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Cranston Firefighters, AFL-CIO v. Raimondo

United States District Court, D. Rhode Island

March 7, 2017

CRANSTON FIREFIGHTERS, IAFF LOCAL 1363, AFL-CIO, on its own behalf and on behalf of its members, and INTERNATIONAL BROTHERHOOD OF POLICE OFFICERS, LOCAL 301, AFL-CIO, on its own behalf and on behalf of its members Plaintiffs,
v.
GINA RAIMONDO, in her capacity as Governor of the State of Rhode Island, SETH MAGAZINER, in his capacity as the General Treasurer of the State of Rhode Island, the EMPLOYEES' RETIREMENT SYSTEM OF RHODE ISLAND, by and through Seth Magaziner, in his capacity as Chairperson of the Retirement Board, and Frank J. Karpinski, in his capacity as Executive Director of the Retirement Board, and CITY OF CRANSTON, by and through its Finance Director, Robert F. Strom, and its Treasurer, David Capuano, Defendants.

          ORDER AND MEMORANDUM

          Mary M. Lisi Senior United States District Judge

         The plaintiffs in this action, Cranston Firefighters, IAFF Local 1363, AFL-CIO (the “Firefighters”) and International Brotherhood of Police Officers, Local 301-CIO (the “Police Officers, ” together with the Firefighters, the “Unions” or “Plaintiffs”), have brought claims (the “Complaint”) against the State of Rhode Island (the “State”), the Employees' Retirement System of Rhode Island (“ERSRI”), and the City of Cranston, (the “City, ” together with the State and ERSRI, “Defendants”), related to the implementation of the Rhode Island Retirement Security Act of 2011 (“RIRSA”), as amended by Rhode Island Public Laws Chapter 141, Article 21, “Relating to Pensions” (the “2015 Amendments”). The matters before the Court are two separate motions to dismiss the Complaint filed by the State (ECF No. 7) and by the City (ECF No. 13). After considering the parties' pleadings and conducting a hearing on the motions on October 6, 2016, the Court issues the following order and memorandum.

         I. Factual Background

         A. Collective Bargaining Agreements

         As set forth in the Complaint, the City and Local 1363 are parties to a collective bargaining agreement[1] (“CBA”), pursuant to which “employees hired after July 1, 1995 will be enrolled in the ‘State of Rhode Island Optional Twenty (20) Year Retirement Service Allowance, ' R.I.G.L. 45-21.2-22.” Complaint ¶18. The CBA provides, inter alia, that employees enrolled in the pension plan will accrue 2.5% per credited year of service, up to 75% for thirty years of credited service; that the pension payment will be based on the employee's weekly salary, longevity pay, and holiday pay, based on the employee's highest year of earnings; and that all retired employees' pension payments will automatically escalate by 3%, compounded each year following the year of retirement. Complaint ¶¶19-21. Similarly, Section 2.28.050 of the City of Cranston's Code of Ordinances provides for an accrual of 2.5% per credited year of service up to a maximum of 75%. Complaint ¶25.

         The City is also party to a CBA with Cranston Police, which governs employment terms and conditions for all full-time Cranston police officers (up to, and including, the rank of Captain). Complaint ¶31. The Police CBA for the period from July 1, 2014 through June 30, 2017 provides for, inter alia, fixed annual COLAs of 3% for all employees retiring after execution of the Police CBA. Complaint ¶32. The Police CBA requires that no changes may be made to current benefits without a written agreement between the City and the IBPO [International Brotherhood of Police Officers]. Id. According to the Complaint, the Plaintiff Unions have filed grievances against the City for allegedly violating provisions of the respective CBAs. Complaint ¶¶24, 34. Those grievances are either pending or held in abeyance pending the outcome of the instant case. Id.

         B. The Cranston Ordinances

         The Plaintiffs in this case claim contractual rights to retirement benefits under two provisions of the City of Cranston's Code of Ordinances (the “City Ordinances”), Sections 2.28.050 and Section 2.20.05, respectively, which have remained “substantially the same since 1995”, Complaint ¶¶27, 33. With respect to retirement benefits, Section 2.20.050 provides, inter alia, that police officers enrolled in the Rhode Island pension plan will accrue 2.5% per credited year of service (up to 75%); the Section also includes a 3% annual COLA. Pension benefits are calculated on weekly salary, longevity pay, and holiday pay. Complaint ¶¶35-36. Similar provisions in Section 2.28.050 (related to the Firefighters) include, inter alia, a 2.5% accrual per credited year of service up to 75%. Complaint ¶¶25-26. Plaintiffs allege that the City is currently in violation of both City Ordinances. Complaint ¶¶28, 38.

         C. The 1996 Special Legislation

         According to the Complaint, in 1993, employees of the City's Fire and Police Departments were participants in the City's municipal pension plan. Complaint ¶49. At that time, the City was suffering from “a severe operating deficit” and the municipal pension plan was “critically underfunded.” Complaint ¶50. In 1995, after negotiating with the City, the Unions agreed to permit new hires and employees with five or fewer years of service to transfer into the State Retirement System (“SRS”). Complaint ¶¶54, 55. Because the SRS did not provide the same benefits as the CBAs, the Unions, the City, and SRS representatives negotiated certain changes that became law by special legislation in 1996. As a result, Section 45-21.2-14 of the Rhode Island General Laws was amended to increase employee contributions for members of the Cranston Fire and Police Departments from 7% to 10%; to provide higher “final compensation” when calculating their pension benefits; and to provide them a 3% COLA. Complaint ¶63.

         The Cranston City Council also adopted the provisions of R.I. Gen. Laws § 45-21.2-22, which permitted public safety employees to retire after twenty years of service (regardless of age) and included a retirement allowance of 2.5% of final compensation multiplied by years of service, up to 75% of final compensation. Complaint ¶¶62, 64. Pursuant to Sections 45-21.2-17.2 and 45-21.2-17.3, Cranston Firefighters and Police offices becoming members under the State retirement system waived and renounced all accrued rights and benefits of any other pension or retirement system supported wholly or in part by a municipality if the pension or retirement system was in existence prior to July 1, 1995. Complaint ¶65. The Plaintiffs now take the position that Section 45-21.2-1 et seq., as amended in 1996, "creates a contract between the State and Plaintiffs." Complaint ¶66.

         D. Rhode Island Retirement Security Act of 2011 (“RIRSA”)

         RIRSA was enacted by the Rhode Island General Assembly in 2011 to address the issue of unfunded municipal pension liabilities. Id. at ¶¶67, 68. Some of the changes impacting fire fighters and police officers within the Municipal Employees' Retirement System (“MERS”) include the following: it reduced the factor to calculate an employee's benefit from 2.5% per year of service to 2% per year of service after July 1, 2012; it changed the Final Average Compensation (“FAC”) from the highest year to the highest five consecutive annual salaries; it increased the twenty-year minimum service requirement to twenty-five; it added a minimum retirement age of fifty-five; and it permanently reduced or delayed the amount of COLAs [cost-of-living adjustments]. Complaint ¶69 a-j. In sum, RIRSA reduced, on a prospective basis, the value of benefit plans for certain safety employees, including Cranston fire fighters and police officers.

         As set forth in the statute, in enacting RIRSA, the State sought to address the "fiscal peril related to the growing and substantial unfunded pension liabilities, " that might lead Rhode Island communities to file for bankruptcy protection which, in turn, had already been shown to jeopardize public service pensions. Complaint ¶68. On their part, the Plaintiffs assert, without further factual support, that "the City of Cranston MERS [Municipal Employees Retirement System] for firefighters and police officers was, at all relevant times, well-funded." Complaint ¶77. The Plaintiffs now claim that they have suffered irreparable injuries as a direct result of RIRSA and its amendments. Complaint ¶1.

         E. Litigation Arising from Pension Reform

         1. The CPRAC Case

         In early 2012, the Plaintiffs, together with several other municipal employee unions, filed lawsuits[2] in Rhode Island state court against the State and ERSRI [Employees' Retirement System of Rhode Island], alleging that RIRSA violates the Contracts Clause, Takings Clause, and Due Process Clause of the Rhode Island Constitution by reducing the Plaintiffs' pension benefits and by substantially impairing their contracts. Complaint ¶78.

         In April 2013, the Cranston Police Department Retirees Association, Inc. and the Local 1363 Retirees Association brought suit against the City, alleging that 2013 changes to certain ordinances (the “2013 Ordinances”) of the Cranston City Code - which, inter alia, suspended the prior 3% compounded COLA for a period of ten years - violated the Contract Clause of the United States Constitution and the Rhode Island Constitution. Cranston Police Retirees Action Committee v. City of Cranston, C.A. No. KC-13-1059 (ECF No. 17-2) (“CPRAC”). Eventually, the case was settled, affording those plaintiffs who elected to exclude themselves from the settlement agreement an opportunity to sue the City of Cranston.

         CPRAC promptly filed suit against the City, which, after a thorough discovery period, culminated in a six-day non-jury trial. Id. On July 22, 2016, the Rhode Island state court rendered a decision in favor of the City and concluded that (1) in accordance with the respective CBAs under which they retired, members of CPRAC had a vested right to 3% compounded COLAs and that “the 3% compounded COLAs are contractual obligations, the impairment of which is subject to contract clause scrutiny, ” CPRAC at 24; (2) the 2013 Cranston Ordinances constituted a substantial impairment of the contract between members of CPRAC and the City, id. at 29; (3) the 2013 Ordinances were passed for a significant and legitimate public purpose, id. at 35; and (4) the 2013 Ordinances were “reasonable and necessary, ” id. at 45. Accordingly, the state court concluded that the 2013 Ordinances did not violate the contract clauses of either the Rhode Island or the United States Constitutions. Id. The court also dismissed CPRAC's breach of contract claim for lack of standing and denied CPRAC's request for injunctive relief. The state court's decision is currently on appeal before the Supreme Court of Rhode Island.

         2. The Class Action Settlement

         In 2014, Plaintiffs filed separate lawsuits[3] in Rhode Island state court against the State and the City of Cranston, again asserting that RIRSA violates the Rhode Island Constitution's Contracts Clause, Takings Clause, and Due Process Clause. Plaintiffs' 2014 lawsuits were consolidated with several other lawsuits challenging RIRSA and/or other changes to retirement benefits made in 2010 and 2011. After a settlement was reached in most of the cases, the settling parties filed a class action complaint for settlement purposes. Rhode Island Public Employees' Retiree Coalition v. Raimondo, PC-2015-1468.

         On April 13, 2015, the State and counsel for several unions and retiree groups involved in the state court litigation filed a joint motion for settlement, in which Cranston Police and Cranston Fire did not join. Complaint ¶85. The terms of the settlement agreement (the "Settlement Agreement") were "nearly identical to the 2015 Amendments;” the Settlement Agreement itself was contingent on the General Assembly's passing an amendment to RIRSA. Complaint ¶86. Pursuant to the Settlement Agreement, the parties agreed to be bound by the judgment entered by the state court and to be foreclosed from mounting any further challenges to RIRSA and/or certain other legislative retirement changes. Complaint ¶87. In addition, the parties agreed not to “directly or indirectly, propose, support, encourage and/or advocate that any other person, firm or entity do anything or refrain from doing something that a party to this Settlement Agreement would be prohibited from doing or refraining from doing hereunder.” The parties also agreed not to “support (financially or otherwise)” any challenges to RIRSA and related legislative amendments “pursued by any non-settling party.” Complaint ¶87. The plaintiff class was defined as

“[a]ll persons (and/or their beneficiaries who, on or before July 1, 2015, are receiving benefits or are participating in the State Employees, Teachers or Municipal Employees' retirement plans administered by ERSRI [Employees' Retirement System of Rhode Island] and all future employees, excepting only those individuals who on July 1, 2015 are participating in a municipal retirement system administered by ERSRI for municipal police officers in any municipality and/or for fire personnel of the City of Cranston.”
The Plaintiff Subclasses included
“[a]ll retired members and beneficiaries of retired members who retired on or before June 30, 2015, who are receiving a retirement benefit under ERS or any MERS unit.” State's Exhibit G at 1-2 (ECF No.7-7 p. 2).

         The plaintiffs' motion for class certification and notice was granted and a fairness hearing was held over a five-day period in May 2015. It is undisputed that retired Cranston police officers and firefighters elected not to testify at the related fairness hearing. Complaint ¶89. On June 9, 2015, the Rhode Island state court issued a decision in which it confirmed the certification of the plaintiff classes and overruled any objections to the Settlement Agreement (including an objection to the lack of an opportunity to opt out of the settlement). Complaint ¶95.

         On July 8, 2015, after the 2015 Amendment had passed, the state court issued a final judgment, which became binding on all class members. Complaint ¶97. Although Cranston Fire and Cranston Police retirees did not participate in the settlement, they were included in the plaintiff class and subject to the benefits of the 2015 Amendments. Subsequently, various retirees[4]took an appeal from the judgment, which is currently pending in the Rhode Island Supreme Court.

         F. The 2015 ...


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