Sherman v. Ohio Pub. Emps. Ret. Sys.

• Decision Date: 22 October 2020
• Docket Number: No. 2019-0373,2019-0373
• Citation: 163 Ohio St.3d 258,169 N.E.3d 602
• Parties: SHERMAN, Appellee, v. OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM, Appellant.
• Court: Ohio Supreme Court

163 Ohio St.3d 258

169 N.E.3d 602

SHERMAN, Appellee,

v.OHIO PUBLIC EMPLOYEES RETIREMENT SYSTEM, Appellant.

No. 2019-0373

Supreme Court of Ohio.

Submitted February 26, 2020

Decided October 22, 2020

Dworken & Bernstein Co., L.P.A., Nicole T. Fiorelli, Patrick J. Perotti, and Frank A. Bartela, Painesville, for appellee.

Dave Yost, Attorney General, Benjamin M. Flowers, Solicitor General, Michael J. Hendershot, Chief Deputy Solicitor General, and Samuel C. Peterson, Deputy Solicitor General, for appellant.

O'Connor, C.J. {¶ 1} This case involves a subsidy to offset part of the cost of health insurance that appellant, Ohio Public Employees Retirement System ("OPERS"), provides to retirees receiving an OPERS pension. OPERS reduces the subsidy of any retiree who is reemployed by a public employer that is a member of the OPERS network. Appellee, Jeffrey P. Sherman, filed this class-action suit against OPERS arguing that such subsidy reductions violate the Equal Protection Clause of Article I, Section 2 of the Ohio Constitution. The trial court dismissed the action under Civ.R. 12(B)(6), holding that Sherman failed to state a claim upon which relief could be granted. The Tenth District Court of Appeals reversed and remanded for further proceedings. We hold that the court of appeals correctly determined that Sherman has stated a claim under Civ.R. 12(B)(6). We therefore affirm.

I. RELEVANT BACKGROUND

{¶ 2} OPERS is the largest of Ohio's five public retirement systems.¹ Employees of over 3,500 public employers across the state are members of OPERS. R.C. 145.03. See https://www.opers.org/members/employer-search/ (accessed Aug. 12, 2020) [https://perma.cc/CVL2-TQWF]. Employees participating in OPERS are eligible for retirement, disability, and survivor benefits. OPERS also offers its retirees health insurance, R.C. 145.58(B), including medical, prescription-drug, vision, and dental plans.

{¶ 3} Sherman alleged in his complaint that he was previously employed by the Ohio Department of Taxation, a public employer within the OPERS network. He retired from his position with the Department of Taxation in May 2009 and began receiving his pension from OPERS along with a subsidy to offset the cost of his coverage under an OPERS-provided health-insurance plan. In May 2010, the Regional Income Tax Agency ("RITA"), which is also a public employer within the OPERS network, hired Sherman for a part-time position.

{¶ 4} Sherman continues to receive his pension while he is reemployed, subject to certain requirements not relevant here. R.C. 145.38(B). But he does not accrue new or additional pension benefits while employed by RITA; although he and RITA contribute to OPERS, those funds will be returned to Sherman as either a lump sum or in an annuity. See R.C. 145.38(B)(1) and (D)(1) (permitting an OPERS retiree to be reemployed with a public employer and requiring both the retiree and the employer to contribute to OPERS but stating that the retiree is not a member of OPERS upon reemployment); R.C. 145.384(B)(2) (describing the refund of a reemployed retiree's contributions).

{¶ 5} In July 2017, Sherman filed suit against OPERS, asserting a claim under the Equal Protection Clause of the Ohio Constitution. Sherman asserts that in reducing the subsidy for the health-insurance premium, OPERS treats retirees like him, who are reemployed in an OPERS-covered position, differently from similarly situated employees.

{¶ 6} Specifically, Sherman alleges that he is similarly situated to OPERS retirees who are reemployed by an employer that is not part of the OPERS network. When a retiree is reemployed in an OPERS-covered position, the subsidy is reduced, but when a retiree is reemployed in a non-OPERS-covered position, the subsidy is not reduced. Sherman alleges that there is no rational basis for treating him differently from similarly situated employees and that OPERS's reduction of his subsidy violates his rights under Ohio's Equal Protection Clause.

{¶ 7} Sherman alleges that OPERS withheld $74 per month from his health-insurance subsidy each month between January 1, 2016, and the filing of this suit in July 2017. If he had received the full subsidy to which he was entitled in 2016, he would have had to pay only $32.54 per month for his health insurance. But OPERS's withholding of $74 from his monthly subsidy caused him to pay $106.54 per month instead. Similarly, if he had received the full subsidy in 2017, he would have had to pay $118 per month for his premiums, but OPERS's withholding of $74 from his monthly subsidy caused him to pay $192 per month instead.

{¶ 8} Sherman is also pursuing this claim on behalf of the following class: "All OPERS retirees for whom OPERS withheld a portion of their health-insurance premium monies from January 1, 2016, to the present due to their re-employment in an OPERS-covered position." He seeks an order declaring that OPERS's reduction of the subsidy based solely on whether a retiree is reemployed in an OPERS-covered position is unconstitutional. He also seeks restitution in the form of an order that OPERS disgorge all monthly premium subsidies that have been unlawfully withheld from him and the rest of the class.

{¶ 9} The trial court dismissed Sherman's complaint for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6). It held that Sherman had failed to allege that a group of OPERS retirees existed who were similarly situated to him but were treated differently. It found that the group identified by Sherman as receiving different treatment—retirees reemployed in non-OPERS-covered positions—is not, in fact, similarly situated to him, because Sherman and the class are "double dipping," that is, they are receiving both a public pension and a taxpayer-supported salary, but retirees reemployed in non-OPERS-covered positions are not receiving both benefits. The trial court also held that Sherman had failed to allege that there was no rational basis for OPERS's reduction of the subsidy. It accepted OPERS's arguments that reducing the subsidy for retirees who are reemployed with employers in the OPERS network is intended "to discourage double-dipping to protect the public fisc" and that the state has a legitimate interest in pursuing such a cost-saving measure.

{¶ 10} The Tenth District Court of Appeals reversed. It held that Sherman and the class are similarly situated to OPERS retirees who are reemployed in non-OPERS positions. 2019-Ohio-278, 129 N.E.3d 974, ¶ 22. It first noted that Ohio does not have a policy against double dipping nor does it prohibit retirees from receiving their pension while reemployed in public positions, id. at ¶ 20 ; instead, retirees receiving an OPERS pension are expressly allowed to be reemployed by a public employer, R.C. 145.38(B)(1). It then held that OPERS retirees who are reemployed in OPERS-covered positions are similarly situated with regard to retirees who are reemployed in non-OPERS-covered positions in all relevant respects because both groups receive only a single stream of benefits from OPERS: a pension. Id. at ¶ 21. The fact that retirees reemployed in an OPERS-covered position also receive a taxpayer-supported salary and benefits is not a relevant distinction because the salary and benefits are paid by the new employer, not OPERS, and would be paid by the new employer regardless of whether the employee is an OPERS retiree. Id. In other words, the salary and benefits would still be paid if the position had been filled by a person who had not yet retired.

{¶ 11} The Tenth District also rejected the trial court's holding that Sherman failed to allege that there was no rational basis for distinguishing between OPERS retirees reemployed in an OPERS-covered position and those in a non-OPERS-covered position. It held that although preserving public money can be a legitimate purpose, " ‘when preserving state money is accomplished by treating an individual in an arbitrary manner, it is not a rational reason to classify.’ " 2019-Ohio-278, 129 N.E.3d 974, at ¶ 27, quoting Adamsky v. Buckeye Local School Dist. , 73 Ohio St.3d 360, 362, 653 N.E.2d 212 (1995). Here, the state "did not provide enough information" in its motion to dismiss to explain how reducing the health-insurance subsidy it provides to retirees reemployed in an OPERS-covered position is rationally related to its goal of preserving public money. Id. at ¶ 29. Without that, Sherman could not attempt to meet his obligation of negating every conceivable basis for OPERS's action. Id. at ¶ 30.

{¶ 12} OPERS appealed to this court, raising one proposition of law: "Ohio's Equal Protection Clause does not demand that OPERS treat retirees employed in OPERS-covered positions the same as all other reemployed retirees." We granted the state's request for discretionary review. 155 Ohio St.3d 1467, 2019-Ohio-2100, 122 N.E.3d 1302.

II. ANALYSIS

{¶ 13} We review de novo a decision granting a motion to dismiss under Civ.R. 12(B)(6). Perrysburg Twp. v. Rossford , 103 Ohio St.3d 79, 2004-Ohio-4362, 814 N.E.2d 44, ¶ 5.

A. Background Law

{¶ 14} Ohio's Equal Protection Clause is contained in Article 1, Section 2 of the Ohio Constitution. It provides:

All political power is inherent in the people. Government is instituted for their equal protection and benefit, and they have the right to alter, reform, or abolish the same, whenever they may deem it necessary; and no special privileges or immunities shall ever be granted, that may not be altered, revoked, or repealed by the General Assembly.

As a general matter, this provision requires that the government treat all similarly situated persons alike. See McCrone v. Bank One Corp. , 107 Ohio St.3d 272, 2005-Ohio-6505, 839 N.E.2d 1, ¶ 6. But not all claims brought under this clause are judged in the same way. When a claim involves a fundamental right or a suspect class, the government's action is subject to a higher level of scrutiny. See Adamsky , 73 Ohio St.3d at 362, 653 N.E.2d...