Johnny Frazier v. City of Chattanooga, Tenn.
841 F.3d 433
| 6th Cir. | 2016Background
- Chattanooga established a Fire and Police Pension Fund governed by City Code §§ 2-400–2-425; benefits vest after 10 years (§ 2-415) and service retirement after 25 years (§ 2-411).
- A COLA was adopted in 1980 (CPI-tied, 0%–3%); amendments occurred in 1986 and 1992. In 2000 the city amended § 2-417 to a fixed 3% annual COLA.
- In 2014, facing funding shortfalls, Chattanooga adopted Ordinance 12813 replacing the fixed 3% COLA with a variable COLA tied to funding level (about 1.5% average when <80% funded, 1%–2% range, and CPI/3% cap when ≥80%).
- Four retirees (Frazier, Salter, Melhorn, Gaston) sued to enjoin the 2014 amendment, arguing the 2000 fixed 3% COLA created a contractual right protected by the Contract Clause.
- The district court granted summary judgment to the City and Fund, holding the Code did not unmistakably bind the City to the fixed COLA because the COLA was neither a vested nor an accrued financial benefit under § 2-411(d).
- The Sixth Circuit affirmed, reasoning the City Code’s vesting language and § 2-411(d) show intent to bind only vested/accrued benefits; the COLA was not included in the vesting provision and future COLAs were not yet enforceable (i.e., had not accrued).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2000 fixed 3% COLA created a contractual right protected by the Contract Clause | The 3% COLA was a guaranteed, fixed benefit entitling retirees to continued 3% increases; thus it cannot be impaired | The City Code only binds the City to vested or accrued financial benefits; the COLA is neither vested nor accrued, so amendment is permissible | No contractual right: COLA is not an unmistakably binding, vested or accrued benefit; amendment allowed |
| Whether § 2-415’s vesting covers the COLA | The COLA is part of retirement benefits and therefore vested once a participant’s interest vests | Vesting provision (§ 2-415) does not mention COLA; silence means COLA is not a vested benefit | COLA is not vested because it is not included in § 2-415’s vesting language |
| Whether future COLA increases had "accrued" before the 2014 amendment | Accrued means a fixed, calculable future obligation; financial consultants could calculate present value, so COLAs had accrued | "Accrued" means legally enforceable claim; future COLAs are enforceable only on each January 1 when applied, so they had not accrued | COLAs had not accrued as of Ordinance 12813’s effective date; future increases were not enforceable claims |
| Whether extrinsic materials ("guaranteed" pamphlet) or lack of a modification clause imply an intent to be bound | The Fund’s materials and absence of an explicit modification clause show intent to guarantee the fixed COLA | Code language and past amendments demonstrate the City did not intend unmistakably to bind itself; one pamphlet cannot overcome the unambiguous Code | Extrinsic materials insufficient to overcome plain Code language; no unmistakable promise to bind the City |
Key Cases Cited
- Gen. Motors Corp. v. Romein, 503 U.S. 181 (statute does not create contract absent unmistakable legislative intent)
- Nat’l R.R. Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 470 U.S. 451 (legislative statutes generally reflect policy subject to future change absent clear contractual commitment)
- Puckett v. Lexington-Fayette Urban Cty. Gov’t, 833 F.3d 590 (6th Cir.) (COLA not vested where vesting provision omits COLA; unmistakability doctrine)
- Duncan v. Muzyn, 833 F.3d 567 (6th Cir.) ("shall" in COLA provision may remove discretion in application but not legislative power to amend)
- Gabelli v. SEC, 133 S. Ct. 1216 ("accrue" commonly means a legally enforceable claim)
- Blackwell v. Quarterly County Court of Shelby County, 622 S.W.2d 535 (Tenn.) (public employer may modify pension plan to preserve actuarial stability but cannot impair then-accrued or vested rights)