New treasurer, retirement systems ask top NC court to steer clear of COLA suit

New North Carolina State Treasurer Brad Briner and state government retirement systems urge the state Supreme Court to avoid taking up a case challenging recent cost-of-living adjustments for retiree benefits.

State government retiree Michael Hughes asked the state’s high court earlier this month to take up his class-action suit. A split state Court of Appeals panel ruled against Hughes in November.

“In its opinion, the Court of Appeals reviewed Plaintiff’s Complaint and found that Plaintiff failed to allege that the right to receive cost-of-living adjustments to retirement allowances, or COLAs, was a part of his employment contract with the State,” wrote lawyers representing Briner and retirement systems for teachers and employees in all three branches of state government.

“Instead, applying well-established principles of statutory interpretation and in line with the rationale adopted by many other states, the Court concluded that any award of COLAs is within a province of discretionary legislative power of North Carolina’s legislature,” the court filing continued. “After its review of the statute Plaintiff relied on to make a breach of contract claim, the Court of Appeals held that decisions whether to award COLAs in any specific year are policy determinations left to the discretion of the General Assembly.”

“The Court then correctly reasoned, that while sovereign immunity is generally waived when the State enters contracts, the allegations in Plaintiff’s Complaint seeking COLAs, even though couched as a breach of contract claim, nevertheless fail to establish that any contractual right has been impaired. Therefore, sovereign immunity applies and bars Plaintiff’s claim for COLAs against Defendants, as a matter of law,” state government lawyers wrote.

Hughes petitioned the state Supreme Court on Jan. 9 to take the case.

“Under the plain language of N.C. Gen. Stat. § 135-5(o), if active North Carolina state employees receive a cost-of-living adjustment (a ‘COLA’) to their pay in any given year, and if in that same year retired state employees receive a COLA, then the adjustments must be ‘comparable.’” Hughes’ lawyers wrote. “Unfortunately, the COLAs provided to retirees in recent years were not ‘comparable’ to the COLAs provided to active employees in those years.”

Hughes filed suit on behalf of current and future government retirees, “seeking to remedy that clear violation of the law and to uphold the settled contractual right of state retirees to their retirement benefits,” according to the court filing.

A trial judge rejected state defendants’ motion to dismiss the case, but the state Court of Appeals voted 2-1 to reverse that ruling.

“The majority’s opinion characterized Hughes’ claim as seeking, on behalf of retirees, ‘a proactive and absolute right to cost of living increases accorded to active employees’ of the State, and then the opinion noted that retirees have no vested right to receive a COLA under § 135-5(o). But that is not Hughes’ claim. His actual claim mirrors the plain text of § 135-5(o0,” Hughes’ lawyers wrote.

“Hughes is not claiming that retirees must receive a COLA — he is claiming that if retirees receive a COLA, then it must be ‘comparable’ to the COLA given to the active employees. And he is claiming that retirees are owed compensation for the incomparable COLAs they have received in recent years,” the court filing continued.

The full 15-member North Carolina Court of Appeals announced on Dec. 31 that it would not hear Hughes’ case. Four appellate judges would have allowed the case to proceed to a rare “en banc” hearing of the full court.

A three-judge appellate panel’s Nov. 18 decision reversed a Wake County trial judge, who had ruled in December 2023 that Hughes’ class-action lawsuit could proceed against state retirement systems covering teachers and state workers, judicial employees, and legislative staff.

Hughes worked in the state Department of Administration from 1994 to 2012. When he retired, he started drawing more than $1,800 in monthly retirement benefits. He has received seven cost-of-living adjustments since retiring, including a 4% increase in 2023, according to court filings.

Yet Hughes argued in the lawsuit filed on behalf of state retirees in April 2022 that state law required COLA increases “comparable to those of active state employees,” according to the original Appeals Court decision. The suit argued that the retirement systems had requested COLA adjustments an “inadequate number of times” and for amounts smaller than required by law.

The retirement systems, overseen by then-state Treasurer Dale Folwell, argued that the lawsuit should be dismissed because of sovereign immunity. Folwell appealed the trial judge’s ruling to North Carolina’s second-highest court.

“Plaintiff seeks a proactive and absolute contractual right to cost of living increases accorded to active employees,” wrote Judge John Tyson for the court’s majority. “Defendants have not demonstrated any vested right either existed or was hindered. Plaintiff has a ‘contractual right to rely on the terms of the retirement plan as these terms existed at the moment their retirement rights became vested’ not a proactive or future vested right to cost of living increases.”

Chief Judge Chris Dillon joined Tyson’s opinion. Both are Republicans. Judge Toby Hampson, a Democrat, dissented.

“The sole issue properly before this Court is whether Plaintiff’s claims are barred by sovereign immunity based on the face of the pleadings. They are not,” Hampson wrote.

“Whether or not the contractual terms should be interpreted as Plaintiff contends or whether Defendants have complied with or breached these contractual provisions is simply not before us,” Hampson added. “Any declaration of what the disputed terms mean and whether the State has acted in violation of the statute or in breach of the contract should first be resolved by the trial court. The majority errs in delving into the merits of Plaintiff’s contract-based claims at this stage.”

The post New treasurer, retirement systems ask top NC court to steer clear of COLA suit first appeared on Carolina Journal.

 

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