Justus v. State of Colorado
2014 CO 75
Colo.2014Background
- In 2010 Colorado enacted SB 10-001 to address underfunding of PERA; among other changes it replaced prior COLA rules (including a 3.5% fixed COLA) with a capped 2% compounded COLA and related rules.
- Plaintiffs (retired public employees collectively called Justus) sued, claiming a contractual right to receive the COLA formula in effect at their date of eligibility/retirement for life, and that SB 10-001 impaired that contract.
- The trial court granted summary judgment to the State, finding no contractual right to an immutable COLA because COLA statutes lack durational/entitlement language and have been amended repeatedly.
- The court of appeals reversed, relying on McPhail and Bills to hold retirees had a contract right to the COLA in effect at retirement and remanded for contract-clause analysis.
- The Colorado Supreme Court granted certiorari, considered whether pension COLA statutes create an unmistakable legislative intent to contract and applied the modern three-part Contract Clause test (existence of contract, impairment, substantiality/justification).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PERA statutes created a contractual right to the specific COLA in place at eligibility/retirement for life | Justus: statutes (and practice) vested a contractual right to the then-applicable COLA that cannot be reduced | State: COLA provisions are legislative policy choices subject to change; no clear legislative intent to bind future legislatures | Held: No contractual right — statutes lack unmistakable durational/entitlement language and legislative history shows repeated amendments |
| Whether McPhail/Bills require treating pension COLA differently (a public-policy exception) | Justus: McPhail/Bills establish pension-rights protection that controls here | State: McPhail/Bills are distinguishable and predate modern Contract Clause framework | Held: McPhail/Bills are not dispositive; the modern three-part test (DeWitt/Gen. Motors) applies |
| If there were a contract, whether SB 10-001 substantially impairs it and is justified | Justus: impairment would be substantial and unconstitutional | State: (alternative) changes were necessary for PERA solvency and reasonable | Held: Court did not reach impairment prongs because no contract was found |
| Whether Takings or Due Process claims survive if no contract exists | Justus: asserted alternative constitutional claims | State: those claims fail without a property/contract right | Held: Takings and Due Process claims fail because plaintiffs have no vested contractual COLA right |
Key Cases Cited
- Police Pension & Relief Bd. v. McPhail, 189 Colo. 330, 388 P.2d 694 (Colo. 1959) (prior Colorado decision finding impairment of a pension escalator provision)
- Police Pension & Relief Bd. v. Bills, 148 Colo. 388, 366 P.2d 581 (Colo. 1961) (companion Colorado decision concerning pension escalator)
- In re Estate of DeWitt, 54 P.3d 849 (Colo. 2002) (adopts three-part Contract Clause balancing test)
- U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1 (U.S. 1977) (federal Contract Clause framework and analysis of legislative intent to contract)
- Nat'l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451 (U.S. 1985) (presumption that statutes do not create contractual obligations absent clear legislative intent)
- Gen. Motors Corp. v. Romein, 508 U.S. 181 (U.S. 1993) (Contract Clause three-part inquiry referenced for impairment analysis)