Stone v. State

• Decision Date: 12 December 2001
• Docket Number: Docket No. 217485.
• Citation: 638 N.W.2d 417,247 Mich. App. 507
• Parties: John T. STONE and Phillip M. Stevens, for Themselves and All Others Similarly Situated, Plaintiffs-Appellees, v. STATE OF MICHIGAN and Department of Treasury, Defendants-Appellants.
• Court: Court of Appeal of Michigan — District of US

638 N.W.2d 417

247 Mich. App. 507

John T. STONE and Phillip M. Stevens, for Themselves and All Others Similarly Situated, Plaintiffs-Appellees, v.STATE OF MICHIGAN and Department of Treasury, Defendants-Appellants.

Docket No. 217485.

Court of Appeals of Michigan.

Submitted August 8, 2000, at Lansing.

Decided September 21, :05 a.m.

Released for Publication December 12, 2001.

Hubbard, Fox, Thomas, White & Bengtson(by Michael E. Woodworth) and Phillip M. Stevens, Lansing, Okemos, for the plaintiffs.

Before M.J. KELLY, P.J., and WHITBECK and COLLINS, JJ.

WHITBECK, J.

Defendantsstate of Michigan and the Department of Treasury appeal by leave granted an order granting plaintiffs' motion for summary disposition pursuant to MCR 2.116(C)(10).Defendants challenge the Court of Claims' determination that monthly payments for accumulated sick leave under a special statutory provision¹ of an early retirement program for state employees are exempt from state, county, city, and other local taxes.We affirm.

I.Basic Facts And Procedural History

A.Early Retirement And Accumulated Sick Leave

In 1996, the Legislature created an early retirement program for state employees who met certain criteria, including age and length of service.This was part of a larger effort to extend to state employees some of the benefits private sector employees enjoyed at the time, such as defined contribution employment plans.²To streamline the state work force and reduce state payroll costs, the Legislature in 1997 widened the group of state workers who were eligible to participate in the program.³The Legislature incorporated the terms of this special early retirement program in the State Employees' Retirement Act (SERA),⁴ determining the levels of compensation these retirants⁵ would receive.⁶

Plaintiffs are a class of individuals who retired or contemplated retiring under this early retirement program.As they would likely point out, length of service is only one factor that affects the amount of money each retirant receives under this early retirement program.Under the compensation plan of the Michigan Civil Service Commission, all state workers are entitled to accumulate sick leave during the course of their employment.⁷CommissionRule 5-5.4(a) provides that "[c]rediting and utilization of sick leave, as well as payment at retirement, separation, or death shall be in accordance with provisions contained in the official compensation plan," meaning that this accumulated sick leave may be payable at retirement.The compensation plan distinguishes between workers hired before and after October 1, 1980.Workers hired before October 1, 1980, are paid for accumulated sick leave when they retire.Employees hired after October 1, 1980, are not eligible to be paid for unused sick leave at all.

Ordinarily, payment for accumulated sick leave to retirants hired by the state before October 1, 1980, occurs in a single lump sum.According to defendants, the state taxed each retirant's lump-sum payment as income in the year the retirant received it.However, the SERA provides in M.C.L. § 38.19f(3) that "[a]ny amount that a member retiring under this section would otherwise be entitled to receive in a lump sum at retirement on account of accumulated sick leave shall be paid in 60 consecutive equal monthly installments."When the state began making monthly accumulated sick leave payments to retirants under the 1996-97 early retirement program, the state taxed these payments as if they were the traditional lump-sum payments for accumulated sick leave, apparently withholding both state and local taxes from the payments.

B.Plaintiffs' Suit

In March 1998, plaintiffs sued in the Court of Claims, alleging that defendants could not tax these monthly accumulated sick leave payments.Plaintiffs claimed in their first amended complaint that withholding income taxes from the monthly accumulated sick leave payments was a breach of contract and deprived them of property without due process of law.⁸Further, they contended, the right to monthly accumulated sick leave payments under M.C.L. § 38.19f(3) had to be viewed in light of M.C.L. § 38.40(1), a related subsection of the SERA that states:

The right of a person to a pension, an annuity, a retirement allowance, any optional benefit, any other right accrued or accruing to any person under the provisions of this act, the various funds created by this act, and all money and investments and income of the funds, are exempt from any state, county, municipal, or other local tax, and shall not be subject to execution, garnishment, attachment, the operation of bankruptcy or insolvency laws, or other process of law, and shall be unassignable except as otherwise provided in this act.⁹

Thus, plaintiffs argued that defendants had violated the SERA by withholding money owed to the state for the accumulated sick leave payments and by withholding taxes for other taxing authorities.

Plaintiffs moved for summary disposition under MCR 2.116(C)(9) and (10).Defendants responded by requesting summary disposition in their favor pursuant to MCR 2.116(1)(2).The parties essentially disputed whether the right to be paid for accumulated sick leave "accrued" under the SERA, which would then determine whether the monthly accumulated sick leave payments were tax-exempt.Defendants argued that the right to be paid for accumulated sick leave "accrued" under the compensation plan and, therefore, that the monthly accumulated sick leave payments could be taxed in the same way as the lump-sum accumulated sick leave payments.In support of their argument for tax exemption, plaintiffs pointed out that the SERA, M.C.L. § 38.19f(3), specifically prescribes the manner in which they are paid for accumulated sick leave and, therefore, the monthly accumulated sick leave payments "accrued" under the SERA.

The Court of Claims rejected defendants' argument that the case could not proceed because plaintiffs had failed to join as necessary parties the local taxing authorities for whom the state was withholding taxes.However, the Court of Claims denied plaintiffs' motion for summary disposition under MCR 2.116(C)(9).Instead, the Court of Claims granted defendants summary disposition of plaintiffs' claim that withholding taxes on monthly accumulated sick leave payments was a constitutional tort, violating the right to due process of law.The Court of Claims granted plaintiffs' motion for summary disposition regarding the claim for breach of contract under MCR 2.116(C)(10).The Court of Claims reasoned the monthly accumulated sick leave payments constituted a right that "accrued" under the SERA as well as an "optional benefit."Accordingly, the monthly accumulated sick leave payments were tax-exempt under M.C.L. § 38.40(1).The Court of Claims also determined that Const. 1963, art. 9, § 24 protected the vested right these retirants had in being paid for their accumulated sick leave from being diminished as a matter of contract law.The Court of Claims concluded that, by taxing these monthly accumulated sick leave payments when the retirants did not earn interest on the unpaid accumulated sick leave over the five-year pay-out period, defendants breached this contract and violated the constitution.¹⁰Consequently, the Court of Claims issued an injunction preventing defendants from "withholding income taxes from Plaintiffs' sick leave installment payments," but later stayed the effect of this injunction pending appeal.

C.Defendants' Appeal

On appeal, defendants advance the same legal arguments concerning whether the monthly accumulated sick leave payments are taxable.Defendants also contend that the Court of Claims erred in concluding that plaintiffs did not have to join as defendants all entities that received the taxes from the monthly accumulated sick leave payments.Further, defendants assert that the Court of Claims lacked the authority to issue an injunction against defendants.

II.The SERA

A.Standard Of Review

To address this portion of the appeal, we must interpret and apply the relevant statutes, a task this Court undertakes by conducting review de novo.¹¹

B.Summary Disposition And Statutory Interpretation

A motion for summary disposition under MCR 2.116(C)(10) tests the factual underpinnings of a claim other than an amount of damages, and the deciding court considers all the evidence, affidavits, pleadings, admissions, and other information available in the record.¹²The deciding court must look at all the evidence in the light most favorable to the nonmoving party, who must be given the benefit of every reasonable doubt.¹³Only if there is no factual dispute, making the moving party entitled to judgment as a matter of law, would summary disposition be appropriate.¹⁴The process of applying a statute intersects with this legal standard for summary disposition at the point where the court deciding a motion for summary disposition considers whether the moving party is entitled to judgment as a matter of law.In other words, the court must understand what the law is in order to determine which party is entitled to judgment when there is a settled factual record.¹⁵

Our primary goal when interpreting statutes is to determine and give effect to the Legislature's intent.¹⁶The best way to determine this legislative intent is to examine the language of the statute at issue¹⁷ because we presume that the Legislature intended to give the statute the meaning it "plainly expressed."¹⁸If the meaning of the statute is clear, then courts have no further role in interpreting it; the statute must be applied as written.¹⁹However, if the statute's meaning is not clear, courts"must look to the object of the statute in light of the harm it is designed to remedy, and strive to apply a reasonable construction that will best accomplish the Legislature's purpose," without "abandon[ing] the canons of common sense."²⁰In doing this, courts must...