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Pineman v. Oechslin

decided: March 16, 1981.


Appeal from a judgment of the District Court for the District of Connecticut (Jose A. Cabranes, Judge), 494 F. Supp. 525, declaring that a revision of Connecticut's State Employees Retirement Act impaired the State's contractual obligations in violation of the Contract Clause of the United States Constitution. Vacated and remanded.

Before Lumbard, Newman, and Kearse, Circuit Judges.

Author: Newman

This appeal concerns the constitutionality of the State of Connecticut's revision of its State Employees Retirement Act, Conn.Gen.Stat. § 5-152 et seq., to conform to the requirements of the federal civil rights laws. The District Court for the District of Connecticut (Jose A. Cabranes, Judge) struck down the revisions for impairing contractual obligations in violation of the Contract Clause of the United States Constitution.*fn1 Pineman v. Oechslin, 494 F. Supp. 525 (D.Conn.1980). We vacate and remand to allow the state courts an initial opportunity to decide the important question of state law at issue in this lawsuit.

Until 1974 a Connecticut state employee's eligibility for pension benefits varied according to gender: women with 25 years of service were eligible for retirement with full benefits at age 50, while men with the same length of service became eligible at age 55, Conn.Gen.Stat. § 5-162(c)(1) (amended 1975); for employees with 10 to 25 years of service, the eligibility age for retirement with full benefits was 55 for women and 60 for men, Conn.Gen.Stat. § 5-162(d)(1) (amended 1975). Similar five-year eligibility differences, based on gender, existed for reduced pension benefits, which were available under certain circumstances, Conn.Gen.Stat. §§ 5-163(c) and 5-166(a) (amended 1975), and the tables by which benefits were calculated ensured that a female retiree received benefits equal to those received by a male retiree five years her senior, Conn.Gen.Stat. § 5-162(d)(3) (amended 1975).

In 1974 these five-year retirement age differentials were found to discriminate against men in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (1976). Fitzpatrick v. Bitzer, 390 F. Supp. 278 (D.Conn.1974). In order to remedy that discrimination, the State legislature amended the retirement statute in 1975 to equalize the terms and benefits of the retirement system by raising the retirement eligibility ages for female employees so that they equaled the ages required for male employees. P.A. No. 75-531 (1975) ("the 1975 Act"). The 1975 Act established one retirement eligibility age for each category of eligible employee regardless of gender.*fn2

Plaintiffs-appellees, who represent various classes of state employees, challenged the constitutionality of the 1975 Act under the Contract Clause for impairing the State's alleged contractual obligation to provide them with benefits at the retirement ages previously established.*fn3 By raising the ages, the State effectively reduced benefits for female employees. This reduction occurs either because the length of time benefits are received is shorter or the annual amount received is less. All women who wish to retire at the earliest possible age, set according to their length of service, will find that this minimum eligibility age is now increased by five years. Most women who retire at the same age at which they would have retired under the prior system will find that their annual benefit level is reduced.*fn4 The District Court, on appellees' motion for summary judgment, held that the 1975 Act, as applied to appellees, violated the Contract Clause. The Court also noted that the Act's prospective application to employees who were not employed by the State on the Act's effective date (June 30, 1975) was not challenged and, in any event, would be constitutional.

In a thorough and carefully considered opinion, the District Court pursued traditional Contract Clause analysis, first considering whether a contractual obligation existed and, if so, whether the new statute was an unconstitutional impairment of that obligation. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S. Ct. 2716, 57 L. Ed. 2d 727 (1978); United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977); see Note, A Process-Oriented Approach to the Contract Clause, 89 Yale L.J. 1623 (1980). Although no Connecticut court had ever ruled on the issue of when, or to what extent, the pension rights of state employees vest, the District Court found, from a combination of factors, that the Retirement Act, as it existed prior to the 1975 revision, created a contractual obligation. The Court emphasized state court decisions concerning the contractual nature of private -employer pension plans, Bird v. Connecticut Power Co., 144 Conn. 456, 133 A.2d 894 (1957); Borden v. Skinner Chuck Co., 21 Conn.Sup. 184, 150 A.2d 607 (Super.Ct.1958), and Wyper v. Providence Washington Insurance Co., 533 F.2d 57 (2d Cir. 1976) (construing Connecticut law); the statutory requirement that state employees participate in, and contribute to, one of the state retirement plans, Conn.Gen.Stat. §§ 5-157, 5-160 and 5-161 (1975); and the reliance interest of female employees who had entered state service before the enactment of the 1975 Act, expecting to retire at the lower ages and receive the established benefit levels. Having found an enforceable state law obligation, the District Court then concluded that the 1975 revision violated the Contract Clause because it was neither necessary nor reasonable.

In reviewing the District Court's conclusions,*fn5 we focus our attention on the initial question whether the pre-1975 Retirement Act created a contractual obligation obliging Connecticut to maintain the pre-1975 retirement ages for female state employees who had not yet begun receiving retirement benefits when the Act was revised. This is an issue of both state and federal law. Initially it is a question of state law, for only those arrangements enforceable as contractual obligations under state law are protected by the Contract Clause against impairment. At the same time, there is a federal law component to the inquiry. Federal courts must have the ultimate authority to determine, as a matter of constitutional law, whether a particular arrangement, of the sort normally enforceable as a contract under state law, is a contract protected by the Contract Clause; otherwise, states could always evade the restraint of the Clause by determining, through legislation or adjudication, that an arrangement previously regarded as a contract was no longer enforceable. For this reason the Supreme Court has frequently instructed that federal courts must independently determine the existence of a contract and the nature and extent of its obligations in order to decide whether it enjoys the protection of the Contract Clause. E.g., Irving Trust Co. v. Day, 314 U.S. 556, 561, 62 S. Ct. 398, 401, 86 L. Ed. 452 (1942). This federal law aspect of a Contract Clause case is often the dominant inquiry, because, at least in modern cases, the state law status of a contract is rarely in dispute. See Allied Structural Steel Co. v. Spannaus, supra; United States Trust Co. v. New Jersey, supra; Veix v. Sixth Ward Building & Loan Association, 310 U.S. 32, 60 S. Ct. 792, 84 L. Ed. 1061 (1940); Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413 (1934). In this case, however, there is considerable uncertainty as to the state law nature of contingent pension benefits for public employees.

No Connecticut court has yet ruled on the precise question whether state employees have vested pension rights prior to becoming eligible to receive benefits. The states that have considered the question have adopted a variety of approaches. Some states hold that there are no rights under a pension plan until the state employee satisfies all the eligibility requirements, including age and years of service, for receiving benefits. See, e.g., Etherton v. Wyatt, 155 Ind.App. 440, 293 N.E.2d 43 (Ct.App.1973); McFeely v. Pension Comm'n, 8 N.J.Super. 575, 73 A.2d 757 (Law Div.1950); Creps v. Board of Firemen's Relief & Retirement Fund Trustees, 456 S.W.2d 434 (Tex.Civ.App.1970). Others hold that pension rights vest unconditionally upon employment. See, e.g., Yeazell v. Copins, 98 Ariz. 109, 402 P.2d 541 (1965); N.Y.Const. art. V, § 7. Still others apply a limited vesting concept, holding that pension rights vest upon employment subject to "reasonable" modification by the public employer. See, e.g., Stork v. State, 62 Cal.App.3d 465, 133 Cal.Rptr. 207 (1976); Police Pension Relief Bd. v. Bills, 148 Colo. 383, 366 P.2d 581 (1961); City of Frederick v. Quinn, 35 Md.App. 626, 371 A.2d 724 (Ct.Spec.App.1977). And some determine vesting rights according to the nature of the employee's contributions: voluntary plans vest upon employment, but mandatory plans do not vest. See, e.g., State ex rel. O'Donald v. City of Jacksonville Beach, 142 So.2d 349 (Fla.Dist.Ct.App.1962), aff'd, 151 So.2d 430 (1963). Cf. United States Railroad Retirement Bd. v. Fritz, 449 U.S. 166, 101 S. Ct. 453, 66 L. Ed. 2d 368 (Dec. 9, 1980) (railroad retirement benefits, established by federal law, are not contractual); Flemming v. Nestor, 363 U.S. 603, 610-11, 80 S. Ct. 1367, 1372, 4 L. Ed. 2d 1435 (1960) (social security benefits are not contractual; Congress's reservation of right to alter, amend, or repeal the system simply makes express what is implicit in the institutional needs of the program).

In the absence of any authoritative ruling by the courts of Connecticut on the vesting of state employee pension rights, both sides in this case have relied on a small number of Connecticut decisions on somewhat related questions of pension law. Bird v. Connecticut Power Co., supra; Borden v. Skinner Chuck Co., supra; Fraser v. City of Norwich, 137 Conn. 43, 75 A.2d 60 (1950); State ex rel. Herbert v. Ryan, 16 Conn.Sup. 319 (Super.Ct.1949). The District Court, analogizing from a decision in the field of private pensions, Bird v. Connecticut Power Co., supra, predicted that Connecticut courts would recognize contractual rights to public pensions arising immediately upon entry into state employment. We are not prepared either to accept or to reject that prediction. In our view abstention is appropriate to afford the state courts an opportunity to adjudicate the contract law aspect of appellees' claim, even though the federal courts, thereafter resolving the constitutional issue, will not be obliged to give the state court ruling the conclusive deference that abstention normally entails. See Atlantic Coast Line Railroad Co. v. Phillips, 332 U.S. 168, 170, 67 S. Ct. 1584, 1585, 91 L. Ed. 1977 (1947); Irving Trust Co. v. Day, supra, 314 U.S. at 561, 62 S. Ct. at 401; Higginbotham v. City of Baton Rouge, 306 U.S. 535, 538-39, 59 S. Ct. 705, 706, 83 L. Ed. 968 (1939).

Despite the lack of the usual conclusiveness of a state court determination of state law, abstention principles are fully applicable in this case. The issues in this lawsuit combine significant aspects of both the Pullman*fn6 and Burford*fn7 branches of the abstention doctrine. The state common law rule*fn8 governing the vesting of public employee pension rights is highly uncertain. The subject matter, the fixing of compensation benefits to state employees, is of vital importance to the State and its governmental functioning. See National League of Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245 (1976). State autonomy and the relationship between state and federal authority would be impaired were the federal courts to set state policy independently and follow their own instincts as to state contract law. Considerations of comity that underlie our federal system of government make abstention appropriate. See Burford v. Sun Oil Co., 319 U.S. 315, 332, 334, 63 S. Ct. 1098, 1106, 1107, 87 L. Ed. 1424 (1943); Railroad Commission v. Pullman, 312 U.S. 496, 498, 501, 61 S. Ct. 643, 645, 85 L. Ed. 971 (1941).

The District Court's judgment with respect to the invalidity of the 1975 Act, as applied to persons employed before June 30, 1975, is vacated and remanded for further proceedings ...

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