State ex rel. Horvath v. State Teachers Retirement Bd.

• Citation: 83 Ohio St.3d 67,697 N.E.2d 644
• Decision Date: 19 August 1998
• Docket Number: No. 97-1197,97-1197
• Court: United States State Supreme Court of Ohio
• Parties: , 127 Ed. Law Rep. 1017, 22 Employee Benefits Cas. 2871 The STATE ex rel. HORVATH, Appellant, v. STATE TEACHERS RETIREMENT BOARD, Appellee.

Page 67

83 Ohio St.3d 67

697 N.E.2d 644, 127 Ed. Law Rep. 1017,

22 Employee Benefits Cas. 2871

The STATE ex rel. HORVATH, Appellant, v. STATE TEACHERS RETIREMENT BOARD, Appellee.

No. 97-1197.

Supreme Court of Ohio.

Submitted May 13, 1998.

Decided Aug. 19, 1998.

SYLLABUS BY THE COURT

1. Mandatory teacher contributions to the State Teachers Retirement System result from economic legislation designed to benefit retired and disabled public school teachers and their survivors and beneficiaries and, when placed in the fund, lose their character as private property. Accordingly, the nature and extent of a contributor's protected property rights in the State Teachers Retirement System are determined solely by the statutes that govern the system.

2. Public school teachers do not possess contract rights in any State Teachers Retirement System benefit unless and until the benefit vests by operation of R.C. 3307.711.

Appellant, Theodore Horvath, initiated this action for declaratory judgment, mandamus, and injunctive relief to recover interest on mandatory contributions to the State Teachers Retirement System ("STRS") made by his wife, Sydney Horvath, while publicly employed as an art teacher between 1951 and 1964. Although Mrs. Horvath never resumed her career as a public school teacher, she left her contributions in the fund until her death at age fifty-nine in June 1989. At the time of Mrs. Horvath's death, R.C. 3307.651 had taken effect to permit the crediting of interest on teacher contributions after August 31, 1959 only upon retirement, and only in the event that the sum of the account at retirement is a factor in determining the allowance. R.C. 3307.651(2) and (3). Because Mrs. Horvath died before she became eligible to retire, the State Teachers Retirement Board ("STRB") refunded Mr. Horvath only $4,540.51--the sum of her contributions, with no interest. Accordingly, Mr. Horvath calculates that R.C. 3307.651(2) and (3) work to deny him interest in the amount of $29,435.55 accrued on his wife's contributions after August 31, 1959.

Throughout these proceedings, Horvath has urged invalidation of R.C. 3307.651(2) and (3) on grounds that those provisions (1) effect an unconstitutional taking under the Ohio and United States Constitutions, (2) deny equal protection under the Ohio and United States Constitutions, (3) violate the Contract Clauses of the Ohio and United States Constitutions, and (4) impose contract provisions that are unfair and unconscionable. In response, appellee, STRB, has refuted Horvath's challenges and asserted affirmative defenses of equitable estoppel, waiver, and laches. In the proceedings below, the common pleas and appellate courts upheld the statutory provisions against Horvath's attacks. The cause is now before this court pursuant to the allowance of a discretionary appeal.

Theodore J. Horvath, pro se; Chattman, Gaines & Stern Co., L.P.A., Thomas C. Wagner and Sara J. Moore, Cleveland, for appellant.

Betty D. Montgomery, Attorney General, Michael W. Gleespen and Kelly Igoe, Assistant Attorneys General, for appellee.

COOK, Justice.

For the reasons stated below, we reject Horvath's challenges to R.C. 3307.651 and determine that he is not entitled to post-1959 interest on his wife's contributions.

I. R.C. 3307.651(3)

From the inception of this action, Horvath's arguments have lumped together R.C. 3307.651(2) and 3307.651(3) and referred to them collectively as the "no interest" statute. In this appeal, Horvath continues to assert that we should invalidate both statutory divisions. Scrutiny of Horvath's claims, however, reveals that only R.C. 3307.651(2) is truly at issue in this case.

R.C. 3307.651(2) delays crediting of interest on STRS members' accumulated contributions until retirement. R.C. 3307.651(3) applies to retirees and provides that interest is credited to the retiree's account only if the amount of the account at retirement is a factor in determining a retirement allowance. Because Horvath's claim involves only the right of a beneficiary to a refund of interest earned on a member's accumulated contributions under former R.C. 3307.48(B) when the member dies before becoming eligible to retire, R.C. 3307.651(3) is never placed in issue. Accordingly, the remainder of this opinion analyzes only Horvath's arguments with respect to R.C. 3307.651(2).

II. TAKINGS

Horvath argues that R.C. 3307.651(2) results in an unconstitutional taking of private property in violation of the Fifth Amendment to the United States Constitution and Section 19, Article I of the Ohio Constitution. Horvath likens STRB's retention of the interest accrued on his wife's mandatory STRS contributions to the "physical occupation of property" analyzed by the United States Supreme Court in Loretto v. Teleprompter Manhattan CATV Corp. (1982), 458 U.S. 419, 434, 102 S.Ct. 3164, 3175, 73 L.Ed.2d 868, 882. Accordingly, Horvath cites Penn Cent. Transp. Co. v. New York (1978), 438 U.S. 104, 124, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631, 648, in urging that "it is inappropriate and unnecessary to examine the character or purpose of [R.C. 3307.651(2) ] or its benefit to the public, economic impact on a teacher or interference with her reasonable investment expectations or whether it fairly adjusts 'the benefits and burdens of economic life to promote the common good.' "

A review of the Supreme Court's takings jurisprudence, however, demonstrates that the very factors Horvath wishes this court to ignore are those with the most relevance to his case. Loretto is quite dissimilar to this case. Loretto involved a permanent physical occupation of real property; state legislation permitted cable television carriers to permanently affix access lines and other facilities to apartment buildings and severely limited the landlords' recompense for the intrusion. Id., 458 U.S. at 422-425, 102 S.Ct. at 3168-3170, 73 L.Ed.2d at 873-875. Because governmental action involving permanent physical occupation of real property is of such a character as to itself carry the traditional takings inquiry, the Loretto court held that there was no reason to further analyze the public benefit of the governmental action or its impact on the property owner. Id. at 434-438, 102 S.Ct. at 3175-3177, 73 L.Ed.2d at 881-884. As we discuss below, the most important distinctions between Loretto and this case are that (1) the governmental action in this case is not a physical occupation of private property for its own use, and (2) ultimately, Mrs. Horvath possessed no property right to interest on her STRS contributions.

At the outset, we think it necessary to announce the common purpose behind the United States and Ohio Takings Clauses. Those constitutional guarantees are " 'designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.' " Penn Cent. Transp. Co. v. New York, 438 U.S. at 123, 98 S.Ct. at 2659, 57 L.Ed.2d at 648, quoting Armstrong v. United States (1960), 364 U.S. 40, 49, 80 S.Ct. 1563, 1569, 4 L.Ed.2d 1554, 1561. In conjunction with this design, "[a] 'taking' may more readily be found when the interference with property can be characterized as a physical invasion by government, see, e.g., United States v. Causby, 328 U.S. 256 [66 S.Ct. 1062, 90 L.Ed. 1206] (1946), than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good." Penn Cent., 438 U.S. at 124, 98 S.Ct. at 2659, 57 L.Ed.2d at 648.

On this issue, we draw comparison to Connolly v. Pension Benefit Guar. Corp. (1986), 475 U.S. 211, 106 S.Ct. 1018, 89 L.Ed.2d 166. In Connolly, the United States Supreme Court reasoned that legislation forcing an employer to fund its share of obligations incurred during voluntary association with a multiemployer pension plan did not constitute a taking. In addressing the nature of the government action, the court noted that "the Government does not physically invade or permanently appropriate any of the employer's assets for its own use. Instead, the Act safeguards the participants in multiemployer pension plans by requiring a withdrawing employer to fund its share of the plan obligations incurred during its association with the plan. This interference with the property rights of an employer arises from a public program that adjusts the benefits and burdens of economic life to promote the common good and, under our cases, does not constitute a taking requiring Government compensation." Id. at 225, 106 S.Ct. at 1026, 89 L.Ed.2d at 179.

Similarly, in this case, Mrs. Horvath's contributions to the STRS were used to benefit STRS participants--a subset of the public that included her. As we discuss later, STRS itself adjusts the benefits and burdens of providing public school teachers with retirement, death, and disability benefits among public school teachers and their employers. While the state may derive an indirect benefit from this use in that the STRS benefits publicly employed school teachers, that indirect benefit does not equate with physical invasion or permanent appropriation of the assets of fund participants for its own use. Accordingly, the analysis employed in Loretto, involving a permanent physical occupation of real property, is inapposite to this case.

Having rejected Horvath's attempt to analogize this case to Loretto, we now turn to the traditional takings inquiry set forth by the court in Penn Cent. Although the Penn Cent. court noted that the traditional takings inquiry requires an ad hoc analysis depending largely on the circumstances of a particular case, it listed the following factors as having particular significance: (1) the economic impact of the regulation on the claimant, (2) the extent to which the regulation has interfered with distinct investment-backed expectations, and (3) the character of the governmental action. Id., 438 U.S. at 124, 98 S.Ct. at...