Preview:

Filed: December 30, 2011 IN THE SUPREME COURT OF THE STATE OF OREGON URSULA WHITE, BRUCE N. REITER, and MARGARET RETZ, Plaintiffs-Appellants, v. PUBLIC EMPLOYEES RETIREMENT BOARD, Defendant-Respondent, and STATE OF OREGON, LANE COUNTY, CITY OF EUGENE, MULTNOMAH COUNTY, CITY OF PORTLAND, CITY OF ROSEBURG, CITY OF HUNTINGTON, CANBY UTILITY BOARD, and ROGUE VALLEY IRRIGATION. Intervenors-Respondents. (CC 040404118, 041111848; CA A142773; SC S059213) On certified appeal from the Court of Appeals on appeal from a judgment of the Circuit Court for Multnomah County, Henry Kantor, Judge. Argued and submitted May 3, 2011. Gregory A. Hartman, Bennett, Hartman, Morris & Kaplan, LLP, Portland, argued the cause for plaintiffs-appellants. With him on the briefs were Michael J. Morris and Aruna A. Masih. Joseph M. Malkin, pro hac vice, San Francisco, California, argued the cause for defendant-respondent Public Employees Retirement Board. With him on the briefs were Sarah Marriott and Townsend Hyatt. William F. Gary, Harrang Long Gary Rudnick P.C., Eugene, argued the cause for intervenors-respondents Lane County, et al. With him on the briefs was Sharon A. Rudnick. Jeremy D. Sacks, Stoel Rives LLP, Portland, filed a brief for intervenor-

1

respondent State of Oregon. With him on the brief was Amy Edwards. Before De Muniz, C. J., Durham, Balmer, Kistler, Walters, and Linder, JJ.* BALMER, J. The judgment of the circuit court is affirmed in part and reversed in part, and the case is remanded to the circuit court for further proceedings. *Landau, J., did not participate in the consideration or decision of this case.

2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

BALMER, J. Plaintiffs, one retired member and two active members of the Public Employees Retirement System (PERS), challenge certain actions of the Public Employees Retirement Board (PERB), alleging that those actions violated PERB's fiduciary duty to manage PERS for the exclusive benefit of PERS members. Specifically, plaintiffs allege that PERB breached its fiduciary duty when it settled City of Eugene v. State of Oregon, Marion County Circuit Court No. 99C-12794 (and consolidated cases), on the terms that it did and when it implemented that settlement agreement and took related actions through a series of administrative orders, calculations, and allocations. Respondent PERB and intervenors -- the State of Oregon and various public employers -- reply that PERB's settlement of the City of Eugene case was reasonable and consistent with PERB's statutory and common-law duties, as were the actions that PERB took pursuant to the settlement agreement.1 They assert that PERB's other actions challenged by plaintiffs were required by the PERS Reform and Stabilization Act of 2003 or by court order and, in any event, were consistent with PERB's fiduciary obligations to PERS beneficiaries. The trial court entered judgment in favor of PERB and intervenors, and plaintiffs appealed. The Court of Appeals certified the appeal to this court, ORS 19.405. We agree in substantial part with the trial court's Because the arguments of PERB and intervenors are generally aligned, we sometimes refer to them collectively as "defendants."
1

1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

analysis and disposition, although we conclude that there are disputed factual issues with respect to one of plaintiffs' claims and that the trial court erred in granting summary judgment for defendants on that claim. We therefore affirm in part, reverse in part, and remand to the trial court. I. BACKGROUND We begin by describing briefly the City of Eugene litigation and the agreement settling that case, the 2003 PERS legislation (as it relates to the issues here), and PERB's subsequent administrative actions. We then return to the allegations in plaintiffs' complaint. In City of Eugene, several public employers, including the City of Eugene, challenged PERB orders issued in 1998 and 2000 that increased the contribution rates that determine the amounts public employers must pay into PERS on behalf of employees who are PERS members. See City of Eugene v. PERB, 339 Or 113, 117-18, 117 P3d 1001 (2005) (summarizing allegations in complaint). Those employer contributions, along with employee contributions and investment earnings on those contributions, constitute the fund -- the Public Employees Retirement Fund (PERF or the fund) -- from which member pensions are paid. The employers also challenged a PERB order that credited the regular accounts of PERS Tier One members -- members who joined PERS before 1996 -- with 20 percent earnings for the 1999 calendar year. Id. The employers argued that the contribution rate orders were unlawful because PERB, in violation of statutory requirements, had failed to fund a contingency reserve account and a "gain-loss" reserve account, had required employers to match the earnings in members' variable 2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

accounts, and had failed to adopt updated actuarial factors. The employers also claimed that PERB abused its discretion when it made the crediting decision for the 1999 calendar year. In 2001, Judge Lipscomb, the Marion County Circuit Court judge handling the City of Eugene case, granted the employers' motion for partial summary judgment, agreeing that PERB had not administered the fund consistently with statutory requirements and that it had abused its discretion in crediting Tier One accounts with 20 percent earnings for 1999. In response to an argument raised by eight PERS members who had intervened in City of Eugene, the trial court concluded that PERB also breached its fiduciary duty with respect to the 1999 earnings allocation order when it credited to employer accounts some of the income earned on funds in the variable account. The trial court vacated the challenged orders and remanded to PERB with instructions to issue new orders consistent with its rulings. Id. at 118-19. PERB appealed the trial court judgment. It also sought a stay of the judgment, first from the trial court and, later, from the Court of Appeals. Both requests were denied. Id. at 119-20. As one step towards complying with the City of Eugene judgment, PERS recalculated the crediting order for 1999 and determined that if PERB had properly funded the contingency and gain-loss reserve accounts, an appropriate credit to Tier One accounts would have been 11.33 percent, rather than the 20 percent that PERB had initially ordered. Meanwhile, the legislature enacted the PERS Reform and Stabilization Act of 2003 and several other bills changing the operation of PERS. Among other things, the legislature restructured PERB itself and "effectively codif[ied]" the 11.33 percent figure 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

as the correct 1999 crediting decision. See Strunk v. PERB, 338 Or 145, 216, 108 P3d 1058 (2005) (so describing 2003 legislation). In February 2004, PERB entered into a settlement agreement with the City of Eugene plaintiffs by which "PERB agreed to issue, by July 1, 2004, new orders that would comply with both the trial court's judgment and the terms of the [PERS reform legislation]." City of Eugene, 339 Or at 120.2 PERB also agreed to dismiss its appeal of the trial court judgment and to pay specified attorney fees to the plaintiffs. Intervenors in the City of Eugene case did not agree to the settlement and opposed PERB's motion to dismiss the pending appeal of the trial court's judgment. This court granted PERB's motion to dismiss, holding that, in light of the settlement agreement, the new PERB orders, and the legislative changes to PERB, the appeal was moot. City of Eugene, 339 Or at 128. Subsequently, this court entered an order vacating the trial court judgment that had been the subject of the appeal. City of Eugene v. PERB, 341 Or 120, 137 P3d 1288 (2006). II. THE PARTIES' CONTENTIONS In this action, plaintiffs challenge the settlement of the City of Eugene litigation and the administrative actions taken in 2004 by PERB to implement that

PERB entered into a virtually identical settlement agreement with the Eugene Water and Electricity Board (EWEB), which had brought a similar but separate action against PERB. For convenience, we refer only to the settlement agreement in the City of Eugene litigation. Our discussion of the issues, however, applies equally to plaintiffs' claims regarding the EWEB litigation and settlement agreement.

2

4

1 2 3 4 5 6 7 8 9 10 11 12 13

settlement. They seek judicial review of PERB's actions under the Administrative Procedures Act (APA) and, in the alternative, common-law remedies for PERB's alleged breach of fiduciary duty.3 Specifically, plaintiffs challenge the following actions of PERB: (1) the dismissal of PERB's appeal of Judge Lipscomb's decision in the City of Eugene case; (2) the issuance of new employer contribution orders for 1998 and 2000; (3) the issuance of a new crediting decision for PERS accounts for 1999; (4) the transfer of $61 million from the contingency reserve to employer accounts based on PERB's recalculation of the 1998 and 2000 contribution orders; (5) the transfer of amounts credited to employer accounts for 1999 under the "employer in variable" rule to the contingency reserve; (6) the adoption of a new administrative rule for the calculation of the "money match" benefit for PERS members participating in the variable account program; and (7) the payment of attorney fees to the plaintiffs in City of Eugene and the similar case filed by the Eugene Water and Electricity Board (EWEB).

Plaintiffs seek judicial review of PERB's actions -- including entering into the settlement agreement and issuing the orders discussed above -- as "orders other than contested cases." ORS 183.484(1). They also challenge the same actions under a common-law breach of fiduciary duty theory. As to plaintiffs' ORS 183.484(1) claim, defendants argued that the trial court lacked jurisdiction to review the decision to enter into the settlement agreement because that decision was not a "final order" for purposes of judicial review. (They recognized, however, that the trial court had jurisdiction to consider plaintiffs' claims under their alternative common-law fiduciary duty theory.) The trial court rejected defendants' jurisdictional argument and decided all the claims on the merits. For present purposes, we may assume, without deciding, that PERB's decision to enter the settlement agreement in City of Eugene was an "order" in other than a contested case and that the trial court had jurisdiction to review the decision under ORS 183.484(1).

3

5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Plaintiffs allege that those actions violated PERB's common-law fiduciary duties and its "statutory fiduciary duties and obligations." Plaintiffs argue that PERB's decision to settle was made without evaluating and weighing "the relatively small cost of proceeding with the Supreme Court appeal and the potentially enormous benefit to PERS members from the reversal of the trial court's decision." Plaintiffs assert that PERB's actions reduced member benefits by $1.6 billion; had no "discernible benefit" to PERS members, PERB, or the fund; and were outside the range of discretion delegated to PERS by applicable statutory and trust law. They seek to set aside the settlement agreement and the 2004 PERB orders that implemented the agreement.4 PERB and intervenors respond that PERB's actions were consistent with its statutory and common-law trust obligations. They assert that plaintiffs incorrectly view any action that does not maximize benefit payments to members as a breach of fiduciary duty and that PERB instead must administer PERS in accordance with statutes that set the terms of the PERS contract, including benefit levels -- and that PERB did so. They further argue that, in making decisions to settle or pursue litigation, and when exercising discretion in allocating funds to specific accounts, PERB may consider the stability and In their challenge under the APA, plaintiffs seek to set aside PERB's actions because PERB "erroneously interpreted a provision of law and * * * a correct interpretation compels a particular action." ORS 183.484(5)(a). In the alternative, plaintiffs assert that PERB's action breached its statutory and common-law fiduciary duties to plaintiffs and that those actions should be set aside under the court's equitable powers. Because the substantive issues are the same under either theory, we do not distinguish between plaintiffs' APA and common-law claims, except as specifically noted elsewhere in this opinion.
4

6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

viability of the fund and the longer term interests of all PERS beneficiaries -- and not simply the employee accounts or future benefit levels for active PERS members. III. ANALYSIS Before examining plaintiffs' challenges to specific PERB actions, we briefly review the PERS trust and PERB's general obligations to PERS members.5 The legislature established PERF as a "trust fund," with PERB as the "trustee." ORS 238.660(1).6 See also Strunk, 338 Or at 157 (describing PERB as "trustee" and assets of PERF as held "in trust"); Arken v. City of Portland, 351 Or 113, 120, 263 P3d 975 (2011) (same). Trusts are to be administered in accordance with the trust instrument, and trusts created by statute, like the trust that establishes the fund here, "are administered as express trusts, the terms of which are either set forth in statute or are supplied by the default rules of general trust law." Restatement (Third) of Trusts

Download S059213 White v. Public Employees Retirement Board.pdf

Oregon Law