Court Opinion

ID: 867527
Source: CourtListenerOpinion
Date Created: 2013-05-11 22:49:12.005874+00
Date Added: 2024-06-11T11:50:26.056231
License: Public Domain

SUPREME COURT OF ARIZONA
                             En Banc

KENNETH J. PROKSA AND DENNIS P.    )   Arizona Supreme Court
RUSSELL,                           )   No. CV-02-0388-CQ
                                   )
                       Plaintiffs, )   United States District
                                   )   Court
                 v.                )   No. CIV 02-412-TUC-WDB
                                   )
ARIZONA STATE SCHOOLS FOR THE      )
DEAF AND THE BLIND, a state        )
created school and public          )
corporation; STATE OF ARIZONA, a )     O P I N I O N
body politic and state             )
government; MARCIA SMITH, JOANNE )
TRIPI, JANE N. ERIN, GAIL HARRIS, )
JAMES A. WHITEHILL, and THOMAS J. )
POSEDLY, each officially as a      )
member of the Board of Directors )
of ASDB and individually; and      )
KENNETH D. RANDALL, officially     )
as the Superintendent of ASDB and )
individually; JOHN DOES 1-10;      )
JANE DOES 1-10; ABC PROPRIETOR-    )
SHIPS and PARTNERSHIPS 1-10; and )
XYZ LIMITED LIABILITY COMPANIES    )
and CORPORATIONS 1-10,             )
                                   )
                       Defendants. )
__________________________________)

                  Certified Questions from the
    United States District Court for the District of Arizona
            The Honorable William D. Browning, Judge

                          QUESTIONS ANSWERED
                                                                   _

LAWRENCE E. CONDIT                                             Tucson
Attorney for Plaintiffs

TERRY GODDARD, ARIZONA ATTORNEY GENERAL                 Phoenix
     By Michael K. Goodwin, Assistant Attorney General,
     Employment Law Section
Attorneys for Defendants
                                                      __     __
H U R W I T Z, Justice

¶1         Kenneth      Proksa     and    Dennis         Russell     were    long-time

employees of the Arizona State Schools for the Deaf and Blind

(the “Schools”).        After their employment was terminated in 2002,

Proksa   and    Russell   filed    suit       in    superior   court       against   the

Schools, the State of Arizona, and others, alleging that they

had been wrongfully terminated.                Defendants removed the suit to

federal court.

¶2         On     November   18,   2002,       United      States    District       Judge

William D. Browning certified two questions of Arizona law to

this court.     See Ariz. Rev. Stat. (“A.R.S.”) §§ 12-1861 to -1867

(2002)   (Uniform    Certification        of       Questions   of    Law    Act).     We

accepted   jurisdiction      to    answer          the   certified     questions      on

January 7, 2003, see Ariz. R. Sup. Ct. 27(b), and today address

those questions.

                                         I.

¶3         The facts relevant to the disposition of the certified

questions are set forth in the district court’s certification

order and may be quickly summarized.                     Kenneth Proksa was hired

by the Schools in 1981, and Dennis Russell in 1987.                           Prior to

1993,    A.R.S.     §     15-1326(B)      (1986)          provided     that,        after

successfully completing a term of probation, all employees of

the Schools “shall be granted permanent employment status.”                          The

                                          2
statute also provided that a permanent employee could only be

discharged       “for   cause”         and       that     “[p]ermanent          employees

discharged from employment at the Schools are entitled to due

process       protections     in    the    manner       provided     by   the    board.”

A.R.S. § 15-1326(C) (1986).               See Deuel v. Ariz. State Sch. for

the Deaf and Blind, 165 Ariz. 524, 526-27, 799 P.2d 865, 867-68

(App.    1990)     (holding     that      terminated         permanent    employee     is

entitled to various due process protections at post-termination

hearing).

¶4             In 1993, in response to a series of recommendations

from the auditor general and the staff of the joint legislative

budget committee, the legislature adopted a sweeping amendment

of the statutes governing the Schools.                       1993 Ariz. Sess. Laws,

ch. 204.       The amended statutes required the Schools to designate

certain positions as “management and supervisory.”                        A.R.S. § 15-

1325(A)    (2002).      The    superintendent           of    the   Schools     was   then

required to issue “one, two or three year contracts” for these

positions.       The Schools would then decide, upon the expiration

of each contract, whether to issue the employee a new contract.

A.R.S.    §    15-1325(D).         “Management      and      supervisory”       employees

were exempted under the new statute from the requirement in §

15-1326(B) that all employees completing probation be granted

“permanent” status.         A.R.S. § 15-1326(B).

                                             3
¶5            Proksa       and    Russell    were      classified      as   “management”

personnel in 1993, and, under the new statute, were offered one-

year employment contracts.                 See 1993 Ariz. Sess. Laws, ch. 204,

§    17(2)    (governing         initial    offer      of   employment      contract   to

person in supervisory or management position).                          These contracts

were    renewed      annually      pursuant       to   A.R.S.    §    15-1325(D)   until

2002.     In April 2002, the Schools notified Proksa and Russell

that their contracts would not be renewed.                           See A.R.S. § 15-

1325(E) (governing notices of non-renewal).

¶6            Proksa and Russell then filed suit in superior court,

raising claims of wrongful termination, age discrimination, and

intentional infliction of emotional distress.                        They also brought

claims       under    42    U.S.C.     §     1983      (2002),       alleging   unlawful

deprivation of their property interest in employment.                              Citing

federal question jurisdiction, the defendants then removed the

case to federal court.

¶7            Proksa and Russell filed a motion to remand the case

to state court.            Judge Browning denied that motion and instead

certified the following two questions of law to this court:

       1. May the Arizona Legislature statutorily change the
       terms of a “permanent” employee’s employment without
       providing   for offer,  acceptance  or   assent,  and
       consideration?

       2. Did Plaintiffs’ acceptance of the yearly contracts
       between 1993 and 2001 effect an assent to the
       modification of the terms of their employment that
       required no additional consideration?

                                              4
¶8           We    have      jurisdiction    over     these      certified      questions

pursuant to Article 6, Section 5(6) of the Arizona Constitution,

A.R.S. §§ 12-1861 to -1867, and Supreme Court Rule 27.                           For the

reasons below, we answer the first certified question in the

affirmative and thus find it unnecessary to reach the second

question.

                                          II.

¶9           The      first     certified        question     sounds     in     contract.

Plaintiffs begin from the premise that, under Arizona law, the

“employment relationship is contractual in nature,” A.R.S. § 23-

1501(1) (Supp. 2002), and that an employer may not unilaterally

modify    an      employment      contract       without    an    offer,      assent    or

acceptance, and consideration.                   See Demasse v. ITT Corp., 194
Ariz. 500, 506 ¶ 18, 984 P.2d 1138, 1144 (1999).                              Plaintiffs

contend   that        after    successfully       completing      their       periods   of

probation,        they     each    effectively        entered       into      employment

contracts      with    the     Schools   providing     that      they    could    not   be

discharged without cause, and that the 1993 amendments to A.R.S.

§§ 15-1325 and -1326 could therefore not be applied to them

without their assent or acceptance and consideration.

¶10         We do not quarrel with the premise that the employment

relationship is contractual, and that employment contracts, like

others,   may      not    be   unilaterally       modified.        But    the    critical

                                             5
issue   in   this    case    is   not       whether      there   was    a   contract    of

employment, but rather whether one provision of that contract

was that Proksa and Russell were permanent employees.                              Proksa

and Russell claim that the pre-1993 version of A.R.S. § 15-1326

created such a contract right.

¶11          The general principle, however, is that statutes do

not create contract rights.                 See Nat’l R.R. Passenger Corp. v.

Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66 (1985)

(“[A]bsent some clear indication that the legislature intends to

bind itself contractually, the presumption is that ‘a law is not

intended     to    create   private      contractual        or   vested      rights    but

merely declares a policy to be pursued until the legislature

shall ordain otherwise.’”) (quoting Dodge v. Bd. of Educ., 302
U.S. 74, 79 (1937)); US West Communications, Inc. v. Ariz. Corp.

Comm’n, 197 Ariz. 16, 22 ¶ 19, 3 P.3d 936, 942 (App. 1999)

(“Courts     are    reluctant     to    find      that    statutes      create    private

contractual rights.”).            This is because the primary function of

a legislature “is not to make contracts, but to make laws that

establish the policy of the state.”                    Nat’l R.R. Passenger Corp.,

470 U.S. at 466.            Policies, unlike contracts, are “inherently

subject to revision and repeal.”                 Id.

¶12          The     presumption         that       statutes       do       not    create

contractual       rights    serves     an    important      public      purpose.       “To

treat   statutes       as    contracts           would    enormously        curtail    the

                                             6
operation of democratic government.                Statutes would be ratchets,

creating rights that could never be retracted or even modified

without buying off the groups upon which the rights had been

conferred.”       Pittman v. Chicago Bd. of Educ., 64 F.3d 1098, 1104

(7th    Cir.    1995).         If    statutes     were        routinely    treated    as

establishing contractual rights, the legislature might well be

discouraged from addressing pressing public needs, for fear that

any law could not thereafter be modified without the consent of

those for whose benefit it was passed.                   See Nat’l R.R. Passenger

Corp., 470 U.S. at 466 (“[T]o construe laws as contracts when

the obligation is not clearly and unequivocally expressed would

be to limit drastically the essential powers of a legislative

body.”).

¶13            The well-established presumption that statutes do not

create contract rights has repeatedly been applied by courts in

other jurisdictions to laws governing public employee tenure.

For    example,    the   Seventh      Circuit     has    held    that     the   Illinois

legislature can amend a statute providing for tenure for public

school principals to instead provide that principals serve at

the pleasure of local school boards.                     See Pittman, 64 F.3d at

1104 (noting that tenure for school principals is “not a term in

a contract,” but “a term in a statute, and a statute is presumed

not to create contractual rights”).                     Similarly, the Wisconsin

Supreme        Court     has        held   that         its     legislature       could

                                           7
constitutionally amend a law providing for tenure for public

school     teachers       to      require           retirement            at    age      sixty-five.

Morrison v. Bd. of Educ., 297 N.W. 383, 385 (Wis. 1941) (holding

that    while    an    act     may      fix    the       term        or   tenure        of    a   public

employee, “[t]he presumption is that such a law is not intended

to    create    private        contractual              or    vested      rights,        but      merely

declares    a    policy      to    be    pursued             until    the      Legislature         shall

ordain    otherwise”).             The    case          law    thus       rejects       the       general

notion that statutes create a contractual right to tenure in

office, and instead adopts the rule that “[t]enure is regulated

by    legislative      policy.”           Wash.          Fed’n       of    State      Employees          v.

Washington, 682 P.2d 869, 872 (Wash. 1984).

¶14            Our    decisions         make    plain          that       “[n]o    person          has    a

vested right to any public office or position except as provided

by law, and if a competent authority abolishes the position for

a legitimate reason, the holder thereof has no remedy because he

has necessarily lost the position and the salary which goes with

it.”     Donaldson v. Sisk, 57 Ariz. 318, 327-28, 113 P.2d 860, 864

(1941).        The legislature has the unquestioned right to create

and    abolish       offices      in    the    public          interest,          and    that      right

“necessarily includes the power to fix or alter the term, the

mode of appointment and compensation.”                                Ahearn v. Bailey, 104
Ariz. 250,    253,     451 P.2d 30,       33    (1969)       (citing       Barrows         v.

Garvey, 67 Ariz. 202, 193 P.2d 913 (1948)).                                    These statements,

                                                    8
while    not    directly    addressing       the    question    certified    to    us

today,    are     inconsistent   with    the       plaintiffs’    assertion       that

statutes        governing     public         employment        generally     create

enforceable contract rights.

¶15            The legislature, of course, does have the power to

pass laws that establish contractual rights.                    But the case law

makes clear that statutes will not be interpreted as contracts

without an “adequate expression of an actual intent of the State

to bind itself.”        See Nat’l R.R. Passenger Corp., 470 U.S. at

466-67 (quoting Wis. & Mich. Ry. Co. v. Powers, 191 U.S. 379,

386-87    (1903)).      Plaintiffs      have    cited   no     evidence    that    the

legislature intended to enter into a contract by enacting the

pre-1993 version of A.R.S. § 15-1326, and we find nothing in the

prior version of the statute that expresses such intent.                     See US

West, 197 Ariz. at 22 ¶¶ 19-22, 3 P.3d at 942 (finding that laws

governing telephone service do not evidence intent to enter into

regulatory contract with provider).

                                       III.

¶16            In arguing that the prior version of A.R.S. § 15-1326

established a contract between the State and those classified as

“permanent” employees of the Schools, Proksa and Russell rely

heavily on Yeazell v. Copins, 98 Ariz. 109, 402 P.2d 541 (1965),

and     various    of   its   progeny,        including      Norton   v.    Arizona

Department of Public Safety Local Retirement Board, 150 Ariz.
9
303, 723 P.2d 652 (1986), and Thurston v. Judges’ Retirement

Plan, 179 Ariz. 49, 876 P.2d 545 (1994).                   These cases adopted

what we have characterized as “the contract theory of retirement

benefits.”     Norton, 150 Ariz. at 306, 723 P.2d at 655.                     Under

that theory, the State’s promise to pay retirement benefits is

part of its contract with the employee; by accepting the job and

continuing work, the employee has accepted the State’s offer of

retirement benefits, and the State may not impair or abrogate

that contract without offering consideration and obtaining the

consent of the employee.            See Yeazell, 98 Ariz. at 113-117, 402

P.2d at 544-547.

¶17          Proksa    and   Russell    rely    on   the   broad    language     of

Yeazell to support their argument that, by accepting employment

with the Schools and continuing to work past the probationary

period, they entered into a contract with the State that they

would be treated as permanent employees and discharged only for

cause.     When read in isolation, Yeazell offers some support to

that argument.        See id. at 113, 402 P.2d at 544 (“[T]he laws of

the state are a part of every contract . . . .”).                         Yeazell,

however,    deals     only   with    retirement      benefits,     and,   for   the

reasons below, we decline to extend its “contract” theory to the

statutes     governing       the    tenure     of    school      management     and

supervisory personnel.

                                        10
¶18          The        issue      in       Yeazell          was        whether       statutorily

established           pension      benefits            could       be     modified        by        the

legislature.            The     majority        rule    at     the      time    was    that        such

benefits could be modified because the employee had no vested

right   in       the    pensions.           This       conclusion         was     based   on        the

prevalent         characterization               of     pension          benefits        as        mere

“gratuities,” granted at the benevolent will of the sovereign.

Id. at 112, 402 P.2d at 543.                      See Kraus v. Bd. of Trustees of

the Police Pension Fund, 390 N.E.2d 1281, 1284 (Ill. App. Ct.

1979) (reviewing cases establishing this “archaic” approach to

pension plans).            As such, pension plans — like any statutory

entitlement       —     could    be    amended,         changed,        or     repealed       as    the

legislature saw fit.

¶19          Treating retirement benefits as “gratuities,” however,

posed a particular problem in Arizona.                             As Yeazell recognized,

under the “Gift Clause” of the Arizona Constitution (art. 9, §

7), “[t]he state may not give away public property or funds; it

must receive a quid pro quo.”                          Yeazell, 98 Ariz. at 112, 402

P.2d at 543.            Thus, this court noted, “the various retirement

acts for public employees in Arizona cannot be upheld unless the

state   .    .    .    enters     into      a    legal    obligation            founded       upon    a

valuable consideration.”                Id.

¶20          To        validate       the       Arizona      retirement          acts,    Yeazell

concluded, as had the Supreme Court of California in construing

                                                  11
its Gift Clause, that pensions were not gratuities, but were in

the nature of contracts, viewed as deferred compensation for

services rendered.                Yeazell, 98 Ariz. at 113, 402 P.2d at 543-44

(citing O’Dea v. Cook, 169 P. 366 (Cal. 1917)); accord Bakenhus

v.     City     of    Seattle,        296 P.2d 536      (Wash.    1956)       (reaching

identical       conclusion           with     respect       to     Washington         retirement

statutes).            Subsequent       Arizona         cases,      including         Norton      and

Thurston,       then       applied     this       “contract       theory”       to    particular

issues involving retirement benefits.

¶21           In      short,       Yeazell       and      its    progeny       concluded        that

retirement benefits were intended as a contract between public

employees and the State largely because any other conclusion

would have resulted in the unconstitutionality of the entire

retirement system.                See Yeazell, 98 Ariz. at 112, 402 P.2d at

543    (“It     is     plain       that     in    this     state     pensions         cannot     be

sustained as constitutional unless anchored to a firmer basis

than that of a gift.”); see also State v. Soto-Fong, 187 Ariz.
186,     202,        928 P.2d 610,        626   (1996)      (statutes         should      be

interpreted whenever possible in a fashion so as to preserve

their constitutionality).                   Thus, Yeazell and the public employee

pension       benefit        cases     do     not      establish        that    all       statutes

involving public employee benefits and tenure are contractual in

nature;       rather,        those    cases       represent        an     exception        to   the

general       rule         that     statutes        are     not     intended         to     create

                                                  12
contractual terms.          Put differently, in the retirement benefits

area,    given     the   Gift   Clause    of     our   constitution,         this   court

effectively found an “adequate expression of an actual intent of

the State to bind itself,” Nat’l R.R. Passenger Corp., 470 U.S.

at 466-67, because any finding to the contrary would render the

statutes unconstitutional.

¶22           It is a far different matter, however, to conclude

that all statutes dealing with public employees constitute a

legislative contract with the employees.                   Other states that have

adopted      the    “contract     theory”        of    retirement      benefits     have

rejected     the    assertion     that    all     other    statutes     dealing      with

public       employees      necessarily          create       similar     contractual

obligations.         See, e.g., Wash. Fed’n of State Employees, 682

P.2d    at   872    (tenure     is    a   term    of    employment      regulated     by

legislative        policy   and      therefore    is    not    based    in    contract,

unlike deferred benefits such as pensions); Tirapelle v. Davis,

26 Cal. Rptr. 2d 666 (Ct. App. 1993) (salary levels of state

employees are not contractual or otherwise vested).                           We agree,

and hold today that Yeazell and its progeny do not adopt a

general rule that statutes relating to public employees confer

contractual rights on those employees.                    As the Supreme Court of

Wisconsin concluded in a similar context, “[w]e see no reason

. . . why a separate and subsequent tenure act that presents no

internal evidences of being contractual in character should be

                                           13
held to acquire such a character by reason of such contractual

elements    as    may    be    found     in    a    previously       enacted      retirement

act.”     Morrison, 297 N.W. at 387.

                                              IV.

¶23          Proksa and Russell also argue at length that the pre-

1993 version of A.R.S. § 15-1326 gave them a property interest

in continued employment of which they could not constitutionally

be deprived without due process of law.                             Because we exercise

jurisdiction      today       only   to       address      the   state      law    questions

certified by the district court, this is not an occasion to

explore the federal constitutional doctrine of Board of Regents

v. Roth, 408 U.S. 564 (1972), and its progeny.                              In any event,

our discussion above resolves whether Proksa and Russell have an

existing     property         interest        under       Arizona    law    in     continued

employment.

¶24          Whether     a     property       interest       exists    is    a     matter   of

state law.       See Roth, 408 U.S. at 577; Brady v. Gebbie, 859 F.2d
1543,     1548    (9th        Cir.   1988)          (state    law     defines       property

interests).       It is of course true that, until 1993, Arizona

statutes created a property interest in continued employment for

permanent employees of the Schools that was protected by the Due

Process    Clause,       and    thus     could       be    terminated       only    after   a

hearing establishing appropriate cause.                       See Deuel, 165 Ariz. at

526, 799 P.2d at 867.            But it is also plainly true that current

                                               14
law affords plaintiffs no such property interest.                        To the extent

that   the   certified      question      from       the    district    court    asks    us

whether Proksa and Russell currently have a property interest in

continued employment by the State, we answer that question in

the negative.

¶25          Insofar      as   the       district          court’s    first     certified

question asks us whether the legislature had the power under

state law to change the status of plaintiffs’ tenure, the answer

is plainly that it could legally do so.                       Under Arizona law, the

legislature        has   the   plenary         authority       to     change    a   state

employee’s job classification.                     See Ahearn, 104 Ariz. at 253,

451 P.2d at 33 (legislature has the right to create or abolish

public positions, which right “necessarily includes the power to

fix    or    alter       the   term,          the     mode     of     appointment        and

compensation”); see also Gattis v. Gravett, 806 F.2d 779, 781

(8th Cir. 1986) (“[T]he legislature which creates a property

interest     may    rescind    it    .    .    .    whether     the    interest     is   an

entitlement to economic benefits, a statutory cause of action or

civil service job protections.”); accord Rea v. Matteucci, 121
F.3d 483 (9th Cir. 1997); McMurtray v. Holladay, 11 F.3d 499

(5th Cir. 1993); Packett v. Stenberg, 969 F.2d 721 (8th Cir.

1992); Goldsmith v. Mayor & City Council of Baltimore, 845 F.2d
61 (4th Cir. 1988); Conn. Judicial Selection Comm’n v. Larson,

745 F. Supp. 88 (D. Conn. 1989).

                                              15
                                  V.

¶26       For the reasons above, we answer the first certified

question from the district court in the affirmative.    Given our

answer to the first certified question, it is not necessary to

address the second certified question.

                                                        ____
                               Andrew D. Hurwitz, Justice

CONCURRING:

                                       _
Charles E. Jones, Chief Justice

                                   _
Ruth V. McGregor, Vice Chief Justice

                                       _
Rebecca White Berch, Justice

                                       _
Michael D. Ryan, Justice

                                  16