3:17-cv-01596
N.D. Tex.Mar 14, 2018Background
- The Dallas Police and Fire Pension System (Pension System) administers DROP accounts for eligible members; the Board has authority under the Plan to adopt withdrawal/distribution policies as needed for efficient administration.
- In late 2016 a run on DROP accounts led to a state-court TRO halting most DROP distributions; the Board adopted an Original Addendum (Jan. 12, 2017) suspending most withdrawals and proposing distribution mechanisms beginning March 31, 2017.
- Texas enacted H.B. 3158 (signed May 31, 2017), requiring DROP balances to be annuitized as of Sept. 1, 2017 (eliminating lump-sum and IRA rollover options); the Board adopted a Revised Addendum (June 8, 2017) implementing those changes and allowing hardship distributions.
- Plaintiffs (retired/active members) sued, alleging violations of the Fourteenth Amendment (procedural and substantive due process), the Fifth Amendment Takings Clause, and seeking declaratory relief and Texas constitutional protections under Article XVI, §66.
- The district court took judicial notice of the Plan, Board records, and public actions, then dismissed the amended complaint with prejudice, also granting the Board’s motion to strike the plaintiffs’ surreply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs were deprived of property triggering due process | DROP members have a vested property interest that includes on-demand withdrawals; the Addenda and H.B. 3158 deprived them of access | No deprivation: value of DROP funds preserved; only timing of payments changed and Plan authorizes distribution policies for efficient administration | No deprivation; due process claims fail |
| Whether procedural due process required individualized hearings | Plaintiffs contend they were denied meaningful process before loss of access | Board/Legislature: H.B. 3158 is legislative (no individualized hearings); Revised Addendum implements statute and was adopted at public meetings | Characterized as legislative action; procedural due process not required; claim dismissed |
| Whether substantive due process was violated | Plaintiffs argue the changes are arbitrary and irrational as to vested benefits | Board argues changes are economic regulation rationally related to legitimate interests (solvency, benefit preservation) | Rational-basis review applies; measures are rationally related to legitimate interests; claim dismissed |
| Whether amendment and statute constitute a taking under the Fifth Amendment or violate Texas Const. art. XVI §66 | Plaintiffs claim conversion/impairment of vested DROP funds (per se or regulatory taking) and that timing change impairs Section 66 protections | Board: no physical appropriation; no reduction in actuarial value; annuitization preserves economic value; Section 66 protects value of benefits, not merely timing | No per se or regulatory taking; Section 66 not violated because benefits’ value preserved; takings and declaratory claims dismissed |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (courts need not accept conclusory allegations)
- Mathews v. Eldridge, 424 U.S. 319 (procedural due process balancing test)
- Bi-Metallic Inv. Co. v. State Bd. of Equalization, 239 U.S. 441 (legislative rulemaking need not provide individualized hearings)
- Lingle v. Chevron U.S.A. Inc., 544 U.S. 528 (takings framework; per se and regulatory takings analysis)
- Penn Central Transp. Co. v. New York City, 438 U.S. 104 (factors for regulatory takings analysis)
- Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (permanent physical occupation is per se taking)
- Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (total regulatory takings doctrine)
- Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211 (distinguishing appropriation from regulation in pension context)
- Van Houten v. City of Fort Worth, 827 F.3d 530 (Section 66 and prospective pension changes; interpretation of impairment vs. accrual)
- Ridgely v. FEMA, 512 F.3d 727 (property interests defined by state law)
- Landgraf v. USI Film Prod., 511 U.S. 244 (rules of law can change; reliance does not bar legislative change)