Taylor et al v. Gadsden, City of et al
MEMORANDUM OPINION AND ORDER GRANTING Defendants' 46 MOTION for Summary Judgment, DENYING Plaintiffs' 48 MOTION for Summary Judgment, GRANTING Plaintiffs' 56 MOTION to Strike. The entire affidavit of Lisa Rosser, and the quoted portion of the Diane Scott deposition are STRICKEN. By separate Order, this case will be DISMISSED WITH PREJUDICE, costs taxed as paid. Signed by Judge Virginia Emerson Hopkins on 7/29/2013. (JLC)
2013 Jul-29 PM 01:22
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
JOE TAYLOR, et al.,
CITY OF GADSDEN, AN
CORPORATION, et al.,
) Case No.: 4:11-CV-3336-VEH
MEMORANDUM OPINION AND ORDER
Joe Taylor, Jeff Mayben, Lecil Harrelson, Jeff Morris, John A. Calvert, David
Putman, and Derreck Sherrill are firefighters employed by the City of Gadsden (“the
City”). They filed this putative class action lawsuit against the City and Gadsden
Mayor, Sherman Guyton, in his official capacity. The complaint alleges that
mandatory increases to their required pension contributions, imposed by a recent act
of the Alabama Legislature, and resolutions of the City, violate Article I, section 10
of the U.S. Constitution and Section 22 of the Alabama Constitution. (Doc. 1, p. 1.)1
This case comes before the court on the cross motions for summary judgment
A short amendment to the complaint was filed on April 4, 2012. (Doc. 28.) However,
most of the allegations appear in document 1. When the court refers to the “complaint” it is
referencing document 1.
filed by the defendants (doc. 46) and the plaintiffs (doc. 48). Also before the court
is the plaintiffs’ motion to strike certain evidence which was submitted in support of
the defendants’ motion for summary judgment. (Doc. 56.) Finally, although not set
out as separate motions to strike, each party has “denied” many factual statements
offered by the other in support of the motions for summary judgment. Because most
of these denials actually dispute the admissibility of the evidence offered in support
of the fact, the court includes a section of this opinion treating those denials also as
motions to strike.
For the reasons stated herein, the plaintiffs’ motion to strike will be
GRANTED. The individual denials of facts will be ruled on as noted herein.
Finally, the defendants’ motion for summary judgment will be GRANTED, and the
plaintiffs’ motion for summary judgment will be DENIED.
Motion to Strike
Federal Rule of Civil Procedure 12(f) provides that “[t]he court may strike from
a pleading an insufficient defense or any redundant, immaterial, impertinent, or
scandalous matter. . . .” Fed. R. Civ. P. 12(f). A key limitation in Rule 12(f) is the
phrase, “from a pleading.” Rule 7(a) lists the pleadings which are allowed in federal
court. Fed. R. Civ. P. 7(a). This list does not include a party’s brief in support of a
motion, nor does it include an affidavit or portions of a deposition. Therefore, the
Rules do not allow the court to “strike” these documents.
At the same time, federal courts often treat a party’s motion to strike certain
evidence as an objection to that evidence’s admissibility. See, e.g., Ross v. Corp. of
Mercer Univ., 506 F. Supp. 2d 1325, 1333-34 (M.D. Ga. 2007). Such objections are
significant in resolving a motion for summary judgment, because a district court may
not consider evidence, at that juncture, which could not be reduced to an admissible
form at trial. See Macuba v. Deboer, 193 F.3d 1316, 1323 (11th Cir. 1999).
Until 2010, Rule 56 lacked a formal procedure to challenge such inadmissible
evidence. Then, the advisory committee added Rule 56(c)(2), which provides:
A party may object that the material cited to support or dispute a fact
cannot be presented in a form that would be admissible in evidence.
Fed. R. Civ. P. 56(c)(2). Although the plaintiffs have filed a Motion to Strike, the
motion challenges the admissibility of the affidavit, and portions of a deposition.
Therefore, the court will treat the plaintiffs’ Motion to Strike as an objection under
The advisory committee’s note to Rule 56(c)(2) provides that:
[An] objection [under Rule 56(c)(2)] functions much as an objection at
trial . . . . The burden is on the proponent to show that the material is
admissible as presented or to explain the admissible form that is
Fed. R. Civ. P. 56 advisory committee’s note to 2010 amendments (emphasis added).
Motion for Summary Judgment
Under Federal Rule of Civil Procedure 56, summary judgment is proper if there
is no genuine dispute as to any material fact and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986) (“[S]ummary judgment is proper if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.”) (internal quotation
marks and citation omitted). The party requesting summary judgment always bears
the initial responsibility of informing the court of the basis for its motion and
identifying those portions of the pleadings or filings that it believes demonstrate the
absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Once the
moving party has met its burden, Rule 56(e) requires the non-moving party to go
beyond the pleadings in answering the movant. Id. at 324. By its own affidavits – or
by the depositions, answers to interrogatories, and admissions on file – it must
designate specific facts showing that there is a genuine issue for trial. Id.
The underlying substantive law identifies which facts are material and which
are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All
reasonable doubts about the facts and all justifiable inferences are resolved in favor
of the non-movant. Chapman, 229 F.3d at 1023. Only disputes over facts that might
affect the outcome of the suit under the governing law will properly preclude the
entry of summary judgment. Anderson, 477 U.S. at 248. A dispute is genuine “if the
evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Id. If the evidence presented by the non-movant to rebut the moving party’s
evidence is merely colorable, or is not significantly probative, summary judgment
may still be granted. Id. at 249.
How the movant may satisfy its initial evidentiary burden depends on whether
that party bears the burden of proof on the given legal issues at trial. Fitzpatrick v.
City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993). If the movant bears the burden
of proof on the given issue or issues at trial, then it can only meet its burden on
summary judgment by presenting affirmative evidence showing the absence of a
genuine issue of material fact – that is, facts that would entitle it to a directed verdict
if not controverted at trial. Id. (citation omitted). Once the moving party makes such
an affirmative showing, the burden shifts to the non-moving party to produce
“significant, probative evidence demonstrating the existence of a triable issue of fact.”
Id. (citation omitted) (emphasis added).
For issues on which the movant does not bear the burden of proof at trial, it can
satisfy its initial burden on summary judgment in either of two ways. Id. at 1115-16.
First, the movant may simply show that there is an absence of evidence to support the
non-movant’s case on the particular issue at hand. Id. at 1116. In such an instance,
the non-movant must rebut by either (1) showing that the record in fact contains
supporting evidence sufficient to withstand a directed verdict motion, or (2)
proffering evidence sufficient to withstand a directed verdict motion at trial based on
the alleged evidentiary deficiency. Id. at 1116-17. When responding, the non-movant
may no longer rest on mere allegations; instead, it must set forth evidence of specific
facts. Lewis v. Casey, 518 U.S. 343, 358 (1996). The second method a movant in this
position may use to discharge its burden is to provide affirmative evidence
demonstrating that the non-moving party will be unable to prove its case at trial.
Fitzpatrick, 2 F.3d at 1116. When this occurs, the non-movant must rebut by offering
evidence sufficient to withstand a directed verdict at trial on the material fact sought
to be negated. Id.
Although there are cross-motions for summary judgment, each side must still
establish the lack of genuine issues of material fact and that it is entitled to judgment
as a matter of law. See Chambers & Co. v. Equitable Life Assur. Soc. of the U.S., 224
F.2d 338, 345 (5th Cir. 1955) (“Both parties filed and argued motions for summary
judgment, but this does not warrant the granting of either motion if the record reflects
a genuine issue of fact.”).2 “When there are cross-motions for summary judgment,
the court must consider each motion separately, drawing all inferences in favor of
each non-moving party in turn.” D & H Therapy Associates, LLC v. Boston Mut. Life
Ins. Co., 640 F.3d 27, 34 (1st Cir. 2011); see also, Byce v. Pruco Life Ins. Co., 1:09CV-1912-RWS, 2011 WL 233390 (N.D. Ga. Jan. 21, 2011) (“[T]he filing of crossmotions for summary judgment does not give rise to any presumption that no genuine
issues of material fact exist. Rather, ‘[c]ross-motions must be considered separately,
as each movant bears the burden of establishing that no genuine issue of material fact
exists and that it is entitled to judgment as a matter of law’”) (quoting Shaw
Constructors v. ICF Kaiser Eng’rs, Inc., 395 F.3d 533, 538–39 (5th Cir.2004)).
The court will consider each motion independently, and in accordance with the
Rule 56 standard. See U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962) (“On summary
judgment the inferences to be drawn from the underlying facts contained in such
materials must be viewed in the light most favorable to the party opposing the
motion.”). “The fact that both parties simultaneously are arguing that there is no
genuine issue of fact, however, does not establish that a trial is unnecessary thereby
empowering the court to enter judgment as it sees fit.” WRIGHT, MILLER & KANE,
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the
Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed
down prior to October 1, 1981.
FED. PRACTICE & PROC. § 2720, at 327-28 (3d ed. 1998).
The Plaintiffs’ Motion to Strike (Doc. 56)
The defendants have not responded to the motion, and so have not satisfied
their burden to show that the evidence is admissible. For that reason alone, the
motion is due to be granted. Regardless, as shown below, the material is not
The Affidavit of Lisa Rosser
The plaintiffs argue that “[t]he affidavit of Lisa Rosser . . . is inadmissible
hearsay, not based on first hand evidence and does not demonstrate that the affiant
is qualified to testify about such matters.” (Doc. 56, p. 2.) The motion appears to
attack the entire affidavit. While affidavits which fail to meet the standards set forth
in Rule 56 may be stricken, “if an affidavit contains some improper material, the court
need not strike the entire affidavit, rather it may strike or disregard the improper
portions and consider the remainder of the affidavit.” Thomas v. Alabama Council
on Human Relations, Inc., 248 F. Supp. 2d 1105, 1112 (M.D. Ala. 2003). In this
case, however, the entire affidavit is inadmissible.
The affidavit is very short. Although it is Rosser’s affidavit, it begins by
saying: “Before me, the undersigned, a Notary Public in and for said County and
State, personally appeared Kenneth and Debbie McElroy . . . who being by me first
duly sworn, deposes and says as follows[.]” (Doc. 47-15, p. 1) (emphasis added). The
body of the affidavit then reads:
According to Governmental Accounting Standards Board
(GASB) guidelines for municipalities, a city should have on hand
a "reserve fund" or "unassigned funds" an amount equal to three
times its monthly operating expenses. We are informed by our
auditors that most cities have four-to-six months in their reserve
According to the 2013 budget, the City of Gadsden’s monthly
operating expenses were projected to be just under $3.8 million.
Therefore to be within GASB guidelines the City would need to
have $11.4 million in its “unassigned funds” line item.
As of September 30, 2012, the City’s “unassigned funds” balance
was about $7.8 million. It had dropped from $10.9 million as of
September 30, 2010; and from $9.9 million as of September 30,
GASB promulgates standards and guidelines by which
accountants and auditors are governed. These include standards
and guidelines for public entities. GASB standards are recognized
in the financial industry as setting forth reporting procedures by
which public entities should operate.
(Doc. 47-15, pp. 1-2.) The affidavit is then signed by Lisa Rosser, after which the
I, the undersigned, a Notary Public in and for said County and State,
hereby certify that Lisa Rosser, whose name is signed to the above and
foregoing Affidavit, and who is known to me, acknowledged before me
that, being informed of the contents of said instrument, she executed the
same voluntarily on the day same bears date.
(Doc. 47-15, p. 2.)
Federal Rule of Civil Procedure 56(c)(4) states that: “An affidavit or
declaration used to support or oppose a motion must be made on personal knowledge,
set out facts that would be admissible in evidence, and show that the affiant or
declarant is competent to testify on the matters stated.” Fed.R.Civ.P. 56(c)(4). See
Hamilton v. Coffee Health Grp., CV-10-S-3621-NW, 2013 WL 2635304 (N.D. Ala.
June 6, 2013) (quoting Rule 56(c)(4)). In addition to stating that the affidavit is being
executed by “Kenneth and Debbie McElroy,” the affidavit makes no attempt to
identify who Lisa Rosser is, in what capacity she testifies, or that her affidavit is
based upon her personal knowledge. Accordingly, the entire affidavit lacks a
showing of both competence and personal knowledge. It is therefore due to be
stricken.3 “Affidavits which set forth conclusory arguments rather than statements
of fact based on personal knowledge are improper.” See, e.g., Story v. Sunshine
Foliage World, Inc., 120 F.Supp.2d 1027, 1030 (M.D.Fla. 2000). Accord, Leigh v.
Warner Bros., Inc., 212 F.3d 1210, 1217 (11th Cir. 2000).
The plaintiffs next argue that paragraph one of the affidavit contains hearsay.
This document is also not “sworn” by Lisa Rosser. It states only that it is sworn by
Kennth and Debbie McElroy. Further, does not state that it is signed “under penalty of perjury”
so as to make it admissible as an “unsworn declaration” under 28 U.S.C. § 1746.
“Hearsay” means a statement that: (1) the declarant does not make while testifying
at the current trial or hearing; and (2) a party offers in evidence to prove the truth of
the matter asserted in the statement.” Fed. R. Evid. 801(c). In this case, the
guidelines are an out of court statement, summarized by the affiant to prove the truth
of the matter asserted in the guidelines, that “a city should have on hand a ‘reserve
fund’ or ‘unassigned funds’ an amount equal to three times its monthly operating
expenses.” Similarly, the auditor’s opinions are out of court statements restated by
the affiant to prove the truth of the matter asserted, that “most cities have four-to-six
months in their reserve funds.”
The general rule is that inadmissible hearsay cannot defeat a motion for
summary judgment where there is no indication that it is reducible to a form that
would be admissible at trial. Wyant v. Burlington Northern Santa Fe Railroad, R.C.,
210 F.Supp.2d 1263 (N.D. Ala. 2002) (quoting, Pritchard v. Southern Co. Services,
92 F. 3d 1130, 1135, amended in part on rehearing, 102 F.3d 1118 (11th Cir. 1996),
cert. denied, 520 U.S. 1274, 117 S.Ct. 2453, 138 L.Ed.2d 211 (1997)). No such
showing having been made in this case, paragraph one is due to be stricken as
Paragraphs two, four, and five set out information regarding the City of
Gadsden’s monthly operating expenses, its unassigned funds, and the functions of
GASB respectively. These paragraphs are also due to be stricken because the affiant
does not explain how she has such information. Accordingly, she has not shown that
she is competent to testify to these facts. Further, she does not state that she has
personal knowledge of these facts. “Naked conclusions are not sufficient to create
a genuine factual issue.” Mader v. City of St. Petersburg, 725 F. Supp. 492, 494
(M.D. Fla. 1989).
Paragraph three is an opinion. Under the Federal Rules of Evidence, a witness
can testify in the form of an opinion if the witness is properly qualified as an expert
and certain other requirements are met. See Fed. R. Evid. 702. In this case, Rosser
is not identified as, nor has she been qualified as, an expert. If a witness is not
qualified as an expert, she can only testify in the form of an opinion if the opinion “is
limited to one that is:”
rationally based on the witness’s perception;
helpful to clearly understanding the witness’s testimony or to
determining a fact in issue; and
not based on scientific, technical, or other specialized knowledge within
the scope of Rule 702.
Fed. R. Evid. 701. None of these exceptions have been shown to apply. Paragraph
three is due to be stricken for this reason as well.
The Deposition of Diane Scott
The plaintiffs attack the following portion of the Scott deposition as
inadmissible lay opinion testimony.
In your opinion, would a municipality with a 27.98 percent
contribution rate be prudent to adopt the 2.5 increase in employee
MR. FITZPATRICK: Objection. She’s not been qualified as an expert
here, and she’s not been shown to have any basis for making an opinion
about Gadsden and its finances.
That’s a very good objection, but I can still hear your answer.
MR. FITZPATRICK: And it’s entirely speculative.
MR. HOWARD: Okay.
In general, when you look at employee benefits as a percentage
of salary, which this is it, you start to think of certain things. First
is your FICA ratio at 7.65 percent. Okay? Then you’ve got a
health insurance percentage. Let’s just say that’s about 10
percent. I don’t know what theirs is. Okay? You’ve got between
SUI and FUI -- let’s just say about a 1 percent. Okay? And then
you look at a retirement percentage. And if you’ve got 22 percent
there -- 23 because it rounds up, you’ve got -- you’ve got 41.65
percent of salaries as your benefits – 20 percent of benefits. In
general, I think that that is a little high -- is high. Okay? In the
other organizations where I have worked and -- we did not have
benefits at 40 percent of salaries. It was unsustainable.
(Doc. 47-5, pp. 124-126.)
Scott has not been qualified as an expert. No showing has been made that this
opinion testimony is otherwise admissible. It will also be stricken.
The plaintiffs also state:
During examination by the City’s lawyer, Scott wandered into a
rambling discussion speculating about what might happen if a city failed
to make its pension contributions, future changes in accounting rules,
and what might happen if bond rates increased and ratings decreased.
See, doc. 47-5, pp. 90-106.
(Doc. 56, p. 3.) The plaintiffs do not cite to specific testimony in these 16 pages. A
review of these pages shows mixed fact and opinion testimony. In the absence of an
objection to specific sections on a specific basis, the court will not comb through
these pages in an attempt to imagine every objection the plaintiffs may have.
However, to the extent that the defendants use certain portions of the Scott deposition
to support their motion, the court will address admissibility as to that section, to the
extent the plaintiffs have objected thereto.
Based on the foregoing, the motion to strike will be GRANTED. The entire
affidavit of Lisa Rosser, and the above quoted portion of the Diane Scott deposition
will be STRICKEN.
Individual Factual “Denials” Treated as Motions to Strike4
The court would normally merely place a footnote in its “Facts” section of the ruling on
the motion for summary judgment to indicate facts which were omitted for these reasons.
However, because of the vast number of such denials, the opinion on the motion for summary
judgment would have become too cluttered. Accordingly, the court will address all such denials
All facts listed in this section have been omitted from the “Facts” portion of the
court’s opinion on the motion for summary judgment. All facts are offered by the
party indicated below, and are the subject of a “denial.” However, each is denied not
because the objecting party provided evidence to support a contrary view, but because
the party denying the fact contends that the evidence which supports the proffered
fact is inadmissible. In the interest of brevity, the court will not restate each objection
in its ruling. However, each ruling will be based upon those objections unless
Defendants’ Facts Not Included
“General accounting standards for municipalities hold
that this percentage should never be over 60 percent.”
(Doc. 51, p. 4) (citing 47-1, p. 115-116 (Rosser
The citation for this fact is Rosser’s testimony that “most accounting standards
will tell you that this percentage should never be over 60,” and explaining that she
was referring to “gap standards.” (Doc. 47-1, p. 115.) This testimony is hearsay to
the extent that it attempts to summarize the standards. Further, Rosser is offering an
expert opinion when she has not been qualified as an expert. For these reasons, and
for the reasons stated in its opinion on the motion to strike Rosser’s affidavit, this fact
“Because the population in the City of Gadsden has
continued to decrease over a number of years, its tax
base has continued to decrease.” (Doc. 51, p. 6) (citing
47-1, p. 119).
In the cited portion of Rosser’s deposition, she testifies that her biggest concern
was the number of employees the City had “[b]ecause the population in the city has
decreased over the number of years; yet, we continue to increase our number of
employees.” (Doc. 47-1, p. 119.) Then, in response to the question “Your tax base
is going down?” she answered “Yes, it is.” (Doc. 47-1, p. 119.) Contrary to the cited
“fact,” her testimony does not link the lower population to the tax base going down.
If it did, it would be excluded as an expert opinion offered by a non-expert.
Therefore, this “fact” is disregarded as unsupported by the evidence cited.
“Beginning with fiscal year 2015, employers (such as
municipalities) must place on their financial statements
the amount of unfunded liabilities they have. In many
cases such will outweigh their assets. This would have
a significant, even ‘devastating’ impact on a city’s
ability to issue bonds.” (Doc. 51, p. 10) (citing 47-5, p.
35 (Scott deposition)).
This statement cites Scott’s testimony to this effect. Scott has not been
qualified as an expert, and no showing has been made that this opinion testimony is
otherwise admissible. Further, the citation does not support the opinion about the
impact on the City’s ability to issue bonds. Also, to the extent Scott is quoting a
source, the opinion is hearsay.
“Other criteria to determine actuarial soundness
include whether historically the ARC has been met, and
whether there is a cap on what the employer must
provide. Failing to meet the ARC on even one occasion
contributes to greater liabilities placed on the books
affecting credit and bondworthiness.” (Doc. 51, p. 51)
(citing doc. 47-5, p. 96).
This is also based upon an expert opinion offered by Scott, who is not an
expert. It will not be included for this reason and because the fact is not supported
by the citation given.
“Aside from the GASB rule change about unfunded
liability on the employer’s books, other impending
changes in GASB rules and in Moody’s evaluations
could affect existing bond issues, decreasing a rating
and increasing the interest rates on such bonds.” (Doc.
51, p. 12) (citing doc. 47-5, pp. 99-103).
This “fact” is excluded as inadmissible “expert” opinion testimony by Scott.
“A ratio of about eighty percent (80%) is considered
acceptable by Scott.” (Doc. 51, p. 12) (citing (47-5, p.
This fact is supported by an inadmissible statement of expert opinion by Scott.
“The City is supposed to have reserve funds of three
times its monthly operating expenses, according to the
standards of the Governmental Accounting Standards
Board.” (Doc. 51, p. 17 (citing 47-15 (Rosser affidavit)).
The only support for this fact is the Rosser affidavit, which will be stricken for
the reasons set out earlier in this opinion.
“The Governmental Accounting Standards Board
(GASB) promulgates standards and guidelines by
which accountants and auditors are governed. These
include standards and guidelines for public entities.
GASB standards are recognized in the financial
industry as setting forth reporting procedures by which
public entities should operate.” (Doc. 51, p. 17) (citing
The only support for this fact is the Rosser affidavit, which will be stricken.
“According to the 2013 budget, the City of Gadsden’s
monthly operating expenses were projected to be just
under $3.8 million. Therefore to be within GASB
guidelines the City would need to have $11.4 million in
its ‘unassigned funds’ line item.” (Doc. 51, pp. 17-18)
The only support for this fact is the Rosser affidavit, which will be stricken.
Plaintiffs’ Facts Not Included
“The employees’ agreement was to contribute
additional funds in excess of 6% for a three year
period.” (Doc. 49, p. 13) (citing 47-1, p. 50).
This fact is not based upon the witness’s personal knowledge. Rosser testified
that this was an “assumption,” and that “[o]ther than hearsay, [I] really didn’t know
what their agreement was.” (Doc. 47-1, p. 50.)
“Although the employees’ contribution costs to
retirement increased by 30%, Rosser testified it was
justified because its ‘a dad-gum good retirement.’”
(Doc. 49, p. 16) (citing doc. 47-1, pp. 147-148).
First, the cite the plaintiffs give is wrong. The quoted material appears on page
146 of document 47-1. Second, the plaintiffs misstate the testimony. Rosser was
asked “what did the employee get in return for the loss of that salary? In other words,
how did the employee’s pension benefit increase?” (Doc. 47-1, p. 146.) After an
objection to the form of the question, Rosser answered: “One day when I retire, I have
a dad-gum good retirement. I didn’t lose a thing.” (Doc. 47-1, p. 146.) Rosser’s
opinion as to the soundness of the retirement plan, and how good it is, is
“The increase in employee contributions did not
improve the actuarial soundness of the pension plan.”
(Doc. 49, p. 17) (citing doc. 47-1, pp. 149-150).
Ironically, this statement is based upon the same type of lay opinion statement
by Rosser to which, when offered by the defendants, the plaintiffs have objected and
moved to strike. The defendants move to strike the statement because “the term,
‘actuarial soundness’ is an oft-repeated misnomer that has little significance to the
city’s adoption of the increased contribution measure. A plan’s ‘actuarial soundness’
is gauged by looking at the unfunded liability ratio; it has little or nothing to do with
the contribution rates per se.” (Doc. 58, p. 9) (citing 47-1, p. 159 (Rosser deposition);
47-5, p. 77-78, 82-89 (Scott deposition)). This appears to be an objection to
“Actuarial Soundness” is not an issue here. The City does not argue that the
rates were increased to “shore up” the plan. They argue that they were increased to
reduce its costs. Further, these statements constitute inadmissible expert opinion
testimony by a lay witness.
“Guyton believed the City was paying 26% in
retirement costs which he believed was the highest in
the state.” (Doc. 49, p. 18) (citing doc. 47-2, pp. 23-24
This support for this fact is deposition testimony which is not based upon the
witness’s personal knowledge. As to these numbers, Guyton states in his deposition
that “I never read anything to tell me that, but supposedly the people who had
checked on it said that’s about right.” (Doc. 47-2, p. 24.)
“The pre-merger actuarial study determined that
additional funds were needed to resolve the unfunded
liability.” (Doc. 49, p. 30) (citing doc. 47-8, p. 16-17
The fact is supported by the following exchange in the deposition of Randy
Do you have any knowledge, and, if so, I’m going to ask you the
source of your knowledge or the basis of your knowledge, about
how somebody came up with paying 35 months an additional 5
percent into that supplemental fund?
How did that come about?
Well, we had an actuary done from the State to see what it was
going to cost the City in additional funding to convert money. We
had like $8 million in our retirement fund. And, after you donated
that or put that into the fund, then, to pay off the unfunded
liability, the State came back with the number, I think at that time
it was going to be 17 percent of the entire City’s severance in
order to pay off the unfunded liability, which was probably going
to take 17 years. We are starting year 10 of that now.
The total increase then, when you combine that with what
the City was paying -- and I forget the exact percentage is paid on
the other city employees, I think it was three or four percent, with
the 26 percent of police and firemen salaries. The additional cost
was going to be 1.3 million. That’s where the Committee came in.
(Doc. 47-8, p. 16-17.) This summary is inadmissible hearsay.
“When the merger was discussed in 2000 and 2001, it
was anticipated that the unfunded liability would be
amortized over a 17 year period.” (Doc. 49, p. 30)
(citing doc. 47-8 p, 39).
First, the “fact” is not found in the cited testimony. Smith testified that “it was
amortized over 20 years.” (Doc. 47-8, p. 39.) He also stated that “they projected, if
the returns remain the same as they have in the past, it would probably be paid down
in 17 years.” (Doc. 47-8, p. 39.) Second, even though Smith was on the committee,
there is no foundation for how he knew about how long the liability would be
“It was well known that the City would be paying a
large amount for a long time.” (Doc. 49, p. 30) (citing
47-8, p. 40).
This statement is supported by Smith’s testimony that “everybody knew that
the City of Gadsden would have to pay a lot of money over a long time.” (Doc. 47-8,
p. 40.) Smith’s opinion that “everybody knew” is excluded as speculation.
“During the pre-merger negotiations, it was anticipated
that the City’s contributions would increase and peak
over a 12 year period. The state ERS representative
confirmed that such a trend would continue.” (Doc. 49,
p. 160) (citing 50-12, pp. 18-20 (Matlock deposition)).
A review of the evidence cited reflects that Matlock “assumed” that this would
be the case, based upon his “understanding” of what he was told by a state
representative from the ERS. This statement is a conclusion based upon hearsay.
“Calvert initially made an extra contribution to ERS to
‘buy into’ the program.” Doc. 49, p. 32) (citing 50-13,
p. 9 (Calvert deposition)).
When asked in his deposition whether he ever paid 11 percent, Calvert testified
that “[t]here again, to my knowledge, I’m not up on all the numbers.” (Doc. 50-13,
p. 8.) He said “I thought we paid an extra amount to get into the program. And then
it was scaled back for us.” (Doc. 50-13, p. 8.) He stated that it was his understanding
that the extra amount was “to buy into the program,” and “[o]nce we bought in, it was
supposed to go to six percent. That’s my understanding. I don’t know how accurate
that is.” (Doc. 50-13, p. 9.) These statements reflect that Calvert did not know
whether he was paying more, and, even if he did, was not sure where the extra money
went. The “fact” will not be considered.
“Harrelson has learned that the 5% extra he
contributed to the Supplemental Fund was not used to
resolve unfunded pension liabilities, but simply kept by
the City.” (Doc. 49, p. 34) (citing 50-14, p. 34
Harrelson testified only as to his “understanding.” (Doc. 50-14, p. 34.) He said
he “found out” that the City just kept that money, without explaining how he got this
information. (Doc. 50-14, p. 34.) He said he was “pretty sure” that the City did not
pay down the unfunded liability but just put the money into its general fund. (Doc.
50-14, p. 35.) He admitted later that he didn’t know if the City put the money into the
general fund and then later sent in the money towards the unfunded liability. (Doc.
50-14, p. 36.) When asked again how he knew the City did not use it for paying off
the unfunded liability he said: “I know the City. They didn’t.” (Doc. 50-14, p. 36.)
The witness’s opinion, which is clearly not based upon his personal knowledge,
cannot support this “fact.”
“Mayben has learned at union meetings that the
additional 5% was not used by the City to reduce
unfunded liabilities.” (Doc. 49, p. 35) (citing 47-13, pp.
13, 20 (Mayben deposition)).
Mayben testified that “to the best of [his] knowledge” the extra money did not
go to pay the unfunded liability. (Doc. 47-13, p. 12.) He said his knowledge was
based on “rumors” and from “what was discussed at the Union meetings.” (Doc. 4723
13, p. 13.) Mayben’s testimony is excluded as hearsay.
“There were several factors why the actuaries said the
former PFRF was going broke. Those included the
sliding scale increases provided to retired employees.”
(Doc. 49, p. 35) (citing 47-13, p. 19).
The defendants object to this statement as “an answer to an improper leading
question,” “testifying without personal knowledge and otherwise without sufficient
foundation or other indicia of reliability, and this otherwise constitutes inadmissible
opining.” (Doc. 58, p. 21.) The cited portion of Mayben’s deposition reads:
And the reason that the actuary said that the fund was going broke
was because the benefits for --
MR. HOWARD: Object.
BY MR. FITZPATRICK:
-- for retired employees were, in the opinion of some, rather
Yes, sir. Sliding scale. There were several different things that
were contributing factors, I believe.
(Doc. 47-13, p. 19.) Mayben is not testifying based upon his person knowledge. He
is recounting what he remembers the actuary report saying. This is excluded as
“It was agreed that the police and firefighters would
pay an extra 5% for three years, and the responsibility
to resolve the balance of the unfunded liability was the
City’s.” (Doc. 49, p. 35) (citing doc. 47-13, p. 21).
The defendants properly object that testimony supporting the statement was
based only on the witness’s “understanding.” (Doc. 47-13, p. 21.) No foundation for
it was cited.
“By increasing Mayben’s pension contribution, the City
of Gadsden reduced its costs.” (Doc. 49, p. 35) (citing
doc. 47-13, p. 27).
The defendants properly object that testimony supporting the statement was
based only on the witness’s “understanding.” (Doc. 47-13, p. 21.) No foundation for
it was cited.
“The additional payment for three years was to ‘pay us
in full’ for costs related to the prior PFRF.” (Doc. 49,
p. 37) (citing doc. 47-14, p. 23 (Morris deposition)).
Morris’s cited testimony is actually: “they said after we paid, that would be the
end of it.” (Doc. 47-14, p. 23.) To whom “they” refers is not stated. When asked to
explain what his statement meant, he stated: “We were supposed to pay three years
total at five percent, that would pay us in full. That would allow us to go on State
Retirement.” (Doc. 47-14, p. 23.) This testimony is a speculative conclusion based
upon inadmissible hearsay.
“Additional special pension costs of the merger were to
be absorbed by the City.” (Doc. 49, p. 37) (citing 47-14,
The support for this fact is the following portion of Morris’s deposition:
Was it understood between the employees and the City that
further special costs of the merger would be absorbed by the
MR. HOWARD: Object to the form.
(Doc. 47-14, p. 27.) No foundation for this “understanding” has been cited. Further,
the statement is speculation as to what others “understood.”
“The step increase may be repealed in the future.”
(Doc. 49, p. 38) (citing 47-14, p. 32).
The support for this fact is the following portion of Morris’s deposition:
Did the City lower the amount of pay that people get under the pay scale?
MR. HOWARD: Object to the form.
THE WITNESS: Yes.
BY MR. FITZPATRICK:
So that one and a quarter percent increase, could the City take that
away if it wanted to?
MR. HOWARD: Object to the form.
THE WITNESS: Yes.
(Doc. 47-14, p. 32.) The defendants object to this fact only “to the extent that the
witness is asked to testify as to whether a step increase may be repealed in the future.”
(Doc. 58, p. 23.) As to this point, the testimony is speculative and excluded.
“The City should have reduced personnel costs by
cutting salaries or reducing the number of employees.”
(Doc. 49, p. 40) (citing 47-10, p. 29 (Putman
Putman did testify to this, but he was not shown to be an expert, or to be in the
position to make such a statement. His statement lacks foundation and therefore is
“The City was motivated because it wanted the
employees to agree to move from a City funded Blue
Cross plan to the State Health Insurance Plan to reduce
the City’s health insurance costs.” (Doc. 49, p. 41)
(citing 47-11, pp. 13-14 (Taylor deposition)).
This fact is based upon the following testimony from Taylor: “The City was
interested, because I think at the time, according to the Mayor and the Finance
Director, Tony Stapler, the pension fund was creating a problem with them as far as
bond market was concerned. It was shown as a detriment to them. So they were as
motivated as us to try to get this done.” (Doc. 47-11, p. 13.) The defendants properly
object that this testimony “is without sufficient foundation, is based upon
inadmissible hearsay, and is speculation.” (Doc. 58, p. 25.)
“The problems with the PFRF were significant and the
employees believed that by paying the extra cost for a
few years they would have a sound pension.” (Doc. 49,
p. 41) (citing 47-11, pp. 24-26).
This statement is the plaintiffs’ summary conclusion taken from three pages of
testimony. It is not a “fact.” Further, to the extent that it attempts to summarize
anything to which Taylor testified, he cannot speak for what other persons “believed.”
This “fact” is excluded.
“At the time the City adopted the local option in 2011,
it repeatedly told the Gadsden Times that the City was
in good financial condition.” (Doc. 49, p. 41) (citing
47-11, pp. 34-35).
The fact cites for its support the testimony of Taylor, as to what the City told
the newspaper. It is inadmissible hearsay and therefore excluded.
“At the time of the merger of the systems, it was
anticipated that the cost of amortizing the unfunded
liability of the PFRS would be spread over 20 years.”
(Doc. 49, p. 42) (citing 47-11, p. 46).
The portion of Taylor’s deposition cited is inadmissible hearsay. Referring to
the Alabama ERS representative, he testified:
When the lady came both times, she explained, even to us at our level,
that the funding was amortized over 20 years, that over the 20 years it
was set almost like a bell curve of a test where the contributions could
rise, could rise, could rise, and then they would begin to fall off on the
(Doc. 47-11, p. 46.)
“It was also agreed in 2002 that the extra costs of the
unfunded liability would be borne by the City.” (Doc.
49, p. 42) (citing 47-11, p. 512).
The defendants properly object that this fact is based upon Taylor’s
“understanding.” No foundation for his testimony has been cited.
“Sherrill paid an additional 5% pension contribution
for three years which was put in the City’s general fund
rather than applied to his pension.” (Doc. 49, p. 43)
(citing 50-20, p. 9 (Sherill deposition)).
The fact cites a portion of the Sherill deposition where he states that he
“thought [it] was going to be paid on the pension, and it wasn’t.” (Doc. 50-20, p. 9.)
When asked why he would say that, he stated: “It was put into the general fund.”
(Doc. 50-20, p. 9.) However, Sherill admits in his deposition that he does not know
where the money went after it went into the general fund. (Doc. 50-20, p. 9).
“The rights to participate in the pension system and
receive future benefits are considered part of the
employee’s overall compensation.” (Doc. 49, p. 45)
(citing doc. 47-5, p. 25).
The defendants correctly argue that this fact statement, based upon the nearly
identical language in Scott’s deposition, is speculative, an inadmissible opinion, and
a conclusion. Scott cannot testify as to how someone else views the pension system.
“The RSA’s involvement in the legislative process
largely focused on calculating the savings to the state of
various proposals evaluated by the Legislature and
other State agencies.” (Doc. 49, p. 49) (citing doc. 52
The support for this assertion is a general citation to 219 pages of exhibits.
Such general references do not suffice to support facts, as the court’s scheduling
order requires that “[a]ll statements of fact must be supported by specific reference
to evidentiary submissions.” Further, the statement is not a “fact,” it is a conclusion.
“The records produced show no legislative purpose
other than to reduce the state’s pension costs for its
employees.” (Doc. 49, p. 49) (citing doc. 52).
The support for this assertion is a general citation to 219 pages of exhibits.
Such general references do not suffice to support facts, as the court’s scheduling
order required that “[a]ll statements of fact must be supported by specific reference
to evidentiary submissions.” Further, the statement is not a “fact,” it is a conclusion
The Motions for Summary Judgment
The PFRF and the ERS
The Policemen’s and Firemen’s Retirement Fund of the City of Gadsden
(“PFRF”), was a pension plan that was originally created in 1939 by the Alabama
Typically, when ruling on a motion for summary judgment, the court will cast the facts
in the light most favorable to the non-movant. In this case, the parties are, at the same time, both
movants and non-movants. For that reason, in this section the court will set out only facts upon
which there is no dispute, or upon which the evidence clearly supports only the proffered fact as
stated by the court. In the latter case, the court will provide a citation to the record. Citations
will also appear when material is quoted. Where the parties agree on a fact, no citation will
Legislature. Both the City and the participant’s costs of contributing to the PFRF
were high. Under the PFRF, police and firefighters were paying eleven 11% of their
base salary into the system, and the City was paying 26%. The system no longer
At the same time that some Gadsden employees participated in the PFRF, other
Gadsden city employees participated in the Employees’ Retirement System of
Alabama (“ERS”), a part of the Retirement Systems of Alabama (“RSA”).6 The ERS
system was established in 1945, and provides both disability and service retirement
benefits to members and survivors. In addition to the State of Alabama, localities,
like the City of Gadsden, can choose to come under the plan. In fact, the majority of
ERS participants are employed by some local jurisdiction rather than by the State of
Alabama. The system is mandatory in that, if an employer is part of the ERS, all full
time employees of that employer must participate.
The ERS is a “defined benefit plan,” meaning that monies are collected and
invested with the intent of providing certain defined benefits under the terms of the
retirement plan statutes. Increased employee contributions are recorded on each
employee’s annuity benefit account. If an employee were to withdraw from the
The RSA also includes the Teachers’ Retirement System, Public Education Employees’
Health Insurance Plan, RSA-1 Deferred Compensation Plan, and the Judicial Retirement Fund.
system early, those contributions can be withdrawn.
ERS participants with over ten years of creditable service have vested rights
in the system. An employee with 10 years of creditable service has vested rights to
a pension at age 60. An employee with 25 years of creditable service has vested
pension benefits regardless of age.
In contrast to the PFRF, under the ERS employees are required to contribute
a percentage of all compensation, rather than just base pay. In Gadsden in 2002,
police and fire employees (collectively “hazardous duty employees”), who did not
participate in the PFRF, contributed 6% of their salary to the ERS.
The Named Plaintiffs
Joe Taylor has been employed by the City of Gadsden for 18 years. Taylor was
a participant in the PFRF, and, in the late 1990s, was instrumental in identifying the
problems with the PFRF and opening communications with the RSA. He has 20
years of creditable time in the pension system, and was vested in 2011 when the City
raised contribution rates. Taylor pays additional contributions for his already vested
pension but receives no additional benefits.
Jeffrey Mayben, except for a brief layoff period in 1986, has been employed
by the Gadsden Fire Department since December 1985. Mayben was a participant in
the PFRF for 17 years. Mayben has about 30 years of creditable service in the
pension system. He had already vested in his pension when the City increased his
contribution rate. Mayben was eligible to retire and begin receiving his pension
before the contribution rate was increased.
Lecil Harrelson is an employee of the Gadsden Fire Department. He was hired
in 1985 and has been employed by the Gadsden Fire Department for 27 years.
Harrelson was a participant in the PFRF until it was merged with the ERS in 2002.
After the PFRF was merged into the ERS, Harrelson paid the 5% supplemental
contribution for 3 years. Before the City’s election to increase pension contributions
in 2011, Harrelson was fully vested in his pension. He testified that the City’s
decision did not change his benefits at all.7 Harrelson believes the City Council “stole
my money” by increasing pension contributions.
Jeff Morris has been employed by the Gadsden Fire Department for 21 years.
Morris was a vested participant in the PFRF System from 1991 until it merged with
the ERS. Morris supported the merger with the ERS. At the time of the merger,
Morris became vested in the ERS. Morris has contributed an additional 2.25% of his
salary to his pension for the first year, and an additional 2.5% since October 1, 2012.
This fact, also proffered by the plaintiffs, originally included that he was also provided
no “actuarial improvement in his pension.” (Doc. 49, p. 33) (citing 50-14, pp. 31-32). The
defendants properly object to this statement as the witness did not so testify. He only agreed that
the “soundness of [his] investment in the pension system” did not change. (Doc. 50-14, p. 31.)
Further, the defendants correctly point out that there is no foundation or showing of personal
knowledge for this testimony.
The additional pension contributions have resulted in a reduction of Morris’s
take-home pay. Every other member of the Fire Department has been similarly
John A. Calvert was hired by the City of Gadsden as a firefighter in October
2004. As soon as he was employed, Calvert began participating in the ERS. He
contributed six percent of his salary to the ERS. He was never a member of the old
fund. (Doc. 50-13, p. 8.)
William David Putman has been employed by the Gadsden Fire Department
since October 2004. Putman paid the 6% to the ERS and 5% to the City supplemental
fund for about 11 months when he was first employed. Putman was told8 when he
was hired that the supplemental contribution would end after the 3 year term and he
would contribute 6% to the ERS based on state law. He was also President of the
Firefighters Union when the contribution change occurred.
Derrick Sherrill is a named plaintiff and has been employed by the Gadsden
Fire Department for 19 years since 1993. Sherrill has over 20 years of creditable
pension service and is fully vested in his pension. Sherrill was fully vested in his
pension when the City increased the pension contribution rate by 2.25%. When rates
were increased, there was no change in his benefits.
The parties agree that he “was told,” but do not specify by whom.
In the late 1990s, actuarial reports showed that the PFRF lacked the resources
to meet its long-term obligations. The PFRF was paying out benefits as fast as the
current employees made contributions, and the parties agree that the system was
Steve Means served as Mayor of Gadsden from the mid-1970s until 2006.
Means knew of the problems of the PFRF and believed that the ERS was “solid as a
rock.” (Doc. 47-2, p. 9.) Means sought to develop, with representatives of the police
and fire department, an acceptable plan to resolve their pension issue. He wrote a
letter to the firefighters union on March 31, 2000, urging an agreement to merge the
PFRF pension system into the ERS. He then participated in negotiations with the
employees on the details of merging the systems. It is undisputed that any such
merger required approvals from the Mayor, the City Council, the employees, and the
One of the problems with a merger was that Gadsden would have to accept
what the parties call the PFRF’s “unfunded liability.” The parties recognize that the
The board of the PFRF consisted of the Fire Chief, a fire union representative, a police
union representative, the Police Chief, a retired firefighter and a retired police officer. Fire Chief
Carroll testified that when he joined the board in 1999 “there were issues with the – if whether or
not the – the fund was actuarially sound.” (Doc. 50-9, p. 12.) He said, “from ‘99 till . . . 2002, I
was on the board and there was always a – an issue about more money was going out than was
going to be able to come in as far as making it actuarially sound.” (Doc. 50-9, pp. 12-13.)
PFRF had a liability of about $40 million.10 (Doc. 47-5, p. 110.) Accordingly, the
parties to the merger needed to address whether employees coming from the PFRF
should contribute more than those already in the ERS in an attempt to offset some of
Means requested that Fire Department employees appoint a committee to
discuss pension transition issues. The firefighters elected Assistant Fire Chief Randy
Smith, Assistant Fire Chief Jimmy Matlock, and an employee named Mickey Lee.
Smith served on the PFRF board in the late 1990s, and he testified that he understood
at the time of the merger that the conversion was going to require an input of
additional money. (Doc. 47-8, pp. 12-13.)11 Matlock began working for the Gadsden
Fire Department in October 1980. Matlock participated in the PFRF until it merged
with the ERS in 2002. The committee’s work included meetings with the Mayor and
City financial personnel.
Jerry L. Gladden, the personnel director for the City of Gadsden, Finance
The plaintiffs object to this fact, arguing that the City had this liability before the
merger. (Doc. 57, p. 11.) They provide no citation with their objection as required by this
court’s scheduling order. The objection is therefore OVERRULED. Regardless, whether the
City had this obligation before the merger or not, it is undisputed that it was an issue, and a point
of negotiation, between the mayor and the employees.
The plaintiffs proffer that this was generally understood and cites to Smith’s testimony
that “[w]e knew that that’s the way it had been presented to us.” (Doc. 49, p. 29) (citing 47-8, p.
13). The defendants object to this testimony stating that it “is testimony lacking proper
foundation, based on hearsay, lack[ing] . . . personal knowledge, and is otherwise inadmissible.”
(Doc. 58, p. 16.) The objection is SUSTAINED. The “fact” will not be considered.
Department employee Susan Abraham, Carroll, Matlock, and City Attorney Roger
Kirby, met with ERS officials to discuss the merger. The record does not reflect
exactly what occurred at these meetings.12 It is undisputed, however, that employee
contribution rates were discussed in the course of evaluating the merger.
The employees evaluated the issue over a period of time and, eventually, an
agreement was reached and approved by all parties. The solution was that the PFRF
would be merged with the ERS, and the firefighters, after they became part of the
ERS, would continue to contribute 11% of their compensation for three years, just as
they had under the PFRF. Six percent of their contribution would go towards the
ERS, the same as other hazardous duty employees already part of the ERS. The
additional 5% contribution would go to a “supplemental fund” to offset the unfunded
liability of the PFRF. After 3 years, the additional 5% contribution would end, and
the firefighters would pay the same as other hazardous duty employees.
Former Mayor Means testified as follows regarding why the additional
contribution was needed:
Okay. We have spoken and the term has been used in depositions
quite a bit about an agreement between the City and the
firefighters. And I want to make sure I’m exploring this correctly.
Why was it necessary for the firefighters and police officers
That is, there is no admissible evidence to that effect.
to pay additional monies into a supplemental fund as part of
getting them in the State retirement system?
Best I remember, is was tremendous expense to the City, the
portion we were going to put in. And at the time we were just
looking for any additional funding source we could get to ease the
Right. And was there a point that the City would have considered
it to be cost prohibitive if they had not had those additional
contributions from the police officers and the firefighters?
I suspect that the council wouldn’t have passed it to begin with
without that supplemental contribution. So I don’t know.
All right. And without the council passing and approving any deal
like this, then the status quo simply would have remained the
status quo, right?
(Doc. 47-3, pp. 39-40.) Means has no recollection of any agreement with the
firefighters whereby they would be excepted from any increase in contribution rates
in the future.
It seems that whether the rate could ever be increased was not discussed at all.
Smith testified that there was never a discussion about a rate increase. (Doc. 47-8,
p. 24.) Matlock testified that he does not remember whether an increase in the future
contribution rate was actually ever discussed by either City officials or ERS officials.
Harrelson was also involved in several merger meetings with Mayor Means. He
states that there was never any representation, at the meetings he attended, that the
ERS employee contribution rate would, or would not, increase. Taylor says that
during the discussions in which he participated, there was no discussion, nor
contemplation by anyone, that the ERS employee contribution rate would change.13
Morris remembers discussions about merging the old fund into the ERS, but does not
remember any discussion of whether the base contribution rate would change.
Ala. Act number 2001-498 (approved by the Governor on May 17, 2001)
authorized the City of Gadsden and the Board of Trustees of the PFRF of the City of
Gadsden to “elect by resolution to have the employees of the police and fire
departments of Gadsden participate as a local unit in the Employee’s Retirement
System and to transfer to that system all assets and liabilities of the fund and any
other funding required by the Employees’ Retirement System for such participation
pursuant to Section 36-27-6, Code of Alabama 1975.” Act 2001-498, section 1.
On October 8, 2002, the Gadsden City Council adopted Resolution No.
R-360-02, which authorized members of its PFRF to become members of the ERS.
(Doc. 50-3, p. 17.) Said resolution recited that “a majority of the members of the
Policemen’s and Firemen’s Retirement Fund have indicated a desire to participate in
Taylor personally believed the employee contribution rate would remain at 6% for the
rest of his career.
the [ERS].” (Doc. 50-3, p. 18.) The resolution further stated:
The City of Gadsden agrees to make all prior service
contributions at the rate as determined by the Actuary of the
Employees’ Retirement System with State prior service rate to be
applicable until such determination of prior rate is made.
The City of Gadsden agrees to make contributions at the normal
rate for current service, which is the same as the State normal
The City of Gadsden agrees to pay for the initial cost of a
preliminary evaluation by the Actuary to determine the accrued
liability on account of prior service and to pay any other cost for
Special Services of the Actuary plus the regular administrative
costs of operation of the System.
(Doc. 50-3, pp. 18-19.)
Also on October 8, 2002, the Gadsden City Council adopted Resolution No.
R-364-02 to amend the Management Handbook governing personnel rules and
benefits to provide for participation by fire fighters in the ERS with employee
contributions of 6% of compensation. (Doc. 50-3, p. 24.) That same date, the
Gadsden City Council passed Resolution No. R-359-02 authorizing the Mayor to
execute all agreements necessary for then-current and retired “members of the
Policemen’s and Firemen’s Retirement Fund of the City of Gadsden to become
participants in the [ERS].”14
The parties agree to this fact as quoted. The fact was proffered by the plaintiffs without
a citation to the record.
On October 17, 2002, Gadsden Ordinance No. 0-58-02 was approved. (Doc.
50-3, p. 10.) The ordinance created a “Supplemental Fund” to be “used exclusively
for the costs of participation in the ERS for employees who immediately prior to
November 1, 2002, were members of the Policemen’s and Firemen’s Retirement Fund
of the City of Gadsden.” (Doc. 50-3, pp. 10-11.) The ordinance further provided that
employee contributions to the fund (including “all employees beginning work on or
after November 1, 2002") would be
an amount equal to five percent (5%) of their compensation, on the same
basis as employee and employer contributions to the [ERS] are
calculated. This withholding shall apply for work from November 1,
2002, through September 30, 2005.
(Doc. 50-3, p. 11.)
Also, on October 17, 2002, the City adopted Ordinance No. 0-59-02, amending
the City ordinance providing for retirement of fire fighters and police officers to
provide that the City administrators “shall withhold the sum of six percent (6%) from
the compensation paid to all police officers and fire fighter city employees who are
eligible participants in the [ERS] and remit the withheld funds to the [ERS].” (Doc.
50-3, p. 15.) The ordinance further provided that the “finance director shall pay an
additional amount to the [ERS] as required by its regulations as the employer
contribution cost on behalf of each participant.” (Doc. 50-3, p. 15.)
In 2002, the merger was completed and $9,293,200 (the assets of the PFRF)
was transferred from that fund to the City’s ERS account.15 While this reduced the
unfunded liability of the PFRF, at least16 $30 million remained.
continued to make 11% payments until 2005. In that year, as scheduled, the City
stopped administering the supplemental fund. The record is unclear as to how much
of the unfunded liability remained at that time.
The City’s Portion of the Pension Fund Costs
The parties agree that the City’s contribution rate to its ERS account is based
on what the ERS actuaries determine is necessary to keep the fund in good financial
condition. Before the merger, the City’s portion of the ERS (its “account”) had no
unfunded liability. Gadsden’s ERS fund was 100% funded. Afterward, it was 56.2%
funded, and most recently is 54% funded.17 The City’s contribution rate, as required
by the ERS, was 1.81% in 2001, 1.24% in 2002, and 1.85% in 2003. After the
merger, the City’s ERS contribution rate substantially increased to 21.49% because
The parties agree that this is the figure. However, in the course of the nearly 400
proffered facts in this case, they also agree at one point that the figure is closer to $8 million.
Regardless, the assets did not satisfy the complete liability of the PFRF, and left a substantial
The parties also “agree” to two different figures here.
A document attached as part of Exhibit 11 to Rosser’s deposition is entitled:
“Employees’ Retirement System of Alabama, Actuarial Valuation As of September 30, 2010.”
(Doc. 50-3, p. 92.) This document shows that the “Funded Ratio” of the Employees’ Retirement
System of Alabama was at least 56 percent and occasionally slightly more. (Doc. 50-3, p. 91.)
The parties cannot agree as to whether the “funded ratio” means the same thing as “percent
the ERS had to address the liabilities of the PFRF. Gadsden’s employer contribution
rate for the years 2007-2011 hovered at 24.54% (for 2009 it was slightly higher,
As the current Finance Director for the City of Gadsden, Lisa Rosser has been
the chief administrative financial officer of the City, subject to the Mayor and
Council, since 2003.18 She testified that, at the time of her deposition, “as far as [she
knew],” Gadsden had the second highest “retirement rate”19 in the state of Alabama.
(Doc. 50-2, pp. 5-6.) She also said “[w]e’re going to continue to have the second
highest retirement rate in the state of Alabama.” (Doc. 50-2, pp. 5-6.)
While the City has not conducted any studies or analyses to determine the
extent or the cause of its increasing pension costs during the years following the
merger into the ERS, there were a number of discretionary cost-of-living increases
in benefits for retirees that the City authorized. Former Mayor Means testified that
the rate went from around 21% to over 24% of payroll because of these adjustments.20
Rosser had no involvement in the merger of the PFRF into the ERS. Rosser has no
personal knowledge of the contribution rates, benefits or other issues regarding the PFRF.
Rosser first reviewed the 2002 ordinances and resolutions effectuating the merger in 2011, after
the firefighters objected to the increase in contribution rates.
Notably, she did not say highest “retirement contribution” rate. Highest “retirement
rate” would mean something altogether different. However, the parties seem to agree that she
meant “retirement contribution rate.” That is how the court will view her testimony.
The defendants object to this statement because “[Means] was testifying as to the
contents of the documents received from Retirement Systems of Alabama.” (Doc. 58, p. 12.)
(Doc. 47-3, pp. 31-32.) Rosser stated that “the only things that have impacted the
contribution to the RSA in the last 10 years have been either COLA increases to
retirees, adding police and fire to the Pension Fund, or the [Deferred Retirement
Option Plan (‘DROP’)].” (Doc, 47-1, pp. 74; see also doc. 47-1, pp. 85-86.) Rosser
also testified that the City’s rate went to over 25% as a result of the City approving
an additional lump-sum payment to retirees. (Doc. 47-1, p. 85.) She stated:
And that 25 percent was driven by a host of factors, not just police and
fire being put on the retirement system. I’ll agree to that. There’s no
doubt about it. Sure, retirees had been given how many raises, and was
I in favor of any of those raises? Go back and ask the council how many
of those raises I supported.
(Doc. 47-1, pp. 103-104.)
Investment income is one of three revenue streams to fund the ERS, the other
two being employer contributions and employee contributions. Scott testified that “as
of the end of 2011, we had the worst performance of the stock market in a rolling 10
years in 175 years. So investment income is down. It’s down for every pension fund
across the United States, period.” (Doc. 47-5, p. 34.)
Gadsden’s Finances in 2010 and 2011
In 2010, when the City refinanced $29 million of general obligation debt, a
review of the City’s bond rating by Moody’s resulted in a downgrade from the City’s
However, he also testified that that this was consistent with his recollection. (Doc. 47-3, p. 32.)
prior AAA bond ratings. Rosser agreed that, even though the rating has been
downgraded from AAA, it was still at a very high level. (Doc. 47-1, p. 111.) She
testified as to the downgrade that she “was pleased . . . it was better than what I
thought we would get.” (Doc. 50-2, p. 29.)
On March 7, 2011, Rosser reported to the Mayor and Council that revenues in
FY 2011 were trending up from 2010, employment in the City was consistent, and the
City’s expenses were under budget for the year by 4.4%. She also stated that overall
revenues were still down $130,655.00 from 2009, and stated that “Even though
revenues are up from last year, as long as revenues continue to be under budget then
it is important that we continue to monitor and control expenses[.]” (Doc. 55-1, p. 1.)
On April 11, 2011, Rosser told the Mayor and Council that all four major
sources of revenue to the City were up in FY 2011. (Doc. 55-1, p. 2.) She also stated
that expenses had increased by 1.8%. (Doc. 55-1, p. 2.) On April 11, 2011, Rosser
told the Mayor and Council that “the city of Gadsden is very fortunate to be in the
financial condition that we are considering the economic conditions over the past two
years.” (Doc. 55-1, p. 2.)
In her May 2011, memorandum to the Mayor and Council, Rosser reported
revenues were still increasing and expenses were under budget. (Doc. 55-1, p. 3.)
That same memorandum also stated that the 1.3% increase in revenues was “a very
small increase especially when you have a $45.5 million dollar budget.” (Doc. 55-1,
In her June 2011, memorandum to the Mayor and Council, Rosser states that
“though many believe that we are out of the recession, there are still no signs of a
significantly improved economy.” (Doc. 55-1, p. 3.) Further, she pointed out that the
three “Enterprise Funds” were “all operating at a loss for this Fiscal year.” (Doc. 551, p. 3.) These included the Airport fund with a loss of $42,200, the Twin Bridges
Golf Course with a loss of $154,623, and the Residential Garbage Fund with a loss
of $348,813. (Doc. 55-1, p. 3.) She also states, “we are very blessed to be in the
financial condition that we are in at the City [but] . . . [w]e only have reserves to
cover less than three months of operating expenditures.” (Doc. 55-1, p. 3.)
In her July, 2011 memorandum, Rosser noted that “[t]hese past years have been
challenging as revenues decreased and expenses increased, but this administration
rose above the challenge causing us to be in a better financial condition compared to
other municipalities.” (Doc. 55-1, p. 4.)
For fiscal year 2012, the City budgeted a little over $2 million deficit,
balancing that by using “unassigned funds” to balance the budget. Lisa Rosser
testified in her deposition that the “2011 budget, and 2012 budget . . . we had to
balance both of those budgets using unassigned funds, which are rainy-day funds.”
(Doc. 50-2, p. 139.)21 As of September 30, 2012, the City’s “unassigned funds”
balance was about $7.8 million. It had dropped from $10.9 million as of September
30, 2010; and from $9.9 million as of September 30, 2011.22
The “Local Option”
On June 15, 2011, the Alabama Legislature approved changes to the ERS
employee contribution rates. With respect to fire fighters that are state employees,
Act number 2011-676 amends §36-27-59 to increase the required employee
contribution for fire fighters from 6% to 8.25% on October 1, 2011, and to 8.5% on
and after October 1, 2012. The enacted legislation, however, carves out from this
increase any fire fighter participating in the ERS pursuant to §36-27-6, the provision
used by the City of Gadsden in the instant case, that allows a political subdivision to
elect to have its employees participate in the ERS through a legally adopted
resolution. With respect to these employees, Act 2011-676 provides that “[a]ny
employer participating under Section 36-27-6, by adoption of a resolution, may elect
for the increases in employee contributions provided by this act adding this language
The defendants’ proffered fact also included the phrase “which is unacceptable under
general accounting principles promulgated for municipalities.” (Doc. 51, p. 3.) The citation to
the record does not support this statement. Further, it is inadmissible as an expert opinion
offered by a lay witness.
Although the Rosser affidavit is also cited in support of this fact, it is included because
the plaintiffs do not dispute it.
to be withheld from the earnable compensation of employees of the employer.” This
is referred to as the “local option.”
RSA CFO Diane Scott’s23 sole role with respect to the process of adopting the
law, was “limited in reviewing some of the numbers.” (Doc. 47-5, p. 28.) She
testified that the need for the increases in Act 676 was that the state’s budget did not
have enough monies to fund what was actuarially calculated as necessary to fund the
annual required contribution (ARC) from the state. (Doc. 47-5, p. 42.) Scott stated
that she knew that there was a shortfall because she had seen “the projections that
would have been out on the website for the state’s budget office . . . [which] would
have been what the LFO, legislative fiscal office, would have presented to the
legislature.” (Doc. 47-5, p. 44.) She stated that the State partially closed the budget
gap by increasing the state employee contribution rate.24 Scott was not aware of any
other reasons for the proposal and adoption of the Act. (Doc. 47-5, p. 45.)
Scott was not aware of any alternative to the local option provision that was
considered in the course of adopting Act 676. She stated that the 2.5% increase in
Plaintiffs served a 30(b)(6) notice of deposition on the Retirement Systems of Alabama
seeking, inter alia, the RSA’s testimony concerning the basis for Act 2011-676 and its
application to the City of Gadsden. The RSA, through its counsel, designated its CFO, Ms.
Diane Scott, to address Act 676 and the need for the local option.
She agreed that there were many other things the State could have done to address its
contributions by state employees did not strengthen RSA’s revenue stream. She also
did not know if RSA had a position on the initial bill (HR 414) after it was
introduced. Ms. Scott did not know whether RSA supported the 2011 decision to
increase pension contributions of state employees. It is undisputed that RSA did not
oppose the legislation or the provision of a local option.
Bill Paul is Deputy Director of the ERS and has been employed by the ERS for
over 33 years. Paul understands that the localities had the right to elect to come under
Act 2011-676 as a “cost savings to the unit.” (Doc. 47-6, p. 10.) He stated that, by
making the election, a locality shifts more costs to the employees. Paul confirmed
that the ERS provided no guidance to localities about whether it should exercise the
local option. Paul would typically tell localities that it made no difference to the ERS
whether they exercised the local option. He does not know what Gadsden considered
in the course of adopting the local option. Paul was not aware of any alternatives to
the local option provision of the legislation that was considered. He stated that of
the 886 localities in the ERS, 60 (including Gadsden) have exercised the local option.
Act 676, introduced on March 31, 2011, as House Bill 414, originally only
provided for an increase in the pension contributions of State employees and teachers.
The local option, or other increases in contributions by employees of localities was
not in the bill. On April 21, 2011, the Association of County Commissions prepared
an initial draft amendment to HR 414 to provide a local option. As the legislature
neared passage, the focus remained on reducing the State’s contribution costs and the
savings to the State budget.
Gadsden Exercising the Local Option
Sherman Guyton was elected Mayor of Gadsden in 2006 and re-elected in
2010. After he became mayor, Guyton wanted to address “a lot of crazy things, a lot
of spending money.” In his deposition, Guyton listed many concerns he had about
the City’s costs, including: the personnel costs in the high 70th percentile; the
implementation of GASB 45 (General Accounting Standards Board rule) requiring
the listing of long-term debt in financial statements, affecting bond eligibility; the
projected closing of Goodyear’s plant;25 depleted reserve funds being less than
monthly debt; and the City’s plus-20% contribution rate for retirement (being the
second-highest in the state).
The Goodyear plant has “protected status” meaning that “during the life of the contract
they have [with the union], they won’t close the plant no matter what’s going on.” (Doc. 47-2, p.
69.) Guyton states:
So I don’t know for the future, starting next year -- it’s usually three-year
contracts -- if they will be protected, if they’ll cut back. You know, right now,
they’ve got a slow down nationwide on auto plants. They’re laying off for a while.
So, you know, that is a big payday and a big rollover on the money when it goes
through. . . . Anyway, that’s the thing with Goodyear. It’s very big on our
(Doc. 47-2, pp. 69-70.)
Guyton stated that City officials knew that the state had passed a statute
“giving [them] the option” of increasing the employee contribution for pensions.
(Doc. 47-2, p. 39.) When asked in his deposition, he agreed that, from his and the
City Council’s perspective, “that ended any question as to whether or not it was a
permissible action.” (Doc. 47-2, p. 39.)
Personnel Director Gladden had no role in making the 2011 decision to
increase pension contributions. However, Gladden discussed the issue of increasing
contributions with the Mayor, and informed him that the increase in contribution rates
was not mandatory under Act 2011-676. Gladden also explained to the Mayor’s
administrative assistant that the increase was optional.
Rosser testified that, although a Supplemental Fund had been created from
2002 to 2005, in 2011 she was only concerned about the 25% rate that the City was
paying into the retirement fund. (Doc. 50-1, pp. 34-35.) She advised the City
Council that the current issue was the projected budget shortfall for 2012, and that she
felt the creation of the Fund was “not relevant” to that issue. (Doc. 50-1, p. 37.)
Pursuant to Act 676, and as part of an effort to cut employee costs, Mayor
Guyton and Rosser spoke with the Council and all agreed to raise employee
contributions. Guyton stated that the decision to adopt the local option on pension
contributions was made because “salaries and benefits being in the upper 70s of our
budget” . . . we “did several cost-cutting measures across the board.” The following
exchange took place in Guyton’s deposition:
Were there any other reasons considered by the City other than
just basic budget management issues?
Well, I mean, you know --
MR. HOWARD: Object to the form. Go ahead. Go ahead.
It’s budget, but to keep the City sound where we can do the
services and pay the people and not layoff and cut out police, cut
out fire and layoff public works -- you know, a lot of cities are
doing away with whole departments. We haven’t had to go there
on anything like that. We haven’t laid anybody off or anything.
We haven’t extended payments. We haven’t cut any services. But
to keep the City sound where we can continue to deliver services,
pay into the retirement, and keep everybody working, yes, it was.
It was one of many things that we’ve done to try to keep
everything where it can run smoothly.
(Doc. 47-2, pp. 42-43.)
Other than the contribution rate increase, the City addressed, or has planned to
address, its budgetary shortfalls through: passing a resolution that transferred retirees
from its current healthcare plan to a Medicare supplement, revising guidelines
concerning the cost of healthcare for new employees, and requiring employees to
absorb any increases in the costs of medical benefits; revising the guidelines
concerning costs of retiree health insurance for newly retiring employees; requiring
DROP program participants to pay a higher premium than other active employees;
requiring all retirees eligible for Medicare to apply for Medicare (or else pay 100
percent of the premium for City insurance); setting a minimum number of hours that
an employee must accrue before selling sick leave; and having annual leave accrue
on a monthly basis rather than a yearly basis. Rosser testified that “we looked at lots
of [alternative] options,” and deferred some until later years.
The Mayor discussed the increase in pension contributions with each Council
member and the Finance Committee in the context of discussing the entire proposed
budget. At the time of its adoption of the local option, the City knew that it did not
have to be exercised immediately, but was irrevocable. The City knew that the local
option increase would impact all employees, including those that are vested in the
What the parties refer to as a “pre-Council meeting” on the increase occurred
in 2011. The parties also discuss a Finance Committee meeting that took place at
about this time as well, but they are not clear as to whether this was the same meeting.
Morris attended the pre-Council meeting and says that City officials could not give
a reason why contribution rates should be increased. Harrelson also attended the
meeting and says that the Council said the action was being taken to save the City
money. The firefighters union representatives went to the meeting and requested that
the Council table the contribution increase so that it could be discussed further.26
(Doc. 50-17, pp. 15-16.)
Union President David Putnam’s concern was that the election to increase
contributions was irrevocable. However, Councilman Avery (chair of the Finance
Committee) pushed for the immediate passage of the contribution increase without
further discussion. Councilman Reed asked for the matter to be tabled. The others
did not want to delay. Councilman Reed asked whether the “finance committee was
facing any type of hardship.” The response was “no, everything was in good
standing, but they were going to pass it anyway.” (Doc. 50-17, pp. 16-17, 29-30.)
Putman discussed the matter with the entire Council and the Mayor. Putman
told the Council’s Finance Committee that the increase in contribution rates was an
unnecessary decrease in employee compensation. Putman explained to the Council
that the increase was optional and not mandatory. Although Putman thought his
argument made sense, it appeared to him that the increase was “a done deal” within
the Council. At the Finance Committee meeting, Rosser stated she was unaware of
how much had been paid into the Supplemental Fund or where it had gone. The
following exchange took place:
The defendants object to this fact stating that the witness testified that he was not
present. However, he testified that he was at the pre-council meeting. (Doc. 50-17, p. 15.) The
line of questioning indicates that this occurred at the same meeting. The objection is, therefore,
And are you aware of any crisis or emergency or some other
special circumstance that may justify the increase –
-- over 6 percent.
I am not aware of anything like that.27
(Doc. 47-10, p. 26.)
The morning after the Finance Committee meeting, the council met to increase
the pension contribution rate. Although the parties have not been clear, this appears
to be the regular (as opposed to the “pre”) council meeting. Putman urged the
Council to delay the action in order to better understand the law passed by the
Legislature. He testified that, during the City Council’s meeting, it was stated that
the cost of City personnel was too high and the Council was looking for ways to
eliminate personnel costs. Sherrill was also at this meeting. He testified that the City
took the position at the Council meeting that it was permitted to increase rates and it
would do so. He also stated that there was no justification or reason given for the
On August 23, 2011, the Gadsden City Council passed Resolution #R-263-11,
electing to “irrevocably” increase employee contributions to the ERS. Gadsden
The defendants object that this testimony lacks foundation and “seeks speculation.”
(Doc. 58, p. 24.) The objection is OVERRULED as the witness testified to having no
knowledge, nothing more.
employee contributions were raised by 2.25%, effective October 1, 2011, and an
additional 0.25% after October 1, 2012, for a total increase of 2.5%. Accordingly, the
plaintiffs saw their contributions go from 6% of their wage, to 8.25%, and then to
8.5%. Other hazardous duty City employees’ contributions likewise increased from
6% to 8.25%, then to 8.5%; and “regular” City employees’ contributions were raised
from 5% to 7.25%, then 7.5%. It is undisputed that, when the City passed the pension
increase resolution in August 2011, it was not in a fiscal emergency. 28
At the same time employee pension contributions were increased, the Mayor
approved a 1 step salary increase of 1.25%. The City has a pay plan with a number
of grades, with each grade being comprised of 48 steps. There is a 1.25% pay
increase per step. The Mayor makes the decision as to whether employees receive a
step increase.29 (Doc. 47-1, p. 132.) Rosser testified that “the only time that step
increases are given is a budget [sic].” (Doc. 47-1, p. 132.) During the six years
Mayor Guyton has been in office, the employees have received step increases five
times. Putman stated that the step increases “are so minimal, obviously, the pay raises
It is undisputed that in June 2011, Mayor Guyton told The Gadsden Times that Gadsden
was in good shape financially, that City revenues were increasing and there was no realistic
prospect of City bankruptcy or falling off the fiscal cliff.
The original fact proffered by the plaintiffs also included that this was “a political
decision.” (Doc. 49, p. 16) (citing 47-1, p. 132). Rosser did testify as such. However, that
testimony is purely her opinion and calls for a conclusion. It is inadmissible and will not be
at one and one-quarter percent, we really don’t see them[.]” Guyton stated that
because of the pay raise “[the employees] really are only paying one and a quarter
percent more than the two and a half percent more.”30 (Doc. 47-2, p. 35.)
After the Increase
Before the City Council passed the employee contribution increase, the fiscal
year 2012 budget was projected to have a $1,560,000.00 shortage (deficit). The
contribution increase addressed part of the shortage, reducing the budget gap by
$492,000.00. In the prior year’s budget, about 74% of the City’s budget was for
personnel costs—salary and all benefits. Before the contribution increase, the City’s
pension contribution rate for 2012 was going to be 22.98% of payroll.31 The increase
in employee contribution rates resulted in a drop in the City’s rate, to 20.91%. Rosser
testified that “as far as [she knew]” even with this cut, Gadsden would still have the
second highest rate in the state. (Doc. 50-2, p. 6.) By eliminating the DROP program
and passing the 2.25% increase in premium contributions to the employees, Gadsden
The plaintiffs dispute that this was done as an offset, stating that “[t]he one-step
increase had been given in five of the previous six years and was routine.” (Doc. 57, pp. 8-9.)
The plaintiffs provide no citation to the record to support this dispute. The court’s summary
judgment scheduling order, referenced in the scheduling order entered in this case (doc. 19, p. 4),
requires that “[a]ny statements of fact that are disputed by the non-movant must be followed by a
specific reference to those portions of the evidentiary record upon which the dispute is based.”
The fact is deemed to be admitted as stated by the defendants.
The 1.5% drop from the prior 2011 rate of 24.54, was due to the legislature’s repeal of a
Deferred Retirement Option Plan (“DROP”).
saved $787,500 in pension costs in FY 2012.32
Gadsden’s Finances in 2012
In her March 2012 memorandum to the Mayor and Council, the first of FY
2012, Rosser called the increase in revenues a “very positive sign.” Rosser also
reported that expenses were “under budget by 4.7%.” (Doc. 55-1, p. 5.) She also
stated that “other less significant General Fund revenues were down;” and, that the
cost of gasoline “controls everything and with our large fleet of trash trucks,
transportation vehicles, trolleys and just the cost of cutting grass in the summer, our
costs will have to be cut if gas costs continue to increase at this rate.” (Doc. 55-1, p.
In her May 9, 2012, report, Rosser stated that Gadsden is “truly blessed”
compared to the financial condition of other municipal governments. (Doc. 55-1, p.
7.) Rosser again submitted a positive financial report to the Mayor and Council on
July 6, 2012. (Doc. 55-1, p. 7.)
The City finished FY 2012 in better financial condition than it anticipated.
Indeed, Gadsden was in better financial condition in 2012 than when Mayor Guyton
first came into office. During FY 2012, the City offered an early retirement buyout
In handwritten notes that Rosser testified she gave to the city council, she wrote: “One
could think with an unstable economy and the retirement system being under-funded that this rate
would go up, but again that is an unknown factor.” (Doc. 50-3, p. 71.)
program to employees that cost the City $1.5 million.
“Soundness” of the ERS
An increase in the employee’s contribution rate does not necessarily
correspond with a decrease in the employer’s rate. It depends on a number of
circumstances at the overall level and at the local level. On both levels, it could go
up if necessary to maintain fiscal soundness.
Actuarial soundness of the fund overall, or of a portion thereof, is determined
by how much money the entity presently possesses to pay its projected obligations in
the future. One hundred percent funding would be the most actuarially sound.
Gadsden has 54 cents on the dollar to pay its projected obligations in the future.33
During her deposition, Scott agreed that “to try to evaluate whether it was good
fiscal policy for the City to adopt the increase, that’s going to be a different
evaluation than this – than evaluating any actuarial soundness.” (Doc. 47-5, p. 87.)
Generally, the ERS has used an actuarial assumption of an investment rate of
return of eight percent (8%). A poor investment year, one in which that return is not
made, will result in increased employer contribution rates, although the ERS’s
actuarial formulas are designed to “smooth out” the bad years and “smooth out” the
The original sentence, offered by the defendants, included the following: “which is not
actuarially sound.” (Doc. 51, p. 11.) The plaintiffs correctly objected to this language because it
relies upon an inadmissible expert opinion offered by a lay witness.
good years, leveling the funding to avoid extreme changes for funding units. Thus,
a poor investment year (for the ERS) “will hurt … somewhat” over a period of five
Steve Carroll is Chief of the Gadsden Fire Department. Carroll was employed
by Gadsden as Fire Chief in August 1999. He previously worked for the City of
Birmingham as a firefighter for 22 years. When Chief Carroll was hired in 1999, he
began participating in the ERS rather than the PFRF. As an employee with more than
ten years of service, Chief Carroll considers himself as having vested rights in the
ERS. Carroll may retire now and has the right to begin receiving benefits at age 62.
Carroll’s contribution to the ERS has increased from 6% to 8.5%. He has received
no change in benefits or other remuneration for the increased contribution. Every
other member of the Fire Department is also paying the increased contribution. Fire
Chief Carroll had no role in the decision of the City to increase pension contributions.
Matlock was fully vested in the ERS when the City raised the contribution rate
in 2011. He had to pay more for his pension, but the benefits of the plan did not
change. Matlock and every other Gadsden Fire Department employee is paying an
additional 2.5% of their salary towards the pension fund. (Doc. 50-12, p. 32.)
It is undisputed that no employee has received additional benefits as a result
of the increased contributions.
The Defendants’ Motion for Summary Judgment
In this case, the plaintiffs contend that “the recent action of the City of Gadsden
to increase the required pension contributions of firefighter employees from 6% to
8.25% of earnable compensation, as authorized by a recent act of the Alabama
Legislature, constitutes an unlawful impairment of contractual obligations violative
of Art. I, section 10 of the Constitution of the United States and Section 22 of the
Constitution of the State of Alabama.” (Doc. 1, p. 1.)
Contract Clause Law
The Contract Clause of the United States Constitution provides: “No State shall
. . . pass any . . . Law impairing the Obligation of Contracts . . . .” U.S. Const., Art.
I, § 10, cl. 1. Judicial analysis of a Contract Clause claim has developed over time
into several steps. In General Motors Corp. v. Romein, 503 U.S. 181 (1992), the
Supreme Court unanimously outlined the following framework for the initial
evaluation of a claim brought under the Contract Clause:
Generally, we first ask whether the change in state law has
“operated as a substantial impairment of a contractual relationship.”
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 57 L. Ed. 2d
727, 98 S. Ct. 2716 (1978); Energy Reserves Group, Inc. v. Kansas
Power & Light Co., 459 U.S. 400, 411, 74 L. Ed. 2d 569, 103 S. Ct. 697
(1983). This inquiry has three components: whether there is a
contractual relationship, whether a change in law impairs that
contractual relationship, and whether the impairment is substantial.
Id. at 186; accord Reliable Tractor, Inc. v. John Deere Constr. & Forestry Co., 376
Fed. App’x 938, 941 (11th Cir. 2010) (recognizing three components of Contract
Clause analysis set out in Romein). Federal law ultimately controls the analysis of
whether there is a contract at issue. Romein, 583 U.S. at 186 (“The question whether
a contract was made is a federal question for purposes of Contract Clause analysis,
and whether it turns on issues of general or purely local law, we can not surrender the
duty to exercise our own judgment.”); Reliable Tractor, 376 Fed. App’x at 941
(“Because we are asked to interpret the United States Constitution, federal law
controls this inquiry.”); Ind. ex rel. Anderson v. Brand, 303 U.S. 95, 100, 58 S.Ct.
443, 82 L.Ed. 685 (1938) (“This court is bound to decide for [itself] whether a
contract was made, what are its terms and conditions, and whether the state has, by
later legislation, impaired its obligation.”). Still, the court must accord “respectful
consideration and great weight to the views of the State’s highest court....” Romein,
503 U.S. at 187, (quoting Brand, 303 U.S. at 100, 58 S.Ct. 443); see also Phelps v.
Bd. of Educ. of Town of West New York, 300 U.S. 319, 322, 57 S.Ct. 483, 81 L.Ed.
674 (1937); Dodge v. Bd. of Educ. of City of Chicago, 302 U.S. 74, 79, 58 S.Ct. 98,
82 L.Ed. 57 (1937); United States v. Nason, 269 F.3d 10, 18 (1st Cir. 2001); Pineman
v. Fallon, 842 F.2d 598, 599 (2d Cir. 1988); Hawkeye Commodity Promotions, Inc.
v. Vilsack, 486 F.3d 430, 437 (8th Cir. 2007); Robertson v. Kulongoski, 466 F.3d
1114, 1118 (9th Cir. 2006).
The inquiry does not end when the court finds a contractual relationship and
a change in law that substantially impairs that contractual relationship. To survive
Contract Clause review, a legislative enactment that constitutes a substantial
impairment of a contractual relationship must have a “significant and legitimate
public purpose.” Energy Reserves Grp., 459 U.S. at 411 (citation omitted); accord
Flanigan’s Enterprises, Inc. v. Fulton County, 242 F.3d 976, 989 (11th Cir. 2001)34
(considering whether the enactment is “necessary to meet an important government
interest”); Davken v. City of Daytona Beach Shores, Fla., 366 Fed. App’x 40, 41
(11th Cir. 2010) (“A regulation does not violate the Contract Clause so long as it
serves a ‘significant and legitimate public purpose’ . . . .” (citing Energy Reserves
Grp., 459 U.S. at 411-12)). The significant and legitimate public purpose may
include “the remedying of a broad and general social or economic problem.” Energy
Reserves Grp., 459 U.S. at 412. However, “the public purpose need not be addressed
to an emergency or temporary situation.” Id.
“Once a legitimate public purpose has been identified, the next inquiry is
whether the adjustment of ‘the rights and responsibilities of contracting parties [is
Flanigan’s Enterprises was subsequently superceded on other grounds by statute,
Fulton County, Ga., Code § 18-79(17) (2001), as recognized in Flanigan’s Enterprises, Inc. v.
Fulton County, 596 F.3d 1265, 1269 (11th Cir. 2010).
based] upon reasonable conditions and [is] of a character appropriate to the public
purpose justifying [the legislation’s] adoption.’” Id. (quoting United States Trust Co.
of New York v. New Jersey, 431 U.S. 1, 22 (1977)).
In sum, therefore, a law or regulation that substantially impairs a contractual
relationship does not violate the Contract Clause so long as it serves a significant and
legitimate public purpose, is based on reasonable conditions, and is appropriate to the
public purpose justifying its enactment. Davken, 366 Fed. App’x at 41 (citing Energy
Reserves Grp., 459 U.S. at 411-12).
Article I, § 22 of the Alabama Constitution of 1901 states “[t]hat no . . . law
. . . impairing the obligations of contracts . . . shall be passed by the legislature . . . .”
Ala. Const. Art. I, § 22 (1901). No party has cited, and this court has not found,
Alabama authority on the method by which to analyze this clause. However, at least
one opinion of the Alabama Supreme Court has recognized that the purpose of the
Alabama Contract Clause is the same as the federal Contract Clause: “to preserve
sacred the principle of the inviolability of contracts against that legislative
interference [that] the history of governments has shown to be so imminent, in view
of the frequent engendering of popular prejudice, and the consequent fluctuations of
popular opinion.” Opinion of the Justices No. 333, 598 So. 2d 1362, 1365 (Ala.
1992) (citing Edwards v. Williamson, 70 Ala. 145, 151 (1881)). In light of that
opinion, the court will analyze both clauses using the Romein methodology.
The defendants first argue that neither the Alabama legislature nor the City of
Gadsden created a contractual relationship with the plaintiffs. They then argue that,
if either did create such a relationship, requiring the plaintiffs to increase their
contributions did not substantially impair the contractual relationship. Finally, the
defendants argue that even if a substantial impairment of a contractual relationship
exists, the acts of the legislature and the City are justified as reasonable and necessary
to serve an important public purpose.
Do the Plaintiffs Have a Contract With the City of
The plaintiffs seem at times to argue that both the State, through its enactments,
and the City of Gadsden entered into a contract with them. Importantly, the State of
Alabama is not a defendant in this case. Still, the complaint could be fairly read to
say that the City created contractual rights in the plaintiffs when it adopted a pension
program created by the State. The plaintiffs also allege a contract with the City of
Gadsden based upon its actions in merging the PFRF with the ERS.
Actions By the Legislature
The plaintiffs do not set out one specific act of the legislature which they
contend establishes contractual rights. Instead, they refer to numerous statutes and
the RSA handbook.
Since they allege that Act 676, which increases the plaintiffs’ contributions to
the retirement plan, unconstitutionally interferes with their contract rights, the logical
place to begin the analysis as to whether a contract was created is the statute which
established the contribution rates in the first place, Ala. Code § 36-27-59(b)(2). That
Effective January 1, 2001, and each pay period thereafter, each active
employee who is a firefighter, law enforcement officer, or correctional
officer, as defined in subsection (a), shall contribute to the Teachers’ or
Employees’ Retirement System of Alabama six percent of his or her
Ala. Code § 36-27-59(b)(2) (emphasis added). The plaintiffs argue:
As plaintiffs first observed in their Complaint, doc. no 1, the retirement
system created by the Legislature creates a “trust” and the “Board of
Control of . . . the Employees Retirement System of Alabama shall have
vested in [it] all powers necessary to fulfill [its] fiduciary duty as
trustee to members . . .” Ala. Code section 36-27-2.
(Doc. 57, p. 22.) The full clause of Ala. Code 36-27-2 actually reads:
The Board of Control of the . . . the Employees’ Retirement System of
Alabama shall have vested in them all powers necessary to fulfill their
fiduciary duty as trustees to members of each respective system
including the power to sue and be sued, complain and defend in their
Ala. Code § 36-27-2. The plaintiffs also argue that “localities may elect to join the
ERS, but only with the approval of the ERS and the employees employed at the time
the locality joins the ERS.” (Doc. 57, p. 22) (citing Ala. Code. § 36-27-6(k)).
The plaintiffs also cite 36-27-6(f), which provides:
The actuary of the retirement system shall compute the rates of
contributions payable by employees who become members under the
provisions of this section in the same manner as if they were state
employees and shall compute the contributions which would be payable
annually by the employer on behalf of such members as though they
were state employees; except, that each employer of members
participating in the system as provided in this section shall make a
special accrued liability contribution on account of the participation of
its officers and employees in the retirement system which shall be
determined by an actuarial valuation of the accrued liability on account
of the employees of such employer who elected to become members, in
the same manner as the accrued liability rate was originally determined
for state employees. This special accrued liability contribution, subject
to such adjustment as may be necessary on account of any additional
prior service credits awarded to employees of such employer, shall be
payable in lieu of the accrued liability contribution payable on account
of other employees in the system. The expense of making such initial
valuation shall be assessed against and paid by the employer on whose
account it is necessary. The contributions so computed, together with a
pro rata share of the cost of the administration of the retirement system,
based upon the payroll of the employees, shall be certified by the Board
of Control to the chief fiscal officer of the employer. The amounts so
certified shall be a charge against the employer. The chief fiscal officer
of each such employer shall pay to the State Treasurer the amount
certified by the board as payable under the provisions of this section,
and the State Treasurer shall credit such amounts to the appropriate
funds of the retirement system.
Ala. Code § 36-27-6(f). They argue that “Gadsden has been responsible to pay the
unfunded liability from day one. These liabilities which Gadsden seeks to pass on to
its employees are Gadsden’s responsibility under the statute.” (Doc. 57, p. 23.)
Then, without quoting specific language, the plaintiffs cite Ala. Code § 36-2767
24, for the proposition that “[t]he statute further provides for retirement and disability
benefits for plan participants.” (Doc. 57, p. 23.) They then write:
Those rights vest in employees at ten years of service. When the
Legislature chose to revise those benefits in 2012, it made the revisions
prospectively applicable only to “Tier II employees” first employed after
January 1, 2013. See, doc. no. 50-35 (Ala. Act 2012-377). Clearly, the
Legislature recognized in 2012 that the alteration of vested rights was
(Doc. 57, p. 23.)
The plaintiffs then incorporate by reference the law cited in their brief in
support of their own motion for summary judgment. In that brief, the plaintiffs argue
that “[t]here should be no dispute that the provisions of the Alabama ERS pension
plan are contractual in nature to create vested and enforceable rights.” (Doc. 49.) The
plaintiffs argue that
the plain language of the statute supports the notion that the system
creates a “trust” with “vested” rights which are enforceable by
participants. Second, the pension plan as administered provides
enforceable rights which vest in participants.
(Doc. 49, p. 53-54.)
The plaintiffs argue that the statute states that “[a]ll persons who shall become
employees after October 1, 1945, shall become members of the retirement system as
a condition of their employment.” Ala. Code § 36-27-4. They then argue that
employees are “vested in the right to receive pension benefits” after a certain point.
(Doc. 49, p. 52) (citing Ala. Code § 36-27-16(a)(1)). The section cited by the
plaintiffs does not actually use the word “vested,” stating:
Any Tier I plan member who withdraws from service upon or after
attainment of age 60 . . . may retire . . . provided, that any such member
who became a member on or after October 1, 1963, shall have
completed 10 or more years of creditable service. . . . [A]ny Tier I plan
member of the Employees’ Retirement System who withdraws from
service after completion of not less than 25 years of creditable service
may retire without a reduction in retirement allowance.35
Ala. Code § 36-27-16(a)(1)(a), (c).
The plaintiffs then point to the following sections of Ala. Code § 36-27-6:
The governing board of any . . . city . . . may, by resolution legally
adopted to conform to rules prescribed by the Board of Control, elect to
have its officers and employees from whatever sources and in whatever
manner paid become eligible to participate in the retirement system.
Ala. Code § 36-27-6(a);
Membership shall be compulsory for all employees entering the service
of such employer after the date participation becomes effective.
Ala. Code § 36-27-6(c);
Employees who become members under this section and on behalf of
whom contributions are paid as provided in this section should be
entitled to the benefits under the retirement system as though they were
Ala. Code § 36-27-6(g);
The plaintiffs mistakenly cite to this last sentence as coming from Ala. Code § 36-2716(c). It actually comes from Ala. Code § 36-27-16(a)(1)(c).
The agreement of any employer to contribute on account of its
employees shall be irrevocable, but should an employer for any reason
become financially unable to make the normal and accrued liability
contributions payable on account of its employees, then such employer
shall be deemed to be in default. All members of the retirement system
who were employees of such employer at the time of default shall
thereupon be entitled to discontinue membership in the retirement
system and to a refund of their previous contributions upon demand
made within 90 days thereafter
Ala. Code § 36-27-6(h).
The plaintiffs also cite to the statute setting out the contribution percentages,
Effective January 1, 2001, and each pay period thereafter, each active
employee who is a firefighter, law enforcement officer, or correctional
officer, as defined in subsection (a), shall contribute to the Teachers’ or
Employees’ Retirement System of Alabama six percent of his or her
earnable compensation. For all pay dates beginning on or after October
1, 2011, each active employee who is a firefighter, law enforcement
officer, or correctional officer, as defined in subsection (a), except those
employees participating pursuant to Section 36-27-6, shall contribute to
the Teachers’ or Employees’ Retirement System of Alabama eight and
one-quarter percent (8.25%) of his or her earnable compensation. For all
pay dates beginning on or after October 1, 2012, each active employee
who is a Tier I plan member and who is a firefighter, law enforcement
officer, or correctional officer, as defined in subsection (a), except those
employees participating pursuant to Section 36-27-6, shall contribute to
the Teachers’ or Employees’ Retirement System of Alabama eight and
one-half percent (8.5%) of his or her earnable compensation. Any
employer participating under Section 36-27-6, by adoption of a
resolution, may elect for the increases in employee contributions
provided by Act 2011-676 to be withheld from the earnable
compensation of employees of the employer.
Ala. Code § 36-27-59(b)(2). The plaintiffs also cite generally to Ala. Code §
36-27-24(c)-(e) for the proposition that “[t]he employer’s total contribution obligation
or rate is established after each annual actuarial valuation of participating agencies.”
(Doc. 49, p. 55.)
Lastly, the plaintiffs write:
As implemented, the documents provided by RSA and ERS to
participants also speak in terms of “vested” rights. The ERS Handbook
provides a summary of plan benefits and obligations for participants.
The handbook describes how the plan is a “defined benefit program”,
participation is “mandatory” and employees are vested after ten years.
The Handbook has long stated:
Vesting means the member has earned enough service
credit to be eligible for a lifetime retirement benefit other
than a refund of contributions. Members have a vested
status in the ERS after accumulating 10 years of creditable
service. . . .
Handbook, page 10. Plainly, employees with “vested” rights have rights
which are based on promises by the RSA and the employer and which
the law deems are enforceable. Federal law recognizes such obligations
as contractual in nature.
(Doc. 49, pp. 53-54.)
Actions By the City of Gadsden
The plaintiffs argue that Gadsden’s actions “of negotiating an agreement for
the merger of the former PFRF into the ERS,” resulted in an agreement that “the
employees rate of contribution would revert to the State’s default rate of 6% in 2006.”
(Doc. 57, pp. 25-26.) They claim that the payment of the 11% for three years “was
a quid pro quo” and “the agreement provided that after 2005 the employees would
pay the regular statutory contribution rate.” (Doc. 57, p. 26.) They argue that
Gadsden did not have to exercise the local option and when it did that was “a plain
violation of the contract it made with its employees when the City and employees
both voted to approve the ERS merger.” (Doc. 57, p. 26.)
Do the ERS Provisions Create, In Favor of the
Plaintiffs, a Contractual Right to Never Be
Required to Pay More Than 6% of Their Pay
Towards The System?
A statutory enactment is generally presumed not to create “contractual or
vested rights but merely declares a policy to be pursued until the legislature shall
ordain otherwise.” National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe
Ry., 470 U.S. 451, 456–66, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985) (quotations
omitted). “[A]bsent some clear indication that the legislature intends to bind itself
contractually, the presumption is that ‘a law is not intended to create private
contractual or vested rights.’” National R.R. Passenger Corp. v. Atchinson, Topeka
& Santa Fe Ry. Co., 470 U.S. 451, 465–66, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985)
(quoting Dodge v. Board of Educ., 302 U.S. 74, 79, 58 S.Ct. 98, 82 L.Ed. 57 (1937)).
Where a public contract allegedly arises out of statutory language, the
hurdle under the first component of the first part of the test—proving
that a contractual relationship exists—is necessarily higher, since
“normally state statutory enactments do not of their own force create a
contract with those whom the statute benefits.”
Parella v. Ret. Bd. of Rhode Island Employees’ Ret. Sys., 173 F.3d 46, 60 (1st Cir.
1999) (quoting Hoffman v. City of Warwick, 909 F.2d 608, 614 (1st Cir. 1990) (in
turn citing National Railroad Passenger Corp., 470 U.S. at 465-66)). “In general, a
statute is itself treated as a contract when the language and circumstances evince a
legislative intent to create private rights of a contractual nature enforceable against
the State.” Honeywell, Inc. v. Minnesota Life & Health Ins. Guar. Ass’n, 110 F.3d
547, 552 (8th Cir. 1997) (citing United States Trust Co. v. New Jersey, 431 U.S. 1,
17 n. 14, 97 S.Ct. 1505, 1516, 52 L.Ed.2d 92 (1977)).
This threshold requirement for the recognition of public contracts has
been referred to as the “unmistakability doctrine.” See McGrath, 88 F.3d
at 19 (citing United States v. Winstar, 518 U.S. 839, 116 S.Ct. 2432, 135
L.Ed.2d 964 (1996)). In United States v. Winstar, the Supreme Court
traced the history of the unmistakability doctrine from Justice Marshall’s
opinion in Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 3 L.Ed. 162 (1810),
and explained its purpose. Because legislatures should not bind future
legislatures from employing their sovereign powers in the absence of the
clearest of intent to create vested rights protected under the Contract
Clause, courts developed canons of construction disfavoring implied
governmental contractual obligations. Thus, “ ‘neither the right of
taxation, nor any other power of sovereignty, will be held ... to have
been surrendered, unless such surrender has been expressed in terms too
plain to be mistaken.’ ” Winstar, 518 U.S. at ––––, 116 S.Ct. at 2455
(quoting Jefferson Branch Bank v. Skelly, 66 U.S. (1 Black) 436, 446
(1861)). The requirement that “the government’s obligation
unmistakably appear thus served the dual purposes of limiting
contractual incursions on a State’s sovereign powers and of avoiding
difficult constitutional questions about the extent of State authority to
limit the subsequent exercise of legislative power.” Winstar, 518 U.S.
at ––––, 116 S.Ct. at 2455.
Parker v. Wakelin, 123 F.3d 1, 5 (1st Cir. 1997).
The Eleventh Circuit has not addressed this issue of whether the ERS, or any
other governmental pension plan, creates contractual rights in the employee
participants. However, the issue has been addressed elsewhere, and in many different
ways. Indeed, in 1997, the First Circuit noted that “[t]he law governing the rights of
members of public employee retirement plans varies greatly from state to state, and
has not been the subject of federal regulation or harmonization.” Parker, 123 F.3d
The most recent Supreme Court case on this issue appears to be Dodge v. Bd.
of Educ. of City of Chicago, 302 U.S. 74, 75, 58 S. Ct. 98, 82 L. Ed. 57 (1937). In
Dodge, the Supreme Court examined certain acts of the Illinois legislature beginning
with a 1926 act, known as the Miller Law, which
provided for compulsory retirement and for the payment of annuities to
retired teachers. By section 1 the Board of Education was directed to
retire teachers from active service on February 1 and August 1 of each
year according to the following program: In 1926, those 75 years of age
or over; in 1927, those 74 years of age or over; in 1928, those 73 years
of age or over; in 1929, those 72 years of age or over; and in 1930, and
in each year thereafter, those 70 years of age or over. Section 2 (SmithHurd Ill.Stats. c. 122, § 614b) provided: ‘Each person so retired from
active service who served in the public schools of such city for twenty
or more years prior to such retirement, shall be paid the sum of fifteen
hundred dollars ($1,500.00) annually and for life from the date of such
retirement from the money derived from the general tax levy for
Dodge, 302 U.S. at 76. The Court noted that the law had
two provisos; the one requiring that the annuitant should be subject to
call by the superintendent of schools for consultation and advisory
service, and the other declaring that the annuity granted by the act was
not to be in lieu of, but in addition to, the retirement allowance payable
under existing legislation.
In 1927, a third section was added permitting teachers who had served
for 25 years or more, and were 65 years of age or over, who had not
reached the age of compulsory retirement, to be retired upon request and
to be paid from $1,000 to $1,500 per annum, depending upon age at
Id. In 1935, the law was amended again, reducing to $500 “the annuities of teachers
theretofore retired, or eligible for retirement under the Miller Law, as well as those
to be retired subsequent to its enactment.” Id. at 77. The plaintiffs consisted of those
“who were compulsorily retired under the Miller Law; those who voluntarily retired
under the law as amended; and those eligible for voluntary retirement who had
signified their election to retire prior to July, 1935.” Id.
Despite language in the statute that “[e]ach person so retired . . . shall be paid
the sum of fifteen hundred dollars ($1,500.00) annually and for life,” and “persons
65 years of age or over shall upon their own request be retired * * * and thereafter be
paid annuities for life,” the court found no contractual rights to the annuity at the
$1,500.00 figure. Id. at 80. In so doing, the Court noted that
[t]he presumption is that such a law is not intended to create private
contractual or vested rights, but merely declares a policy to be pursued
until the Legislature shall ordain otherwise. He who asserts the creation
of a contract with the state in such a case has the burden of overcoming
Id. at 79. The Dodge case’s rationale seems in line with Pennie v. Reis, 132 U.S.
464, 10 S.Ct. 149, 33 L.Ed. 426 (1889), the Supreme Court’s only other
pronouncement on this issue, where the court held that public employee pension
programs do not create vested rights against legislative modifications, and thus are
gratuities that a state may freely revoke. The parties have not cited, and the court has
not found, a Supreme Court decision where the Court has held that a public pension
statute creates a contract.36
Noting that “times have changed,” the First Circuit determined that
evolving legal doctrine recognizes that the promise of a pension is part
of the compensation package that employers dangle to attract and retain
qualified employees. In line with this evolving doctrine we have held
that, in general, pensions are to be regarded as a species of unilateral
McGrath v. Rhode Island Ret. Bd., 88 F.3d 12, 16-17 (1st Cir. 1996). Accordingly,
in that circuit, public pension plans, even if non-contributory, create contract rights
A recent review of the law in this area finds that “the Court has never held that a
pension statute creates a contract.” Amy B. Monahan, Statutes As Contracts? The "California
Rule" and Its Impact on Public Pension Reform, 97 Iowa L. Rev. 1029, 1046 (2012).
in the participants. This rule has been recognized in other circuits as well. See, State
of Nev. Employees Ass’n, Inc. v. Keating, 903 F.2d 1223, 1227 (9th Cir. 1990) (nonvested public employees have contractual rights in pension plans “subject to
reasonable modification in order to keep the system flexible to meet changing
conditions, and to maintain the actuarial soundness of the system.”); Pratt v.
Petroleum Prod. Mgmt. Inc. Employee Sav. Plan & Trust, 920 F.2d 651, 661 (10th
Cir. 1990) (“A ‘pension plan is a unilateral contract which creates a vested right in
those employees who accept the offer it contains by continuing in employment for the
requisite number of years.’”) (quoting Hurd v. Illinois Bell Tel. Co., 234 F.2d 942,
946 (7th Cir.), cert. denied, 352 U.S. 918, 77 S.Ct. 216, 1 L.Ed.2d 124 (1956));
Transp. Workers Union of Am., Local 290 By & Through Fabio v. Se. Pennsylvania
Transp. Auth., 145 F.3d 619, 624 (3d Cir. 1998) (citing to McGrath for the
proposition that contractual rights are created in employees “who have satisfied the
plan requirements for retirement benefits”). See also, Bd. of Trustees of Policemen’s
& Firemen’s Ret. Fund of City of Gadsden v. Cary, 373 So. 2d 841, 842 (Ala. 1979)
(discussing pension plans as unilateral contracts); but see, Spiller v. State, 627 A.2d
513, 516 (Me. 1993) (absent clear legislative intent to create contract rights, no
entitlement to benefits); Budge v. Town of Millinocket, 2012 ME 122, 55 A.3d 484,
490 (Me. 2012) (because no legislative enactment by the Town used express language
to create contractual rights, the employees cannot prevail on their claim for breach of
contract as to benefit reductions). Further, as to the very system at issue in this case,
the ERS, the Alabama Supreme court has found contract rights to benefits created.
Snow v. Abernathy, 331 So. 2d 626, 631 (Ala. 1976).37
Still, the First Circuit has pointed out that
though the principle that a pension plan represents an implied-in-fact
unilateral contract is fairly well settled and has been applied repeatedly
to state and municipal pension plans, there is significant disagreement
about when contractually enforceable rights accrue under such plans.
See, e.g., Nevada Employees Ass’n, Inc. v. Keating, 903 F.2d 1223, 1227
(9th Cir.) (suggesting that nonvested employees have contractual rights
subject only to “reasonable modification”), cert. denied, 498 U.S. 999,
111 S.Ct. 558, 112 L.Ed.2d 565 (1990); Betts v. Board of Admin. of the
Pub. Employees’ Ret. Sys., 21 Cal.3d 859, 148 Cal.Rptr. 158, 161, 582
P.2d 614, 617 (1978) (en banc) (stating that the right to a “substantial”
or “reasonable” pension accrues on first day of employment); Petras v.
State Bd. of Pension Trustees, 464 A.2d 894, 896 (Del.1983) (explaining
that rights accrue when vesting occurs); Singer v. City of Topeka, 227
Kan. 356, 607 P.2d 467, 475 (1980) (similar to Petras, but adding that
rights remain subject to “reasonable modification”); Sylvestre v. State,
298 Minn. 142, 214 N.W.2d 658, 666-67 (1973) (taking the position that
an employee’s rights accrue on first day of employment); Baker v.
Oklahoma Firefighters Pension & Ret. Sys., 718 P.2d 348, 353
(Okla.1986) (holding that rights accrue only when an employee vests);
Leonard v. City of Seattle, 81 Wash.2d 479, 503 P.2d 741, 746 (1972)
(en banc) (similar to Baker ). And, moreover, some courts cling to the
notion that a state-sponsored retirement plan for public employees
creates no enforceable contractual rights whatever. See, e.g., Pineman
v. Oechslin, 195 Conn. 405, 488 A.2d 803, 809-10 (1985); Spiller v.
This does not end the matter, since the issue in the instant case is not whether the
plaintiffs had a right to their benefits, which have not been changed, but instead whether they had
a contractual right to never have their contribution rate increased. See infra.
State, 627 A.2d 513, 516 (Me.1993).
McGrath v. Rhode Island Ret. Bd., 88 F.3d 12, 17 (1st Cir. 1996).
Importantly, none of these cases stand for the proposition that all public
pension plans always create contract rights, as to every facet of the plans. Indeed, in
Parker v. Wakelin, 123 F.3d 1, 7 (1st Cir. 1997), the First Circuit noted:
It may well be that the variety of approaches adopted by state supreme
courts reflect, in part, differences in the structure of the various state
pension programs, and of the intention of the different state legislatures
that created them. There is a danger . . . in adopting a theory of pension
rights and subsequently forcing a given program to fit under it. Any
given theoretical approach will make assumptions regarding the intent
of legislatures to be bound, as well as the time at which vesting should
occur, which may be contradicted by particular statutory provisions such
as, for example, an express reservation of the right to revoke pension
benefits. When reviewing a particular enactment, therefore, we must
suspend judgment and “proceed cautiously both in identifying a contract
within the language of a regulatory statute and in defining the contours
of any contractual obligation.”
Id. at 7-8 (quoting Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. at 466, 105 S.Ct.
at 1452) (emphasis added). Accordingly, a review of the particular language at issue
in this case, as well as the particular infringement alleged, is critical as the court
“decide[s] for [itself] whether a contract was made, what are its terms and conditions,
and whether the state has, by later legislation, impaired its obligation.” Ind. ex rel.
Anderson v. Brand, 303 U.S. 95, 100, 58 S.Ct. 443, 82 L.Ed. 685 (1938).
Here, the court has no trouble finding no contractual rights were created. The
plaintiffs have cited no statutory language, handbook provisions, or other materials,38
which reflect “a clear intent by the legislature to create contractual rights.” In other
words, there is no indication that the legislature, and therefore the City, unmistakably
has bound itself to never changing the contribution rate.
The defendants have cited two very persuasive cases where courts held that
there was no contract right to prevent an increase in such contributions. They are
Parker v. Wakelin, 123 F.3d 1 (1st Cir. 1997), and Scott v. Williams, 107 So. 3d 379
In Parker v. Wakelin, 123 F.3d 1 (1st Cir. 1997), in a very similar circumstance
to the instant case, the First Circuit dealt with Maine’s public retirement system (the
“MSRS”). The following section of the opinion demonstrates that the plan was very
similar to the ERS:
The MSRS operates as a public pension trust pursuant to Maine’s
public employee retirement benefit statute. The MSRS was created in
1942 to encourage “qualified persons to seek public employment and to
continue in public employment in their productive years.” For all Maine
state employees, including the public school teachers comprising the
plaintiff class in the instant case, membership in the MSRS is
mandatory. All MSRS members make mandatory contributions into a
pension fund. The State of Maine also contributes annually to maintain
the fund’s actuarial soundness with regard to future benefit obligations.
The MSRS can be classified as a “defined benefit system,” in that the
The plaintiffs have cited to the RSA Handbook. By referencing it here, the court does
not imply, as the plaintiffs do, that the handbook became part of the statute.
retirement benefits provided for teachers are defined upon employment
and financed in part by their fixed contributions into the system.
The teachers, as members of the system, qualify to receive
retirement benefits upon (1) reaching the statutory retirement age, and
(2) satisfying either of the following service requirements: (a) at least
ten years of creditable service; or (b) at least one year of creditable
service prior to reaching the statutory retirement age while in public
service. Alternatively, a member may be entitled to receive retirement
benefits when he or she retires after performing at least 25 years of
creditable service. In the district court’s decision, the term “vesting” was
used to describe the satisfaction of the service requirements. However,
as the district court in fact noted, the term “vesting” does not figure in
the statutory scheme itself, which simply indicates the age and service
requirements that must be met. Members who terminate their public
service prior to satisfying the pension eligibility requirements are
entitled to a return of their contributions, with interest.
An eligible retiree earns a pension in the amount of two percent
of his or her “average final compensation” multiplied by the number of
years of total creditable public service (up to 25 years).
Parker, 123 F.3d at 2-3 (citations and footnotes omitted). Maine amended the plan
in a very similar way to the amendments in the instant case, increasing the rate of
required member contributions from 6.5% of their salary to 7.65%.39
Id. at 3.
Further, as in the instant case, it was not disputed that the plan participants received
no additional benefits as a result of the increase. Id. at 3. Lastly, as in the instant
The amendments also included “a cap on the salary increase that may be included in the
course of calculating the level of teachers’ retirement benefits; and . . . a six-month delay in the
first cost-of-living adjustment of retirement benefits.” Parker, 123 F.3d at 3.
case, the State of Maine “concede[d] that the sole purpose for enacting the changes
in the terms and conditions of retirement benefits . . . was to save money by lowering
budget allocations by the state to the trust funds of the MSRS; their enactment
coincided with other responses to a state fiscal crisis.” Id. at 3.
The trial court held that the amendments violated the Contract Clause only as
applied to MSRS members whose benefits had “vested” under the system. The court
explained that, when the district court used the term “vested,” “the district court
referred to those MSRS members who had satisfied the service requirements under
the system--a service requirement is a necessary (but not a sufficient) condition to
being entitled to actually receive a pension.” Id. at 4. Its decision was based in part
on a 1975 enactment by the Maine legislature which provided:
No amendment to this chapter shall cause any reduction in the amount
of benefits which would be due to the member based on creditable
service, compensation, employee contributions and the provisions of this
chapter on the date immediately preceding the effective date of such
Id. at 3-4. A similar provision is conspicuously absent in the instant case.
The First Circuit reversed, writing that “the line [the district court] drew
between teachers who had and had not completed a minimum service requirement,
cannot be justified on the basis of the Maine statute, which nowhere speaks of
‘vesting’ as understood by the district court.” Id. at 8. The court recognized that the
language prohibiting a reduction in the amount of benefits “due” was a point of
contention. It noted:
The plaintiff[s] . . . argue that benefits are “due” from the moment of
employment, and that this section merely confirms the applicability of
a strict implied-in-fact, unilateral contract approach. The State contends
that [the] section . . . is a reservation of the power to alter benefits until
the retirement benefits are literally due to be received. The third
alternative, not the basic position of either party, is that benefits are
“due” if a teacher has completed the statute’s initial service
requirements, although pension benefits are not yet currently payable.
Id. at 8. The court held “we cannot find that the legislature as a whole unmistakably
intended to create contract rights at the time that service requirements were
satisfied—especially where, as here, it would have been easy to make any such
intention crystal clear.” Id. at 9.
The court finds Parker to be very persuasive in light of the fact that it dealt
with a similar system, with similar “vesting” terminology, and a similar alleged
breach; the increase in contributions. The case is especially persuasive in light of the
fact that no contract rights were found, even though there was an express statutory
provision prohibiting the alteration of benefits–something not present in the instant
The plaintiffs attempt to distinguish Parker because “it ultimately decided the
case based on an analysis of the Maine statute at issue.” (Doc. 57, p. 18.) The court
finds no merit in this argument as all such cases must be based on the particular
language of the statute before a court. While mindful of the need to address the
statutes at issue on their own merits, the court still finds the First Circuit’s analysis
helpful, as the case has very similar facts to the instant case.
Another similar case, this time on the state level, is Scott v. Williams, 107 So.
3d 379 (Fla. 2013), where the Florida Supreme Court dealt with this very issue in the
context of the Florida Retirement System. In Scott, the Florida legislature passed a
law which “converted the Florida Retirement System (FRS) from non-contributory
by employees to contributory, required all current FRS members to contribute 3% of
their salaries to the retirement system, and eliminated the retirement cost-of-living
adjustment for creditable service after the effective date of the act.” Scott, 107 So.
3d at 381. The trial court held that the law violated three separate provisions of the
Florida Constitution, one of which was article I, section 10, which prohibited laws
impairing the obligation of contracts. Id. at 381-82. The trial court held “that the
rights of the members of the FRS to the non-contributory retirement plan with a
COLA, which was in effect prior to the amendments, were contractual in nature, that
they were legally enforceable as valid contract rights, and could not be abridged in
any way.” Id. at 383. It did so in part because the statute contained a “preservation
of rights” section which provided:
[t]he rights of members of the retirement system established by this
chapter shall not be impaired by virtue of the conversion of the Florida
Retirement System to an employee non[-]contributory system. As of July
1, 1974, the rights of members of the retirement system established by
this chapter are declared to be of a contractual nature, entered into
between the member and the state, and such rights shall be legally
enforceable as valid contract rights and shall not be abridged in any way.
Id. at 383 (emphasis added).40 The trial court held that
the Legislature substantially breached the employees’ contract rights
guaranteed by the preservation of rights statute by requiring employee
contributions to the FRS and by elimination of the COLA, and further
held that this breach was not justified by the existence of a significant
budget shortfall where other, reasonable alternatives existed to preserve
the State’s contract with FRS members.
Id. at 383-84 (emphasis supplied).
The Florida Supreme Court noted that the legislature had enacted the statute
creating contract rights in the plan after the Florida courts had allowed “both
prospective and retroactive changes to retirement benefits already earned.” Id. at
387-388. It then cited Florida Sheriffs Ass’n v. Dep’t of Admin., Div. of Ret., 408 So.
2d 1033, 1037 (Fla. 1981), where the court had noted:
We stress that the rights provision was not intended to bind future
legislatures from prospectively altering benefits which accrue for future
state service. To hold otherwise would mean that no future legislature
could in any way alter future benefits of active employees for future
services, except in a manner favorable to the employee. This view
would, in effect, impose on the state the permanent responsibility for
maintaining a retirement plan which could never be amended or repealed
irrespective of the fiscal condition of this state. Such a decision could
Again, this is language not present in the statutes at issue in this case.
lead to fiscal irresponsibility. It would also impose on state employees
an inflexible plan which would prohibit the legislature from modifying
the plan in a way that would be beneficial to a majority of employees,
but would not be beneficial to a minority. Since two different plans
cannot exist for the same type of employee, the implementation of
appellants’ contention would also bind the legislature to this plan for
future employees. We find appellants’ contention is not in accordance
with the intent of the legislature and conclude that the legislature has the
authority to modify or alter prospectively the mandatory,
noncontributory retirement plan for active state employees.
Id. at 388 (quoting Florida Sheriffs Ass’n, 408 So. 2d at 1037). The Scott court then
[T]he preservation of rights statute was enacted to give contractual
protection to those retirement benefits already earned as of the date of
any amendments to the plan. We recognized the authority of the
Legislature to amend a retirement plan prospectively, so long as any
benefits tied to service performed prior to the amendment date are not
lost or impaired.
Id. at 388-89 (emphasis added).
The plaintiffs attempt to distinguish the Scott case, stating that the Florida
decision is “based upon an analysis of a unique local statutory scheme and a ruling
by the Florida courts some years ago.” (Doc. 57, p. 17.) They argue that “such a
construction of that state’s law is quite different from the Alabama statute and law.”
(Doc. 57, p. 17.) The court does not agree. The changes to the public pension plan
in Smith are very similar to those in the instant case. The only major difference is
that, in Smith, the Florida law, in the sense that it contained a clause specifically
creating contract rights, offered more support for the plaintiffs in that case than the
statute in the instant case. Smith is persuasive for its holding that contract rights were
not created, so as to prevent prospective changes, in spite of this language.41 Further,
the language in the Florida Sheriffs Ass’n case, cited approvingly by the court, is
consistent with the unmistakability doctrine outlined above, and in the Smith case.42
The plaintiffs counter the defendants by citing cases of their own where
contract rights preventing a change in the contribution level of employees were
found. (Doc. 57, pp. 19-21) (discussing Marvel v. Dannemann, 490 F. Supp. 170,
174 (D. Del. 1980); Ass’n of Pennsylvania State Coll. & Univ. Faculties v. State Sys.
of Higher Educ., 505 Pa. 369, 375, 479 A.2d 962, 965 (1984); Wisley v. City of San
Diego, 188 Cal. App. 2d 482, 485, 10 Cal. Rptr. 765 (1961); Allen v. City of Long
The defendants cite and discuss several more cases which the court will not review here.
It is sufficient that the court finds no statutorily-created contractual right to a permanent 6%
The plaintiffs’ argument that the RSA handbook, to the extent that it speaks of “vested
rights” creates a contract is also without merit. The same handbook also states that “The
member’s contribution rate is determined by statute and subject to change by the Alabama
legislature.” (Doc. 47-7, p. 4) (emphasis added). To the extent that the handbook is a contract,
the plaintiffs clearly could not have relied upon it to think that their contribution rate would never
change. “Under these circumstances, an employee’s reasonable expectation from the Plan
contract cannot include a guarantee that an employee contribution would never be required.”
Transp. Workers Union of Am., Local 290 By & Through Fabio v. Se. Pennsylvania Transp.
Auth., 145 F.3d 619, 622 (3d Cir. 1998) (where the Act expressly contemplated that the
provisions of any pension and retirement system created thereunder would be subject to
modification from time to time by the Authority’s Board and that the employees covered might
be required by resolution of the Board to make contributions).
Beach, 45 Cal. 2d 128, 131, 287 P.2d 765 (1955); Singer v. City of Topeka, 227 Kan.
356, 363, 607 P.2d 467, 473 (1980). However, all of their cases, in addition to being
decided in other jurisdictions, were decided prior to the Supreme Court’s decision in
National R.R. Passenger Corp. None of the plaintiffs’ cited cases analyzed whether
the enactment at issue manifested a “clear” or “unmistakable” intent to create a
contract, which is the standard announced by National R.R. Passenger Corp. Under
these circumstances, the court does not find the cases cited by the plaintiffs to be
persuasive. See, San Diego Police Officers’ Ass’n v. San Diego City Employees’ Ret.
Sys., 568 F.3d 725, 740 (9th Cir. 2009) (in the public pension context refusing to find
persuasive decisions “where the court . . . did not acknowledge the heavy burden on
a plaintiff to ‘overcome [the] well-founded presumption’ . . . that a legislative body
does not intend to bind itself contractually, nor did it look to the legislative body’s
intent to create vested rights”).
In their brief in support of their motion for summary judgment, the plaintiffs
cite three Alabama cases which they contend recognize vested or contractual rights
under the ERS plan. Although the court must make its own decision as to whether
contract rights are created, the court also must accord “respectful consideration and
great weight to the views of the State’s highest court....” Romein, 503 U.S. at 187,
(quoting Brand, 303 U.S. at 100, 58 S.Ct. 443). The court is unpersuaded by these
cases as well; first, because they also were decided prior to National R.R. Passenger
Corp., and also because, as shown below, they are not on point.
In Smith v. City of Dothan, 279 Ala. 571, 188 So. 2d 532 (1966), a City of
Dothan employee had voluntarily contributed to the City’s retirement system 5% of
his salary until he became eligible to retire. Smith, 188 So. 2d 533. Before he retired,
the City amended the plan and changed future deductions to 5% of the first $4,800
earned annually, “thereby reducing monthly pension amounts payable under the
plan.” Id. at 534. When the plaintiff later sought to retire, he complained that he had
a vested right to benefits paid on 5% of his entire salary for the entire time he
worked.43 Id. After reviewing several cases, the Alabama Supreme Court held: “It
is our opinion in the instant case, under the agreed statement of facts, that appellant,
upon reaching eligibility for retirement in 1959, acquired a vested right to the
[original] benefits . . . free of the amendment.” Id. at 536.
Smith is distinguishable from the instant case because it dealt only with the
issue of whether benefits vest at a certain point, not whether an employee could be
made to contribute more for the same benefit. Indeed, the Alabama Supreme Court
The plaintiff stated that he was “ready, able and willing to pay into the retirement fund
five per cent of his salary above the $4800 if it should be determined he is entitled to draw
retirement pay . . . without the amendment.” Smith, 279 Ala. 571, 574, 188 So. 2d 532, 534
was clear in Smith that its decision should not be read to foreclose what has occurred
in the instant case, saying:
We . . . pretermit discussing a situation that denies the Legislature the
right to pass reasonable legislation to keep the pension systems of
municipalities flexible and actuarially sound by either requiring
increased contributions from employees or reasonable reductions in
pensions not yet due and payable to employees not yet entitled to be
retired either for disability or length of service. Such a situation could
result in some pension funds ‘running dry’ with future pensioners left
without any funds from which the pensions could be paid, although they
had contributed such funds during their entire employment by the
Id. at 536 (emphasis added).
The plaintiffs also cite Snow v. Abernathy, 331 So. 2d 626, 631 (Ala. 1976).
In that case, Snow was a voluntary member of the ERS. When he became a member,
the law provided that, should a member die before retirement, the amount of his
contributions “with such interest as would have been returnable in the case of
withdrawal as provided in paragraph (a) of this subsection shall be paid to his estate,
or to such person as he shall have nominated by written designation duly executed
and filed with the board of control.” Id. at 628. When Snow elected to become a
member of the system in 1947 he designated his first wife as his beneficiary. Id. He
then divorced her in 1965 and changed his beneficiary from her to his estate. Id. In
1966, Snow then married his second wife, the plaintiff in the case. Id. at 628-629.
In 1967, the Alabama legislature amended the system by designating the surviving
spouse as beneficiary to whom contributions would be returned and adding a
surviving spouse benefit. Id. at 629. Snow died in January 1974. Id. at 629. His
second wife then filed for return of her deceased husband’s contributions with
accumulated interest (as provided for under the 1967 Amendment) and also filed for
the surviving spouse benefit that was created by that Amendment.
The court held that Snow acquired “vested contractual rights” to receive all
benefits “contracted for” and included the power to designate his beneficiary, writing:
That right was provided by [the Act of the legislature]; the basis of the
contractual agreement at the time of Snow’s election to participate. By
electing, expressly or by assent, to participate in such plan employees
acquire vested rights of contract to the benefits provided therein upon
acceptance of the plan. Those rights may not be impaired by subsequent
Id. at 631 (emphasis added). Again, the Snow case dealt with legislation which
abridged a benefit. It did not deal with the issue in this case; whether the employee’s
required contribution to a plan could be increased without increasing benefits.44
In Bd. of Trustees of Policemen’s & Firemen’s Ret. Fund of City of Gadsden
v. Cary, 373 So. 2d 841, 842 (Ala. 1979), the Alabama Supreme Court held that even
involuntary participants in a public retirement plan can acquire contractual rights to
The Snow case also did not stand for the proposition that no changes could ever be made
holding that “legislation to improve the system is constitutionally permissible.” Snow, 331 So.
2d at 631.
We hold that without regard to whether a public retirement plan is
mandatory or voluntary, where employees have served and retired, the
benefits to which they are entitled may not be reduced subsequent to
their retirement absent an express reservation of a right to amend at any
Bd. of Trustees of Policemen’s & Firemen’s Ret. Fund of City of Gadsden v. Cary,
373 So. 2d 841, 842 (Ala. 1979) (emphasis added). In language similar to that used
by the First Circuit in McGrath45, the court wrote:
We analogize this situation to a unilateral contract, where the promisee
has completely performed all of the obligations and all conditions
precedent so that the promisor has an unqualified duty to pay those
obligations. We are of the opinion that subsequent legislative alteration
is barred by Art. 1, § 22 of the Alabama Constitution of 1901.
Cary, 373 So. 2d at 842. Again, whether the plaintiffs here have contract rights to
benefits is not an issue.
The court decides this case, as it must, based upon the language of the statutes
cited by the plaintiffs.
None of these statutes evidence that the legislature
unmistakably intended to create contract rights when it established the initial
contribution rate at 6%. As the Parker court noted, “[e]ven if we treat the statute as
unclear . . . we think that the principle of unmistakability would defeat the . . . claim
that the contract rights are created when service requirements are satisfied.” Parker,
Discussed supra p. 78.
123 F.3d at 9.
Do the Actions of the City of Gadsden in Merging
the PFRF into the ERS Create Contract Rights in
Favor of the Plaintiffs So As To Prevent the
Increase in the Contribution Rate?
The defendants’ motion for summary judgment argues:
Plaintiffs have suggested in prior proceedings and discovery that when
the old police and fire pension fund was merged into ERS, that they had
an “agreement” that their contribution rate would never go up once they
finished paying thirty-five months of a supplemental five percent (5%)
payment. There is no evidentiary support for this proposition, however.
None of the plaintiffs nor their witnesses has testified to any
representation by the City that their contribution rates would [not]
increase. There are no documents showing this. Instead they have stated
that such was their “understanding,” based on the fact that the statutory
rate had not increased ever before (that they knew of).
(Doc. 51, pp. 51-52.)
In response, the plaintiffs’ entire argument is:
Plaintiffs have submitted a complete evidentiary record of the
process in 2000-02 of negotiating an agreement for the merger of the
former PFRF into the ERS. See, doc. no. 49, pp. 4-6, 8-10, 20-44. Those
facts plainly demonstrate that Gadsden agreed with the plaintiffs in 2002
that the PFRF would merge with ERS in 2002 and the employees would
pay the ERS contribution rate of 6%. In addition, as a quid pro quo, the
employees agreed to contribute an additional 5% for three years to the
“Supplemental Fund” as their agreed contribution to reduce the
unfunded liability. We now know that Gadsden did not apply those
additional funds to its unfunded liability from the old fund. Rather,
Gadsden put the money in its general fund as an offset of the costs
Gadsden otherwise had to pay in 2003-2005. Gadsden and the
employees also agreed that the employees rate of contribution would
revert to the State’s default rate of 6% in 2006. Gadsden now has
unilaterally opted to increase that rate to 8.5% and claims its unfunded
liability as an excuse for doing so.
Gadsden made an agreement in 2002 that was plainly embodied
in the 2002 ordinances and resolutions it adopted. A full evidentiary
record of the negotiation of that agreement is in the record. There was
a quid pro quo and the employees complied. And, the agreement
provided that after 2005 the employees would pay the regular statutory
contribution rate. That default statutory contribution rate is still 6%.
Some 800 localities continue to adhere to that default rate.
Gadsden’s unilateral action to increase the rate in August 2011
from the statutory default rate was a plain violation of the contract it
made with its employees when the City and employees both voted to
approve the ERS merger.
(Doc. 57, pp. 25-26.)
First, the general citation to the plaintiffs’ brief in support of their own motion
is insufficient. The citation of pages 4-6 of document 9 is properly objected to by the
defendants, as it is a “factual overview,” or a summary of sorts of the plaintiffs’
version of the facts. The remaining sections are citations to several hundred facts
proffered by the plaintiffs, some of which have nothing to do with this issue and
others of which have been excluded by the court. The plaintiffs cite to no argument
or analysis of this issue in document 49. Indeed, the plaintiffs did not make an
argument on this issue in their own motion.
The court is under no independent obligation to develop grounds in opposition
to summary judgment on behalf of the plaintiffs as “the onus is upon the parties to
formulate arguments[.]” Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599
(11th Cir. 1995) (citation omitted); see also id. (“There is no burden upon the district
court to distill every potential argument that could be made based upon the materials
before it on summary judgment.”) (citation omitted)).
That being said, there seems to be no dispute that the parties agreed to suspend
the additional 5% payment by the plaintiffs after three years. However, the plaintiffs
point to no evidence, nor do they even argue, that the City agreed to never raise the
contribution rate on the firefighters again.46
Further, the evidence shows that not only was there no agreement, the issue
was never even discussed. Smith testified that there was never a discussion about a
rate increase. (Doc. 47-8, p. 24.) Matlock testified that he does not remember
whether an increase in the future contribution rate was actually ever discussed by
either City officials or ERS officials. Harrelson states that, at none of the meetings
he attended, was there any representation that the ERS employee contribution rate
would or would not increase. Taylor says that during the discussions in which he
participated, there was no discussion or contemplation, by anyone, that the ERS
employee contribution rate would change. Morris remembers discussions about
Indeed, they “acknowledge that the law does not provide that the state may never
lawfully alter such obligations.” (Doc. 49, p. 60) (emphasis in original).
merging the old fund into the ERS, but does not remember any discussion of whether
the base contribution rate would change.
Finally, even if there were such an agreement, in Alabama “[c]ontracts entered
into by a municipality shall be in writing.” Alford v. City of Gadsden, 349 So. 2d
1132, 1134 (Ala. 1977); Ala. Code § 11-47-5. There is no evidence of any writing
whereby the City of Gadsden agreed to never increase the percentage paid by
firefighters. Even if the plaintiffs had contended, which they do not, that the
ordinances of the City Council memorialize the contract, none of those ordinances
state that the amount of the contribution will never be increased.
No Contractual Rights Were Created
In short, the court sees only one agreement here. The City, for its part, agreed
to take the firefighters out of their old pension system and into the ERS along with
the large unfunded liability of the ERS. The firefighters agreed to pay towards their
ERS pension what other hazardous duty employees were paying, 6%. In addition, the
firefighters agreed to pay an additional 5% for three years, after which time, and this
is key, the 5% additional contribution would cease. The result was, and is, that after
the three years, the firefighters would only pay what every other state and municipal
employee in the ERS was paying.
If There Was a Contract, and the Change in the Law
Impairs That Contractual Relationship, Was the
The defendants next argue that, if a contract exists, any impairment that the
rights created in that contract was not substantial. (Doc. 51, p. 43.) In their response
brief, the plaintiffs write:
First, defendants say nothing to support the notion that a 40% increase
in the employees’ contribution to their pension is not substantial. The
terms of the merger with ERS were negotiated over a two year period.
And the amount of the employees’ contributions was an important and
critical part of the negotiation process. The facts of that process are fully
documented in the depositions of the employee negotiators, former
Mayor Means and the other City officials involved. Nobody that
testified suggested the amount of the increase was insubstantial.
(Doc. 57, p. 27.) In their brief in support of their motion for summary judgment the
plaintiffs write, without citation to authority,
[b]y raising the contribution rates of employees who already hold vested
pension rights with more than ten years of service, Gadsden
substantially altered enforceable contractual interests. Those employees
now have to pay 8.5% of their salary to maintain their already vested
pension rights, rather than 6%.
(Doc. 49, p. 60.) The court does not agree.
A “substantial impairment” can be the “total destruction of a contract.” Home
Building & Loan Ass’n v. Blaisdell, 290 U.S. 398, 431, 54 S.Ct. 231, 237, 78 L.Ed.
413 (1934). However, the Supreme Court has recognized that “the actual line
between permissible and impermissible impairments could well be drawn more
narrowly.” U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1, 27, 97 S. Ct. 1505,
1520, 52 L. Ed. 2d 92 (1977). The extent of the impairment is only one “relevant
factor in determining its reasonableness”. U.S. Trust Co., 431 U.S. at 27. “[T]he
Supreme Court [also] looks at whether the impaired term was central to the contract,
whether settled expectations have been disrupted, and whether the impaired right was
reasonably relied on.” Honeywell, Inc. v. Minnesota Life & Health Ins. Guar. Ass’n,
110 F.3d 547, 558 (8th Cir. 1997) (Loken, J, concurring opinion) (citing El Paso v.
Simmons, 379 U.S. 497, 514, 85 S.Ct. 577, 586–87, 13 L.Ed.2d 446 (1965); and
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S. Ct. 2716, 2722, 57
L. Ed. 2d 727 (1978)).
The plaintiffs have not shown or argued that keeping the employee
compensation rate at 6% for firefighters forever was a central part of either their
agreement to enter into the ERS in the first place, or to pay for three years an
additional 5% toward the unfunded liability of the PFRF. Further, the RSA
Handbook in existence in 2002, which the plaintiffs cite as forming part of the
contract, states that “[t]he member’s contribution rate is determined by statute and
subject to change by the Alabama legislature.” (Doc. 47-7, p. 4) (emphasis added).
“Under these circumstances, an employee’s reasonable expectation from the Plan
contract cannot include a guarantee that an employee contribution would never be
required.” Transp. Workers Union of Am., Local 290 By & Through Fabio v. Se.
Pennsylvania Transp. Auth., 145 F.3d 619, 622 (3d Cir. 1998) (where the Act
expressly contemplated that the provisions of any pension and retirement system
created thereunder would be subject to modification from time to time by the
Authority’s Board and that the employees covered might be required, by resolution
of the Board, to make contributions).
Were the Legislature and the City of Gadsden Justified
in Enacting the Changes?
As shown above, a law or regulation that substantially impairs a contractual
relationship does not violate the Contract Clause so long as it serves a significant and
legitimate public purpose, is based on reasonable conditions, and is appropriate to the
public purpose justifying its enactment. Davken, 366 Fed. App’x at 41 (citing Energy
Reserves Grp., 459 U.S. at 411-12). However, the court does not need to reach this
issue, as it has already found no contract, and, even if there were a contract, the court
has found that the plaintiffs’ rights in the contract were not substantially impaired.
Summary Judgment for the Defendants
Based on the foregoing, the defendants’ motion for summary judgment will be
GRANTED, and the plaintiffs’ motion for summary judgment will be DENIED.
Based on the foregoing, it is hereby ORDERED, ADJUDGED, and
DECREED as follows:
The plaintiffs’ motion to strike is GRANTED. The entire affidavit of Lisa
Rosser, and the quoted portion of the Diane Scott deposition are STRICKEN.
The defendants’ motion for summary judgment is GRANTED.
The plaintiffs’ motion for summary judgment is DENIED.
By separate order, this case will be DISMISSED, with prejudice, costs taxed
DONE and ORDERED this 29th day of July, 2013.
VIRGINIA EMERSON HOPKINS
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?