AFSCME v. Charter Cnty. of Wayne

NOT RECOMMENDED FOR PUBLICATION
File Name: 17a0408n.06
No. 16-2163
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Jul 14, 2017
AMERICAN FEDERATION OF STATE, COUNTY ) DEBORAH S. HUNT, Clerk
& MUNICIPAL EMPLOYEES (AFSCME), Council )
25, and its affiliated locals, )
)
Plaintiff-Appellant, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE EASTERN
) DISTRICT OF MICHIGAN
CHARTER COUNTY OF WAYNE; WARREN )
EVANS, ) OPINION
)
Defendants-Appellees.
BEFORE: NORRIS, MOORE, and STRANCH, Circuit Judges.
JANE B. STRANCH, Circuit Judge. American Federation of State, County,
& Municipal Employees Council 25 and its affiliated local unions (collectively AFSCME) were
parties to a collective bargaining agreement (CBA) with the Charter County of Wayne.
AFSCME brought suit against Wayne County and Warren Evans, the County Executive, alleging
that its due process rights under the Fourteenth Amendment had been violated by Wayne
County’s unilateral changes to pension benefit levels and refusal to submit to arbitration. The
district court dismissed AFSCME’s claims, finding that it failed to assert a protected property
interest under the Due Process Clause. For the reasons explained below, we AFFIRM the
district court’s judgment.
No. 16-2163, AFSCME v. Charter Cty. of Wayne
I. BACKGROUND
A. Factual Background
AFSCME and its Local 3317 represent Sergeants, Lieutenants, and Captains in the
Wayne County Sheriff’s Department. AFSCME was party to a collective bargaining agreement
with Wayne County that was set to expire on September 30, 2014.
The events leading to AFSCME’s claims began in 2011 when the Michigan state
Legislature enacted the Local Government and School District Fiscal Accountability Act (Act 4),
which authorized the governor to appoint an emergency manager for certain local governments
experiencing financial crises. Act 4 replaced an earlier Michigan law, the Local Government
Fiscal Responsibility Act (Act 72), which had been in place since 1990. Act 72 gave the State
power to appoint an emergency financial manager to municipalities facing financial insolvency.
Phillips v. Snyder, 836 F.3d 707, 711 (6th Cir. 2016). Act 4 changed the title of these appointees
to “emergency managers,” and expanded the scope of their powers. Id.
Michigan voters rejected Act 4 by referendum in November 2012, which revived Act 72.
See Mich. Op. Att’y Gen. No. 7267, 2012 WL 3544658, at *6 (Aug. 6, 2012). Following the
voters’ rejection of Act 4, the Michigan Legislature enacted the Local Financial Stability and
Choice Act (Act 436) in December 2012, effective in March 2013. In Michigan, a public act
with an appropriations provision is not subject to referendum. See In re City of Detroit, 504 B.R.
191, 252 (Bankr. E.D. Mich. 2013) (citing Mich. Conservation Clubs v. Sec’y of State, 464 Mich.
359, 367 (2001)). Unlike Act 4, Act 436 added appropriations provisions, In re City of Detroit,
504 B.R. at 251, so it was not subject to a referendum. Like Act 4, Act 436 authorized the
Governor to appoint emergency managers with authority to exercise the power of local
governments. See Phillips, 836 F.3d at 711.
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In September 2014, shortly after the enactment of Act 436, AFSCME was in the midst of
negotiating a new bargaining agreement with Wayne County. Prior to the CBA’s September 30
expiration, AFSCME petitioned the Michigan Employee Relations Commission (MERC),
seeking arbitration to help negotiate a successor agreement. Under 1969 Mich. Pub. Act. 312,
M.C.L. § 423.231 et seq. (Act 312), AFSCME had the right to seek arbitration through MERC
while the CBA was still in effect. According to AFSCME, sometime before September 30, its
representatives were approached by Kenneth Wilson, the Director of Labor Relations for Wayne
County. Wilson asked AFSCME to withdraw the Act 312 petition so that Evans, the soon-to-be-
elected County Executive, could attempt to resolve the dispute over the new CBA once he took
office in January 2015. Following written assurances from Wilson that the union would be able
to proceed with Act 312 arbitration if a contract was not agreed to after Evans became County
Executive, AFSCME extended its existing CBA.
In June 2015, with the June 23 final extension of the CBA looming and the parties unable
to come to an agreement, AFSCME petitioned MERC for the appointment of an arbitrator. The
Commission appointed Charles Ott. At the pre-hearing arbitration conference, the arbitrator sent
the parties back to the bargaining table for a statutory 21-day period. The parties were ultimately
unable to come to an agreement, and the arbitrator told them to present their last best offers
around August 24.
During this same time, however, Wayne County’s financial crisis was coming to a head.
On June 17, Evans sent a letter to Michigan State Treasurer Nick Khouri, seeking to invoke
powers under Act 436 to address the financial situation in Wayne County. A consent agreement
between Wayne County and Khouri, as state treasurer, was approved on August 21, which
designated Evans as a “chief administrative officer” as defined by M.C.L. § 141.1542(b). Under
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the statute, the consent agreement could grant powers prescribed for emergency managers to the
chief administrative officer, except those powers prescribed under section 12(1)(k). See M.C.L.
§ 141.1548(10). Section 12(1)(k) permits emergency managers to “reject, modify, or terminate 1
or more terms and conditions of an existing collective bargaining agreement” under certain
circumstances. M.C.L. § 141.1552(1)(k). Pursuant to the consent agreement, the County’s
obligation to bargain with unions would be suspended thirty days after the agreement’s effective
date—on September 21, 2015. As chief administrative officer, Evans could then “exercise
powers prescribed for emergency managers . . . to impose by order matters relating to wages,
hours, and other terms and conditions of employment, whether economic or noneconomic, for
County employees previously covered by the expired collective bargaining agreement.”
Following approval of the consent agreement and Evans’s invocation of his powers under
Act 436, Wayne County moved to dismiss the MERC arbitration. On September 16, 2015,
MERC voted to dismiss the Act 312 petition, explaining in its order of October 16 that “the
Employers . . . are subject to a consent agreement under Act 436 that suspended the County’s
duty to bargain as of September 20, 2015,” and that Wayne County “cannot be required to
participate in Act 312 arbitration.” AFSCME appealed the decision to the Michigan Court of
Appeals, which reviews decisions made by MERC, but later voluntarily withdrew the appeal.
B. Procedural History
AFSCME filed suit in federal court on September 16, 2015,1 seeking a temporary
restraining order and/or preliminary injunction against Wayne County and Evans. The district
1
AFSCME also brought a claim for breach of contract Wayne County Circuit Court on September 14, 2015, seeking
a temporary restraining order. The Court initially granted the TRO, but was reversed by the Michigan Court of
Appeals. In January 2016, the Circuit Court granted AFSCME’s motion to stay the proceedings based on its
pending appeal of the MERC decision regarding arbitration to the Michigan Court of Appeals. After AFSCME
withdrew its appeal of the MERC decision, the Circuit Court set aside the stay, and eventually granted Wayne
County’s Motion to Dismiss. The Circuit Court determined that the breach of contract claim was barred by res
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No. 16-2163, AFSCME v. Charter Cty. of Wayne
court denied the TRO on September 18. On September 21, the County’s obligation to bargain
with the unions was suspended under the consent agreement, and new employment terms,
including changes to the pension system, were imposed on Local 3317. AFSCME filed an
amended complaint, still seeking a preliminary injunction and alleging violations of the First
Amendment and Due Process Clause. The district court evaluated the motion for a preliminary
injunction in tandem with the defendants’ Rule 12(b)(6) motion to dismiss the amended
complaint. The court denied the preliminary injunction and granted the motion to dismiss. The
court’s order, however, dismissed AFSCME’s First Amendment and due process claims without
prejudice, and the court subsequently granted in part AFSCME’s motion to file another amended
complaint.
AFSCME filed a Second Amended Complaint (the operative complaint on appeal, herein
the Complaint), which was “significantly altered from the proposed version submitted with [its]
motion to amend.” The Complaint contained largely generic and conclusory language, even as
to its legal claims. It alleged that AFSCME was (1) deprived of certain property rights without
due process, and (2) retaliated against in violation of the First Amendment for filing suit against
Wayne County and Evans. On defendants’ motion, the court granted dismissal and denied
AFSCME’s motion for leave to file a third amended complaint.
The court rejected AFSCME’s arguments under the Due Process Clause of the Fourteenth
Amendment and, germane to this appeal, determined that: (1) the Complaint failed to allege that
any change in disability pension benefits would apply retroactively or that the plaintiffs had a
property right in a particular benefit level; (2) a provision in the CBA permitting AFSCME to
refrain from submitting disputes over certain retirement-related issues to Act 312 arbitration did
judicata, as MERC had already ruled that Wayne County was not required to participate in Act 312 arbitration, and
AFSCME had voluntarily withdrawn an appeal of that decision.
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No. 16-2163, AFSCME v. Charter Cty. of Wayne
not affirmatively state that these retirement provisions would remain in effect past the expiration
of the rest of the CBA; and (3) AFSCME failed to allege the deprivation of a protected property
interest by arguing that it was denied arbitration of grievances filed prior to the invocation of Act
436. The court also determined that AFSCME failed to allege a prima facie case of First
Amendment retaliation.
On appeal, AFSCME raises only two issues: (1) that it has a constitutionally protected
property interest in the retirement pension benefit levels provided for in Article 38 of the CBA,
which it asserts remain in effect until 2020; and (2) it has a right to submit its labor disputes to
arbitration. The defendants respond that Act 436 does not deprive AFSCME of its property
rights without due process, and that Michigan law does not create a property right to Act 312
arbitration. They also contend that res judicata and collateral estoppel bars AFSCME’s action.
II. ANALYSIS
A. Res Judicata and Collateral Estoppel
The defendants argue that AFSCME’s current suit should be barred on the grounds of res
judicata and collateral estoppel, because it arises out of the same set of facts as the MERC
decision which held that Wayne County cannot be required to submit involuntarily to Act 312
arbitration and which AFSCME chose not to appeal. The district court did not address or
analyze this issue—indeed, the defendants raised res judicata in only one line of its first motion
to dismiss. (R. 16 at PageID 314) (“The MERC decision establishes, and is res judicata on, the
question of whether, under state law, the County may decline to bargain, participate in Act 312
proceedings, or impose terms and conditions of employment under state law.”) Neither res
judicata nor collateral estoppel were raised in the defendants’ second motion to dismiss, which
was filed three months after MERC’s written decision was issued. The defendants never
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provided a full argument on the issue, AFSCME never responded to the issue, and the district
court did not address it in any of its orders dismissing AFSCME’s claims.
We have stated that “[t]he purpose of res judicata is to promote the finality of judgments
and thereby increase certainty, discourage multiple litigation, and conserve judicial resources.”
Westwood Chem. Co. v. Kulick, 656 F.2d 1224, 1227 (6th Cir. 1981). Under Federal Rule of
Civil Procedure 8(c), a party must raise an affirmative defense such as estoppel or res judicata in
a responsive pleading. But we have held that affirmative defenses may also be raised by motion,
or even for the first time during the course of summary judgment proceedings. See id. (finding
that a motion to dismiss raising res judicata properly put the issue before the district court);
Moore, Owen, Thomas & Co. v. Coffey, 992 F.2d 1439, 1445 (6th Cir. 1993) (finding that an
affirmative defense, though raised for the first time in response to a summary judgment motion,
was not waived on appeal because plaintiffs were or should have been aware that the defendant
intended to rely on such a defense). In such cases, however, the issue was evaluated and decided
by the district court and not raised for the first time during appellate review. The purpose of
Rule 8 “is to give the opposing party notice of the affirmative defense and a chance to rebut it.”
Moore, 992 F.3d at 1445; see also Charpentier v. Godsil, 937 F.2d 859, 863 (3d Cir. 1991) (“It
has been held that a defendant does not waive an affirmative defense if [h]e raised the issue at a
pragmatically sufficient time, and [the plaintiff] was not prejudiced in its ability to respond.”)
(quotation marks and citation omitted).
The defendants were aware of the MERC decision before the district court addressed
both their first and second motions to dismiss and still did not explicitly argue the issues of res
judicata or collateral estoppel. Prior to the district court’s order granting the second motion to
dismiss, moreover, the defendants were aware of AFSCME’s voluntary withdrawal of its appeal
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No. 16-2163, AFSCME v. Charter Cty. of Wayne
of the MERC decision, and of the Wayne County Circuit Court’s dismissal of AFSCME’s breach
of contract claims, which explicitly relied on res judicata. Nonetheless, the defendants still did
not raise the issue of res judicata and collateral estoppel until their appellate brief. This is far
past the “pragmatically sufficient time” to raise the defense, and prejudices AFSCME’s ability to
respond to their arguments. Charpentier, 937 F.2d at 864. We find that the defendants have
waived the affirmative defenses of res judicata and collateral estoppel, and turn to the merits of
AFSCME’s due process claims.
B. Due Process Claims
We review de novo a district court’s order granting a Rule 12(b)(6) motion to dismiss.
Ohio Pub. Emp. Ret. Sys. v. Fed Home Loan Mortg. Corp., 830 F.3d 376, 382 (6th Cir. 2016).
We construe the complaint in the light most favorable to the plaintiff, accepting all well-pleaded
factual allegations as true, and examine whether the complaint contains “sufficient factual matter
. . . to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility
that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. This standard requires that a
plaintiff’s complaint “contain either direct or inferential allegations with respect to all material
elements necessary to sustain a recovery under some viable legal theory.” Weisbarth v. Geauga
Park Dist., 499 F.3d 538, 541 (6th Cir. 2007) (quotation marks and citation omitted).
AFSCME’s Complaint alleges that Evans and Wayne County violated its rights under the
Due Process Clause of the Fourteenth Amendment, which provides that no state shall “deprive
any person of life, liberty, or property, without due process of law.” U.S. Const. Amend. XIV
§ 1. Due process has both procedural and substantive components. EJS Props., LLC v. City of
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Toledo, 698 F.3d 845, 855 (6th Cir. 2012). “Procedural due process is traditionally viewed as
the requirement that the government provide a fair procedure when depriving someone of life,
liberty, or property; substantive due process protects individual liberty against certain
government actions regardless of the fairness of the procedures used to implement them.” Id.
(quotation marks and citations omitted). The district court understood AFSCME’s allegations to
assert violations of procedural due process, and AFSCME does not dispute this on appeal.
To establish a claim for violation of procedural due process, “a plaintiff must show that
(1) it had a life, liberty, or property interest protected by the Due Process Clause; (2) it was
deprived of this protected interest; and (3) the state did not afford it adequate procedural rights.”
Daily Servs., LLC v. Valentino, 756 F.3d 893, 904 (6th Cir. 2014). In Board of Regents of State
Colleges v. Roth, 408 U.S. 564, 577 (1972), the Supreme Court stated that property interests “are
not created by the Constitution,” but “are created and their dimensions are defined by existing
rules or understandings that stem from an independent source such as state law—rules or
understandings that secure certain benefits and that support claims of entitlement to those
benefits.” “A contract, such as a collective bargaining agreement, may create a property
interest.” Leary v. Daeschner, 228 F.3d 729, 741 (6th Cir. 2000). AFSCME asserts two
property interests to serve as the basis of its due process allegations: (1) a guaranteed right to
accrue pension benefits at a 2.5% level until 2020, and (2) the right to submit issues to arbitration
under Act 312. The district court rejected both of these arguments, finding that as pled in the
Complaint and its exhibits, these did not constitute property interests protected by the Due
Process Clause.
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1. Property Interest in Pension Benefit Levels
AFSCME first argues that it has alleged a protected property right, arising from the CBA
with Wayne County, in preserving a 2.5% pension multiplier until 2020. It states that by
changing the pension multiplier from 2.5% to 1.25% on September 21, 2015, Evans improperly
exercised the powers of an emergency manager under Section 12(1)(k) of Act 436, which was
prohibited by the consent agreement. AFSCME argues that although the CBA (and Wayne
County’s duty to bargain) had expired at the time Evans made these changes, Article 38—which
contains the pension provisions—did not expire until 2020. The district court did not
specifically address Evans’s power to make changes to the pension benefit multiplier. The court
examined the Complaint and exhibits and found that Article 38 of the CBA “does not
affirmatively state that the retirement provisions will remain in effect until 2020.” Rather, the
provision “states only that [AFSCME had] no obligation to bargain over the provisions (which
they did not) and will not submit any retirement disputes to Act 312 arbitration (which they also
did not).” The court found that this provision did not provide an exception or alternative end
date to that governing the remainder of the (expired) CBA.
The contract provision referenced in the Complaint, § 38.01(L) of the CBA, reads:
Upon the termination of this Collective Bargaining Agreement on
September 30, 2011, the parties may agree to bargain over
retirement related issues during the next round of contract
negotiations. However, all issues concerning retirement, including
but not limited to, any and all provisions outlined in Article 38 of
this Agreement, covering the period of October 1, 2008 through
September 30, 2011, shall not be subject to Act 312 arbitration
until October 1, 2020.
As the district court determined, this part of the CBA does not provide for a specific pension
benefit multiplier, nor state that the retirement provisions in Article 38 remain in effect until
2020. The provision relates to how the parties may bargain over retirement-related issues, and
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whether such issues will be subject to Act 312 arbitration. Without stating how the provision
extends retirement-related portions of the CBA beyond the expiration of the entire agreement,
AFSCME merely points to case law establishing that a CBA may include different expiration
dates for different provisions of the contract. That is undisputed. But AFSCME’S allegation
that this particular CBA provided for a distinct expiration date for the provisions in Article 38 is
not supported by the plain language of the agreement. Indeed, AFSCME fails to specify how
language pushing off any arbitration until 2020 supports an inference that the benefits multiplier
itself must stay in place until 2020. Thus, AFSCME cannot show a protected property interest,
arising from a contract with Wayne County, in maintaining certain pension benefit levels.
Similarly, AFSCME’s argument that Chief Administrative Officer Evans lacked the
power to change the pension benefit multiplier hinges on the expiration of the CBA. Section
12(1)(k) permits emergency managers to reject or modify the terms and conditions of an existing
collective bargaining agreement under certain circumstances. See M.C.L. § 141.1552(1)(k).
Under Act 436, a chief administrative officer can be granted all the powers of emergency
managers, except those prescribed under Section 12(1)(k). The consent agreement, however,
states that once the County’s obligation to bargain with unions is suspended, the chief
administrative officer is permitted to “exercise powers prescribed for emergency managers . . . to
impose by order matters relating to wages, hours, and other terms and conditions of employment,
whether economic or noneconomic, for County employees previously covered by the expired
collective bargaining agreement.” Because the CBA—including Article 38—had expired before
Evans changed the pension benefit multiplier, the exhibits to the Complaint reveal that AFSCME
cannot prove that Evans acted beyond his power as chief administrative officer of Wayne
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County. Thus, we find that AFSCME has failed to allege that it had a protected property interest
in the 2.5% benefits multiplier until 2020.
2. Property Interest in Act 312 Arbitration
Based on its contract with Wayne County, AFSCME also argues that the Complaint is
supported by a protected property interest—the right to submit outstanding disputes with Wayne
County to Act 312 arbitration before MERC. The Complaint alleges that Wayne County’s
refusal to bargain was a due process violation. But on appeal, AFSCME attempts to reframe this
allegation as a state law contract claim, asserting that “[u]nder Michigan law, parties can, by
contract, agree to submit their outstanding contractual issues to binding arbitration.”
The district court, following the allegations in the Complaint, rejected AFSCME’s due
process claim. The court found that AFSCME had failed to allege a protected property interest,
explaining that “the arbitration proceeding is itself the process [AFSCME] argues is due, rather
than the property interest to be protected by due process. [AFSCME is] alleging that [it is] being
deprived of protected property interests without due process; the process cannot itself be the
property interest.” On appeal, the defendants reiterate this analysis.
As the district court noted, AFSCME appears to offer only the arbitration process itself,
provided for in the CBA, as a property interest to support this claim. AFSCME has not pointed
to any case law finding that the arbitration process, or a similar grievance resolution process, can
itself be a property interest protected by the Due Process Clause. Rather, arbitration is a
procedural process that may be due to a plaintiff in order to protect some other property interest.
See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 541 (1985) (“‘Property’ cannot be
defined by the procedures provided for its deprivation.”); Olim v. Wakinekona, 461 U.S. 238,
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250-51 (1983) (“Process is not an end in itself. Its constitutional purpose is to protect a
substantive interest to which the individual has a legitimate claim of entitlement.”).
In Rodgers v. 36th District Court, 529 F. App’x 642, 647-49 (6th Cir. 2013), we
determined that employees subject to a CBA with a provision stating that they could be
disciplined or terminated for “just cause” had a property interest in their continued employment.
Further, we found that the denial of post-termination arbitration proceedings, as provided for in
the CBA, violated the employees’ procedural due process rights. Id. But Rodgers held that the
plaintiffs’ property right in their continued employment was rooted in the just cause provision of
their CBA, not the arbitration process itself. See id. at 647-48 (“A statute or contract providing
that employees may be disciplined or terminated only for ‘just cause’ creates a property
interest.”) (citing cases). Here, AFSCME is not clear what underlying benefits or rights in the
CBA it seeks to arbitrate. The Complaint refers only to AFSCME’s April 2015 filing of “a class
action grievance as it relates to the funding of the pension system” that Wayne County refused to
arbitrate. It does not allege nor has AFSCME indicated what these grievances are, how they
relate to the claims in this case, or how they may be constitutionally protected property interests.
AFSCME alleges only that it had a right to arbitration; thus, it cannot establish a constitutionally
protected property interest. Because AFSCME has not shown that it has a protected property
interest, its due process claim fails.
AFSCME’s appellate brief, however, seeks to restate this portion of its argument as a
“right to submit labor disputes to arbitration in the State of Michigan” that arises from a private
contract—a new characterization more akin to a state law breach of contract claim. AFSCME
then argues that this right is not prohibited by the Public Employee Labor Relations Act (PERA).
AFSCME and Wayne County formed such a contractual agreement allowing for arbitration in
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their CBA. The defendants do not dispute that this was permissible under PERA, but argue that
Act 436 modified PERA’s general bargaining obligations by suspending such obligations when
local governments are experiencing financial emergency. While AFSCME correctly states that
public employees may contract with local governments to take their grievances to arbitration,
they do so pursuant to their bargaining rights provided for by PERA.2 See Gibraltar Sch. Dist. v.
Gibraltar MESPA-Transp., 505 N.W.2d 214, 223-24 (Mich. 1993) (finding that PERA does not
impose arbitration, and “that there is no statutory duty to arbitrate after the expiration of a
collective bargaining agreement”). It is PERA that allowed the parties to create the private
contract that AFSCME seeks to enforce, but AFSCME’s rights under PERA were modified post-
expiration of the CBA by Act 436 and the consent agreement. Any previous right that AFSCME
may have had to Act 312 arbitration was therefore changed, and this argument does not support
AFSCME’s due process claim.
III. CONCLUSION
For the reasons explained above, we AFFIRM the district court’s judgment.
2
AFSCME appears to argue that it should be allowed to submit some grievances to arbitration because they involve
rights granted under the agreement that had vested prior to the expiration of the CBA. (Appellant’s Br. at 20)
Under Michigan law, “the right to grievance arbitration survives the expiration of the collective bargaining
agreement when the dispute concerns the kinds of rights which could accrue or vest during the term of the contract.”
Gibraltar, 505 N.W.2d at 224 (quoting Ottawa Co. v. Jaklinski, 377 N.W.2d 668, 677 (Mich. 1985). But as we have
discussed, AFSCME has not alleged which rights under the CBA it seeks to submit to arbitration, or whether they
vested prior to the expiration of the agreement.
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