal: (1) Whether Class A Appellants had a contractual relationship with Appellee and, if so, whether the repeal of the tax exemption provisions resulted in either a breach or unconstitutional impairment of contract, (2) whether the court erred in admitting certain exhibits, (3) whether the title to SB 310 was constitutionally defective, and (4) whether the court erred in awarding Appellee its costs. We review this case pursuant to SCRA 1986, 12-102(A)(1) (Repl.Pamp.1992) (count sounding in contract), and affirm in part and reverse in part.

I

3. The material facts of this appeal are not contested. Beginning in 1990, Class A Appellants paid state income tax on retirement benefits received by them pursuant to the PERA, JRA, MRA, and ERA. Class A Appellants timely filed amended tax returns seeking refunds on the amounts paid on state retirement benefits in 1990, 1991, 1992, and 1993. Appellee denied all refund claims based upon its position that "even if the statutory provisions governing the various state retirement acts were considered a contract creating vested rights to certain benefits binding on all future legislatures," the legislature was obligated under Davis only to provide reasonable alternative benefits which it did by dedicating all revenue from taxing benefits to a retiree health fund.

4. Appellants brought a claim against Appellee, alleging breach of employment contract and unconstitutional impairment of contract. The court denied Appellants' motion for summary judgment but granted Appellee's motion for summary judgment. The court determined that the statutory tax exemption did not create a contractual right and even if it did, the repeal of the tax exemption did not result in an impairment of the right because of the offsetting benefits provided under the Retiree's Health Care Act. The court took under advisement Appellants' motion to strike certain exhibits attached to Appellee's motion for summary judgment. The court awarded Appellee its costs. This appeal followed.

II

5. Appellants seek reversal of the summary judgment entered in favor of Appellee. While we recognize that every Justice of this Court may have a remote pecuniary interest in the JRA retirement plan, we review this case under the rule of necessity. See State ex rel. Bardacke v. Welsh, 102 N.M. 592, 605, 698 P.2d 462, 475 (Ct.App.1985); see also Evans v. Gore, 253 U.S. 245, 247-48, 40 S.Ct. 550, 550-51, 64 L.Ed. 887 (1920) (deciding whether Congress could tax compensation of federal judges). In reviewing the lower court's grant of summary judgment, we recognize that a party is entitled to summary judgment as a matter of law where there are no genuine issues of material fact. See Tiguex Oil Co. v. Nassar, 99 N.M. 134, 135, 654 P.2d 1034, 1035 (1982). However, summary judgment should be granted with utmost care to avoid depriving a party of the right to a trial on the merits. Id.

6. Neither party disputes that New Mexico's prior tax treatment impermissibly discriminated against federal retirees based on the source of the income, in direct contravention of Davis. See Davis, 489 U.S. at 817, 109 S.Ct. at 1508-09. In Davis, the United States Supreme Court found Michigan's taxation scheme to be violative of 4 U.S.C. § 111, and the intergovernmental tax immunity doctrine based on the fact that it exempted all state retirement benefits while taxing the retirement benefits of all other citizens, including federal retirees. Davis, 489 U.S. at 817, 109 S.Ct. at 1508-09. The Supreme Court held that "the retention of immunity in § 111 is coextensive with the prohibition against discriminatory taxes embodied in the modern constitutional doctrine of intergovernmental tax immunity." Id. at 813, 109 S.Ct. at 1506-07. Any discriminatory scheme must, therefore, be based on "significant differences between the two classes." Id. at 816, 109 S.Ct. at 1508 (quoting Phillips Chemical Co. v. Dumas Indep. Sch. Dist., 361 U.S. 376, 383, 80 S.Ct. 474, 479, 4 L.Ed.2d 384 (1960)). The Court noted that if significant differences justify disparate treatment, then any discrimination would be based on some criteria other than "the source of those benefits." Id. at 817, 109 S.Ct. at 1508.

7. Because Michigan had conceded that refunds were "appropriate in these circumstances," the Court found appellant was entitled to a refund. Id. The Court declined to offer appellant prospective relief based on its recognition that "in cases involving invalid classifications in the distribution of government benefits, ... the appropriate remedy 'is a mandate of equal treatment, a result that can be accomplished by withdrawal of benefits from the favored class as well as by extension of benefits to the excluded class.' " Id. at 817-18, 109 S.Ct. at 1509. (quoting Heckler v. Mathews, 465 U.S. 728, 740, 104 S.Ct. 1387, 1395-96, 79 L.Ed.2d 646 (1984)). The Court recognized that Michigan courts are best able to determine "how to comply with the mandate of equal treatment." Id. at 818, 109 S.Ct. at 1509.

8. When Davis was decided, roughly half of the states taxed state, federal, and military pensioners differently.¹ These states have employed various methods to remedy the violation of the intergovernmental tax immunity doctrine, ranging from exemptions for all state, federal, and military retirees to partial exemptions, to taxation of all retirees. The New Mexico legislature, in determining how to "comply with the mandate of equal treatment," see Davis, 489 U.S. at 818, 109 S.Ct. at 1509, chose to tax all benefits equally. This is a public policy decision, and we defer to the wisdom of the legislature. State ex rel. Hudgins v. Public Employees Retirement Bd., 58 N.M. 543, 548, 273 P.2d 743, 746-47 (1954) (agreeing that choice of rate at which employees would be required to contribute to retirement plan was within legislature's discretion).

9. Most important to the question before us are those states in which the legislature elected to tax all retirees equally. The decision to tax all retirees raises the question of whether the repeal of a statutory tax exemption results in an impairment or breach of contract. We find eight states that have encountered this issue.² Ohio found that its legislature had granted public employees and state teachers a vested right to receive benefits, but it had not granted them "a vested right to receive their pensions exempt from tax." See Herrick v. Lindley, 59 Ohio St.2d 22, 28, 391 N.E.2d 729, 732-33 (1979). Georgia, see Parrish v. Employees' Retirement Sys., 260 Ga. 613, 398 S.E.2d 353, 354 (1990), cert. denied, 500 U.S. 918, 111 S.Ct. 2016, 114 L.Ed.2d 103 (1991), and Oregon, see Hughes v. State, 314 Or. 1, 838 P.2d 1018 (1992) (in banc), found the retirement plans created contractual rights and the tax exemption provisions were part of the contracts. Neither state, however, found an unconstitutional impairment of contract resulting from the repeal of the tax exemption provisions. Georgia based its finding on the fact that the statutory provision provided an irrevocable tax exemption and thus violated the Georgia constitution. See Parrish, 398 S.E.2d at 355. On the other hand, Oregon, like New Mexico, has no prohibition against granting an irrevocable tax exemption. See Hughes, 838 P.2d at...