Proksa v. STATE SCHOOLS FOR DEAF AND BLIND

• Decision Date: 21 August 2003
• Docket Number: No. CV-02-0388-CQ.,CV-02-0388-CQ.
• Citation: 205 Ariz. 627,74 P.3d 939
• Parties: Kenneth J. PROKSA and Dennis P. Russell, Plaintiffs, v. ARIZONA STATE SCHOOLS FOR THE DEAF AND THE BLIND, a state created school and public corporation; State of Arizona, a body politic and state government; Marcia Smith, Joanne Tripi, Jane N. Erin, Gail Harris, James A. Whitehill, and Thomas J. Posedly, each officially as a member of the Board of Directors of ASDB and individually; and Kenneth D. Randall, officially as the Superintendent of ASDB and individually; John Does 1-10; Jane Does 1-10; ABC Proprietor Ships and Partnerships 1-10; and XYZ Limited Liability Companies and Corporations 1-10, Defendants.
• Court: Arizona Supreme Court

74 P.3d 939

205 Ariz. 627

Kenneth J. PROKSA and Dennis P. Russell, Plaintiffs, v. ARIZONA STATE SCHOOLS FOR THE DEAF AND THE BLIND, a state created school and public corporation; State of Arizona, a body politic and state government; Marcia Smith, Joanne Tripi, Jane N. Erin, Gail Harris, James A. Whitehill, and Thomas J. Posedly, each officially as a member of the Board of Directors of ASDB and individually; and Kenneth D. Randall, officially as the Superintendent of ASDB and individually; John Does 1-10; Jane Does 1-10; ABC Proprietor Ships and Partnerships 1-10; and XYZ Limited Liability Companies and Corporations 1-10, Defendants.

No. CV-02-0388-CQ.

Supreme Court of Arizona, En Banc.

August 21, 2003.

Lawrence E. Condit, Tucson, Attorney for Plaintiffs.

Terry Goddard, Arizona Attorney General, by Michael K. Goodwin, Assistant Attorney General, Employment Law Section, Phoenix, Attorneys for Defendants.

OPINION

HURWITZ, Justice.

¶ 1 Kenneth Proksa and Dennis Russell were long-time employees of the Arizona State Schools for the Deaf and Blind (the "Schools"). After their employment was terminated in 2002, Proksa and Russell filed suit in superior court against the Schools, the State of Arizona, and others, alleging that they had been wrongfully terminated. Defendants removed the suit to federal court.

¶ 2 On November 18, 2002, United States District Judge William D. Browning certified two questions of Arizona law to this court. See Ariz.Rev.Stat. ("A.R.S.") §§ 12-1861 to -1867 (2002) (Uniform Certification of Questions of Law Act). We accepted jurisdiction to answer the certified questions on January 7, 2003, see Ariz. R. Sup.Ct. 27(b), and today address those questions.

I.

¶ 3 The facts relevant to the disposition of the certified questions are set forth in the district court's certification order and may be quickly summarized. Kenneth Proksa was hired by the Schools in 1981, and Dennis Russell in 1987. Prior to 1993, A.R.S. § 15-1326(B) (1986) provided that, after successfully completing a term of probation, all employees of the Schools "shall be granted permanent employment status." The statute also provided that a permanent employee could only be discharged "for cause" and that "[p]ermanent employees discharged from employment at the Schools are entitled to due process protections in the manner provided by the board." A.R.S. § 15-1326(C) (1986). See Deuel v. Ariz. State Sch. for the Deaf and Blind, 165 Ariz. 524, 526-27, 799 P.2d 865, 867-68 (App.1990) (holding that terminated permanent employee is entitled to various due process protections at post-termination hearing).

¶ 4 In 1993, in response to a series of recommendations from the auditor general and the staff of the joint legislative budget committee, the legislature adopted a sweeping amendment of the statutes governing the Schools. 1993 Ariz. Sess. Laws, ch. 204. The amended statutes required the Schools to designate certain positions as "management and supervisory." A.R.S. § 15-1325(A) (2002). The superintendent of the Schools was then required to issue "one, two or three year contracts" for these positions. The Schools would then decide, upon the expiration of each contract, whether to issue the employee a new contract. A.R.S. § 15-1325(D). "Management and supervisory" employees were exempted under the new statute from the requirement in § 15-1326(B) that all employees completing probation be granted "permanent" status. A.R.S. § 15-1326(B).

¶ 5 Proksa and Russell were classified as "management" personnel in 1993, and, under the new statute, were offered one-year employment contracts. See 1993 Ariz. Sess. Laws, ch. 204, § 17(2) (governing initial offer of employment contract to person in supervisory or management position). These contracts were renewed annually pursuant to A.R.S. § 15-1325(D) until 2002. In April 2002, the Schools notified Proksa and Russell that their contracts would not be renewed. See A.R.S. § 15-1325(E) (governing notices of non-renewal).

¶ 6 Proksa and Russell then filed suit in superior court, raising claims of wrongful termination, age discrimination, and intentional infliction of emotional distress. They also brought claims under 42 U.S.C. § 1983 (2002), alleging unlawful deprivation of their property interest in employment. Citing federal question jurisdiction, the defendants then removed the case to federal court.

¶ 7 Proksa and Russell filed a motion to remand the case to state court. Judge Browning denied that motion and instead certified the following two questions of law to this court:

1. May the Arizona Legislature statutorily change the terms of a "permanent" employee's employment without providing for offer, acceptance or assent, and consideration?

2. Did Plaintiffs' acceptance of the yearly contracts between 1993 and 2001 effect an assent to the modification of the terms of their employment that required no additional consideration?

¶ 8 We have jurisdiction over these certified questions pursuant to Article 6, Section 5(6) of the Arizona Constitution, A.R.S. §§ 12-1861 to -1867, and Supreme Court Rule 27. For the reasons below, we answer the first certified question in the affirmative and thus find it unnecessary to reach the second question.

II.

¶ 9 The first certified question sounds in contract. Plaintiffs begin from the premise that, under Arizona law, the "employment relationship is contractual in nature," A.R.S. § 23-1501(1) (Supp.2002), and that an employer may not unilaterally modify an employment contract without an offer, assent or acceptance, and consideration. See Demasse v. ITT Corp., 194 Ariz. 500, 506 ¶ 18, 984 P.2d 1138, 1144 (1999). Plaintiffs contend that after successfully completing their periods of probation, they each effectively entered into employment contracts with the Schools providing that they could not be discharged without cause, and that the 1993 amendments to A.R.S. §§ 15-1325 and -1326 could therefore not be applied to them without their assent or acceptance and consideration.

¶ 10 We do not quarrel with the premise that the employment relationship is contractual, and that employment contracts, like others, may not be unilaterally modified. But the critical issue in this case is not whether there was a contract of employment, but rather whether one provision of that contract was that Proksa and Russell were permanent employees. Proksa and Russell claim that the pre-1993 version of A.R.S. § 15-1326 created such a contract right.

¶ 11 The general principle, however, is that statutes do not create contract rights. See Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985) ("[A]bsent some clear indication that the legislature intends to bind itself contractually, the presumption is that `a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise.'") (quoting Dodge v. Bd. of Educ., 302 U.S. 74, 79, 58 S.Ct. 98, 82 L.Ed. 57 (1937)); US West Communications, Inc. v. Ariz. Corp. Comm'n, 197 Ariz. 16, 22 ¶ 19, 3 P.3d 936, 942 (App.1999) ("Courts are reluctant to find that statutes create private contractual rights."). This is because the primary function of a legislature "is not to make contracts, but to make laws that establish the policy of the state." Nat'l R.R. Passenger Corp., 470 U.S. at 466, 105 S.Ct. 1441. Policies, unlike contracts, are "inherently subject to revision and repeal." Id.

¶ 12 The presumption that statutes do not create contractual rights serves an important public purpose. "To treat statutes as contracts would enormously curtail the operation of democratic government. Statutes would be ratchets, creating rights that could never be retracted or even modified without buying off the groups upon which the rights had been conferred." Pittman v. Chicago Bd. of Educ., 64 F.3d 1098, 1104 (7th Cir.1995). If statutes were routinely treated as establishing contractual rights, the legislature might well be discouraged from addressing pressing public needs, for fear that any law could not thereafter be modified without the consent of those for whose benefit it was passed. See Nat'l R.R. Passenger Corp., 470 U.S. at 466, 105 S.Ct. 1441 ("[T]o construe laws as contracts when the obligation is not clearly and unequivocally expressed would be to limit drastically the essential powers of a legislative body.").

¶ 13 The well-established presumption that statutes do not create contract rights has repeatedly been applied by courts in other jurisdictions to laws governing public employee tenure. For example, the Seventh Circuit has held that the Illinois legislature can amend a statute providing for tenure for public school principals to instead provide that principals serve at the pleasure of local school boards. See Pittman, 64 F.3d at 1104 (noting that tenure for school principals is "not a term in a contract," but "a term in a statute, and a statute is presumed not to create contractual rights"). Similarly, the Wisconsin Supreme Court has held that its legislature could constitutionally amend a law providing for tenure for public school teachers to require retirement at age sixty-five. Morrison v. Bd. of Educ., 237 Wis. 483, 297 N.W. 383, 385 (1941) (holding that while an act may fix the term or tenure of a public employee, "[t]he presumption is that such a law is not intended to create private contractual or vested rights, but merely declares a policy to be pursued until the Legislature shall ordain otherwise"). The case law thus rejects the general notion that statutes create a contractual right to tenure in office, and instead adopts the rule that "[t]enure is regulated by legislative policy." Wash. Fed'n of State Employees v. Washington, 101 Wash.2d 536, 682 P.2d 869, 872 (1984).

¶ 14 Our decisions make plain that "[n]o person has a vested right to any public office or position except as...