GOVERNMENT EMPLOYEES RETIREMENT SYSTEM OF THE VIRGIN ISLANDS v. THE GOVERNMENT OF THE VIRGIN ISLANDS; COMMISSIONER OF FINANCE OF THE GOVERNMENT OF THE VIRGIN ISLANDS
Nos. 20-1749 and 20-1766
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
Filed: April 9, 2021
PRECEDENTIAL
Argued December 8, 2020
Before: SMITH, Chief Judge, CHAGARES and MATEY, Circuit Judges
Robert D. Klausner [ARGUED]
KLAUSNER, KAUFMAN, JENSEN & LEVINSON
7080 N. W. 4th Street
Plantation, FL 33317
Cathy M. Smith
GOVERNMENT EMPLOYEES RETIREMENT SYSTEM
3438 Kronprindsens Gade
GERS Complex, Suite 1
St. Thomas, VI 00802
Counsel for Government Employees Retirement System
Brigid F. Cech Samole
Katherine M. Clemente
Elliot H. Scherker [ARGUED]
GREENBERG TRAURIG, LLP
333 Southeast 2nd Avenue
Suite 4400
Miami, FL 33131
Angel Taveras
WOMBLE BOND DICKINSON LLP
Independence Wharf
470 Atlantic Avenue
Suite 600
Boston MA 02110
Carol L. Thomas-Jacobs
OFFICE OF ATTORNEY GENERAL OF VIRGIN ISLANDS
Department of Justice
34-38 Kronprindsens Gade
GERS Complex, 2nd Floor
St. Thomas, VI 00802
Counsel for Government of the Virgin Islands and Commissioner of Finance of Government of the Virgin Islands
Ian H. Gershengorn
JENNER & BLOCK LLP
1099 New York Avenue, N.W.
Suite 900
Washington DC 20001
Counsel for Amicus Appellees
I. Background and Procedural History 3
A. Legal Background 3
1. Creation of GERS in 1959 3
2. The 1968 amendments 5
3. The 2005 amendments 5
B. Procedural History 7
1. The 1981 complaint 7
2. The 1984 consent judgment 8
3. The 1994 amendment to the consent judgment 8
4. The tangential 2001 action 9
5. The 2016 enforcement proceedings 10
II. Jurisdiction and Standard of Review 15
III. The GVI‘s Appeal 16
A. Principal Award to GERS 17
1. The historical under-contributions fall within the consent judgment 17
2. The GVI‘s historical under-contributions were properly before the District Court 19
3. Direct contributions to GERS and the true-up process do not offset the award 28
4. The expert reliably calculated the $18.9 million in principal 31
B. Award of Fees and Interest to GERS 32
1. The statutes are not intended only for willful misconduct 33
2. The District Court erred by applying the statutes retroactively 35
3. GERS‘s action was timely 42
IV. GERS‘s Cross-Appeal 51
A. GERS‘s Textual Arguments 54
B. GERS‘s Authorities 59
C. The Parties’ Historical Understanding 62
V. Conclusion 66
OPINION OF THE COURT
SMITH, Chief Judge.
The promise of a pension
When a public-pension system reaches the point where it is actuarially unsound, the blame rarely lies with a single person, political party, or institution. Economic recession, unfunded legislative mandates, poor investment strategies—all can conspire to destabilize a pension system. And each bears responsibility for GERS‘s untenable financial state.
But GERS has also faced a unique challenge. Virgin Islands law seemingly fails to obligate anyone to fund GERS when employee-compensation-based contributions and associated investment returns fall short of the assets required, based on actuarial assessments, to meet future pension commitments. For decades, GERS has experienced annual deficits between its assets and projected liabilities to system participants. Its aggregate shortfall now stands at about three billion dollars—leaving the system on the brink of insolvency.
Yet the Government of the Virgin Islands (“GVI“) is itself fiscally challenged and has at times failed to remit to GERS all the employer contributions it is statutorily mandated to make. GERS has repeatedly sued the GVI for these contributions—first in 1981, resulting in a consent judgment, and most recently in 2016, when GERS sought to enforce that judgment in court. GERS claimed that, as far back as 1991, the GVI had contributed tens of millions of dollars less than required by the statutory percentages of employee compensation. GERS also sought to compel the GVI to step into the billion-dollar breach, arguing that—independent of these fixed-percentage contributions—the GVI must fully fund GERS to the point of actuarial soundness.
With an appointed expert‘s help, the District Court awarded GERS an amount calculated to reflect the GVI‘s historical percentage-based under-contributions. We will affirm that award of principal. But the Court erred when it enhanced the award by applying late-arriving interest and penalty statutes retroactively. We will vacate the portion of the judgment to GERS that includes those enhancements and remand with instructions for the District Court to reduce its award accordingly. Finally, the Court determined that the consent judgment does not require the GVI to fund GERS for the delta between its assets and liabilities. We, too, find no anchor for this sweeping duty GERS seeks to impose on the GVI, so we will affirm the District Court‘s ruling in GERS‘s cross-appeal. Even were we to cut that obligation on a rationale made of whole cloth, the system would remain insolvent. The citizens of the United States Virgin Islands—population 106,4052—simply cannot pay the necessary billions. The cure for GERS‘s chronic underfunding is not judicial but legislative
I. BACKGROUND AND PROCEDURAL HISTORY
We need not trace the long and winding road across laws, history, politics, and litigation that has brought the Virgin Islands’ public-pension system to where it is today. Instead, we hew to the legal framework relevant to the questions presented and to the procedural narrative by which this case and the parties’ arguments have wended their way to us.
A. Legal Background
1. Creation of GERS in 1959. By passing Act 479, effective October 1, 1959, the unicameral legislature of the Virgin Islands (“the Legislature“) created GERS as the retirement system for GVI employees. GERS was “established as a trust, separate and distinct from all other entities“; endowed with “the powers and privileges of a corporation“; and required to transact all its business and hold all its assets in its own name. Act of June 24, 1959, No. 479, §§ 701(c), 715(a), 1959 V.I. Sess. Laws 92, 94, 104. The Legislature vested responsibility for operating GERS in a board of trustees, which has the power to authorize the purchase or sale of investments, make contracts, and “sue and be sued” under the GERS name. Id. § 715(b)(3), (6). The system was “established as a part of the Division of Personnel in the office of the Government Secretary,” with the Director of Personnel acting as both administrator of GERS and secretary of the board. Id. § 715(c).3
Act 479 also purported to fund GERS. It implemented section 718 of the new Retirement Code, which provided first that “[t]he various obligations of the system shall be financed in accordance with actuarial reserve requirements from contributions by members, contributions by the employer, interest income, and other income accruing to the system.” Id. § 718. Section 718 then required employees to contribute to GERS via a “deduction from compensation” at a rate of four percent, with an annual compensation cap. Id. It also set an annual compensation floor so that the GVI, as employer, would contribute four percent for an employee “whose minimum rate in his class of position is $1200 per annum, or less.” Id.
Unlike the specified employee contribution rate, section 718 did not fix the rate for the GVI‘s employer contribution. Instead, Section 718 obligated the GVI to “make [employer] contributions concurrently with the contributions by members in an amount which, if paid during such service, and added to the members’ contributions, together with regular interest, will be sufficient to provide actuarial reserves” for the payment of benefits under the system. Id. These concurrent employer contributions were to “be determined by applying a percentage rate to the aggregate compensation of the members for each regular payroll period.” Id. Section 718 provided for an annual computation “of the actuarial reserve requirements” of the system and, in a provision reminiscent of its first sentence, looked for financing to “contributions by the members as above provided and by contributions by the employer.” Id.
2. The 1968 amendments. In 1968, the Legislature passed Act 2098, which amended section 718. Act of February 8, 1968, No. 2098, 1968 V.I. Sess. Laws, Pt. I, 9. Act 2098 divided section 718 into subsections,
3. The 2005 amendments. Relevant amendments were later adopted when the Legislature passed the Retirement System Reform Act of 2005. Act of Nov. 2, 2005, No. 6794, 2005 V.I. Sess. Laws 380.
First, the bill added new subsections to section 704. That section now provides that “[r]etirement contributions paid for a prior period, whether by employer or by member, must be charged a delinquent fee of 1.5% for each calendar month or part thereof that paid [sic] contributions should have been paid.”
Second, the 2005 amendments require the accrual of interest on delinquent contributions to GERS. Under the new provision, “[w]henever any agency, department[,] instrumentality, or employer fails to make timely contributions, interest shall accrue on the amount of the contributions not paid based on the system‘s domestic fixed income investment rate of return not to exceed the rate of 9%.” Id. § 736(b).
Third, the Legislature amended existing provisions of section 718 by, among other things, adding that “the Board may actuarially determine the rate of contribution for members and employers of the system,” id. § 718(a), and that “[t]he employer and employee contributions must be paid to the system within ten days after the closing of each payroll period,” id. § 718(h). The Board, however, “may not increase rates, in addition to rates already in effect, by more than 3.0% over a five-year period.” Id. § 718(b).4
Finally, the 2005 act codified section 734, under which “[a]ll payments required by this chapter to be made by the employer to the retirement fund are continuing obligations of the Government.” Id. § 734. This provision ensures that “funds owed to the system by the employer should never be capable of escaping payment due to a statute
B. Procedural History
1. The 1981 complaint. Exercising its “power to sue and be sued in its own name,” GERS filed a complaint in 1981 against the GVI and its Commissioners of Finance in the District Court of the Virgin Islands. Emps. Ret. Sys. of Gov‘t of V.I. v. Quinn, No. 3:81-cv-5 (D.V.I.), Compl. ¶ 2; JA754.5 GERS alleged that the Commissioners had failed to timely remit several pay periods’ worth of employee contributions to GERS and commingled these funds with the GVI‘s. GERS also alleged that the GVI had failed to timely remit to GERS “its matching retirement contribution of 11%,” as required by statute, to the tune of nearly $500,000. 1981 Compl. ¶ 9; see also id. ¶ 4 (noting GVI‘s responsibility “to contribute 11%” as “the employer“). GERS requested injunctive relief ordering the Commissioners and the GVI to timely pay GERS all funds due and owing, preventing the Commissioners from commingling funds, and restraining the GVI “from future withholding of matching contributions.” Id. at 3. GERS also sought interest of at least 18 percent annually on all funds due and owing, as well as attorneys’ fees and costs.
2. The 1984 consent judgment. After written and oral discovery, the parties entered into a consent judgment in 1984. The judgment acknowledged that the GVI‘s Commissioner of Finance “receives and releases employee and employer retirement contributions.” JA113. So it obligated “defendant, Commissioner of Finance, [to], within thirty (30) days of each payroll period, certify and pay into the Employees’ Retirement System Fund the total amount due of employee and employer contributions as defined in Title 3, Section 718.” JA113–14. The judgment recognized that “[a]t this time, the Court does not have jurisdiction to compel the payment of the legal rate of interest by the Commissioner of Finance on deliqneunt [sic] employee and employer contributions.” JA114. But it also provided that “if an act is established by the Legislature, authorizing the payment of interest, this Consent Judgment shall be amended to reflect such change.” Id. A Virgin Islands assistant attorney general executed the consent judgment on behalf of all defendants.
3. The 1994 amendment to the consent judgment. In March 1994, four members of GERS individually filed a federal lawsuit against GERS, several of its trustees, and the GVI alleging chiefly that the GVI had been dilatory in making required payments to GERS under the consent judgment. See Molloy v. Monsanto, Civ. No. 1994-30, 1994 WL 326237, at *1 (D.V.I. June 9, 1994). Among the motions filed by the Molloy plaintiffs was a motion to enforce the consent judgment, seeking to require the GVI to remit employee and employer contributions to GERS within 30 days of each payroll period. Id. That motion, although filed in Molloy, was “considered as having been filed in the litigation that produced the consent judgment,” id. at *1 & n.6, and the District Court denied it without prejudice. Quinn, 1994 WL 326224, at *1 (D.V.I. June 9, 1994) (noting allegation that “the amount of GERS money in the government‘s bank account has increased more than fifteen fold since December 1984“).
Hoping to remedy these and other issues related to the consent judgment, GERS and the GVI jointly asked the District Court to modify it. The modified consent judgment, entered in April 1994, ordered
4. The tangential 2001 action. In 2001, GERS sued the Governor of the Virgin Islands, the Legislature, and the GVI seeking to compel the payment of contributions required under discrete 1994 legislation that enacted a special early retirement incentive program aimed at avoiding layoffs of certain employees. See, e.g., Gov‘t Emps. Ret. Sys. v. Turnbull, 134 F. App‘x 498, 500 (3d Cir. May 16, 2005); see also
The District Court in Turnbull dismissed GERS‘s complaint, holding that GERS failed to state a cognizable Contracts Clause claim. Gov‘t Emps. Ret. Sys. v. Turnbull, No. 01-cv-69 (D.V.I. Jan. 23, 2004). We affirmed, albeit on ripeness grounds. We held that GERS “failed to establish a justiciable case or controversy” because “no GERS members have suffered any harm” and there was “no evidence in the record that any GERS members have been denied, or are about to be denied retirement benefits, or were otherwise injured as a consequence of the claims alleged.” 134 F. App‘x at 501.
5. The 2016 enforcement proceedings. In 2016, GERS moved to enforce the consent judgment, alleging that the GVI had violated section 718(f) by failing to fund GERS for the entire delta between its assets and its liabilities to pensioners. GERS referred to this supervening obligation, over and above the fixed-percentage employer contributions spelled out in section 718(g), as the GVI‘s “actuarially determined employer contribution” or “ADEC.” JA89–93. Then, in 2017, GERS moved on an emergency basis to enforce the consent judgment because, for several months beginning in late 2016, the GVI withheld wholesale its employees’ and its own employer fixed-percentage contributions. GERS filed both enforcement motions in the 1981 Quinn action, under its case number and caption. And both motions sought enforcement through a finding that the GVI was in contempt of the consent judgment or, alternatively, by recourse to the District Court‘s “general equitable powers.” JA293–94; JA515. The GVI ultimately admitted to the blanket withholding of fixed-percentage contributions, the District Court found a breach of the consent judgment, and the GVI then repaid a total of about $36 million—which included principal and interest—by July 2018.
The proceedings next focused on whether what had occurred was an isolated breach or whether the GVI had failed to remit fixed-percentage contributions to GERS in any prior period. GERS‘s administrator
RSM examined all available payroll documents and records of contributions to GERS. RSM concluded that the GVI had indeed failed to contribute all that was required under the fixed percentages in force during various payroll periods dating back as far as 1991.6 Based on detailed records covering 2010–2018, RSM determined that the GVI under-contributed to GERS during that period by about $4.0–$5.0 million. According to RSM, these under-contributions stemmed from clerical, accounting, and processing errors. In a February 5, 2020 order, the District Court adopted RSM‘s calculations, awarded GERS $5.0 million in principal for the GVI‘s 2010–2018 under-contributions, and directed RSM to calculate the pre-2010 amounts and undertake an interest analysis. The Court also set a schedule for the parties to brief the appropriateness and amount of interest.
RSM concluded that the under-contributions during the 1991-2009 period were less certain because of gaps in the relevant pay records. The “[m]ost significant[]” impediment to its obtaining comparable detailed payroll and employment information for the 1991-2009 calculations was that the GVI had changed its payroll software at the end of 2009 without “migrat[ing] detailed historical payroll and employment information.” JA4806. Making matters worse, “[t]he [GVI] server on which [the defunct software‘s] data was stored ... was decommissioned and did not receive patching and maintenance in recent years.” Id. Even so, RSM successfully retrieved from the decommissioned server annual payroll reports that included the GVI‘s historical determinations of each employee‘s pensionable wages. By subtracting known non-pensionable wages, such as overtime pay, from reported gross wages, RSM performed its own calculations of pensionable wages. Applying the statutory contribution percentages to the GVI‘s and to its own pensionable wage determinations yielded a significant variance between the two as to the GVI‘s historical contribution obligations. Accordingly, RSM went on to refine its calculations.
RSM began by sampling 20 employees and comparing the GVI‘s and its own calculation of each employee‘s pensionable wages with their salary information as documented in Notices of Personnel Action (“NOPAs“), which the GVI generates based on changes in an employee‘s pay or employment status. This comparison led RSM to assume that the GVI had properly
But for the remaining 17 percent, RSM‘s and the GVI‘s pensionable wage calculations varied more significantly. RSM analyzed available payroll records for the 97 employees with the largest variance, requesting historical personnel records, including information relating to annual salaries, from both the GVI and GERS. It estimated an expected pensionable wage amount for these employees by using NOPAs, when available, and, when those were unavailable, GERS‘s annual benefit summaries. But this methodology accounted for only about 12 percent of the high-variance problem. For the remaining 88 percent of the high-variance data, which “likely erroneously include[d] certain non-pensionable wage types,” RSM reduced its own pensionable wage calculations by a ratio derived from a sample of 75 employees for whom there was “sufficient supporting documentation“—the average ratio between their document-supported pensionable wages and RSM‘s own initial pensionable wage calculations. JA4815–16. RSM then relied on both of its sets of adjusted pensionable wage calculations.
Using this methodology, RSM determined with 95 percent confidence that the GVI‘s 1991–2009 under-contributions fell within an interval from about $11.6 million to $15.8 million. The District Court chose the statistical midpoint of this range and, in an April 3, 2020 order, awarded GERS $13,860,879 (hereinafter rounded to $13.9 million) in principal.
In calculating interest and fees, RSM applied the 2005 interest and delinquency-fee statutes to the balance of under-contributions the GVI accumulated before the statutes’ effective date and, alternatively, only to contributions the GVI missed on or after that date. In its April 3 order, the District Court adopted the former calculation and awarded GERS $43,161,354 (hereinafter rounded to $43.1 million) in interest and penalties on the GVI‘s $13.9 million in under-contributions from 1991–2009. Based on RSM‘s calculations, the Court also awarded GERS $6,121,273 (hereinafter rounded to $6.1 million) in interest and delinquency fees on the $5 million in principal for the 2010–2018 under-contributions. The District Court‘s award to GERS for all the GVI‘s under-contributions from 1991–2018, inclusive of interest and penalties, totaled about $68 million.
Finally, the District Court granted judgment to the GVI on GERS‘s motion to enforce the consent judgment with respect to the ADEC obligation. The Court reasoned that the consent judgment, which obligated the GVI to make its employer contributions to GERS within 30 days of each payroll period, conflicted with GERS‘s proffered ADEC obligation, which would obligate the GVI to fund GERS in accordance with the annual actuarial analysis ordered by the Retirement Code.
The GVI appealed the District Court‘s award of principal and interest, and GERS appealed the District Court‘s denial of its motion to enforce the consent judgment as to the alleged ADEC obligation.
II. JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction to review the District Court‘s February 5, 2020 and April 3, 2020 orders under
We review the District Court‘s interpretation and construction of the consent judgment de novo. Holland v. N.J. Dept. of Corr., 246 F.3d 267, 277–78 (3d Cir. 2001). We also review statutory constructions de novo. United States v. Hodge, 948 F.3d 160, 162 (3d Cir. 2020). We review any mixed questions of fact and law de novo insofar as “the primary facts are undisputed and only ultimate inferences and legal consequences are in contention.” U.S. Gypsum Co. v. Schiavo Bros., Inc., 668 F.2d 172, 176 (3d Cir. 1981). But when the mixed questions require a district court to make case-specific factual conclusions, our review is deferential—examining the record for clear error. See U.S. Bank Nat‘l Ass‘n ex rel. CWCapital Asset Mgmt. LLC v. Village at Lakeridge, LLC, 138 S. Ct. 960, 967–69 (2018).
Interpreting an issue of Virgin Islands law that the Virgin Islands Supreme Court has not ruled on requires us to “predict how [that court] would decide” the matter. Edwards v. HOVENSA, LLC, 497 F.3d 355, 361 n.3 (3d Cir. 2007).
III. THE GVI‘S APPEAL
The GVI raises a hodgepodge of objections to the District Court‘s judgment for GERS on the issue of historical under-contributions. The challenges can be sorted into attacks on the District Court‘s (A) award of $18.9 million in principal to GERS and (B) enhancement of that principal with $49.2 million in interest and fees. We will affirm the District Court‘s award of $18.9 million in principal to GERS. We will also affirm its award of $6.1 million in interest and fees for the ...
2010–2018 period. But the District Court erred by applying the interest and delinquency fee statutes to enhance arrears that the GVI accumulated before those statutes’ effective date. We will therefore vacate the $43.1 million enhancement for the 1991–2009 period and remand with instructions.
A. Principal Award to GERS
The GVI contends that (1) its under-contributions to GERS from 1991–2018 are beyond the scope of the consent judgment; (2) the issue of whether it under-contributed to GERS was not properly before the District Court; (3) certain of its direct contributions to GERS and the process of “truing up” contributions at the time of an employee‘s retirement offset the $18.9 million award; and (4) the portion of the award covering the 1991–2009 period rests on unreliable data.
There is no merit to any of the GVI‘s arguments.
1. The historical under-contributions fall within the consent judgment. The GVI
That the “biweekly contributions were correct when made and later circumstances may have required an increased contribution,” Appellants’ Reply Br. 6, is beside the point because the consent judgment and statute are formulaic. A consent decree is interpreted as a contract, with its scope “discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it.” Firefighters Local Union No. 1784 v. Stotts, 467 U.S. 561, 574 (1984) (quoting United States v. Armour & Co., 402 U.S. 673, 681–82 (1971)). Under the consent judgment, the GVI must pay GERS “the total amount due of employee and employer contributions as defined in Title 3, Section 718.” JA113–14 (emphasis added).
Granted, a consent decree‘s reach is limited by “the general scope of the case made by the pleadings.” Sansom Comm. by Cook v. Lynn, 735 F.2d 1535, 1538 (3d Cir. 1984) (quotation omitted). But GERS‘s 1981 complaint made the case that the GVI had failed to contribute the full amount that was required of it as employer. See, e.g., 1981 Compl. ¶¶ 4, 9 (alleging that GVI failed to timely remit to GERS “its matching retirement contribution of 11%” as “the employer“). And it sought an order compelling the GVI to pay all funds due and owing, including the withheld employer contributions, as well as restraining the GVI “from future withholding of matching contributions.” Id. at 3. So the general scope of GERS‘s original complaint jibes with the dictates of both the consent decree and section 718. And even assuming some dissonance between the allegations in the 1981 complaint and the GVI‘s under-contributions here, we are loath to slice and dice them in order to depart from a plain reading of the consent judgment—particularly given the vintage of most of the relevant facts. See, e.g., Harris v. City of Philadelphia, 137 F.3d 209, 212 (3d Cir. 1998) (noting that a court should not “strain the decree‘s precise terms or impose other terms in an attempt to reconcile the decree with [the court‘s] own conception of its purpose“).
We thus conclude that the consent judgment obligated the GVI to make the under-contributions
2. The GVI‘s historical under-contributions were properly before the District Court. The GVI raises the corollary argument that its liability for historical under-contributions to GERS was not properly before the District Court. To be sure, GERS‘s enforcement motions that spawned the District Court‘s evidentiary hearings sought first to impose the so-called ADEC obligation at issue in the cross-appeal, and then to recover contributions that the GVI had intentionally refused to pay GERS beginning in late 2016. In the latter motion, GERS alleged that the GVI stopped timely and fully paying fixed-percentage contributions in 2016 and into 2017, and attached a sworn affidavit from the GERS administrator to support those factual allegations. But GERS did not, in these motions, claim a systemic “unintentional” breach redolent of the GVI‘s legacy under-contributions, nor did it seek fixed-percentage deficiencies stretching back decades. That said, we are not troubled by the absence of this issue from either the enforcement motions or the initial proceedings.
First, we cannot say that the District Court clearly erred by concluding that the GVI‘s historical under-contributions were systemically intertwined with the breaches GERS asserted.8 Based on GERS‘s motions, the District Court received evidence from both sides about the extent of the GVI‘s unpaid liabilities. The District Court then heard testimony about the GVI‘s various instances of nonpayment over the years, amid the backdrop of GERS‘s litigation against the GVI for unpaid contributions in the 1980s, 1990s, and 2000s. After hearing the GVI‘s argument that “the indispensable predicate” to GERS‘s recovery of missing prior-period contributions was “some sort of supplemental pleading” or “motion that lays [it] out,” the District Court ruled that nothing “precludes a court from undertaking its own inquiry to determine the depth and breath [sic] of th[e] breach” that “a party points out.” JA3451–71 (“[A] party certainly doesn‘t take the role of the Court into its hands when it makes suggestions.“). Hence the Court‘s appointment of RSM, the third-party expert, to examine the parties’ records and opine on the full range of the GVI‘s arrears. Before RSM released its first report, the Court concluded that the GVI‘s intentional withholding of contributions beginning in late 2016 was only a “snapshot in time” of a larger “systemic failure to pay what is due and owing,
When a district court “takes a raft of case-specific historical facts, considers them as a whole, balances them one against another,” and makes a legal conclusion consisting “primarily” of “factual work,” appellate courts should review that conclusion only for clear error. U.S. Bank Nat‘l Ass‘n, 138 S. Ct. at 967–68 (reserving for de novo review situations where “applying the law involves developing auxiliary legal principles of use in other cases“). That is precisely what the District Court did in concluding that the GVI‘s under-contributions stretching back to 1991 were systemically related to the initial ADEC and 2016 alleged breaches at the heart of GERS‘s enforcement motions.9 We decline to disturb the District Court‘s conclusion, which was based on the consent judgment, GERS‘s allegations, and decades of legal and factual development—all of which are memorialized, but only partially, in 6,000-odd pages of appendix that the parties have submitted on appeal. Simply describing the District Court‘s inquiry “indicate[s] where it (primarily) belongs: in the court that has presided over the presentation of evidence, that has heard all the witnesses, and that has both the closest and the deepest understanding of the record.” Id. at 968; see also Manning v. Energy Conversion Devices, Inc., 13 F.3d 606, 607 (2d Cir. 1994) (affirming district court order and rejecting argument that it “improperly expand[ed] the scope of the settlement agreement because . . . district court‘s factual finding as to what [was] meant by the term ‘parties’ was not clearly erroneous“).
Even were we to second-guess the District Court‘s conclusion that the breach GERS alleged was a snapshot of the breach later borne out by the evidence, we would still uphold inclusion of the GVI‘s legacy under-contributions in the litigation. If a claim, though never pleaded, is tried by express or implied consent of the parties, the pleadings may be deemed to conform even after judgment or on appeal.10 Schultz v. Cally, 528 F.2d 470, 474 (3d Cir. 1975) (citation omitted); see also
It is difficult to imagine how it could have been any clearer to the parties that a new theory of breach entered the case by, at the latest, November 2018. The issue of the GVI‘s historical under-contributions was expressly raised for the first time at a hearing on September 27, 2018, when the Court questioned the GVI‘s counsel for several minutes about this new variant of the original contempt issue. Then, on November 26, 2018, the Court again inquired about the issue with GVI counsel before hearing relevant testimony from GERS‘s administrator, and then instructed the GVI to respond to GERS‘s proffered under-contribution calculations. The Court reiterated in an order several days later that the GVI was to respond specifically to the witness‘s report summarizing these missing contributions. (The GVI‘s legacy under-contributions came to be called missed “prior-period” contributions, distinguishing them from the more current deficiencies first adjudicated in the proceedings.) Thereafter, so many hearings and briefing opportunities proliferated that it would be a waste of paper and ink for us to recount them all here. Evidentiary hearings targeted to this issue occurred in February, March, and May 2019, after which the Court appointed the third-party expert to determine the amount of the GVI‘s historical under-contributions. RSM then issued two reports in 2020, one each for 1991–2009 and 2010–2018, with attendant opportunities afforded both parties to furnish evidence, object to RSM‘s methodology, examine and cross-examine a representative of RSM, and argue related matters of law to the Court. The first factor thus strongly favors a determination that the parties litigated the issue of the GVI‘s under-contributions by implied consent.11
Nor was there prejudice to the GVI. Though it opposed introduction of its legacy under-contributions into the case, the GVI fully litigated the issue in the above-mentioned evidentiary hearings, status conferences, and papers across the span of nearly two years. The GVI was hardly “denied a fair opportunity to defend and to offer additional evidence on th[e] different theory.” Evans Prods. Co. v. W. Am. Ins. Co., 736 F.2d 920, 924 (3d Cir. 1984) (prejudice where “the [new] theory . . . had not
We also glean from the extensive record before us no prejudice to the GVI‘s ability to assert legal defenses. Though the GVI could have sought to raise the statute of limitations against GERS in a separate action, we think it unlikely that any portion of such a case would have been time-barred. To begin with, by “continuing” the GVI‘s contribution obligations indefinitely,
3. Direct contributions to GERS and the true-up process do not offset the award. Next, the GVI urges that the District Court‘s $18.9 million judgment to GERS should be offset by the GVI‘s “direct contributions to GERS” of some $24 million since the beginning of 2015. Appellants’ Br. 37–38. Relatedly, the GVI argues for an offset because the parties agreed to some sort of “settlement” under which GERS would reconcile the GVI‘s actual and required contributions for each employee upon the employee‘s retirement. See Appellants’ Reply Br. 5–7, 12–13; see also Appellants’ Br. 16–17, 26–27. These arguments miss the mark.
Evidence the GVI cites as supporting its direct contribution argument shows that amounts are appropriated, in the sum of $7 million annually beginning in the fiscal year ending September 30, 2013, from the “Internal Revenue Matching Fund” to GERS. Act of July 5, 2011, No. 7261, § 13, 2011 V.I. Sess. Laws 84, 92; JA3108 (discussing Act 7261). This annual direct contribution requirement flows from separate legislation and does not speak of the GVI‘s contributions as employer. Nor does it suggest any relationship to the GVI‘s obligations to GERS under section 718.15 E.g., Act 7261, § 13 (providing for contribution “[n]otwithstanding any law or provision to the contrary“). The GVI‘s partial fulfillment of an annual fixed-sum contribution requirement does not entitle it to offset distinct contributions it owes GERS as percentages of employee compensation.16
Whether the true-up reconciliation process for retiring employees conceptually ensures no under-contributions, as the GVI argues, is beside the point. For starters, the “settlement agreement” to which the GVI attributes the true-up process is not in the record. All we can surmise is that, after discovering the under-contributions, the parties agreed to reconcile the GVI‘s actual and required contributions associated with an employee upon her retirement.17 We see no evidence that this arrangement was intended to modify the GVI‘s obligations under the consent judgment, which would have required court approval. See, e.g., United States v. Am. Cyanamid Co., 719 F.2d 558, 565 (2d Cir. 1983). What‘s more, the true-up process is a relatively recent phenomenon that could not cure the GVI‘s under-contributions linked to employees who retired prior to its implementation. And RSM‘s examination of a “test sample population” led it to conclude that “members who had retired” under the true-up process “were not part
4. The expert reliably calculated the $18.9 million in principal. The GVI contends that the portion of RSM‘s analysis calculating 1991–2009 under-contributions turned on unreliable data because NOPAs imperfectly capture total compensation paid to a particular employee. RSM recognized as much in declining to rely on NOPAs for the 2010–2018 period.19 But it did choose to rely on them in part to calculate under-contributions from 1991–2009 because of the dearth of other competent records. The GVI thus seems to contend that this portion of the expert‘s analysis flunked the reliability prong of Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)—yet without citing that landmark precedent.
The GVI made this argument to the District Court, to no avail. We agree with the Court‘s finding that RSM‘s 1991–2009 methodology, described above in Section I.B.5, mitigated the problems of relying exclusively on NOPAs by benchmarking NOPA data against other sources of information, such as an employee‘s actual gross wages. And based on a sample of 10 employees with both NOPAs and GERS annual benefit summaries, RSM determined that the salary reported on GERS‘s records was, on average, within four percent of that reflected in the GVI‘s records. Finally, the GVI‘s embrace of the true-up process, with its substantial reliance on NOPAs, undermines its objection. Particularly when a defendant‘s poor recordkeeping confounds data inputs, as was the case here, “absolute certainty” in expert opinions is not required. Dodge v. Cotter Corp., 328 F.3d 1212, 1222 (10th Cir. 2003); see also Klein-Becker USA, LLC v. Englert, 711 F.3d 1153, 1163 (10th Cir. 2013) (“Although plaintiffs must generally establish damages with specificity, some estimation is acceptable if necessitated in part by the Defendants’ poor record keeping.” (cleaned up)); cf. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687–88 (1946) (articulating FLSA damages burden-shifting framework “where the employer‘s records are inaccurate or inadequate“); Reich v. Gateway Press, Inc., 13 F.3d 685, 701 (3d Cir. 1994) (“If the employer fails to produce accurate records about the employee‘s wages and hours, the court may then award damages
We thus have no basis to conclude that the District Court abused its discretion in admitting the expert testimony. See In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 749 (3d Cir. 1994).
* * *
Seeing no merit to any of the GVI‘s challenges to the District Court‘s award of principal, we will affirm the judgment insofar as it awards GERS $13.9 million for the 1991–2009 period and $5 million for the 2010–2018 period.
B. Award of Fees and Interest to GERS
The GVI‘s second set of arguments goes to the District Court‘s $49.2 million award of interest and delinquency fees. Although there was no statutory authority in 1984 on which these enhancements could be based, the consent judgment provided that it “shall be amended” if Virgin Islands law later authorized interest on delinquent contributions. JA114. Two statutes enacted in 2005 did just that: one imposing a 1.5 percent delinquency fee “for each calendar month or part thereof that paid [sic] contributions should have been paid,”
The GVI contends that the District Court improperly applied both statutes, and in three ways. First, the GVI argues that the statutes apply only to the failure to timely make biweekly contributions and not to the failures responsible for its under-contributions. Second, the GVI contends that the District Court applied them retroactively to contributions missed before their effective date, without the necessary legislative intent. Third, the GVI asserts that interest and fees on most of the under-contributions cannot be recovered due to the statute of limitations or laches. We address each of these arguments in turn, and see merit in only the second.
1. The statutes are not intended only for willful misconduct. The GVI maintains that the District Court should not have enhanced the $18.9 million with interest and delinquency fees because the GVI “timely made” employer contributions, which only later turned out to be insufficient, and because its under-contributions to GERS were not willful. Appellants’ Br. 44, 48–52. But neither statute carries a scienter requirement; each speaks only of the unmodified failure to contribute. See
The interest statute is also mandatory but, unlike the fee statute, provides no mechanism for waiver. Given the limited circumstances enumerated for delinquency-fee waivers, the interest statute‘s conspicuous lack of any comparable provision means that no waiver at all will be allowed. In short, a district court is not free to waive interest. See Lauersen, 648 F.3d at 116–17 (concluding that Congress did not implicitly grant waiver authority to district courts when, in other subsections of statute, it “explicitly detailed the circumstances under which . . . penalties could be waived“); cf. Elkins v. Moreno, 435 U.S. 647, 665–66 (1978) (characterizing absence of restriction in one part of statute as “pregnant” when contrasted with other parts of statute, which included that restriction).
The GVI‘s conduct was therefore subject to both interest and delinquency fees, and the District Court did not err in refusing to waive them.
2. The District Court erred by applying the statutes retroactively. The GVI next contends that the District Court should not have imposed interest and delinquency fees on under-contributions that the GVI accumulated before the interest and fee statutes’ effective date: November 2, 2005.20 failure to seek modification of the consent judgment in the wake of the new interest and delinquency-fee statutes forecloses its recovery of interest and fees. A cursory Reply brief mention aside, the GVI developed no argument for why the “shall be amended” language obligated GERS to file a motion to modify the consent judgment. The GVI‘s lone acknowledgment that “the Consent Judgment never was amended to include interest,” Appellants’ Reply Br. 10, suggests that the GVI forfeited this argument. See, e.g., N.J. Dep‘t of Env‘t Prot. v. Am. Thermoplastics Corp., 974 F.3d 486, 492 n.2 (3d Cir. 2020) (holding that “argument . . . vaguely presented without legal or factual support . . . is forfeited“); Barna v. Bd. of Sch. Dirs., 877 F.3d 136, 146 (3d Cir. 2017) (noting that we will not “reach arguments raised for the first time in a reply brief or at oral argument“); In re Wettach, 811 F.3d 99, 115 (3d Cir. 2016) (“[B]ecause they fail to develop either argument in their opening brief, the Court holds that the Wettachs have forfeited these claims.” (citation omitted)). Recall that GERS sought interest on the GVI‘s delinquent contributions in 1981, and the issuing court, by including the anticipatory provision about interest, ostensibly sought to impose it in the event and to the extent that Virgin Islands law later permitted. And after the District Court found that the GVI breached the consent judgment by intentionally withholding contributions from GERS beginning in late 2016, the GVI willingly repaid those amounts with interest and delinquency fees. So whether GERS needed to file what seemingly would have been a pro forma motion is neither an “exceptional circumstance” that favors reaching this unpreserved issue, Brown v. Philip Morris Inc., 250 F.3d 789, 799 (3d Cir. 2001), nor a matter of “public importance” whose non-resolution could lead to a “miscarriage
The District Court rejected the
We agree with the GVI that the statutes have retroactive effect, and thus that the District Court impermissibly applied them retroactively. Before November 2, 2005, the GVI‘s liability for all its past under-contributions was fixed at their principal amount. By subjecting that principal to interest and fees under the statutes at issue, the District Court “increase[d] [the GVI‘s] liability for past conduct” and “attache[d] new legal consequences to events completed before [their] enactment.” See Landgraf, 511 U.S. at 266, 269-70, 281.
The District Court looked to an Eleventh Circuit case that addressed postjudgment interest to support applying the statutes to the GVI‘s pre-existing balance. Yet it is prejudgment interest that provides the better guide. In Shook & Fletcher Insulation Co. v. Cent. Rigging & Contracting Corp., 684 F.2d 1383 (11th Cir. 1982), the Eleventh Circuit held that a new state law increasing the postjudgment interest rate applied to an unsatisfied judgment secured under a prior version of the law that had imposed a lower interest rate. Id. at 1388-89. Here, however, the 1984 consent judgment was not a money judgment, nor did it in any way determine the amount of the GVI‘s liability. And postjudgment interest does not relate to the substantive conduct underlying the judgment. By contrast, the District Court‘s application of interest and fees increased the GVI‘s liability for the very same conduct to which GERS sought to attach liability in the enforcement proceedings. For that reason and others,21 we look for guidance
The facts here do not convince us that these applications of Landgraf are inapt. First, while the District Court rightly noted that the GVI‘s under-contributions were not “complete” at the time of the statutes’ enactment, JA40-41 (citing Landgraf, 511 U.S. at 280), the retroactivity inquiry is more granular. It requires us to “determine the ‘important event’ to which the statute allegedly attaches new legal consequences.” Deweese v. Nat‘l R.R. Pass. Corp. (Amtrak), 590 F.3d 239, 251 (3d Cir. 2009) (quoting Atkinson, 479 F.3d at 230) (emphasis added). The Retirement Code makes clear that this event is the discrete occurrence of under-contributing to GERS for a particular payroll period. Even if the GVI‘s obligations to GERS spanned decades and are “continuing,”
Second, though our retroactivity analysis is “guided by considerations” of “reasonable reliance” and “settled expectations,” Atkinson, 479 F.3d at 231, the GVI‘s lack of contemporaneous knowledge of the under-contributions—and thus its lack of actual reliance on the prior state of the law—does not remove the taint. As we stated in Atkinson, “[i]mpermissible retroactivity . . . does not require that those affected by the change in law have relied on the prior state of the law.” Id. at 229 (citation omitted). And consider Landgraf. There, the Supreme Court “did not base its decision on the specific conduct of Landgraf‘s employer or on any reliance that either Landgraf or her employer may have had on the state of the law.” Id. at 228 (citing Landgraf, 511 U.S. at 282-84). Rather, the Court “made a general analysis of the impact of the amendment” and found “retroactivity improper because the amendment instituted a legal change that attached a new legal burden to the proscribed conduct.” Id. Likewise, in Hughes Aircraft Co. v. Schumer, 520 U.S. 939 (1997), “[i]t was the new legal burden imposed on events past, rather than the reliance on the former law by the person affected, which was the basis for
Finally, GERS contends that applying the statutes only prospectively would frustrate their remedial purpose. But that is “frequently . . . true” yet “not sufficient to rebut the presumption against retroactivity.” Landgraf, 511 U.S. at 285. Here, the text of the statutes suggests no remedial purpose—and the parties agree that there is no relevant legislative history. Without more, the fact that, before the statutes’ enactment in 2005, GERS had unsuccessfully sued the GVI for under-contributing to a discrete early retirement incentive program does not suggest that the Legislature viewed the unavailability of interest and fees on all delinquent contributions as “failing [the Retirement Code‘s] purpose.” Cf. Silverlight v. Huggins, 488 F.2d 107, 108-10 (3d Cir. 1973) (holding that statute waiving Virgin Islands tort immunity, after prior practice of passing special waiver legislation on individual basis was held unconstitutional, applied retroactively to causes of action accruing before its enactment given “sincere[] concern[] that . . . damaged citizens not remain uncompensated” and “reasons given for the introduction of the bill“). And the facts belie GERS‘s assertion at oral argument that the GVI passed the 2005 statutes to remedy GERS‘s lost investment income on then-existing § 718(g) deficiencies. Neither GERS nor the GVI knew of missing fixed-percentage contributions until 2012, seven years later.22
Absent a clear statement of retroactive application in the statutes’ text or discernible express legislative intent to apply them retroactively, they cannot impose interest and penalties on contributions that the GVI missed before their effective date. We will vacate that portion of the District Court‘s judgment awarding $43.1 million to GERS in interest and fees for the 1991-2009 period, and remand with instructions to reduce those enhancements accordingly.23
3. GERS‘s action was timely.
Finally, the GVI argues that the vast majority of its under-contributions are not subject to interest or fees because the payments were made outside the two-year statute of limitations applicable to an “action upon a statute for a forfeiture or penalty.”
Contrary to the GVI‘s position, the award of interest and fees to GERS—both in form and substance—did not stem from an action “upon a statute for a forfeiture or penalty,” but motions to enforce “a judgment or decree of any court of the United States . . . or Territory.”
Nor does laches bar GERS‘s recovery here, though the District Court may have short-circuited some of the analysis by concluding that GERS is a “sovereign” immune from laches. JA30-35. We are not convinced that GERS is entitled to sovereign status and, for the reasons set forth below, conclude that the GVI‘s laches defense nevertheless fails on the merits.
A creature of statute, GERS was established as an “independent and separate agency” of the GVI with the “powers and privileges of a corporation.”
Likewise, endowing a government agency with the right to “sue and be sued” is persuasive evidence that the Legislature waived the agency‘s immunity from timeliness defenses such as laches and the statute of limitations.25 See, e.g., U.S.V.I. Econ. Dev. Auth. v. Hypolite, No. ST-16-CV-268, 2019 WL 451370, at *3 (V.I. Super. Ct. Jan. 28, 2019) (collecting Virgin Islands cases). This the Legislature did, granting the GERS board the power to “sue and be sued” in the GERS name and requiring that GERS assets be held in its own name and segregated from those of the GVI.
We do not decide whether GERS is a private, public, or quasi-public corporation or, for that matter, whether its status renders it immune from laches. All we decide in this regard is that GERS‘s immunity is too dubious a basis for rejecting the GVI‘s argument. That said, the GVI‘s laches argument fails on the merits. A party asserting laches as a defense must establish (1) an inexcusable delay in bringing the action and (2) prejudice. See, e.g., U.S. Fire Ins. Co. v. Asbestospray, Inc., 182 F.3d 201, 208 (3d Cir. 1999). The crux of the GVI‘s case for laches is that GERS delayed too long “in seeking delinquency fees and interest,” which prejudiced the GVI because the expert had “difficulty in locating and making use of old records and data entries.” Appellants’ Br. 54. Neither assertion holds water.
First, GERS‘s delay in bringing the enforcement proceedings that led to the award of interest and fees was excusable. After suing the GVI in 1981 and obtaining the consent judgment in 1984, GERS was in court to modify it in 1994. Then, in 2001, GERS sued the GVI for under-contributing to a separate early retirement incentive program. GERS appealed dismissal of that suit in 2005, and we affirmed for lack of ripeness because it was too soon to say that “GERS members have been denied, or are about to be denied retirement benefits.” Turnbull, 134 F. App‘x at 501. Having pursued its rights in court for decades, and following this defeat, GERS might have reasonably been wary of instituting further litigation when in 2012 it discovered the GVI‘s under-contributions. Instead, it waited to again sue the GVI until the pension system was just a few years from the brink. And in the interim, GERS tried to work with the Virgin Islands governor and the Legislature on pension funding solutions, even proposing remedial legislation.26 The length of the delay in absolute
Second, the GVI‘s prejudice argument lacks the necessary predicate showings. The GVI appears to claim that GERS‘s delay exacerbated the lacunae in the pre-2010 records, which lie at the heart of the GVI‘s unsuccessful challenge to RSM‘s methodology. But the GVI does not explain how the state of those records would have benefitted had GERS sued nearer to 2012. In fact, according to RSM, the unavailability of detailed pre-2010 data was chiefly attributable to the GVI‘s institution of new payroll software at the end of 2009 without migrating the historical records or later performing mainte-nance on the decommissioned server. Even if records somehow would have been more robust had GERS sued earlier, any prejudice was shared by both parties. RSM did not structure its methodology with a thumb on the scale in favor of GERS because of evidentiary gaps. It examined the existing records provided by both parties and, with 95 percent confidence, calculated an interval into which the GVI‘s 1991-2009 under-contributions fell. Nor did the District Court, in adopting the statistical midpoint of that range, punish the GVI for having incomplete records. In arguing laches below, the GVI articulated no cognizable prejudice attributable to the passage of decades since entry of the consent judgment. Its argument here founders on even shallower shoals.
Finally, even if the requisites for laches were met, we would balk at applying the doctrine to bar GERS‘s recovery of interest and fees. To begin with, for many months after GERS began these proceedings in 2016, the GVI intentionally withheld from GERS all of its employees‘, and its own, fixed-percentage contributions. The GVI has claimed only that it “fell behind” due to unspecified “exigent circumstances.”27 Appellants’ Reply Br. 12. But the record reveals nothing exigent that would sufficiently excuse this conduct.
Nor need we apply the equitable remedy of laches if doing so would undermine the public‘s interests in resolution of the affected claim. See, e.g., Virginian Ry. v. Sys. Federation No. 40, 300 U.S. 515, 550 (1937) (“Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.” (citations omitted)); Md.-Nat‘l Capital Park & Planning Comm‘n v. U.S. Postal Serv., 487 F.2d 1029, 1042 (D.C. Cir. 1973) (“Equitable remedies depend not only on a determination of legal rights and wrongs, but on such matters as laches, good (or bad) faith, and most important an appraisal of the public interest.” (emphasis added) (citation omitted)). The economic health of the Virgin Islands rests to a large degree on the soundness of its public-pension system. It cannot be over-emphasized that the central government is the Islands’ largest employer. GERS represents about 30 percent of the Islands’ gross domestic product. It “covers approximately 20% of the entire population of the Virgin Islands.” JA3958-59. At oral argument, GERS estimated that about a third of the Islands’ population contributes to GERS or depends on it for income. The system‘s receipt of tens of millions of dollars in interest and fees is of the highest public importance. We would decline to resolve the weighty issue of GERS‘s entitlement to those funds on grounds of laches even if the defense would otherwise seem to apply.
We therefore conclude that the GVI‘s timeliness defenses do not bar any component of the District Court‘s award of interest and fees to GERS.
* * *
The consent judgment and applicable law require mathematical compliance, so the GVI‘s failures to contribute what was required by statutorily fixed percentages, even if inadvertent, breached the consent judgment. In proceedings that first centered on the GVI‘s failure to remit fixed-percentage contributions beginning in late 2016, the District Court later widened the lens—assisted by an appointed expert—and found a breach reaching back as far as 1991, when the GVI began shorting the percentage contributions to which GERS was entitled. We will not disturb that approach because the Court‘s factbound conclusion about the extent of the asserted breaches was not clearly erroneous and, at all events, because GERS‘s original pleadings and allegations in its enforcement motions may be deemed amended as necessary to encompass that recovery. Neither the GVI‘s direct contributions to GERS under separate funding legislation nor its compliance with a recent process designed to reconcile contributions paid and owed for a retiring employee demands an offset.
GERS brought enforcement proceedings within about four years of discovering these under-contributions, so its recovery of interest and fees on those debts is timely. In fact, the District Court had no discretion to waive the interest and fees. But nothing suggests that the Legislature intended to apply the late-arriving interest and fee statutes retroactively. We will vacate the District Court‘s award to GERS of $43.1 million in enhancements for the GVI‘s 1991-2009 arrears and remand for imposition of a lesser award excluding interest and fees on contribution deficiencies that the GVI incurred before the statutes’ effective date. Because there are no retroactivity problems associated with the District Court‘s award of $6.1 million in interest and fees for the 2010-2018 period, we will affirm that portion of the judgment.
IV. GERS‘S CROSS-APPEAL
Even a judgment of tens of millions of dollars only postpones GERS‘s day of reckoning by a matter of months. So GERS appeals the District Court‘s separate ruling that the consent judgment does not obligate the GVI to contribute billions to actuarially equalize GERS‘s assets and its liabilities to pensioners. GERS derives this sweeping “ADEC” (short for “actuarially determined employer contribution“) obligation from
We conclude that the Virgin Islands Supreme Court would refuse to read GERS‘s proffered ADEC requirement into
A. GERS‘s Textual Arguments
GERS‘s central statutory argument for imposing the ADEC obligation on the GVI is that not doing so would render
To begin with, saddling the GVI alone with the obligation to fund GERS to the point of actuarial soundness is, at best, inconsistent with the text of section 718. And, at worst, imposing such an obligation contradicts the import of the statutory language. While
Even if this provision—by naming the GVI first and then, in a subsidiary clause, mentioning employees and investment income—could somehow be read to elevate the GVI‘s responsibility, a preceding subsection vitiates that reading by equalizing the input of all stakeholders to the actuarial soundness of the system: “The various obligations of the System shall be financed in accordance with actuarial reserve requirements from contributions by members, contributions by the employer, interest income, and other income accruing to the System.”
With the text of the statute offering little or no support for GERS‘s position, we ask why, if the Legislature sought to impose on the GVI a supervening obligation to fund GERS to actuarial soundness, it would have promulgated (and routinely amended) a detailed schedule of employee compensation percentages for the GVI to contribute? See
GERS next argues that the consent judgment and, by implication, the Legislature could have used words such as “fixed” if it wished to cabin the employer‘s obligation to fixed-percentage contributions. But the establishment of a detailed schedule of percentages, without a comparable articulation of the GVI‘s potentially limitless mandate to fully fund GERS, militates against inferring any legislative intent to create the ADEC. Legislatures do not hide elephants in mouseholes. Whitman v. Am. Trucking Assocs., 531 U.S. 457, 468 (2001). There is no provision for “actuarially determined employer contributions” in the statute—only sources of contributions that, “together,” must provide an “actuarially determined reserve.” See, e.g., Bates v. United States, 522 U.S. 23, 29 (1997) (noting that courts “ordinarily resist reading words or elements into a statute that do not appear on its face“). In view of subsection (f) and the surrounding statutory landscape, any suggestion that judges or legislators should have added clarifying language to exclude reading in an ADEC obligation strikes us as fanciful.
To support postulating the ADEC, GERS points finally to section 718a, a provision enacted in 2006 to govern how GERS informs the GVI of needed appropriations. Section 718a provides for transmittal to the Legislature of the “actuarial valuation and appraisal” required by section 718, along with an “itemized estimate of the amounts necessary to be appropriated by the government to [GERS].”
B. GERS‘s Authorities
Nor do the cases GERS cites move the needle. Applying them here would assume the answer to the question presented: whether GERS‘s proffered ADEC obligation flows from the text of section 718 or should somehow be implied based on the relevant milieu.
Start with GERS‘s leading case, Louisiana Municipal Association v. State, 893 So. 2d 809 (La. 2005). It dealt with statutes that unequivocally provide for both an employer contribution rate and an actuarially required employer contribution. See id. at 837-38;
GERS‘s other authorities involve pension regimes under which employees have percentage-based contribution obligations, but the contributions of the employer (i.e., a state and its counties) are actuarially determined.32 See, e.g., Hall v. Elected Officials’ Ret. Plan, 383 P.3d 1107, 1110-11 (Ariz. 2016) (“The employee contribution rate was set by statute initially at 6%, with the employer being responsible for contributing the remaining amount necessary to fund a defined benefit upon retirement.” (citing
tion or payment by each firefighter” and “a mandatory payment by the municipality of ‘a sum equal to the normal cost of and the amount required to fund any actuarial deficiency shown by an actuarial valuation as provided in part VII of chapter 112‘” (quoting
Still other cases relate to state statutes that explicitly place the obligation on the employer to make up any shortfall. See, e.g., Booth v. Sims, 456 S.E.2d 167 (W. Va. 1994);
At best, the cases that GERS relies on take us no closer to answering whether section 718(f) obligates the GVI to fund GERS to actuarial soundness. In fact, the specificity with which the regimes addressed in those cases articulate an employer‘s actuarially determined contribution or shortfall liability renders problematic the less concrete language in section 718(f).
C. The Parties’ Historical Understanding
Though there is no formal legislative history contemporaneous with the 1959 or 1968 laws enacting and amending the Retirement Code, subsequent testimony of GERS representatives to the Legislature undermines GERS‘s argument for the ADEC. In an October 8, 1997 meeting of the Committee on Government Operations about a bill on allocating GERS‘s administrative expense, a representative of GERS testified to the Legislature that:
[W]hat would happen in the future is that based on our requirement in the statute that the funding of the system be computed on the actuarial reserve basis, we would then need to come back to the Legislature and report our latest findings in term[s] of the actuarial report and recommend that some adjustment be made in the employer contribution and/or the employee contribution. That is basically the only way that the system can begin to address the underfunding. . . . [T]he latest actuarial evaluation . . . determined that an additional contribution totaling five—approximately, five and-a-half percent would be needed to be added to the current contribution rate formula that we have in place.
Oct. 8, 1997 Gov‘t Ops. Comm. Hrg. Tr. 128:22-130:2 (emphases added). Increasing the fixed-percentage contributions of employees and employers was thus understood as “the only way that the system can begin to address” underfunding.34
The System requires full autonomy to incrementally set and adjust the contribution rates for the employer and employees as may be determined from the annual actuarial valuations. . . . The various obligations of the System . . . are required to be financed in accordance with the actuarial reserve requirements from the contribution by members, contributions by the employer, interest income, and other income accruing to the System, but in reality, this does not occur because executive and the Legislature randomly determine when contributions are to be increased and how much those contributions should be. Whenever a shortfall occurs in the income from investments and the contributions from the employer and employee, the shortfall must be made up by the Plan Sponsor and member contributions to keep pace with the actuarial determinations for the payment of future pension obligations. . . . Although the statute does not provide for the proper actuarial funding of the System, the G.E.R.S. has repeatedly requested that the Legislature enact such corrective measures. . . . The enabling Act failed to incorporate a proper funding plan because it was the intention of the Legislature that the income generated from the investments and the contributions from the employer and employees will meet the funding needs to pay the future pension benefit obligations. . . . [W]hat is most needed to financially reform the System is a corrective funding plan to provide for the annual actuarial funding of the shortfall in the cost of the System. . . . The annual funding of the G.E.R.S. must be made a “statutory debt” through legislation.
Sept. 12, 2005 Gov‘t Ops. Comm. Hrg. Tr. 13:14-17, 14:3-18, 15:3-6, 16:3-8, 17:11-20 (emphases added). Todmann‘s testimony shows that GERS understood the following: (a) shortfalls “must be made up by” the GVI and employees—rather than just the GVI via a supervening ADEC obligation; (b) the language in section 718(f) reflects the Legislature‘s “intention” that the fixed contribution rates would be adjusted to provide actuarial soundness; and (c) annual, actuarially required funding of GERS was not a “statutory debt” of the GVI. As Todmann and others advocated, the 2005 amendments recognized that ”[t]he GERS Board of Trustees is the entity best suited to determine the actuarial level and to fix appropriate contribution rates, commensurate with the future pension benefit obligations of the system.” V.I. 26th Legis., Bill No. 26-0071, Bill Summary, Section 14 (emphasis added); see
*
*
*
Approaching a fiscal cliff, GERS now protests that it will devolve into a pay-as-you-go system by 2023 unless the GVI funds it in accordance with the ADEC (or somehow increases its current contribution rate of 20.5 percent to 68 percent). But these are fiscal policy arguments we cannot entertain. If new pension legislation is needed, as it may well be, such arguments should be made in an appeal to the Legislature. There is simply no compelling interpretation of the statute or any extrinsic evidence that can support reading into Virgin Islands law GERS‘s proffered ADEC obligation. We will thus affirm the District Court‘s entry of judgment to the GVI in GERS‘s cross-appeal.
V. CONCLUSION
Court battles, a consent judgment, settlement efforts, piecemeal legislative fixes, and entreaties to elected officials have animated GERS‘s 40-year campaign to secure actuarial soundness. But its successes have been qualified in large part by the limitations of the territorial law establishing the public-pension system. And so it goes in this appeal. Our ruling preserves an award of $18.9 million in principal, $6.1 million in interest and fees, and what will be additional millions in enhancements for GERS. But we take off the table tens of millions of dollars in enhancements that were awarded to GERS under an unsupportable retroactive application of Virgin Islands law. We have no doubt that GERS needs more—possibly billions more—to fend off insolvency. But as mem-bers of the Third Branch, we can neither write legislation nor levy taxes. And we are powerless to re-write imperfect but unambiguous statutes even if doing so would make them better serve the needs of their intended beneficiaries.
Respecting the judiciary‘s role in our Republic, we in turn expect the GVI to satisfy the judgment of the District Court.35 We are optimistic that all stakeholders will cooperate
in good faith to avert the looming insolvency of GERS. No
Government Employees Retirement System of the Virgin Islands v. Government of the Virgin Islands, Nos. 20-1749 & 20-1766
MATEY, Circuit Judge, concurring in part and dissenting in part.
Much about this appeal is a familiar story. Like many of our institutions, public pensions date to the Roman Empire, arriving in our new Republic as a comforting promise to injured patriots fighting in the Revolution.¹ Military pensions paved the way for civilian plans, with Massachusetts creating the first public employee retirement system in 1911.² Other states joined the rush³ and, soon enough, state and local
pensions became an entitlement of public service.4 But like many entitlements, pension promises prove hard to keep as lessons hard learned in antiquity5 are ignored or, perhaps, wished away.6 Pensions, of course, are guarantees of future income. Funding the benefits due tomorrow means taking prudent fiscal steps today, and every year, for as long as those generous sums remain due.
But across the country, this has not happened. Economists glumly estimate that state pensions combined hold unfunded liabilities between $700 billion and $4.6 trillion.7 Like a game of dominos, substantial benefits connect to ever
more funding
black.10 Small wonder scholars have called the public pension crisis a “ticking time bomb.”11
costs of all entitlements.13 Several have reflected on how elected officials choose to offer ever-greater benefits and then, “maddeningly, [] choose not to fund public pensions as they are required.”14 But none have suggested an Article III court can resolve the issue. Nor have any courts tried, until today.
I am skeptical. In one sense, the dispute unfolds like a common law contract problem, asking the Court to merely determine the best meaning of an agreement. Viewed through that lens, I agree with much of the Court‘s reasoning in Part III.A holding the Consent Judgment obligates the GVI for outstanding contributions under Section 718(g). Likewise, I agree with the analysis in Part III.B reasoning that interest and penalties cannot be read into the Consent Judgment retroactively.15 Indeed,
But we are writing on a far bigger stage, one that, I fear, will rightly draw the attention of governors and the governed across the country. If they interpret our decision to mean that the Article III judicial power comprehends a monetary award to pay a general statutory obligation, whether or not the separate sovereign has appropriated funds, a new and dangerous chapter in the pension wars will open.
So I write separately to emphasize the narrower scope of the Court‘s holding affirming only that the GVI is liable for the obligations in the Consent Judgment. But in doing so, the Court is not ordering the GVI to disburse monies from the Virgin Islands’ treasury. And that is because the federal courts almost always lack that authority. We stand, it seems, dangerously close to the Constitutional precipice. The parties need not return and ask us to step off.
I. THE CONSENT JUDGMENT
(1st Cir. 2003) (“At most, legislative histories of this type tell us that while Congress may have thought retroactivity to be an important topic, it could not muster a clear consensus on the subject.“) (citing Rivers v. Roadway Exp., Inc., 511 U.S. 298, 309 (1994)). For that reason, I see no need to note its absence here.
GERS‘s cross-appeal requires examining the ordinary understandings of an agreement. I begin with the small dispute over the best reading of the Consent Judgment. And the principles guiding that analysis—defining the words using their common meaning when drafted—informs the larger dispute over the best reading of Article III. It is a puzzle with only two pieces, both turning on the same questions of interpretation.
A. The Consent Judgment Encompasses Section 718(f)
Start with the consent judgment, an instrument with “attributes of both contracts and injunctions.” E.O.H.C. v. Sec‘y United States Dep‘t of Homeland Sec., 950 F.3d 177, 192 (3d Cir. 2020). Sometimes a consent decree imposes a correction, coercing compliance, handing out punishment, prohibiting future wrongs. That side of the coin matches the power of an injunction. Id. But “when a party seeks not to punish but to enforce the other party‘s commitments,” like GERS here, the consent judgment “works more like a contract.” Id. So the Consent Judgment “is to be construed basically as a contract,” United States v. ITT Cont‘l Baking Co., 420 U.S. 223, 238 (1975), with traditional principles of interpretation informing the terms. Flemming ex rel. Estate of Flemming v. Air Sunshine, Inc., 311 F.3d 282, 289 (3d Cir. 2002).
Interpretation of any text turns, of course, on the text. Tamarind Resort Assocs. v. Gov‘t of Virgin Islands, 138 F.3d 107, 110 (3d Cir. 1998) (“It is axiomatic that where the language of a contract is clear and unambiguous, it must be given its plain meaning.“) (citing Restatement (Second) of Contracts § 202(3)(a) (1981)); see also In re Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Prod. Liab. Litig., 706 F.3d 217, 223 (3d Cir. 2013) (“When the terms of a contract are clear and unambiguous, its meaning
Here is why. The Consent Judgment tells the GVI to timely pay “the total amount due of . . . employer contributions as defined in Title 3, Section 718.” JA113–14. Naturally, that includes all of Section 718, from (a) to (g). So if Section 718(f) is an “employer contribution,” the GVI pays that amount. Section 718 does not explicitly spell out what is, or is not, an “employer contribution.” Indeed, that phrase does not appear anywhere in Section 718. But we have plenty of other help.
Section 718(a) explains who funds GERS: its members, the “employer,” and “interest income.” Section 718 also details what “contributions” the “employer” makes. For example, Section 718(g) says the “employer shall contribute” a fixed percentage of GVI employee salaries. Likewise, Section 718(k) says the “employer shall . . . contribute to the System” costs of “any special early retirement program.”
Taken together, there is nothing in Section 718 suggesting that one particular subsection defines “employer contributions,” or that Section 718(f) does not. Or, as we have noted, the same words or phrases in different parts of the same statute have the same meaning unless there is “such variation in the connection in which the words are used as reasonably to warrant the conclusion that they were employed in different parts of the act with different intent.” Cf. Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548, 559 (3d Cir. 2003) (en banc) (quoting Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932)). The Consent Judgment reflects that structure, incorporating all of the “employer contributions . . . defined in Title 3, Section 718” and thus the “employer . . . contribution” in Section 718(f) as well as the “employer . . . contribut[ions]” in Section 718(g). That excludes a reading that places Section 718(g), but not Section 718(f), into the Consent Decree. See 11 Williston on Contracts § 30:25 (4th ed. 2020) (“When a writing refers to another document, that other document, or the portion to which reference is made, becomes constructively a part of the writing, and . . . [t]he incorporated matter is to be interpreted as part of the writing.“); see also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 101 (2012) (stating general terms “are to be accorded their full and fair scope” and “are not to be arbitrarily limited“).
Second, even if it did, that does not read out the obligation of Section 718(f) because nothing prevents a pro rata ADEC payment every pay period after calculation. Indeed, that is the process used for all employer and employee contributions. See
B. Section 718(f) Obligates the GVI to Contribute the ADEC
For these reasons, I read the Consent Judgment to include “employer contributions” required by Section 718(f), a conclusion the majority shares. We differ only in defining what Section 718(f) requires. Here again our task is interpretation, not invention. As always, we employ the “fundamental canon of statutory construction” requiring that we “interpret the words consistent with their ordinary meaning” when enacted. Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070, 2074 (2018) (internal quotation marks omitted); see also United States v. Johnman, 948 F.3d 612, 617 (3d Cir. 2020). “It is a focused inquiry and ‘[o]ur analysis begins and ends with the text.‘” United States v. Smukler, 991 F.3d 472, No. 19-2151, 2021 WL 1056021, at *6 (3d Cir. 2021) (quoting Little Sisters of the Poor Saints Peter & Paul Home v. Pennsylvania, 140 S. Ct. 2367, 2380 (2020)). We tackle the task of interpretation using our “toolkit” with “all the standard tools of interpretation” used to “carefully consider the text, structure, history, and purpose” of the statute. Kisor v. Wilkie, 139 S. Ct. 2400, 2414–15 (2019) (cleaned up). With that aim, we seek not a perfect answer on meaning, for one does not exist, but to “reach a conclusion about the best interpretation,” thereby resolving any perceived ambiguity.” Shular v. United States, 140 S. Ct. 779, 788 (2020) (Kavanaugh, J., concurring) (quoting Kisor, 139 S. Ct. at 2448 (Kavanaugh, J., concurring in the judgment)). Using that inquiry, I believe the best meaning of Section 718(f) obligates a GVI contribution separate from its fixed-percentage obligations in Section 718(g) sufficient to fund an “actuarially determined” reserve.18
1. Section 718 Requires An Adequately Funded Actuarial Reserve
Before explaining why, let me note our broad areas of agreement. For one, none dispute that Section 718 requires actuarial soundness. That is plain from Section 718(a) requiring that the “obligations of the System shall be financed in accordance with actuarial reserve requirements[.]”
So too, all agree that Section 718(f) demands that GERS‘s “actuarially determined reserve” receive “adequate” funding. No mysterious meaning here. Then, as now, the ordinary meaning of “adequate” in a quantitative context means “equal to what is required.” Adequate, Black‘s Law
2. The GVI Must Ensure Adequacy
Here is where I depart from the majority. Accepting that (a) the System must fund an actuarially sound reserve, and (b) arithmetic renders that impossible from fixed-percentage contributions alone, then something must make up that difference. The majority calculates differently, reading Section 718(f) to preclude what Section 718 otherwise requires, thereby baking a funding shortfall into the statute. In a bit of self-sabotage, the argument goes, the Legislature really meant to incentivize all to do more by creating a hard-capped contribution system regularly “[re-]calibrated” to “account for the changing actuarial needs of the system.” Maj. Op. at 53.22 And I admit, that seems like a good way to marshal the public and political pressure needed to turn aspirations into action. Pay as you go, or face a shortfall sure to shorten the terms of those tasked with finding needed funds. Except that is not what the statute says, a point, as we will see, the majority does not dispute.
Turn back to the text. As of the Consent Decree, Section 718(f) read:
The employer shall make contributions which together with the members’ contributions and the income of the system will be sufficient to provide adequate actuarially determined reserve for the annuities and benefits herein prescribed.
Section 718(b) confirms that reading, requiring that “[e]ach employee who is a member of the system shall contribute” a fixed percentage of compensation.
The majority agrees this is the natural way to read the text, but reasons that because Section 718(f)‘s employer contributions occur “together with” employee contributions and the System‘s income, and because Section 718(a) “equaliz[es] the input of all stakeholders to the actuarial soundness of the system,” Section 718(f) must merely repeat Section 718(a) and preview Section 718(g). Maj. Op. at 55–56 & n.30.25 Not so.
First, Section 718(f) forecloses that reading. Accepting the majority‘s interpretation that all three components—employer contributions, member contributions, and income—share Section 718(f)‘s burden requires applying “shall make contributions” to “words or phrases more remote“—in this case, “members’ contributions and income from the system.” See Rule of the Last Antecedent, Black‘s Law Dictionary (11th ed. 2019). That is precisely what the rule of last antecedent counsels against. Id.; see also Nearest-Reasonable-Referent Canon, Black‘s Law Dictionary (a “postpositive modifier” including “adverbial or adjectival phrases” will “normally appl[y] only to the nearest reasonable referent“); Lockhart, 136 S. Ct. at 963 (declining to depart from the rule where it would be “a heavy lift to carry the modifier”
Second, nothing in the broader statutory landscape supports an interpretation of Section 718(a) as “equalizing” the responsibility for funding the System. Maj. Op. at 56. Section 718(a) says nothing about the allocation of funding responsibilities, much less that it must be equal. Nor does Section 718(f)‘s directive that the various system inputs must “together” provide the actuarial reserve. Just because W + X + Y = Z does not mean W = X or W = Y.
Indeed, if the statute tells us anything about allocation, it is that the GVI bears the laboring oar. As first enacted, the statute created a fixed “4 per cent” employee contribution and a variable employer rate. See
This is all to say that there is nothing “contradict[ory]” in reading Section 718(f) as elevating the GVI‘s financing responsibility. Maj. Op. at 56. Quite the contrary. Doing so gives meaning, rather than superfluity, to Section 718(f), consistent with “the larger statutory landscape[.]” Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1722 (2017); Scalia & Garner, Reading Law 180 (“[T]here can be no justification for needlessly rendering provisions in conflict if they can be interpreted harmoniously“).
3. Section 718(f) Requires the ADEC
So what is the GVI‘s responsibility, exactly? To “make contributions” that are “sufficient to provide adequate actuarially determined reserve” for the system.
Taken together, I cannot adopt an interpretation of the “Finance” Section of the GERS statute that does not finance GERS.
4. The Majority‘s Reasoning
The majority offers two responses to this reading. First, if Section 718(f) required the GVI to make the ADEC contribution, Section 718(g)‘s fixed-percentage contribution would be superfluous. Maj. Op. at 57. Setting aside that the majority‘s view makes Section 718(f) redundant twice over—essentially repeating Sections 718(a) and (g)—I do not see why a steady stream of funding every pay period is pointless just because more is coming later.
The majority next argues that the statutory history proves that Section 718(f) merely creates an aspirational goal that the Section 718(g) fixed-percentage contributions will ensure actuarial soundness. Because the 1959 version of the statute also obligated the employer to ensure actuarial soundness but defined “the amount of contributions by the employer” as “determined by applying a percentage rate to the aggregate compensation of the members for each regular payroll period,” the “employer contribution” described in the amended statute must bear this meaning too. Maj. Op. at 57– 58, quoting Act of June 24, 1959, No. 479, § 718, 1959 V.I. Sess. Laws 92, 110.
Nor does Section 718(g)‘s “detailed schedule of percentages” transform Section 718(f)‘s less-detailed description of the ADEC into the always-dreaded “elephant in a mousehole.” Maj. Op. at 58. As enacted, the ADEC may not have been an elephant. As recently as 1999, the “additional required contribution for the year” necessary to achieve actuarial adequacy was $24 million. JA127. Each of the next two years, the GVI‘s actuarially determined contributions fell ~$21 million short. The GVI‘s underfunding snowballed, soon requiring GERS to liquidate investments in a futile attempt to tame the growing “elephantine mass” of debt. Ortiz v. Fiberboard Corp., 527 U.S. 815, 821 (1999). Section 718(f) is not an elephant in a mousehole so much as a mouse in a mousehole who, neglected by the homeowner, spawned a family of mice. In any event, counting how much debt piled up over decades of non-compliance does not answer whether the GVI must pay that bill. Elevating poor performance to a defense against legal duty would make for quite a rodent‘s nest in which anyone can hide from statutory obligations.
Finally, the majority looks beyond the statute to the testimony of GERS representatives before the Legislature in 1997 and 2005. To the majority, this proves that GERS understood that Section 718(f) does not require the ADEC. Maj. Op. at 62–66.29 Respectfully, I am not sure why this
meaning of a statute “by such colloquies, . . . would open the door to the inadvertent, or perhaps even planned, undermining of the language actually voted on.” Id.30
Reading Section 718(f) out of the statute eliminates Section 718‘s mandate that the System fund an actuarial reserve. That is why I respectfully decline to join the majority as to Part IV.
II. ARTICLE III REMEDIES
Beyond the questions of contract and agreement, statutes and best meanings, and the decisions that produced this particular moment in a longstanding crisis, rests a most fundamental problem. The GVI, following the usual course of lawmaking, invoked the legislative powers delegated from the people to commit a portion of the people‘s property to GERS. That is how lawmaking works. Then, repudiating that promise, it paid GERS much less. Justly, GERS objects. Insolvent, GVI offers regrets and hopes that tomorrow will bring a better answer. Options abound within the ample powers of the legislative and executive branches. Still more exist in the people of the Virgin Islands, to whom both those public bodies are accountable.
But what of the courts established under Article III? Can they use the judicial power to simply order a sovereign territorial government31 to pay? Respectfully, the
A. The Judicial Power Holds No Purse
A summary of foundational principles helps frame my concerns. The Appropriations Clause of the U.S. Constitution states that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law[.]”
Rightly, they viewed the
In contrast, the judicial power is as limited as it is independent.36 Even to the staunchest advocates of federal authority, this limitation on the judicial power was necessary to affirm Congress‘s primacy and the complex role of the Executive in faithfully implementing legislative decisions.
Indeed, “[i]n establishing the system of divided power in the Constitution, the Framers considered it essential that ‘the judiciary remain[ ] truly distinct from both the legislature and the executive.‘” Stern v. Marshall, 564 U.S. 462, 483 (2011) (alteration in original) (quoting The Federalist No. 78, p. 466 (C. Rossiter ed. 1961) (Hamilton)). So the “[j]udicial power is never exercised for the purpose of giving effect to the will of the Judge; always for the purpose of giving
Thus it was the Executive, not the Judiciary, that the Founders saw as most likely to usurp Congress‘s appropriation power. Key to that balance is “[t]he separation between the Executive and the ability to appropriate funds that was frequently cited during the founding era as the premier check on the President‘s power.” United States House of Representatives v. Mnuchin, 976 F.3d 1, 8 (D.C. Cir. 2020). It was a promise made to allay the fears of Anti-Federalists that the president would soon become a tyrant. See Josh Chafetz, Congress‘s Constitution, Legislative Authority and the Separation of Powers 57 (2017); see also 3 Elliot‘s Debates 367 (Madison) (responding to Anti-Federalist claims that the President could make himself king by explaining that “[t]he purse is in the hands of the representatives of the people“). This is why Madison called the power of the purse “the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people . . . .” The Federalist No. 58, p. 350 (Isaac Kramnick ed., 1987) (Madison). And Hamilton persuaded those at the New York ratification convention by telling them, “where the purse is lodged in one branch, and the sword in another, there can be no danger.” 2 Elliot‘s Debates 349 (Hamilton).
The history of the constitutional debates makes clear that the purse belongs only to the people who, through a conscious delegation of agency, entrust that awesome privilege to the legislature.38 In fact, “the Convention never had in mind that the right of appropriation could be exercised by any branch other than the legislature. . . . There is no warrant to believe that judges had any authority to appropriate money from the treasury.” Figley & Tidmarsh at 1252. And “[t]hroughout the debates, delegates expressed concern for the ‘purse strings’ or the ‘purse’ — always regarding the protection of the people‘s money as a legislative function. No delegate voiced the opinion that the judicial branch would have any say in the government‘s finances.” Id. at 1253. From our earliest days, the judicial power was appropriately limited in proportion to its independence
B. The Historic Protections Against Judicial Spending
Thanks to the clarity of the text of the Appropriations Clause, federal courts have always understood they lack power to order money judgments against the coordinate branches of government—be they federal, state, or local—absent legislative appropriations or, in the rare case, an equivalent and explicit legislative funding commitment. Sometimes, it is called an “established rule” that “the expenditure of public funds is proper only when authorized by Congress.” United States v. MacCollom, 426 U.S. 317, 321 (1976) (citing Reeside v. Walker, 52 U.S. (11 How.) 272, 291 (1850)). Other times, a “historic . . . principle” that “before any expenditure of public funds can be made, there must be an act of Congress appropriating the funds and defining the purpose for such appropriation. Thus, no officer of the Federal Government is authorized to pay a debt due from the U.S., whether or not reduced to a judgment, unless an appropriation has been made for that purpose.” Hughes Aircraft Co. v. United States, 534 F.2d 889, 906 (Ct. Cl. 1976) (citing Reeside, 52 U.S. (11 How.) at 290) (emphasis added). But whatever the characterization, the character of the cases is clear: “a treasury, not fenced round” and “subjected to any number of description of demands” from “the undefined and undefinable discretion of the courts” would constitute “an absence of all rule” that would create a government “guided by the uncertain, and perhaps contradictory action of the courts, in the enforcement of their views of private interests.” U.S. ex rel. Goodrich v. Guthrie, 58 U.S. (17 How.) 284, 303 (1854).
This limitation connects to the limited nature of the judicial power. While the federal courts can decide cases and controversies involving the other branches of government, they cannot order the payment of a judgment against a sovereign absent an appropriation. See, e.g., Office of Pers. Mgmt. v. Richmond, 496 U.S. 414, 424-26 (1990) (“Any exercise of a power granted by the Constitution to one of the other branches of Government is limited by a valid reservation of congressional control over funds in the Treasury.“). As a result, Congress needed to appropriate funds for judgments against the federal government, first annually, e.g., Act of June 25, 1864, ch. 147, 13 Stat. 145, 148, now with indefinite guarantees covering most adverse money judgments against the United States. See
1. Open-Ended Money Judgments
The Appropriations Clause is “a core structural protection of the Constitution—a wall, so to speak, between the branches of government that prevents encroachment of the House‘s and Senate‘s power of the purse.” Mnuchin, 976 F.3d at 8. As with all separation of powers issues, our jurisprudence “generally focuses on the danger of one branch‘s aggrandizing its power at the expense of another branch.” Freytag v. Comm‘r of Internal Revenue, 501 U.S. 868, 878 (1991). So when there is an enforceable obligation—whether by contract or statute—a money judgment can only apply to
Nor can federal courts compel a government to raise the monies needed to satisfy a money judgment. INS v. Pangilinan, 486 U.S. 875, 883 (1988) (“A Court of equity cannot, by avowing that there is a right but no remedy known to the law, create a remedy in violation of law . . . .“) (quoting Rees v. Watertown, 86 U.S. (19 Wall.) 107, 122 (1873)). The range of equitable remedies not “in violation of law” is extremely narrow. Article III does not permit the use of equitable powers to compel local governments to satisfy judgment debts. Rees, 86 U.S. (19 Wall.) at 122. In Rees, the Court held that it lacked the power to appoint a receiver to levy and collect taxes to pay a town‘s municipal bond debt. Id. at 108-10, 116. That is because the “power to impose burdens and raise money is the highest attribute of sovereignty,” a “power of legislative authority only. It is a power that has not been extended to the judiciary.” Id. at 116-17.
Similarly, in Meriwether v. Garrett, 102 U.S. 472, 501-02 (1880), the Court recognized that a writ of mandamus could issue to compel municipal authorities to collect taxes, if they had such authority. But “if those [taxing] authorities possess no such power, or their offices have been abolished and the power withdrawn, the remedy of the creditors is by an appeal to the legislature, which alone can give them relief.” Id. at 518. That is because “[n]o Federal court, either on its law or equity side, has any inherent jurisdiction to lay a tax for any purpose, or to enforce a tax already levied, except through the agencies provided by law.” Id. (further noting that the “Federal court . . . cannot seize the power which belongs to the legislative department of the State and wield it in their behalf“). For dissatisfied creditors, “the remedy is by appeal to the legislature.” Id. at 501-02. Thus, as modern courts have also found, “where there is no state or municipal taxation authority that the federal court may by mandamus command the officials to exercise, the court is itself without authority to order taxation.” Missouri v. Jenkins, 495 U.S. 33, 73 (1990) (Kennedy, J., concurring in part) (citing cases).
2. Correcting Constitutional Harms
The narrow exception to this rule is that federal courts can order a state to remedy constitutional violations and, in so doing, require the state to incur costs. That is not the case here, as GERS‘s rights are statutory and contractual. But even when imposing costly remedial schemes on states, federal courts of appeals and the Supreme Court recognize the constraints of Article III.
Aware of this limit, GERS relies on Missouri v. Jenkins, 495 U.S. 33 (1990), a case differing in both degree and kind. In Jenkins, the Supreme Court affirmed a district court‘s desegregation order requiring the Kansas City government to pay (along with Missouri) to remedy constitutional violations. Id. at 53-54. In doing so, the Court
More importantly, Jenkins vacated the District Court‘s order requiring the Kansas City government to raise taxes. Id. at 50-51. The Court found that was an “intru[sion] on local authority” beyond the district court‘s equitable powers. Id. at 51. Under “principles of comity” governing equitable remedies, “the District Court was obliged to assure itself that no permissible alternative would have accomplished the required task” before taking the “drastic step” of imposing the tax. Id. at 50-51. Vacating a mandatory tax increase and, instead, permitting local authorities to determine whether that was necessary on their own, was “more than a matter of form.” Id. at 51. Rather, it empowered “local authorities [who] have the ‘primary responsibility‘” for solving desegregation “to devise their own solutions to these problems.” Id. at 51-52 (citing Brown v. Bd. of Educ., 349 U.S. 294, 299 (1955)). In this regard, Jenkins follows Supreme Court precedent prohibiting the Court from assuming the legislature‘s power to tax.
Our own decisions recognize the same limitations. In Evans v. Buchanan, 582 F.2d 750, 779 (3d Cir. 1978), we vacated a district court‘s denial of Delaware‘s request to enjoin a local school board from raising taxes to fund a desegregation plan. We remanded for a new hearing because the district court had failed to “extend[] the requisite deference” to Delaware‘s superseding state tax law “to which legislative judgments in the field of taxation are entitled.” Id. at 778. Even in the face of Delaware‘s egregious failure in desegregation efforts, this Court held that if Delaware‘s funding proved inadequate “legislators will most certainly receive feedback from their electors” and these “inherent political safeguards . . . should be permitted to run their own course.” Id. at 790.
That result is significant, showing that even when fundamental constitutional rights are at stake, we cannot simply order a government to spend money. Instead, we require compliance with constitutional obligations, and any spending is incidental or even optional. See Milliken v. Bradley, 433 U.S. 267, 295 (1977) (Powell, J., concurring) (“Ordinarily a federal court‘s order that a State pay unappropriated funds . . . would raise the gravest constitutional issues. But here, . . . the State has been adjudged a participant in the constitutional violations, and the State therefore may be ordered to participate prospectively in a remedy [to provide $5.4 million in funding] otherwise appropriate.“)
All of this creates a tight passage for an enforcement order implicating governmental spending to sail. And rightly so, lest we “improperly substitute[] [our] own . . . budgetary policy judgments for those of the state and local officials to whom such decisions are properly entrusted.” Horne v. Flores, 557 U.S. 433, 455 (2009) (citing Jenkins II, 515 U.S. at 131 (Thomas, J., concurring)). Usurping the powers given to the legislature not only distorts the principles of agency supporting the limited
III. CONCLUSION
This case is neither the first nor the last pension controversy. Similar state pension fund cases show that these same separation-of-powers principles prevent state courts from doing what we, as a federal court, dare not. See Ill. Educ. Ass‘n v. State, 28 Ill. Ct. Cl. 379, 384-89 (1973) (finding that the state had breached its contractual obligations to fund two pensions as required by implementing statutes but any decision to compel the legislature to make appropriations would violate the separation of powers); see also Valdes v. Cory, 189 Cal. Rptr. 212, 225 (Cal. Ct. App. 1983) (“[A] court of this state is powerless to compel the Legislature to appropriate such sums or to order payment of the indebtedness“).
No less restraint applies to this Court40, and we must recognize that “[e]xpenditures toward the fulfilment of public policy are integral to policymaking itself, and policymaking is left to the legislature.” Keepseagle v. Perdue, 856 F.3d 1039, 1059 (D.C. Cir. 2017) (Brown, J., dissenting) (citing Clinton v. City of New York, 524 U.S. 417, 451 (1998) (Kennedy, J., concurring)). The Constitution “assure[s] that public funds will be spent according to the letter of the difficult judgments reached by [legislators] as to the common good and not according to the individual favor of Government agents or the individual pleas of litigants.” Richmond, 496 U.S. at 428.
Some will see a flaw in that design.41 Through amendment, we might strike a different balance, though “it is by no means certain, that evils of an opposite nature might not arise, if the debts, judicially ascertained to be due to an individual by a regular judgment, were to be paid, of course, out of the public treasury. It might give an opportunity for collusion and corruption in the management of suits between the claimant, and the officers of the government, entrusted with the performance of this duty.” Joseph Story, 3 Commentaries on the Constitution of the United States § 1343, in The Founders’ Constitution, Volume 3, Article 1, Section 9, Clause 7, Document 4 (Univ. of Chicago
Thankfully, we need not speculate. Because we know, with certainty, that a federal court of limited powers and limited authority under our Constitution cannot play that role.
Notes
JA1969. To take another example, the Court expressed at a subsequent hearing that “the government failed to meet its obligations to make payments on behalf of the employees and the employers,” a “deficiency [that] needs to be remedied in short order.” JA2970–71. James Farrell and Daniel Shoag, Risky Choices: Simulating Public Funding Stress with Realistic Shocks, Brookings Inst. (Nov. 30, 2017), https://www.brookings.edu/research/risky-choices-simulating-public-pension-funding-stress-with-realistic-shocks/ (“Another shortcoming with the existing debate is that models used by both academics and practitioners generally assume that state and local governments will indeed fund the promises they make. In practice, of course, governments often fail to come up with the money they ‘should’ contribute according to their funding laws.“); Rachel Greszler, Too-Good-to-be-True Pensions Face Massive Shortfall, Heritage Found. (May 30, 2017), https://www.heritage.org/taxes/commentary/too-good-be-true-pensions-face-massive-shortfall (“For many Americans, defined benefit pensions have been a dream come true. After a few decades of labor, they‘ve retired in their 50s or early 60s with a comfortable pension income for life. But that dream come true is too good to last.“); Andrew G. Biggs, Not So Modest: Pension Benefits for Full-Career State Government Employees, Am. Enter. Inst. 3 (Mar. 2014), https://www.aei.org/wp-content/uploads/2014/03/-aei-economic-perspective-march- 2014_160053300510.pdf?x91208 (“[M]any state retirement systems produce what might be called ‘pension millionaires‘—that is, employees who will receive more than $1 million in lifetime retirement benefits.“).Right now the evidence that has been largely presented by the GERS or by the Government of the Virgin Islands suggests that there is, one, a breach; and two, there is an amount that needs to be determined as to the depth and breadth of that breach. So if the Government wishes the Court to consider any other evidence that hasn‘t already been provided in the record, then the Government needs to present that sooner rather than later. I think we‘ve covered this issue about the breach.... The breach needs to be closed.
St. George Tucker, Blackstone‘s Commentaries 1 App. 362-64, in The Founders’ Constitution, Volume 3, Article 1, Section 9, Clause 7, Document 3 (Univ. of Chicago Press), http://press-pubs.uchicago.edu/founders/documents/a1_9_7s3.html.All the expenses of government being paid by the people, it is the right of the people, not only, not to be taxed without their own consent, or that of their representatives freely chosen, but also to be actually consulted upon the disposal of the money which they have brought into the treasury; it is therefore stipulated that no money shall be drawn from the treasury, but in consequence of appropriations, previously made by law: and, that the people may have an opportunity of judging not only of the propriety of such appropriations, but of seeing whether their money has been actually expended only, in pursuance of the same...
Letters of Delegates to Congress: Volume 20 March 12, 1783 - September 30, 1783, 638 (Sept. 8, 1783), Rhode Island Delegates to William Greene, https://memory.loc.gov/cgi-bin/query/r?ammem/hlaw:@field(DOCID+@lit(dg020542)).The power of the purse is the touch-stone of freedom in all States. If the people command their own money they are free; but if their Sovereign commands it they are slaves. All other strings in government take their tone from the mode of raising money. An alteration therefore in the mode of raising money is an alteration of the Constitution. It is an essential & radical change. A change that, on experience, will be felt most sensibly. It cannot be an indifferent thing, or a matter of small moment. It is like altering the center of gravity. It is like transferring the fee simple of an estate. It is like putting your weapon of defence into another man‘s hand.