Robertson v. Kulongoski , 466 F.3d 1114 ( 2006 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
WILLIAM ROBERTSON; CYNTHIA 
CARLISLE; RUSSELL HATHHORN;
CHRISTOPHER MYERS; MICHAEL
SIMPSON; JANET BOWLER; LARRY
DEAN; JEAN DEJARNATT,
Plaintiffs-Appellants,
MARION COUNTY,
Intervenor-Appellee, No. 04-35898
v. D.C. No.
THEODORE KULONGOSKI; DAWN  CV-03-00999
MORGAN, Official capacity; JANICE MWM
DERINGER, Official capacity; MARK OPINION
GARDNER, Official capacity; JEANNE
GARST, Official capacity; GLENN
HARRISON, Official capacity; TODD
SCHWARTZ, Official capacity;
GEORGE RUSSELL, Official capacity;
PUBLIC EMPLOYEES RETIREMENT
BOARD,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Oregon
Michael W. Mosman, District Judge, Presiding
Argued and Submitted
September 15, 2006—Portland, Oregon
Filed October 24, 2006
17713
17714 ROBERTSON v. KULONGOSKI
Before: Barry G. Silverman and Ronald M. Gould,
Circuit Judges, and John S. Rhoades,* District Judge.
Opinion by Judge Rhoades
*The Honorable John S. Rhoades, Sr., Senior United States District
Judge for the Southern District of California, sitting by designation.
ROBERTSON v. KULONGOSKI 17715
COUNSEL
Gregory A. Hartman, Bennett, Hartman, Morris & Kaplan,
Portland, Oregon, for the plaintiffs-appellants.
17716 ROBERTSON v. KULONGOSKI
Jeremy D. Sacks, Stoel Rives, Portland, Oregon, for the
defendants-appellees.
OPINION
RHOADES, District Judge:
Plaintiffs-Appellants (“the Employees”), current and retired
employees of the State of Oregon, challenge legislation1
passed by the Oregon legislature in 2003 that amended the
Oregon Public Employees Retirement System (“PERS”). The
Employees bring their claims under the Contract Clause of the
United States Constitution. The Employees appeal the district
court’s denial of their motion for summary judgment and
grant of summary judgment in favor of defendants-appellees
(collectively “the State”). Only the Employees’ First and
Sixth Claims remain at issue.2
I. The Oregon Public Employees Retirement System
“Oregon has provided its public employees with a retire-
ment plan, as a contractual benefit of public employment,
since 1945.” Strunk v. Public Employees Retirement Board,
108 P.3d 1058, 1068 (Or. 2005). Prior to the 2003 legislation,
PERS members contributed six percent of their salaries to the
1
See House Bill 2003 (2003), Oregon Laws 2003, chapter 67.
2
As the Employees note in their Supplemental Opening Brief, their Sec-
ond, Third, Fourth and Fifth Claims are moot in light of the Oregon
Supreme Court’s holding in Strunk v. Public Employees Retirement
Board, 108 P.3d 1058 (Or. 2005). Moreover, the Employees have specifi-
cally withdrawn their appeal of the district court’s decision regarding their
Third, Seventh, Eighth, Ninth and Tenth Claims. Although the Employees
contend that this appeal is now “limited to the diversion of employee con-
tributions from employee regular accounts” — which could be construed
as a representation that only the First Claim remains at issue — because
the Employees’ Sixth Claim is not moot and the Employees do not specifi-
cally withdraw their appeal as to that claim, we consider it here.
ROBERTSON v. KULONGOSKI 17717
PERS fund, see O.R.S. 238.200(1)(a) (2001), and the contri-
butions to the fund were then directed to either a “regular”
account or a “variable” account. See O.R.S. 238.200(2)
(2001); O.R.S. 238.260(3) (2001); Strunk, 108 P.3d at 1079-
80, 1095-96. Earnings on contributions to the regular accounts
were credited to those accounts. See Strunk, 108 P.3d at 1071.
Since 1975, the PERS statutory scheme has “provided that the
earnings to be credited annually to Tier One members’ regular
accounts will be no less than the existing assumed earnings
rate.”3 Id. at 1087; see also O.R.S. 238.255 (1995).
As for the calculation of the members’ benefits at retire-
ment, the Oregon Supreme Court has explained:
There are three formulas available for calculating a
PERS member’s service retirement allowance, com-
monly known as the Pension Plus Annuity, the Full
Formula, and the Money Match. The Pension Plus
Annuity, which is available to only members who
contributed to PERS before August 21, 1981, con-
sists of the sum of an annuity component and a pen-
sion component. The annuity component is
composed of the actuarial equivalent of the mem-
ber’s account balances at retirement. The pension
component, funded by the employer, is equal to one
percent of the member’s final average salary (1.35
percent for legislators and police and fire employees)
for each service year.
The Full Formula also includes an annuity compo-
nent composed of the actuarial equivalent of the
member’s account balances at retirement and a pen-
sion component; however, the pension component is
3
PERS classifies Oregon employees into two “tiers.” “Tier One” mem-
bers are those whose membership in PERS began before January 1, 1996.
See Strunk, 108 P.3d at 1069. All plaintiffs in this action are Tier One
members or retired Tier One members.
17718 ROBERTSON v. KULONGOSKI
calculated differently than under the Pension Plus
Annuity. The Full Formula first calculates a mem-
ber’s service retirement allowance by multiplying
the member’s final average salary by a factor set at
1.67 percent (two percent for legislators, police offi-
cers, and firefighters) and then multiplying the
resulting figure by the member’s years of member-
ship. That service retirement allowance then is
funded using the actuarial equivalent of the mem-
ber’s account balances at retirement (the annuity
component) and employer contributions required to
make up the difference (the pension component).
Under the Money Match, a member’s service retire-
ment allowance is calculated by determining the sum
of the actuarial equivalent of the member’s account
balances at retirement (the annuity component) and
then adding a sum in an equal amount that is charged
to the employer, i.e., the “match” (the pension com-
ponent). The resulting service retirement allowance
therefore amounts to twice the actuarial equivalent
of the member’s account balances at retirement.
Strunk, 108 P.3d at 1069-70. Upon retiring, “a PERS member
receives a service retirement allowance based on the formula
that produces the highest pension amount among the forego-
ing three alternative formulas.” Id. at 1070; see also O.R.S.
238.300 (2001). Prior to 2003, a retired member’s service
retirement allowance was increased annually through a cost-
of-living adjustment (“COLA”) regardless of the formula
used to determine the allowance. Strunk, 108 P.3d at 1070.
Under the challenged 2003 legislation, Tier One members
no longer have the option of contributing to the regular or
variable accounts. Rather, all member contributions made
after January 1, 2004, are now placed in a new Individual
Account Program (“IAP”) account. See id. at 1071-72. Impor-
tantly, unlike the balances in the regular accounts, “[t]he bal-
ROBERTSON v. KULONGOSKI 17719
ances held in members’ IAP accounts will not be annually
credited at not less than the assumed earnings rate and, at
retirement, will not be subject to employer matching under the
Money Match or be enhanced by annual COLAs.” Id. at 1072.
The statutory provisions regarding how benefits are calcu-
lated under the Pension Plus Annuity, the Full Formula and
the Money Match were not altered by the 2003 legislation.
However, the effect of the 2003 legislation is that Money
Match will not be the predominant formula for calculating
PERS retirement allowances, which it has been in recent
years. Id. at 1070 n.18. The Money Match in recent years has
provided generous retirement allowances. For example, in
2000, “the average PERS retired member with 30 years of
creditable service retired at the age of 53 with a service retire-
ment allowance equal to 106 percent of the member’s final
average salary.” Id. at 1070.
II. Analysis
In broad terms, the Employees contend that they have a
contractual right to participate in the PERS pension plan as it
existed prior to the challenged 2003 legislation and that the
2003 legislation violates the federal Contract Clause by
impairing the State’s obligations to them under the pre-2003
PERS statutory scheme. Specifically, the Employees’ First
Claim challenges the fact that the 2003 legislation eliminates
the Employees’ right to contribute six percent of their salaries
to a regular account, see O.R.S. 238.200(4), redirects the
Employees’ contributions to an IAP account, see O.R.S.
238A.305(1) (2003); O.R.S. 238A.330 (2003), and effectively
eliminates the Money Match as the primary formula for calcu-
lating member service retirement allowances. The Employ-
ees’ Sixth Claim challenges the fact that the 2003 legislation
eliminates their right to contribute to a variable account.
[1] The federal Contract Clause provides: “No State shall
. . . pass any . . . Law impairing the Obligation of Contracts.”
17720 ROBERTSON v. KULONGOSKI
United States Const. art. I, § 10, cl. 1. To determine whether
a legislative enactment violates the Contract Clause, the panel
must engage in a three-part analysis. Rui One Corp. v. City of
Berkeley, 371 F.3d 1137, 1147 (9th Cir. 2004). The first part
of the analysis, which is at issue here, is “ ‘whether the state
law has, in fact, operated as a substantial impairment of a con-
tractual relationship.’ ” Id. (quoting Allied Structural Steel
Co. v. Spannaus, 438 U.S. 234, 244 (1978)). In making this
determination, the court must consider “whether there is a
contractual relationship, whether a change in law impairs that
contractual relationship, and whether the impairment is sub-
stantial.’ ” Gen. Motors Corp. v. Romein, 503 U.S. 181, 186
(1992). Importantly, “[t]he first sub-inquiry is not whether
any contractual relationship whatsoever exists between the
parties, but whether there was a ‘contractual agreement
regarding the specific . . . terms allegedly at issue.’ ” Rui One
Corp., 371 F.3d at 1147 (quoting Romein, 503 U.S. at 187)
(emphasis added); see also State of Indiana ex rel. Anderson
v. Brand, 303 U.S. 95, 100 (1938).
[2] In determining the contours of the statutorily-created
PERS contract, we apply federal law, see State of Nev.
Employees Ass’n, Inc. v. Keating, 903 F.2d 1223, 1227 (9th
Cir. 1990); Brand, 303 U.S. at 100, which requires us to find
a “clear indication” of the Oregon legislature’s intent that the
State be contractually bound by the provisions of PERS that
the Employees urge us to find are contractual promises.
National R.R. Passenger Corp. v. Atchison Topeka and Santa
Fe Ry. Co., 470 U.S. 451, 465-466 (1985) (emphasis added).
As explained in National Railroad Passenger Corp.:
For many decades, this Court has maintained that
absent some clear indication that the legislature
intends to bind itself contractually, the presumption
is that “a law is not intended to create private con-
tractual or vested rights but merely declares a policy
to be pursued until the legislature shall ordain oth-
erwise.” Dodge v. Board of Education, 302 U.S. 74,
ROBERTSON v. KULONGOSKI 17721
79, 58 S. Ct. 98, 100, 82 L. Ed. 57 (1937). See also
Rector of Christ Church v. County of Philadelphia,
24 How. 300, 302, 16 L. Ed. 602 (1861) (“Such an
interpretation is not to be favored”). This well-
established presumption is grounded in the elemen-
tary proposition that the principal function of a legis-
lature is not to make contracts, but to make laws that
establish the policy of the state. Indiana ex rel.
Anderson v. Brand, 303 U.S. 95, 104-105, 58 S. Ct.
443, 447-448, 82 L. Ed. 685 (1938). Policies, unlike
contracts, are inherently subject to revision and
repeal, and to construe laws as contracts when the
obligation is not clearly and unequivocally expressed
would be to limit drastically the essential powers of
a legislative body . . . . Thus, the party asserting the
creation of a contract must overcome this well-
founded presumption, Dodge, supra, 302 U.S., at 79,
58 S. Ct., at 100, and we proceed cautiously both in
identifying a contract within the language of a regu-
latory statute and in defining the contours of any
contractual obligation.
Id. at 465-466. (emphasis added).4
[3] Finally, although we apply federal law in ascertaining
the State legislature’s intent to bind the state contractually, we
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); see also Phelps v. Bd.
of Educ. of Town of West New York, 300 U.S. 319, 322
4
The Employees attempt to draw a distinction between the standard for
ascertaining the legislature’s intent to be bound by a contract in general
and the standard for ascertaining its intent regarding the terms of the con-
tract. The Employees contend that once it is determined that the legislature
intended to create an enforceable contract we need not apply a heightened
standard in determining the terms of that contract. However, we have not
been cited any authority that so holds, and this contention cannot be recon-
ciled with the passage we cite from National Railroad Passenger Corp.
17722 ROBERTSON v. KULONGOSKI
(1937); Dodge v. Bd. of Educ. of City of Chicago, 302 U.S.
74, 79 (1937).
[4] Clearly, under Oregon law, “PERS is a contract
between the state and its employees.” Oregon State Police
Officers’ Ass’n v. State, 918 P.2d 765, 779 (Or. 1996). How-
ever, whether the parties had a contract is not at issue here.
Rather, like the Oregon Supreme Court in Strunk,5 we are cal-
led upon to determine the contours of the Employees’ PERS
contract. Having considered Strunk’s detailed analysis of this
issue, which includes a thorough examination of the text and
context of all relevant statutory provisions along with an
examination of the history of PERS,6 we agree with the Ore-
gon Supreme Court that the Oregon legislature did not prom-
ise the Employees a perpetual or “immutable” right to
contribute to the regular and variable accounts. Strunk, 108
P.3d at 1087. Moreover, the Employees’ arguments to the
contrary notwithstanding, we also agree with Strunk that the
legislature “did not promise that PERS would be maintained
so that the Money Match remains the primary calculator of
member service retirement allowances . . . .” Id. at 1085; see
also id. at 1087. We further agree that the Oregon legisla-
ture’s promise to the Employees was simply that they “would
receive service retirement allowances calculated under which-
ever formula yields the highest pension amount for that mem-
5
In Strunk, PERS members who are not parties to the present lawsuit
brought federal and state Contract Clause challenges to the identical 2003
legislative provisions that are at issue here.
6
Rather than reiterate the Strunk court’s analysis, we direct the reader
to Strunk, 108 P.3d at 1080-87, 1095-98. We do note, however, that, the
Employees’ contention to the contrary notwithstanding, the Strunk court
did, as it should, consider the provision regarding contributions to the reg-
ular accounts in the context of the PERS contract as a whole. See id. at
1087 (explaining that “the text of O.R.S. 238.200(1)(a) (2001) and its stat-
utory context do not establish clearly and unambiguously that the legisla-
ture intended to promise members that they could contribute six percent
of their salaries to their regular accounts throughout their PERS member-
ship”) (emphasis added).
ROBERTSON v. KULONGOSKI 17723
ber . . . .” Id. at 1085. Finally, we conclude, as did Strunk, that
“[t]he legislature did not alter or eliminate that promise when
it enacted the 2003 PERS legislation.” Id. at 1087.
In reaching this conclusion, we reject the Employees’ con-
tention that Strunk’s analysis is not helpful here because it
applied an incorrect standard in determining the legislature’s
intent. The standard it used — whether there was clear and
unambiguous evidence of the legislature’s intent — is consis-
tent with the applicable standard under federal law. See
National R.R. Passenger Corp., 470 U.S. at 465-66. We also
reject the Employees’ argument that United States v. Winstar,
518 U.S. 839 (1996), provides the standard for determining
the contours of a statutorily-created contract because, unlike
National Railroad Passenger Corp., Winstar did not involve
the interpretation of such a contract.
The Employees’ contention that Keating, not Strunk,
should be the starting point for our analysis is also unavailing.7
Not only does this argument overlook the fact that federal
courts accord deference to a state court’s determination as to
the existence and terms of a contract created by state statute,
see Brand, 303 U.S. at 100; Phelps, 300 U.S. at 322, but
Keating does not provide a framework for determining the
terms of a statutorily-created contract.
In Keating, employees of the State of Nevada and their
employee association challenged the Nevada legislature’s ter-
mination of their right to withdraw their pension contributions
7
Interestingly, although the Employees now contend that federal law
drives the analysis regarding the scope of their statutorily-created contract,
prior to Strunk the Employees relied heavily on Oregon cases such as Tay-
lor v. Multnomah County Deputy Sheriff’s Retirement Board, 510 P.2d
339 (Or. 1973), Hughes v. State of Oregon, 838 P.2d 1018 (Or. 1992), and
Oregon State Police Officers’ Ass’n v. State, 918 P.2d 765 (Or. 1996) in
support of their claims. We conclude that nothing in these cases suggests
a flaw in Strunk’s analysis of the specific PERS terms at issue here, which
we find to be the correct analysis.
17724 ROBERTSON v. KULONGOSKI
without penalty. The State of Nevada did not dispute that a
contractual relationship existed between the parties, see 903
F.2d at 1226, and notably absent in Keating is an analysis as
to whether there was a contractual agreement regarding the
specific term at issue in that case. Because the seminal issue
here is not whether the parties had an agreement but, rather,
the terms of that agreement, and because Keating is silent as
to how this issue should be approached, the Employees’ reli-
ance on Keating is unavailing here.
Finally, we note that the Employees’ remaining arguments
are unavailing because they are predicated upon the presump-
tion that the perpetual right to contribute to the regular and
variable accounts and the right to have their member service
retirement allowances calculated under the Money Match are
statutorily-created PERS contractual rights. Because we have
found they are not, it is irrelevant whether the Oregon legisla-
ture could have unilaterally abrogated such contractual rights
were they to exist.
III. Conclusion
[5] Having considered the Oregon Supreme Court’s
detailed analysis of the terms of the Employees’ statutorily-
created PERS contract, we conclude, as did the Oregon
Supreme Court in Strunk, that the Employees’ PERS contract
does not contain the promises urged by the Employees.
Accordingly, the 2003 legislation does not impair a term of
the Employees’ PERS contract and, therefore, does not violate
the federal Contract Clause. Accordingly, the district court is
AFFIRMED.