Filed: Jul. 01, 2016
Latest Update: Mar. 02, 2020
Summary: Case: 15-10416 Document: 00513576519 Page: 1 Date Filed: 07/01/2016 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit No. 15-10416 FILED July 1, 2016 Lyle W. Cayce RICHARD VAN HOUTEN, JR.; STEPHEN HALL, Clerk Plaintiffs - Appellants v. CITY OF FORT WORTH, a Texas Municipal Corporation, Defendant - Appellee - CONSOLIDATED WITH CASE NO. 15-10796 JAMES TATE; DONALD CLARK; BRIAN RAY, Plaintiffs - Appellants v. CITY OF FORT WORTH, Defendant - App
Summary: Case: 15-10416 Document: 00513576519 Page: 1 Date Filed: 07/01/2016 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit No. 15-10416 FILED July 1, 2016 Lyle W. Cayce RICHARD VAN HOUTEN, JR.; STEPHEN HALL, Clerk Plaintiffs - Appellants v. CITY OF FORT WORTH, a Texas Municipal Corporation, Defendant - Appellee - CONSOLIDATED WITH CASE NO. 15-10796 JAMES TATE; DONALD CLARK; BRIAN RAY, Plaintiffs - Appellants v. CITY OF FORT WORTH, Defendant - Appe..
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Case: 15-10416 Document: 00513576519 Page: 1 Date Filed: 07/01/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-10416 FILED
July 1, 2016
Lyle W. Cayce
RICHARD VAN HOUTEN, JR.; STEPHEN HALL, Clerk
Plaintiffs - Appellants
v.
CITY OF FORT WORTH, a Texas Municipal Corporation,
Defendant - Appellee
---------------------------------------
CONSOLIDATED WITH
CASE NO. 15-10796
JAMES TATE; DONALD CLARK; BRIAN RAY,
Plaintiffs - Appellants
v.
CITY OF FORT WORTH,
Defendant - Appellee
Appeals from the United States District Court
for the Northern District of Texas
Before REAVLEY, JOLLY, ELROD, Circuit Judges.
REAVLEY, Circuit Judge:
This will decide whether recent changes to the City of Fort Worth’s (the
“City”) pension plan violate the law. Under certain circumstances, the Texas
Constitution forbids reduction of public pension “benefits accrued by a person.”
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No. 15-10416
Tex. Const. art. XVI, § 66(d). Primarily, the plaintiffs argue that the City’s
pension reforms violate this “Section 66.” Two district courts have already
ruled in favor of the City, sparking two separate appeals. We hereby
consolidate the plaintiffs’ appeals for decision and affirm.
BACKGROUND
Fort Worth operates a defined benefits pension plan for the benefit of its
employees. 1 All of the plaintiffs are vested members of the plan. At the time
each of the plaintiffs vested, the City employed a “High 3” formula. Under this
formula, the three highest annual salaries received by the retiring employee
were averaged to reach a base amount, which was then multiplied by the
employee’s years of service and then subjected to a 3% multiplier. The
plaintiffs also had the right to a cost-of-living adjustment, or “COLA.” Each of
the plaintiffs in these cases had the option of choosing a 2% simple COLA or
an “ad hoc COLA,” which allowed for a variable, compounded rate between 0%
and 4% depending on the financial strength of the pension plan. Each of the
plaintiffs chose the ad hoc COLA, which was described as an “irrevocable
election.”
Like most public pension plans in Texas, Fort Worth’s is underfunded.
Over the years, Fort Worth has sought to improve the financial condition of its
pension plan. In 2012, with the passage of Ordinance No. 20471-10-2012, the
City made two primary changes. For new employees, it replaced the High 3
1 “Generally, an employee participating in a defined benefit plan will receive a future
benefit based on a specified formula that often takes into account earnings, length of service,
or both.” Shanks v. Treadway, 110 S.W.3d 444, 445 (Tex. 2003) (citing Steven R. Brown,
Comment, An Interdisciplinary Analysis of the Division of Pension Benefits in Divorce and
Post–Judgment Partition Actions: Cures for the Inequities in Berry v. Berry, 37 BAYLOR L.
REV. 107, 115–16 (1985)).
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formula with a High 5 formula. Not only does this High 5 formula average the
five highest paid years, it also uses a 2.5% multiplier instead of a 3% multiplier.
In light of Section 66, the City sought to ensure that the reform would affect
vested members of the pension plan only prospectively by adopting a bifurcated
“High 3/High 5” formula. As Judge John McBryde’s opinion explains:
The calculation of benefits for employees who work both before and
after the amendment is a combination of the two calculations. The
part accrued before the amendment stays the same. It is only
future benefits that are calculated under the new formula.
Tate v. City of Fort Worth, Tex., No. 4:15-CV-115-A, 2015 WL 4486793,
at *2 (N.D. Tex. July 22, 2015).
The second noteworthy change concerned the COLA. The City
eliminated cost-of-living adjustments for future employees, provided that
current employees would henceforth receive a simple 2% COLA, and allowed
current employees who had previously taken the ad hoc COLA “to revert to 2%
simple.”
Due to a collective bargaining agreement, City firefighters were not
affected by Ordinance No. 20471-10-2012. Shortly after that agreement
expired, however, the City imposed essentially the same reform on its
firefighters with Ordinance No. 201510-10-2014. The two lawsuits before us
challenge those ordinances. One is brought by a pair of police officers, the other
by a trio of firefighters. We refer to the challenged ordinances collectively as
the “Pension Reform.”
Ultimately, both cases were resolved at the summary judgment stage.
On April 7, 2015 Judge Terry Means rendered judgment in favor of the City
and against the police officers in Case No. 15-10416, finding that the Pension
Reform complied with Section 66 and that all other claims were contingent on
a threshold finding of incompatibility with Section 66. Judge McBryde issued
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a similar ruling against the firefighters in Case No. 15-10796 on June 22, 2015.
Both sets of plaintiffs timely appealed.
STANDARD OF REVIEW
The district courts’ orders granting summary judgment are subject to de
novo review. Time Warner Cable, Inc. v. Hudson, 667 F.3d 630, 638 (5th Cir.
2012). Likewise, the constitutionality of the Pension Reform is a question of
law subject to de novo review. See Nat’l Fed’n of the Blind of Tex., Inc. v. Abbott,
647 F.3d 202, 208 (5th Cir. 2011).
Despite this standard of review, the plaintiffs argue that we should defer
to a relevant opinion of the Texas Attorney General. See Tex. Att’y Gen. Op.
GA-0615, 2008 WL 982266 (2008) (hereinafter, the “AG Opinion”). We consider
that opinion, of course, but it does not change our task. Because the Texas
Supreme Court has not yet interpreted Section 66, our Erie function is to
predict how it would rule. McCaig v. Wells Fargo Bank (Texas), N.A.,
788 F.3d
463, 472 (5th Cir. 2015). The Texas Supreme Court would consider the AG
Opinion “persuasive” but “not controlling.” Holmes v. Morales,
924 S.W.2d 920,
924 (Tex. 1996). We accord it the same stature. Any other approach would put
us out of step with the Texas Supreme Court and impair our ability to
accurately prognosticate that court’s ruling. See Batts v. Tow-Motor Forklift
Co.,
66 F.3d 743, 750 (5th Cir. 1995) (explaining our duty to do “no more” than
“predict how the state court will decide a question”).
ANALYSIS
I.
A.
Section 66(d) provides:
On or after the effective date of this section, a change in service or
disability retirement benefits or death benefits of a retirement
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system may not reduce or otherwise impair benefits accrued by a
person if the person:
(1) could have terminated employment or has terminated
employment before the effective date of the change; and
(2) would have been eligible for those benefits, without
accumulating additional service under the retirement system, on
any date on or after the effective date of the change had the change
not occurred.
Tex. Const. art. XVI, § 66(d).
We must decide whether Section 66 prohibits pension reform that would
decrease expected but as-yet unearned benefits. For the reasons that follow,
we conclude that such an interpretation is inconsistent with Section 66’s text,
which prohibits only the reduction or impairment of “benefits accrued.”
We interpret the Texas Constitution as would Texas courts. See Cerda
v. 2004-EQR1 L.L.C., 612 F.3d 781, 786 (5th Cir. 2010). Texas courts “presume
the language of the Constitution was carefully selected, interpret words as they
are generally understood, and rely heavily on the literal text.” In re Allcat
Claims Serv., L.P.,
356 S.W.3d 455, 466 (Tex. 2011).
This case comes down to the meaning of the word accrued—or whether
it means anything at all. Section 66(d) has a two-part structure. The
introduction of subsection (d) provides which benefits are covered—“benefits
accrued by a person”—while subparagraphs (d)(1) and (d)(2) provide who is
covered—vested present and past employees. In short, Section 66(d) prohibits
the impairment of accrued benefits for vested employees. This understanding
essentially resolves the case.
There is an understood difference between the concepts of benefit accrual
and vesting. See, e.g., Shanks v. Treadway, 110 S.W.3d 444, 445 n.2 (Tex. 2003)
(“Pension plan benefits become vested when the employee has an
unconditional ownership interest in them; that is, the employee has the right
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to receive the accrued benefits upon retirement whether or not he is working
for the same employer.”); Dewey v. Dewey, 745 S.W.2d 514, 518 (Tex. App. 1988)
(recognizing that “accrued benefits” begin to accumulate prior to vesting).
Benefits accrue on an ongoing basis as service is performed, and accrued
benefits are those benefits that have been earned to date. Meanwhile, vesting
is a one-time event giving rise to a right to the accrued benefits. 2 “In summary,
the notion of benefit accrual quantifies actual benefit accumulations. The
concept of vesting determines the nature of an employee’s legal right in the
accrued benefits.” Brown, 37 BAYLOR L. REV. at 123. 3 By its terms, Section 66
prohibits only the reduction or impairment of accrued benefits, and the
plaintiffs cannot complain about the reduction of benefits that have not yet
accrued.
The plaintiffs agree that Section 66 has a two-part structure and that
sub-paragraphs (d)(1) and (d)(2) represent a vesting requirement. But they
don’t think the term “accrued” means anything. As the plaintiffs see it, this
“dispute . . . boils down to whether ‘benefits accrued’ means merely money, or
2 For another explanation, see JOHN F. BUCKLEY IV, ERISA LAW ANSWER BOOK § 11-
2 (8th ed. 2014).
The concepts of “accrued” and “vested” are related but not the same. “Accrual”
refers to the amount of benefits a plan has earned to date and is usually
expressed in the form of an annual benefit commencing at normal retirement
age. “Vesting” refers to the point in time at which accrued benefits become
nonforfeitable. In other words, a plan’s accrual provisions provide a formula
for calculating the amount of a normal retirement benefit that a participant
has earned at any given time; vesting provisions do not affect the amount of
the accrued benefit but rather govern whether all or a portion of the accrued
benefit is nonforfeitable.
Id. (emphases added) (citations omitted).
3 Mr. Brown’s comment has been cited several times by Texas courts, including by the
Texas Supreme Court in describing basic features of pension plans as we do here. See
Shanks, 110 S.W.3d at 445 n. 1 & 2. Mr. Brown also noted that it “is essential to recognize
and maintain the distinctions between ‘vesting’ and ‘accrual.’” 37 Baylor L. Rev. at 117.
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instead the right to the method for determining the compensation base for
calculating retirement benefits.” “If ‘benefits’ means the right to the formula,
then the right becomes ‘accrued’ under the Constitution once the employee
vests in the plan.” Under their proposed interpretation, the term “accrued”
repeats the vesting requirement and has no operative effect. 4 In short,
according to the plaintiffs, a benefit formula accrues at the moment of vesting
and becomes constitutionally protected, meaning that even wholly prospective
formula adjustments are foreclosed by Section 66.
The simple observation that accrual and vesting are distinct and vital
concepts in the pension plan lexicon renders plaintiffs’ interpretation
unsustainable. The rule that Texas courts “refuse, whenever possible, to
construe constitutional language in a way that renders it idle or inoperative”
likewise precludes such an interpretation. See Spradlin v. Jim Walter Homes,
Inc., 34 S.W.3d 578, 580 (Tex. 2000) (rejecting an interpretation that would
yield “an immediate redundancy”). Examine the plaintiffs’ key predicate
claim: Does the term “benefits” include a “right to the formula”?
Traditional tools of statutory interpretation yield a clear answer. The
term “benefits” refers to payments and does not encompass the formula by
which those payments are calculated. There are numerous indications that
the term “benefits” refers only to payments. We start with Section 66 itself.
When addressing other benefits, Section 66 expressly refers to “disability
benefits” that “are no longer payable.” Section 66(c) (emphasis added). This
makes sense only if benefits are generally something to be paid.
4Plaintiffs describe the term “accrued” as just “a single verb” worthy of little attention,
contend that that term “[a]ccrued does nothing to indicate when the benefits become
protected, and does not act as a limitation of any kind,” and claim “the use of the term
‘accrued’ was not intended to create any additional limitation.”
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Further, Section 66 must be read in pari materia with Section 67,
entitled “State and local retirement systems.” Duncan v. Gabler, 215 S.W.2d
155, 159 (Tex. 1948) (“An important established rule for construing the
Constitution is that all of its provisions affecting the same thing must be
construed together . . . .”). In Section 67, the term “benefits” represents a
payment. Section 67 covers limitations on the right to “receive benefits.”
Section 67(a)(2). It references “benefits payable.” Section 67(d)(1). It ensures
that local retirement systems hold assets “for the exclusive purposes of
providing benefits.” Section 67(f)(2). The constitutional requirement that
“[f]inancing of benefits must be based on sound actuarial principles” makes
sense only if benefits refers to payments of money. Section 67(a)(1). So, too,
the phrase “fractional benefit.” Section 67(a)(2). Similarly, the requirement
that “[b]enefits under these systems must be reasonably related to participant
tenure and contributions” essentially requires that the measure of benefits be
the product of a lawful formula. Section 67(c)(2). Finally, Section 67 refers to
“the benefit formula used,” a statement that would be inscrutable if the term
“benefits” encompassed the benefit formula. 5 Section 67(a)(2).
The plaintiffs direct us to Black’s Law Dictionary and argue that the
word “benefits” means “privilege,” as in “[t]he right to participate in a plan
5 The Government Code’s treatment of “benefits” further supports our conclusion. For
example, the phrase “Public retirement bill or resolution” is defined to mean “a bill or
resolution that proposes to change the amount or number of benefits or participation in
benefits of a state-financed public retirement system . . . .” Tex. Gov. Code Ann.
§ 802.305(i)(1) (emphasis added). Other examples abound. See Tex. Gov. Code Ann.
§ 802.203(a)(1)(A) (“providing benefits”); Tex. Gov. Code Ann. § 802.207(b) (“paying
benefits”); Tex. Gov. Code Ann. § 802.1024(a-2), (b) (“overpayment of benefits”); Tex. Gov.
Code Ann. § 803.302(b) (“amount of a benefit payable,” located in section entitled
“Computation of Certain Benefits”); Tex. Gov. Code Ann. § 803.401(b)(2) (“benefits payable”);
Tex. Gov. Code Ann. § 804.001(1), (4) (same); Tex. Gov. Code Ann. § 804.003(c) (same) Tex.
Gov. Code Ann. § 805.007(a) (same).
8
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under a particular formula.” But that same dictionary provides an alternative
definition: “Financial assistance that is received from an employer, insurance,
or public program (such as social security) in time of sickness, disability, or
unemployment.” BLACK’S LAW DICTIONARY 188 (10th ed. 2014). Between the
two possibilities—one generic, the other contextual—it is clear which is more
apt. Likewise, the Glossary of Insurance Terms defines the term “benefit” as
“The amount to be paid to a participant of a retirement plan or to the
participant’s beneficiary at retirement, at death, or at termination of services.”
GLOSSARY OF INSURANCE TERMS 27 (6th ed. 1996).
The plaintiffs also rely on the AG Opinion, which found that the term
“benefits” to encompass the benefit formula. We have carefully considered the
AG Opinion. For the following reasons, we do not believe that it accurately
predicts how the Texas Supreme Court will interpret Section 66.
The AG Opinion begins with Section 66’s text but finds it ambiguous and
then considers legislative history, which it also finds unhelpful. See Tex. Att’y
Gen. Op. No. GA-0615, at 2–6. By the end of the analysis, the text of Section
66 has been left behind and the opinion is instead based on holdings from other
state supreme courts, particularly those of New York, Illinois, and Alaska:
The New York, Illinois, and Alaska court decisions suggest that
the authorized method for determining the base compensation of
vested employees is a constitutionally protected “right” that
“accrues” upon vesting. . . . In the absence of any Texas judicial
authority, we believe this case law is persuasive authority, even
recognizing that the Texas constitutional language is similar, but
not identical to these states’ constitutional language.
Id. at 7.
Already, we have found that Section 66’s text is not ambiguous. It is
certainly not such a muddle that it must be thrown out and replaced with case
law from other states—states with different policy objectives, value judgments,
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and histories. And yet that is what the AG Opinion does, concluding that
Section 66—a lengthy and detailed multi-part provision—is to be interpreted
identically as, for example, New York’s sweeping constitutional decree that
“membership in any pension or retirement system of the state or of a civil
division thereof shall be a contractual relationship, the benefits of which shall
not be diminished or impaired.” N.Y. CONST. art. V, § 7.
Just recently, the Texas Supreme Court issued a reminder that when
interpreting the Texas Constitution, courts must interpret the Texas
Constitution, and not resort reflexively to the constitutions of other states.
Patel v. Texas Dep’t of Licensing & Regulation, 469 S.W.3d 69, 91 (Tex. 2015)
(“[W]hether [a particular licensing requirement] violates the Texas
Constitution is not determined by the relationship between other states’
statutes and regulations and their respective constitutions.”); see also
id. at 98
(Willett, J., concurring) (“[W]hat happens in the Aloha State makes not the
slightest constitutional difference in the Lone Star State.”).
In the context of public pension plans, it is particularly problematic to
assume that Texans suddenly decided (with the enactment of a constitutional
provision that looks nothing like the supposedly similar constitutional
provisions of other states) that Texas would henceforth copy states like New
York and Illinois with respect to protecting public employees’ retirement plans.
When it comes to public pension protection, Texas is known to be an outlier. 6
6 See, e.g., Anna K. Selby, Note, Pensions in A Pinch: Why Texas Should Reconsider
Its Policies on Public Retirement Benefit Protection, 43 TEX. TECH L. REV. 1211, 1230 (2011)
(identifying Texas as one of only two states that takes a “gratuity approach” to public
pensions, meaning pension benefits are viewed as gratuity rather than a contractual or
statutory right); Amy Monahan, Public Pension Plan Reform: The Legal Framework, 5 EDUC.
FIN. & POL’Y 617, 621 (2010) (same); T. Leigh Anenson, Alex Slabaugh, Karen Eilers Lahey,
Reforming Public Pensions, 33 YALE L. & POL’Y REV. 1, 15 (2014) (noting Texas’ retention of
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In 1937, the Texas Supreme Court decided City of Dallas v. Trammell and held
that pensioners’ rights to accrued benefits were subject to the legislative power
of the state “to amend, modify, or repeal the law upon which the pension
system is erected.” 101 S.W.2d 1009, 1014 (1937). The ruling meant that C.W.
Trammell, a retired Dallas police officer whose monthly pension was cut from
$183.33 to $72.16, had no recourse. While other states enacted laws to protect
public pensions from similar cuts, Texas held its course—until the enactment
of Section 66. As one Texas appellate court put it, Section 66 “was proposed
and adopted specifically to change the result of the Trammell decision, albeit
70 years later.” Davidson v. McLennan Cty. Appraisal Dist., No. 10-11-00061-
CV,
2012 WL 3799149, at *5 (Tex. App. Aug. 30, 2012) (mem. op.).
As we have interpreted it, Section 66 reverses the core unfairness of the
Tramell decision by ensuring that earned benefits cannot be reduced. By going
no further, our interpretation of Section 66 stays true to Texas’ long-held
flexible approach permitting municipalities to revise their pension plans in
light of changing economic conditions. The AG Opinion not only discards
Section 66’s text and replaces it with the text of other states’ constitutions, it
also replaces Texas’ history and policy objectives with the history and policy
objectives of disparate states. In doing so, the AG Opinion takes a path we do
not expect the Texas Supreme Court to follow. 7
the gratuity approach while “[a]n overwhelming majority of states . . . have transformed
tradition and retreated from the notion of pensions as unprotected gratuities”).
7 The Dissent finds our interpretation “not unreasonable” but perceives a flaw in our
analysis. Respectfully, the Dissent’s reasoning is perplexing. The Dissent focuses on our
consideration of the term “benefits” and claims that we “ignore instances” where the term
appears to refer to a formula rather than to a payment. (Dissent at 1.) One of these instances
is found “in section 66(d) itself,” no less. (Id.) We did not overlook that use of the word; our
very enterprise was to ascertain the meaning of the term “benefits” within Section 66(d).
Surely the Dissent does not believe that the word, used four times in Section 66(d), might
bear different meanings with each use. According to the Dissent, as used in Section 66(d),
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B.
We have concluded that Section 66 permits prospective changes to the
pension plans of the public employees within its reach. If the changes to the
pension plan impact only benefits that have not yet accrued, amendment is
permissible. We now must determine whether the Pension Reform complies
with this restraint.
The plaintiffs do not dispute that, under the interpretation adopted by
the district courts and now by this court, the bifurcated High 3/High 5
approach is permissible. The reform has been designed to protect all accrued
benefits while impacting only the rate at which future benefits accrue. This
aspect of the Pension Reform therefore passes constitutional muster.
“[t]he phrase ‘a change in . . . benefits’ plainly encompasses a change in the formula.” (Id.)
True, a change to the benefits (i.e., the payment) can be effected via a change to the benefit
formula. That does not mean, however, that the term “benefits” is any broader here than it
is in other parts of Section 66, Section 67, or the Government Code. We interpret the phrase
“a change in . . . benefits” to include any change to the pensioner’s bottom-line—the actual
payments. Thus, Section 66 is not a narrow reform myopically concerned with changes to
benefit formulas. Read this way, Section 66(d) operates efficaciously no matter the particular
design of the particular pension plan, an important feature because not all plans are so
formula-dependent as the defined benefit plans at issue today. Thus, our reading treats
Section 66 as an objective-oriented reform that contemplates any “change in . . . benefits,”
whether that change is effected via revision of the benefit formula or some other way. To be
protected, however, the benefits must be “accrued.” It says so in the text.
The next use of the word “benefits” that we have purportedly ignored appears in
Section 66(e). The Dissent’s reasoning has the virtue of simplicity, but not soundness.
Section 66(e) provides: “Benefits granted to a retiree or other annuitant before the effective
date of this section and in effect on that date may not be reduced or otherwise impaired.”
According to the Dissent, “[o]ne would not describe a monetary payment as being ‘in effect’
on a fixed date, but one would certainly describe a formula for calculating monetary payments
that way.” (Dissent at 2.) This is facially uncompelling because of course one might describe
monthly pension payments of a set amount as being “in effect” as of the date Section 66 was
enacted. Further, if as the Dissent believes, Section 66(e) protects a benefit formula and the
term “accrued” is used by Section 66(d) in an idiosyncratic way to denote the moment in time
at which a right to a benefit formula becomes inviolable, then Section 66(e) should apply to
“benefits accrued” as Section 66(d) does. It does not. The absence of the term “accrued” in
Section 66(e) confirms that the words of Section 66 were chosen deliberately.
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The plaintiffs view the COLA reform differently. According to them,
even under the district courts’ understanding of Section 66, the changes to the
COLA are unconstitutional. 8 According to the plaintiffs’ evidence, if the
election is not re-opened, their ad hoc COLA election can be expected to carry
a 1% effective rate. If the election is re-opened and pension plan members flock
to the 2% fixed option, the value of the ad hoc COLA election will drop to 0%.
This predicted drop is the reduction or impairment of which they complain. 9
The plaintiffs chose a variable rate, guaranteed only to be within 0% and
4%. They were not guaranteed a 1% rate of return. The enactment of Section
66 coupled with their evidence of a presently expected 1% return does not
provide them constitutional protection against the risk of downward
fluctuations inherent in variable rates. Any number of changes to the pension
plan made by the City between now and the various dates upon which the
various plaintiffs will retire could cause the variable-rate ad hoc COLA to
decrease in value. Under the plaintiffs’ reasoning, all such changes violate
Section 66. We reject this argument. Section 66 did not turn the plaintiffs’
variable-rate COLA into a one-way ratchet capable only of upward movement.
In all challenged respects, the Pension Reform complies with Section 66.
II.
The plaintiffs attack the Pension Reform on additional grounds, which
we now consider. According to Richard Van Houten, Jr. and Stephen Hall, the
plaintiffs of Case No. 15-10416, only the Texas state legislature has the
Trammel “reserved power” to amend pension plans and thus abrogate
8 We share the parties’ mutual assumption that, under Texas law, the ad hoc COLA
represents an “accrued benefit.”
9 Strangely, the plaintiffs find no comfort in the fact that switching to the 2% fixed
COLA would, according to their own evidence, double the value of their COLA.
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contractual rights, meaning the Ordinances represent a breach of contract and
violation of Texas constitution’s contracts clause. This argument is foreclosed.
Klumb v. Houston Mun. Employees Pension Sys., 458 S.W.3d 1, 16 (Tex. 2015)
(“[N]o vested property right exists when a pension fund can be amended or
abolished by the governing authority; it makes no difference whether the
authority with the power to abolish the pension system is the Legislature or
some other entity.”). Here, the “governing authority” is the City. See Tex. Rev.
Civ. Stat. Ann. art. 6243i §§ 1.02(3), 4.03(a).
All of the plaintiffs argue that the Pension Reform violates the United
States Constitution’s contracts clause and takings clause. Neither the
contracts clause nor the takings clause create property rights. Rather, they
protect property rights. Accordingly, the existence of the right depends on state
rather than federal law. As the Supreme Court has observed, with reference
to the takings clause, “[b]ecause the Constitution protects rather than creates
property interests, the existence of a property interest is determined by
reference to ‘existing rules or understandings that stem from an independent
source such as state law.’” Phillips v. Washington Legal Found., 524 U.S. 156,
164,
118 S. Ct. 1925, 1930 (1998) (quoting Bd. of Regents of State Colleges v.
Roth,
524 U.S. 156, 577,
92 S. Ct. 2701, 2709 (1972)).
Under Texas law, to the extent there is any sort of contractual right to
pension plan benefits, it is a right expressly “made subject to the reserved
power of the Legislature to amend, modify, or repeal the law upon which the
pension system is erected, and this necessarily constitutes a qualification upon
the anticipated pension and a reserved right to terminate or diminish it.”
Trammell, 101 S.W.2d at 1014. As we have already seen, the Texas Supreme
Court reaffirmed this view in Klumb.
See 458 S.W.3d at 16. Thus, Texas law
remains “clear that a person’s property right in a public pension is subordinate
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to the state’s power to determine to whom benefits are to be paid, to set
conditions for receiving such benefits, to modify benefits paid, or to abolish the
pension and accrued benefits altogether.” Kunin v. Feofanov, 69 F.3d 59, 63
(5th Cir. 1995). As a matter of state law, the right to public pension benefits
in Texas is subject to legislative power. Legislative reduction of such benefits
therefore cannot be the basis of a U.S. Constitution contracts clause or takings
clause challenge.
CONCLUSION
For the foregoing reasons, the judgments in favor of the City in the cases
numbered 15-10416 and 15-10796 are AFFIRMED. 10
10 The Van Houten plaintiffs’ motion to certify questions to the Texas Supreme Court
is DENIED. Finding Section 66 to be ambiguous, the Dissent would grant the motion. That
is not the standard, however. “We do not lightly abdicate our mandate to decide issues of
state law” and are “‘slow to honor a request for certification from a party who chose to invoke
federal jurisdiction.’” Jefferson v. Lead Indus. Ass’n, Inc., 106 F.3d 1245, 1248 (5th Cir. 1997)
(quoting 17A CHARLES A. WRIGHT, ARTHUR R. MILLER, EDWARD H. COOPER, FEDERAL
PRACTICE AND PROCEDURE § 4248, at 176 (1988)). We will not certify even “important and
complex” questions where the answer is “sufficiently clear.” Patterson v. Mobil Oil Corp.,
335
F.3d 476, 487 (5th Cir. 2003); see also Cerda v. 2004-EQR1 L.L.C.,
612 F.3d 781, 785 n.8 (5th
Cir. 2010) (applying “sufficiently clear” standard); Moore v. State Farm Fire & Cas. Co.,
556
F.3d 264, 269 (5th Cir. 2009) (same). At the appellate level, we expect even the losing party
to present plausible arguments. Likewise, we deal routinely with ambiguous statutes. Were
the arguments implausible and the statutes unambiguous, our role would be ornamental.
We do not decline our obligation to resolve cases simply because the answer is not facially
evident to all jurists. See Transcon. Gas Pipeline Corp. v. Transp. Ins. Co.,
958 F.2d 622, 623
(5th Cir. 1992). The question of law presented by this case is undoubtedly an important one,
but it is one we can answer “with confidence.” Hughes v. Tobacco Inst., Inc.,
278 F.3d 417,
426 (5th Cir. 2001). Our duty, therefore, is to decide.
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JENNIFER WALKER ELROD, Circuit Judge, dissenting from denial of the
motion to certify:
The majority opinion construes article XVI, section 66(d) of the Texas
Constitution to not protect vested municipal employees against forward-
looking pension reforms. It arrives at that construction by reading section
66(d)’s critical phrase, “benefits accrued by a person,” to encompass only
monetary payments reflecting an employee’s prior years of service—not the
formula used to calculate those payments. That construction has not been
asserted by any party, and indeed was assumed to be incorrect by all parties.
Though it is not unreasonable, I cannot agree with confidence that it is the
construction of Texas’s Constitution that Texas’s highest court would adopt.
Because I would ask the Supreme Court of Texas for guidance rather than
venture an Erie guess on this highly consequential issue, 1 I dissent from the
denial of plaintiffs’ motion to certify.
The majority opinion relies heavily on section 66(d)’s neighboring
provisions, several of which clearly use the term “benefits” to refer to monetary
payments, not a formula. But the majority opinion ignores instances—
including in section 66(d) itself—that cut in the opposite direction. By its own
terms, section 66(d) limits the permissible effects of “a change in service or
disability retirement benefits or death benefits.” The phrase “a change in . . .
benefits” plainly encompasses a change in the formula. 2 Furthermore,
1 Section 66(d) applies to all non-statewide public retirement systems except in San
Antonio and in political subdivisions where voters have rejected it by ballot measure. See
§ 66(a)–(b), (h). The pension reforms at issue in this case are an effort to address an unfunded
liability of $1.5 billion in Fort Worth’s pension fund alone.
2 Responding to this point, the majority opinion reasons that “a change in . . . benefits”
refers simply to “any change to the pensioner’s bottom-line—the actual payments,” which can
be effected through a change in the formula or otherwise. This reading, the majority reasons,
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neighboring section 66(e) forbids reductions in “[b]enefits granted to a retiree
or other annuitant before the effective date of this section and in effect on that
date.” (emphasis added). One would not describe a monetary payment as
being “in effect” on a fixed date, but one would certainly describe a formula for
calculating monetary payments that way. Section 66(e) is particularly
instructive because it works in tandem with section 66(d): one provision
protects vested current and former employees and the other protects retirees
and other annuitants. Absent some indication to the contrary, context
suggests that the “benefits” described in the two provisions are the same.
As even the City acknowledges, “[t]he fact that the term ‘benefits’
includes the method for calculating benefits has always been assumed to be
correct by both parties.” We are of course not forbidden from adopting an
interpretation that neither party has asserted, as the majority does here,
Lightbourn v. Cty. of El Paso, 118 F.3d 421, 431 n.11 (5th Cir. 1997), but we
should not lightly declare such an interpretation to be correct. If section 66(d)’s
bar on impairing “benefits accrued by a person” protects the formula used to
calculate a vested employee’s pension payments, the prospective reforms at
issue in this case may well be forbidden.
Likewise, given the uncertainty in interpreting section 66(d), I am not
inclined to disregard the formal opinion of then-Attorney General Greg Abbott
reaffirms that the term “benefits” is no “broader [in Section 66(d)] than it is in other parts of
Section 66, Section 67, or the Government Code.” But if the majority opinion were correct
that any “benefit” protected under section 66(d) must be a monetary payment so as to
preserve equivalency with the “benefits . . . payable” described in sections 66(c) and 67(d)(1),
then section 66(d) would not be the broad-reaching, pension-plan-neutral shield that the
majority opinion agrees it is. Vacation days are not “payable.” Access to continuing education
and training programs is not “payable.” Section 66(d) operates coherently—and achieves the
broad-reaching ends that the majority and I both ascribe to it—if the “benefits” protected are
the entire constellation of pension plan components, including the formula used to calculate
monetary payments.
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as easily as the majority opinion does. Faced with an unresolved issue of Texas
law, we give “careful consideration” to any formal opinions of the Attorney
General. Welmaker v. Cuellar, 37 S.W.3d 550, 552 (Tex. App.—Austin 2001,
pet. denied) (collecting cases); accord In re Smith,
333 S.W.3d 582, 588 (Tex.
2011) (describing attorney general opinions as “often persuasive,” though “not
binding”); City of Dall. v. Abbott,
304 S.W.3d 380, 384 (Tex. 2010) (same); HEB
Ministries, Inc. v. Tex. Higher Educ. Coordinating Bd.,
235 S.W.3d 627, 661 &
n.148 (Tex. 2007) (same); Comm’rs Court v. Agan,
940 S.W.2d 77, 82 (Tex.
1997) (same); Holmes v. Morales,
924 S.W.3d 920, 924 (Tex. 1996) (same); see
Stenberg v. Carhart,
530 U.S. 914, 941–42 (2000) (according to state attorney
general opinion the same weight it would be given by courts of the relevant
state on an issue of that state’s law). The Attorney General opinion concludes
that the word “accrued” in the phrase “benefits accrued by a person,” on which
today’s majority opinion focuses much attention, “does not tell us” whether an
employee’s section 66(d) rights in his pension “are limited, as a matter of law,
to benefits attributable to services already performed.” Tex. Att’y Gen. Op. No.
GA—0615, *4 (2008). This is not a case in which the Attorney General’s view
can be easily dismissed as contrary to the unambiguous language of section
66(d), and “careful consideration” of the Attorney General’s view places the
majority opinion’s resolution in doubt.
The decisions of the highest courts of New York, Illinois, and Alaska
discussed in the Attorney General opinion add an additional measure of
uncertainty. See Tex. Att’y Gen. Op. No. GA—0615, *6–7 (citing Kleinfeldt v.
N.Y.C. Emps.’ Ret. Sys., 324 N.E.2d 865 (N.Y. 1975); Felt v. Bd. of Trs. of the
Judges Ret. Sys,
481 N.E.2d 698 (Ill. 1985); Flisock v. State, Div. of Ret. &
Benefits,
818 P.2d 640 (Alaska 1991)). Concededly, these decisions consider
the constitutional provisions of states other than Texas and therefore cannot
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be dispositive in an analysis of section 66(d). See Patel v. Tex. Dep’t of Licensing
& Regulation, 469 S.W.3d 69, 91 (Tex. 2015). But surely when a state’s highest
court, for example, interprets a constitutional protection for “[a]ccrued
benefits” by identifying the time at which an employee’s right to retirement
benefits vests, see
Flisock, 818 P.2d at 643, we should question the inviolability
of the majority opinion’s premise that the term “accrued” cannot possibly
describe a vesting requirement because “accrual and vesting are distinct and
vital concepts in the pension plan lexicon.”
Given the ambiguity of the term “benefits accrued by a person” in section
66(d), the lack of an authoritative state court construction of that provision,
and the tremendous importance of that provision to Texas municipalities and
municipal employees, I would respectfully ask the Supreme Court of Texas to
give us guidance as to how to construe this provision of the Texas Constitution.
See Janvey v. Golf Channel, Inc., 792 F.3d 539, 543 (5th Cir. 2015)
(“Certification may be advisable where important state interests are at stake
and the state courts have not provided clear guidance on how to proceed.”)
(citation and alteration omitted); Austin v. Kroger Tex., L.P.,
746 F.3d 191,
203–04 (5th Cir. 2014) (“It is best to leave the resolution of these matters to
the good judgment of the highest state court.”); In re Moose Oil & Gas Co.,
613
F.3d 521, 530 (5th Cir. 2010) (certifying questions because contractual
language at issue was “arguably consistent with two interpretations”); In re
Norris,
413 F.3d 526, 529–30 (5th Cir. 2005) (certifying question where Texas
Constitutional provision’s text arguably was in tension with the result reached
by courts in other jurisdictions that had interpreted similar texts and applied
a canon of construction that Texas courts would also apply). I therefore
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respectfully dissent from the denial of plaintiffs’ motion to certify questions to
the Supreme Court of Texas. 3
3Because I agree with the majority opinion that plaintiffs’ federal claims rise or fall
with their section 66(d) claim, I would decline to resolve those claims as well and instead
await an authoritative construction of section 66(d) from the Supreme Court of Texas.
20
