Opinion ID: 3010687
Heading Depth: 2
Heading Rank: 2

Heading: Impairment of Contracts Clause

Text: Appellants contend that the district court erred in denying them qualified immunity as to Larsen's claim that termination of his benefits violated his rights under the Impairment of Contracts Clause, which provides that[n]o state shall . . . pass any . . . Law impairing the Obligation of Contracts. U.S. Const. art. I, S 10. According to appellants, Larsen's right to receive those benefits following his removal from office was not clearly established, since reasonable officials could have believed either that Larsen was not eligible for benefits under the terms of the benefits plan, or that Larsen, even if otherwise eligible for benefits, lawfully could be denied those benefits pursuant to the 1993 version of Article V, section 16, of the Pennsylvania Constitution which precludes payment of benefits to justices who have been removed from office. 1. Eligibility Under the Retirement Benefits Plan Appellants contend that Larsen fails to allege a clearly established right to receive retirement medical benefits because, according to his complaint, the plan conferring the right to those benefits applied only to retired members of the judiciary. Thus, appellants argue, a reasonable official would have been justified in concluding that Larsen was not covered by the terms of the benefits plan since he _________________________________________________________________ 5. Larsen, br. at 14, contends that the doctrine of qualified immunity is inapplicable because appellants' revocation of his medical benefits involved a ministerial, non-discretionary act. See People of Three Mile Island v. Nuclear Regulatory Comm'rs, 747 F.2d 139, 143 (3d Cir. 1984). We disagree. As the Supreme Court recognized in Davis v. Scherer, 468 U.S. 183, 195 n.14, 104 S.Ct. 3012, 3020 n.14 (1984), officials must make discretionary determinations even in the course of applying facially clear provisions. Because appellants' decision to deny Larsen's benefits required such discretionary determinations, including legal analysis as to the applicability of the 1993 version of section 16(b), it cannot be characterized as a ministerial act outside the scope of the qualified immunity doctrine. 10 had been removed from office and had not retired voluntarily. Br. at 12. We disagree. As of the time appellants decided to deny Larsen's benefits, the Pennsylvania Supreme Court had held that judicial officers who had been removed from office for misconduct were entitled to receive benefits under a plan which by its terms applied to retired judicial officers. In upholding removed judges' right to receive retirement benefits, the Pennsylvania Supreme Court did not find it significant that those judges had not retired voluntarily from office. Rather, the court treated them as fully eligible under the retirement plan and proceeded to analyze whether a separate provision of law precluded them from receiving those benefits to which they were entitled under the plan. See Glancey, 610 A.2d at 22-23.6 The decision in Glancey forecloses appellants' argument that officials charged with administering a retirement benefits plan reasonably could construe the terms of that plan narrowly to exclude removed judges from coverage when the Pennsylvania Supreme Court had included such individuals in the terms of eligibility.7 In light of this case law including individuals such as Larsen within the terms of eligibility for retirement benefits, and in the absence of any authority for excluding individuals from eligibility under a retirement plan on the _________________________________________________________________ 6. Glancey resolved the cases of several different judges, some of whom were removed while still in office and others of whom were not issued removal orders until after they had resigned or retired. The court treated those judges identically in terms of their eligibility for benefits under the retirement plan. See 610 A.2d at 22-23. 7. The Pennsylvania Supreme Court had reached similar results in cases involving retirement plans for elected officials and public employees, upholding the eligibility under such plans of individuals who did not retire voluntarily. See Bellomini v. State Retirement Bd., 445 A.2d 737, 741 (Pa. 1982) (holding that legislators who resigned under pressure at about the time of their criminal convictions were entitled to retirement benefits); Harvey v. Retirement Bd. of Allegheny County, 141 A.2d 197, 203 (Pa. 1958) (holding that public employee who had been dismissed for cause was entitled to retirement benefits); Wright v. Retirement Bd. of Allegheny County, 134 A.2d 231, 233-34 (Pa. 1957) (holding that public employee who had been separated involuntarily from employment was entitled to retirement benefits). 11 grounds that they were involuntarily removed from office, we find that it was clearly established that Larsen could not be disqualified from receiving benefits under the terms of the benefits plan. Accordingly, we must consider whether appellants are entitled to qualified immunity on the grounds that they reasonably could have believed that Article V, section 16, as amended in 1993, operated to divest Larsen of benefits which he otherwise would have been eligible to receive. 2. Divestiture of Benefits Pursuant to Section 16 Appellants contend that they are entitled to qualified immunity because a reasonable official could have believed that their revocation of Larsen's benefits was lawful pursuant to the 1993 version of section 16, which provides that judges who are suspended or removed from office shall not receive any salary, retirement benefit or other compensation, present or deferred. Pa. Const. art. V, S 16(b). Larsen, however, contends that the application of that provision violated his clearly established rights, as it was adopted after his right to retirement benefits had vested in 1989, at which time he had completed ten years of service and thus had satisfied all requirements necessary to receive full retirement benefits.8 Larsen emphasizes that the version of section 16 in effect at the time his rights vested did not revoke retirement benefits upon removal from office. See Glancey, 610 A.2d at 22-23. Thus, Larsen argues that the 1993 amendment to that provision unilaterally altered the terms of his employment compensation, retroactively depriving him of contractual rights which had vested before the amendment and violating his right against impairment of contractual obligations. See br. at 19. We agree. The Pennsylvania Supreme Court has held that, _________________________________________________________________ 8. Vesting occurs when an individual has completed the number of years of service required for eligibility to receive benefits under the terms of a retirement plan. Police Pension Fund Ass'n Bd. v. Hess, 562 A.2d 391, 395 (Pa. Commw. Ct. 1989). 12 [i]t has long been recognized in Pennsylvania that the nature of retirement provisions for public employees is that of deferred compensation for service actually rendered in the past. And it is the law of this Commonwealth that unilateral modifications . . . after retirement eligibility requirements have been met, may not be adverse to the [employee]. Commonwealth ex rel. Zimmerman v. Officers & Employees Retirement Bd., 461 A.2d 593, 595 (Pa. 1983) (citations omitted). In Zimmerman, the Commonwealth sought to terminate a public official's retirement benefits based on a statute providing for forfeiture of the right to such benefits upon conviction of a crime related to public office. The court, finding that the official's vested right to retirement benefits had accrued before enactment of the statute, held that that right cannot be reached by a retroactive forfeiture provision, and thus upheld the official's right to receive retirement benefits despite his conviction for crimes that warranted forfeiture under the statute. See id. at 598. In reaffirming its decision on reargument, the court reiterated that, [i]t is [the] attempt to divest previously vested rights of a public . . . official by subsequent legislative judgment that we find to be a constitutionally impermissible retroactive divestment of vested rights. Commonwealth ex rel. Zimmerman v. Officers & Employees Retirement Bd., 469 A.2d 141, 142 (Pa. 1983) (per curiam). Justice Zappala, one of four justices who joined in the majority opinion, wrote separately to emphasize that no law, regardless of how noble its purpose may retroactively affect existing contract obligations. U.S. Const. art. 1 S 10. cl. 1. . . . Once a contractual obligation vests . .. the same cannot be altered, amended or changed by unilateral action. 469 A.2d at 144 (Zappala, J., concurring). We find that these precedents analyzing an impairment of contract claim under circumstances closely analogous to those in the present case clearly establish that retirement benefits could not lawfully be denied based upon a provision adopted after the right to receive those benefits had vested.9 _________________________________________________________________ 9. Because Larsen's right to retirement benefits had vested before adoption of the 1993 constitutional amendment, we need address only the implications of applying that amendment retroactively to previously vested rights. Accordingly, our opinion has no application to individuals whose rights vested after 1993. 13 Appellants contend that Zimmerman is distinguishable because the official in that case had begun receiving benefits before the Commonwealth sought to terminate them. However, Zimmerman expressly noted that the court's prior decisions had established that a subsequently adopted provision could not prevent the payment of benefits to employees whose . . . rights were vested in enjoyment before passage of the provision. See id. at 143 (citing Bellomini v. State Employees' Retirement Bd., 445 A.2d 737 (Pa. 1982)). The court then held that the same principle applied where the official's right in the terms of entitlement, although not enjoyment, had vested before passage of the benefits forfeiture provision. Id. Thus, Zimmerman establishes that the dispositive time after which an employee's right to benefits cannot be altered is the time of the vesting of those rights in the terms of entitlement. In this case, Larsen's right to retirement benefits vested in terms of entitlement in 1989, at which time he had satisfied all conditions necessary to receive full retirement benefits, and under the law that existed at that time, those benefits could not be terminated upon removal from office. See Glancey, 610 A.2d 15. Accordingly, it was clearly established that Larsen could not be denied benefits based upon a provision adopted in 1993.10 Numerous other Pennsylvania cases have reached the same result precluding infringements on previously vested rights based on rules that did not exist at the time of vesting. In Association of Pennsylvania State College & Univ. Faculties v. State Sys. of Higher Educ., 479 A.2d 962, 965 (Pa. 1984), the court, applying both the federal and state Impairment of Contracts Clauses, held that the constitutional infirmity of an adverse amendment of previously existing rules with respect to [employees] whose entitlement to retirement benefits had already vested is clear. Thus, the court held that the amendment was void _________________________________________________________________ 10. Zimmerman, in dictum, distinguished the situation before it from a situation where a removal due to misconduct would result in the official's failure . . . to complete the term of eligibility. See 469 A.2d at 143. This dictum does not apply to Larsen, who had satisfied the term of eligibility before he was removed from office and before the benefits forfeiture provision was adopted. 14 as applied to employees whose rights were vested prior to its enactment. Id.; accord Burello v. State Employes' Retirement Sys., 411 A.2d 852, 855 (Pa. Commw. Ct. 1980) (citations omitted) ([W]hen the conditions of retirement eligibility have been satisfied, retirement pay has ripened into a full contractual obligation and become a vested right [which] cannot be disturbed by subsequent legislation.); Harvey v. Allegheny County Retirement Bd., 141 A.2d 197, 203 (Pa. 1958) (holding that employee who had complied with all conditions necessary to receive benefits cannot be affected adversely by subsequent legislation which changes the terms of the retirement contract); Wright v. Allegheny County Retirement Bd., 134 A.2d 231, 233-34 (Pa. 1957) (holding that a provision which was adopted after an employee's rights had vested but before employee retired could not lawfully be applied, as the employee's rights were vested and unqualified under the previously existing law and could not be qualified or altered by a subsequent enactment).11 _________________________________________________________________ 11. The Pennsylvania Impairment of Contracts Clause provides that, [n]o . . . law impairing the obligation of contracts . . . shall be passed. Pa. Const. art. I, S 17. Because the Pennsylvania cases discussed above apply the federal Impairment of Contracts Clause, see, e.g., Association of Pennsylvania State College & Univ. Faculties, 479 A.2d at 964; Zimmerman, 469 A.2d at 144 (Zappala, J., concurring); Burello, 411 A.2d at 855, they clearly establish Larsen's rights under federal law, particularly absent any federal precedent to the contrary. See Mississippi v. Miller, 276 U.S. 174, 179, 48 S.Ct. 266, 268 (1928) (holding that retroactive application of a law adoptedafter services have been rendered would deprive employee of an amounthe had theretofore earned and thus would impair the obligation of the . . . contract that existed at the time service was rendered). In Dodge v. Board of Educ. of Chicago, 302 U.S. 74, 77-78, 58 S.Ct. 98, 99-100 (1937), the Court permitted an impairment of retirement benefits, but did so on the grounds that state law rendered those benefitsmere gratuities that did not give rise to vested contractual rights. Thus, Dodge is inapposite in this case where the benefits are a form of deferred compensation to which employees have enforceable contractual rights, see Zimmerman, 469 A.2d at 142 ([W]e have rejected the view that pension benefits are mere gratuities . . . . [I]t is the well settled law of this jurisdiction that the nature of retirement provisions . . . is that of deferred compensation for services actually rendered in the past.) (citations omitted), and does not alter the fact that nothing in the federal precedents blurs the clearly 15 Appellants, br. at 12-13, argue that despite these cases clearly holding that retroactive denials of previously vested rights to retirement benefits unconstitutionally impair a contractual obligation to pay those benefits, the contours of Larsen's rights were not clearly established because cases analyzing impairments of contract have held that afinding of a technical impairment is merely a preliminary step in resolving the more difficult question of whether that impairment is permitted under the Constitution, United States Trust Co. v. New Jersey, 431 U.S. 1, 21, 97 S.Ct. 1505, 1517 (1976) (citations and internal quotations omitted), and therefore have analyzed the nature, purpose, and extent of the impairment in light of the public interests at stake. See Association of Surrogates & Supreme Court Reporters v. New York, 940 F.2d 766, 771 (2d Cir. 1991). We find this argument unpersuasive. As of the time of appellants' decision, the Pennsylvania Supreme Court had considered and rejected the argument that public interests in sanctioning official misconduct warranted retroactive impairment of vested rights. The court held that,any _________________________________________________________________ established contours of the rights under the federal Impairment of Contracts Clause which are set forth in the Pennsylvania cases. In this case the provision adopted after vesting was set forth in the state constitution whereas in the cases discussed above, the provisions purporting to infringe the right to benefits were adopted by statute or ordinance. However, it was clearly established that,[a] state can no more pass a law violating the obligation of a contract by means of a convention than by its legislature, so a provision in a state constitution which prohibits the enforcement of a contract is void. Fisk v. Police Jury of Jefferson, 116 U.S. 131, 135, 6 S.Ct. 329, 331 (1885) (citations omitted); accord McBride v. Retirement Bd. of Allegheny County, 199 A. 130, 132-33 (Pa. 1938) (the Contract Clause of the Federal Constitution . . . forbids impairment by the states, not only by statute, but also by amendment to . . . the State Constitution) (citations omitted). Moreover, nothing in the cases addressing retroactive statutory impairments of vested rights suggests that their holdings turn on the source of the retroactive law. Thus, the contours of the right against retroactive impairment were clearly established when appellants terminated Larsen's benefits despite the lack of precise factual correspondence between this case and those where the subsequently enacted provision was statutory. See Pro, 81 F.3d at 1292. 16 argument predicated upon a compelling state interest must necessarily fail when applied to this attempted retroactive forfeiture of previously vested retirement benefits. See Zimmerman, 461 A.2d at 598.12 Thus, officials charged with administering a retirement benefits plan could not reasonably have believed, in light of the decided cases construing the scope of the Impairment of Contracts Clause, that the balance of interests rendered the impairment of Larsen's rights lawful. Based on the cases discussed above, we find that Larsen, by alleging that he was deprived of previously vested rights pursuant to a provision adopted after vesting, has alleged a violation of clearly established rights under the Impairment of Contracts Clause of which reasonable officials charged with administering retirement benefits would have known.13 _________________________________________________________________ 12. The court explained that benefit forfeiture provisions are powerless to deter official misconduct that occurred before their enactment. See 461 A.2d at 598. The misconduct leading to Larsen's removal occurred well before the 1993 adoption of the amended section 16, bringing this case squarely within the rationale of Zimmerman's holding that the public interest in enforcing benefit forfeiture provisions did not outweigh the constitutional interests in protecting vested contractual rights to retirement benefits against retroactive impairment. 13. Appellants also contend that they are entitled to qualified immunity because it was not clearly established that retirement medical benefits were to be treated in the same manner as other forms of retirement benefits. See br. at 11-12. We reject this contention. It was clearly established that the nature of retirement provisions . . . is that of deferred compensation for services actually rendered in the past. Zimmerman, 469 A.2d at 142-43 (citations omitted). Retirement medical benefits, like other retirement benefits, are an item of economic value offered in return for work performed, and thus fall squarely within the principles set forth in the cases discussed above. Indeed, to accept appellants' argument we would have to close our eyes to what we know in this era of high medical costs, that medical benefits are of crucial importance to retired employees. Moreover, while the Pennsylvania Supreme Court had not applied this rule in the precise context of medical benefits, it had indicated in dictum that it would do so. See, e.g., In re Upper Providence Police Delaware County Lodge No. 27, 526 A.2d 315, 322 n.6 (Pa. 1987) (citing deferred compensation cases for the proposition that denial of medical benefits wouldpose serious constitutional problems); Lower Merion Fraternal Order of Police Lodge v. 17 We hold, therefore, that appellants are not entitled to qualified immunity as to Larsen's claim that their termination of his medical benefits unconstitutionally impaired his contractual right to those benefits.