RAYMOND A. CLOUTIER & a. v. STATE OF NEW HAMPSHIRE & a.
No. 2010-714
Strafford
Opinion Issued: March 30, 2012
Argued: August 26, 2011
Affirmed.
DALIANIS, C.J., and HICKS and CONBOY, JJ., concurred.
Michael A. Delaney, attorney general (Anne M. Edwards, associate attorney general, and Laura E.B. Lombardi, assistant attorney general, on the brief, and Ms. Edwards orally), for the State.
Douglas, Leonard & Garvey, P.C., of Concord (Charles G. Douglas, III and David M. Howe on the brief, and Mr. Douglas orally), for the Board of Trustees of the New Hampshire Judicial Retirement Plan.
David R. Connell, of Concord, Theodore E. Comstock, of Concord, and Betsy B. Miller, of Concord, on the joint brief, for New Hampshire Local Government Center, New Hampshire School Boards Association and New Hampshire Association of Counties, as amici curiae.
HORTON, J., retired, specially assigned under
The petitioner, Raymond A. Cloutier, is a retired probate court judge. The six intervenors are retired supreme, superior, probate, and district court judges. We refer to them collectively as the petitioners. In October
In response to the trial court‘s order, the parties filed a joint stipulation containing a chart with projected lifetime retirement payouts for Cloutier. The projected payouts included several separate calculations, comparing retirement benefits under the plan enacted pursuant to
The Parties stipulate that only the mathematical calculations... are fair and accurate, and fully reserve the right to challenge the propriety of the following assumptions as a matter of law, so that the court may find that there are no genuine issues of material fact in dispute and rule on the following questions of law...:
a. Whether the 10% raise given by Laws 2003, 311:3 should be included in calculating and projecting retirement benefits under the old plan;
b. Whether the 1.01% raise given by Laws 2005, 177:96 should be included in calculating and projecting retirement benefits under the old plan;
c. Whether future legislative salary increases are more appropriately determined by the average of salary increases given to sitting probate judges in the period since the new plan‘s inception (from January 1, 2005 forward), or, alternatively, the average [of] all legislative salary increases given to sitting probate court judges from 1991 to present;
d. Whether Laws 2003, chapter 311 and subsequent amendments to
RSA chapter 100-C constitute a “substantial impairment” of Petitioner‘s and Intervenors’ retirement benefits within the meaning ofPart I, Article 23 of the State Constitution .
Following a hearing, the trial court granted summary judgment for the petitioners, concluding that the application of
The State raises two issues on appeal: (1) whether the trial court erred in ruling that
Prior to the enactment of
Under the prior retirement statutes, as “additional compensation for services rendered and to be rendered,” a judge who retired upon attaining the age of seventy years having served as a judge for at least seven years, or upon attaining the age of sixty-five years having served for at least ten years, was entitled to receive for the rest of his or her life an annual amount equal to seventy-five percent of “the currently effective annual salary of the office” from which the judge was retired.
In 2003, the prior retirement statutes were repealed and replaced with
Under the new retirement statute, membership in the judicial retirement plan is mandatory for any full-time supreme, superior, district or probate court judge.
I. Any member who has at least 15 years of creditable service and is at least 60 years of age, or who has at least 10 years of creditable service and is at least 65 years of age, or who has at least 7 years of service and is 70 years of age may retire on a service retirement allowance....
II. A member who is at least 65 years of age with 10 years of creditable service may retire on a service retirement allowance equal to 75 percent of the member‘s final year‘s salary.
III. A member who is 70 years of age with 7 years of creditable service may retire on a service retirement allowance equal to 45 percent of the member‘s final year‘s salary. A member who is 70 years of age shall be granted an additional 10 percent over the 45 percent level for each year of creditable service the member has over 7 years.
IV. A member who is at least 60 years of age with at least 15 years of service may retire on a service retirement allowance equal to 70 percent of the member‘s final year‘s salary. A member who has at least 15 years of service and is at least 60 years of age shall be granted an additional percent over the 70 percent level for each year of continued service over 15 years.
V. Under no circumstance shall any service retirement allowance pursuant to this section exceed 75 percent of the member‘s final year‘s salary.
VI. Any member attaining eligibility for 75 percent of the member‘s final year‘s salary shall not be required to make employee contributions to the plan pursuant to
RSA 100-C:14 .
The new retirement plan is self-funding, relying upon contributions from the State and the judges. See
The State argues that the trial court erred in finding a violation of
In reviewing the trial court‘s grant of summary judgment, we consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party. If our review of that evidence discloses no genuine issue of material fact, and if the moving party is entitled to judgment as a matter of law, we will affirm the grant of summary judgment. We review the trial court‘s application of the law to the facts de novo.
State v. N. of the Border Tobacco, 162 N.H. 206, 212 (2011) (citations omitted).
Whether or not a statute is constitutional is a question of law, which we review de novo. Tuttle v. N.H. Med. Malpractice Joint Underwriting Assoc., 159 N.H. 627, 640 (2010).
The party challenging a statute‘s constitutionality bears the burden of proof. The constitutionality of an act passed by the coordinate branch of the government is presumed. It will not be declared to be invalid except upon inescapable grounds; and the operation under it of another department of the state government will not be interfered with until the matter has received full and deliberate consideration.
Id. (quotations, citations and brackets omitted).
Contract Clause analysis in New Hampshire requires a threshold inquiry as to whether the legislation operates as a substantial impairment of a contractual relationship. This inquiry has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial. If the legislation substantially impairs the contract, a balancing of the police power and the rights protected by the contract clause[] must be performed, and the law may pass constitutional muster only if it is reasonable and necessary to serve an important public purpose.
Id. (quotations, citations, ellipses and brackets omitted).
Whether a public retirement plan creates a contract between a public employee and the State is a question of first impression in New Hampshire. “The nature of pension rights of a public employee is a question which has caused courts great difficulty.” Wagoner v. Gainer, 279 S.E.2d 636, 640 (W. Va. 1981). “Development of the law on the question has been long and tort[u]ous, reflecting the increasing pressure placed upon the judiciary by the evolution of the now generally accepted theory that pensions are a part of the compensation of an employee to which, under ordinary circumstances, he is as much entitled as he is to the wages paid him for the work he has actually performed.” Id. (quotation and ellipses omitted).
Regarding public employees, we have recognized that
[a]n employee‘s compensation is not necessarily limited to his salary, but will include any other benefits that are an integral part of the employee‘s contemplated compensation. These benefits may include... retirement... benefits. Such benefits are a means by which the State can attract qualified persons to enter and
remain in State employment, and an employee accepts an offer of employment or continues in employment with the State in reliance on the State‘s representations that it will provide such benefits. These benefits are an integral part of the contemplated compensation and become vested at the time one becomes a permanent State employee or continues in such employment.
Jeannont v. N.H. Personnel Comm‘n, 118 N.H. 597, 601-02 (1978). We have also held that
In support of the statement in Jeannont that “benefits are an integral part of the contemplated compensation and become vested at the time one becomes a permanent State employee or continues in such employment,” Jeannont, 118 N.H. at 602, we cited Kern v. City of Long Beach, 179 P.2d 799 (Cal. 1947), and Bakenhus v. City of Seattle, 296 P.2d 536 (Wash. 1956). In Kern, the Supreme Court of California reasoned that “public employment gives rise to certain obligations which are protected by the contract clause of the Constitution, including the right to the payment of salary which has been earned. Since a pension right is an integral portion of contemplated compensation, it cannot be destroyed, once it has vested, without impairing a contractual obligation.” Kern, 179 P.2d at 802 (quotation and citation omitted). In Bakenhus, the Supreme Court of Washington rejected as “insupportable” the view that since the right to receive a pension does not arise until all the conditions are fulfilled, the employee‘s rights must depend upon the law as it exists at that time. Bakenhus, 296 P.2d at 539. Rather, the court adopted the “more enlightened” view that “the employee who accepts a job to which a pension plan is applicable contracts for a substantial pension and is entitled to receive the same when he has fulfilled the prescribed conditions.” Id. at 540.
[A] judge gives up the right to continue in the only field of endeavor in which he has been educated and is experienced in order to accept a position, often for a much smaller financial reward, anticipating that upon retirement the state will continue to pay him part of his salary. Inflation affects retired judges the same as it does anyone else; and a judge‘s reliance upon the state‘s offer to pay, upon his retirement, a part of the salary allotted to his office surely is one of the significant considerations that induces the judge to remain in office during the required period of time and until the age permitting retirement. Frequently, his retirement compensation is the only resource he has to rely upon when he has reached an age where it is too late to actively engage in any other financial activity.
In the case before us, the prior retirement statutes stated unequivocally that judicial retirement pay was “additional compensation for services rendered and to be rendered.”
The trial court found that because the prior retirement statutes allowed for the calculation of retirement benefits based upon the most recent adjustments in judicial salaries, and because the new statute bases benefits on the amount the judge was being paid at the time of retirement, the new statute “is clearly an impairment of the plaintiffs’ vested rights
The trial court also found that the impairment is substantial. In doing so, the court relied upon Tuttle and Opinion of the Justices (Furlough). We disagree that these cases compel the conclusion reached by the trial court. The court quoted language in Tuttle which states that “‘[w]here the right abridged was one that induced the parties to contract in the first place, a court can assume the impairment to be substantial.‘” Tuttle, 159 N.H. at 649 (quoting Fraternal Order of Police Lodge No. 89 v. Prince George‘s County, Md., 645 F. Supp. 2d 492, 510 (D. Md. 2009)). We hesitate, however, to adopt this language as the basis for finding substantial impairment in this case. Because the parties’ reliance was not at issue in Tuttle, the quoted language is dicta. See Tuttle, 159 N.H. at 650. In addition, the opinion from which the Tuttle court quoted was subsequently reversed. See Fraternal Order of Police Lodge No. 89 v. Prince George‘s County, Md., 608 F.3d 183 (4th Cir. 2010).
The trial court also relied upon Opinion of the Justices (Furlough), 135 N.H. at 634, and, quoting Furlough, concluded that because the impairment affects the “very heart of an employment contract: the promise of certain work for certain income,”
In determining the issue of substantial impairment, we look again to the cases favorably cited in Jeannont. In Kern, the court addressed the issue of modifications by the government in a pension system prior to the time for commencement of payments and concluded that “an employee may acquire a vested contractual right to a pension but... this right is not rigidly fixed by the specific terms of the legislation in effect during any particular period in which he serves.” Kern, 179 P.2d at 803. The court reasoned that “[t]he statutory language is subject to the implied qualification that the governing body may make modifications and changes in the system. The employee does not have a right to any fixed or definite benefits, but only to a substantial or reasonable pension.” Id. Therefore, the court found no inconsistency in holding that the employee “has a vested right to a pension but that the amount, terms and conditions of the benefits may be altered.” Id.; see also Betts v. Bd. of Admin. of Pub. Emp. Ret. System, 582 P.2d 614, 617 (Cal. 1978) (alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to the employees should be accompanied by comparable new advantages).
In Bakenhus, the court held that “the employee who accepts a job to which a pension plan is applicable contracts for a substantial pension and is entitled to receive the same when he has fulfilled the prescribed conditions.” Bakenhus, 296 P.2d at 540. The court reasoned that the employee‘s pension rights “may be modified prior to retirement, but only for the purpose of keeping the pension system flexible and maintaining its integrity.” Id. According to the court, “[t]his view, while it may not be flawless in a purely legalistic sense, gives effect to the reasonable expectations of the employee and at the same time allows the legislature the freedom necessary to improve the pension system and adapt it to changing economic conditions.” Id.
Several other jurisdictions approve the view that, prior to retirement, a plan may be changed only if there is a corresponding change of a beneficial nature to the employee. See, e.g., Police Pension and Relief Board of Denver v. Bills, 366 P.2d 581, 584 (Colo. 1961) (prior to eligibility to retire, there is limited vesting of pension rights such that although the plan could be changed, it could not be abolished nor could there be a substantial change of an adverse nature without a corresponding change of a beneficial nature); In re Marriage of Alarcon, 196 Cal. Rptr. 887, 892 (Ct. App. 1983) (while vested rights to pension benefits may be modified before a retirement to keep a pension system flexible and permit adjustments to accord with changing conditions, such modifications must be reasonable and not destroy or impair a vested contractual right to a pension); Gainer, 279 S.E.2d at 644 (changes in the pension plan may be allowed if any disadvantages are counter-balanced by advantages, i.e., substitute consideration); Sylvestre, 214 N.W.2d at 666 (taking away the right to receive compensation without any compensating benefits constitutes an impairment of contract). Because we reject the approach adopted by the trial court, we reverse and remand this issue for the court to determine in the first instance whether the contractual impairment is offset by any compensating benefits under
The petitioners argue in their cross-appeal that the trial court incorrectly excluded the ten percent and one percent salary increases authorized in 2003 and 2005 in calculating their benefits under the prior retirement statutes. Laws 2003, 311:3 amended
The petitioners argue that these increases should be included in the base calculation of retirement benefits payable under the prior statutes because: (1) the prior retirement statutes calculate benefits as seventy-five percent of the “currently effective salary” for sitting judges; (2) Laws 2003, chapter 311 did not purport to exclude the salary increase from the calculation of the petitioners’ benefits payable under the prior plan; and (3) excluding the ten percent raise violates
We are persuaded by the board‘s position that these salary adjustments were authorized for the limited purpose of compensating judges for their ten percent earnable compensation contribution required under the new retirement plan. Therefore, these adjustments may not be characterized as “effective annual salary” for purposes of calculating benefits under the prior retirement statutes. Accordingly, we affirm the trial court on this issue.
Affirmed in part; reversed in part; and remanded.
FITZGERALD, J., retired superior court justice, and CARROLL, J., circuit court justice, specially assigned under
MANIAS, J., retired superior court justice, specially assigned under
The prior retirement statutes tied the petitioners’ retirement benefits directly to salaries of sitting judges; namely, “3/4 of the currently effective annual salary of the office from which [the judge] is retired....”
In seeking to distinguish this case from Opinion of the Justices (Furlough), 135 N.H. 625 (1992), the majority notes that the old system did not guarantee any specific increases to the retired judges (just as the new system does not), and that, in eight of the years between 1991 and 2010, there was no increase in judicial salaries. In my opinion, this misses the point. Under the old system, the petitioners could count on automatic increases whenever sitting judges received them. Under the new system, that is no longer true. No longer can they trust in the fact that the legislature will inevitably, albeit not at regular intervals, increase the salaries of sitting judges as dictated by the need to attract qualified persons to the bench. Instead, they must rely solely on the discretion of the board, which is subject to additional statutory preconditions described in the majority opinion. As the petitioners put it, “retired judges’ COLA‘s are, under the prior system, a function of the employment market because the retired judges remain in 75% parity with sitting judges’ salaries. COLAS under
Thus, while I agree with the majority that the contract right impaired in this case does not have the degree of definiteness as the right at issue in Opinion of the Justices (Furlough), 135 N.H. at 634, I still think it clear that
In Tuttle v. New Hampshire Medical Malpractice Joint Underwriting Association, 159 N.H. 627 (2010), this court recognized that “the determination of whether a contract impairment is substantial may be influenced
I agree with the trial court that the right to a retirement benefit tethered to the salary of currently sitting judges was an inducement upon which the petitioners reasonably relied in accepting the offer of appointment to the office. This conclusion is supported by the language of the statutes in effect when the petitioners accepted employment. Those statutes provided that the retirement benefit was “additional compensation for services rendered and to be rendered.”
Under these circumstances, I would hold that
The majority opinion questions the trial court‘s use of the inducement-and-reliance passage from Tuttle on two grounds, neither of which I find persuasive. As I read its opinion, the Tuttle majority did not conclude that reliance itself was irrelevant to its conclusion; rather, it deemed that reliance was established for purposes of the appeal. Tuttle, 159 N.H. at 649-50. Even though the Tuttle majority did not provide an analytical framework for deciding whether particular facts amount to reliance, its
The majority also questions the soundness of Tuttle‘s reliance-and-inducement rule, given that the language was taken from a district court opinion which was subsequently reversed by the Fourth Circuit. Fraternal Order of Police Lodge No. 89 v. Prince George‘s County, Md., 645 F. Supp. 2d 492 (D. Md. 2009), rev‘d, 608 F.3d 183 (4th Cir. 2010). However, the appellate court did not disagree with or even comment upon the district court‘s substantial impairment analysis; it reversed because it found no contract impairment in the first place. Fraternal Order, 608 F.3d at 190-91. Moreover, the Fraternal Order district court opinion is not the sole authority supporting the importance of inducement and reliance in the context of a substantiality analysis. See, e.g., Houlton Citizens’ Coalition v. Town of Houlton, 175 F.3d 178, 190 (1st Cir. 1999) (“In order to weigh the substantiality of a contractual impairment, courts look long and hard at the reasonable expectations of the parties.“); Sal Tinnerello & Sons, Inc. v. Town of Stonington, 141 F.3d 46, 53 (2d Cir.), cert. denied, 525 U.S. 923 (1998) (“[T]he primary consideration in determining whether the impairment is substantial is the extent to which reasonable expectations under the contract have been disrupted.“). Both of these cases are cited in Tuttle. Tuttle, 159 N.H. at 669 (Dalianis and Duggan, JJ., dissenting). Although the dissent disagreed with the majority‘s view that actual reliance was not at issue, it clearly shared the majority‘s view that reliance was a primary consideration in determining whether a contract impairment was substantial.
Because I agree with the trial court‘s finding of substantial impairment, I must also address the question whether the impairment of the petitioners’ contract rights was reasonable and necessary to serve an important public purpose.
“If the legislation substantially impairs the contract, a balancing of the police power and the rights protected by the contract clause[] must be performed, and the law may pass constitutional muster only if it is reasonable and necessary to serve an important public purpose.” Tuttle, 159 N.H. at 641 (quotations, ellipses, and brackets omitted).
We generally defer to the judgment of the legislature in determining whether a particular act is reasonable and necessary to serve an important public purpose, but when the State attempts to abrogate its own contractual responsibilities, complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State‘s self-interest is at stake. Application of stricter judicial review reflects the principle that those who
lawfully contract amongst themselves must have reasonable assurances that their rights and obligations will not be disturbed.
Lower Village Hydroelectric Assocs. v. City of Claremont, 147 N.H. 73, 78 (2001) (citations and quotations omitted). In this case, where the State was a party to the contract that is substantially impaired by
I agree with the trial court that the State‘s justification for the contract impairment here was insufficient. The State argued that the changes at issue provided a long term fiscal solution to eradicate the unfunded liability created by the previous retirement statutes and that the changes also allowed an opportunity for benefits upon early retirement, which was not available previously. While the proffered justification may be reasonable going forward, there was no showing that it was reasonable and necessary for the legislature to apply these changes retroactively to the determinate class of judges who had accepted their appointments and served in reliance upon the provisions of the prior retirement system. See Miles v. Tenn. Consol. Retirement System, 548 S.W.2d 299, 305 (Tenn. 1976) (legislature did not have power to modify pension benefits “in the absence of a showing that a vital interest of the State must be protected by an exercise of the police power“).
Accordingly, I respectfully dissent from the majority‘s decision to remand the case for further findings regarding substantiality of impairment. I would affirm the decision below.
BEAN, J., retired superior court justice, specially assigned under