Title: State Engineering Association v. Employe Trust Funds Board

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

SUPREME COURT OF WISCONSIN 
 
                                                              
 
Case No.: 
 
94-0712 
                                                              
 
Complete Title 
of Case: 
 
 
Wisconsin Retired Teachers Association, Inc.,  
 
 
 
Conan S. Edwards, Donald G. McCloskey,  
 
 
 
Margaret McCabe, Martha M. Schmidt and  
 
 
 
Mary Grace Jeffery,   
 
 
 
 
Plaintiffs-Respondents-Cross Appellants-  
 
 
 
 
Cross Petitioners,  
  
 
 
 
v. 
 
 
 
Wisconsin Education Association Council, by  
 
 
 
its President, James Blank, Richard Collins,  
 
 
 
David Camplin, Phillip Dowling and Michael  
 
 
 
Zemplinski, individuals,   
 
 
 
 
Intervening Plaintiffs-Respondents-Cross  
 
 
 
 
Appellants-Cross Petitioners,  
 
 
 
 
v.   
 
 
 
Employe Trust Funds Board, Paul Adamski,  
 
 
 
David J. Anderson, Constance P. Beck, Gale  
 
 
 
Duschak, Joann Elder, Stephen Frankel,  
 
 
 
Vincent Graham, Marvin Grosskreutz, William  
 
 
 
F. Kienzle, Barbara A. Monroe, James R.  
 
 
 
Klauser, Secretary of the Wisconsin  
 
 
 
Department of Administration, Gary Gates,  
 
 
 
Secretary of the Department of Employe Trust  
 
 
 
Funds and State Engineering Association, by its  
 
 
 
Board of Directors, Bernard E. Kranz, Melvin B.  
 
 
 
Sensenbrenner, Robert W. Schaefer, Jerry A.  
 
 
 
Sieling, Roger A. Bohn, James A. Andreshak,  
 
 
 
Steven Noel, Ronald S. Hett, William E.  
 
 
 
Sheppard, Richard Feeney, James B. Rice,  
 
 
 
Robert S. Merila, Thomas F. Dobson, Richard  
 
 
 
M. Story, Nile A. Ostenso (who are also  
 
 
 
plaintiffs in their individual capacities), and  
 
 
 
Charles W. Newhouse, and the Association of  
 
 
 
Career Executives, and its President, James S.  
 
 
 
Thiel (who is also a plaintiff in his individual  
 
 
 
capacity),   
 
 
 
 
Plaintiffs-Respondents-Cross Appellants-  
 
 
 
 
Cross Petitioners,  
 
 
 
Wisconsin Education Association Council, by  
 
 
 
its President, James Blank, Richard Collins,  
 
 
 
David Camplin, Philip Dowling and  
 
 
 
Michael Zemplinski, Individuals,   
 
 
 
 
Intervening Plaintiffs-Respondents-  
 
 
 
 
Cross Appellants-Cross Petitioners,  
 
 
 
 
v.  
 
 
 
Employe Trust Funds Board, Paul  
 
 
 
Adamski, David J. Anderson,  
 
 
 
Constance P. Beck, Gale Duschak,  
 
 
 
Joann Elder, Stephen Frankel, Vincent  
 
 
 
Graham, Marvin Grosskreutz, William  
 
 
 
F. Kienzle, Barbara A. Monroe, James  
 
 
 
J. Murphy, Donald Smart, Mark Stone,  
 
 
 
Kenneth Stelzig, Curtis Thomas,  
 
 
 
Marilyn Wigdahl, The Department of  
 
 
 
Employe Trust Funds and its  
 
 
 
Secretary, Gary I. Gates,   
 
 
 
 
Defendants-Appellants-Cross Respondents,  
 
 
 
James R. Klauser, Secretary of the  
 
 
 
Wisconsin Department of Administration and 
 
 
 
Charles P. Smith, State Treasurer,   
 
 
 
 
Defendants-Co-Appellants-  
 
 
 
 
Cross Respondents-Petitioners.  
 
 
 
_______________________________________ 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
  
 
 
Reported at:  195 Wis. 2d 1001, 537 N.W.2d 400 
 
 
 
 
 
 
(Ct. App. 1995) 
 
 
 
 
 
 
PUBLISHED 
 
 
                                                              
 
Opinion Filed:  
January 17, 1997  (Amended) 
Submitted on Briefs: 
 
Oral Argument:  
September 4, 1996 
 
                                                              
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Dane 
 
JUDGE: 
 
Angela B. Bartell 
 
                                                              
 
JUSTICES: 
 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating: 
 
 
                                                              
 
ATTORNEYS:  
For 
the 
defendants-co-appellants-cross 
respondents-petitioners there were briefs by Ann Ustad Smith, 
Arvid A. Sather and Michael, Best & Friedrich, Madison and oral 
argument by Ann Ustad Smith. 
 
 
For 
the 
plaintiffs-respondents-cross 
appellants-cross 
petitioners there was a brief by William Haus and Michael E. 
Banks, Madison and oral argument by William Haus. 
 
 
For 
the 
plaintiffs-respondents-cross 
appellants-cross 
petitioners there were briefs by John William Calhoun, John H. 
Bowers, 
Aaron 
N. 
Halstead 
and 
Shneidman, 
Myers, 
Dowling, 
Blumenfield, Ehlke, Hawks & Domer, Madison. 
 
 
For the defendants-appellants-cross respondents there was a 
brief by Thomas M. Pyper and Whyte, Hirschboeck, Dudek, S.C. and 
Peter L. Gardon and Reinhart, Boerner, Van Deuren, Norris & 
Rieselbach, S.C., all of Madison and oral argument by Thomas 
Pyper. 
 
 
For the intervening plaintiffs-respondents-cross appellants-
cross petitioners there were briefs by Chris Galinat, Bruce 
Meredith, Anthony L. Sheehan and Wisconsin Education Association 
Council, Madison. 
 
 
Amicus curiae brief was filed by Richard Thal, Margaret Becker and 
Cullen, 
Weston, 
Pines 
& 
Bach, 
Madison 
for 
the 
Wisconsin 
Professional Police Association. 
 
 
 
 
 
 
 
NOTICE 
This opinion is subject to further editing 
and modification.  The final version will 
appear in the bound volume of the official 
reports. 
 
 
No. 94-0712 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
Wisconsin Retired Teachers Association, 
Inc., Conan S. Edwards, Donald G. 
McCloskey, Margaret McCabe, Martha M. 
Schmidt and Mary Grace Jeffery, 
 
 
 
Plaintiffs-Respondents- 
 
 
Cross Appellants- 
 
 
Cross Petitioners, 
 
Wisconsin Education Association Council, 
by its President, James Blank, Richard 
Collins, David Camplin, Philip Dowling and 
Michael Zemplinski, Individuals, 
 
  
Intervening Plaintiffs-Respondents-
Cross Appellants-Cross 
Respondents, 
 
 
v. 
 
Employe Trust Funds Board, Paul Adamski, 
David J. Anderson, Constance P. Beck, Gale 
Duschak, JoAnn Elder, Stephen Frankel, 
Vincent Graham, Marvin Grosskreutz, 
William F. Kienzle, Barbara A. Monroe, 
James R. Klauser, Secretary of the 
Wisconsin Department of Administration, 
Gary Gates, Secretary of the Department of 
Employe Trust Funds and 
State Engineering Association, by its 
Board of Directors, Bernard E. Kranz, 
Melvin B. Sensenbrenner, Robert W. 
Schaefer, Jerry A. Sieling, Roger A. Bohn, 
James A. Andreshak, Steven Noel, Ronald S. 
Hett, William E. Sheppard, Richard Feeney, 
James B. Rice, Robert S. Merila, Thomas F. 
Dobson, Richard M. Story, Nile A. Ostenso 
(who are also plaintiffs in their 
individual capacities), and Charles W. 
Newhouse and the Association of Career 
Executives, and its President, James S. 
Thiel (who is also a plaintiff in his 
individual capacity), 
 
 
 
Plaintiffs-Respondents- 
 
 
Cross Appellants- 
FILED 
 
JAN 17, 1997 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
No. 94-0712 
 
2
 
 
Cross Petitioners, 
 
Wisconsin Education Association Council, 
by its President, James Blank, Richard 
Collins, David Camplin, Philip Dowling and 
Michael Zemplinski, Individuals, 
 
 
 
Intervening Plaintiffs- 
 
 
Respondents-Cross Appellants- 
 
 
Cross Petitioners, 
 
 
v. 
 
Employe Trust Funds Board, Paul Adamski, 
David J. Anderson, Constance P. Beck, Gale 
Duschak, JoAnn Elder, Stephen Frankel, 
Vincent Graham, Marvin Grosskreutz, 
William F. Kienzle, Barbara A. Monroe, 
James J. Murphy, Donald Smart, Mark Stone, 
Kenneth Stelzig, Curtis Thomas, Marilyn 
Wigdahl, The Department of Employe Trust 
Funds and its Secretary, Gary I. Gates, 
 
 
 
Defendants-Appellants- 
 
 
Cross Respondents, 
 
James R. Klauser, Secretary of the 
Wisconsin Department of Administration, 
and Charles P. Smith, State Treasurer, 
 
 
Defendants-Co-Appellants-Cross 
Respondents-Petitioners. 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Modified, and 
as modified, affirmed, and cause remanded with directions. 
 
¶1 
ANN WALSH BRADLEY, J.   Defendants, James R. Klauser, 
Secretary of the Wisconsin Department of Administration, and 
Charles P. Smith, State Treasurer, seek review,
1 and the 
plaintiffs, 
the 
State 
Engineering 
Association 
(SEA), 
the 
Wisconsin Retired Teachers Association (WRTA), and the Wisconsin 
Education Association Council (WEAC), seek cross-review, of a 
                     
1 We refer to Secretary Klauser and Treasurer Smith collectively 
as the “Administration Defendants.”  Secretary Gates of the 
Department of Employe Trust Funds, and the Employe Trust Fund 
Board, (together, “the ETF Defendants”) did not request review 
of the court of appeals’ decision.   
No. 94-0712 
 
3
published decision of the court of appeals.  Wisconsin Retired 
Teachers Ass’n v. Employe Trust Funds Bd., 195 Wis. 2d 1001, 537 
N.W.2d 400 (Ct. App. 1995).  The court of appeals’ decision 
affirmed in part and reversed in part a decision of the circuit 
court for Dane County, Angela B. Bartell, Judge.  
¶2 
At issue is the constitutionality of 1987 Wis. Act 27, 
§§ 436m, 684r, and 688km,
2 under which Wisconsin Retirement 
System (WRS) trust funds were used to pay a “Special Investment 
Performance Dividend” (SIPD) to certain WRS annuitants.
3  We 
conclude that Act 27 and its implementation constitute a taking 
                     
2 This opinion uses the terms “Act 27” and “the SIPD legislation” 
interchangeably to reference the challenged legislation. 
3 Section 684r of Act 27 created Wis. Stat. § 40.04(3)(e), which 
provides in part: 
1. As of September 30, 1987, $230,000,000 shall be 
distributed from the transaction amortization account 
of the fixed retirement investment trust to the 
appropriate reserve of the fixed retirement investment 
trust as follows: 
 
a. The portion credited to the fixed annuity 
reserve shall be distributed by the board as soon as 
possible after August 1, 1987, but with an effective 
date of July 1, 1987. Notwithstanding s. 40.27(2), the 
board shall make the distribution as a special 
investment performance dividend to provide an annuity 
increase only to those persons currently receiving a 
supplemental benefit under s. 40.27(1) and (1m), 1985 
stats. Any payment under s. 20.515(1)(a) to annuitants 
receiving special investment performance dividends 
under this subdivision shall be reduced by the amount 
of the special investment performance dividends under 
this subdivision. . . .  
 
c. The board shall make the distribution under 
subd. 1. a. as soon as possible after August 1, 1987. 
Until such time as the special investment performance 
dividend is effective, the supplemental annuity benefit 
under s. 40.27(1) and (1m), 1985 stats., shall continue 
to 
be 
funded 
from 
money 
available 
under 
s. 
20.515(1)(a). After the effective date of the special 
investment performance dividend, the department shall 
provide from the portion to be credited to the fixed 
annuity reserve funds sufficient to reimburse the 
appropriation under s. 20.515(1)(a) for supplemental 
benefits payments made after June 30, 1987. 
 
No. 94-0712 
 
4
of the plaintiffs’ property without just compensation, in 
violation of Article I, § 13 of the Wisconsin constitution.
4  
Accordingly, we order the Administration Defendants, in their 
official capacities, to replenish the WRS fixed annuity reserve 
account in an amount equal to all funds paid out of the account 
pursuant to Act 27, plus interest at the effective rate.  See 
Wis. Stat. § 40.02(23) (1987-88).
5  We also conclude that the ETF 
Defendants did not breach their fiduciary duties by implementing 
Act 27.  Finally, we determine that the plaintiffs are entitled 
to reasonable attorney fees to be paid out of the recovery under 
the “common fund” doctrine. 
I. FACTS 
 
¶3 
Chapter 40 of the Wisconsin Statutes creates and 
governs the Public Employe Trust Fund, a system of benefits 
designed to protect public employees from the financial hardships 
of old age, disability, illness, and accidents.  Wis. Stat. 
§ 40.01(1).  The Department of Employe Trust Funds (DETF) is an 
executive branch agency administering the Trust Fund “under the 
direction and supervision of the employe trust fund board.”  Wis. 
Stat. § 15.16.  The ETF Board appoints the Secretary of the DETF. 
  § 40.03(1)(c).   
 
¶4 
Within the Trust Fund, there is a fixed retirement 
investment trust (FRIT).  § 40.04(3).  The FRIT receives funds 
from 
three 
sources: 
(1) 
contributions 
from 
participating 
employees; (2) contributions from participating employers; and 
                     
4 Article I, § 13 of the Wisconsin Constitution provides: 
The property of no person shall be taken for public 
use without just compensation therefor. 
5 All future statutory references are to the 1987-88 volume 
unless otherwise indicated. 
No. 94-0712 
 
5
(3) 
investment 
earnings 
on 
the 
employee 
and 
employer 
contributions. 
 
¶5 
There are four accounts within the FRIT.  First, there 
is an employee accumulation reserve account, which holds funds 
related to employee contributions.  § 40.04(4).  Second, there is 
an employer accumulation reserve account, which holds funds 
related to employer contributions.  § 40.04(5).  Third, there is 
an annuity reserve account, which holds funds sufficient to make 
annuity payments to those retiring public employees who choose to 
receive their retirement benefits on an installment basis.  
§ 40.04(6).  When an employee retires and elects to take an 
annuity, the employee and employer accumulation reserves transfer 
to the annuity reserve an amount equal to the present value of 
the annuity.  § 40.04(6).  Fourth, there is a transaction 
amortization account (TAA).  § 40.04(3).  The TAA is an 
accounting mechanism which allows the three reserve accounts to 
spread over time the recognition of gain or loss on investments, 
thus partially insulating annuitants from the fluctuations of the 
investment marketplace.  Every year, each of the FRIT’s three 
reserve accounts is credited with a proportionate share of the 
TAA balance.  § 40.04(3)(a).
6 
 
¶6 
Depending upon the investment performance of the FRIT’s 
assets, a surplus may be generated in the annuity reserve.  
Wisconsin Stat. § 40.27
7 authorizes and governs post-retirement 
                     
6 At the time that this litigation arose, the annual TAA transfer 
to the FRIT was fixed at 7% of the current TAA balance.  The 
legislature has since raised the figure to 20%.  1989 Wis. Act 
13, § 9. 
7 Section 40.27(2) provides: 
 
(2) 
FIXED 
ANNUITY 
RESERVE 
SURPLUS 
DISTRIBUTIONS. 
Surpluses in the fixed annuity reserve established 
under s. 40.04 (6) and (7) shall be distributed by the 
No. 94-0712 
 
6
adjustments to annuities based upon the occurrence of surpluses 
in the annuity reserve account.  On an actuary’s recommendation, 
the ETF Board must distribute an annuity reserve account surplus 
to annuitants “if the distribution will result in at least a 2% 
increase in the amount of annuities in force.”  § 40.27(2).  
Distributions must be “expressed as percentage increases in the 
amount of the monthly annuity in force.”  § 40.27(2)(a).  Any 
prior § 40.27(2) annuity reserve account surplus distributions 
are included for purposes of calculating the percentage increase 
in an annuity.  Id.  The ETF Board has the equitable discretion 
to give annuitants varying percentage increases, based solely 
upon the effective date of the annuity.  § 40.27(2)(b).  The 
distributions made under § 40.27(2) cannot reduce, or be reduced 
                                                                  
board if the distribution will result in at least a 2% 
increase in the amount of annuities in force, on 
recommendation of the actuary, as follows: 
 
    (a) The distributions 
shall 
be expressed as 
percentage increases in the amount of the monthly 
annuity in force, including prior distributions of 
surpluses but not including any amount paid from funds 
other than the fixed annuity reserve fund, preceding 
the effective date of the distribution. For purposes of 
this 
subsection, annuities in force include any 
disability annuity suspended because the earnings 
limitation had been exceeded by that annuitant in that 
year. 
 
    (b) Different 
percentages 
may 
be 
applied to 
annuities with different effective dates as may be 
determined to be equitable but no other distinction may 
be made among the various types of annuities payable 
from the fixed annuity reserve. 
 
    (c) The distributions shall not be offset against 
any other benefit being received but shall be paid in 
full, nor shall any other benefit being received be 
reduced by the distributions. The annuity reserve 
surplus distributions authorized under this subsection 
may be revoked by the board in part or in total as to 
future payments upon recommendation of the actuary if a 
deficit occurs in the fixed annuity reserves. 
 
No. 94-0712 
 
7
by, any other benefits.  § 40.27(2)(c).  Finally, the surplus 
distributions do not become a part of a retiree's base annuity, 
which is guaranteed by the State.  Rather, the ETF Board can 
revoke § 40.27(2) annuity increases when necessary to preserve 
the financial integrity of the fixed annuity reserve.  Id.   
 
¶7 
The legislature has frequently changed the formula for 
calculating a retiring employee's initial annuity benefit.  These 
changes generally increase a retiree's base annuity, and have 
always been applied prospectively.  As a result, state employees 
retiring prior to statutory increases in base annuities receive 
no enhancement of their base annuity.  See, Retirement Research 
Committee Staff Report #76, Review of WRS Annuitant Equity and 
Adequacy Concerns (1985).  Benefits "cliffs" are created between 
those retiring before and those retiring after beneficial 
legislation. 
¶8 
The legislature has attempted to blunt the erosive 
economic 
effect 
of 
these 
benefits 
"cliffs" 
by 
providing 
"supplemental benefits" to older annuitants.  Since 1974, the 
legislature has provided supplemental benefits to pre-1974 
annuitants in an effort to bring their benefits more into line 
with those of post-1974 annuitants.
8  These supplemental benefits 
are paid from general purpose revenue (GPR), and are subject to 
continuing 
appropriation 
by 
the 
legislature. 
 
They 
are 
administered by the DETF, and are added to the monthly checks of 
eligible annuitants. 
                     
8 See, e.g., § 2, ch. 337, Laws of 1973.  The term “pre-1974 
annuitants” refers to class plaintiffs retiring prior to October 
1974, while “post-1974 annuitants” refers to class plaintiffs 
retiring on or after October 1, 1974. 
No. 94-0712 
 
8
 
¶9 
In 1987, the legislature enacted the legislation at 
issue in this case.
9  Act 27 caused approximately $78.6 million 
to be transferred from the TAA to the annuity reserve account.  
Wis. Stat. § 40.04(3)(e)(1).
10  The Act ordered the ETF Board to 
distribute the transferred money as a special investment 
performance dividend payable only to those annuitants then 
receiving GPR-funded supplemental benefits.  § 40.04(3)(e)(1)(a). 
 Only pre-1974 annuitants received supplemental benefits.  The 
legislation also ordered 
that an 
annuitant’s 
supplemental 
benefits be reduced by the amount of SIPD payments that he or she 
received.  Id.   
 
¶10 At the time of the SIPD legislation’s enactment, GPR 
supplemental benefits were available to about one-quarter of the 
76,763 retirees then receiving annuities out of the fixed annuity 
reserve.  Because SIPD payments were made available only to GPR 
supplemental benefits recipients, Act 27 rendered about three-
quarters of all annuitants ineligible to receive any portion of 
the SIPD distribution.  If all annuitants had shared the SIPD 
payments on a pro rata basis, each annuitant would have 
experienced a 2.4-2.6% increase in his or her monthly check. 
 
¶11 The annuity reserve already had a surplus of $6.1 
million at the time of the enactment of the SIPD legislation.  
The legislation did not reference the disposition of any pre-
existing annuity reserve surplus.  Secretary Gates and the ETF 
Board included the $6.1 million in the SIPD distribution 
                     
9 1987 Wis. Act 27, §§ 436m, 684r, 688km.  
10 The $78.6 million is the annuity reserve account’s share of 
the $230 million transferred from the TAA to the various FRIT 
accounts. 
No. 94-0712 
 
9
framework.  Thus, a total of $84.7 million was made available for 
distribution to pre-1974 annuitants. 
 
¶12 The legislation had an effective date of July 1, 1987, 
but took several months to implement.  The GPR supplemental 
benefits appropriation was continued for the interim.  Wis. Stat. 
§ 40.04(3)(e)(1)(c).  However, the Act ordered the DETF to 
reimburse the State for the interim GPR expenditures.  Id.  This 
reimbursement totaled $3.8 million, and was made out of the funds 
transferred from the TAA to the annuity reserve account.  Id. 
 
¶13 Before implementing Act 27, the ETF Defendants sought 
and received an attorney general opinion on the constitutionality 
of the legislation.  76 Op. Att’y Gen. 299 (1987).  The attorney 
general opined that the statute did not violate the contracts 
clause of the Wisconsin constitution, Wis. Const. art. I, § 12. 
In response to a legislator’s request, the attorney general also 
issued a separate opinion that the Act did not violate the extra 
compensation clause, Wis. Const. art. IV, § 26.  76 Op. Att’y 
Gen. 224 (1987).  After receiving the attorney general’s advice, 
the ETF Defendants implemented the SIPD legislation. 
 
¶14 Plaintiffs SEA and WRTA commenced separate actions in 
the circuit court against the ETF Defendants.
11  The circuit court 
granted both WEAC’s motion to intervene as a party plaintiff, and 
WRTA’s motion to consolidate.  Together, the plaintiffs alleged 
that Act 27 constitutes: (1) a taking without just compensation, 
contrary to Wis. Const. art. I, § 13; (2) a grant of extra 
compensation from other than State funds, contrary to Wis. Const. 
art. IV, § 26;
12 and (3) an impairment of contract, contrary to 
                     
11 The Administration Defendants were later added as defendants 
by SEA’s amended complaint. 
12  Article IV, § 26 of the Wisconsin constitution provides in 
No. 94-0712 
 
10
U.S. Const. art. I, § 10 and Wis. Const. art I, §  12.
13  WEAC 
further alleged that the ETF Defendants breached their fiduciary 
duties by implementing the legislation. 
 
¶15 The circuit court divided the trial into two phases.  
In issuing its first phase decision and order, the circuit court 
concluded that Act 27 amounted to an unconstitutional grant of 
extra compensation to SIPD payment recipients.  Moreover, the 
circuit 
court 
determined 
that 
the 
implementation 
of 
the 
legislation impaired the contract between WRS annuitants and the 
State, and constituted a breach of the ETF Defendants’ fiduciary 
duties.  After its first phase decision, the circuit court 
certified the action as a class action on behalf of annuitants 
who would have been eligible to receive an annuity reserve on 
December 31, 1987. 
 
¶16 In its second phase decision, the circuit court 
supplemented its constitutional determinations by concluding that 
the legislation also effected a taking of property without just 
compensation.  The court did not enjoin the implementation of the 
                                                                  
part: 
The legislature shall never grant any extra 
compensation to any public officer, agent, servant, or 
contractor, after the services shall have been 
rendered . . . .  This section shall not apply to 
increased benefits for persons who have been or shall 
be granted benefits of any kind under a retirement 
system when such increased benefits are provided by a 
legislative act passed on a call of ayes and noes by a 
three-fourths vote of all the members elected to both 
houses of the legislature, which act shall provide for 
sufficient state funds to cover the costs of the 
increased benefits. 
13 Article I, § 10 of the United States Constitution provides in 
part: 
No state shall . . . pass any . . . law impairing the 
obligation of contracts . . . . 
Article I, § 12 of the Wisconsin constitution provides in part:  
No . . . law impairing the obligation of contracts, 
shall ever be passed . . . .  
No. 94-0712 
 
11
SIPD.  Instead, the court exercised its equitable powers to 
fashion a "minimalist remedy" solely for the benefit of post-1974 
annuitants.  First, the ETF Defendants were ordered to pay 
retrospective relief in their official capacities.  This 
retrospective relief was in the form of a lump sum representing a 
two percent annuity increase as of July 1, 1987, plus five 
percent investment earnings compounded annually from that date to 
the date of the lump sum payment.  Second, the ETF Defendants, 
again in their official capacities, were ordered to pay 
prospective relief.  This prospective relief took the form of a 
permanent annuity increase based upon a two percent increase on 
July 1, 1987, and five percent annually compounded earnings from 
that date to the date of the post-1974 annuitants' regular August 
1994 monthly payments.  Finally, the ETF Defendants were ordered 
to pay the plaintiffs' attorney fees.  The court reasoned that 
because their breach of fiduciary duty rose to the level of 
mismanagement, the plaintiffs were entitled to attorney fees 
under Wis. Stat. § 814.14.
14  
 
¶17 On review, the court of appeals also concluded that Act 
27 is unconstitutional.  Unlike the circuit court, however, the 
court of appeals invalidated and enjoined the implementation of 
                     
14  Wis. Stat. § 814.14 provides: 
814.14 Fiduciary; liability for costs limited; 
bond premium.  In any action or proceeding prosecuted 
or defended in any court in Wisconsin by [a] . . . 
trustee of an express trust, . . . unless otherwise 
specially provided, costs shall be recovered as in an 
action by and against a person prosecuting or defending 
in the person's own right; but such costs shall be 
chargeable only upon or collected of the estate, fund 
or party represented, unless the court shall direct the 
same to be paid by the plaintiff or defendant 
personally, for mismanagement or bad faith in such 
action, proceeding or defense. 
 
No. 94-0712 
 
12
the Act, relying exclusively on the takings clause, Wis. Const. 
art. I, § 13.  The court of appeals reversed the circuit court’s 
determination that the defendants breached their fiduciary duties 
by implementing the SIPD legislation. 
 
¶18 The court of appeals also reversed the circuit court's 
"minimalist remedy" 
determination, 
concluding 
that it was 
constitutionally insufficient.  Instead, the court of appeals 
ordered the Administration Defendants to pay from the State 
treasury to the annuity reserve an amount equal to the GPR 
expenditures saved as a result of the distributed SIPD.
15  
Additionally, the court awarded interest at the average earnings 
rate of the trust fund from the date of the first SIPD 
distribution to the date of repayment.  Finally, the plaintiffs' 
attorney fees were ordered paid out of the recovery under the 
"common fund" theory.  SEA, WEAC, WRTA, and the Administration 
Defendants then petitioned this court for review.   
II.  Constitutionality of Act 27 
 
¶19  The first issue we address is whether Act 27 violates 
Article I, § 13 of the Wisconsin constitution, which provides 
that:  "The property of no person shall be taken for public use 
without just compensation therefor."  Because the plaintiffs 
challenge the constitutionality of Act 27, a question of law is 
presented, which we review without deference to the decisions of 
the circuit court and court of appeals.  Association of State 
Prosecutors v. Milwaukee County, 199 Wis. 2d 549, 557, 544 N.W.2d 
888 (1996).  We note that Act 27 enjoys the same strong 
presumption of constitutionality as 
any other 
legislative 
                     
15 The court included in this amount the $6.1 million pre-
existing annuity reserve surplus, as well as the $3.8 million 
reimbursement to GPR.  
No. 94-0712 
 
13
enactment.  State v. Carpenter, 197 Wis. 2d 252, 263, 541 N.W.2d 
105 (1995).  In order to overcome this presumption, the 
plaintiffs must demonstrate that the statute is unconstitutional 
beyond a reasonable doubt.  Id.   
 
¶20 When conducting a takings analysis, we begin by 
determining whether a property interest exists.  Noranda 
Exploration, Inc. v. Ostrom, 113 Wis. 2d 612, 624-25, 335 N.W.2d 
596 (1983).  The parties do not dispute, and we agree, that WRS 
annuitants have a property interest in the WRS.  The annuitants’ 
interest finds its genesis both in chapter 40 and in prior 
decisions of this court.  Specifically, § 40.19(1) provides: 
 
40.19  Rights preserved. (1) Rights exercised and 
benefits accrued to an employe under this chapter for 
service rendered shall be due as a contractual right 
and 
shall 
not 
be 
abrogated 
by 
any 
subsequent 
legislative act.  The right of the state to amend or 
repeal, by enactment of statutory changes, all or any 
part of this chapter at any time, however, is reserved 
by the state and there shall be no right to further 
accrual of benefits nor to future exercise of rights 
for service rendered after the effective date of any 
amendment 
or 
repeal 
deleting 
the 
statutory 
authorization for the benefits or rights.  This section 
shall not be interpreted as preventing the state from 
requiring forfeiture of specific rights and benefits as 
a condition for receiving subsequently enacted rights 
and benefits of equal or greater value to the 
participant. 
¶21 We also agree with the parties that WRS annuitants have 
a contract right to have dividends distributed consistent with 
§ 40.27(2). 
 
Recently, 
we 
reaffirmed 
the 
rule 
that 
an 
individual’s contractual rights in a public employee retirement 
system create a property interest in his or her retirement system 
as a whole.  Association of State Prosecutors, 199 Wis. 2d at 
558.   
 
The earnings on investments . . . constitute assets of 
the [retirement] system. . . .  The right [in the 
retirement system] includes the proper use of the 
No. 94-0712 
 
14
earnings. . . .  [T]he legislature and the plaintiff 
board are not free to spend or appropriate the earnings 
of the fund except in a manner authorized by statute 
relating to the . . . retirement system.      
State Teachers’ Retirement Board v. Giessel, 12 Wis. 2d 5, 10, 
106 N.W.2d 301 (1960), quoted with approval in Association of 
State Prosecutors, 199 Wis. 2d at 559.  These cases establish the 
 property interest of WRS annuitants in the proper distribution 
of surplus investment earnings contained in the annuity reserve 
account. 
 
¶22 The 
Administration 
Defendants 
assert 
that 
the 
plaintiffs, as individual annuitants, have no more than a mere 
unilateral expectation that the Board will grant them a portion 
of any surplus distribution out of the annuity reserve.  While 
the defendants may be correct in their assertion, they miss the 
focus of the inquiry.  We are concerned not with an annuitant’s 
right to a share of surplus distributions, but instead with the 
right of every annuitant to have surplus distributions made in a 
manner consistent with the strictures of § 40.27(2).  The 
defendants do not dispute that such a right exists. 
 
¶23 If a recognizable property interest exists, we then 
consider whether the right has been taken.  Zinn v. State, 112 
Wis. 2d 417, 424, 334 N.W.2d 67 (1983).  Thus, we must determine 
whether the SIPD legislation “takes” the plaintiff annuitants’ 
property interest in having annuity reserve account surpluses 
distributed in the manner prescribed by § 40.27(2).  To the 
extent that the legislation violates the plaintiffs’ § 40.27(2) 
rights, it effectively takes those rights.   
 
¶24 Section 40.27(2) grants the ETF Board the discretion to 
vary annuity reserve surplus distributions "as may be determined 
to be equitable."  We read this section to execute an exclusive 
No. 94-0712 
 
15
grant of discretionary authority to the ETF Board, and agree with 
the Administration Defendants that: 
 
[a]bsent [an erroneous exercise] of that discretion, it 
is for the Board alone to determine how and in what 
proportion dividends are distributed. 
Reply Brief at p. 10.  Thus, on the facts of this case, Act 27 
violates § 40.27(2) if it eliminates or limits the ETF Board's 
discretion to equitably vary the distribution of the $84.7 
million annuity reserve surplus. 
 
¶25 The SIPD legislation transferred funds from the TAA to 
the annuity reserve account.  Because the transfer created a 
surplus in the annuity reserve account exceeding two percent of 
the "amount of annuities in force," a distribution was triggered 
under § 40.27(2).  In the absence of Act 27, the ETF Board would 
then distribute the surplus, with the discretion to increase 
certain annuities by a greater or lesser percentage than others, 
as informed by equitable considerations.
16  Under Act 27, however, 
a different scenario emerged.   
 
¶26 The legislation required the ETF Board to distribute 
the 
annuity 
reserve's 
investment 
earnings 
only 
to 
those 
annuitants then receiving supplemental benefits, "notwithstanding 
s. 40.27(2)(b)."  See § 40.04(3)(e)(1)(a).  Counsel for the 
Administration Defendants conceded before this court that Act 27 
left the ETF Board with no discretion to grant post-1974 
annuitants a share of the annuity reserve surplus created by the 
TAA transfer.  The defendants nevertheless maintain that the 
legislation preserved the ETF Board's equitable discretion, as it 
                     
16 Prior to the SIPD legislation, the ETF Board had not acted to 
distribute annuity reserve surpluses on other than a pro rata 
basis. 
No. 94-0712 
 
16
was the Board which developed and approved the formula under 
which the SIPD was eventually distributed.  
 
¶27 We cannot agree with the defendants.  Section 40.27(2) 
describes some of the terms of the WRS contract.  Among those 
terms is the guarantee that variations in surplus distributions 
will be made in the Board's equitable discretion.  The SIPD 
legislation 
mandated 
a 
distribution 
limited 
to 
pre-1974 
annuitants, eliminating the ETF Board's equitable authority to 
grant a portion of the annuity reserve surplus to post-1974 
retirees.  On this basis, we conclude that Act 27 effected a 
violation of § 40.27(2).
17 
 
¶28 Section 40.27(2) also prevents the use of annuity 
reserve surplus distributions to reduce other benefits received 
by WRS annuitants.  Section 40.27(2)(c) provides in part: 
 
The distributions shall not be offset against any other 
benefit being received but shall be paid in full, nor 
shall any other benefit being received be reduced by 
the distributions. . . .  
According to the plaintiffs, Act 27 violates the "no offset" 
language in § 40.27(2)(c) by reducing an annuitant's GPR-funded 
supplemental benefits by the amount of SIPD payments received. 
 
¶29 The legislature has not granted pre-1974 WRS annuitants 
a contract right to the continued receipt of GPR-funded 
supplemental benefits.  Rather, supplemental benefits are subject 
to continuing legislative appropriation.  See § 40.27(1)(a), 
repealed by 1987 Wis. Act 27, § 688km.  However, the reduction of 
supplemental benefits must be viewed in the context of the 
legislation's corresponding distribution of SIPD.  
                     
17  Because we determine that the SIPD stripped the ETF Board 
of the equitable discretion guaranteed by § 40.27(b), we do not 
reach the plaintiffs' assertion that the resultant distribution 
was inherently inequitable.    
No. 94-0712 
 
17
¶30 Act 27 did not simply repeal pre-1974 annuitants' 
entitlement to GPR-funded supplemental benefits.  The legislation 
also varied the distribution of investment earnings in order to 
achieve an upward adjustment of benefits for the same pre-1974 
annuitants.  The Administration Defendants concede that there is 
a relationship between the legislation's grant of SIPD payments 
and 
the 
reduction 
in 
supplemental 
benefits. 
 
That 
this 
"relationship" is an offsetting one is amply demonstrated by the 
wording of the statute: 
 
Any 
payment 
under 
s. 
20.515(1)(a) 
[supplemental 
benefits] to annuitants receiving special investment 
performance dividends under this subdivision shall be 
reduced by the amount of the special investment 
performance dividends under this subdivision. 
Thus, an annuitant's supplemental benefits are reduced dollar-
for-dollar by the SIPD payments that he or she receives.  We 
conclude that, by mandating an increase in a retiree's annuity-
based benefits while simultaneously reducing his or her otherwise 
terminable supplemental benefits, the legislation violated the 
proscription against offsetting contained in § 40.27(2)(c).
18   
 
¶31 The Act also improperly mandated a $3.8 million 
reimbursement to GPR from the annuity reserve account for 
supplemental benefits made during the interim period between the 
effective date of the legislation and its implementation.  
Section 40.27(2) governs the distribution of investment earnings 
of the annuity reserve, and it anticipates payments only to 
annuitants.  The section is utterly devoid of any authority for 
using annuity reserve funds to reimburse a governmental entity 
for non-trust obligations.  We therefore conclude that the Act 
                     
18 We note that a repeal of supplemental benefits accompanied by 
an unencumbered TAA transfer to the annuity reserve would not 
necessarily constitute an offset.  
No. 94-0712 
 
18
further violated § 40.27(2) by mandating a reimbursement for 
interim GPR supplemental benefits, a non-trust obligation. 
¶32 This 
court 
finds 
unpersuasive 
the 
Administration 
Defendants' undeveloped assertion that the State, as settlor of 
the FRIT trust fund, is empowered to unilaterally alter the terms 
of the WRS contract.  The system of benefits provided by the 
Wisconsin Retirement System is no mere legislative gratuity.  
Rather, benefits are a form of deferred compensation for service 
provided.  When a public employee chooses to take his or her 
retirement benefits in the form of an annuity, he or she is 
thereby guaranteed certain rights under the WRS contract.  See 
§ 40.19(1).  One such right is to have investment earnings 
distributed in a manner consistent with § 40.27(2).  As party to 
the WRS contract, the State is bound to honor that right. 
¶33 We have determined that the SIPD legislation violates 
§ 40.27(2) by stripping the ETF Board of its exclusive authority 
to equitably distribute surplus investment earnings of the 
annuity reserve.  The legislation also reduces an annuitant’s 
supplemental benefits by the amount of SIPD received, in 
violation of the § 40.27(2)(c) proscription against “offsetting.” 
 Finally, the Act violated § 40.27(2) by mandating a wholly 
unauthorized reimbursement to the State treasury for GPR 
supplemental benefits made during the period between the Act's 
effective date and implementation.  We therefore conclude that 
Act 27 takes the plaintiffs’ property interest in having 
distributions of annuity reserve surpluses made consistent with 
§ 40.27(2). 
¶34 Having concluded that the plaintiffs have a property 
interest in the WRS, and that it has been taken, we next 
No. 94-0712 
 
19
determine if the taking was:  (1) for a public purpose, and (2) 
without 
just 
compensation. 
 
All 
parties 
agree 
that 
the 
legislature enacted the SIPD legislation for the purpose of 
reducing GPR outlays.  In addition, the Administration Defendants 
assert that Act 27 was intended to blunt the impact of inflation 
on the retirement system's oldest annuitants.  The asserted 
purposes are not mutually exclusive.  There is no inherent 
contradiction in attempting to both reduce fiscal outlays and 
provide for needy retirees.  Because both inure to the benefit of 
the public, there is no dispute that if a taking has occurred, it 
is for a public purpose.
19  
¶35 Since the Administration Defendants contend that Act 27 
does not constitute a taking, it is their position that there is 
no need for just compensation.  Therefore, they do not dispute 
the plaintiffs' assertion that just compensation has not been 
paid.  We defer our discussion of the measure of just 
compensation until later in this opinion
.  
¶36 To summarize our conclusions, under § 40.19(1), Giessel 
and Association of State Prosecutors, the plaintiff annuitants 
have a property right in the investment earnings of the annuity 
reserve account.  This property right includes the right to have 
annuity reserve surpluses distributed in a manner consistent with 
§ 40.27(2).  Act 27 violated § 40.27(2) by usurping the Board’s 
authority to equitably distribute annuity reserve surpluses, by 
reducing annuitants’ supplemental benefits in an amount equal to 
                     
19 We note that Act 27 essentially took and redistributed trust 
fund assets.  Such an act is analogous to a permanent physical 
occupation of land, which has always been a compensable taking 
“without regard to the public interests that it may serve."  
Noranda, 113 Wis. 2d at 629, citing Loretto v. Teleprompter 
Manhattan CATV Corp., 458 U.S. 419, 432 (1982). 
 
No. 94-0712 
 
20
their 
SIPD 
payments, 
and 
by 
mandating 
an 
unauthorized 
reimbursement to GPR for interim supplemental benefits.  These 
violations of § 40.27(2) take the plaintiffs’ property rights for 
a public purpose and without just compensation.  We therefore 
determine that Act 27 is unconstitutional beyond a reasonable 
doubt.
20 
III. Fiduciary Breach 
¶37 The circuit court determined that the ETF Defendants 
violated their fiduciary duties as WRS trustees when they 
implemented Act 27.  The court reasoned that the ETF Defendants' 
duty to administer the trust for the benefit of all annuitants 
required them to seek court guidance prior to implementing 
legislation of doubtful constitutionality.  See State ex rel. 
Morse v. Christianson, 262 Wis. 262, 266, 55 N.W.2d 20 (1952). 
¶38 The court of appeals reversed, concluding that the ETF 
Defendants did not breach their fiduciary duties.  We agree, and 
adopt the court of appeals' reasoning as our own.  When the ETF 
Defendants perceived a potential conflict between the Act 27 
provisions and the existing trust instrument, they sought and 
received the opinion of the attorney general.  They then fully 
implemented the Act in good-faith reliance on the attorney 
general's opinion that the legislation was constitutional.  By 
implementing the SIPD legislation, the trustees were complying 
with the statute as written.   Retired Teachers Ass'n, 195 Wis. 
2d at 1041.   
¶39 In addition, the court of appeals noted that Morse 
"does not require resort to a court where the attorney general 
                     
20 Because we conclude that Act 27 is unconstitutional under Wis. 
Const. art. I, § 13, we do not reach the plaintiffs' claims 
under Wis. Const. art. I, § 12 and Wis. Const. art. IV, § 26. 
No. 94-0712 
 
21
has already rendered an opinion."  Id. at 1043.  The Morse court 
stated that before making expenditures, trustees must seek 
judicial interpretation of unclear laws.  262 Wis. at 266.  
However, the court provided no further analysis or support for 
the proposition.  We take this opportunity to supplement the 
Morse decision, concluding that on these facts, the trustees 
upheld their fiduciary duties by implementing Act 27 in good-
faith reliance on the opinion of constitutionality rendered by 
the attorney general.  Accordingly, we determine that the ETF 
Defendants did not breach their fiduciary duties by implementing 
Act 27 without first obtaining a court determination that the 
statute was constitutionally valid.
21 
IV.  Remedy for an Unconstitutional Taking 
¶40 We next determine the remedy for the taking of the 
plaintiffs' property rights.  Initially, we address sovereign 
immunity and the plaintiffs' failure to file a Wis. Stat. 
§ 893.82 notice of injury,
22 as either may serve to substantially 
limit the scope of remedies available to the plaintiffs. 
                     
21 WEAC argues that Act 27 did not require that the pre-existing 
$6.1 million annuity reserve surplus be included in the SIPD 
distribution.  We disagree.  By transferring $78.6 million to 
the annuity reserve from the TAA, Act 27 triggered a 
distribution under § 40.27(2).  Secretary Gates testified that 
the statute leaves no discretion to hold back a portion of the 
annuity reserve surplus.  Thus, Act 27 triggered a mandatory 
distribution of the $6.1 million.  Furthermore, there is no 
statutory authority for bifurcating the annuity reserve surplus 
into $78.6 million and $6.1 million surpluses, with a different 
distribution scheme for each.  We therefore conclude that Act 27 
caused the pre-existing $6.1 million surplus to be included in 
the unconstitutional SIPD payment framework.  
22 Wis. Stat. § 893.82 provides in relevant part: 
893.82 Claims against state employes; notice of 
claim; limitation of 
 
. . . . 
(3) Except as provided in sub. (5m), no civil 
action or civil proceeding may be brought against any 
state officer, employe or agent for or on account of 
No. 94-0712 
 
22
¶41 Sovereign immunity exists in this State by virtue of 
Article IV, § 27 of the Wisconsin constitution,
23 and unless 
waived, generally precludes suits in which a prevailing plaintiff 
would be entitled to recover money from the State.  Lister v. 
Board of Regents, 72 Wis. 2d 282, 292, 240 N.W.2d 610 (1976) 
(holding that when a judgment for plaintiffs would require 
payment from State funds, the State may invoke its immunity from 
suit).  However, sovereign immunity will not bar recovery for a 
taking, because just compensation following a taking is a 
"constitutional necessity rather than a legislative dole."  Luber 
v. Milwaukee County, 47 Wis. 2d 271, 277, 177 N.W.2d 380 (1970). 
 In 
this 
sense, 
Article 
I, 
§ 13 
is 
a 
self-executing 
constitutional waiver of sovereign immunity.  Zinn, 112 Wis. 2d 
                                                                  
any act growing out of or committed in the course of 
the discharge of the officer's, employe's or agent's 
duties, . . . unless within 120 days of the event 
causing the injury, damage or death giving rise to the 
civil action or civil proceeding, the claimant in the 
action or proceeding serves upon the attorney general 
written notice of a claim stating the time, date, 
location and the circumstances of the event giving rise 
to the claim for the injury, damage or death and the 
names of persons involved, including the name of the 
state officer, employe or agent involved.  A specific 
denial by the attorney general is not a condition 
precedent to bringing the civil action or civil 
proceeding. 
 
. . . . 
(6) The amount recoverable by any person or entity 
for any damages, injuries or death in any civil action 
or civil proceeding against a state officer, employe or 
agent, . . . including any such action or proceeding 
based on contribution or indemnification, shall not 
exceed $250,000.  No punitive damages may be allowed or 
recoverable in any such action. 
 
23 Wis. Const. art. IV, § 27 provides: 
Suits against state. Section 27. The legislature shall 
direct by law in what manner and in what courts suits 
may be brought against the state. 
 
No. 94-0712 
 
23
at 436.  We therefore determine that sovereign immunity does not 
bar the plaintiffs' claims under Article I, § 13. 
¶42 The Administration Defendants concede, and we agree, 
that the plaintiffs' request for just compensation under Wis. 
Const. art. I, §  13 is not barred by their failure to file a 
notice of injury prior to commencing the present action.  In 
their concession, the Administration Defendants state: 
 
The takings clause is a self-executing constitutional 
provision.  Zinn v. State, 112 Wis. 2d 417, 334 N.W.2d 
67 (1983). While sovereign immunity and failure to file 
a notice of injury bar plaintiffs' damage claims to the 
extent 
they 
depend 
upon 
the 
non-self-executing 
contracts clause (art. I, § 12) and extra compensation 
clause (art. IV, § 26) of the Wisconsin constitution 
. . . they do not preclude just compensation for a 
taking.  The SIPD, however, does not constitute a 
taking. 
Petitioners' Reply Brief at 21, n. 5 (emphasis added).   
¶43 This 
court 
has 
previously 
held 
that 
when 
the 
legislature has not provided specific procedures for the recovery 
of just compensation following a taking, an aggrieved property 
owner may proceed directly under Article I, § 13.  Zinn, 112 Wis. 
2d at 437-38; see also, Kallembach v. State, 129 Wis. 2d 402, 
409, 385 N.W.2d 215 (Ct. App. 1986).  Section § 893.82 does not 
set 
out 
specific 
procedures 
for 
the 
recovery 
of 
just 
compensation.  Indeed, the section's recovery limitation of 
$250,000 indicates that the statute was not intended to apply in 
the takings context.  § 893.82(6).  A taking may result in the 
State's obligation to pay far more than $250,000, and the 
constitutional mandate of just compensation cannot be limited in 
amount by statute.  Zinn, 112 Wis. 2d at 437, citing Luber, 47 
Wis. 2d at 283.   
No. 94-0712 
 
24
¶44 Well-settled 
law 
supports 
the 
Administration 
Defendants' concession that § 893.82 does not apply in the 
takings context.  We therefore conclude that the plaintiffs' 
claim for just compensation is not barred by their failure to 
file a notice of injury.
24  
¶45 As noted, just compensation is the constitutionally 
prescribed remedy for a taking of the plaintiffs' property 
interest in the earnings of the annuity reserve account.  What 
remains for our consideration is the appropriate method of 
valuing that property right.   
¶46 Just compensation is measured by the loss incurred by 
the property owner as a result of the taking.  See Luber, 47 Wis. 
2d at 279, citing Volbrecht v. State Highway Comm., 31 Wis. 2d 
640, 647, 143 N.W.2d 429 (1966).  Applying that principle to this 
case, we determine that just compensation is required to the 
extent of any diminishment of the balance of the annuity reserve 
caused by Act 27. 
¶47 We agree with the court of appeals that the circuit 
court erred in exercising its equitable powers to order a 
"minimalist 
remedy." 
 
Inherent 
in 
the 
concept 
of 
just 
compensation is an equitable principle: if just compensation is 
warranted in a particular instance, it is because a property 
owner should not be required to bear alone an expense that in all 
fairness must be borne by the public.  Noranda, 113 Wis. 2d at 
                     
24 Because we determine that § 893.82 is inapplicable in the 
context of the self-executing takings clause, we do not reach 
the plaintiffs' assertion that § 893.82 is inapplicable because 
their claim for monetary relief is merely "ancillary" to their 
request for an equitable declaration that Act 27 is 
unconstitutional.  Accordingly, we also decline to reach the 
issue of whether § 893.82 applies to the plaintiffs' remaining 
constitutional claims.   
No. 94-0712 
 
25
624.  Thus, to the extent that a court awards less than just 
compensation for a taking out of concern for the public purse, it 
has provided a constitutionally insufficient remedy.  First 
English Evangelical Lutheran Church v. County of Los Angeles, 482 
U.S. 304, 322 (1987). 
¶48 However, the court of appeals erred when it limited 
just compensation to the portion of SIPD payments that replaced 
GPR expenditures. 
 
Nor is the amount taken equal to the SIPD already 
distributed because not all distributed SIPD served to 
replace supplemental benefits.  The SIPD distributed to 
some annuitants exceeded the supplemental benefits they 
were receiving, and that excess did not reduce GPR 
expenditures for supplemental benefits. 
Retired Teachers Ass'n, 195 Wis. 2d at 1033.  Just compensation 
is not measured by the economic benefit to the State resulting 
from the taking.  Luber, 47 Wis. 2d  at 279.  It is the property 
owner's loss that Wis. Const. art. I, § 13 compensates. 
¶49 Because all SIPD payments were made in derogation of 
the plaintiffs' right to have annuity reserve payments made 
consistent with § 40.27(2), just compensation requires that all 
such payments be returned to the annuity reserve. Similarly, 
because the reimbursement to GPR also violated § 40.27(2), the 
amount reimbursed must also be returned to the annuity reserve.   
¶50 This court rejects the Administration Defendants' 
argument that a recovery of all payments made under Act 27 would 
overcompensate the plaintiffs for the taking effected by the Act. 
 The defendants base their assertion on the fact that SIPD 
recipients could have received a similar distribution had the ETF 
Board been allowed to exercise its equitable discretion.  
Essentially, the defendants ask this court to reduce an award of 
No. 94-0712 
 
26
just compensation by the amount that pre-1974 annuitants would 
have received in the Board's discretion.   
¶51 We decline the defendants' invitation because it is 
impossible to know how the ETF Board would have equitably 
distributed the $84.7 million annuity reserve surplus.  The Board 
might have distributed the surplus in precisely the manner 
mandated by Act 27, or it might have given no portion of the 
surplus to any SIPD recipient.  The point is, it is for the Board 
alone to equitably distribute any surplus in the annuity reserve. 
 This court has neither the inclination nor the expertise to 
substitute its estimate of an equitable distribution for that of 
the ETF Board.   
¶52 We therefore conclude that just compensation requires 
the following: 1) the Administration Defendants shall pay from 
the State treasury to the annuity reserve account an amount equal 
to all SIPD payments made out of the annuity reserve; 2) any 
undistributed portion of the SIPD remaining in the annuity 
reserve shall be unencumbered by the provisions of Act 27; 3) the 
ETF Board shall distribute the amount recovered and any 
undistributed SIPD in its equitable discretion.
25  
V. Interest 
¶53 Subsumed within the concept of just compensation is the 
principle that interest must be awarded on the value of property 
from the date of the taking.  "Just compensation is for property 
presently taken and necessarily means the property's present 
value, presently paid—not its present value to be paid at some 
                     
25  The Board shall exercise its discretion to equitably vary the 
distribution, notwithstanding any present language in § 40.27(2) 
to the contrary.  See 1995 Wis. Act 302, § 42 (amending 
§ 40.27(2)(b)). 
No. 94-0712 
 
27
future time without interest."  W.H. Pugh Coal Co. v. State, 157 
Wis. 2d 620, 633, 460 N.W.2d 787 (Ct. App. 1990), quoting Grant 
v. Cronin, 12 Wis. 2d 352, 355, 107 N.W.2d 153, 155 (1961).  
Thus, we conclude that the plaintiffs are owed the investment 
returns that would have been earned on funds from the time that 
they were removed from the annuity reserve.   
¶54 We are confronted with the task of setting the 
appropriate interest rate.  The circuit court concluded that a 
five percent investment earnings rate was appropriate, based upon 
the "assumed benefit rate."  § 40.02(6).  In declining to award 
earnings based upon the returns actually experienced by the trust 
fund, the circuit court reasoned that such an award would work a 
serious hardship on the taxpaying public.  In contrast, the court 
of appeals determined that the trust should be reimbursed for 
lost investment earnings "at the average rate of earnings of the 
trust fund assets from the date of the first distribution of the 
SIPD to the date the amount taken is returned to the trust fund." 
 Retired Teachers Ass'n, 195 Wis. 2d at 1033. 
¶55 This court concludes that the plaintiffs are entitled 
to interest at the effective rate, as defined in § 40.02(23).
26  
The effective rate is used to credit investment earnings to the 
                     
26  Wis. Stat. § 40.02(23) provides: 
(23) "Effective rate" means: 
    (a) For the fixed annuity division, the rate, 
disregarding fractions of less than one-tenth of one 
percent, determined by dividing the remaining fixed 
annuity division investment earnings for the calendar 
year or part of the calendar year, after making 
provision 
for 
any 
necessary 
reserves 
and 
after 
deducting prorated interest and the administrative 
costs of the fixed annuity division for the year, by 
the fixed annuity division balance at the beginning of 
the calendar year as adjusted for benefit payments and 
refunds paid 
during 
the 
year excluding 
prorated 
interest. 
 
No. 94-0712 
 
28
annuity reserve.  See § 40.04(6) ("The [annuity] reserve shall be 
increased by investment earnings at the effective rate. . .").  
As such, it is the most accurate measure of the returns that 
would have been earned by the annuity reserve on the funds that 
were unconstitutionally removed by Act 27. 
¶56 We decline to adopt either the circuit court's or court 
of appeals' lost earnings formulation, because neither describes 
the lost annuity reserve investment returns as accurately as the 
effective rate.  The circuit court's five percent earnings rate 
is insufficient because it does not measure the amount of 
investment returns that would have been earned had the funds 
remained in the annuity reserve.
27  Similarly, the average 
earnings rate of the trust fund from the date of the first 
distribution to the date of recovery does not measure the annuity 
reserve's lost earnings as accurately as the effective rate.  The 
annuity reserve account accumulates investment returns at the 
effective rate, not by the average rate of returns experienced by 
the trust fund generally.  Consistent with the argument advanced 
by the ETF Defendants, we conclude that effective rate is the 
most accurate reflection of the annuity reserve's lost earnings. 
¶57 Finally, we note that Act 27 did not cause all surplus 
funds in the annuity reserve to leave in a single lump-sum 
payment.  Rather, the funds were paid out over time.  Thus, an 
interest award should reflect the fact that the annuity reserve 
has enjoyed the benefit of investment earnings on a declining sum 
                     
27 The assumed benefit rate is used "for calculating reserve 
transfers at the time of retirement, making actuarial valuations 
of annuities in force, determining the amount of lump-sum death 
benefits payable from the portion of an annuity based on 
additional deposits and crediting interest to employe required 
contribution accumulations."  § 40.02(6). 
No. 94-0712 
 
29
of money.  We therefore conclude that the Administration 
Defendants must pay, from the state treasury, interest at the 
effective 
rate 
on 
SIPD 
payments 
and 
the 
$3.8 
million 
reimbursement from the date that those funds actually left the 
annuity reserve.
28 
VI. Attorney Fees 
¶58 The circuit court awarded attorney fees to the 
plaintiffs based upon its finding that the ETF Defendants 
breached their fiduciary duties, and that such breach rose to the 
level of mismanagement under Wis. Stat. § 814.14.  The court of 
appeals reversed the finding of fiduciary breach, and instead 
awarded 
attorney 
fees 
under 
the 
"common 
fund" 
doctrine.  
Presently, the plaintiffs request attorney fees under either 
§ 814.14, the common fund doctrine, or the private attorney 
general doctrine.   
¶59 Initially, 
we 
acknowledge 
that 
Wisconsin 
has 
consistently adhered to the "American Rule" requiring litigants 
to pay their own attorney fees.  Generally, a court may require a 
losing litigant to reimburse the prevailing party's attorney fees 
only when expressly authorized by statute or contract.  DeChant 
v. Monarch Life Ins. Co., 200 Wis. 2d 559, 571, 547 N.W.2d 592 
(1996). 
¶60 We first consider the common fund doctrine, under which 
the court of appeals awarded attorney fees to the plaintiffs.  
This court has not previously adopted the common fund doctrine.  
                     
28 We assume that SIPD payments left the annuity reserve 
periodically throughout the year.  It is anticipated that the 
circuit court will be required to make multiple interest 
calculations based upon many different payment dates.  Interest 
on the $3.8 million reimbursement must, of course, be calculated 
from the date of payment.  
No. 94-0712 
 
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However, the doctrine has been widely used to deal with the "free 
rider" problem inherent in class actions.  As the United States 
Supreme Court has recognized, it would be unfair to allow a class 
to share in the benefits of an action, while forcing the 
litigating plaintiffs to shoulder all of the costs of the 
lawsuit. 
 
[A] litigant or a lawyer who recovers a common fund for 
the benefit of persons other than himself or his client 
is entitled to a reasonable attorney's fee from the 
fund as a whole. . . .  The [common fund] doctrine 
rests on the perception that persons who obtain the 
benefit of a lawsuit without contributing to its cost 
are unjustly enriched at the successful litigant's 
expense. 
Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980) (citations 
omitted).  The common fund doctrine is rooted in "the historic 
power of equity to permit the trustee of a fund or property, or a 
party preserving or recovering a fund for the benefit of others 
in addition to himself, to recover his costs, including his 
attorney's fees, from the fund or property itself or directly 
from the other parties enjoying the benefit."  Alyeska Pipeline 
Co. v. Wilderness Society, 421 U.S. 240, 257 (1975). 
¶61 In Alyeska, the Court set out three factors that should 
be present before a court adopts the common fund approach.  
First, those benefiting from the litigation should be small in 
number and easily identifiable.  Second, the benefits should be 
traceable with some accuracy.  Third, the attorney fees should be 
capable of being "shifted with some exactitude to those 
benefiting."  Id. at 265, n. 39. 
¶62 With these principles in mind, this court concludes 
that the common fund doctrine is appropriately applied in this 
case.  By recovering funds paid from the annuity reserve under 
No. 94-0712 
 
31
Act 27, the attorneys for SEA, WEAC, and WRTA are vindicating the 
property rights of all annuitants, not just those of the members 
of the three groups.  Also, once the ETF Board equitably 
distributes the recovery, the benefiting annuitants may be 
identified with certainty and ease.  Furthermore, the benefits 
and costs of litigation are easily apportioned among the 
recipient annuitants.  Because the attorney fees are "taken off 
the top," a recipient annuitant will pay litigation costs in 
exact proportion to the distribution that he or she receives.   
¶63 We reject the defendants' undeveloped assertion that an 
award of attorney fees under the common fund doctrine would 
jeopardize the tax-exempt status of the retirement system.  The 
United States Supreme Court long ago recognized the propriety of 
applying the common fund doctrine in the public trust fund 
context: 
 
It is a general principle that a trust estate must bear 
the expenses of its administration. . . . [Where] one 
of many parties having a common interest in a trust 
fund, at his own expense takes proper proceedings to 
save it from destruction and to restore it to the 
purposes of the trust, he is entitled to reimbursement. 
. . . 
Trustees v. Greenough, 105 U.S. 527, 532-33 (1881).  More 
recently, the Court cited with approval its several decisions 
reaffirming the Greenough holding.  Alyeska, 421 U.S. at 257-58. 
 Against this backdrop of federal law endorsing the application 
of the common fund doctrine to trust fund asset recoveries, the 
defendants' unsupported assertion of impropriety is unpersuasive. 
  We conclude instead that, as in Greenough, the attorney fees 
awarded in this case are part of the cost of administering the 
No. 94-0712 
 
32
trust, and are therefore properly borne by the trust under the 
common fund doctrine.
29 
¶64 We further observe that the common fund doctrine is 
consistent with the American Rule.  A losing litigant does not 
pay attorney fees in addition to the amount of recovery.  Rather, 
attorney fees are deducted from the recovery.  Thus, a losing 
litigant is no better or worse off as a result of the doctrine's 
application. 
¶65 In calculating reasonable attorney fees, the circuit 
court shall have discretion to base its award on either a 
percentage of the fund recovered or the lodestar method of a 
reasonable hourly rate multiplied by a reasonable number of 
hours.  Florin v. Nationsbank of Georgia, N.A., 34 F.3d 560, 565 
(7th Cir. 1994); In re Washington Pub. Power Supply Sys. Litig., 
19 F.3d 1291, 1296 (9th Cir. 1994); Gottlieb v. Barry, 43 F.3d 
474, 483 (10th Cir. 1994).  Furthermore, in formulating the 
award, the circuit court shall take the following factors into 
consideration: 
 
the time and labor required, the novelty and difficulty 
of the question presented by the case, the skill 
requisite to perform the legal service properly, the 
preclusion of other employment by the attorneys due to 
acceptance of the case, the customary fee, whether the 
fee is fixed or contingent, any time limitation imposed 
by the client or the circumstances, the amount involved 
and the results obtained, the experience, reputation 
and ability or the attorney, the "undesirability" of 
the case, the nature and length of the professional 
relationship with the client, and awards in similar 
cases. 
Gottlieb, 43 F.3d at 482, n. 4, citing Johnson v. Georgia Highway 
Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974).  After 
                     
29 Because we determine that the plaintiffs are entitled to 
attorney fees under the common fund doctrine, we do not reach 
the issue of whether attorney fees are recoverable under any 
other theory. 
No. 94-0712 
 
33
deducting the reasonable attorney fees from the recovery, the 
circuit court shall order the balance deposited in the FRIT's 
annuity reserve account. 
VII. Conclusion 
¶66 In summary, this court concludes that Act 27 takes 
without just compensation the plaintiffs' property interest in 
the proper distribution of investment earnings of the annuity 
reserve account.  It is therefore unconstitutional beyond a 
reasonable doubt.  We also conclude that the ETF Defendants did 
not breach their fiduciary duties as trustees of the WRS.  
Because our measure of just compensation is different from that 
of the court of appeals, we modify the decision of that court, 
and affirm that decision as modified.  In addition, we remand to 
the circuit court with directions. 
¶67 On remand, the circuit court is directed to enter 
judgment 
declaring 
that 
Act 
27 
and 
its 
implementation 
unconstitutionally take without just compensation the plaintiffs' 
property interest in the proper distribution of the earnings of 
the annuity reserve account.  The court shall declare invalid and 
enjoin further implementation of the Act, and shall order the 
Administration Defendants to pay from the State treasury to the 
annuity reserve account, the following: an amount equal to all 
distributed SIPD payments, plus the $3.8 million reimbursement to 
GPR, plus interest at the effective rate on all payments from the 
date that the payments left the annuity reserve account.
30  The 
court shall further declare any portion of the $84.7 million 
                     
30 The circuit court shall have discretion to determine the mode 
and timing of the recovery's payment.  The court must first 
determine what further record, if any, is necessary to arrive at 
its determination. 
No. 94-0712 
 
34
remaining 
in 
the 
annuity 
reserve 
account 
free 
from 
the 
encumbrances of Act 27.  The court shall calculate the 
plaintiffs' reasonable attorney fees, and shall order the fee 
award deducted from the sum repaid to the annuity reserve 
account.  Finally, the court shall order the ETF Board to 
equitably distribute the balance of the recovery, including 
interest, plus any remaining SIPD balance in the annuity reserve 
account. 
By the Court.—The decision of the court of appeals is 
modified, and as modified, affirmed, and the cause is remanded to 
the circuit court with directions.