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Professional Firefighters Association of New Jersey v. State of New Jersey

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 23, 2011

PROFESSIONAL FIREFIGHTERS ASSOCIATION OF NEW JERSEY, I.A.F.F.-AFL-CIO, FRATERNAL OF POLICE, PATRICK B. DOHERTY, GEORGE M. BOREK, PETER YACKEL, KENNETH W. MARTIN, JR., DEBORAH CARR, EDWARD R. BRANNINGAN, STEVEN DEMOFONTE, LAWRENCE BROWN AND LINDA KERPER, PLAINTIFFS-APPELLANTS,
v.
STATE OF NEW JERSEY, ANDREW P. SIDAMON-ERISTOFF, TREASURER OF THE STATE OF NEW JERSEY, INDIVIDUALLY AND OFFICIALLY, THE NEW JERSEY STATE SENATE, A BODY POLITIC OF THE STATE OF NEW JERSEY AND THE NEW JERSEY STATE ASSEMBLY, AS A BODY POLITIC OF THE STATE OF NEW JERSEY, DEFENDANTS-RESPONDENTS.

On appeal from Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2658-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

ORDER

Argued January 4, 2011

Before Judges Carchman, Graves and Messano.

The plaintiffs in this case include the Professional Firefighters Association of New Jersey, I.A.F.F.-AFL-CIO (PFANJ), the Fraternal Order of Police (NJFOP), and several of their individual members. They appeal from a Law Division order dated April 8, 2010, dismissing their complaint against defendants State of New Jersey, the State Treasurer, the State Senate, and the State Assembly. For the reasons that follow, we affirm.

The PFANJ and NJFOP collectively represent the interests of active and retired firefighters and police officers in the State of New Jersey. Their members participate in the Police and Firemen's Retirement System of New Jersey (PFRS or the Plan), which was enacted on July 1, 1944, N.J.S.A. 43:16A-25, "for the purpose of providing retirement allowances and other benefits for policemen and firemen," N.J.S.A. 43:16A-2. Retirees who have participated in the Plan receive an allowance calculated based on their years of service, salary, and retirement status.

See N.J.S.A. 43:16A-5.

PFRS is governed by an eleven-member board of trustees, N.J.S.A. 43:16A-13(a)(2), and responsibility for its day-to-day administration is vested with the Division of Pensions and Benefits, N.J.S.A. 43:16A-13(a)(8). Additionally, the Plan employs an actuary who operates as the board's "technical adviser" regarding the management of PFRS funds. N.J.S.A. 43:16A-13(a)(12).

PFRS is funded by contributions from both members and their employers.*fn1 N.J.S.A. 43:16A-15. Members are required to contribute 8.5% of their total compensation to the Plan.

N.J.S.A. 43:16A-15(2).*fn2 Employer contributions, which are divided into "normal" and "accrued liability" contributions, are calculated on an annual basis by the board's actuary. N.J.S.A. 43:16A-15(4), (9). These contributions are included in the employers' budgets and collected in the same manner as taxes. N.J.S.A. 43:16A-15(9).

In 2003, the Legislature passed a bill (the 2003 Amendment) modifying the PFRS employer contribution scheme. L. 2003, c. 108, § 3. To compensate for the loss of "excess valuation assets," an alternative source of funding for employer contributions that was being discontinued, the Legislature reduced the required contribution amount for all employers other than the State. See Statement to Assemb. Bill No. 3703 (June 19, 2003) (indicating that the purpose of the change was "[t]o ease the fiscal impact on local employers of the loss of" excess valuation assets). These employers were required to pay only 20% of their actuarial liability for fiscal year (FY) 2004; 40% for FY 2005; 60% for FY 2006; and 80% for FY 2007. N.J.S.A. 43:16A-15(9).*fn3

On October 4, 2005, plaintiffs filed a complaint alleging, among other things, that passage of the 2003 Amendment "violate[d] the contract and the contractual rights" of PFRS's members and beneficiaries under the Contracts Clauses of the New Jersey and United States Constitutions. The five other counts in the complaint were dismissed with prejudice on March 13, 2007.

In July 2008, plaintiffs moved for summary judgment. The State Senate and Assembly subsequently cross-moved for summary judgment, and the State and State Treasurer moved to dismiss the complaint. While the motions were pending, however, the Legislature enacted another bill (the 2009 Amendment) that reduced the required PFRS contribution for employers other than the State to 50% of the actuarially-certified amount for FY 2009. L. 2009, c. 19, § 2 (codified at N.J.S.A. 43:16A-15(9)).

As a result, plaintiffs sought and received permission to file an amended complaint with an additional count asserting that the 2009 Amendment had violated their constitutional contract rights. According to the amended complaint:

By enacting the 2009 Amendment, the Legislature is depriving PFRS of the contributions necessary for maintaining PFRS on a sound actuarial reserve basis, preventing PFRS from earning investment returns and interest on the otherwise required contributions and jeopardizing the financial soundness of PFRS and its ability to satisfy its obligations in the future.

On March 4, 2010, prior to oral argument on the parties' summary judgment motions, we rendered a decision in New Jersey Education Association v. State, 412 N.J. Super. 192 (App. Div. 2010).*fn4 In that case, we considered whether the Legislature had violated the constitutional contract rights of the members of the Teachers' Pension and Annuity Fund (TPAF) by failing to meet its statutorily-mandated contribution requirements for FYs 2004 through 2007. Id. at 195. Noting that "a statute will not be presumed to create private, vested contractual rights, unless the intent to do so is clearly stated," id. at 206, we found that the TPAF's participants had "no constitutionally-protected contract right to systematic funding," id. at 217. Rather, we determined, the statutory language undergirding the TPAF "contain[ed] no enforceable right to any particular or systematic funding level or methodology in connection with TPAF." Id. at 213.

In light of this holding, the Law Division rendered an oral decision on the parties' summary judgment motions. Observing that plaintiffs were "seeking the same type of relief sought by the plaintiffs in NJEA," the court determined that our decision in that case was "controlling." Therefore, in an order dated April 8, 2010, it granted summary judgment to defendants and dismissed the complaint.

On appeal, plaintiffs present the following arguments for our consideration:

POINT I

THE RETIREMENT PLAN CONSTITUTES A CONTRACT BETWEEN THE STATE OF NEW JERSEY AND THE POLICE OFFICERS AND FIREFIGHTERS WHO ARE VESTED IN THE PLAN CREATING RIGHTS THAT ARE PROTECTED BY THE CONTRACTS CLAUSE OF THE UNITED STATES AND NEW JERSEY CONSTITUTIONS.

A. THE STATUTE INTENDED TO CREATE A CONTRACT WITH PLAN PARTICIPANTS.

B. BOTH DEFENDANTS ADMITTED THAT

PUBLIC PENSION PARTICIPANTS HAVE CONSTITUTIONALLY PROTECTED CONTRACT RIGHTS IN THE PLAN.

1. THE LEGISLATIVE

DEFENDANTS ADMITTED THAT PUBLIC PENSION PARTICIPANTS HAVE CONSTITUTIONALLY PROTECTED CONTRACT RIGHTS IN THE PLAN.

2. THE STATE DEFENDANTS

ALSO ADMITTED THAT PUBLIC PENSION PARTICIPANTS HAVE CONSTITUTIONALLY PROTECTED CONTRACT RIGHTS IN THE PLAN.

C. DECISIONS FROM SISTER STATES

HOLD THAT PENSION PARTICIPANTS HAVE A CONTRACTUAL RIGHT IN THE HEALTH AND SECURITY OF THEIR PENSION AND THAT THE STATE CAN SUBSTANTIALLY IMPAIR THOSE RIGHTS BY FAILING TO PROPERLY FUND THEIR PENSIONS.

D. WHILE THE NEW JERSEY SUPREME COURT HAS NOT YET RULED DEFINITIVELY ON THE QUESTION OF WHETHER THE RIGHTS HELD BY PUBLIC EMPLOYEES TO THEIR PENSIONS CONSTITUTE A CONTRACT RIGHT, NEW JERSEY'S JURISPRUDENCE HAS BEEN EVOLVING IN THE SAME MANNER AS SISTER STATES.

POINT II

DEFENDANTS SUBSTANTIALLY IMPAIRED PLAINTIFFS' CONTRACT RIGHTS BY ENACTING THE 2003 AMENDMENT, BY ENACTING THE 2009 AMENDMENT AND BY FAILING TO FUND THE PLAN AS CALCULATED BY THE PLAN'S ACTUARY.

A. DEFENDANTS IGNORED THE ACTUARY'S CALCULATIONS BY ENACTING THE 2003 AMENDMENT, BY ENACTING THE 2009 AMENDMENT AND BY FAILING TO APPROPRIATE AND TO PAY THE STATE'S CALCULATED LIABILITY FOR ITS OBLIGATIONS AS EMPLOYER.

B. DEFENDANTS DO NOT HAVE DISCRETION TO COMPLY WITH CONSTITUTIONAL OBLIGATIONS.

C. COURTS THROUGHOUT THE COUNTRY

HAVE FOUND CONSTITUTIONAL VIOLATIONS WHERE THE STATE FAILED TO OBTAIN ACTUARIAL INPUT BEFORE WITHHOLDING OR DIVERTING MONIES OWED TO PENSION PLANS.

D. BASED ON UNITED STATES TRUST CO., DEFENDANTS SUBSTANTIALLY IMPAIRED THE CONTRACT BETWEEN THE POLICE AND FIREFIGHTERS AND THE STATE AND HARMED THE PLAN'S FINANCIAL SECURITY.

E. IF THE STATE OF NEW JERSEY AND THE LEGISLATURE CREATED A CONTRACT AND VIOLATED PLAINTIFFS' CONSTITUTIONAL RIGHTS IN U.S. TRUST CO., THEY SIMILARLY DID SO IN THE PRESENT CASE.

F. U.S. TRUST CO. REFUTES DEFENDANTS' ARGUMENT THAT THEY CAN FREELY AMEND THE PENSION STATUTES.

POINT III

THE SUBSTANTIAL IMPAIRMENT OF PLAINTIFFS' CONTRACT RIGHTS WAS NOT OUTWEIGHED BY AN IMPORTANT PUBLIC PURPOSE.

A. DEFENDANTS' ACTIONS ARE NOT JUSTIFIED BY AN IMPORTANT PUBLIC PURPOSE.

B. THE AMENDMENTS WERE ENACTED TO THE DETRIMENT OF PLAN PARTICIPANTS.

POINT IV

IN NJEA, THE APPELLATE DIVISION ERRED WHEN IT FOUND THAT THE NJEA PLAINTIFFS DID NOT HAVE ANY CONTRACT RIGHTS IN THE SECURITY OF A PUBLIC PENSION.

A. NJEA IGNORED THE HOLDING OF U.S. TRUST CO.

B. NJEA IGNORED THE ADMISSIONS OF THE STATE AND LEGISLATURE.

C. NJEA MISREADS SPINA.

D. NJEA DOES NOT DISTINGUISH THE SISTER STATE CASES.

Based on our decision in New Jersey Education Association v. State, we find these arguments to be without sufficient merit to warrant extended discussion. R. 2:11-3(e)(1)(E). We add only the following comments.

Both the United States and New Jersey constitution prohibit the passage of any law impairing the obligation of contracts.

U.S. Const. art. I, § 10; N.J. Const. art. IV, § 7, ¶ 3. "The two clauses 'are applied coextensively and provide the same protection.'" N.J. Educ. Ass'n, supra, 412 N.J. Super. at 205 (quoting In re Pub. Serv. Elec. & Gas Co.'s Rate Unbundling, Stranded Costs & Restructuring Filings, 330 N.J. Super. 65, 92 (App. Div. 2000), aff'd o.b., 167 N.J. 377, 395, cert. denied sub nom., Co-Steel Raritan v. N.J. Bd. of Pub. Utils., 534 U.S. 813, 122 S. Ct. 37, 151 L. Ed. 2d 11 (2001)). When considering whether legislation interferes with this constitutional protection, a court must determine "'whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial.'" Ibid. (quoting Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S. Ct. 1105, 1109, 117 L. Ed. 2d 328, 337 (1992)).

Unlike many other states, our constitution does not expressly create a contractual right to retirement benefits. Id. at 212. Therefore, in order to protect "the fundamental legislative prerogative of statutory revision and amendment," we have stated that "a statute will not be presumed to create private, vested contractual rights, unless the intent to do so is clearly stated." Id. at 206. We will not recognize such a right unless it is "'so plainly expressed that one cannot doubt the individual legislator understood and intended it.'" Id. at 207 (quoting Spina v. Consol. Police & Firemen's Pension Fund, 41 N.J. 391, 405 (1964)).

As with the TPAF, the Legislature has retained the right to "alter, modify or amend" the PFRS. N.J.S.A. 43:3C-9.5(e). This provision indicates that the Legislature did not intent "to bind the hands of future legislatures . . . or to relinquish its sovereign power to deal with changing fiscal conditions." N.J. Educ. Ass'n, supra, 412 N.J. Super. at 214.

Therefore, although we recognize that vested members of PFRS "have a non-forfeitable right to receive [retirement] benefits," N.J.S.A. 43:3C-9.5(b), we find that the statute grants the Legislature discretion to maintain the Plan's funds as it sees fit. Accordingly, the Law Division's April 8, 2010 order is affirmed.


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