Opinion ID: 2751752
Heading Depth: 2
Heading Rank: 1

Heading: Adverse Rulings Against the Board

Text: In granting summary judgment to VALIC with regard to the Board’s averments, the trial court separately examined the Board’s attempt to seek relief under both the 1991 Contract and the 2008 Contract. As to the 1991 Contract, the trial court focused 7 initially on the Board’s right to seek declaratory relief under the Uniform Declaratory Judgments Act (the “Act”). See W.Va. Code §§ 55-13-1 to -16 (2008). Looking to this Court’s recognition in Hustead v. Ashland Oil Co., 197 W.Va 55, 475 S.E.2d 55 (1996), that “there must be an actual, existing controversy” to grant relief under the Act, the trial court concluded that the predicate justiciable controversy was absent with regard to the 1991 Contract. Id. at 61, 475 S.E.2d at 61. In deciding there was no active controversy between the Board and VALIC with regard to the 1991 Contract, the trial court relied upon carefully-crafted factual findings.20 Illustrative of this point is the myopic focus by the trial court on the Board’s failure to “demand immediate cash surrender of the electing teachers’ assets in June 2008 or thereafter.”21 Only by applying a hyper-critical lens to this case can that statement be viewed as veracious; critically, the implication that the Board never sought a cash surrender is not.22 What the record in this case reveals is that on March 14, 2008, the Governor, who is a Board 20 According to the petitioners, the summary judgment orders under review were both prepared by the respondent’s counsel and adopted verbatim by the trial court. 21 By June 2008, the requisite percentage of votes had been cast by the electing DCP participants to join TRS pursuant to West Virginia Code §§ 18-7D-3, -5, -7. 22 According to the deposition testimony of Anne Lambright, the Board’s Executive Director, a phone call was made from the governor’s office to Jim Coppedge, informing him of the dollar amount of the surrender being requested and the number of participants involved. Additional evidence of this request is provided in an email from Mr. Coppedge, dated June 29, 2008, written to Ms. Lambright. See infra note 28. 8 member,23 held a meeting at the state capitol with VALIC representatives and various legislative leaders. That meeting, which took place just two days before the passage of House Bill 101, was held to explore VALIC’s response to the legislation’s anticipated passage. Upon being presented with this information, Mr. Coppedge, as general counsel for AIG Retirement, indicated that an $11.5 million dollar surrender charge would be imposed. Three days after this meeting and the passage of the authorizing legislation, Mr. Coppedge continued to assert VALIC’s right to assess a multi-million dollar surrender charge “in the event that all assets were cashed out in the same year.”24 Although VALIC eventually agreed that the policy prevented the imposition of a surrender charge, another impediment to the immediate withdrawal of these funds arose when VALIC declared that the requested withdrawal was subject to a five-year restriction.25 Looking for a way to avoid this fund-release limitation, the petitioners decided to transfer the funds from the 1991 Contract into a bond fund option within the DCP– the American Funds. The parties were in agreement that the terms of the endorsement permitted a transfer of 23 See W.Va. Code § 5-10D-1(b). 24 Because numerous participants elected to stay in the DCP, all of the assets were never cashed out of the 1991 Contract. At present, $50 million in assets remain invested under the 1991 Contract for DCP members. 25 VALIC relied on the language of the endorsement that addresses an annual 20 percent limitation “in the case of a withdrawal for transfer to another funding entity.” The petitioners maintain that the conditions for invoking this limitation are nonexistent. 9 funds from the annuity to this particular investment without restrictions. The contemplated transfer failed to occur when the American Funds refused to accept the large investment. At this point, months after the transfer to TRS was to have been accomplished,26 the petitioners relented with regard to its attempt to remove the funds from VALIC in toto and agreed to place the funds in another VALIC annuity–the 2008 Contract.27 In view of the numerous communications between VALIC and the petitioners in regards to effecting removal of the subject funds from the 1991 Contract, there is little doubt that VALIC, while fully apprised of the petitioners’ objective to acquire those funds in aggregate fashion, acted in direct response to that specific request.28 Hence, the trial court’s hinging of its ruling on the absence of a cash demand by the Board in June 2008 or later is nothing more than a red herring. Assuming, arguendo, that no demand was in fact 26 The petitioners note that one aspect of the transfer of the DCP funds to the TRS was accomplished by putting those funds into the hands of the IMB (making IMB a party in lieu of the Board to the 2008 Contract), the trustee statutorily charged with investing TRS funds. See W.Va. Code §§ 12-6-3(a), -9a(a) (2014). The physical “movement” of these funds did not begin until May 5, 2009, with the first installment transfer to IMB, and ended with the last transfer of funds from VALIC to the IMB in May 2013. 27 The petitioners maintain that the creation of the 2008 Contract as a funding vehicle for the DCP members electing to transfer into TRS was VALIC’s idea. 28 Through email correspondence dated June 29, 2008, Jim Coppedge, Senior Vice President and General Counsel for AIG Retirement, wrote to Anne Lambright, the Board’s Executive Director: “I am writing to follow up on a request that we received from Great West [DCP plan administrator] late last week to transfer $237 Million in assets from the VALIC Group Fixed Annuity Contract offered through the Plan. . . .” 10 made,29 the lack of demand in June 2008 or later was clearly linked to VALIC’s vacillating position that such a release of funds would either cost $11.2 million or be subject to specified per annum limits. Given the ongoing motivation of the Board to act consistent with its fiduciary responsibilities,30 the lack of a demand at this particular point in time was necessarily impelled by the need to limit the costs associated with removal of those funds. Returning to the issue of whether an active controversy existed between the Board and VALIC regarding the Board’s entitlement to an immediate surrender without fees or restrictions under the 1991 Contract, we revisit the nature of a justiciable controversy. Integral to the maintenance of a declaratory judgment action is the existence of a live “case.” Instructive of this requirement, we have stated: “Courts are not constituted for the purpose of making advisory decrees or resolving academic disputes. The pleadings and evidence must present a claim of legal right asserted by one party and denied by the other before jurisdiction of a suit may be taken.” Mainella v. Board of Trustees of Policemen’s Pension or Relief Fund, 126 W.Va. 183, 185-86, 27 S.E.2d 486, 487-88 (1943) (emphasis supplied). Clarification of legal rights and obligations before a party is forced to act upon those rights and obligations is the ideal which the Act seeks to promote. See Cox v. Amick, 195 W.Va. 29 While we are not resolving the factual determination of whether a cash demand was made by the Board in June 2008 or later, we observe that the overly-constrained manner in which the trial court framed and ruled on the issue of a demand suggests that such a demand may have been made at some point by some entity. 30 See supra note 12. 11 608, 618, 466 S.E.2d 459, 469 (1995) (Cleckley, J., concurring). The crux of the actual controversy requirement, however, is that the facts must be known and existing at the time of the filing of a declaratory judgment proceeding and the rights and obligations at issue cannot have been previously adjudicated. See Hustead, 197 W.Va. at 61-62, 475 S.E.2d at 61-62. We adopted the following four-pronged test in syllabus point four of Hustead to assist judges with the identification of a justiciable controversy: In deciding whether a justiciable controversy exists sufficient to confer jurisdiction for purposes of the Uniform Declaratory Judgment Act, West Virginia Code §§ 55-13-1 to ­ 16 (1994), a circuit court should consider the following four factors in ascertaining whether a declaratory judgment action should be heard: (1) whether the claim involves uncertain and contingent events that may not occur at all; (2) whether the claim is dependent upon the facts; (3) whether there is adverseness among the parties; and (4) whether the sought after declaration would be of practical assistance in setting the underlying controversy to rest. Id. at 56, 475 S.E.2d at 56. Application of these factors demonstrates that a justiciable controversy existed at the time the petitioners filed their complaint against VALIC. In this case, there is no concern that the matter at issue– the petitioners’ attempt to resolve their right to an immediate and aggregate removal of the annuity funds–is a contingent event. As the facts of this case demonstrate, the removal of the subject funds has 12 been accomplished. What has yet to be determined, however, is whether the petitioners had the right to the immediate withdrawal of those annuity funds, free of temporal or quantitative restrictions. Consequently, the relevant adverseness still exists between the parties and the declaration of rights sought by the petitioners is required to put this controversy to rest. Seeking to circumvent the existence of a justiciable controversy, VALIC posits that the Board never asserted its right to an aggregate release of the electing DCP members’ funds. See State Farm Mut. Auto Ins. Co. v. Schatken, 230 W.Va. 201, 211, 737 S.E.2d 229, 239 (2012) (finding declaratory relief improper based on insurer’s failure to plead contractual provision upon which it relied for claimed right to reimbursement and failure to assert right to reimbursement pre-suit). As evidence of the Board’s failure to seek a lump sum payout, VALIC asserts that the necessary paperwork to complete a withdrawal of the subject funds was supplied to, but never returned by, Great-West Retirement Services (“Great West”), the third-party administrator of the DCP. The record of this case amply demonstrates why the “Transition Information Form” supplied to Great West for processing the fund release was not returned to VALIC. By completing and submitting the form, the Board would have been agreeing to a five-year payout of the requested funds. At this point in the process, the Board was simply unwilling to act in accordance with VALIC’s interpretation of the 1991 13 Contract.31 Importantly, the fact that the paperwork necessary to process the Board’s demand for funds was not returned to VALIC does not evidence the failure of the Board to seek such a payout under the facts of this case. All it proves is that the Board, fully aware of the financial consequences of a cash demand based on VALIC’s position and its control of the subject funds, was seeking to find an alternate way to gain full access to the necessary funds without the attendant imposition of fees or withdrawal restrictions. Our review of the record compels us to conclude that the trial court erred in finding that VALIC had not denied any right asserted by the Board under the 1991 Contract. That finding is clearly tied to the circuit court’s acceptance of VALIC’s argument that the Board never requested a cash payout under the 1991 Contract. Only by turning a blind eye to the events that transpired in this case can it even be suggested that the Board failed to assert its claimed right to an aggregate payout of the subject funds. VALIC cannot expect this Court, or any court for that matter, to believe that the statutory objective of gaining access to the funds of the electing DCP members was not adequately articulated by the Board in a manner that VALIC fully comprehended. On the facts of this case, the Board’s failure to submit the form authorizing the withdrawal of funds is simply not determinative of whether the Board previously asserted its right to a lump sum payout. Moreover, unlike the 31 By failing to submit the form, VALIC argues that the Board was “tacitly agreeing that the withdrawal restriction applied to the transfer.” We find this statement to be selfserving and unsupported by the record. 14 situation in Schatken, the pleadings of this case fully evidence that the Board asserted its right to an immediate demand of the subject funds without fees or restrictions from the initial filing of this case in May 2009. In clear contrast to the circuit court, we find that the requisite assertion of a legal right by one party and the denial of that right by another party to a declaratory judgment action has been demonstrated. See Board of Educ. v. Board of Public Works, 144 W.Va. 593, 601, 109 S.E.2d 552, 557 (1959). VALIC’s actions in response to the Board’s unmistakably clear and statutorily-mandated objective of removing the corpus of the electing DCP members’ funds32 constituted the necessary controversy to proceed under the Act.33 See Robertson v. Hatcher, 148 W.Va. 239, 247, 135 S.E.2d 675, 681 (1964) (“‘The controversy between the plaintiff and the defendant is actual, existing and justiciable in the sense that the defendant has made evident his purpose to enforce provisions of the statute and that such enforcement will directly and materially affect the rights of the plaintiff.’”) (internal citation omitted). That controversy has yet to be resolved. See Mainella, 126 W.Va. at 186, 27 32 VALIC’s sophistic suggestion that the statutory mandate was met when the 2008 Contract was created and IMB was given “control” of the funds is decidedly wrong. As long as the funds remained with VALIC, IMB lacked the ability to utilize those moneys for the benefit of the TRS system as a whole and, correspondently, it had no ability to increase the return on the investment. 33 As noted above, every investment provider other than VALIC transferred the assets of the electing DCP members without restriction or penalty in accordance with the Board’s instructions. See supra note 19. 15 S.E.2d at 488 (recognizing need for resolution through declaratory judgment of former policeman’s right, that had been partially denied, to pension or restoration to active duty). Accordingly, we reverse the trial court’s finding that no justiciable controversy exists between the Board and VALIC with regard to the 1991 Contract.34
Similar to its handling of the 1991 Contract, the trial court resorted to cherrypicked facts and resulting summary conclusions to rule that the Board has no standing to assert relief in connection with the 2008 Contract. Intentionally minimizing the Board’s role as a trustee of TRS, the circuit court reasoned that the Board lacked the requisite standing to be a party to any proceeding involving the 2008 Contract.35 For the reasons stated below, we find this conclusion both erroneous and specious. In VALIC’s vision of the trustee position that the Board occupies in relation to the IMB, the Board is nothing but a check issuer. Overlooked by VALIC is both statutory and case law recognizing the significance of the Board’s role as a trustee of this state’s 34 Although we find it unnecessary to address at length the trial court’s conclusion that the Board cannot establish it suffered harm in connection with the 1991 Contract, we are unpersuaded by VALIC’s contention that the issuance of the 2008 Contract fully eliminates the issue of harm to the Board. Whether the Board can demonstrate damages arising from the 1991 Contract has yet to be established. 35 The parties to the 2008 Contract were the IMB and VALIC. 16 various retirement funds. The Board is expressly charged to “administer all public retirement plans in this state.” W.Va. Code § 5-10D-1(a). By law, the Board “has all the powers, duties, responsibilities and liabilities of the Public Employees Retirement System . . . ; the Teachers Retirement System . . .; the Teachers’ Defined Contribution System. . . . ” Id. at § 5-10D-1(d). Contending that the Board is a mere payment processor while the IMB is the actual investor of TRS funds, VALIC maintains that the Board lacks the requisite significant interest in the 2008 Contract to be a party to any dispute arising from that contract. See Syl. Pt. 1, Shobe v. Latimer, 162 W.Va. 779, 253 S.E.2d 54 (1979) (recognizing existence of standing for persons with significant interests who are directly injured or adversely affected by governmental action under Uniform Declaratory Judgements Act). The indefensibility of these arguments is easily demonstrated. The Legislature both envisioned and empowered the Board to be more than a distributor of retirement checks. In designating the Board as a trustee for all the state’s retirement plans, the Legislature expressly accorded the Board “all the powers, duties, responsibilities and liabilities” of each of those plans. W.Va. Code § 5­ 10D-1(d). Inherent to the legislative reposition of trust in the Board is “a fiduciary duty to protect the fund[s] and the interests of all beneficiaries thereof” which requires that “it must exercise due care, diligence, and skill in administering the trust.” Syl. Pt. 14, in part, 17 Dadisman v. Moore, 181 W.Va. 779, 384 S.E.2d 816 (1988).36 As a further means of ensuring proper oversight of this state’s public retirement funds, the Legislature mandated that members of the Board “shall have recognized competence or significant experience in pension management or administration, actuarial analysis, institutional management or accounting.” W.Va. Code § 5-10D-1(b). The extent of the Board’s fiduciary duty to its members has previously been recognized by this Court: The fiduciary duty of the Consolidated Public Retirement Board established by W.Va. Code, 5-10D-1 [1998] and its members, with respect to the public employee pension funds and assets entrusted to the Board, includes the affirmative duty to monitor and evaluate the effect of legislative actions that may affect such funds and assets, and to take all necessary actions including initiating court proceedings if necessary to protect the fiscal and actuarial solvency of such funds and assets.” Syl. Pt. 2, State ex rel. Deputy Sheriff’s Assoc’n v. Sims, 204 W.Va. 442, 513 S.E.2d 669 (1998) (emphasis supplied). As we acknowledged in Sims, the Board has a responsibility as “‘financial prognosticator and micromanager’” to “use the court system to protect the rights 36 Although this holding of Dadisman addressed the authority of the Public Employees Retirement System Board, the same principles equally apply to the Consolidated Public Retirement Board as it replaced the PERS Board upon its creation in 1991. See State ex rel. Deputy Sheriff’s Ass’n v. Sims, 204 W.Va. 442, 448, 513 S.E.2d 669, 675 (1998) (“The affirmative duty of the Board to act . . . in an informed, proactive and independent manner to perform its fiduciary duty is no less now than it was when Dadisman was decided.”). 18 of the beneficiaries of the funds held in trust by the Board.” Id. at 448, 513 S.E.2d at 675 (internal citation omitted). Seeking to nullify the significance of the Board’s role as a trustee of TRS, VALIC places undue emphasis on the IMB’s duty to provide “prudent fiscal administration, investment and management for the funds of” TRS. W.Va. Code § 12-6-3(a) (2014). Critically, the IMB’s duty to invest TRS funds does not extinguish the fiduciary role that the Board occupies as a trustee of TRS. See W.Va. Code § 5-10D-1(a). Inherent to the Board’s continued role as a statutory trustee is its responsibility to act consistent with its legislativelyimposed duty to protect the funds of TRS as well as the interests of the TRS beneficiaries. See W.Va. Code § 12-6-7 (2014) (recognizing continued status, power,37 and duties of public agencies and boards with respect to retirement funds upon creation of IMB); Dadisman, 181 W.Va. at 782, 384 S.E.2d at 819, syl. pt. 14. As the amicus curiae38 correctly observes, the Board and the IMB “serve crucial roles that are inextricably intertwined as they relate to the retirement assets at issue.” We agree. The Legislature has charged both the Board and the IMB to protect the retirement 37 Among those continued powers is “the right to sue and be sued, plead and be impleaded, contract and be contracted with and . . . make all necessary rules and regulations to carry out the provisions of this article [7A].” W.Va. Code § 18-7A-4 (2012). 38 Specifically, the American Federation of Teachers–West Virginia, AFL-CIO. 19 assets of public education employees. As part of their duties as trustees, the petitioners serve as the legal representatives of the participants in the subject retirement plans. In bringing the subject action in tandem, the petitioners acted consistent with their public charge to protect the assets of the public education employees whose retirement depends upon the fiscal soundness of TRS. Had the IMB brought this action on its own, it is likely that the Board would have been required to intervene as a necessary party. See Mainella, 126 W.Va. at 188, 27 S.E.2d at 488 (recognizing need for joinder of necessary parties to fully adjudicate merits of pension-related matter). Consequently, we are unpersuaded by VALIC’s attempt to discount the Board’s role as a trustee of TRS. While the Legislature established the IMB as an independent public body corporate, it did not create a body authorized to act without review or oversight. See W.Va. Code § 12-6-1a(b) (2014) (recognizing need for “independent board with its own fulltime staff of financial professionals, immune to changing political climates, in order to provide a stable and continuous source of professional financial management”). This is evident from the fact that the IMB is statutorily required to provide the Board with monthly and quarterly performance reports. W.Va. Code § 12-6-6(b), (c) (2014). Of further significance is the Legislature’s decision not to eliminate or reduce the powers and duties the Board had with regard to TRS when it adopted legislation pertaining to the IMB. See W.Va. Code §§ 12-6-7, 5-10D-1(d). The legislative creation of the IMB as a public body corporate 20 for investment purposes was designed as “the best means of assuring prudent financial management of these [retirement] funds under rapidly changing market conditions and regulations.” W.Va. Code § 12-6-1a(e). Equally evident, however, is the fact that the statutes imbuing the IMB with investment authority do not abrogate the Legislature’s reposition of trust in the Board with regard to the state’s public retirement plans. Finally, it cannot be ignored that the Board is one of the entities charged with ensuring that the IMB meets its objective of administering, investing, and managing TRS in a fiscally prudent fashion. See W.Va. Code §§ 12-6-3(a), -6. By choosing to dichotomize the relief awarded based upon the signatories to the respective annuity contracts, the trial court engaged in a misadvised manner of evaluating the issues presented in this case. While the annuity agreements are contractual in nature, those contracts were formed for a specific governmental purpose–the investment of public employees’ retirement funds. In view of this uncontroverted public purpose–a purpose that entails both asset administration and protection–the signatory status of IMB to the 2008 Contract is simply not determinative of the Board’s interest in that annuity contract. As we discussed above, the Board has “all the powers, duties, responsibilities and liabilities” of TRS. W.Va. Code § 5-10D-1. And, as a statutory trustee of TRS, the Board in its fiduciary role has the inherent authority “to take all necessary actions including initiating court proceedings if necessary to protect the fiscal and actuarial solvency of such funds and 21 assets.” Sims, 204 W.Va. at 443, 513 S.E.2d at 670, syl. pt. 2, in part. Therefore, we wholly reject VALIC’s attempt to remove the Board as a party to the controversy surrounding the 2008 Contract. Rather than constituting precedent for the Board’s lack of standing, as VALIC contends, this Court’s decision in Shobe demonstrates the exact converse. Addressing the nature of the interest necessary to proceed under the Act, we concluded in Shobe that a group of plaintiffs had standing under the Act to obtain relief with regard to riparian rights allegedly affected by a contract between two governmental entities. Repudiating the considerations that typically prevent third-parties from obtaining a declaration of rights regarding a contract between private citizens, we explained that “there is a logical nexus between the status plaintiffs in error assert and the contract claim sought to be adjudicated.”39 162 W.Va. at 787, 253 S.E.2d at 59. In discussing the distinction between standing and the case or controversy test for assessing a justiciable controversy, we recognized that standing involves “‘the question [of] whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.’” Id. at 787, 253 S.E.2d at 59-60 (quoting Ass’n of Data Processing Serv. Organizations, Inc. v. Camp, 397 U.S. 150, 153 (1970)). Looking to the 39 As we explained in Shobe, “[b]ut for the contract the diversion [of water] would not be taking place.” 162 W.Va. at 787, 253 S.E.2d at 59. 22 remedial purposes of the Act, this Court expressly rejected the requirement that to proceed under the Act, a party must have a personal legal right or interest. See Shobe, 162 W.Va. at 788, 253 S.E.2d at 60 and syl. pt. 2. Under the reasoning of Shobe, the laws charging the Board with the duties and responsibilities of being a trustee of this state’s public retirement plans establish the requisite “zone of interests” for the Board to seek a declaration of rights with regard to the 2008 Contract. To conclude otherwise, as we observed in Shobe, “would be contrary to the express purpose and spirit of the [Declaratory Judgments] Act.” Id. at 787, 253 S.E.2d at 59. With the objective of setting this issue to rest, we hold that, as a statutory trustee of this state’s public retirement funds, the Consolidated Public Retirement Board has standing to bring an action under the Act to resolve disputes arising from investment-related contracts that involve public retirement funds, irrespective of whether it is a party to such contracts. Accordingly, we reverse the trial court’s finding that the Board lacks standing in relation to seeking and obtaining a declaration of rights and/or relief under the 2008 Contract.40 40 Not only is the trial court’s finding that the Board has not suffered any damages related to the 2008 Contract premature, but we further reject its conclusion that the Board was not impacted by any lost return on investments during the relevant time period. As the personal representative of TRS, the Board was an interested party necessarily affected by any losses that can properly be demonstrated to arise from the annuity contracts at issue. 23