Delaware Township Board of Auditors v. Delaware Township

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Delaware Township Board of :
Auditors; Dennis Lee; Michael :
Dickerson; and Jane E. Neufeld, :
Appellants :
:
v. : No. 1601 C.D. 2014
: Argued: September 14, 2015
Delaware Township; Pennsylvania :
Municipalities Pension Trust; :
Ileana F. Hernandez and Thaddeus :
Parsell :
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
HONORABLE MARY HANNAH LEAVITT, Judge
HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION BY
JUDGE LEADBETTER FILED: January 5, 2016
Delaware Township Board of Auditors (Board of Auditors), Dennis
Lee, Michael Dickerson, and Jane E. Neufeld (collectively, Appellants) appeal
from an order of the Court of Common Pleas of Pike County that sustained the
preliminary objections of Delaware Township, Pennsylvania Municipalities
Pension Trust (Trust), Ileana F. Hernandez, and Thaddeus Parsell (collectively,
Appellees) and dismissed Appellants’ complaint. At issue is Section 606(b) of the
Second Class Township Code (Code),1 which mandates auditor approval for the
participation of township supervisors who also are employed by the township in
1
Act of May 1, 1933, P.L. 103, as amended, 53 P.S. § 65606(b).
any employee capacity (supervisor-employees) in employee pension plans funded,
in whole or in part, by townships. White Deer Twp. v. Napp, 985 A.2d 745, 752
(Pa. 2009). The legislature designed Section 606 of the Code to curtail decision-
making by supervisors in areas involving their own self-interest and auditor
approval for the inclusion of supervisor-employees in pension plans is one of the
statutory safeguards in place. Id. Based on the well-pled, material and relevant
facts, we conclude that Appellants would be unable to prove facts legally sufficient
to establish a right to relief. Accordingly, we affirm.
In March 2006, the Delaware Township Board of Supervisors
approved the creation of a new defined benefit pension plan for qualifying
township employees. June 5, 2014, First Amended Complaint, ¶ 9; Reproduced
Record (R.R.) at 103a. At the time of creation, all three members of the three-
member Board of Supervisors were also paid township employees. Id., ¶ 10; R.R.
at 103a. On March 28, 2006, the Township called a special meeting with the
Board of Auditors to consider the participation of the then existing township
supervisor-employees in the pension plan, as required by Section 606(b) of the
Code. Those supervisor-employees seeking to participate in the plan included
Hernandez, township secretary, and Parsell, township roadmaster. Id., ¶¶ 12 and
24; R.R. at 104a and 108a. Those present at the meeting included the then existing
Board of Auditors, the Board of Supervisors, and the township solicitor. Id., ¶ 13;
R.R. at 104a. No written documentation about the plan was provided to the Board
of Auditors before or during the meeting; the township solicitor and the
supervisors merely provided a verbal overview of the plan under consideration.
Id., ¶ 14; R.R. at 104a.
2
Pursuant to the minutes of that meeting, the details and guidelines of
plan were as follows:
a) The Pennsylvania State Association of Township
Supervisors (PSATS) would manage the plan;
b) The Township would fund the plan, without employee
contributions;
c) The cost of the plan would be a flat $79,000 per year;
d) During year one, the additional cost to the Township,
$69,000, would come from township reserves; for the
remaining years, the additional cost would be added as a
new line item to the budget; after three years, PSATS
would contribute 50% of the cost of the plan;
e) The plan would be available to all permanent township
employees working full time for at least 35 hours a week;
f) Township employees would be eligible for pension
benefits after 10 years of service or at age 65, but no
sooner than age 65;
g) The benefits would consist of 1.0% of the employee's
final monthly salary, averaged over the final 36 months
of employment and multiplied by the years of service at
retirement;
h) The benefits would vest 100% after 10 years of
continuous service as a township employee;
i) The plan would be retroactive to January 1, 2006.
Id., ¶ 15; R.R. at 105a and Secretary’s Minutes, Exhibit A to First Amended
Complaint; R.R. at 122-23a (emphasis added). The minutes reflect that a motion
was made, upon the joint recommendation of the Board of Auditors, to approve the
proposed plan and for township supervisors Hernandez, Parsell and one other to
participate in the proposed plan as presented.2 Id., ¶¶ 16 and 17; R.R. at 105-06a.
2
Before qualifying to participate in the plan, the third township supervisor-employee ended
his career with the Township. First Amended Complaint, ¶ 16 n.1; R.R. at 105a.
3
Thus, the Board of Supervisors passed Resolution No. 2006-04 titled,
“A Resolution to provide a pension plan and benefits for all non-police employees
of Delaware Township, Pike County, Pennsylvania after ten (10) years of service
or at age 65, whichever is later.” Id., ¶ 18; R.R. at 106a and Resolution No. 2006-
04, Exhibit B to First Amended Complaint; R.R. at 125-26a. Appellants aver that
the Board of Auditors was not provided with a copy of the resolution before the
March 28 meeting and did not sign the proposed resolution before its adoption by
the Board of Supervisors. Id., ¶ 18; R.R. at 106a. However, the auditors did sign
Resolution No. 2006-04, dating their signatures March 28. Appellants additionally
aver that the Board of Supervisors in March 2006 also passed Resolution No.
2006-05, purporting to authorize the release of $79,000 from the Township’s
operating reserve fund to fund the new pension plan. Id., ¶ 19; R.R. at 106a and
Resolution No. 2006-05, Exhibit C to First Amended Complaint; R.R. at 128a.
Appellants aver that the pension plan actually adopted by the
Township is fundamentally different from the proposed plan that the Board of
Auditors approved, with the following material differences: 1) the cost of the plan
was not $79,000 per year, but instead fluctuated;3 2) PSATS will never contribute
to the plan;4 3) if the Commonwealth does contribute, its contribution will never be
3
Resolution No. 2006-04 does not contain any reference to the cost of the plan. Pursuant to
the Auditor General’s report, attached to the Complaint, the required annual contribution for
2006 was $80,380 and in all subsequent years through 2012 (the last year reflected in the
Report), the required contribution varied from $58,557 to $78,543. Id., January 6, 2014 Auditor
General’s Compliance Audit Report for Delaware Twp. Non-Uniformed Pension Plan for the
period of 1/1/2010 to 12/31/2012, Exhibit D to First Amended Complaint; R.R. at 130-41a.
Accordingly, although the Auditor General’s Report shows that the cost of the plan was variable
rather than fixed, it was generally less than the amount discussed at the meeting.
4
In a letter dated May 4, 2006, attached to the Complaint, Donna L. Savidge, Director of
Insurance Services for PSATS, advised the Township that she wished to correct the notation in
their March 28, 2006 minutes that PSATS would contribute 50% of the cost to the Township
(Footnote continued on next page…)
4
50% and will not be based on any percentage; and 4) the plan was made retroactive
to the date of hire of each township employee.5 Id., ¶¶ 20 and 21; R.R. at 106-07a.
The terms described by Appellants as inconsistent with the adopted plan, sub
paragraphs c and d, are not mentioned at all in the Resolution; otherwise, the terms
outlined in the minutes are consistently reflected in the Resolution.
Specifically regarding Hernandez and Parsell, Appellants aver that
Parsell, but not Hernandez, was reelected to the office of township supervisor after
the vote to approve the plan. Parsell sat for an additional term, but Hernandez’s
term as supervisor ended in January 2012, at the Township’s reorganization
meeting, and her employment as a township secretary ended prior thereto. Id., ¶¶
25-28; R.R. at 108a.
In Count 1-declaratory judgment, Appellants request that common
pleas enter judgment in their favor in the nature of a declaration providing that: 1)
the Board of Auditors never approved the plan established under Resolution No.
2006-04 for participation by supervisor-employees; 2) Hernandez and Parsell are
not entitled to pension benefits under the plan; 3) supervisor-employees, past,
present and future, are not entitled to participate in the plan; and 4) such other
relief as deemed just, reasonable, and appropriate. Id. at 14-15; R.R. at 114-15a.
_____________________________
(continued…)
after three years and clarify that PSATS would never contribute anything to the plan. Rather,
after three years, the Auditor General’s Office would issue state aid and the reimbursement
would be based on the “unit value” designated by that office and not a certain percentage of the
pension plan. Id., ¶ 23; R.R. at 107-08a.
5
This averment is inconsistent with the terms of Resolution No. 2006-04, which states that:
“This Resolution shall become effective January 1, 2006.” Id., Resolution No. 2006-04, Exhibit
B to First Amended Complaint; R.R. at 126a.
5
In Count 2-injunctive relief against the Township and the Trust,
Appellants aver that the pension plan is ultra vires and that payment pursuant
thereto is in direct contravention of the Code and the Pennsylvania Constitution
such that payment is illegal and constitutes per se irreparable harm. Id., ¶¶ 62 and
63; R.R. at 116a. Specifically, Appellants request that the Township and Trust be
enjoined from paying pension benefits to Parcell and Hernandez because the plan,
as established, was not approved by the Board of Auditors. Regarding Hernandez,
Appellants cite both the Code and the Pennsylvania Constitution in support of their
request.6 Further, they request that the Trust be enjoined from distributing funds
“to any former, current or future” supervisor-employees who may claim eligibility
for benefits under the plan. Id. at 17; R.R. at 117a.
Finally, in Count 3-injunctive relief against Hernandez and Parsell,
Appellants request that the supervisor-employees be enjoined from accepting and
retaining pension benefits and that they disgorge all payments made to them, to
date, on the ground that the plan, as established, was not approved by the Board of
Auditors. Regarding Hernandez, Appellants again contend that she is barred under
both the Code and the Pennsylvania Constitution from receiving a pension. Id. at
19-20; R.R. at 106a.
Appellees filed preliminary objections to the first amended complaint,
essentially maintaining that it should fail as a matter of law because the Board of
Auditors approved the plan and Hernandez did not need to be reelected to receive
benefits. Common pleas sustained the preliminary objections and dismissed the
6
In their brief, Appellants specify Article III, Section 27 of the Pennsylvania Constitution,
which provides: “No law shall extend the term of any public officer, or increase or diminish his
salary or emoluments, after his election or appointment.”
6
complaint, concluding: 1) the approval of the Board of Auditors was evidenced by
the minutes of the March 28, 2006 meeting and their countersignatures on
Resolution No. 2006-04; 2) it was not the court’s function to overturn an
“approved” pension plan even if the Board of Auditors failed to perform its duties
with due diligence at the time of approval; and 3) Hernandez was eligible to
receive pension benefits based on her status as an employee even though she did
not serve another term as supervisor after the plan’s creation. Appellants’ appeal
followed.
Appellants raise three issues: 1) whether common pleas erred in
determining that the Board of Auditors approved the participation of supervisor-
employees in the adopted pension plan; 2) whether it erred in determining that the
participation of such employees does not constitute compensation “of the elected
office” under Section 606(a) of the Code,7 which provides that any change in
compensation of the elected office does not become effective until the beginning of
a supervisor’s next term; and 3) whether it erred in determining that Hernandez
was entitled to participate in the plan without being reelected to a new term as a
township supervisor. When an appellate court considers whether preliminary
objections in the nature of a demurrer were properly sustained, our standard of
review is plenary. Mazur v. Trinity Area Sch. Dist., 961 A.2d 96, 101 (Pa. 2008).
An appellate court may affirm a grant of preliminary objections only when, based
on the facts pled, it is clear and free from doubt that the plaintiff will be unable to
prove facts legally sufficient to establish a right to relief. Id. For purposes of
evaluating the legal sufficiency of the challenged pleading, we must accept as true
7
53 P.S. § 65606(a).
7
all well-pled, material and relevant facts alleged in the complaint and every
inference that is fairly deducible from those facts. Id.
In addressing the first issue, we consider whether the approval that
was rendered, as described in the well-pled facts of the amended complaint,
satisfied Section 606(b) of the Code, which provides:
(b) Any benefit provided to or for the benefit of a
supervisor employed by the township in any employe
capacity under this act in the form of inclusion in a
pension plan paid for in whole or in part by the township
is compensation within the meaning of this act to the
extent that benefit is paid for by the township and is
determined by the board of auditors . . . . [Emphasis
added.]
In order to ascertain the full extent of the Board of Auditors’ statutory
duty under Section 606(b), we first look to the plain language of the provision.
Chanceford Aviation Props., L.L.P. v. Chanceford Twp. Bd. of Supervisors, 923
A.2d 1099, 1104 (Pa. 2007) (holding that where the words of a statute are clear and
free from all ambiguity, they are presumed to be the best indication of legislative
intent). A plain reading of Section 606(b) indicates that the Board of Auditors is
required both to approve the inclusion of supervisor-employees in township
pension plans, paid for in whole or in part by the township, and to determine
pension-benefit compensation. In that regard, Section 606(b)’s somewhat
implicitly stated requirement that the Board of Auditors approve the inclusion of
supervisor-employees in township pension plans begs the question of what
constitutes its “determination” of pension-benefit compensation. In accordance
with Section 1903(a) of the Statutory Construction Act of 1972,8 we consider the
common and approved usage of the word “determine.” In pertinent part,
8
1 Pa. C.S. § 1903(a).
8
“determine” has been defined as follows: “to fix conclusively or authoritatively.”
Merriam-Webster’s Collegiate Dictionary at 340 (11th ed. 2004). We turn to an
examination of key provisions in other sections of the Code where the legislature
employed the term “determine.”
In addition to Section 606(b), the legislature also included the term
“determine” in Section 901 of the Code. Section 901 enumerates the duties of the
Board of Auditors and provides, in pertinent part, that it “shall determine the
compensations for the current year authorized in section 606 for supervisors
employed by the township.” 53 P.S. § 65901. Section 606(a) of the Code
provides, inter alia, that, “[t]he compensation of supervisors, when employed . . .
in any employee capacity . . . shall be determined by the board of auditors . . . .”
53 P.S. § 65606(a). This determination, inter alia, requires the Board of Auditors
to determine a compensation “comparable to compensation paid in the locality for
similar services.” Id.
Moreover, the Code’s provisions referencing the phrase “auditor
approval” are further indicative that such approval be actively determined. Section
606(b)(3) of the Code requires auditor approval for changes in defined contribution
plans, providing: “No change in the nature or rate of the contributions of a defined
contribution plan and no change in the benefit formula of a defined benefit plan
shall be initiated by the board of supervisors with respect to a supervisor-employee
without auditor approval.” 53 P.S. § 65606(b)(3) (emphasis added). In addition,
even the Code’s provision pertaining to the rescission of the auditors’ approval of
the inclusion of supervisor-employees in township pension plans lends support to
the proposition that the Board of Auditors’ approval, once given, carries weight
9
and, presumably, was actively determined. Section 606(b)(2) of the Code
provides:
(2) Once given, auditor approval for inclusion of
supervisor-employees shall not be rescinded in any
subsequent years as long as the pension plan remains in
effect and the supervisors remain employed by the
township and continue to meet the same requirements as
other employes of the township who are eligible to
participate in a pension plan; nor shall the auditors act in
any way that disqualifies the pension plan under Federal
Law.
53 P.S. § 65606(b)(2).
Therefore, especially in light of the manifest intent of the legislature
in Section 606 of the Code to limit self-interested decision-making by supervisors,
it is clear that the legislature intended for the auditors to assume an active role as
watchdogs in fulfilling their duties under Section 606(b). That leads us to an
analysis of the requisite specificity of the Board of Auditors’ approval.
Specifically, we consider whether it can fulfill its statutory duty by approving the
terms of a specific pension plan or by just approving some plan.
In White Deer Township, 985 A.2d at 758, the Court reiterated the
following fundamental principle: “[M]unicipalities are created by the state and as
such, may do only those things which the state legislature has placed within their
power in enabling statutes.” (citations omitted.) Further, the Court observed that,
“an ordinance must be in conformity with the provisions of the enabling statutes; if
it conflicts therewith it is void.” Id. (citation omitted). Particularly apropos here,
the Court noted: “When public officials have a direct pecuniary interest in the
matter being voted on, the enabling legislation which gives them the power to vote
on such a matter must be strictly construed.” Id. (citation omitted). See also
McCutcheon v. State Ethics Comm’n, 466 A.2d 283, 287 (Pa. Cmwlth. 1983)
10
(observing that the legislature may establish a procedure whereby public officials
with a dual interest can establish their own compensation, e.g. a pension, but
noting that there must be strict compliance with such legislation and that it must be
strictly construed), and DeGeorge v. Young, 892 A.2d 48, 53 (Pa. Cmwlth. 2006)
(holding that a strict construction analysis applies when interpreting statutes where
there is a potential for public officials to improperly discriminate in their own
favor).
Therefore, a strict construction of the Code’s provisions requiring
auditor approval indicates that the Board of Auditors must give its approval to the
terms of a specific pension plan, not just the adoption of some plan. Otherwise, the
approval process, which includes both the approval of the inclusion of supervisor-
employees in employee pension plans and a determination of pension-benefit
compensation, would be rendered virtually meaningless. See Section 1921 of the
Statutory Construction Act of 1972, 1 Pa. C.S. § 1921 (presumption that legislature
did not intend an absurd or unreasonable result).
The question presented here, then, is whether the current Board of
Auditors can attempt to invalidate a pension plan because at the meeting where the
resolution was passed by former supervisors and approved and signed by former
auditors, some representations were made which may have been inaccurate. This
determination will necessarily involve a balancing of the interest in the finality of
legislation, which is facially regular in all respects, against the importance of
insuring that auditors can play their watchdog role with an accurate understanding
of that which they are asked to approve. In that regard, there is a strong
11
presumption regarding the finality of legislation.9 There is also a presumption that
municipal officials are acting within the purview of their elected offices and that
their acts are regular and in conformity with the applicable law.10 See Whitemarsh
Twp. Auth. v. Elwert, 196 A.2d 843, 848 (Pa. 1964) (holding that, “[t]here is a
factual presumption that municipal officers are properly acting for the public
good”), and Price v. Grencavage, 531 A.2d 108, 111 (Pa. Cmwlth. 1987) (holding
that, there is a presumption that the actions of public officials are within the limits
of their discretion such that the judicial power to interfere in matters challenging
acts committed to their discretion is highly limited).
In the present case, based on the well-pled and material facts, there is
no indication that the Board of Auditors did not give its approval to a specific
pension plan in accordance with its statutory duties under the Code. This is
somewhat in contrast to the situation in White Deer Township, 985 A.2d at 765,
where the record did not “disclose what, if any, role the board of auditors played in
approving the post-retirement medical benefits granted by the Ordinance.” Here,
the former auditors, by virtue of their signatures, approved and signed the
9
Notwithstanding the fact that the enabling legislation requires auditor approval for the
inclusion of supervisor-employees in a pension plan funded, in whole or in part, by the township,
the supervisors’ resolution adopting such a plan constitutes the enactment of an ordinance such
that there is a presumption of legality. See White Deer Twp., 985 A.2d at 765 (holding that,
“[t]he board of supervisors was empowered to grant to supervisor-employees post-retirement
medical benefits as a form of deferred compensation in accord with the terms of Section 606(a),
including auditor approval”) and Section 5571.1(d)(1) of the Judicial Code, 42 Pa. C.S. §
5571.1(d)(1) (providing that, “[a]n ordinance shall be presumed to be valid and to have been
enacted or adopted in strict compliance with statutory procedure.”).
10
Auditors are elected. Section 404(a) of the Code, as amended, added by Section 1 of the
Act of November 9, 1995, P.L. 350, 53 P.S. § 65404(a). As auditors, they may not “at the same
time hold any other elective or appointive township office or position or be an employe of the
township for which he has been elected or appointed.” Section 404(b) of the Code, 53 P.S. §
65404(b).
12
resolution that was passed by the former supervisors. The fact that the plan may
have cost more or less than initially estimated and the fact that the
Commonwealth’s contribution, if any, was unknown, are of no moment. Those
could not realistically be known with any certainty at the time the resolution was
adopted and the resolution signed by the auditors contained no such terms.
Therefore, any facts averred that the Board of Auditors’ approval may have been
based on flawed estimates of future financial performance does not establish a
violation of Section 606(b). The differences in cost of the plan, to the extent they
were significant, were lower than the estimates and so were not material, any more
than the question of which state agency would subsidize the plan. Moreover, after
years of experience, the Board made no averment that the actual contributions from
the state varied materially from the estimate reflected in the minutes. Finally, there
is nothing in the averments to suggest that the estimates were intentionally false or
made by anyone with a corrupt motive. The facts alleged here simply do not
present the kind of extraordinary circumstances, such as the presence of fraud,
which would justify looking behind the signatures of elected officials in what
could amount to an unwarranted fishing expedition, particularly many years after
the fact. See Township of Perkiomen v. Mest, 522 A.2d 516, 520 (Pa. 1987)
(holding that, in order to avoid government by the judiciary, “courts must use
appropriate self[-]restraint when asked to review or second-guess decisions of
elected municipal officials.”).
Appellants’ second and third issues are also without merit. They
argue that the participation of supervisor-employees in the pension plan constitutes
compensation “of the elected office” under Section 606(a) of the Code such that it
would not become effective until the beginning of a supervisor’s next term and
13
that, accordingly, Hernandez was not entitled to participate in the plan without
being reelected to a new term as a township supervisor. Section 606(a) of the
Code, however, clearly draws the distinction between the compensation of
supervisors as elected officials, whose salary is capped by statute for six years until
their next term of office, and the salary of supervisor-employees, whose salary is
discretionary with the Board of Auditors. In that regard, two provisions from
Section 606(a) are illustrative:
The compensation of supervisors, when employed as
roadmasters, laborers, secretary, treasurer, assistant
secretary, assistant treasurer or in any employe capacity
not otherwise prohibited by this or any other act, shall be
determined by the board of auditors, at an hourly, daily,
weekly, semi-monthly or monthly basis . . . . [Emphasis
added.]
....
Any change in salary, compensation or emoluments of
the elected office becomes effective at the beginning of
the next term of the supervisor. [Emphasis added.]
In addition, specifically regarding pension benefits and supervisor-
employees, Section 606(b)(1) provides:
(1) Supervisors are eligible for inclusion in
township pension plans only if they are employed by the
township in any employe capacity under this act. In
order to be eligible for inclusion in the plans, supervisor-
employes must meet the same requirements as other
employes of the township who are eligible to participate
in a pension plan. Pension plans shall not improperly
discriminate in favor of a supervisor-employe.
53 P.S. § 65606(b)(1). Further, as we noted previously regarding the rescission of
auditor approval for the participation of supervisor-employees in employee pension
plans, such approval may not be rescinded “as long as the pension plan remains in
effect and the supervisors remain employed by the township and continue to meet
14
the same requirements as other employes of the township who are eligible to
participate in a pension plan . . . .” 53 P.S. § 65606(b)(2).
Moreover, Section 901 of the Code requires that the Board of
Auditors set the current salary for supervisor-employees each year. Supervisors
who are not employees are barred from participation in the pension plan by Section
606(b)(7) of the Code, 53 P.S. § 65606(b)(7). Therefore, the pension benefit
(which is the same for all employees whether they are supervisors or not) is
compensation for the supervisors’ role as employees, not in their role as elected
officials. Thus, it is not compensation “of the elected office” which may be
changed only at the beginning of a new term in office. For the same reason, since
Hernandez continued to be an employee, whether she was reelected to the office of
supervisor was irrelevant to her right to participate in the plan. Where, as here, the
language of the statutory provisions is clear, that language is presumed to be the
best indication of legislative intent and there is no need to ascertain that intent by
considering the factors set forth in Section 1921(c)(1)-(8) of the Statutory
Construction Act of 1972.11 Chanceford, 923 A.2d at 1104.
Accordingly, we affirm.
_____________________________________
BONNIE BRIGANCE LEADBETTER,
Judge
11
These factors include the occasion and necessity for the statute, the circumstances under
which it was enacted, the mischief to be remedied, the object to be attained, the former law, the
consequences of a particular interpretation, any contemporaneous legislative history, and
legislative and administrative interpretations of the statute at issue. 1 Pa. C.S. § 1921( c)(1)-(8).
15
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Delaware Township Board of :
Auditors; Dennis Lee; Michael :
Dickerson; and Jane E. Neufeld, :
Appellants :
:
v. : No. 1601 C.D. 2014
:
Delaware Township; Pennsylvania :
Municipalities Pension Trust; :
Ileana F. Hernandez and Thaddeus :
Parsell :
ORDER
AND NOW, this 5th day of January, 2016, the order of the Court of
Common Pleas of Pike County is hereby AFFIRMED.
_____________________________________
BONNIE BRIGANCE LEADBETTER,
Judge