RHODE ISLAND PUBLIC EMPLOYEES RETIREE COALITION, ET ALS.
GINA RAIMONDO, IN HER CAPACITY AS GOVERNOR OF THE STATE OF RHODE ISLAND, ET ALS.
Rhode Island Public Employees Retiree Coalition, et al. vs. Gina Raimondo, et al. No. PC 15-1468
Pursuant to Super. R. Civ. P. 23(e), the Court is assigned the duty to either approve or reject the class action settlement agreement reached in this class action and in the underlying pension cases. This 2015 Settlement Agreement was vetted at a Fairness Hearing that began on May 20, 2015. The underlying purpose of the Fairness Hearing was to "protect unnamed members of the class from unjust or unfair settlements affecting their rights." In re Syncor ERISA Litig., 516 F.3d 1095, 1100 (9th Cir. 2008). The role of a judge in this regard has been described as serving as a guardian of the absent class members who will be bound by the settlement. See Barbosa v. Cargill Meat Solutions Corp., 297 F.R.D. 431, 445 (E.D. Cal. 2013).
A court must independently determine whether the proposed settlement agreement is "fundamentally fair, adequate, and reasonable" before granting approval. In re Heritage Bond Litig., 546 F.3d 667, 674-75 (9th Cir. 2008); see also Staton v. Boeing Co., 327 F.3d 938, 959 (9th Cir. 2003). In other words, it must eschew any "rubber stamp" approval in favor of an independent review of the settlement. See City of Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974) (overruled on other grounds in Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir. 2000)). In doing so, courts are "restrained by the clear policy in favor of encouraging settlements" to facilitate resolution of controversies and promote judicial economy. Durrett v. Hous. Auth. of City of Providence, 896 F.2d 600, 600-04 (1st Cir. 1990) (citing Metro. Hous. Dev. Corp. v. Village of Arlington Heights, 616 F.2d 1006, 1014 (7th Cir. 1980)). A court "determines a settlement's fairness by looking at both the settlement's terms and the negotiating process leading to the settlement." Wal–Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 116 (2d Cir. 2005).
In making such a determination of fairness, there "is a strong judicial policy [favoring] settlement [that underlies a court's review], particularly where complex class action litigation is concerned." In re Syncor ERISA Litig., 516 F.3d at 1101 (citing Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1276 (9th Cir. 1992)). The Court's intrusion into what is otherwise a private consensual agreement is limited to the extent necessary to reach a reasoned judgment that the settlement, taken as a whole, is fair, reasonable, and adequate to all concerned. See Officers for Justice v. Civil Service Comm'n of City and Cnty. of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982); see also Clark Equip. Co. v. Int'l Union, Allied Indus. Workers of America, AFL-CIO, 803 F.2d 878, 880 (6th Cir. 1986). The Court remains mindful that "[s]ettlements are private contracts reflecting negotiated compromises." In re Baby Products Antitrust Litig., 708 F.3d 163, 173 (3d Cir. 2013). Accordingly, the Court's role "is not to determine whether the settlement is the fairest possible resolution . . . [but to] determine whether the compromises reflected in the settlement . . . are fair, reasonable, and adequate when considered from the perspective of the class as a whole." Id. at 173-74. An agreement is not properly reviewed by either hypothetical or speculative measures. Officers for Justice, 688 F.2d at 625. In such an evaluation, the Court "'ought not try the case in the settlement hearings, ' and . . . must keep in mind that 'compromise is the essence of a settlement.'" Knight v. Alabama, 469 F.Supp.2d 1016, 1032 (N.D. Ala. 2006) (quoting Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977)). Now, after careful consideration of the proposed 2015 Settlement Agreement, the testimony, and a review of the objections raised by the Class Members, the Court here issues its decision.
Facts and Travel
The procedural backstory of the pension cases has been well documented in many decisions over the past five years. The final chapter culminated with the filing of this class action in April 2015 by Plaintiffs Rhode Island Public Employees' Retiree Coalition (RIPERC); Rhode Island American Federation of Teachers/Retirees, Local 8037 (AFT/R); Roger Boudreau; Michael Connolly; Kevin Schnell; Rhode Island Council 94, AFSCME, AFL-CIO; National Education Association-Rhode Island (NEARI); John Lavery; Michael McDonald; Jason Kane; Amy Mullen; Susan Verdon; Rhode Island State Association of Firefighters; Raymond Furtado; and James Richards (collectively Plaintiffs) against Gina M. Raimondo, in her capacity as Governor of the State of Rhode Island; Seth Magaziner, in his capacity as General Treasurer of the State of Rhode Island; and the Employees Retirement System of Rhode Island (ERSRI), by and through the Retirement Board, by and through Seth Magaziner, in his capacity as Chairperson of the Retirement Board and Frank J. Karpinski, in his capacity as Secretary of the Retirement Board (collectively the State Defendants) and the Towns of Barrington, Middletown, and South Kingstown (the Towns).
The class action complaint, filed for settlement purposes only, challenges the constitutionality of 2009 Legislation, 2010 Legislation, and the Rhode Island Retirement Security Act of 2011 (RIRSA) (collectively Enactments). Specifically, the complaint alleges violations of the Contract Clause, Due Process Clause, and Takings Clauses of the Rhode Island Constitution. The Plaintiffs seek relief that includes a declaration that the Enactments are unconstitutional, as well as other equitable relief including injunctive relief.
The Challenged Enactments
In 2009, the General Assembly passed the first of a trilogy of enactments that modified the statutes governing the retirement system. The passage of the legislation was an attempt to provide more security to the retirement system. Each of these Enactments was separately challenged as being in violation of the Rhode Island Constitution. The first Enactment modified the retirement benefits and rules governing eligibility for retirement for active state employees and teachers not yet eligible to retire. See P.L. 2009, ch. 68, art. 7 (the 2009 Act) (Hr'g Ex. 1). In 2010, the General Assembly passed the second Enactment that reduced the cost of living adjustment (COLA) benefits for active state employees and teachers who were not yet eligible to retire as of June 12, 2010. See P.L. 2010, ch. 23, art. 16 (the 2010 Act) (Hr'g Ex. 2).
The final Enactment, the Rhode Island Retirement Security Act of 2011, P.L. 2011, ch. 408 and 409 (RIRSA), resulted in major changes to the pension system and the retirement benefits for state employees, school teachers, and municipal employees who were not yet eligible to retire as of July 1, 2012. (Hr'g Ex. 3.) For state employees who were eligible to retire but had not yet retired as of July 1, 2012, RIRSA changed the formula by which their retirement allowance would be calculated. For correctional officers, RIRSA also altered the rules governing retirement eligibility and changed the formula for their retirement allowance. For teachers who were not eligible to retire as of July 1, 2012, RIRSA increased the retirement age, changed the formula for calculating the retirement allowance, and changed the employee contribution rate. RIRSA also made changes to the retirement benefits for municipal employees who were members of the Municipal Employees Retirement System (MERS), which is also part of the ERSRI. For all members receiving retirement benefits under the ERSRI, including those employees who had already retired as of June 30, 2012, RIRSA reduced the amount of the annual COLA benefit, limited the COLA to apply only to the first $25, 000 of a member's retirement benefit, and suspended the annual COLA making it payable once every five years until the various pension plans were at least 80% funded. In addition, RIRSA changed the structure of the retirement program from a traditional defined benefit plan to a "hybrid plan" with a smaller defined benefit plan and a supplemental defined contribution plan. For active Police and Firefighters, RIRSA made a number of other changes including increasing the minimum service requirement and adding a minimum retirement age of 55 years.
The History of the Pension Cases
After the historic reformation of the laws governing the retirement system, a number of unions filed lawsuits challenging the constitutionality of the Enactments. The first lawsuit, challenging the 2009 Enactment, was amended to include a challenge to the 2010 Enactment. In that case, the Defendants filed a Motion for Summary Judgment arguing that the ERSRI, as a statutory creation, does not create a contractual relationship between the State and members of the ERSRI. A Decision was rendered on September 13, 2011, denying the motion for summary judgment and concluding that the ERSRI created an implied unilateral contract between the State and ERSRI members. See Rhode Island Council 94 v. Carcieri, 2011 WL 4198506 (R.I. Super. Sept. 13, 2011) (Pension I).
Further litigation emerged after RIRSA was enacted. In 2012, five lawsuits were filed by retired or active state employees, public school teachers, and municipal employees challenging the constitutionality of RIRSA. These actions, along with the 2010 action, came to be known as the pension cases. Like the 2010 case, the 2012 cases sought a declaratory judgment-that RIRSA violated the Contract Clause, Takings Clause, and Due Process Clause of the Rhode Island Constitution-as well as injunctive relief. The Defendants in the 2012 cases filed motions to dismiss or, in the alternative, motions for a more definite statement in all of the 2012 cases in August 2012. These cases were consolidated for discovery purposes by the Court.
In January 2013, the Court directed the parties to mediation facilitated by the Federal Mediation and Conciliation Service (FMCS). (Hr'g Joint Mem. 16, Stip. Facts.) For a period of 13 months, the parties participated in mediation. The parties and their counsel attended numerous mediation sessions that resulted in a proposed settlement (the 2014 Settlement Agreement) (Hr'g Ex. 4). Prior to the settlement, the parties and their expert witnesses, including actuaries, studied and scrutinized the proposals and counter-proposals. (Hr'g Joint Mem. 17, Stip. Facts.) The 2014 Settlement Agreement required approval from Plaintiff members prior to the proposal being submitted to the Court. (Hr'g Ex. 4; Hr'g Joint Mem. 17, Stip. Facts.) As such, it contained detailed voting procedures that were followed by the Plaintiffs through their authorized representatives. (Hr'g Ex. 4; Hr'g Joint Mem. 17-18, Stip. Facts.) They conducted informational hearings regarding the 2014 Settlement Agreement and distributed mail-in ballots to the members of the Plaintiff unions. (Hr'g Joint Mem. 17-18, Stip. Facts.) The end result, after votes were calculated, was a failed settlement. (Hr'g Joint Mem. 19, Stip. Facts.) As a result, the parties returned to Court to continue the litigation. (Hr'g Joint Mem. 19, Stip. Facts.)
After the failed Settlement in 2014, three additional cases were commenced: one by the Cranston Firefighters, IAFF, Local 1363, AFL-CIO in a case docketed as PC 14-4343; another by the International Brotherhood of Police Officers, Local 301, AFL-CIO (Cranston Police) in a case docketed as PC 14-4768; and one by a group of individual retirees, in a case docketed as KC 14-345 (the Clifford case). Each case mounted challenges mirroring those of the Plaintiffs in the initial six lawsuits. All nine of these actions named as Defendants the Governor of the State of Rhode Island in his or her official capacity, the General Treasurer of the State of Rhode Island, and the ERSRI, by and through the Retirement Board, by and through the Chairperson of the Retirement Board and the Secretary of the Retirement Board (the State Defendants).
From 2014 until the date the 2015 Settlement Agreement was announced, the parties engaged in extensive discovery and pre-trial motion practice. In April 2014, the Court issued Decisions denying the Defendants' motions to dismiss, or in the alternative, for a more definite statement in the five 2012 cases. See Bristol/Warren Regional School Employees, Local 581 v. Chafee, PC 12-3167, PC 12-3169, PC 12-3579, 2014 WL 1743142 (R.I. Super. Apr. 25, 2014); R.I. Council 94 v. Chafee, PC 12-3168, 2014 WL 1743149 (R.I. Super. Apr. 25, 2014); Rhode Island Public Employees' Retiree Coalition v. Chafee, PC 12-3166, 2014 WL 1577496 (R.I. Super. Apr. 16, 2014). In addition, a number of municipal entities who have collective bargaining agreements (CBA) with the Plaintiff employees were joined as defendants and indispensable parties to the various suits (Municipal Defendants). (Hr'g Joint Mem. 20, Stip. Facts.) On December 2, 2014, the Defendants' motion for a jury trial was granted. (Hr'g Joint Mem. 20, Stip. Facts.) The pension cases were eventually consolidated for trial, and a trial date was set for April 20, 2015.
In anticipation of trial, the parties have completed extensive discovery through interrogatories, document requests, and requests for admissions, as well as retained and engaged expert witnesses. The Defendants alone have produced more than 700 gigabytes of electronic documents, consisting of more than 6.5 million emails and more than 325, 000 other electronic documents and produced over 4 million pages of documents. (Hr'g Joint Mem. 8.)
As discovery proceeded, so did motion practice. The Court, on March 18, 2015, issued its Decision on the Plaintiffs' Consolidated Motion in Limine as to the Burden of Proof on their Contract Clause Claims and the Defendants' Motion in Limine as to the Burden of Proof for Contract Clause Claims. See In re Pension Cases, 2015 WL 1288188 (R.I. Super. Mar. 18, 2015). In the Decision, the Court followed the well-settled precedents established by the Rhode Island Supreme Court that legislative enactments are presumed to be constitutional and that any party challenging the constitutional validity of a statute has the burden of proving beyond a reasonable doubt that the legislation is unconstitutional. See id. at *2. It was concluded that Contract Clause jurisprudence required that once the State had produced evidence to show that the legislation was reasonable and necessary for an important public purpose, the ultimate burden remained on the Plaintiffs to establish beyond a reasonable doubt that the legislation was not reasonable and necessary. See id. at *5. Dispositive motions were then filed by the parties. (Hr'g Joint Mem. 23, Stip. Facts.) The motions were argued on March 26, 2015 and April 2, 2015. (Hr'g Joint Mem. 23, Stip. Facts.) The State Defendants' motion for summary judgment on the Plaintiffs' conversion claim in the Clifford case was granted. (Hr'g Joint Mem. 23, Stip. Facts.) Decisions on the other motions and cross-motions for summary judgment remain pending. (Hr'g Joint Mem. 23, Stip. Facts.)
As the trial date grew closer and discovery issues remained, a Special Master was appointed to assist the parties in resolving any discovery issues and narrowing or resolving issues for trial. (In re Pension Cases Order Amending Pretrial Order and Appointing a Master, Mar. 9, 2015.) Pursuant to the Order, discovery deadlines and submission of pretrial memoranda were also addressed. The parties met with the Special Master to narrow or resolve disputed issues. The meeting resurrected the settlement discussions. As a result of this, negotiations began, and an agreement was reached. (Hr'g Joint Mem. 24, Stip. Facts.) The 2015 Settlement Agreement was presented to the Plaintiffs' respective governing bodies to determine whether or not to accept the agreement. (Hr'g Joint Mem. 25, Stip. Facts.) Each Plaintiff union and organization participating in the pension cases conducted its own internal review and authorization of the proposed settlement. (Hr'g Joint Mem. 25, Stip. Facts.) Initially, the leadership of each settling union and organization considered the proposed settlement and determined to support it. (Hr'g Joint Mem. 25, Stip. Facts.) Many of the Plaintiff unions and organizations chose to conduct a vote of the proposed settlement by their membership. (Hr'g Joint Mem. 25, Stip. Facts.) Accordingly, the Plaintiff unions and organizations sent out written materials and/or organized informational meetings on the proposed settlement, which took place between March 19 and March 26, 2015. (Hr'g Joint Mem. 25; Stip. Facts.) A majority of the constituents of the unions and organizations participating in the pension cases who were polled supported the new proposed settlement. (Hr'g Joint Mem. 25, Stip. Facts.) A substantial majority of the constituents in the Plaintiff unions in the 2010 case, the 2012 state employees and teachers' case (docketed as PC 12-3168), the 2012 general municipal MERS case (docketed as PC 12-3167), and the 2012 MERS firefighters' case (docketed as PC 12-3579) supported the proposed settlement, as did a substantial majority of the individual Plaintiff retirees in the separate Clifford case (docketed as KC 14-345). (Hr'g Joint Mem. 25, Stip. Facts.) Ultimately, a majority of the constituents of the Plaintiff unions and organizations approved the proposed settlement, with the exception of the active police represented by the International Brotherhood of Police Officers (IBPO), the Plaintiffs in the case docketed as PC 12-3169, the Cranston Police, and the Cranston Firefighters.
Consequently, on April 2, 2015, the Special Master submitted his report to the Court, announcing that the parties, with the exception of the Plaintiffs in the case docketed as PC 12-3169 (active police) and the Cranston Police and Firefighters, had reached a settlement which was approved by a majority of the members of the organizations represented in the pension cases. Accordingly, this Court allowed the parties a forty-five-day implementation period. (Hr'g Joint Mem. 26, Stip. Facts.)
The Instant Class Action Lawsuit
This action was commenced on April 13, 2015. Shortly after its commencement, the Plaintiffs filed a Motion for Class Certification and Appointment of Class Representatives and Class Counsel. In addition, a Joint Motion for Preliminary Approval of the Proposed Settlement and Notice Procedures was filed.
The motion to certify the Plaintiff Class and the Defendant Class under Super. R. Civ. P. 23(b)(2) was granted on April 16, 2015. Also on April 16, 2015, the Court granted the Joint Motion for Preliminary Approval of the 2015 Settlement Agreement. In doing so, the Court found that the proposed settlement merited an initial presumption of fairness and was within the range of reasonableness for a fair, adequate, and reasonable settlement.
On that date, the Court entered an order directing the parties to provide notice of the class certification and proposed settlement to the Class Members (the Notice). The Notice stated that all written objections must be submitted by May 15, 2015. The Notice was mailed to all the Plaintiff and Defendant Class Members as of April 20, 2015, using the most recent address provided to the ERSRI by plan participants. (Hr'g Exs. 6, 7.) In total, approximately 61, 000 notices were mailed, of which approximately 1500 were returned for an incorrect mailing address. (Hr'g Joint Mem. 30, Stip. Facts.) In addition, the Notice was published in the Providence Journal on April 27, 2015. (Hr'g Ex. 9.) Additional information concerning the proposed settlement was also made available on a website, http://content.ersri.org/settlement (the Settlement Website), which was listed in the Notice.
The Terms of the 2015 Settlement Agreement
The 2015 Settlement Agreement (Hr'g Ex. 10) is intended to resolve all issues relating to the Plaintiffs' constitutional challenges to the changes to the retirement system made in 2009, 2010, and in 2011. The parties have agreed that the terms of the proposed settlement will be effectuated through the enactment of new legislation to amend RIRSA. The terms of the proposed settlement, which are to be effective July 1, 2015 pending legislative enactment, are summarized as follows:
1. One-time COLA: A one-time COLA payment of 2% applied to the first $25, 000 of the pension benefit and that amount added to the base benefit will be paid to retirees (or their beneficiaries) who participate in a COLA program and who retired on or before June 30, 2012 as soon as administratively reasonable following the passage of the legislation based on the amount of benefit payable on the effective date of the legislation.
2. Annual COLAs: For funds that are not already 80% funded, the settlement shortens the time intervals between suspended COLA payments from once every five years to once every four years. The settlement also improves the COLA limitation for current retirees whose COLA is suspended. The settlement also requires a more favorable indexing of COLA Cap for all current and future retirees. The settlement also changes the COLA calculation to one more likely to produce a positive number and dictates that the COLA formula will be calculated annually, regardless of funding level, and when paid, the COLA will be compounded for all receiving a COLA.
3. Stipend: Current retirees (or their beneficiaries) who have or will have retired on or before June 30, 2015 will receive two payments: (1) a one-time $500 stipend (not added to the COLA base) within sixty days of the enactment of the legislation approving the terms of the settlement; and (2) a one-time $500 stipend payable one year later.
4. For State Workers, Teachers, and General MERS, the settlement (1) adds another calculation to reduce the minimum retirement age; (2) improves the available accrual rate for employees with twenty years or more of service as of June 30, 2012; (3) requires increased contributions by the employer to the Defined Contribution Plan for employees with ten or more years of service (but less than twenty) as of June 30, 2012; (4) waives the administration fee for any employees participating in the Defined Contribution Plan who make $35, 000 or less; and (5) adds another calculation designed to limit the impact of the "anti-spiking" rule imposed by the RIRSA on part-time employees.
5. For MERS Firefighters (excluding Cranston Firefighters), the settlement (1) lowers the age and service requirements for retirement; (2) increases the accrual rate for Firefighters who retire at age fifty-seven with thirty years of service.
6. For State Correctional Officers, the settlement increases the accrual rate for correctional officers with fewer than twenty-five years of service as of June 30, 2012.
7. The settlement reduces the impact of an early retirement.
8. The settlement allows Municipalities to "re-amortize"; that is, partially refinance, to be able to pay for the increased cost of the settlement.
Other than the proposed changes, the RIRSA shall remain the same.
The Written Objections to the Proposed Settlement
In accordance with the Notice, the Court received approximately 400 written objections to the 2015 Settlement Agreement from Class Members. In addition, sixty-nine Class Members requested the opportunity to address the Court at the fairness hearing.
The Objectors raise a number of procedural and substantive objections to the 2015 Settlement Agreement. The Objections are briefly summarized and categorized below.
Contract Rights to Pension Benefits
The majority of all Objectors argue that the 2015 Settlement Agreement is unfair because they have a contractual right to the retirement benefits promised by the State once they became "vested." In addition, these Objectors contend it was unfair for the State to require that a certain portion of their paycheck contribute to the pension system only for the State to unilaterally change the terms of their pension benefits after the Objectors had vested or retired. In essence, the Objectors reiterate many of the constitutional arguments put forth by the Plaintiffs in the underlying pension cases, including, inter alia, that the Enactments violate the Contract Clause. In support of their argument, some Objectors rely on recent cases from other jurisdictions, namely the Illinois Supreme Court decision in In re Pension Reform Litig., 2015 IL 118585 (Ill. 2015), and the Oregon Supreme Court Decision in Moro v. State, 2015 WL 1955591 (Or. Apr. 30, 2015).
Challenges to the Voting Process
Many challenge issues relating to the settlement negotiation and approval process. Specifically, these Objectors argue that the vote to approve the 2015 Settlement Agreement was inherently unfair since it was rushed, and some did not have the opportunity to vote. These Objectors also claim that the settlement negotiations were unfair because this Court's March 17, 2015 Confidentiality Order prevented them from knowing and considering the settlement terms prior to the approval vote. Also, some Objectors claim that Retired Chief Justice Williams's role in negotiating the settlement was improper.
The Severity of the Pension Crisis
Another area of contention raised by the Objectors concerns the State's position regarding the severity of the State's financial distress following the Great Recession. In effect, these Objectors claim that the State's financial distress was not so great as to warrant such drastic changes to their promised benefits.
Some Objectors aver that the settlement negatively impacts certain groups disproportionately. For example, some Objectors reference the fact that while employees with twenty plus years of service will be returned to a defined benefit plan under the terms of the 2015 Settlement Agreement, the same benefit does not apply to those who are eligible to retire due to age but who did not reach the threshold of twenty years of service. Other groups that claim they are disproportionately impacted by the 2015 Settlement Agreement include: (1) those who retired close to the twenty years of service threshold; (2) those who already achieved their maximum accrual rate; (3) those that have been working in state service for over twenty years but who do not have twenty "years of service credit" due to the fact they took time off or worked part-time to care for family members. Finally, some retirees, including a group of East Greenwich retired police officers, challenge the fact that the 2015 Settlement Agreement includes all those who are receiving a retirement benefit under any MERS unit regardless of the individual community's ability to pay the promised benefits.
Due Process Concerns/ Desire to "Opt Out" of Class Action
Other Objectors take issue with the 2015 Settlement Agreement because they were not part of the underlying pension cases and/or did not have a seat at the settlement bargaining table. Specifically, nonunion employees and a group of Woonsocket Police Retirees contend that their interests were not adequately represented during the settlement negotiations. In this regard, these Objectors claim that their due process rights were not adequately protected. Accordingly, they have expressed their desire to "opt out" of the current Class Action to pursue their individual suits.