LADONNA DEGAN, et al. v. THE BOARD OF TRUSTEES OF THE DALLAS POLICE AND FIRE PENSION SYSTEM, et al.
Civil Action No. 3:17-CV-01596-N
IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION
March 14, 2018
David C. Godbey
This Order addresses (1) Defendant The Board of Trustees (the “Board“) of the Dallas Police and Fire Pension System‘s motion to dismiss Plaintiffs LaDonna Degan, Ric Terrones, John McGuire, Reed Higgins, Mike Gurley, Larry Eddington, and Steven McBride‘s complaint [75] and (2) the Board‘s motion to strike Plaintiffs’ surreply to the motion to dismiss [89]. For the reasons set forth below, the Court grants both motions.
I. BACKGROUND
The Dallas Police and Fire Pension System (the “Pension System“) is a public pension fund that provides comprehensive retirement, death, and disability benefits for approximately 9,300 active and retired City of Dallas police officers and firefighters and their qualified survivors. The Board serves as the governing body of the Pension System. It administers the Pension System according to a Combined Pension Plan Document (the “Plan“),
The Pension System contains a feature called the Deferred Retirement Option Plan, or “DROP.” DROP originally permitted active Pension System members eligible for retirement to continue working at their normal pay rate, while the monthly pension benefits they would have received upon retirement were credited to the members’ DROP accounts and held in trust. After leaving active service, a retiree could elect to leave the funds to accrue interest in her DROP account, or withdraw the funds under the procedures set forth in the Plan. The Plan provided:
The Pension System shall adopt uniform policies from time to time for the deferral of amounts into and the disbursement of amounts from the DROP accounts of DROP participants who have terminated Active Service and are eligible for a retirement pension. The policies shall provide flexibility to such DROP participants in . . . making total or partial withdrawals from their DROP accounts to the extent consistent with the qualification of the Plan under Section 401 of the [Internal Revenue] Code and efficient administration.
Plan § 6.14 (e). Under this provision, the Board previously adopted a withdrawal policy that permitted retired DROP participants to withdraw DROP funds in three forms: (1) a lump sum payment of some or all of the retiree‘s DROP balance; (2) substantially equal payments made over a specific period; or (3) regular installment amounts added to the member‘s monthly benefit payment. January 14, 2016 DROP Policy § E(3).
In 2016, after negative news about the Pension System surfaced, a run on DROP accounts occurred. On December 5, 2016, City of Dallas Mayor Mike Rawlings filed suit in state district court, seeking a writ of mandamus and injunction prohibiting the Board from distributing DROP funds. On December 8, 2016, the state court entered an unopposed temporary restraining order (the “TRO“) prohibiting the Board from distributing any DROP funds pending a temporary injunction hearing. Pursuant to the TRO, the Board directed staff to immediately cease all DROP distributions except for those necessary to satisfy required minimum distribution payments. The Board indicated that it would adopt changes to the DROP policy at a later date.
On January 12, 2017, the Board adopted a DROP Policy Addendum (the “Original Addendum“). The Original Addendum stated in relevant part:
Except for required minimum distributions and unforeseeable emergency withdrawals . . . no DROP withdrawals will be available before March 31, 2017 . . . .
As of the effective date of this Addendum, all DROP withdrawal requests on file with [the Pension System], including requests for both lump sum payments and monthly installments, shall be null and void.
January 12, 2017 DROP Policy Addendum §§ 3(a), 4(a).
The Original Addendum set forth three mechanisms for distributing DROP funds beginning March 31, 2017: (1) pro rata shares of a monthly “distribution pool” as determined by the Board; (2) at the retiree‘s election, a minimum annual distribution of $30,000 for 2017 and $36,000 for subsequent years; and (3) distributions due to unforeseeable emergencies.
Meanwhile, the Texas Legislature was working on proposed changes to the Pension System. On May 23 and 25, respectively, the Texas Senate and House each unanimously passed H.B. 3158, which amends the Dallas Pension statute,
On June 8, 2017, the Board adopted an amendment to the Original Addendum (the “Revised Addendum“) reflecting the changes wrought by H.B. 3158. Lump sum distributions are no longer available under the Revised Addendum. Instead, DROP members will receive annuitized monthly or annual DROP distributions throughout their projected life expectancies. Participants may also apply for hardship-based distributions before or after annuitization. The Revised Addendum will remain in place until the Board implements new
On August 1, 2017, Plaintiffs amended their complaint [67]. Plaintiffs now allege that the Original Addendum, H.B. 3158, and the Revised Addendum deprive them of protected property interests without due process in violation of the Fourteenth Amendment to the United States Constitution. Plaintiffs further claim that the Board‘s actions surrounding H.B. 3158 effect a taking without just compensation in violation of the Fifth Amendment Takings Clause. Finally, Plaintiffs seek a declaratory judgment that the Board‘s implementation of H.B. 3158 violates both the United States and Texas Constitutions. The Board now moves to dismiss Plaintiffs’ amended complaint [75]. For the reasons set forth below, the Court grants the Board‘s motion.
II. THE RULE 12(B)(6) LEGAL STANDARD
When considering a Rule 12(b)(6) motion to dismiss, a court must determine whether the plaintiff has asserted a legally sufficient claim for relief. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995). A viable complaint must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). To meet this “facial plausibility” standard, a plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the
In ruling on a Rule 12(b)(6) motion, a court generally limits its review to the face of the pleadings. See Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). However, a court may also consider documents outside of the pleadings if they fall within certain limited categories. First, a “court is permitted . . . to rely on ‘documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.‘” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)). Second, a “written document that is attached to a complaint as an exhibit is considered part of the complaint and may be considered in a 12(b)(6) dismissal proceeding.” Ferrer, 484 F.3d at 780. Third, a “court may consider documents attached to a motion to dismiss that ‘are referred to in the plaintiff‘s complaint and are central to the plaintiff‘s claim.‘” Sullivan v. Leor Energy, LLC, 600 F.3d 542, 546 (5th Cir. 2010) (quoting Scanlan v. Tex. A & M Univ., 343 F.3d 533, 536 (5th Cir. 2003)). Finally, “[i]n deciding a 12(b)(6) motion to dismiss, a court may permissibly refer to matters of public record.” Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994) (citations omitted); see also, e.g., Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (stating, in upholding district court‘s dismissal pursuant to Rule 12(b)(6), that “the district court took appropriate judicial notice of publicly-available documents and transcripts produced by the [Food and Drug Administration], which were matters of public record directly relevant to the issue at hand“). The Court takes judicial notice of the public records cited in the Board‘s motion to dismiss, including the Plan, records of the Board‘s actions, and the Dallas Mayor‘s suit to enjoin DROP distributions.
III. THE COURT GRANTS THE BOARD‘S MOTION TO DISMISS PLAINTIFFS’ DUE PROCESS CLAIMS
Plaintiffs first allege that the Board‘s implementation of H.B. 3158 and the Revised Addendum violate their Fourteenth Amendment due process rights. Plaintiffs argue that they have protected property interests in their earned and vested DROP funds. The Court agrees with Plaintiffs that DROP funds can indeed constitute property. See, e.g., Stavinoha v. Stavinoha, 126 S.W.3d 604, 612 (Tex. App. – Houston [14th Dist.] 2004, no pet.) (treating vested DROP benefits as community property); see also Ridgely v. FEMA, 512 F.3d 727, 735 (5th Cir. 2008) (stating that constitutionally protected property interests “are not created by the Constitution itself . . . . ‘Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source’ and ‘that secure
A. Plaintiffs Have Not Shown A Deprivation of Property
Plaintiffs have failed to show that they were “deprived” of their DROP funds so as to trigger procedural due process protections. Plaintiffs argue that their property interests in the DROP funds necessarily entail the right to unlimited on-demand withdrawals of the funds. But Plaintiffs point to no state law authorizing such unlimited access. Nor does the Plan grant Plaintiffs unfettered access to their DROP accounts. Instead, the Plan permits DROP withdrawals only to the extent that such withdrawals are consistent with efficient Plan administration:
The Pension System shall adopt uniform policies from time to time for the deferral of amounts into and the disbursement of amounts from the DROP accounts of DROP participants who have terminated Active Service and are eligible for a retirement pension. The policies shall provide flexibility to such DROP participants in . . . making total or partial withdrawals from their DROP accounts to the extent consistent with the qualification of the Plan under Section 401 of the [Internal Revenue] Code and efficient administration.
Plan § 6.14(e) (emphasis added). And neither H.B. 3158 nor the Revised Addendum actually takes Plaintiffs’ DROP funds. Instead, the provisions merely alter the timing of when Plaintiffs receive their funds. Plaintiffs will receive all of their DROP funds, including previously credited interest plus additional interest at federal treasury rates. See H.B. 3158
B. Plaintiffs Have Failed to State a Procedural Due Process Claim
Plaintiffs argue that H.B. 3158 and the Revised Addendum deprive them of their property without due process of law. Even if Plaintiffs could demonstrate that they were deprived of their interests in the DROP funds – which they have not – Plaintiffs have failed to show that (1) they were entitled to due process protections and (2) even if they were entitled to procedural protections, the procedures the Board afforded Plaintiffs were insufficient.
“Procedural due process imposes constraints on governmental decisions [that] deprive individuals of ‘liberty’ or ‘property’ interests within the meaning of the Due Process Clause of the . . . Fourteenth Amendment.” Mathews v. Eldridge, 424 U.S. 319, 332 (1976). The
Here, the Texas Legislature‘s passage of H.B. 3158 was unquestionably a legislative act. As a result, Plaintiffs were not entitled to individualized notice and hearing procedures with respect to the bill. See Jackson, 874 F.2d at 1074. And the Revised Addendum merely amends the Plan to comply with H.B. 3158; it imposes no additional burdens on Plaintiffs. Because H.B. 3158 was a legislative action, and the Revised Addendum merely implements H.B. 3158, Plaintiffs “all received procedural due process – the legislative process.” Cnty. Line, 839 F.2d at 1144.
Further, even if Plaintiffs were entitled to such additional procedures, Plaintiffs have failed to show that the procedures the Board afforded them were insufficient.2 Plaintiffs do not allege that they were denied notice of and an opportunity to participate in the legislative proceedings that resulted in H.B. 3158. And the Board adopted both the Original and Revised Addenda at duly noticed public meetings at which Plaintiffs had an opportunity to be heard. This is all procedural due process requires. See, e.g., Marco Outdoor Adver., Inc. v. Reg. Transit Auth., 489 F.3d 669, 673 (5th Cir. 2007) (“The ‘root requirement’ of due process is ‘that an individual be given an opportunity for a hearing before he is deprived of any significant property interest.‘” (emphasis in original) (quoting McKesson Corp. v. Div. of Alcoholic Beverages and Tobacco, Dept. of Bus. Regulation of Fla., 496 U.S. 18, 37 (1990))). The Court thus holds that Plaintiffs have failed to state a Fourteenth Amendment procedural due process claim.3
C. Plaintiffs Have Failed to State a Substantive Due Process Claim
Plaintiffs next assert that H.B. 3158 and the Revised Addendum violate their substantive due process rights. As an initial matter, the substantive due process doctrine
To survive rational basis review, the government‘s actions must be “rationally related to a legitimate government interest.” Id. at 561 (citing FM Props. Op. Co. v. City of Austin, 93 F.3d 167, 174 (5th Cir. 1996)). The government‘s asserted interest “need not be the actual or proven interest, as long as there is a connection between the policy and a ‘conceivable’ interest.” Reyes, 861 F.3d at 63 (quoting FM Props., 93 F.3d at 175).
Here, the Board‘s asserted interests include improving the Pension System‘s projected solvency and preserving its ability to provide benefits to the approximately 9,300 police officers and firefighters it serves. Given that the Pension System was projected to become insolvent within the next decade if the Texas Legislature and the Board did not act, the Board‘s asserted interests were certainly legitimate. And H.B. 3158 and the Revised Addendum are at the very least rationally related to these interests. Among other things, they limit the Pension System‘s unrestricted cash outflows, reduce its unfunded liability, and increase its funded ratio. Because the challenged actions are at least rationally related to the Board‘s legitimate interests, Plaintiffs have failed to state a substantive due process claim upon which relief can be granted. See Reyes, 861 F.3d at 561.
IV. THE COURT GRANTS THE BOARD‘S MOTION TO DISMISS PLAINTIFFS’ TAKINGS CLAIM
Plaintiffs next assert that H.B. 3158 and the Revised Addendum deprive them of their DROP funds without just compensation in violation of the Fifth Amendment Takings Clause. As set forth in section III(A) supra, Plaintiffs have not shown that they were deprived of their DROP funds so as to trigger any constitutional protections. But even if Plaintiffs had sufficiently alleged a deprivation, the Court holds that Plaintiffs have failed to state a takings claim for other, independent reasons.4
A. Legal Standard
“The Takings Clause of the Fifth Amendment, made applicable to the States through the Fourteenth [Amendment]. . . provides that private property shall not ‘be taken for public use, without just compensation.‘” Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 536 (2005) (citations omitted). “The paradigmatic taking requiring just compensation is a direct government appropriation or physical invasion of private property.” Id. at 537 (citations omitted). This is known as a per se taking. Id. at 538. However, the Supreme Court has “recognized that government regulation of private property may, in some instances, be so onerous that its effect is tantamount to a direct appropriation or ouster – and that such ‘regulatory takings’ may be compensable under the Fifth Amendment.” Id. In determining “how far is ‘too far,‘” however, courts “must remain cognizant that ‘government regulation – by definition – involves the adjustment of rights for the public good.‘” Id. (quoting Andrus v. Allard, 444 U.S. 51, 65 (1979)). The Supreme Court has “recognized, in a wide variety
The Supreme Court has established two “relatively narrow” categories of government action that generally will qualify as per se takings. Lingle, 544 U.S. at 538. First, “where government requires an owner to suffer a permanent physical invasion of her property – however minor – it must provide just compensation.” Id. (citing Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982)). Second, where government action “completely deprive[s] an owner of ‘all economically beneficial use[]’ of her property,” a “total regulatory taking” has occurred and the government must pay just compensation. Lingle, 544 U.S. at 538 (emphasis in original) (quoting Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1019, 1026 (1992)).
Outside of these categories, courts examine regulatory takings challenges under the standards set forth in Penn Central. Lingle, 544 U.S. at 538. The Penn Central Court acknowledged that it had been “unable to develop any ‘set formula‘” for evaluating regulatory takings claims, but it did identify “‘several factors that have particular significance.‘” Id. (quoting Penn Cent., 438 U.S. at 124). Penn Central focused on three factors: (1) “[t]he economic impact of the regulation on the claimant,” (2) “the extent to
B. Plaintiffs Have Failed to State a Per Se Takings Claim
Plaintiffs argue that the Board, through H.B. 3158 and the challenged Addenda, has “unlawfully seized the funds held in Plaintiffs’ DROP accounts, denying Plaintiffs’ and the class members’ ability to direct how and when such funds are distributed.” Pls.’ Resp. 7 [86]. Plaintiffs thus appear to be asserting a per se takings claim. See Lingle, 544 U.S. at 537–38. Plaintiffs analogize their asserted deprivation to the takings at issue in Loretto, 458 U.S. 419, and Horne v. Department of Agriculture, 135 S. Ct. 2419 (2015). But each of those cases involved an actual physical invasion or deprivation of property. In Loretto, the Supreme Court held that a state law requiring landlords to permit the direct physical attachment of permanent cable installations on their property effected a per se taking. Loretto, 458 U.S. at 438. And in Horne, the Court held that a per se taking occurred when the government required plaintiff raisin growers to transfer actual raisins, along with title to the raisins, to the government. Horne, 135 S. Ct. at 2428. Plaintiffs have not alleged any such physical invasion or deprivation here. As a result, Plaintiffs have failed to state a per se takings claim.
C. Plaintiffs Have Failed to State a Regulatory Takings Claim
Plaintiffs have also failed to state a regulatory takings claim.5 “A regulatory restriction on use that does not entirely deprive an owner of property rights may not be a taking under Penn Central,” 438 U.S. 104. Horne, 135 S. Ct. at 2429. Thus, the Court
First, the Court examines the economic impact of the challenged regulations. See Penn Cent., 438 U.S. at 124. The economic impact of H.B. 3158 and the Addenda, while not wholly inconsequential, is not so severe as to constitute a regulatory taking of Plaintiffs’ property. H.B. 3158 and the Addenda do not deprive Plaintiffs of their DROP funds. Instead, they merely alter the timing for Plaintiffs to receive their funds. And Plaintiffs may request DROP withdrawals through hardship procedures established by the Board, further mitigating the economic impact of the challenged provisions. A regulation does not effect a taking solely because the property owner cannot make “the most beneficial use of the property.” Id. at 125. Although Plaintiffs are no longer able to withdraw their DROP funds at will, the amount of the funds has not been reduced. Plaintiffs will receive the actuarial
Second, the Court examines the extent to which the challenged regulations interfere with the parties’ distinct investment-backed expectations. Id. at 124. Plaintiffs imply that they participated in DROP under the assumption that, once they were eligible to access their DROP funds, they could continue to withdraw the funds at will. But the Plan itself authorized the Board to adjust DROP distribution policies as necessary for efficient Plan administration. See supra Section I. The Plan also authorized members themselves to amend the Plan if certain requirements were satisfied. Plan § 8.01. And, as stated above, Plaintiffs’ DROP funds have not actually decreased; instead, Plaintiffs will receive the annuitized funds over time. “No person has a vested interest in any rule of law, entitling him to insist that it shall remain unchanged for his benefit.” Custom Seal, Inc. v. Duro-Last Roofing, Inc., No. 6:11-CV-122, 2012 WL 12930886, at *5 (E.D. Tex. Sept. 20, 2012) (quoting N.Y. Cent. R. Co. v. White, 243 U.S. 188, 198 (1917)). Indeed, “[i]f every time a man relied on existing law in arranging his affairs, he were made secure against any change in legal rules, the whole body of our law would be ossified forever.” Landgraf v. USI Film Prod., 511 U.S. 244, 270 n.24 (1994) (quoting L. Fuller, The Morality of Law 60 (1964)). The Court thus holds that the second Penn Central factor also weighs against holding that a regulatory taking occurred.
Finally, the Court examines the “character of the governmental action.” Penn Cent., 438 U.S. at 124. The Supreme Court has stated that “a ‘taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government . . . than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” Id. (citations omitted). Here, the Board has not “physically invade[d] or permanently appropriate[d] any of [Plaintiffs‘] assets for its own use.” Connolly v. Pension Ben. Guar. Corp., 475 U.S. 211, 225 (1986). Instead, it merely has changed the way that DROP funds will be distributed going forward. Such an “adjustment to the benefits and burdens” of the Pension System‘s members does not effect a regulatory taking of Plaintiff‘s DROP funds. After examining the Penn Central factors in the particular circumstances of this case, the Court thus holds that Plaintiffs have failed to state a regulatory takings claim.
V. THE COURT GRANTS THE BOARD‘S MOTION TO DISMISS PLAINTIFFS’ CLAIM FOR DECLARATORY JUDGMENT
Plaintiffs seek a declaratory judgment that the Board‘s implementation of H.B. 3158 violates the United States and Texas Constitutions because it deprives them of their vested property rights in the DROP funds. As set forth above, Plaintiffs have failed to sufficiently allege that such a deprivation occurred. The Court thus grants the Board‘s motion to dismiss Plaintiffs’ declaratory judgment claim.
VI. H.B. 3158 AND THE REVISED ADDENDUM DO NOT VIOLATE THE TEXAS CONSTITUTION
Finally, Plaintiffs argue that H.B. 3158 and the Revised Addendum unlawfully impair their interests in the DROP funds in violation of the Texas Constitution.6 In 2003, the Texas Legislature added Article XVI, section 66 (“Section 66“) to the Texas Constitution. Section 66 reads:
(d) On or after the effective date of this section, a change in service or disability retirement benefits or death benefits of a retirement system may not reduce or otherwise impair benefits accrued by a person if the person:
(1) could have terminated employment or has terminated employment before the effective date of the change; and
(2) would have been eligible for those benefits, without accumulating additional service under the retirement system, on any date on or after the effective date of the change had the change not occurred.
(e) Benefits granted to a retiree or other annuitant before the effective date of this section and in effect on that date may not be reduced or otherwise impaired.
The history of Section 66 demonstrates that the provision concerns changes in vested benefits themselves – not changes in the timing of when pensioners receive them. In City of Dallas v. Trammell, 101 S.W.2d 1009, 1011, 1013 (Tex. 1937), the Texas Supreme Court held that a retiree‘s interest in his accrued monthly pension payments was subordinate to the Texas Legislature‘s right to reduce the amount of his accrued benefits thereunder. Id. The
The first decision is Van Houten v. City of Fort Worth, 827 F.3d 530, 533 (5th Cir. 2016), a case involving the city of Fort Worth‘s police officers and firefighters’ pension fund. The city enacted pension reforms that prospectively decreased (1) the rate at which future retirement benefits accrued and (2) cost-of-living adjustments to the plan for current employees. Id. at 533. A group of Fort Worth police officers and firefighters sued the city, alleging that the pension reforms violated Section 66. Id. at 532. The district court held that the pension reforms complied with Section 66 and granted summary judgment for the city. Id. at 533. The Fifth Circuit affirmed. Id. at 532. It reasoned that (1) Section 66(d) “prohibits the impairment of accrued benefits for vested employees“; (2) “[t]here is an understood difference between the concepts of benefit accrual and vesting“; and (3) “[t]his understanding essentially resolves the case.” Id. at 534. (emphases in original). The Court then noted that:
When it comes to public pension protection, Texas is known to be an outlier. In 1937, the Texas Supreme Court decided [Trammell] and held that pensioners’ rights to accrued benefits were subject to the legislative power of the state “to amend, modify, or repeal the law upon which the pension system is erected.” [101 S.W.2d at 1014]. The ruling meant that C.W. Trammell, a retired Dallas police officer whose monthly pension was cut from $183.33 to $72.16, had no recourse. While other states enacted laws to protect public pensions from similar cuts, Texas held its course – until the enactment of Section 66. As one Texas appellate court put it, Section 66 “was proposed and adopted specifically to change the result of the Trammell decision, albeit 70 years later.” Davidson v. McLennan Cty. Appraisal Dist., No. 10-11-00061-CV, 2012 WL 3799149, at *5 (Tex. App. – Waco Aug. 30, 2012, pet. denied) (mem. op.).
As we have interpreted it, Section 66 reverses the core unfairness of the Trammell decision by ensuring that earned benefits cannot be reduced. By going no further, our interpretation of Section 66 stays true to Texas’ long-held flexible approach permitting municipalities to revise their pension plans in light of changing economic conditions.
Van Houten, 827 F.3d at 537–38. Van Houten thus stands for the propositions that Section 66 (1) reverses the core holding in Trammell and (2) permits prospective changes to the public pension plans it covers. Id. at 538. But Van Houten leaves open the question at issue here: that is, what constitutes an “impairment” under Section 66.
The second recent case construing Section 66 is Eddington v. Dallas Police and Fire Pension System, 508 S.W.3d 774 (Tex. App. – Dallas 2016, pet. filed). Eddington is a Dallas Court of Appeals case arising from the Board‘s decision to amend the Plan to reduce future DROP account interest rates and require participants to accelerate their withdrawals of DROP funds. Id. A group of current and retired City police officers sued the Pension System and the Board‘s chair, asserting that the amendments violated Section 66‘s prohibition on reducing or impairing retirement benefits. Id. at 775. The trial court ruled that the challenged amendments did not violate Section 66 and dismissed the plaintiffs’ claims. Id. The Dallas Court of Appeals affirmed. Id. at 776. At the outset, the court noted that the parties did “not dispute that the Texas Legislature‘s passage of Section 66 was intended to reverse the result of Trammell.” Id. at 784. Then, assuming without deciding that DROP was a “service retirement benefit” for Section 66 purposes, the court held that the DROP
Both Van Houten and Eddington demonstrate that the Texas Legislature intended Section 66 to reverse Trammell. And Trammell approved reductions in the amount of pension benefits – not changes in the timing by which pensioners might receive them. 101 S.W.2d at 1013. Thus, Section 66 can be reasonably interpreted as protecting the value, not the distribution timing, of covered pension benefits. But Plaintiffs now contend that, by changing the timing of their receipt of the DROP benefits, H.B. 3158 and the Revised Addendum impair the benefits in violation of Section 66. The Court disagrees.
As an initial matter, the parties do not dispute that Plaintiffs have a vested interest in their accrued DROP benefits. But that alone is insufficient to find a violation of Section 66. To violate Section 66, the challenged Plan amendments must either reduce or impair the DROP benefits. Plaintiffs do not contend that H.B. 3158 and the Revised Addendum reduce the DROP benefits. Nor could they: both H.B. 3158 and the Revised Addendum leave the
According to Black‘s Law Dictionary, to “impair” is “to diminish the value of (property or a property right).” Black‘s Law Dictionary 869 (10th ed. 2014). Thus, while a “reduction” would mean a direct decrease in the DROP benefits themselves, an “impairment” encompasses any other action that might diminish the benefits’ value. For example, altering the timing for DROP participants to receive their benefits without permitting interest to accrue on the funds such that the net present value of the benefits actually decreased would likely qualify as an impairment under Section 66. But H.B. 3158 and the Revised Addendum effect no such impairment. Plaintiffs will receive every dollar of their DROP funds, and the funds will accrue interest at the T-Bill rate such that their net present value will remain unchanged. And while the T-Bill rate is lower than the rate at which the funds originally accrued interest, Section 66 does not create a right to future interest rates. See Eddington, 508 S.W.3d at 788 (“the DROP interest rate is not among the ‘benefits’ protected by Section 66.” (citing Van Houten, 827 F.3d at 535)). Because H.B. 3158 and the Revised Addendum change only the timing of DROP distributions, Plaintiffs have failed to show that they reduce or impair the DROP benefits in violation of Section 66.
The Texas Legislative Council‘s7 reading of Section 66 supports this view. The Council interpreted Section 66 to mean that “any change made to certain benefits provided by certain retirement systems cannot reduce benefits that a person was entitled to receive before the date of the change.” Tex. Leg. Council, Condensed Analysis of Proposed Const. Amendments, September 13, 2003 Election at 99 (2003). It stated that, “[u]nder the amendment, any reduction in the retirement or death benefits that the retirement systems provide cannot be applied retroactively to benefits that a person has accrued or is entitled to receive before the date the reduction takes effect.” Id. Nowhere did the Council refer to changes in distribution timing for accrued pension benefits.
Given Section 66‘s history and subsequent interpretation, it stands to reason that the Texas Legislature intended Section 66 to prohibit changes that would reduce or otherwise impair retirees’ benefits – not the timing of when they can receive them. See
The Court grants the Board‘s motion to dismiss Plaintiffs’ first amended complaint [75]. Because Plaintiffs have not requested leave to amend, the Court grants the Board‘s motion with prejudice. The Court also grants the Board‘s motion to strike Plaintiffs’ surreply to the Board‘s motion to dismiss [89].8
Signed March 14, 2018.
David C. Godbey
United States District Judge