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08/13/96 PEOPLE EX REL. ROBERT SKLODOWSKI v. STATE

APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION


August 13, 1996

PEOPLE EX REL. ROBERT SKLODOWSKI, THOMAS HANAHAN, SANDEE HANAHAN, SUSAN LILLIS, ROBERT NEGRONIDA, AND MARK D. WARDEN, PLAINTIFFS-APPELLANTS,
v.
THE STATE OF ILLINOIS, JIM EDGAR, GOVERNOR, PHILIP P. ROCK, PRESIDENT OF THE SENATE, MICHAEL J. MADIGAN, SPEAKER OF THE HOUSE OF REPRESENTATIVES, DAWN CLARK NETSCH, COMPTROLLER OF THE STATE OF ILLINOIS, AND PATRICK QUINN, TREASURER OF THE STATE OF ILLINOIS, DEFENDANTS AND COUNTERDEFENDANTS-APPELLEES, AND THE JUDGES' RETIREMENT SYSTEM OF ILLINOIS, THE STATE EMPLOYEES' RETIREMENT SYSTEM OF ILLINOIS, THE STATE UNIVERSITIES RETIREMENT SYSTEM, THE TEACHERS' RETIREMENT SYSTEM OF THE STATE OF ILLINOIS, THE GENERAL ASSEMBLY RETIREMENT SYSTEM, AND THE TRUSTEES OF EACH FUND, NOMINAL DEFENDANTS AND COUNTERPLAINTIFFS-APPELLANTS. THE ILLINOIS RETIRED TEACHERS, ASSOCIATION, INTERVENOR-APPELLANT, V. THE STATE OF ILLINOIS, JIM EDGAR, GOVERNOR, PHILIP P. ROCK, PRESIDENT OF THE SENATE, MICHAEL J. MADIGAN, SPEAKER OF THE HOUSE OF REPRESENTATIVES, DAWN CLARK NETSCH, COMPTROLLER OF THE STATE OF ILLINOIS, AND PATRICK QUINN, TREASURER OF THE STATE OF ILLINOIS, DEFENDANTS-APPELLEES.

Appeal from the Circuit Court of Cook County. The Honorable Lester D. Foreman, Judge Presiding.

The Honorable Justice Burke delivered the opinion of the court: Hartman, P.j., and Scariano, J., concur.

The opinion of the court was delivered by: Burke

The Honorable Justice BURKE delivered the opinion of the court:

This case involves an action based on an alleged failure to contribute to and impairment of retirement pension benefits and impairment of contractual rights by the State of Illinois and certain State officials.

Plaintiffs Robert Sklodowski, Thomas Hanahan, Sandee Hanahan, Susan Lillis, Robert Negronida and Mark D. Warden, counterplaintiffs, the State Employees' Retirement System (SERS), the State Universities' Retirement System (SURS) the Teachers' Retirement System of the State of Illinois (TRS) (retirement systems), and intervenor, the Illinois Retired Teachers Association (intervenor) appeal from an order of the circuit court dismissing plaintiffs' second amended complaint, counterplaintiffs SURS' and TRS' amended counterclaim, counterplaintiff SERS' counterclaim and intervenor's complaint for a writ of mandamus against defendants, the State of Illinois and its officials, Jim Edgar (Governor), Philip Rock (President of the Senate), Michael Madigan (Speaker of the House of Representatives), Dawn Clark Netsch (Comptroller) and Patrick Quinn (Treasurer) based on the separation of powers doctrine.

On appeal, plaintiffs, counterplaintiffs and intervenor argue that (1) the constitutional separation of powers doctrine does not prevent the judiciary from ordering State officials to perform nondiscretionary duties; (2) they have a contractual interest under the State constitution in the financial integrity of the State retirement systems; and (3) the federal and State contracts clauses prohibit impairment of pension contract rights. Counterplaintiffs SERS, SURS and TRS also contend that the constitutional legislative supremacy clause does not prohibit their claims. Plaintiffs also contend that their second amended complaint stated (1) a valid claim against defendants for breach of fiduciary duty and (2) a viable claim for a civil rights violation. For the reasons set forth below, we affirm in part and reverse in part.

In 1963, the State of Illinois created five retirement systems: SERS, SURS, TRS, the General Assembly Retirement System, and the Judges Retirement System of Illinois. Each retirement system is governed by a separate section of the Illinois Pension Code (Pension Code) (40 ILCS 5/1-101 et seq. (West 1993)). In 1989, Illinois Public Act 86-273, effective August 23, 1989, added the following language to sections 2-124, 14-131(f), 15-155(a), 16-158(b) and 18-131(2), 5/2-124, 5/5-131(f), 5/15-155(a), 5/16-158(b), 5/18-131(2) of the Pension Code (Ill. Rev. Stat. 1991, ch. 108 1/2 (now 40 ILCS 5/1-101 et seq. (West 1993))):

"Starting with the fiscal year which ends in 1990, the State's contribution [to the retirement systems] shall be increased incrementally over a 7-year period so that by the fiscal year which ends in 1996, the minimum contribution to be made by the State shall be an amount that when added to other sources of employer contributions, is sufficient to meet the normal cost and amortize the unfunded liability over 40 years as a level percentage of payroll, determined under the projected unit credit actuarial cost method. The State contribution, as a percentage of the applicable employee payroll, shall be increased in equal increments over the 7 years period until the funding requirement specified above is met."

Plaintiffs subsequently filed a class action in behalf of the participants of the retirement systems against defendants, and naming as nominal defendants the board of trustees of the retirement systems, seeking a writ of mandamus, declaratory judgment and an enforcement order based on defendants alleged failure to comply with Public Act 86-273. Plaintiffs alleged in their second amended complaint that defendants' "actions (specifically the State's failure to contribute as required under P.A. 86-273) and the individual Defendants' past and continuing improper budgeting (Governor) and appropriation (President of Senate and Speaker of the House), contrary to that required by P.A. 86-273, constitute unlawful impairment of the participants' contractual rights under Article 13, § 5 of the 1970 Illinois Constitution [pension protection clause]." Ill. Const. 1970, art. XIII, § 5. Plaintiffs further alleged that the State, in failing "to act in accordance with P.A. 86-273," breached its fiduciary duties under the Illinois Pension Code (40 ILCS 5/1--109(d) (West 1992)) and that defendants' "actions in budgeting, appropriating and contributing different lesser amounts than those required by P.A. 86-273 constitute the passage of law impairing obligations of contract, in violation with the Contract Clause of the United States Constitution" (U.S. Const., art. I, § 10) "and/or an invalid attempt to grant the State freedom from making its contribution required by P.A. 86-273," thereby violating article I, section 16, of the Illinois Constitution (Ill. Const. 1970, art. I, § 16). Plaintiffs' second amended complaint also included a count against the individual defendants alleging that they deprived plaintiffs of property under color of state law in violation of 42 U.S.C. § 1983.

Intervenor's motion to intervene was granted on October 2, 1992. On December 21, 1992, counterplaintiffs SURS and TRS answered plaintiffs' second amended complaint and filed an amended counterclaim against the Governor, Comptroller and Treasurer alleging impairment of pension benefits and impairment of contractual rights in violation of article I, section 10, of the United States Constitution (U.S. Const., art. I, § 10) and article I, section 16, of the Illinois Constitution (Ill. Const. 1970, art. I, § 16). On the same day, intervenor filed a three-count complaint against the State, Governor, Comptroller and Treasurer alleging that they impaired the pension benefits and contractual rights to benefits of participants in SURS and TRS in violation of the federal and State constitutions.

On February 19, 1993, the State, Governor, Senate President and House Speaker moved to dismiss plaintiffs' second amended complaint, arguing that the trial court lacked jurisdiction over the State pursuant to the doctrine of sovereign immunity, the doctrine of separation of powers prevented the court from compelling the General Assembly to appropriate public funds, the doctrine of separation of powers prevented the trial court from compelling the Governor to budget a certain amount of money because budgeting is an executive function, and a writ of mandamus was not available because "plaintiffs do not seek to compel State officials to perform ministerial duties." On the same day, the Governor moved to dismiss the amended counterclaim filed by counterplaintiffs SURS and TRS, and the Governor and the State moved to dismiss intervenor's complaint. Both motions were substantially similar in content to the Governor's and State's motion to dismiss plaintiffs' second amended complaint.

On August 6, 1993, the trial court granted the motions to dismiss plaintiffs' second amended complaint, SURS' and TRS' amended counterclaim and intervenor's complaint, finding that the separation of powers doctrine prevented the trial court from "directing the Legislature to take any specific conduct."

On August 23, 1993, counterplaintiff SERS filed a motion for leave to answer plaintiffs' second amended complaint and to file a counterclaim and motion to substitute counsel. On August 31, the trial court granted SERS' motion, but dismissed its answer and counterclaim based on the separation of powers doctrine.

On September 2, 1993, SERS, SURS and TRS moved for reconsideration of the August 6 and August 31 orders dismissing SURS' and TRS' amended counterclaim and SERS' counterclaim, respectively. On September 3, intervenor moved for reconsideration of the trial court's August 6 order dismissing its complaint. On the same day, the trial court denied all of the motions for reconsideration. This appeal followed.

On April 16, 1996, defendants filed a "Renewed Motion to Dismiss Appeals as Moot" *fn1 with this court, arguing that Public Act 86-273, upon which complainants rely, was repealed by Public Act 88-593. Public Act 88-593 provides for continuing automatic appropriations of required State contributions to the retirement systems to bring the pension systems to a 90% funding ratio by the end of fiscal year 2045. In response, plaintiffs, counterplaintiffs and intervenor argued that all beneficiaries who entered their respective retirement systems between August 23, 1989, the date Public Act 86-273 became effective, and August 22, 1994, the date it was repealed, have a vested contractual right to enforce the terms of Public Act 86-273 pursuant to article XIII, section 5, of the Illinois Constitution. Plaintiffs, counterplaintiffs and intervenor further argue that the public interest exception to the mootness doctrine permits this court to review the dismissal of their complaints and counterclaims despite the fact that Public Act 86-273 has been repealed.

In addition, plaintiffs also argue that Public Act 88-593 is itself unconstitutional because its reduced level of funding impairs the contract rights of the beneficiaries and violates article XIII, section 5, of the Illinois Constitution and Article I, section 16, of the United States Constitution. Plaintiffs and counterplaintiff TRS also argue that Public Act 88-593 became effective on August 22, 1994, and was therefore in effect when this court first denied defendants' original motion to dismiss as moot and, therefore, this court should again deny the motion because the circumstances have not changed. We have taken defendants' renewed motion to dismiss with this case.

The standard of review of a trial court's order dismissing a complaint is de novo. Anastos v. Chicago Regional Trucking Ass'n, 250 Ill. App. 3d 300, 618 N.E.2d 1049, 188 Ill. Dec. 479 (1993). In considering the dismissal of an action, a reviewing court must interpret the allegations of the complaint in a light most favorable to the plaintiff and, if it appears that no set of facts from the pleadings could be proved which would entitle the plaintiff to relief, the dismissal must be affirmed. Turner v. Rush Medical Hospital, 182 Ill. App. 3d 448, 537 N.E.2d 890, 130 Ill. Dec. 561 (1989), appeal denied, 127 Ill. 2d 643, 545 N.E.2d 133.

I.

Before reaching plaintiffs', counterplaintiffs' and intervenor's arguments, we first address the State's contention that the trial court lacks subject matter jurisdiction over it under the State Lawsuit Immunity Act and that the State should therefore be dismissed as a party. 745 ILCS 5/1 (West 1992). Plaintiffs counter that they sought "by mandamus to compel public officials to perform clear and mandatory duties and that is not an action against the State." Plaintiffs further maintain that since "the Court of Claims has no equity jurisdiction and cannot award the mandamus and declaratory relief Plaintiffs seek," the trial court is the proper forum to grant this relief. Counterplaintiffs SERS and SURS argue that questions involving constitutionality of the State defendants' actions are not barred by the doctrine of sovereign immunity.

Pursuant to the State Lawsuit Immunity Act (745 ILCS 5/1 (West 1992)), "except as provided in the 'Illinois Public Labor Relations Act' *** or '[an act] to create the Court of Claims ***,' the State of Illinois shall not be made a defendant or party in any court." The Illinois Court of Claims Act (705 ILCS 505/8(a) (West 1992)) provides that the Court of Claims shall have exclusive jurisdiction to hear "all claims against the state founded upon any law of the State of Illinois, or upon any regulation thereunder by an executive or administrative officer or agency."

In Board of Trustees of Community College District No. 508 v. Burris, 118 Ill. 2d 465, 472, 515 N.E.2d 1244, 113 Ill. Dec. 937 (1987), a community college district's board of trustees brought an action against the State Comptroller and the Director of the Department of Commerce and Community Affairs seeking reimbursement from the Comptroller for the cost of providing veterans' scholarships or declaratory judgment requiring the Director to notify the General Assembly of the State's failure to fully fund the veterans' scholarship program. Plaintiff there argued that it was entitled to reimbursement under the State Mandates Act for funds expended on veterans' scholarships. The District 508 court found that because plaintiff's action "challenges the defendants' interpretation of their obligations under the Mandates Act," plaintiff's "suit is not one against the State, but is one that contests the conduct of State officials in allegedly proceeding in violation of the law." District 508, 118 Ill. 2d at 473.

Here, as in District No. 508, plaintiffs' cause of action, by their own admission, is not against the State but is one against the other named defendant officials regarding their interpretation and performance of statutory obligations. Although plaintiffs' claim against the State was properly dismissed, the proper basis for dismissal was the doctrine of sovereign immunity and not, as the trial court found, separation of powers. Williams v. Board of Education of the City of Chicago, 222 Ill. App. 3d 559, 584 N.E.2d 257, 165 Ill. Dec. 78 (1991).

II.

Plaintiffs, counterplaintiffs and intervenor contend that the trial court erred in dismissing their complaints and counterclaims based on the separation of powers doctrine because defendant officials' obligations under Public Act 86-273 to fund the retirement systems are mandatory and it is the judiciary's responsibility to ensure compliance with the law by the executive and legislative branches. Counterplaintiffs SERS and SURS assert further that, without judicial oversight, Public Act 86-273 is meaningless and unenforceable.

Defendants argue that the relief plaintiffs, counterplaintiffs and intervenor seek can be accomplished only through enacting appropriations, which is a legislative prerogative, and the preparation of a budget, which is an executive prerogative; therefore, the judiciary cannot compel the exercise of these functions in a particular manner because of the separation of powers doctrine.

"The legislative, executive and judicial branches are separate. No branch shall exercise powers properly belonging to another." Ill. Const. 1970, art. II, § 1. Once rights are created by the constitution or statute, "it is within the realm of judicial authority to assure that the action of the members of the executive branch does not deprive [individuals] of an institution of rights conferred by statute or by the Constitution." Dixon Ass'n for Retarded Citizens v. Thompson, 91 Ill. 2d 518, 533, 440 N.E.2d 117, 64 Ill. Dec. 565 (1982). A writ of "mandamus is discretionary and is appropriate only where there is a clear right to the requested relief, a clear duty of the [defendant] to act, and clear authority in the [defendant] to comply with the writ." Orenic v. Illinois State Labor Relations Board, 127 Ill. 2d 453, 467-68, 130 Ill. Dec. 455, 537 N.E.2d 784. "While mandamus will not lie to direct the manner in which the discretion is to be exercised, it is available to compel the performance of an action which requires the exercise of discretion or even compel the exercise of discretion itself." Rock v. Thompson, 85 Ill. 2d 410, 417-18, 426 N.E.2d 891, 55 Ill. Dec. 566 (1981)(opinion of Goldenhersh, C.J., joined by Ward and Clark, JJ.); see also Fergus v. Marks, 321 Ill. 510, 517-18, 152 N.E. 557 (1926)(finding that where an officer "may be compelled by mandamus to act, the court in such a case is simply compelling action and not the manner of action").

Here, the legislature, through its enactment of Public Act 86-273, already determined the level of funding of the retirement systems. Plaintiffs do not ask the judiciary to compel the manner in which defendants perform their duties, but seek that defendants be ordered by mandamus to comply with Public Act 86-273. Because it is the responsibility of the judiciary to assure that the actions of the executive and legislative branches do not deprive individuals of rights conferred by statute or the constitution ( Dixon Ass'n, 91 Ill. 2d 518, 64 Ill. Dec. 565, 440 N.E.2d 117), the trial court was not barred by the separation of powers doctrine from issuing a writ of mandamus to compel defendant officials to comply with Public Act 86-273. The trial court erred in dismissing plaintiffs' second amended complaint, counterplaintiffs SURS' and TRS' amended counterclaim, counterplaintiff SERS' counterclaim and intervenor's complaint.

III.

Plaintiffs, counterplaintiffs and intervenor maintain that defendants' failure to fund the State retirement systems adequately violates the pension protection clause of the Illinois Constitution. Ill. Const. 1970, art. XIII, § 5. They argue further that Public Act 86-273 became part of the State's contract with the retirement system participants when the legislature amended the Pension Code. Defendants counter that the pension protection clause does not provide beneficiaries with a contractual right to enforce the funding mechanism of Public Act 86-273 but protects them only from the State's failure to pay benefits to those eligible for them.

"Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." Ill. Const. 1970, art. XIII, § 5. The pension protection clause has been interpreted as creating "contractual protection for all pension plans." (Emphasis added.) Buddell v. Board of Trustees, State Universities Retirement System of Illinois, 118 Ill. 2d 99, 102, 514 N.E.2d 184, 112 Ill. Dec. 718 (1987). This clause is patterned after a nearly identical provision in New York's Constitution (Article V, § 7), and Illinois courts have frequently referred to New York cases construing that State's provision. Kraus v. Board of Trustees, 72 Ill. App. 3d 833, 390 N.E.2d 1281, 28 Ill. Dec. 691 (1979).

We find McDermott v. Regan, 82 N.Y.2d 354, 624 N.E.2d 985, 604 N.Y.S.2d 890 (1993), cited by all parties, instructive on this issue. In McDermott, participants of a State retirement system and union officers brought an action to challenge a State statute mandating a change in the funding method the State comptroller used to determine employer contributions to the systems. The McDermott court found the statute unconstitutional, holding that the New York State Constitution, which provided that "membership in any pension or retirement system of the state *** shall be a contractual relationship," established "a contractual relationship between the employee and the retirement system in which benefits cannot be diminished or impaired." The McDermott court found that the statute impaired the pension benefits because it depleted "moneys in the existing pension fund by reducing the amount of employer contributions." McDermott, 624 N.E.2d at 989. Therefore, the McDermott court concluded that "the reserve moneys will not be available for immediate investment, the return on investment of moneys in the existing fund will be significantly decreased, and the additional security provided by the reserve moneys in the pension funds will be impaired." McDermott, 624 N.E.2d at 989-90; see also Dadisman v. Moore, 181 W. Va. 779, 384 S.E.2d 816 (1988) (holding that the Governor has a ministerial duty to prepare a budget consistent with the West Virginia Constitution and statutes); Valdes v. Cory, 139 Cal. App. 3d 773, 785, 189 Cal. Rptr. 212 (1983) (holding that a retirement system beneficiary has an interest in the "security and integrity of the funds available to pay future benefits"); Weaver v. Evans, 80 Wash. 2d 461, 495 P.2d 639, 649 (1983) (holding that the legislature's adoption of a systematic method of funding "becomes one of the vested contractual pension rights flowing to members of the system").

McDermott's finding, that benefits could be impaired by reducing the amount of pension reserves, is persuasive in our disposition of this issue. Here, Public Act 86-273 required that certain amounts be contributed to the retirement systems. Plaintiffs, counterplaintiffs and intervenor had a vested contract right in the funding provisions under Public Act 86-273 from the date Public Act 86-273 became effective until August 22, 1994, when it was repealed by Public Act 88-593. It is clear from McDermott that beneficiaries need not wait until they have been denied benefits before they can make a claim that their benefits have been impaired. Plaintiffs, counterplaintiffs and intervenor adequately alleged in their respective complaints and counterclaims that, through defendants' underfunding of the retirement systems, their benefits have been impaired. Accordingly, the trial court erred in dismissing plaintiffs' second amended complaint, counterplaintiffs SURS' and TRS' amended counterclaim, counterplaintiff SERS' counterclaim and intervenor's complaint.

IV.

Plaintiffs, counterplaintiffs and intervenor also contend that defendants' failure to budget, contribute and appropriate the proper amounts to the systems, as required by Public Act 86-273, impaired their contract rights and violated article I, section 10, of the federal constitution (U.S. Const., art. I, § 10) and article I, section 16, of the State constitution (impairment of contracts clauses)(Ill. Const. 1970, art. I, § 16).

Article I, section 10, of the United States Constitution provides that "no State shall *** pass any *** Law impairing the Obligation of Contracts." U.S. Const., art. I, § 10. Article I, section 16, of the Illinois Constitution provides that "no *** law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed." Ill. Const. 1970, art. I, § 16.

Plaintiffs, counterplaintiffs and intervenor failed to identify in their pleadings what law the State passed which impaired their contract rights; they contend only that defendants failed to comply with the law. Therefore, plaintiffs, counterplaintiffs and intervenor have not stated a claim under the impairment of contracts clauses of the State and federal constitutions.

Lastly, the parties' following arguments need not be addressed by this court for the reasons stated: (1) Plaintiffs argue that they have standing to bring this action even though all retirement system benefits are presently being paid by the State because "system bankruptcy is not a predicate for standing." Defendants, however, do not challenge plaintiffs on this "issue" on appeal; (2) Counterplaintiffs SERS, SURS and TRS argue that they have a responsibility to act in behalf of their members and that they are entitled to bring claims in favor of their participants and beneficiaries. Defendants do not challenge counterplaintiffs on this "issue" on appeal and, moreover, the trial court did not address this issue; (3) Plaintiffs contend that defendants breached their fiduciary duties under the Pension Code. Defendants contend that plaintiffs failed to allege in their second amended complaint that the Governor, Senate President and House Speaker are fiduciaries. The trial court did not make any finding regarding the fiduciary status of defendants and the record is therefore insufficient for our review; and (4) Plaintiffs contend that defendants violated plaintiffs' property rights protected by 42 U.S.C. § 1983 when they budgeted, appropriated and contributed lesser amounts to the retirement systems than required by law. Plaintiffs have not cited any authority to support their argument and have therefore waived this issue on appeal. Saldana v. Wirtz Cartage Co., 74 Ill. 2d 379, 385 N.E.2d 664, 24 Ill. Dec. 523 (1978).

For the reasons stated, we affirm the circuit court's dismissal of plaintiffs', counterplaintiffs' and intervenor's claims against the State of Illinois based on sovereign immunity, reverse the court's dismissal of plaintiffs', counterplaintiffs' and intervenor's claims against all other defendants, and remand this cause for further proceedings consistent with the views expressed herein. We also deny defendants' renewed motion to dismiss this case as moot.

Affirmed in part and reversed in part; cause remanded.

HARTMAN, P.J., and SCARIANO, J., concur.


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