PETER METCALFE, Individually and on behalf of All Others Similarly Situated, Appellant,
v.
STATE OF ALASKA, Appellee.
Appeal
from the Superior Court Nos. S-15528/S-15557 of the State of
Alaska, First Judicial District, Juneau, Trevor Stephens,
Judge.
Jon
Choate, Choate Law Firm LLC, Juneau, for Appellant.
Kevin
T. Wakley, Assistant Attorney General, and Michael C.
Geraghty, Attorney General, Juneau, for Appellee.
Before: Fabe, Chief Justice, Winfree and Maassen, Justices.
[Stowers and Bolger, Justices, not participating.]
OPINION
WINFREE, Justice.
I. INTRODUCTION
We
previously have held that the legislature cannot diminish a
state employee's accrued retirement
benefits.[1] We also previously have held that if the
legislature diminishes retirement benefits, those affected
may choose between their existing benefits and the new
benefits.[2] The primary issue in this case is whether
a breach of contract damages claim can arise when existing
retirement benefits are diminished. We hold there can be no
such claim. The secondary issue is whether a claim for
declaratory and injunctive relief against the diminishment of
existing retirement benefits is subject to a statute of
limitations defense. We hold it is not. Here the superior
court dismissed a contract damages claim and a claim for
declaratory and injunctive relief based on a statute of
limitations defense. We affirm dismissal of the contract
damages claim on the alternative ground that no such claim
exists; we reverse and remand the declaratory and injunctive
relief claim for further proceedings.
II.
FACTS AND PROCEEDINGS
Peter
Metcalfe was employed briefly by the State in the early 1970s
and contributed to the Public Employees' Retirement
System (PERS). In 1981 Metcalfe took a refund of his PERS
contributions. Under a statute in effect during
Metcalfe's employment and when he took his PERS refund,
if Metcalfe later secured State employment and returned his
refund to PERS with interest, he was entitled to reinstate at
his prior PERS service tier and credit.[3] But in 2005 the
legislature repealed that statute, leaving a five-year grace
period for regaining State employment and reinstating to a
prior PERS status.[4] The State then sent notice to former PERS
members that "[d]efmed benefit members who do not return
to covered employment before July 1, 2010 will forfeit their
defined benefit tier and all service associated with the
refund."
In 2012
Metcalfe inquired about his PERS status. He was informed that
even if he were to regain State employment, he could not
reinstate to his prior PERS service tier and credit because
AS 39.35.350 had been repealed in 2005 and the grace period
for reinstatement had ended in 2010. In June 2013 Metcalfe
brought a putative class action lawsuit against the State,
alleging that the 2005 legislation: (1) violated article XII,
section 7 of the Alaska Constitution;[5] (2) deprived a class of
former employees of their vested interest in the contractual
"benefit to be reinstated to state employment at the
tier level they previously held";[6] and (3)
effectively breached the class members' employment
contracts. Metcalfe sought damages, but he also asked for a
seemingly mutually exclusive declaratory judgment that the
State must comply with former AS 39.35.350.[7] The class was
never certified.
The
State moved to dismiss Metcalfe's lawsuit for failure to
state a claim upon which relief could be granted,
[8]
arguing that: (1) Metcalfe did not have standing to sue
because article XII, section 7 of the Alaska Constitution
protects only PERS members and Metcalfe no longer was a PERS
member after he took a refund of his contributions; (2)
Metcalfe's claim was not ripe because he had not secured
reemployment with the State and thus failed to meet former AS
39.35.350's PERS reinstatement requirements; and (3) the
contract statute of limitations barred Metcalfe's claim
because the legislation was passed in 2005 but Metcalfe did
not sue until 2013.[9]The superior court tentatively rejected the
argument that Metcalfe failed to state a claim upon which
relief could be granted, rejected the argument that
Metcalfe's claim was not ripe and that he lacked
standing, but dismissed Metcalfe's claim as time
barred.[10]
Metcalfe
appealed the superior court's dismissal of his claim
based on the statute of limitations. The State cross-appealed
the superior court's ruling that Metcalfe's claim was
ripe and argued that the superior court's decision could
be upheld on the ground that Metcalfe lacked standing to sue.
After oral argument we requested supplemental briefing
primarily addressing two questions: (1) can a claim for
diminution in value of a contract right exist in this
context, and (2) can a statute of limitations defense apply
to a claim for declaratory and injunctive relief prohibiting
the enforcement of a statute alleged to be in violation of
article XII, section 7?
III.
DISCUSSION
A.
Arguments In The Superior Court
Metcalfe's
complaint contained a lengthy recitation of facts and law
asserting that the 2005 legislation violated the Alaska
Constitution. But Metcalfe's claim primarily was that he
was entitled to damages because the 2005 legislation breached
his PERS contract. A single reference to declaratory judgment
was included in the ultimate prayer for relief, essentially
asking the court to order the State to honor former AS
39.35.350.[11]
When
the State moved to dismiss Metcalfe's claim, Metcalfe
affirmatively asserted that his "claim is for breach of
contract" and that it has "significant value,
" without any reference to a separate declaratory
judgment that the State must honor former AS 39.35.350.
Metcalfe argued that former AS 39.35.350's provision for
future reinstatement at previous PERS service and tier levels
was a constitutionally based contract right that - despite
his withdrawal from the PERS system - had not been
relinquished, giving him standing to sue the State for
impairment of that right. He contended that the State had
breached the contract on June 30, 2010 when former AS
39.35.350 finally was extinguished based on the earlier 2005
legislation. He reasoned that the contract claim became ripe
on July 1, 2010, and therefore that his June 27, 2013 lawsuit
was within the three-year statute of limitations. Although
acknowledging that "the value of [his contract right]
may seem abstract, " Metcalfe argued that projected
State savings from the statutory change, in excess of $100
million per year for medical insurance premiums alone,
"grounds the financial value firmly in fact."
The
superior court made a "tentative" determination
that Metcalfe had a vested reinstatement right under former
AS 39.35.350, but noted need for further briefing on this
issue if the case were to proceed. The court then concluded
that this assumed vested right gave Metcalfe standing to sue
and that, given the allegation that the 2005 legislation
breached Metcalfe's PERS contract and diminished the
assumed vested right's value, his claim was ripe. The
court also noted that to the extent Metcalfe sought
declaratory relief, it was for the court to determine whether
the State had breached his PERS contract. But the court
concluded that Metcalfe's breach of contract claim
accrued in 2005 when former AS 39.35.350 was repealed - not
at the close of the five-year grace period - because the
alleged lifetime reinstatement right had been diminished
immediately when the 2005 legislation limited it to the
five-year grace period and Metcalfe reasonably should have
discovered the ability to bring his claim then. The court
noted that Metcalfe had at least constructive notice of his
claim in 2005 and had not argued either that he did not have
notice or that the statute of limitations should be tolled.
The court therefore dismissed Metcalfe's claim as barred
by the three-year statute of limitations.
Metcalfe
then filed a reconsideration motion asserting that the
superior court had overlooked a critical proposition of law.
Metcalfe argued specifically that the 2005 legislation
actually had not been a breach of his contract but rather was
a repudiation of that contract allowing him to sue either
when he chose to assert the breach or when the State's
performance was due. Metcalfe's new legal theory, based
on Restatement (Second) of Contracts § 250[12] and
Franconia Associates v. United States,
[13]
was different from his pleaded allegations, his opposition to
the State's dismissal motion, and his prior litigation
position that the repeal of former AS 39.35.350 was a fait
accompli supporting a contract damages claim. And Metcalfe
still made no reference to declaratory judgment in connection
with his new theory.
The
State opposed reconsideration, responding that Metcalfe's
repudiation argument was inconsistent with his claim that
"his rights were diminished immediately upon
the enactment of SB 141." (Emphasis in original.) It
also argued that Franconia was distinguishable and
that Metcalfe's new repudiation argument was at odds with
his position that the 2005 legislation had devalued his
contract right and caused him immediate harm.
The
superior court denied Metcalfe's reconsideration motion.
The court concluded Franconia was not controlling
and was distinguishable because it did not involve retirement
system contract rights, and noted the majority federal rule
that a claim for wrongful changes to a retirement program
accrues when a clear repudiation of retirees' rights is
made known. More importantly the court did not believe that
the 2005 legislation was a "mere anticipatory
repudiation":
[I]n any event, the court is not persuaded that the passage
of [the 2005 legislation] constituted a mere anticipatory
repudiation. The gist of Mr. Metcalfe's claim is that
[the 2005 legislation] violated [a]rticle XII, § 7. Such
a violation would have occurred when [the 2005 legislation]
was enacted as [it] would have immediately diminished an
accrued retirement benefit. Moreover, if viewed in
conventional contract terms, if Mr. Metcalfe has a state
Constitution based retirement benefit accruing at the time of
his initial State hire to repay his PERS contribution and be
reinstated to his former retirement tier if ever rehired by
the State at any time, [the 2005 legislation] breached the
contract when enacted as it immediately removed this
"any time" right. This view is consistent with Mr.
Metcalfe's own arguments with respect to the State's
lack of ripeness and lack of standing claims. To the extent
that Franconia holds otherwise the court does not
find it persuasive. (Footnote omitted.)
The
superior court stated that its order "appears to
conclude this litigation, " and it concurrently entered
a separate final judgment. Nothing in the record reflects
that Metcalfe challenged the final judgment that concluded
the superior court litigation; Metcalfe did not argue that he
had any claims not yet litigated, such as a claim for a
declaratory judgment that the State must honor former AS
39.35.350.
B.
Arguments On Appeal
Metcalfe
initially argued in his briefing to us that two theories
prevent his contract damages claim being barred by the
statute of limitations. One is that through the 2005
legislation the State violated its contractual obligation not
to diminish or impair his reinstatement right without an
equivalent offsetting benefit; this resulted in a contract
breach on June 30, 2010, the final grace period day for
reinstatement under former AS 39.35.350. The other is that
the State has repudiated but not yet breached its contractual
obligation to reinstate Metcalfe upon his future reemployment
and repayment of his refunded PERS contributions - and that
this repudiation allows him to sue for damages any time
before the State's performance otherwise would be due and
to seek contract damages even though he has not been rehired
by the State (or tendered repayment of his withdrawn PERS
contributions). But he nonetheless characterizes the damages
for each contract claim in the same manner: the diminution in
value of his alleged lifetime PERS reinstatement rights under
former AS 39.35.350.
The
phrase "declaratory judgment" cannot be found
anywhere in the argument sections of Metcalfe's opening
and reply briefs. He did not contest the superior court's
determination that his request for declaratory relief was
only a reiteration of his contention that his contract had
been breached and he was entitled to damages. Nor did he
argue that the superior court erred by not entering a
declaratory judgment that the State must honor former AS
39.35.350.[14]
On the
other hand the superior court expressly noted that Metcalfe
was bringing a claim for declaratory relief regarding the
2005 legislation. The court determined that Metcalfe had
standing to seek declaratory relief because he presented an
actual controversy ripe for decision-his claim was based on
an asserted constitutional interest already subject to
diminishment. And in its cross-appeal the State argued that
if the superior court erred in its statute of limitations
ruling, we should affirm the dismissal of Metcalfe's
lawsuit because he did not have standing to bring a claim for
declaratory judgment and his claim was not ripe for
declaratory relief. Metcalfe disputed the State's
arguments but his response did not focus directly on its
argument against declaratory relief.
In
response to our order for supplemental briefing, Metcalfe
directed us to article XII, section 7 cases in which we have
either permitted a breach of contract claim alongside a claim
for declaratory and injunctive relief or applied contract-law
principles in deciding the case. Metcalfe characterized his
claim for damages and declaratory and injunctive relief as
seeking remedies for two separate harms: a remedy at law for
one harm, a breach of contract and resulting injury occurring
while the 2005 legislation has been in effect; and an
equitable remedy for the other harm, a declaratory and
injunctive relief prohibiting future enforcement of the 2005
legislation. Metcalfe asserted that no statute of limitations
applies to his claim for declaratory and injunctive relief
because such a claim seeks to prevent a future harm. The
State countered that even if Metcalfe's declaratory and
injunctive relief claim could survive dismissal based on the
statute of limitations, the claim could not survive the
State's other defenses. Both parties also urged us to
decide the actual merits of Metcalfe's statutory
diminution claim if we determine the claim was dismissed in
error.
C.
Decision
1.
Metcalfe has no right to diminution of value damages based on
a claim that the 2005 legislation was a breach of the PERS
contract.
We have
not previously recognized a constitutional claim for damages
for a violation of article XII, section 7.[15] In
Hammond v. Hqffbeck[16]we interpreted article XII, section 7
to mean that members' retirement system rights accrue
upon employment and enrollment[17] and noted our view that the
protected benefit rights include "requirements for
eligibility."[18] We recognized that retirement systems
require some flexibility for successful operations, holding
that the constitution does not preclude modifications to
system rights after employment and enrollment, but that it
does "require that any changes in the system that
operate to a given employee's disadvantage must be offset
by comparable new advantages to that
employee."[19]
The
merits of and remedies in Hammond wo, instructive.
The case involved amendments to PERS eliminating distinctions
between public safety employees and other PERS participants,
effectively reducing certain occupational disability and
death benefits and increasing certain eligibility
requirements for occupational pension benefits for the public
safety employees.[20] A public safety employees' union
sued, alleging the PERS changes were unconstitutional; the
superior court agreed and prospectively enjoined the changes
in their entirety.[21] The State argued that any benefit
diminishment had been offset by other advantages from the
PERS amendments and that the changes were constitutionally
sound.[22]
We
noted that our task on appeal was to determine whether the
PERS modifications had disadvantageous effects on the public
safety employees and, if so, to weigh those disadvantages
against any advantages that may have accompanied
them.[23] We concluded that the superior court
correctly determined that the PERS modifications were an
effective diminishment of vested system rights and violated
article XII, section 7 as to those public safety employees
adversely affected.[24] But we explained that the ultimate
determination whether vested rights have been diminished must
be made on a case-by-case basis.[25] We specifically concluded
that the superior court had erred by prospectively
invalidating the PERS modifications when there would be no
constitutional infirmity in applying them to persons employed
and enrolled after their effective date.[26]We also noted
that persons employed before the PERS modifications'
effective date who wished to be covered by the new system
could elect to do so.[27] We held that the PERS modifications
were only unconstitutional in relation to persons employed
before the modifications' effective date who chose to
receive benefits under the system in effect at the time they
were hired.[28] Thus the available remedy for the
modifications' constitutional infirmity was an in-system
benefits choice.[29]
More
recently, in McMullen v. Bell we reiterated both
that under the constitution the legislature may not impair
accrued state retirement system benefits and that benefit
rights vest on employment and enrollment.[30] Further:
An employee's vested benefits arise by statute, from the
regulations implementing those statutes, and from the
division's practices. Where the state has changed the
benefits system after an employee's enrollment in the
system, the employee may choose to accept the new system or
may opt to keep the benefits in effect at
enrollment.[31]
This
suggests Metcalfe's proper remedy is allowing him to keep
the retirement benefits available to him-whatever those
benefits might be-not breach of contract damages.
Although
we have used contract-law principles to decide article XII,
section 7 cases[32] and have even affirmed a related breach
of contract finding in a case, [33] breach of contract
damages are not an appropriate remedy for the alleged
constitutional violation here: In Lowell v. Hayes we
declined to allow "a constitutional claim for damages,
'except in cases of flagrant constitutional violations
where little or no alternative remedies are available.'
"[34] We later stated that declaratory and
injunctive relief are appropriate remedies with respect to
potentially unconstitutional statutes if the circumstances of
the case do not meet the exception described in Lowell v.
Hayes and damages are unavailable.[35] Our general
reluctance to allow a constitutional claim for damages where
other remedies exist, viewed in ...