Judge Rubin's responses regarding the Pension Lawsuit, and our attorney, Mike May's response:
From: Mike May
Re: Pension Litigation
Date: January 2, 2018
Judge Rubin's opinion distinguishes 3 potential classes: (1) retirees, both ordinary and disability, (2) retirement-eligible members still on active duty and (3) active duty members not eligible to retire.
The decision relies upon City of Frederick v. Quinn, 35 Md. App. 626 (1977). That case recognizes pensions as contracts and says that pension benefits may not be retrospectively modified, i.e., the city may not take back pension benefits retirees, who have already fulfilled their obligations, have already earned, any more than a legislature may pass an ex postfacto, or retroactive, law.
For the retirees, who have already fulfilled their obligations, Judge Rubin found:
1. The City retrospectively, and therefore unlawfully, withdrew the retirees' rights to the variable benefit.
2. The retirees, having satisfied all the contractual conditions precedent (i.e., done everything necessary and fulfilled their obligations) to their right to receive the variable benefit prior to the adoption of Ordinance 10-306 (eliminating the variable benefit) held "vested interests to Plan benefits that the City could not unilaterally diminish or impair.'
3. By enacting Ordinance 10-306, the City breached its contract with the retirees.
4. The City is prohibited from unilaterally diminishing or impairing the retirees ' benefits because they have satisfied all the contractual contingencies necessary to receive retirement benefits under the Plan, i.e., they did everything they were supposed to do before the City reduced the benefits by eliminating the variable annuity.
5. The court decided the issue of"[Whether] the City is obligated to compensate members of the retired sub- class in accordance with the variable benefit provision of the Plan in place prior to the enactment of Ordinance 10-306." Id. The court's ruling was that the "Motion and Cross-Motion... are hereby DENIED." Id.
6. The court further ruled on the issue of "[Whether] the City is required to restore all Plan benefits that were unlawfully diminished or impaired through its enactment of Ordinance 10-306." The court wrote that the "Plaintiffs orally withdrew their Motion as to [the request that the variable annuity benefit be restored]."
In essence, the court decided, as to the retirees, (1) that there was a contract, (2) that Ordinance 10-306 breached the contract, (3) that Ordinance 10-306 eliminated the variable annuity benefit but (4) the measure of damages was not restoration of the variable annuity benefit to the retirees. The decision did not, on my rapid reading, set forth what an appropriate measure of damages for the retirees was.
In breach of contract cases, Maryland follows the rule of Hadley v. Baxendale, 9 Exch. 341 , 156 Eng. Rep. 145 (1854) which says that in a lawsuit for breach of contract, the plaintiff may recover those damages which naturally arise from the breaking of the contract. Those damages are the consequences of breaking the contract which the defendant had reason to foresee would take place or such damages as may reasonably be supposed to have been contemplated by both parties when they made the contract as the probable result of its breach. See, e.g., Hoang v. Hewitt Ave. Assocs., LLC, 177 Md. App. 562, 594, 936 A.2d 915, 934 (2007). At this point, therefore, we do not know the damages to which the retirees are entitled as a result of the city's breach of his contract. Moreover, I do not know the basis ofthe court's denial of the motion arguing that the city is required to compensate the retirees in accordance with the variable benefit provision of the Plan in place before the enactment of Ordinance 10-306. I further do not know the rationale for the plaintiffs' withdrawal of their motion requesting the restoration of the variable annuity benefit.
The bottom line is that the court held, as to the retirees, that Ordinance 10-306 was a breach of contract, but it did not set forth the damages to which the retirees are entitled. Nor did it set forth the methodology the Court would use to determine those damages.
Michael P. May
January 2, 2018
As posted by Lisa Riha...
Below is an update from Mr. Robert Klausner concerning our ongoing pension litigation. Mr. Klausner is the Baltimore Fire Officers pension attorney:
Last week, the lawyers held a phone conference with the Court to agree on a replacement for a retired class member who has passed away since the litigation began. The Judge and the lawyers discussed standards for certifying the case as a class action. The Plaintiffs will file an amended complaint with the Court adding the new name before December 13th. The Judge advised that she is working on an order to determine the issues raised at the November 2nd hearing and will provide it as soon as she has completed it. The Union will advise the membership as soon as the order is provided.
As posted by Lisa Riha...
*Pension Litigation - Update***
Below is from Mr. Robert Klausner, FireOfficers L-964`s pension attorney:
A hearing was held on November 2, 2017 in Baltimore Circuit Court before Judge Julie Rubin in the pension litigation. After an exchange of briefs that began during the summer, the City and the Unions each argued to the Court the merits of their cases. The hearing was on cross motions for summary judgment (meaning motions filed by both sides stating the Court could decide the issue on the law). As the 7 hour hearing progressed, the discussion focused on Maryland law as it related to pension as a contract and the language of Article 22, Section 42 of the Baltimore City Code. The members took the position that no changes are permitted in the plan after employment commences. The members further argued that even if changes could be made for active employees, any new plan must be substantially equivalent in value to the plan in effect on the date of hire. The City took the position that it had a reserved right to change the pension contract. Judge Rubin took the matter under advisement and a written order is expected shortly. FOP#3 and Firefighters Local 734 was represented by pension attorney Saul Ewing.
As posted by Lisa Riha FOP Secretary:
"The lawyers for the employee and retiree groups and lawyers for the City met with Judge Julie Rubin in the Baltimore Circuit Court to set scheduling for the case. In the hour long discussion concerning records from the federal case, the issues to be decided and schedules, the Court directed that the parties both file motions for summary judgment on the key legal issues that will determine the rights and liabilities of the parties including the meaning of Section 42 of the City Code (the contract provision). All memos of law will be filed over the next few months and the Court set October 30 at 9 AM for oral argument on the motions. As pleadings are filed they will be posted on the union website."
As many of you are aware, the pension lawsuit has been on hold. We are currently waiting for a State Court judge to be assigned to our case. The BRPBA, FOP, Fire Union and Retired Firefighters are also currently trying to set up an appointment to meet with the current Mayor. We will keep you informed.
On November 24, 2015, Nick Caprinolo and Mike May, among others, met with Charlie Monk and Devin Doolan of Saul Ewing in a meeting restricted to retirees. After the 2014 reversal of Judge Garbis' decision, the City has rebuffed every effort to resolve the F&P pension issue through negotiations.
Because so much time has passed, review would help.
On September 6, 2011, Judge Garbis rendered his second trial decision in Cherry v. Mayor and City Council of Baltimore City, 2011 WL 11027560 (D. Md. 2011). The judge wrote:
The Variable Benefit feature was in effect from 1983 through 2009. There was an investment return rate in excess of 7.5%, hence a Variable Benefit increase, in 17 of those 26 years..... the actual Variable Benefit increase received during those years was the equivalent of a 3% increase in each of those 26 years.
Ordinance 10-306, effective June 30, 2010, made several changes to the Plan, including elimination of Variable Benefit increases. Consequently, no Variable Benefit increase was provided for the fiscal year of July 2009 through June 30, 2010 although the rate of return for the year would have resulted in such an increase. However, the Ordinance added an age-dependent post-retirement benefit enhancement (Cost of Living Adjustment, or "COLA") feature. The age-based COLA provides for a 0% fixed annual benefit adjustment for eligible members and beneficiaries below the age of 55, a 1% adjustment for retirees from age 55 to 64, and a 2% adjustment for retirees age 65 and older.
Then, Judge Garbis set forth how he conducted his analysis of whether Ordinance 10-306 violated the Contracts Clause of the United States Constitution:
The Contract Clause, Article I, § 10 of the United States Constitution provides "No State shall ... pass any ... Law impairing the Obligation of Contracts." The Contract Clause does not literally prohibit any Legislative action that impairs government or private contracts.
United States Trust Co. of NY v. New Jersey, 431 U.S. 1, 21 (1977). Rather, there exists a well-established analysis for determining whether a legislative action implicates and violates the Contract Clause. See Fraternal Order of Police Lodge No. 89 v. Prince George's County, 608 F. 3d 183, 188 (4th Cir. 2010). This analysis balances and harmonizes the protections of the Contract Clause with the states' reserved police powers ''to provide for the welfare of their citizens."
Baltimore Teachers Union v. Mayor and City Council of Baltimore, 6 F.3d 1012, 1015 (4th Cir. 1993)....
Accordingly, in order to implicate the protection of the Contract Clause, it must first be established that (1) a contractual obligation exists, (2) the legislation retroactively impairs the contractual obligation, and (3) such impairment is substantial. If there has been substantial impairment, the legislative action will, nevertheless, be permissible if it is reasonable and necessary to serve an important public purpose....
Judge Garbis then concluded (1) that the Entitled Group of plaintiffs, those fully entitled to and receiving benefits under the plan, sustained a substantial retroactive impairment in the contract Clause Context of their right to the Variable Benefit feature, (2) that the Eligible Group, those eligible to retire but not entitled to receive benefits because they were still working, sustained a substantial retroactive impairment in the Contract Clause context of their right to the Variable Benefit feature with respect to benefits based upon service prior to the effective date of Ordinance 10-306 and that the Pre-Eligible Group, those members of the Plan who, as of the effective date of Ordinance 10-306, were working and not yet eligible to receive benefits, did not sustain any substantial retroactive impairment in the Contract Clause context.
The United States Court of Appeals for the Fourth Circuit vacated Judge Garbis Contract Clause decision and order in Cherry v. Mayor and City Council of Baltimore City, 762 F.3d 366 (4th Cir. 2014), holding that the City's substitution of the COLA for the Variable Benefit did not violate the Contract Clause at 372-73. Judge Keenan wrote:
A state or municipality does not "impair the obligation of contracts" merely by breaching one of its contracts or by otherwise modifying a contractual obligation....If the plaintiffs retain the right to recover damages for breach of contract, there is no impairment of contract under the Contract Clause....In the present case, the Ordinance neither prevents the plaintiffs from pursuing a state law breach of contract claim nor shields the City from its obligation to pay damages should it be found in breach of contract....
Under Maryland law, the contract or vested rights of employees "are subject to a reserved legislative power to make reasonable modifications in the plan or indeed to modify benefits if there is a simultaneous off setting new benefit...." See City of Frederick v. Quinn, 35 Md. App. 626, 371 A.2d 724,726 (1977). To qualify as a "reasonable modification," a revised plan must provide the employees with "substantially the program bargained for and any diminution thereof must be balanced by other benefits or justified by countervailing equities for the public's welfare."....In articulating this rule, the Court of Special Appeals of Maryland recognized that the needs of the government may change over time as new employees draw on pension funds, requiring modifications to ensure the "soundness of the fund." ....
The reasonable modification principle articulated by Maryland's courts verifies that the plaintiffs have an opportunity to litigate a breach of contract claim under state law. If the City's defense is unsuccessful and a court determines that the City has a contractual duty to the members and that the modification of the plan is unreasonable under Maryland law, the plaintiffs may be entitled to relief. Because the Ordinance does not foreclose any such claim by the plaintiffs, the City has not extinguished the plaintiffs' remedy under state law by enacting the Ordinance. Accordingly, the plaintiffs do not have a viable Contract Clause claim at 371-72.
In short, the Fourth Circuit held that Ordinance 10-306 did not violate the Contract Clause because the plaintiffs have a state breach of contract remedy under the Quinn case. That case, however, held that the change brought about by a law diminishing contract benefits must only be reasonable, not reasonable and necessary.
Nonetheless, the Quinn case actually benefits the retirees. It distinguishes between personnel still on active duty and personnel who have already retired. Under Quinn, when the event triggering an obligation on the part of the City to pay benefits, a member's retirement, occurs, the City may not go back and diminish benefits it already had an obligation to, and had begun to pay.
Clearly, therefore, the retirees have a much stronger breach of contract claim under Quinn than do personnel still on active duty. At the same time, the damages to which they would be entitled are significantly higher than any damages active duty people could claim for breach of contract. For active duty people, the situation, from a state law standpoint is just the opposite. For both active and retired personnel, the damages for breach of contract are money or a benefit equivalent to that which Ordinance 10-306 took away.
Settlement of the case during the current administration is not likely. During the last nine months, serious settlement discussions occurred because Mayor Rawlings-Blake thought she would run for reelection. She changed her mind in the wake of the Freddie Gray disturbances. As a result of the inevitable stagnancy her status creates, coupled with rather large gaps in the City's comprehension of the issues, resolution outside the court before the next election most likely will not occur.
Additionally, disagreement over whether a state or federal court should address the state breach of contract claim also exists. In Cherry v. Mayor and City Council of Baltimore City, the Fourth Circuit stated in the opinion's last footnote:
The plaintiffs may attempt to refile in the district court their state law claims that were dismissed without prejudice, or they may initiate proceedings in state court alleging breach of contract under Maryland law. If the plaintiffs choose to pursue either of these two courses of action, the district court may wish to hold any proceedings regarding the Takings Clause [government may not take property without justly compensating its owner] claim in abeyance pending the resolution of related contractual issues at 374, n.6. The City wants any state breach of contract claim decided in the Circuit Court for Baltimore City while the plaintiffs prefer the Federal Court, where the case has been for the last five years. Because the Takings Clause claim still exists, although it was not litigated, the federal court may still exercise jurisdiction over the state breach of contract claim under a theory of supplemental jurisdiction. It is within Judge Garbis' discretion as to whether he keeps the case.
Currently Judge Garbis has a status conference scheduled for December 2, 2015, and that could provide some clear indication as to the case's future.
Possibly, the retirees could file a motion for the court to enter judgment for them on their state breach of contract claim because the retirees have already done all the City asked, as is clear from their status as retirees. At this point, it is too early to tell when the court would rule on any such motion, much Jess when it would be filed.
At this point, all mayoral candidates need to have an understanding of the issues in litigation, something the current administration lacks. To that end, Saul Ewing is preparing a briefing paper for the candidates as to the issues. Once the candidates have the paper, the retirees can interview them as to their positions. The result of those interviews should assist the retirees in determining whether a particular candidate merits support.
Also, Saul Ewing will draft legislation espousing and/or mirroring the retirees' position. Such legislation naturally draws attention to the issues and provides an additional forum for retirees and actives to advance their positions as to the F&P Pension and the Ordinance 10-306 Changes.
Also, another recent development affects the retirees' pension. On November 20, 2015, Commissioner Davis sent a letter to Baltimore PD employees who had retired within the last five years recruiting them to rejoin the Police Department, which is alarmingly short of personnel apparently. Their pension benefits would be suspended until they retire again. But when they do so, they would receive a large increase in their pensions. That affects the F&P's solvency and thus inures to the current retirees' detriment. It also would likely limit the retirees' options and approaches to settlement.
Michael P. May
Follow the links below for information about the City of Baltimore 2010 Pension Ordinance and subsequent court rulings
2010 Pension Ordinance
Federal Court Third Ruling (20 Sep 12)
Judge Garbis Letter (20 Sep 12)
FOP's Summary (22 Sep 12)
BALTIMORE RETIRED POLICE
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