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06/16/94 PEOPLE EX REL. ROBERT SKLODOWSKI ET AL. v.

June 16, 1994

THE PEOPLE EX REL. ROBERT SKLODOWSKI ET AL., APPELLANTS,
v.
THE STATE OF ILLINOIS ET AL., APPELLEES.



McMORROW, Freeman, Harrison

The opinion of the court was delivered by: Mcmorrow

JUSTICE McMORROW delivered the opinion of the court:

These consolidated appeals arise from an act of the legislature that directed the transfer of moneys from certain special funds in the State treasury to the general revenue fund, as part of an effort to balance the State's budget for fiscal year 1992. The named plaintiffs, participants in the five retirement systems funded by the State, seek review of the circuit court's denial of their motion for a temporary restraining order that would have prevented the State comptroller from transferring the money. Plaintiffs also seek to disqualify the Attorney General, on grounds of conflict of interest, from acting as legal representative of three of the retirement systems, which are nominal defendants in this litigation.

We affirm the circuit court's denial of plaintiffs' motion to disqualify the Attorney General in appeal No. 74181. Because the injunctive relief requested in appeal No. 73485 is no longer available, and the constitutional issues raised in the interlocutory appeal remain at issue in the litigation pending before the circuit court, we dismiss appeal No. 73485 for lack of justiciability. *fn1

BACKGROUND

Plaintiffs are participants in and beneficiaries of the five retirement systems funded by the State of Illinois under the Illinois Pension Code (Ill. Rev. Stat. 1991, ch. 108 1/2, par. 1-101 et seq.): the General Assembly Retirement System; the State Employees' Retirement System of Illinois; the State Universities Retirement System; the Teachers' Retirement System of the State of Illinois; and the Judges Retirement System of Illinois. Defendants are the State of Illinois, the Governor, the Comptroller, the Speaker of the House of Representatives, the President of the Senate, and the Treasurer. Nominal defendants are the trustees of the five retirement systems.

The instant, interlocutory appeal is ancillary to litigation currently pending in the circuit court and cannot be fully understood without reference to that litigation. In 1991 plaintiffs filed a mandamus action on behalf of themselves and a putative class consisting of all participants in and beneficiaries of the five retirement systems. Their complaint challenged the State's failure to comply with certain provisions of the Pension Code by "knowingly budgeting, appropriating and paying State contributions of less than the minimum amounts required by P.A. 86-273, and failing to reduce the unfunded pension liability of the [five retirement systems]." Accordingto the complaint, each of the five retirement systems has been "significantly underfunded for many years; that is, each Fund has had assets totalling substantially less than 100% of the present values needed currently, based upon actuarial assumptions, to fund all existing Fund obligations." The legislature sought to remedy this underfunding by passing, in October 1989, legislation that required the State to increase its contributions to each of the five retirement systems by equal increments in each of the following seven years, in certain minimum amounts designed to meet the "normal cost" of the retirement funds (the increased and additional accrued benefits), plus amortize each fund's unfunded liability over 40 years.

Plaintiffs' mandamus complaint further alleged that despite the enactment of this remedial funding measure, the Governor in each year following 1989 has budgeted a lesser amount than the minimum contributions required by law and the legislators have similarly appropriated lesser amounts than required by law. According to compliance reports issued for each of the five retirement systems, there existed at the time of the filing of the 1991 mandamus complaint a combined deficit in these minimum contribution requirements that exceeded $500 million. Overall, plaintiffs charge, the "aggregate unfunded accrued actuarial liability" of the five retirement systems exceeds $10 billion, according to audit reports for the fiscal year 1991.

First Emergency Budget Act, Public Act 87-14

While plaintiffs' mandamus action was pending, the Governor and the legislature adopted a budget for fiscal year 1992, which was discovered to be $50 million short of the amount needed to balance the budget as required by the Illinois Constitution of 1970. (Ill. Const. 1970, art. VIII, § 2.) To remedy the shortfall, the legislature enacted the Governor's First Emergency Budget Relief Act (Pub. Act 87-14, eff. July 24, 1991) purporting todelegate to the Governor the authority to transfer up to $50 million from any of the special funds in the State treasury to the general revenue fund. Acting on this authority, the Governor directed the Comptroller to transfer $42 million from certain special funds to the general revenue fund. Of this amount, $21 million was to be transferred from the State Pensions Fund.

In response to the Governor's directive to the Comptroller, to transfer $21 million from the State Pensions Fund to the general revenue fund, plaintiffs immediately sought entry of a temporary restraining order. Shortly thereafter, plaintiffs amended their mandamus complaint to add a count for injunction against the transfer and a count for declaratory relief as to the constitutionality of Public Act 87-14. Plaintiffs' emergency motion for a temporary restraining order (TRO) was granted on August 5, 1991, but later dissolved upon the circuit court's denial of plaintiffs' motion for preliminary injunction. The circuit court stayed dissolution of the TRO, however, to enable plaintiffs to seek relief in the appellate court through a motion for stay pending review of the interlocutory appeal from the denial of the TRO. The appellate court denied the motion, but the circuit court extended its stay to permit plaintiffs to seek review in this court.

In September 1991, this court granted direct appeal (No. 72451) and stayed, pending appeal, the transfer of the $21 million from the State Pensions Fund to the general revenue fund. Plaintiffs' challenge to the transfer purportedly authorized by Public Act 87-14 was twofold: (1) allowing the Governor to determine the source and amount of money to be diverted from the special funds was an unconstitutional delegation of the legislature's power of appropriation; and (2) the diversion of the pension fund money to nonpension purposes, especially in light of the billions of dollars of unfundedliability, was an impairment of pension benefits prohibited by the State and Federal Constitutions.

Second Emergency Budget Act, Public Act 87-838

Before this court rendered a decision in appeal No. 72451, the legislature abandoned Public Act 87-14 and enacted in its stead Public Act 87-838, which was titled the Emergency Budget Act of Fiscal Year 1992 (Pub. Act 87-838, eff. January 24, 1992). This Act directed the transfer of moneys from 39 special funds to the general revenue fund. To implement these transfers, Public Act 87-838 amended provisions of the various statutes that governed the use of the special funds.

The source of the moneys in the State Pensions Fund is unclaimed property that escheats to the State by law. Pursuant to a provision of the State Finance Act:

"The moneys in the State Pensions Fund shall be used exclusively for the administration of the 'Uniform Disposition of Unclaimed Property Act', * * * and for the reduction of the accrued actuarial reserve deficiency in each of the annuity and benefit funds established under the [five retirement systems in issue in the instant case].

To permit the transfer of the $21 million from the State Pensions Fund, Public Act 87-838 amended the above statute by adding the following paragraph:

"In addition to any other permitted use of moneys in the [State Pensions] Fund, and notwithstanding any restriction on the use of the Fund, moneys in the State Pensions Fund may be transferred to the General Revenue Fund as authorized by this amendatory Act of 1992. The General Assembly finds that an excess of moneys exists in the Fund. On February 1, 1992, the Comptroller shall order transferred and the Treasurer shall transfer $21,000,000 * * * from the Fund to the General Revenue Fund." Pub. Act 87-838 § 270, eff. January 24, 1992.

Following the legislature's enactment of Public Act 87-838, defendants filed a motion in this court to dismiss the interlocutory appeal in No. 72451 on the ground that plaintiffs' challenge to the transfer authorized by Public Act 87-14 had been mooted by the legislature's abandonment of that act. In April 1992, this court granted defendants' motion to dismiss and vacated its previous order that had stayed the circuit court's dissolution of the TRO pending appeal. At that time, the new act was not in issue before this court.

Subsequently, plaintiffs returned to the circuit court to seek a TRO against the transfer of the Pension Fund moneys pursuant to the newly enacted Public Act 87-838. Plaintiffs' motion for TRO against the transfer authorized by the new Act rested on two points:

(1) "The transfer to nonpension purposes of existing money in the State Pensions Fund is an impairment of pension benefits and contract rights prohibited by [the State and Federal Constitutions], and the new Act does not address and continues to violate the Plaintiffs' constitutionally-protected pension and contract rights"; and

(2) "the legislative finding upon which the transfer is based--that the monies in the State Pension Fund are excess monies--is totally contradicted by fact and therefore unreasonable, arbitrary and capricious."

The circuit court denied plaintiffs' motion for a TRO, but certified an issue for interlocutory appeal by permission, pursuant to Supreme Court Rule 308 (134 Ill. 2d R. 308). The certified question was whether the transfer of $21 million pursuant to Public Act 87-838 violated certain provisions of the Illinois or Federal Constitutions. In certifying the question the court made the requisite finding under Rule 308 that its order involved a question of law as to which there was asubstantial ground for difference of opinion and that an immediate appeal might materially advance the ultimate termination of the litigation.

Plaintiffs did not perfect their interlocutory appeal pursuant to Rule 308; instead, they filed in the appellate court a notice of interlocutory appeal as of right, pursuant to Rule 307(a), from denial of their motion for a TRO. Simultaneously, plaintiffs filed in this court a motion for direct appeal and a motion to enjoin defendants from transferring the $21 million under the auspices of Public Act 87-838. In May 1992, this court granted direct appeal but denied plaintiffs' motion to restrain the transfer of moneys from the State Pensions Fund to the general revenue fund. Subsequently, the transfer took place. Defendants thereafter moved to dismiss the instant appeal as being moot. Defendant's motion to dismiss was denied.

ANALYSIS

I.

Attorney General's Representation of Nominal Defendants

In appeal No. 74181, plaintiffs appeal from the circuit court's order denying plaintiffs' motion to disqualify the Attorney General, on grounds of conflict of interest, from representing three of the retirement systems, which are nominal defendants, as well as the State defendants. The State defendants maintain their right to divert funds from the State Pensions Fund to the general revenue fund. This position runs counter to the interest of the retirement systems to prevent the State from evading its mandate to restore the State Pensions Fund to sound financial footing. Accordingly, plaintiffs contend, the Attorney General cannot properly represent both the State defendants and the retirement systems.

In the instant case, two of the retirement systems are being represented by independent private counsel appointed as special assistant Attorneys General. We approve of this procedure, which clearly removes the taint of perceived conflict. Plaintiffs have no objection to the representation of special assistant Attorneys General but object to the Attorney General's continued representation of the remaining three retirement systems.

The Attorney General's power and duties as the legal officer of the State underlie the nature of his counsel in this case. (See Environmental Protection Agency v. Pollution Control Board (1977), 69 Ill. 2d 394, 398-99, 14 Ill. Dec. 245, 372 N.E.2d 50.) The Illinois Constitution of 1970 requires the Attorney General to represent the State, and this duty extends to the representation of State agencies. ( Environmental Protection Agency, 69 Ill. 2d at 399.) Moreover, as long as the Attorney General is not an actual party, or interested as a private individual, he or she may represent opposing State agencies in a legal dispute. ( Environmental Protection Agency, 69 Ill. 2d at 401.) That is so because the Attorney General serves the broader interests of the State rather than the particular interest of any agency.

We believe that the Attorney General in this case properly represents the interests of the State defendants acting in their official capacities. In the role of counsel to the State, the Attorney General may represent the three retirement systems as entities of the State, which receive State moneys for the payment of pension benefits to State employees. However, that is not to say that the Attorney General is representing the interests of the participants in and beneficiaries of the five retirement systems; clearly, plaintiffs and their counsel are representing the interests of the persons for whom the funds were established. While there is an apparent conflict between the interests of the State defendants (todivert the pension funds to other uses) and the responsibilities of the retirement systems (to regain financial stability in order to meet current and future pension obligations), we do not believe that the Attorney General's legal representation of three of the retirement systems will result in prejudice to any of the parties to this litigation. Plaintiffs are seeking relief on behalf of themselves and the class of people who are participants in or beneficiaries of the five retirement systems. To the extent plaintiffs' interests are coextensive with that of the nominal defendants, the retirement systems, plaintiffs are capable of continuing their advocacy unaffected by the Attorney General's representation. If plaintiffs prevail in their lawsuit the recovery would run to the retirement systems.

We also note that none of the three retirement systems in issue have joined in plaintiffs' motion to disqualify the Attorney General or otherwise objected to his representation in this lawsuit, notwithstanding an ambiguous vote of the trustees of one of the affected systems to engage "outside" counsel. The vote to engage other counsel did not, ultimately, carry. We hold that ...


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