Taylor v. City of Gadsden
958 F. Supp. 2d 1287
N.D. Ala.2013Background
- Seven Gadsden firefighters sued the City and Mayor (official capacity) after the City exercised a state-authorized “local option” to raise ERS employee contribution rates from 6% to 8.25% (and later 8.5%), challenging the increase as an unconstitutional impairment of contract under the U.S. and Alabama Constitutions.
- The 2002 merger of the City’s Policemen’s and Firemen’s Retirement Fund (PFRF) into the State Employees’ Retirement System (ERS) left a substantial unfunded liability; firefighters paid a temporary extra 5% supplemental contribution for three years as part of the merger arrangement.
- Act 2011-676 raised state employee contribution rates and allowed local employers under §36-27-6 to irrevocably elect the increase for their employees (the “local option”); Gadsden adopted that option in August 2011 to reduce employer pension costs.
- Plaintiffs were vested ERS participants who did not receive additional benefits after the increase; plaintiffs contend the merger and related documents/ordinances created a contractual promise that employee contributions would remain at 6%.
- The court struck an affidavit of Lisa Rosser and a portion of Diane Scott’s deposition as inadmissible and treated many factual denials as evidentiary objections; ultimately it granted defendants’ summary judgment motion and denied plaintiffs’. The case was dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the ERS statute or handbook create an enforceable contractual right that employee contributions would remain at 6% (i.e., statutory contract formation)? | The ERS statutory scheme and RSA handbook create vested, contractual rights (‘‘vesting’’ language) preventing increases. | Statutes are presumed not to create enforceable contracts absent unmistakable legislative intent; ERS language does not unmistakably bind future legislatures. | No contract arose from the statute or handbook; plaintiffs failed the unmistakability test. |
| Did the 2002 merger/City resolutions create a municipal contract promising no future contribution increases? | The merger and ordinances (and quid pro quo of 5% supplemental payments) created a written/implicit agreement that contributions would revert to and remain at 6%. | No evidence of any City promise to freeze future rates; negotiations never addressed permanent nonincreasability; no written municipal contract memorializes such a promise. | No enforceable municipal contract found; no admissible evidence of a promise to never increase contributions. |
| If a contract existed, did the City/legislative changes substantially impair it under the Contract Clause? | A 40% relative increase in employee contributions materially altered vested contractual expectations and is substantial. | Even if a contractual expectation existed, the impairment was not the total destruction of rights; statutory scheme and handbook contemplated change; the increase served legitimate fiscal purposes. | The court need not reach the public-purpose fit prong because it found no contract and, in any event, the change did not constitute a substantial impairment of a contractual right. |
| Evidentiary sufficiency for summary judgment (motions to strike) | Objected to defendants’ use of Rosser affidavit and portions of Scott deposition; argued hearsay and lack of personal knowledge/expert foundation. | Defendants relied on those materials to support factual assertions about finances and actuarial consequences. | Plaintiffs’ motion to strike granted: Rosser affidavit and quoted portion of Scott deposition stricken; many proffered facts excluded where based on inadmissible hearsay or lay expert opinion. |
Key Cases Cited
- General Motors Corp. v. Romein, 503 U.S. 181 (1992) (framework for Contract Clause analysis: whether change operated as a substantial impairment; three-part inquiry).
- National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451 (1985) (presumption that statutes do not create contractual rights absent unmistakable legislative intent).
- Parker v. Wakelin, 123 F.3d 1 (1st Cir. 1997) (similar ERS-style statutory scheme; no contractual right found to prevent statutory increase in employee contributions).
- Scott v. Williams, 107 So.3d 379 (Fla. 2013) (Florida Supreme Court refusal to permit retroactive/contradictory impairment despite statutory and policy arguments; analyzing statutory preservation-of-rights language).
- Dodge v. Board of Education, 302 U.S. 74 (1937) (public pension statutes are presumptively non-contractual; burden on plaintiff to overcome that presumption).