Timothy L Johnson v. Public School Employees Retirement System ( 2016 )

STATE OF MICHIGAN
COURT OF APPEALS
AFT MICHIGAN, HENRY FORD FOR PUBLICATION
COMMUNITY COLLEGE ADJUNCT June 7, 2016
FACULTY ORGANIZATION, AFL CIO, AFT,
ALPENA MONTMORENCY ALCONA ISD
PARAPROFESSIONALS, ALPENA
MONTMORENCY ALCONA ISD TEACHERS,
ARENAC EASTERN FEDERATION, BAY
ARENAC SKILLS CENTER FEDERATION,
BROWN CITY EMPLOYEES ORGANIZATION,
BROWN CITY FEDERATION OF TEACHERS,
CHEBOYGAN OTSEGO PRESQUE ISLE
SUPPORT PERSONNEL, CHEBOYGAN
OTSEGO PRESQUE ISLE INTERMEDIATE
PARAPROFESSIONALS, CHEASANING
UNION AUXILIARY SERVICE EMPLOYEES,
CLARE GLADWIN ISD FEDERATION,
CRAWFORD AUSABLE BUS DRIVERS
FEDERATION, CRAWFORD AUSABLE
CUSTODIANS SECRETARIAL FEDERATION,
CRAWFORD AUSABLE FEDERATION OF
TEACHERS, CRAWFORD AUSABLE
SUPPORT STAFF FEDERATION,
CRESTWOOD FEDERATION OF TEACHERS,
CTR FEDERATION, DEARBORN
FEDERATION OF SCHOOL EMPLOYEES,
DEARBORN FEDERATION OF TEACHERS,
DETROIT ASSOCIATION OF EDUCATIONAL
OFFICE EMPLOYEES, DETROIT
FEDERATION OF PARAPROFESSIONALS,
DETROIT FEDERATION OF TEACHERS,
EAST DETROIT FEDERATION OF
TEACHERS, ECORSE FEDERATION OF
TEACHERS, FAIRVIEW FEDERATION OF
TEACHERS, FEDERATION OF TEACHERS,
GLEN LAKE FEDERATION OF TEACHERS,
HALE FEDERATION OF TEACHERS,
HAMTRAMCK FEDERATION OF TEACHERS,
HEMLOCK FEDERATION OF TEACHERS,
HENRY FORD COMMUNITY COLLEGE
ADJUNCT FACULTY ORGANIZATION,
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HENRY FORD COMMUNITY COLLEGE
FEDERATION OF TEACHERS, HIGHLAND
PARK FEDERATION OF
PARAPROFESSIONALS, HIGHLAND PARK
FEDERATION OF TEACHERS, HURON
VALLEY CONTINUING EDUCATION, IMLAY
CITY FEDERATION OF TEACHERS, INKSTER
FEDERATION OF TEACHERS, IOSCO ISD
FEDERATION OF TEACHERS, IOSCO ISD
INTERMEDIATE FEDERATION OF
AUXILIARY EMPLOYEES, KINGSLEY
FEDERATION OF TEACHERS, KIRTLAND
COMMUNITY COLLEGE FEDERATION OF
TEACHERS, LAMPHERE FEDERATION OF
PARAPROFESSIONALS, LAMPHERE
FEDERATION OF TEACHERS, LANSING
COMMUNITY COLLEGE ADMINISTRATIVE
ASSOCIATION, LES CHENEAUX
FEDERATION OF SUPPORT STAFF, LES
CHENEAUX FEDERATION OF TEACHERS,
LAKE CITY SUPPORT STAFF FEDERATION,
LAKE CITY TEACHERS AND
PARAPROFESSIONALS FEDERATION, LAKE
SHORE FEDERATION OF EDUCATIONAL
SECRETARIES, LAKE SHORE FEDERATION
OF TEACHERS, LAKE SHORE FEDERATION
SUPPORT STAFF, MACOMB INTERMEDIATE
FEDERATION OF PARAPROFESSIONALS,
MACOMB INTERMEDIATE FEDERATION OF
TEACHERS, MELVINDALE NAP
FEDERATION OF TEACHERS, MELVINDALE
NAP PARAPROFESSIONALS, MIDLAND
FEDERATION OF PARAPROFESSIONALS,
MIDLAND ISD FEDERATION OF
PARAPROFESSIONALS, MIDLAND ISD
FEDERATION OF TEACHERS, NORTHVILLE
FEDERATION OF PARAPROFESSIONALS,
ONWAY FEDERATION OF SCHOOL
RELATED PERSONNEL, ONWAY
FEDERATION OF TEACHERS, PLYMOUTH
CANTON COMMUNITY SCHOOL
SECRETARIAL UNIT, PLYMOUTH CANTON
FEDERATION OF PLANT ENGINEERS,
ROMULUS FEDERATION OF
PARAPROFESSIONALS, ROSEVILLE
FEDERATION OF TEACHERS, RUDYARD
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FEDERATION OF AIDES, RUDYARD
FEDERATION OF TEACHERS, SAGINAW ISD
FEDERATION OF TEACHERS, TAWAS AREA
FEDERATION OF TEACHERS, TAYLOR
FEDERATION OF TEACHERS, UTICA
FEDERATION OF TEACHERS, VAN DYKE
EDUCATIONAL ASSISTANTS FEDERATION,
VAN DYKE PROFESSIONAL PERSONNEL,
WARREN WOODS FEDERATION OF
PARAPROFESSIONALS, WASHTENAW
INTERMEDIATE SCHOOL EMPLOYEES
FEDERATION, WATERFORD ASSOCIATION
OF SUPPORT PERSONNEL, WAYNE COUNTY
COMMUNITY COLLEGE FEDERATION OF
TEACHERS, WAYNE COUNTY COMMUNITY
COLLEGE PROFESSIONAL AND ADMIN
ASSOCIATION, WAYNE COUNTY RESA
SALARIED STAFF, WEXFORD MISSAUKEE
ISD FEDERATION OF TEACHERS,
WHITEFISH TOWNSHIP FEDERATION OF
TEACHERS, CHEBOYGAN OTSEGO
PRESQUE ISLE ISD TEACHERS and
HEMLOCK AUXILIARY SERVICE
EMPLOYEES,
Plaintiffs-Appellees,
v No. 303702
Court of Claims
STATE OF MICHIGAN, LC No. 10-000091-MM
Defendant-Appellant.
TIMOTHY L. JOHNSON, JANET HESLET,
RICKY A. MACK and DENISE ZIEJA,
Plaintiffs-Appellees/Cross-
Appellants,
v No. 303704
Court of Claims
PUBLIC SCHOOL EMPLOYEES RETIREMENT LC No. 10-000047-MM
SYSTEM, PUBLIC SCHOOL EMPLOYEES
RETIREMENT SYSTEM BOARD, TRUST FOR
PUBLIC EMPLOYEE RETIREMENT HEALTH
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CARE and DEPARTMENT OF TECHNOLOGY,
MANAGEMENT, AND BUDGET,
Defendants-Appellants/Cross-
Appellees,
and
DIRECTOR OF DEPARTMENT OF
TECHNOLOGY MANAGEMENT AND
BUDGET, DIRECTOR OF RETIREMENT
SERVICES OFFICE and STATE TREASURER,
Defendants.
DEBORAH MCMILLAN, THOMAS BRENNER,
THERESA DUDLEY, KATHERINE DANIELS
and COREY CRAMB,
Plaintiffs-Appellees/Cross-
Appellants,
v No. 303706
Court of Claims
PUBLIC SCHOOL EMPLOYEES RETIREMENT LC No. 10-000045-MM
SYSTEM, PUBLIC SCHOOL EMPLOYEES
RETIREMENT SYSTEM BOARD, TRUST FOR
PUBLIC EMPLOYEE RETIREMENT HEALTH
CARE and DEPARTMENT OF TECHNOLOGY,
MANAGEMENT, AND BUDGET,
Defendants-Appellants/Cross-
Appellees,
and
DIRECTOR OF DEPARTMENT OF
TECHNOLOGY MANAGEMENT AND
BUDGET, DIRECTOR OF RETIREMENT
SERVICES OFFICE and STATE TREASURER,
Defendants.
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ON REMAND
Before: SHAPIRO, P.J., and SAAD and BECKERING, JJ.
SAAD, J. (concurring in part and dissenting in part)
I concur with the majority’s conclusion that none of the issues before us has been
rendered moot by the Michigan Supreme Court’s decision in AFT Mich v Michigan, 497 Mich
197; 866 NW2d 782 (2015). However, I respectfully disagree with the majority’s view that
§ 43e of 2010 PA 75 is violative of the Contracts Clauses of the Michigan and United States
Constitutions, US Const, art I, § 10 and Const 1963, art 1, § 10, the Takings Clauses of the Fifth
Amendment and Const 1963, art 10, § 2, and the Due Process Clauses of the Fourteenth
Amendment and Const 1963, art 1, § 17. Accordingly, just as I dissented from the majority’s
decision in AFT Mich v Michigan, 297 Mich App 597; 825 NW2d 595 (2012), vacated 498 Mich
851 (2015), I again dissent from the majority’s decision here that the mandatory contributions at
issue are unconstitutional.
I. NATURE OF THE CASE
In 1974 PA 244, the Michigan Legislature amended the Public School Employees
Retirement Act, 1945 PA 136, to provide, on or after January 1, 1975, health care benefits for
retired employees of the Michigan public schools. The act provided that the Michigan Public
School Employees Retirement System (MPSERS) would pay health care premiums for retired
employees and their dependents under any group health plan authorized by the retirement
commission. MCL 38.325b(1). In 1980, the Legislature enacted the Public School Employees
Retirement Act of 1979, 1980 PA 300, MCL 38.1301 et seq., setting forth the health care
coverage provision in MCL 38.1391(1). Pursuant to MCL 38.1341, public schools must
contribute to the MPSERS a percentage of the total amount of their payroll to pay the cost of
health care premiums for retirees and their dependents. In other words, Michigan taxpayers
have, for years, paid for public school employees’ retiree health care benefits.
Over the years, the number of retiree participants in the MPSERS program has grown
significantly and, therefore, so has the expense to the taxpaying public, which knows little about
this unseen, but enormous, cost to the public education system. Indeed, Phillip Stoddard,
Director of the Office of Retirement Services of the Michigan Department of Technology,
Management, and Budget, estimated that for the year beginning October 1, 2010, the cost of
health care for retirees and their dependents would exceed $920,000,000. Thus, it now costs
school districts (meaning taxpayers) almost a billion dollars a year for retiree health care alone.
Faced with these unsustainable, increasing costs, the Legislature has passed various amendments
to increase the copays and deductibles that retirees pay for their health care. These modifications
that require retired public school employees to contribute to their health care costs have survived
constitutional challenge from education workers. Indeed, our Supreme Court has ruled that the
Legislature created and may revoke this taxpayer-funded benefit and that retiree health care
benefits are not a constitutionally protected contract right, nor a vested right under the Michigan
Constitution.
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With the enactment of MCL 38.1343e in 2010 PA 75,1 the Legislature required current
public school employees to not only pay copays and deductibles upon retirement, but also pay
dollars directly into the program from which they will reap generous retiree health care benefits.
Again, the public school employees object by claiming constitutional infirmities that, in truth, do
not exist. I respectfully disagree with the majority’s ruling because the challenged legislation is
constitutional.
II. STANDARD OF REVIEW
This Court reviews constitutional issues de novo. Cummins v Robinson Twp, 283 Mich
App 677, 690; 770 NW2d 421 (2009). This Court also reviews de novo a trial court’s decision
on a motion for summary disposition. Moraccini v Sterling Heights, 296 Mich App 387, 391;
822 NW2d 799 (2012).
III. IMPAIRMENT OF CONTRACT
The majority’s holding that MCL 38.1343e violates the Contracts Clauses is incorrect
because, as a matter of law, MCL 38.1343e has not “operated as a substantial impairment of a
contractual relationship.” Allied Structural Steel Co v Spannaus, 438 US 234, 244; 98 S Ct
2716; 57 L Ed 2d 727 (1978). Indeed, MCL 38.1343e cannot possibly implicate these
constitutional provisions because it does not affect, much less impair, any contract. Simply put,
to constitute an impairment of contract, there must first be a contract that is impaired. Thus, for
plaintiffs to state a claim, MCL 38.1343e must have altered either a contract between the state
itself and the public school employees or the public school employees’ contracts with some third
party. MCL 38.1343e does neither. And, because no contract has been impaired, this claim
must fail.
I begin with the established principle that legislative enactments are presumed to be
constitutional absent a clear showing to the contrary. Mich Soft Drink Ass’n v Dep’t of Treasury,
206 Mich App 392, 401; 522 NW2d 643 (1994). “The party challenging the constitutionality of
legislation bears the burden of proof.” Id. The majority holds that MCL 38.1343e violates the
Contracts Clauses of the United States and Michigan Constitutions.
This state’s constitution, Const 1963, art 1, § 10, provides that “[n]o bill of
attainder, ex post facto law or law impairing the obligation of contract shall be
enacted,” which is substantially identical to the federal constitution, US Const, art
I, § 10, which provides that “[n]o State shall . . . pass any Bill of Attainder, ex
post facto Law, or Law impairing the Obligation of Contracts . . . .” Our state
constitutional provision is not interpreted more expansively than its federal
counterpart. [Attorney Gen v Mich Pub Serv Comm, 249 Mich App 424, 434; 642
NW2d 691 (2002).]
1
Of course, 2012 PA 300 later modified MCL 38.1343e, but my citation to MCL 38.1343e in
this opinion will refer only to the version presented in 2010 PA 75.
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The constitutional prohibition on the impairment of contracts is not absolute and must be
accommodated to the state’s inherent police power to safeguard the vital interests of the people.
Health Care Ass’n Workers Comp Fund v Bureau of Worker’s Compensation Director, 265
Mich App 236, 240-241; 694 NW2d 761 (2005).
A three-pronged test is used to analyze Contract Clause issues. The first
prong considers whether the state law has operated as a substantial impairment of
a contractual relationship. The second prong requires that legislative disruption of
contractual expectancies be necessary to the public good. The third prong
requires that the means chosen by the Legislature to address the public need be
reasonable. In other words, if the impairment of a contract is only minimal, there
is no unconstitutional impairment of a contract. However, if the legislative
impairment of a contract is severe, then to be upheld it must be affirmatively
shown that (1) there is a significant and legitimate public purpose for the
regulation and (2) that the means adopted to implement the legislation are
reasonably related to the public purpose. [Id. at 241 (citations omitted).]
In addition, the inquiry under the first prong regarding whether the state law substantially
impairs a contractual relationship “has three components: whether there is a contractual
relationship, whether a change in law impairs that contractual relationship, and whether the
impairment is substantial.” Gen Motors Corp v Romein, 503 US 181, 186; 112 S Ct 1105; 117 L
Ed 2d 328 (1992).
First, under the Michigan Supreme Court’s ruling in Studier v Mich Pub Sch Employees’
Ret Bd, 472 Mich 642; 698 NW2d 350 (2005), the public school employees have no contract
with the state for retiree health care benefits, nor do the public school employees have vested
rights in retiree health care benefits. In Studier, the Court held that MCL 38.1391(1) does not
create a contract with public school retirees for retiree health care benefits. The plaintiffs, six
public school retirees, argued that increases in their prescription drug copayments and
deductibles violated US Const, art I, § 10, and Const 1963, art 1, § 10, both of which prohibit a
law that impairs an existing contractual obligation. Studier, 472 Mich at 647-648. The Supreme
Court noted that, in general, “one legislature cannot bind the power of a successive legislature.”
Id. at 660. This principle can be limited where it is in tension with the constitutional prohibitions
against the impairment of contracts. Id. at 660-661. However, “such surrenders of legislative
power are subject to strict limitations that have developed in order to protect the sovereign
prerogatives of state governments.” Id. at 661. Thus, a strong presumption exists that statutes do
not create contractual rights. Id. Absent a clear indication that the Legislature intended to bind
itself contractually, a law is presumed not to create contractual or vested rights. Id. To form a
contract, the language of a statute must be plain and susceptible of no other reasonable
construction than that the Legislature intended to bind itself. Id. at 662. Absent an expression of
such an intent, “courts should not construe laws declaring a scheme of public regulation as also
creating private contracts to which the state is a party.” Id.
Applying these principles, the Studier Court concluded that the plaintiffs had failed to
overcome the strong presumption that the Legislature did not intend to surrender its legislative
powers by entering into a contractual agreement to provide retiree health care benefits to public
school employees. Id. at 663. “Nowhere in MCL 38.1391(1), or in the rest of the statute, did the
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Legislature provide for a written contract on behalf of the state of Michigan or even use terms
typically associated with contractual relationships, such as ‘contract,’ ‘covenant,’ or ‘vested
rights.’ ” Id. at 663-664. Had the Legislature intended to surrender its power to amend the
statute to remove or diminish the benefits provided, it would have done so explicitly. Id. at 665.
Therefore, Studier is directly controlling here, and no contracts entitling plaintiff
employees to receive retiree health care benefits exist and, as such, cannot be impaired.
Second, the collective bargaining agreements (CBAs) between the public school
employees and various school districts are not even touched, much less impaired. Though the
plaintiffs in Docket No. 303704 argue that their breach of contract count is based on CBAs with
their local school districts entitling them to compensation at rates established in the agreements,
in their complaint, they did not allege that any CBAs existed or that such agreements formed the
basis of the breach of contract count, and they did not attach any contracts to their complaint.2
Further, the state is not a party to the CBAs and cannot be bound by them. Equal Employment
Opportunity Comm v Waffle House, Inc, 534 US 279, 294; 122 S Ct 754; 151 L Ed 2d 755(2002); Baraga Co v State Tax Comm, 466 Mich 264, 266; 645 NW2d 13 (2002).
In any case, obviously, the CBAs do not address the retiree health care system because
this is a benefit created by the state. By virtue of MCL 38.1343e, the state required public school
employees to contribute money to help defray the cost of retiree health care benefits. This
statutory mandate is between the state and each worker, and this has nothing to do with any
contract. Regardless of the wage levels negotiated in CBAs for principals, teachers, or
noninstructional workers, those levels are not affected. If, for example, a school district has
contracted with a teacher to pay him or her $80,000 a year, the state’s mandate that the employee
contribute three percent under MCL 38.1343e does not alter the school district’s contractual
obligation. Indeed, the state Legislature could change the mandate to four percent or one
percent, and the school district would nevertheless be required by contract (CBA) to pay the
teacher $80,000 a year. MCL 38.1343e simply sets forth a mechanism to ensure that each
member of MPSERS makes this contribution by requiring school districts to deduct the
contribution from the member’s pay and submit it to the retiree health care system. But the
particular method is quite apart from the terms of any labor agreement and, indeed, the state
could have enforced this mandate by a lump sum or periodic payments made directly by each
member. That the state chose a paycheck deduction method simply does not convert a
permissible legislatively mandated contribution into an unconstitutional impairment of contract.
Clearly, this case concerns the state’s demands or financial assessment upon each public school
employee, and has nothing to do with any contract between each employee and the state, or a
2
Plaintiffs in Docket No. 303704 note that an employment contract necessarily exists for every
employee who performs services in exchange for compensation regardless of whether there was
a CBA and, thus, that the failure to plead the existence of CBAs was not fatal to plaintiffs’
claims. However, plaintiffs did not merely fail to allege that any CBAs existed, they failed to
allege that any employment contract for wages was impaired by the operation of MCL 38.1343e.
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third party. Accordingly, this constitutional theory to challenge this legislation should be
rejected.3
IV. TAKINGS CLAUSES
I also dissent from the majority’s holding that MCL 38.1343e effectuates a taking under
the United States and Michigan Constitutions. Quite simply, MCL 38.1343e does not effectuate
a taking of private property for which the government must give just compensation. Further, no
caselaw holds that a “taking” occurs when the Legislature requires a public school employee to
contribute money as a condition for receiving benefits in a state-created retirement health care
program, which was designed for the benefit of the employee.
US Const, Am V provides that private property shall not “be taken for public use, without
just compensation.” This prohibition applies against the states through the Fourteenth
Amendment. Webb’s Fabulous Pharmacies, Inc v Beckwith, 449 US 155, 160; 101 S Ct 446; 66
L Ed 2d 358 (1980); K & K Constr, Inc v Dep’t of Natural Resources, 456 Mich 570, 576 n 3;
575 NW2d 531 (1998). Also, Michigan’s Constitution provides that “[p]rivate property shall not
be taken for public use without just compensation therefor being first made or secured in a
manner prescribed by law.” Const 1963, art 10, § 2. The Takings Clauses do not prohibit the
taking of private property; rather, they place a condition on the exercise of that power. First
English Evangelical Lutheran Church of Glendale v Los Angeles Co, 482 US 304, 314; 107 S Ct
2378; 96 L Ed 2d 250 (1987); Chelsea Investment Group LLC v City of Chelsea, 288 Mich App
239, 261; 792 NW2d 781 (2010). “This basic understanding of the [Fifth] Amendment makes
clear that it is designed not to limit the governmental interference with property rights per se, but
rather to secure compensation in the event of otherwise proper interference amounting to a
taking.” First English, 482 US at 315.
Here, plaintiffs do not seek “just compensation” for the “taking of property” arising from
an otherwise proper governmental interference. Rather, they alleged that MCL 38.1343e is
unconstitutional as applied to them and sought a declaratory ruling to that effect. The trial court
granted the requested relief, ordering defendants to “cease and desist from enforcing or
implementing MCL 38.1343e and from deducting 3% of members’ compensation,” in addition to
requiring defendants to return, with interest, the contributions already deducted. This declaratory
3
It is not clear to what extent the majority relies in its discussion in Parts II, II, or IV of its
opinion on its assertion earlier in Part I that the mandatory deductions were unconstitutional not
by virtue of their mandatory nature but because “the contributions were to a system in which the
employee contributors have no vested rights.” Nevertheless, the majority cites to no authority
for this novel proposition. If this were true, then many other legislative enactments would be
deemed unconstitutional. Though many examples exist, one need look no further than the
United States Medicare system, where one must contribute through payroll deductions for health
care for when the person eventually attains the age of 65. Thus, under the majority’s view,
Congress’s choice to fund Medicare though payroll deductions would be unconstitutional
because a contributing worker may never become vested in any Medicare benefits. But as
already noted, I find no support in the law for this proposition.
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ruling invalidating the statute was not an award of just compensation for a taking effectuated by
an otherwise proper governmental action. Thus, the relief requested and granted in these cases is
not that contemplated under the Takings Clauses, and the rulings should be reversed.
The majority’s application of the Takings Clauses to plaintiffs’ claims is legally
unsupportable. Again, requiring a monetary contribution to a retiree health care plan does not
trigger the clauses because no constitutionally protected property interest is invaded. The
percentage deductions from plaintiff employees’ compensation are not physical appropriations of
property. Money is fungible and, quite simply, it is artificial to view the deductions as a taking
of property requiring just compensation. United States v Sperry Corp, 493 US 52, 57-58, 62 n 9;
110 S Ct 387; 107 L Ed 2d 290 (1989). The payroll deductions are merely the Legislature’s
chosen means to effectuate the employees’ obligation under MCL 38.1343e to contribute to their
own retirement system in which, under existing law, MCL 38.1391, they will participate upon
retirement.
I recognize that, in limited situations, a specific fund of money may be considered
property for Takings Clause purposes, Webb’s Fabulous Pharmacies, 449 US at 156, but no such
fund exists here. Further, it is well established that a specific property right or interest must be at
stake in order to find a regulatory taking. See Eastern Enterprises v Apfel, 524 US 498, 541-542,
544-546; 118 S Ct 2131; 141 L Ed 2d 451 (1998) (Kennedy, J., concurring in the judgment and
dissenting in part). Justice Kennedy noted that although the statute at issue in that case imposed
a financial burden, it did so without operating on or altering an identified property interest. Id. at
540.
The [statute] does not appropriate, transfer, or encumber an estate in land
(e.g., a lien on a particular piece of property), a valuable interest in an intangible
(e.g., intellectual property), or even a bank account or accrued interest. The law
simply imposes an obligation to perform an act, the payment of benefits. The
statute is indifferent as to how the regulated entity elects to comply or the
property it uses to do so. [Id.]
In Eastern Enterprises, Justice Kennedy would have held that the Takings Clause did not
apply. Id. at 547-550. Furthermore, four other justices agreed with Justice Kennedy that the
Takings Clause did not apply because the case involved “not an interest in physical or
intellectual property, but an ordinary liability to pay money, and not to the Government, but to
third parties.” Id. at 554 (Breyer, J., dissenting). Justice Breyer noted that in Webb’s Fabulous
Pharmacies, the monetary interest at issue “arose out of the operation of a specific, separately
identifiable fund of money. And the government took that interest for itself.” Id. at 555.4
4
And a point the majority avoids is that, on the basis of the analysis expressed by the five
justices in Eastern Enterprises, lower federal courts have repeatedly held that the imposition of
an obligation to pay money does not constitute a taking of private property. See Adams v United
States, 391 F3d 1212, 1225 (CA Fed, 2004) (“We decline to treat a statutory right to be paid
money as a legally-recognized property interest, as we would real property, physical property, or
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The majority labors to find a taking by denominating money as property, despite contrary
law. The majority reasons that increasing the dollars a retiree must pay is different from
requiring current public school workers to contribute money to pay for current retirees who,
incidentally, may have been coworkers yesterday and whom current workers may join tomorrow.
Regardless, of course, this distinction has no relevance because it is a retiree health care system
in which all may share and to which the Legislature has said all must contribute.
Again, MCL 38.1343e states a condition that, after the effective dates of the statute,
public school employees must contribute money to a program the Legislature created for those
employees upon retirement. Thus, any property interests in the wage levels contained in
plaintiffs’ respective CBAs were not retroactively affected. See McCarthy v City of Cleveland,
626 F3d 280, 286 (CA 6, 2010), and cases cited therein. Further, unlike in Webb’s Fabulous
Pharmacies and Phillips v Washington Legal Foundation, 524 US 156; 118 S Ct 1925; 141 L Ed
2d 174 (1998), no extraction of interest generated in a specific fund of money has occurred. The
essence of plaintiffs’ claim is that the state may not take future wages established by their CBAs.
Though this is a fallacy because the state demands payment from each worker irrespective of any
negotiated wage levels, if there is a remedy, the proper remedy lies in contract, not taking, and a
valid taking claim will lie only when the property rights exist independently of the claimants’ so-
called contracts with the government. Niagara Mohawk Power Corp v United States, 98 Fed Cl
313, 315 (2011); see also Peick v Pension Benefit Guaranty Corp, 724 F2d 1247, 1276 (CA 7,
1983); Klamath Irrigation Dist v United States, 67 Fed Cl 504, 534 (2005), mod on other
grounds 68 Fed Cl 119 (2005). Importantly, however, the fact that a contract theory may not
yield a recovery or provide a full remedy in a given case “ ‘does not give life to a takings
theory.’ ” Niagara Mohawk, 98 Fed Cl at 316, quoting Home Savings of America, FSB v United
States, 51 Fed Cl 487, 495-496 (2002). In other words, that a Contracts Clause claim provides
no relief does not resurrect an equally spurious taking claim.
V. SUBSTANTIVE DUE PROCESS
I also dissent from the majority’s holding that the plaintiffs in Docket No. 303702
established that MCL 38.1343e is unconstitutional under the Due Process Clauses of the
Fourteenth Amendment and Const 1963, art 1, §17. Because the Takings and Contracts Clauses
provide explicit textual sources of constitutional protection regarding the type of governmental
conduct at issue (but provide no relief for the reasons already stated), plaintiffs are precluded
intellectual property.”); Commonwealth Edison Co v United States, 271 F3d 1327, 1340 (CA
Fed, 2001) (“[W]hile a taking may occur when a specific fund of money is involved, the mere
imposition of an obligation to pay money, as here, does not give rise to a claim under the
Takings Clause of the Fifth Amendment.”); Parella v Ret Bd of Rhode Island Employees’ Ret
Sys, 173 F3d 46, 50 (CA 1, 1999). In McCarthy v City of Cleveland, 626 F3d 280, 286 (CA 6,
2010), the court held “that the Takings Clause ‘is not an appropriate vehicle to challenge the
power of [a legislature] to impose a mere monetary obligation without regard to an identifiable
property interest,’ ” quoting Swisher Int’l, Inc v Schafer, 550 F3d 1046, 1057 (CA 11, 2008).
The McCarthy court noted that although some lower federal courts have followed the Eastern
Enterprises plurality’s taking analysis, those courts “have done so only where a specific private
property interest is retroactively affected.” McCarthy, 626 F3d at 285-286.
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from asserting generalized substantive due process claims. That the majority holds otherwise is
clearly contrary to our constitutional jurisprudence. Sacramento Co v Lewis, 523 US 833, 842;
118 S Ct 1708; 140 L Ed 2d 1043 (1998). The clause should not be invoked “to do the work” of
other constitutional provisions, even when they offer a plaintiff no relief. Stop the Beach
Renourishment, Inc v Fla Dep’t of Environmental Protection, 560 US 702, 720-721; 130 S Ct
2592; 177 L Ed 2d 184, 200 (2010) (plurality opinion by Scalia, J.). The plaintiffs in Docket
Nos. 303704 and 303706 expressly alleged contract and taking claims. The complaint in Docket
No. 303702 alleges only a substantive due process claim, but the label placed on a claim is not
dispositive. Adams v Adams, 276 Mich App 704, 710-711; 742 NW2d 399 (2007). Instead, the
gravamen of an action is determined by reading the complaint as a whole. Id. Because the
underlying allegations are that MCL 38.1343e operates to extract a percentage of plaintiff
employees’ compensation, the claims fall within the explicit sources of protection provided by
the Takings or Contracts Clauses. Resort to the generalized notion of substantive due process is
thus improper. Cummins, 283 Mich App at 704, citing Lewis, 523 US at 842.
Furthermore, a proper review under the applicable standards reveals that plaintiffs’
claims are without merit. Both the Michigan and United States Constitutions prohibit the state
from depriving any person of life, liberty, or property without due process of law. Specifically,
the Michigan Constitution provides the following:
No person shall be . . . deprived of life, liberty or property, without due process of
law. The right of all individuals, firms, corporations and voluntary associations to
fair and just treatment in the course of legislative and executive investigations and
hearings shall not be infringed. [Const 1963, art 1, § 17.]
As our Supreme Court has noted, “the term ‘due process’ encompasses not only procedural
protections, but also contains a ‘substantive’ component that protects individuals against ‘the
arbitrary exercise of governmental power.’ ” AFT Mich, 497 Mich at 245, quoting Bonner v City
of Brighton, 495 Mich 209, 223-224; 848 NW2d 380 (2014). When a law is challenged on
substantive due process grounds and the law does not infringe on any “fundamental rights,” i.e.,
“the substantive liberties that are deemed ‘implicit in the concept of ordered liberty,” our review
is that of rational basis. AFT Mich, 497 Mich at 245; see also Conlin v Scio Twp, 262 Mich App
379, 390; 686 NW2d 379 (2004). In other words, the plaintiff has to “prove that the challenged
law is not ‘reasonably related to a legitimate governmental interest.’ ” AFT Mich, 497 Mich at
245, quoting Bonner, 495 Mich at 227.
As illustrated by our Supreme Court, this is a very high burden:
“Rational basis review does not test the wisdom, need, or appropriateness of the
legislation, or whether the classification is made with ‘mathematical nicety,’ or
even whether it results in some inequity when put into practice.” Crego v
Coleman, 463 Mich 248, 260; 615 NW2d 218 (2000). Rather, it tests only
whether the legislation is reasonably related to a legitimate governmental purpose.
The legislation will pass “constitutional muster if the legislative judgment is
supported by any set of facts, either known or which could reasonably be
assumed, even if such facts may be debatable.” Id. at 259-260. To prevail under
this standard, a party challenging a statute must overcome the presumption that
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the statute is constitutional. Thoman v City of Lansing, 315 Mich 566, 576; 24
NW2d 213 (1946)[, overruled on other grounds E Grand Rapids Sch Dist v Kent
Co Tax Allocation Bd, 415 Mich 381; 330 NW2d 7 (1982)]. Thus, to have the
legislation stricken, the challenger would have to show that the legislation is
based “solely on reasons totally unrelated to the pursuit of the State’s goals,”
Clements v Fashing, 457 US 957, 963; 102 S Ct 2836; 73 L Ed 2d 508 (1982), or,
in other words, the challenger must “negative every conceivable basis which
might support” the legislation. Lehnhausen v Lake Shore Auto Parts Co, 410 US
356, 364; 93 S Ct 1001; 35 L Ed 2d 351 (1973). [TIG Ins Co, Inc v Dep’t of
Treasury, 464 Mich 548, 557-558; 629 NW2d 402 (2001).]
The majority remarkably asserts that MCL 38.1343e is “unreasonable, arbitrary, and
capricious,” and thereby not rationally related to a legitimate governmental interest.5 Yet, our
Supreme Court clearly articulated a rational basis for MCL 38.1343e when it upheld the
constitutionality of 2012 PA 300:
The state’s purpose advanced by the challenged portions of 2012 PA
300—implementing a fiscally responsible system by which to fund public school
employees’ retiree healthcare—is unquestionably legitimate. It is entirely proper
for the state to seek the continuation of an important retirement benefit for its
public school employees while simultaneously balancing and limiting a strained
public budget. The means used by the state—the retiree healthcare modifications
made by 2012 PA 300—are also reasonably related to this purpose. It is
altogether reasonable for the state to choose to maintain retiree healthcare benefits
for all of its current public school retirees, and it is equally reasonable for the state
to choose to maintain this program for current public school employees.
Moreover, because the Legislature has deemed it fiscally untenable for the state to
place the entire burden of providing these benefits on the taxpayers, it is also
reasonable that the state would choose to have current public school employees
assist in contributing to the costs of this program. If the state requires additional
financial support to maintain the public school retiree healthcare system, which
class of persons is more appropriate to assist in maintaining the fiscal integrity of
this program than the participants themselves? We do not believe that the state or
federal Constitutions require Michigan taxpayers to fund the entire cost of a
retirement benefit for a discrete group of public employees. The state is not
5
The majority also seems to shift the burden onto defendants when it states that “[d]efendants
posit no evidence or even argument to suggest that the funding of these retirement benefits could
not have been satisfied by measures that do not raise due process concerns,” but this
misconstrues where the burden lies. Under rational-basis review, the burden is on the party
challenging the law. See Shepherd Montessori Ctr Milan v Ann Arbor Twp, 486 Mich 311, 319;
783 NW2d 695 (2010); People v Idziak, 484 Mich 549, 570; 773 NW2d 616 (2009); TIG Ins Co,
464 Mich at 557-558.
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generally constrained from modifying its own employee benefits programs to
accommodate its fiscal needs. [AFT Mich, 497 Mich at 248.]
Notably, from the Supreme Court’s rationale, the voluntary or mandatory nature of the
contributions is not relevant. Whether analyzed under 2012 PA 300 or 2010 PA 75, the state has
an “unquestionably legitimate” interest in “implementing a fiscally responsible system by which
to fund public school employees’ retiree healthcare.” Id. Further, under 2010 PA 75, every
public school employee contributed to the system because every public school employee had the
potential to obtain retiree healthcare benefits. Accordingly, it is entirely “reasonable that the
state would choose to have current public school employees assist in contributing to the costs of
the program.” Id. Certainly, mandatory contributions to the retiree healthcare system are a
“fiscally responsible system by which to fund public school employees’ retiree healthcare.” Id.Again, the fact that there may have been better or less intrusive ways to accomplish this does not
somehow transform the law into an unconstitutional deprivation of substantive due process. See
TIG Ins Co, 464 Mich at 557; Crego, 463 Mich at 260.
Accordingly, I would reverse the trial court’s grant of summary disposition to plaintiffs
on the substantive due process claims.
VI. CONCLUSION
To discharge their solemn duty under the Constitution, courts must invalidate clearly
unconstitutional legislation but must also defer to the Legislature when the public policy is one
that may offend the litigants, but not the Constitution. Here, because (1) the challenged public
policy does not even touch upon, much less impair, contracts, (2) no property is taken by the
state in the sense contemplated by the Fifth Amendment, and (3) the Legislature has a rational
basis for enacting 2010 PA 75, it would have been prudent and in keeping with our Court’s
limited charge under the Constitution to uphold this legislation as constitutional.6
/s/ Henry William Saad
6
Additionally, assuming MCL 38.1343e is unconstitutional, I would not summarily order the
specific remedy of returning the retained funds as the majority does, especially when the parties
themselves have not briefed this particular issue. Instead, I would remand to allow the trial court
to determine the proper measure of damages in light of the retiree health care components and
the nature of the specific constitutional infirmity.
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