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Clifford v. Raimondo

Supreme Court of Rhode Island

May 25, 2018

Joseph Clifford et al.
Gina Raimondo, in her capacity as Governor of the State of Rhode Island, et al. Rhode Island Public Employees' Retiree Coalition et al.
Gina Raimondo, in her capacity as Governor of the State of Rhode Island, et al.

          Kent County Superior Court (KC 14-345), Providence County Superior Court (PC 15-1468), Associate Justice Sarah Taft-Carter.

          For Plaintiffs: Thomas M. Dickinson, Esq. Edward C. Roy, Jr., Esq. Lynette J. Labinger, Esq. Michael B. Forte, Jr., Esq. Carly Beauvais Iafrate, Esq. Joseph F. Penza, Jr., Esq. Thomas R. Landry, Esq. Douglas L. Steele, Pro Hac Vice.

          Present: Suttell, C.J., Goldberg, Flaherty, and Indeglia, JJ.


          Gilbert V. Indeglia Associate Justice.

         "Economy is the method by which we prepare today to afford the improvements of tomorrow."[1]

         Rhode Island, unfortunately, failed to prepare for tomorrow. Its problems all came to a breaking point in 2009, at the depth of the recession, at which time government officials realized they needed to address the depletion of funding in the state and municipal employee retirement systems.[2] As a result, in 2009 and 2010, the General Assembly amended the statutes governing the pension system, changing the retirement age and reducing the cost-of-living adjustment (COLA). See P.L. 2009, ch. 68, art. 7; P.L. 2010, ch. 23, art. 16; see also G.L. 1956 chapters 8, 9, 10, and 10.1 of title 36; G.L. 1956 chapter 21 of title 45. In 2011, the General Assembly took more drastic action and passed the Rhode Island Retirement Security Act of 2011 (RIRSA), which abridged the retirement benefits of state and municipal employees even further. See P.L. 2011, chs. 408 and 409. In response, a number of lawsuits were filed by various state and municipal unions on behalf of their affected members.

         In these appeals, we are asked to review a class-action settlement that was approved by a Superior Court trial justice in 2015. That class action was filed in April 2015 for settlement purposes only by the following parties: the Rhode Island Public Employees' Retiree Coalition (RIPERC); the Rhode Island American Federation of Teachers/Retirees, Local 8037 (AFT/R); Roger Boudreau; Michael Connolly; Kevin Schnell; the Rhode Island Council 94, AFSCME, AFL-CIO; the National Education Association-Rhode Island (NEARI); John Lavery; Michael McDonald; Jason Kane; Amy Mullen; Susan Verdon; the Rhode Island State Association of Firefighters; Raymond Furtado; and James Richards (collectively, the Union plaintiffs). The class action was filed against both state and municipal defendants. The state defendants are the following: 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 the State of Rhode Island, by and through the Rhode Island Retirement Board, by and through Magaziner, in his capacity as Chairman of the Retirement Board; and Frank J. Karpinski, in his capacity as Secretary of the Retirement Board (collectively, the state defendants). The municipal defendants are the towns of Barrington, Middletown, and South Kingstown (collectively, the municipal defendants). While the Union plaintiffs approved of the settlement, filing briefs in this appeal in support of the state defendants, two groups of class-member plaintiffs appealed the trial justice's approval of the settlement in two separate actions, now consolidated on appeal. Those opponents are "the Clifford plaintiffs"[3] and "the Retiree plaintiffs."[4] For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.


         Facts and Travel


         The State Employees' Retirement System

         In Rhode Island, the state retirement board administers the state employees' retirement system-the Employees' Retirement System of Rhode Island (ERSRI)-and the municipal employees' retirement system-the Municipal Employees Retirement System (MERS).[5] See G.L. 1956 §§ 36-8-2 and 36-8-4(a). MERS, "which includes locally funded plans[, ]" was established in 1951. Andre S. Digou, A View of the Rhode Island Pension Landscape: The Potential Reform of Local Pension Plans Under the Preemption Doctrine, 19 Roger Williams U. L. Rev. 740, 741 (2014). Rhode Island "pools plan funds for investment purposes, " and the Rhode Island general treasurer chairs the retirement board; he or she "is responsible for the [system's] investment decisions and setting asset allocation strategies * * *." Id. at 741-42.

         In 2009, the General Assembly enacted legislation that effectively redefined the service and/or age requirements for present employees. See P.L. 2009, ch. 68, art. 7. The following year, the General Assembly made further amendments, curtailing the COLA to "the first * * * $35, 000 * * * of retirement allowance, " and requiring that it not "commence [until] the third (3rd) anniversary of the date of retirement or when the retiree reaches age sixty-five (65), whichever is later." P.L. 2010, ch. 23, art. 16.

         In 2011, as part of its legislative findings in passing RIRSA, the General Assembly explained its reasons for adopting the act as follows:

"(1) The State of Rhode Island has one of the lowest funded and most vulnerable statewide pension systems in the country.
"* * *
"* * *
"(4) The state retirement system's unfunded liability exceeds $7 billion as measured by well-established and accepted public accounting standards.
"* * *
"(6) Annual government contributions to ERSRI more than doubled between fiscal years 2005 and 2011 and those contributions are estimated to double again in fiscal year 2013 to exceed over $600 million. Without immediate and comprehensive legislative action future contributions will continue to grow dramatically and exceed $1 billion * * * in necessary annual contributions.
"(7) If pension contributions continue to grow at the current and projected levels, they will be unaffordable and the pension security of our valued public employees will be placed in jeopardy." P.L. 2011, ch. 408, § 1.

         In response to all of these fiscal issues facing the state, RIRSA included a minimum retirement age for certain employees and also made changes to the COLAs. P.L. 2011, ch. 408, § 7. Specifically, and at issue in this appeal, RIRSA stopped paying annual COLAs "until the state's pension plans [were] 80% funded overall[, ]" which, as expressed by both sets of plaintiffs at oral argument in this appeal, is indefinite. Christopher D. Hu, Reforming Public Pensions in Rhode Island, 23 Stan. L. & Pol'y Rev. 523, 527 (2012).


         Lawsuits Filed by Unions and Retiree Associations

         After the passage of RIRSA, state and municipal employees suffered a severe diminution of their anticipated retirement benefits. This led to the filing of a number of lawsuits commencing in 2010 that challenged the enactment of the 2009 and 2010 amendments and RIRSA, which came to be known as "the pension cases."

         The first lawsuit was filed in 2010 by a number of unions representing state employees and teachers, alleging that the 2009 and 2010 amendments violated the Contract, Takings, and Due Process Clauses of the Rhode Island Constitution. Then, in 2012, five lawsuits were brought on behalf of various unions and retirement associations challenging RIRSA, alleging the same constitutional claims as alleged in the 2010 lawsuit.

         In 2013, all parties involved in both the 2010 and 2012 cases were ordered to attend mediation. After months of mediation, the parties reached a proposed settlement in February 2014, subject to approval by all members of the unions. The parties, however, failed to secure the necessary vote from the members, and so the litigation continued. In 2014, three more cases alleging similar claims were filed, one of which was the so-called "Clifford" case, by a group of individual retirees. The lawsuits were eventually consolidated.

         The parties engaged in extensive discovery-defendants produced more than 700 gigabytes of electronic documents and over four million pages of documents. The parties began preparation for a trial scheduled on April 20, 2015. In March 2015, the trial justice assigned a special master to oversee any remaining discovery issues; after the special master had worked with the parties, he announced that all parties except one group of plaintiffs[6] had reached a settlement approved by a majority of the group members.

         Subsequently, on April 13, 2015, the parties filed a class-action lawsuit to implement the settlement, move for class certification, and appoint class representatives and class counsel. The parties also sought initial approval of the settlement terms and approval of notice procedures of the settlement to all members of the class action.

         On April 16, 2015, after hearing argument on the motions, the trial justice issued a written decision granting the Union plaintiffs' motion for class certification in accordance with Rule 23(b)(2) of the Superior Court Rules of Civil Procedure, designating the class representatives and appointing class counsel for plaintiffs and defendants.

         The plaintiff class was defined as follows:

"All 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 systems administered by ERSRI 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[.]"

         Additionally, the trial justice certified a number of plaintiff subclasses, described as follows:

"State Employees and Teachers: Participants in the Teachers and State Employees Retirement System (ERS) who are employed on or before July 1, 2015, but who have not retired as of June 30, 2015 and all future employees;
"Participants in the Municipal Employees Retirement System (MERS), other than police or fire units: Participants in MERS, other than police or fire units, employed on or before July 1, 2015, but who have not retired as of June 30, 2015 and all future employees;
"Participants in all fire MERS units, except for fire personnel of Cranston: Participants in all fire MERS units, except for fire personnel of Cranston, employed on or before July 1, 2015, but who have not retired as of June 30, 2015 and all future employees;
"Retirees: All 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."

         The trial justice also certified the following defendant class: "All municipal entities that participate in MERS and all municipal entities that employ teachers who participate in the state employees and teachers' ERS."

         As part of her decision, the trial justice summarized the terms of the proposed settlement as follows:

"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.
"For funds that are not already 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.
"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 $500.00 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.
"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.
"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.
"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.
"The settlement reduces the impact of an early retirement.
"The settlement allows Municipalities to 're-amortize'; that is, partially refinance, to be able to pay for the ...

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