Parella v. Retirement Board of the Rhode Island Employees' Retirement System

United States Court of Appeals

For the First Circuit

No. 98-1400

GAETANO PARELLA, ET AL.,

Plaintiffs, Appellees,

v.

RETIREMENT BOARD OF THE RHODE ISLAND EMPLOYEES' RETIREMENT

SYSTEM, NANCY J. MAYER, in her official capacities as General

Treasurer of the State of Rhode Island and as Chairperson,

Treasurer, and Custodian of Funds of the Retirement Board of the

Rhode Island Employees' Retirement System, and JOANN E. FLAMINIO,

in her official capacity as Executive Director of the Retirement

Board of the Rhode Island Employees' Retirement System,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Steven J. McAuliffe, U.S. District Judge]

Before

Boudin, Lynch, and Lipez,

Circuit Judges.

Michael P. DeFanti, with whom Laura A. Pisaturo and Hinckley,

Allen & Snyder were on brief, for appellants Retirement Board of

the Rhode Island Employees' Retirement System and Joann E.

Flaminio, in her official capacity as Executive Director of the

Retirement Board of the Rhode Island Employees' Retirement System.

Rebecca T. Partington, Assistant Attorney General, for

appellant Nancy J. Mayer, in her official capacity as General

Treasurer of the State of Rhode Island.

Anthony F. Muri, with whom Barbara S. Cohen and Goldenberg &

Muri were on brief, for appellees Gaetano Parella et al.

April 16, 1999

LYNCH, Circuit Judge. Beginning in 1987, retired Rhode

Island legislators or their beneficiaries became eligible to

receive annual pension benefits that were as much as sixty times

greater than the legislators' annual pre-retirement salaries. When

the Rhode Island General Assembly became aware that the generosity

of these benefits jeopardized the tax-exempt status of the state's

retirement system, it acted to bring the benefits into compliance

with federal tax law by capping annual benefits at $10,000,

effective July 1995. The pensioners whose benefits were thereby

reduced brought suit under 42 U.S.C. 1983 to foreclose any

withholding of benefits, alleging that the benefit cap violated the

Takings Clause, Contract Clause, and Due Process Clause of the

United States Constitution.

While the suit was pending, Congress retroactively

eliminated the federal tax code's limitations on government

pensions, and the Rhode Island Retirement Board responded by

refunding the withheld benefits. The pensioners then continued

their suit in order to seek interest on the benefits for the time

that they were withheld, as well as attorneys' fees under 42 U.S.C.

1988. After cross-motions for summary judgment, the district

court granted summary judgment to the pensioners on Takings Clause

grounds, and this appeal followed.

Because of the peculiar fact pattern of this case, it

raises a number of difficult constitutional issues, including

several questions related to defendants' asserted Eleventh

Amendment defense. We conclude that Rhode Island's temporary

withholding of excess benefits did not violate the pensioners'

constitutional rights; accordingly, we do not reach the other

issues. We reverse the district court's grant of summary judgment

on the pensioners' 1983 claim, vacate its award of costs and

attorneys' fees under 1988, and remand for entry of summary

judgment in favor of defendants.

I

Summary judgment is appropriate when there is no genuine

issue as to any material fact and the moving party is entitled to

a judgment as a matter of law. See Fed. R. Civ. P. 56(c). The

district court based its order on the following undisputed facts.

In 1936, the Rhode Island General Assembly enacted

legislation establishing a retirement system for public employees.

See 1936 R.I. Pub. Laws ch. 2334 (codified as amended at R.I. Gen.

Laws 36-8-1 et seq.); see also National Educ. Ass'n -- Rhode

Island v. Retirement Bd. of the R.I. Retirement Sys., 1999 WL

152589, at *1 (1st Cir. 1999) ("NEA")(describing system's history);

Kass v. Retirement Bd. of the Employees' Retirement Sys., 567 A.2d

358, 358-59 (R.I. 1989) (same); McGrath v. Rhode Island Retirement

Bd., 88 F.3d 12, 13-14 (1st Cir. 1996) (describing related

municipal pension plan). The Rhode Island retirement system is a

defined benefit plan, which requires members to contribute a set

percentage of their yearly salary, see R.I. Gen. Laws 36-10-1, in

exchange for a fixed retirement allowance based on years of service

and salary level achieved, see id. 36-10-10. The retirement

system is administered by a retirement board ("the Board"), which

is chaired by the state treasurer. See id. 36-8-3, 36-8-9.

The original provisions of the retirement statute

expressly excluded members of the General Assembly from

participating in the retirement system. See 1936 R.I. Pub. Laws

ch. 2334, 14. In 1947, the Assembly amended the statute to

permit legislators to join the system voluntarily. See 1947 R.I.

Pub. Laws ch. 1971, 5 (codified as amended at R.I. Gen. Laws

36-9-6). At first, legislator contributions and benefits were

based on the same rates set for ordinary employee members. See id.ch. 1971, 3. Since at that time legislators' compensation was

limited by the Rhode Island Constitution to $300 per year, see R.I.

Const. art. VI, 3 (amended 1994), legislative pensions were

extremely small. Beginning in 1960, however, a series of

amendments to the retirement statute increased both the rate of

contribution for legislators and their maximum annual pension

benefit. See Kass, 567 A.2d at 362-63, 364. In 1987, legislators

granted themselves the last such increase. After voters rejected

a proposed amendment to the Rhode Island Constitution that would

have increased the nominal $300 salary, legislators acted to double

their maximum pension benefit, to $12,000 annually, without

altering the annual premium (by then set at $90, or thirty percent

of the annual $300 salary). See R.I. Gen. Laws 36-10-10.1(a).

The increase applied both retrospectively (to those already retired

in 1987) and prospectively. See id. 36-10-10.1(c).

As a result of this increase, the Rhode Island retirement

system no longer qualified as a tax-exempt pension plan under

Internal Revenue Code 401(a) because it was out of compliance

with 415(b), which then limited annual pension benefits to either

$10,000 or the retiree's annual pre-retirement compensation,

whichever was greater. See 26 U.S.C. 401(a), 415(b)

(retroactively amended in 1996). Both the General Assembly and the

Board appear to have been happily unaware of this problem until

1991, when local journalists brought it to their -- and the

Internal Revenue Service's -- attention.

The problem was a significant one. If the IRS decided to

strictly enforce the 415(b) limit, then the retirement fund would

need to pay taxes on its investment profits for each year in which

the plan exceeded 415 limits. That, in turn, would put more of

the burden for financing the state's pension obligations on

taxpayers. Individual members of the system could also suffer,

since they would be responsible for annual taxes on the value of

any non-forfeitable accrued benefits. See 6 Mertens, Law of

Federal Income Taxation 25B:01, at 25B-7 (Sept. 1998) (describing

tax consequences for participants in a non-qualified pension plan).

After negotiating with the IRS, the state agreed in early

1994 to pass legislation capping past and present legislative

pensions at $10,000. See 1994 R.I. Pub. Laws ch. 87 ("Cap Act")

(codified at R.I. Gen. Laws 36-8-20 and 36-10-10.1). The Cap

Act added a new section to the retirement statute to declare the

state's general intention "that the retirement system satisfy the

requirements of 401(a) of the Internal Revenue Code." R.I. Gen.

Laws 36-8-20(a). Section 36-8-20 also included a number of

specific provisions intended to ensure compliance with Code

requirements, including a section providing that "[b]enefits shall

not be payable to the extent that they exceed the limitations

imposed by 415 of the code." Id. 36-8-20(f). Another section

of the Cap Act explicitly limited legislative pensions to $10,000,

effective July 1995:

If a [retired legislator] is entitled under subsection

(a) of this section to an annual retirement allowance

which is in excess of the amount permitted by 415(b)(4)

of the Internal Revenue Code, . . . the amount in excess

of ten thousand dollars ($10,000):

. . . .

. . . [s]hall be paid from the retirement system

after June 30, 1995, only to the extent permitted by the

limitation on benefits imposed by 36-8-20[(f)] [which

in turn permits no benefits in excess of Code 415].

Id. 36-10-10.1(e)(1). The Cap Act provided further that "[a]ny

amount not permitted to be paid by the retirement system . . .

shall be paid out of general funds, but only to the extent that

amounts have been appropriated for those payments." Id. 36-10-10.1(e)(2).

After the General Assembly chose not to appropriate the

funds required in 1995 to replace the excess benefits, the Board

began reducing monthly payments to each pensioner whose annual

benefits exceeded $10,000. The reductions were quite substantial:

pensioners who had been receiving the highest pensions (in excess

of $18,000) lost nearly forty-five percent of their benefits, and

collectively the reductions for 1995 totaled nearly $700,000.

The plaintiffs, a class of 171 retired legislators or

their spouses who had been receiving pensions in excess of $10,000

annually, brought suit against the Board to recover the withheld

amounts, naming as additional defendants Nancy Mayer, in her

official capacities as Chair of the Board and as Treasurer of Rhode

Island, and Joann Flaminio, in her official capacity as Executive

Director of the Board. The pensioners alleged that the Cap Act as

applied violated the Takings Clause, Contract Clause, and Due

Process Clause and that each of the defendants had violated 42

U.S.C. 1983 by implementing an unconstitutional law.

The pensioners sought a preliminary injunction in July

1995 to prevent the Board from withholding benefits. Their request

was denied because the district court -- discounting Eleventh

Amendment concerns raised by the plaintiffs -- found that

withholding excess benefits would not cause irreparable harm since

the Board could later be ordered to award any wrongly withheld

benefits. Plaintiffs chose not to appeal the denial of the

preliminary injunction.

A little over a year after the district court's denial of

plaintiffs' motion for a preliminary injunction, Congress amended

415(b) to eliminate, retroactively, the $10,000 cap for

government pensions. After some prodding from the plaintiffs, the

Board responded by refunding all of the excess benefits that had

been withheld since the Cap Act took effect approximately fifteen

months before (totaling nearly $850,000). It did not refund any

interest earned during the time the money was withheld.

The plaintiffs proceeded with their suit, seeking to

recover the missing interest as well as attorneys' fees under

1988. On cross-motions for summary judgment, the district court

(McAuliffe, J.) held that the Cap Act had violated the Takings

Clause and that the Board had violated 1983 by temporarily

withholding benefits pursuant to the Act. It found, furthermore,

that the Board was not entitled to Eleventh Amendment immunity.

Thus, it denied the defendants' motion for summary judgment,

granted summary judgment to the plaintiffs, and awarded plaintiffs

$31,862.83 in "prejudgment interest" under 1983 and $133,098.50

in costs and attorneys' fees under 1988. The Board and Nancy

Mayer, in her official capacity as Treasurer of Rhode Island,

appeal on numerous grounds. II

We review the district court's grant of summary judgment

de novo. See Lennon v. Rubin, 166 F.3d 6, 8 (1st Cir. 1999). Out

of the mass of issues presented by this appeal, our first question

is to decide the order in which the issues must be decided.

The most obvious of the "order" questions is whether we

must address defendants' Eleventh Amendment arguments before

considering the merits of the plaintiffs' 1983 claims. Under

this circuit's practice, we have considered it permissible to defer

an Eleventh Amendment question until after the merits were

addressed, thus avoiding the Eleventh Amendment question entirely

if plaintiffs lost on the merits. See, e.g., Mercado-Boneta v.

Administracion del Fondo de Compensacion al Paciente, 125 F.3d 9,

11-12 (1st Cir. 1997) (pretermitting "resolution of th[e] [Eleventh

Amendment] jurisdictional issue"); Willhauck v. Halpin, 953 F.2d

689, 713 n.24 (1st Cir. 1991) (noting that jurisdiction may be

assumed in the face of an Eleventh Amendment challenge).

But the Supreme Court recently declared that courts

should generally determine whether Article III jurisdiction exists

before reaching the merits of a plaintiff's claim. See Steel Co.v. Citizens for a Better Env't, 118 S. Ct. 1003, 1012-16 (1998).

If Steel Co.'s rejection of "the doctrine of hypothetical

jurisdiction," id. at 1012 (internal quotation marks omitted),

extends to the type of hypothetical jurisdiction approved in

Mercado-Boneta and Willhauck, then we would be obligated to decide

whether the Board can claim Eleventh Amendment immunity before

deciding whether the Board's actions deprived plaintiffs of their

federal constitutional rights.

Before discussing the boundaries of the Steel Co. rule,

we pause to underline the fact that the rule does not appear to be

an absolute one. While a majority of justices rejected the use of

"hypothetical jurisdiction" under the facts presented, see id. at

1012-16, only three justices (Chief Justice Rehnquist along with

Justices Scalia and Thomas) treated this outcome as inevitable.

Justice O'Connor, along with Justice Kennedy, joined the Court's

opinion but wrote separately to emphasize that "several of [the

Court's] decisions have diluted the absolute purity of the rule

that Article III jurisdiction is always an antecedent question" and

to explain that "the Court's opinion should not be read as

cataloging an exhaustive list of circumstances under which federal

courts may exercise judgment in reserv[ing] difficult questions of

. . . jurisdiction." Id. at 1020 (O'Connor, J., concurring)

(alterations in original) (internal quotation marks omitted).

Justice Breyer agreed that, although Article III questions

"typically" should be decided first, "[t]he Constitution does not

impose a rigid judicial 'order of operations.'" Id. at 1020-21

(Breyer, J., concurring in part and concurring in the judgment).

The remaining three justices found it unnecessary under the facts

of Steel Co. to consider Article III jurisdiction before reaching

other issues. See id. at 1021-32 (Stevens, J., concurring in the

judgment, joined in part by Souter & Ginsburg, JJ.); id. at 1032

(Ginsburg, J., concurring in the judgment). Thus, "[t]he various

opinions in the case, read as a whole, are not entirely clear as to

whether (or to what extent) Steel Co. undermines our earlier

practice [of bypassing jurisdictional issues]." Hardemon v. City

of Boston, 144 F.3d 24, 26 (1st Cir. 1998).

It is also important to note the Court's narrow use of

the term "jurisdiction" in Steel Co. The decision in Steel Co.distinguishes between Article III jurisdiction questions and

statutory jurisdiction questions, holding that the former should

ordinarily be decided before the merits, but the latter need not

be. See Steel Co., 118 S. Ct. at 1009-16. Thus, the issue is

whether Eleventh Amendment questions should be treated as Article

III jurisdiction questions for the purposes of Steel Co. This is

a puzzle with a long pedigree. See Wisconsin Dep't of Correctionsv. Schacht, 118 S. Ct. 2047, 2054 (1998) (noting that the Supreme

Court has never resolved whether, or to what extent, "Eleventh

Amendment immunity is a matter of subject matter jurisdiction").

See generally Chemerinsky, Federal Jurisdiction 7.3 (2d ed. 1994)

(discussing the history of competing theories of the nature of the

Eleventh Amendment).

In some ways the Eleventh Amendment clearly represents a

limitation of Article III judicial power. The Amendment provides

that "[t]he Judicial power of the United States shall not be

construed to extend to [certain suits against states]." U.S.

Const. amend. XI. The Supreme Court has concluded from this

language that "[t]he Eleventh Amendment restricts the judicial

power under Article III." Seminole Tribe v. Florida, 517 U.S. 44,

72-73 (1996); see also Pennhurst State Sch. & Hosp. v. Halderman,

465 U.S. 89, 98 (1984) ("[T]he fundamental principle of sovereign

immunity [under the Eleventh Amendment] limits the grant of

authority in Article III." ). Two further aspects of Eleventh

Amendment doctrine are in harmony with this characterization.

First, an Eleventh Amendment argument can be raised for the first

time on appeal. See Edelman v. Jordan, 415 U.S. 651, 677-78

(1974). Second, Eleventh Amendment questions can be introduced sua

sponte by the court. See, e.g., Sullivan v. Barnett, 139 F.3d 158,

179 (3d Cir. 1998) (collecting cases), rev'd on other grounds sub

nom. American Mfrs. Mut. Ins. Co. v. Sullivan, 119 S. Ct. 977

(1999); V-1 Oil Co. v. Utah State Dep't of Pub. Safety, 131 F.3d

1415, 1419-20 (10th Cir. 1997); Atlantic Healthcare Benefits Trustv. Googins, 2 F.3d 1, 4 (2d Cir. 1993).

Because Eleventh Amendment issues are clearly linked to

the question of Article III jurisdiction, some courts have held

that Steel Co. requires them to address Eleventh Amendment

questions before reaching the merits of a plaintiff's claim. See,

e.g., Seaborn v. Florida Dep't of Corrections, 143 F.3d 1405, 1407

(11th Cir. 1998) ("[A]n assertion of Eleventh Amendment immunity

must be resolved before a court may address the merits of the

underlying claim(s).") (citing Steel Co., 118 S. Ct. at 1012-16);

Kilcullen v. New York Dep't of Transp., 33 F. Supp. 2d 133, 136

(N.D.N.Y. 1999) (same); Johnson v. State Tech. Ctr., 24 F. Supp. 2d

833, 837 (W.D. Tenn. 1998) (same) (citing Steel Co., 118 S. Ct. at

1012-16, and Seaborn, 143 F.3d at 1406).

But the nature of the Eleventh Amendment is more complex

than these decisions acknowledge. Although Eleventh Amendment

questions are often labeled "jurisdictional," see, e.g., Mercado-

Boneta, 125 F.3d at 12, the Amendment differs in several crucial

ways from ordinary restrictions on subject matter jurisdiction.

For one, Eleventh Amendment immunity can be waived. See Schacht,

118 S. Ct. at 2052 (citing Atascadero State Hosp. v. Scanlon, 473

U.S. 234, 241 (1985), and Clark v. Barnard, 108 U.S. 436, 447

(1883)); see also Toll v. Moreno, 458 U.S. 1, 17-19 (1982)

(recognizing state's ability to waive Eleventh Amendment immunity

by its actions in a particular case). Furthermore, while courts

have the discretion to raise Eleventh Amendment questions sua

sponte, Article III does not obligate them to do so. See Schacht,

118 S. Ct. at 2052-53 (citing Patsy v. Board of Regents of Fla.,

457 U.S. 496, 515 n.19 (1982)). These two aspects of Eleventh

Amendment doctrine suggest that the Eleventh Amendment is just as

much a grant of immunity (i.e., a type of defense) as it is a

limitation on courts' jurisdiction. See id. at 2055 (Kennedy, J.,

concurring) ("[O]ur precedents have treated the Eleventh Amendment

as 'enact[ing] a sovereign immunity from suit, rather than a

nonwaivable limit on the federal judiciary's subject-matter

jurisdiction.'" (quoting Idaho v. Coeur d'Alene Tribe, 521 U.S.

261, 267 (1997))).

This suggests, in turn, that Eleventh Amendment issues do

not fall into the category of Article III questions that Steel Co.would define as necessarily antecedent. At least one Supreme Court

decision seems to support this conclusion. In Calderon v. Ashmus,

118 S. Ct. 1694 (1998), the Court considered whether an inmate's

declaratory judgment action presented an Article III "case or

controversy." The Court observed that it needed to address this

question of justiciability before it could reach the parties'

Eleventh Amendment and First Amendment arguments, and then

explained in a footnote that "[w]hile the Eleventh Amendment is

jurisdictional in the sense that it is a limitation on the federal

court's judicial power, . . . it is not co-extensive with the

limitations on judicial power in Article III." Id. at 1697 & n.2.

Thus, the Court implied that Eleventh Amendment questions are

excluded from the category of Article III issues that must be

addressed before the merits. At least one district court has

explicitly adopted this rule. See Bowers v. National Collegiate

Athletic Ass'n, 9 F. Supp. 2d 460, 498 n.15 (D.N.J. 1998).

The rule makes sense in light of Steel Co.'s underlying

rationale. Steel Co. rejects the assertion of "hypothetical

jurisdiction" where a court's Article III jurisdiction is in doubt,

because a court without Article III jurisdiction has no power to

declare the law -- it would only be in a position to render an

advisory opinion, see Steel Co., 118 S. Ct. at 1016, which "offends

fundamental principles of separation of powers," id. at 1012.

Choosing to decide the merits before considering an Eleventh

Amendment argument simply does not present the same risk: because

Eleventh Amendment immunity can be waived, the presence of an

Eleventh Amendment issue does not threaten the court's underlying

power to declare the law. If this were not the case, sua sponte

consideration of a possible Eleventh Amendment bar would have to be

obligatory, not discretionary -- but the Supreme Court has now

clearly stated that courts are free to ignore possible Eleventh

Amendment concerns if a defendant chooses not to press them. SeeSchacht, 118 S. Ct. at 2052-53.

It seems to us that the relevant maxim in the Eleventh

Amendment context is not that federal courts cannot act without

first establishing their jurisdiction, but rather that courts

should "not reach constitutional questions in advance of the

necessity of deciding them." American Mfrs. Mut. Ins. Co. v.

Sullivan, 119 S. Ct. 977, 991 (1999) (Ginsburg, J., concurring in

part and concurring in the judgment) (quoting Three Affiliated

Tribes of Fort Berthold Reservation v. Wold Eng'g, P.C., 467 U.S.

138, 157 (1984)) (internal quotation marks omitted); see also Maine

Green Party v. Maine, Secretary of State, 1999 WL 115057, at *4

(1st Cir. 1999) (applying "the presumption towards decisional

minimalism").

Abiding by this "fundamental rule of judicial restraint,"

American Mfrs. Mut. Ins. Co., 119 S. Ct. at 991 (Ginsburg, J.,

concurring) (internal quotation marks omitted), and thus avoiding

Eleventh Amendment questions where there are other dispositive

issues, produces two positive outcomes. First, it permits courts

to avoid squandering judicial resources. Second, and more

important, it avoids forcing defendants to expend their resources

on Eleventh Amendment questions in situations in which they would

rather not do so. The point is made by supposing that a particular

case presents an easy merits issue (favoring the defendant) and a

difficult Eleventh Amendment issue. If the Eleventh Amendment

issue had to be addressed first under Steel Co., then the defendant

would have to focus on that issue in order to avoid setting

unwanted precedent -- even though, in the end, the Eleventh

Amendment issue was not necessary to the court's decision.

The application of the Steel Co. rule to Eleventh

Amendment questions would mean that courts were required, under

certain circumstances, to begin their opinions with the equivalent

of "obligatory dicta." We decline to create such a rule.

III

Another question in this case, however, does fall more

squarely under the Steel Co. rule. Before we address any other

issue, we address defendants' argument that plaintiffs' claims

became moot when the Board refunded the withheld benefits in 1996.

If plaintiffs' claims were rendered moot, there would no longer be

any case or controversy, and we would therefore lack Article III

jurisdiction. See SEC v. Medical Comm. for Human Rights, 404 U.S.

403, 407 (1972) (relating the mootness doctrine to the Article III

"case or controversy" requirement).

After their benefits were refunded, plaintiffs continued

to press two claims: (1) a claim for interest on the benefits (or,

alternatively, damages for the delay in payment), and (2) a claim

for attorneys' fees under 1988. We conclude that plaintiffs

adequately pled and argued (albeit somewhat skeletally) a claim for

interest that was not rendered moot by the Board's refund of the

withheld benefits because it rests on an independent constitutional

basis. They present three possibilities. First, plaintiffs

assert that they have a specific contractual right protected by the

Contract Clause, not only to continue receiving benefits above

$10,000, but also to receive interest on those benefits if payment

of the benefits is delayed. Alternatively, assuming that there was

a Contract Clause right to the withheld benefits, plaintiffs also

assert that this contractual "property" has been "taken" under the

Takings Clause, see Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003

(1984) (noting that valid contracts are property within the meaning

of the Takings Clause), and that the payment of interest would

constitute just compensation for that taking, see Jacobs v. United

States, 290 U.S. 13, 16-17 (1933) (holding that interest is a part

of the "just compensation" that is the constitutionally compelled

remedy for a Takings Clause violation). Finally, plaintiffs assert

that the Board's refusal to pay interest on the withheld benefits

also constitutes a direct Takings Clause violation under First

English Evangelical Lutheran Church v. County of Los Angeles, 482

U.S. 304 (1987). See id. at 321-22 (holding that just compensation

is required for temporary regulatory takings). Since the

possibility of even a partial remedy is sufficient to prevent a

case from being moot, see Calderon v. Moore, 518 U.S. 149, 150

(1996), we proceed to the merits. IV

Plaintiffs originally alleged violations of the Takings

Clause, the Contract Clause, and the Due Process Clause. The

district court granted summary judgment in favor of the plaintiffs

on the Takings Clause claim and did not reach the other two claims.

On appeal, plaintiffs have abandoned their Due Process claim but

continue to press the other two. Accordingly, we must decide if

the Takings Clause, the Contract Clause, or both have been

violated.

Both courts and parties have sometimes treated Takings,

Contract, and Due Process claims as if they were interchangeable.

This is understandable, given that all three clauses serve to

cabin, on some level, states' ability to act retroactively. But

other recent decisions suggest that when faced with multiple,

potentially relevant constitutional provisions, courts should

invoke the provision that treats most directly the right asserted.

See, e.g., Graham v. Connor, 490 U.S. 386, 395 (1989) (refusing to

apply "the more generalized notion of 'substantive due process'" on

the ground that "the Fourth Amendment provides an explicit textual

source of constitutional protection against th[e] sort of . . .

conduct [complained of]"); Armendariz v. Penman, 75 F.3d 1311, 1324

(9th Cir. 1996) (en banc) (concluding, based on the reasoning in

Graham, that "private takings" can be addressed only under the

Takings Clause, not the Due Process Clause).

Our analysis of the boundaries of the Contract and

Takings Clauses is guided more specifically by the Supreme Court's

most recent Takings Clause case, which was decided after the

district court granted summary judgment here. See Eastern

Enterprises v. Apfel, 118 S. Ct. 2131 (1998). Read as a whole, the

various opinions in Eastern Enterprises make clear that plaintiffs

must first establish an independent property right before they can

argue that the state has taken that right without just

compensation. Five justices in Eastern Enterprises found that a

federal law requiring coal producers to provide lifelong health

care benefits to ex-employees violated the Constitution because it

imposed "severe retroactive liability" that was "disproportionate to

the parties' experience" on "a limited class of parties that could

not have anticipated th[at] liability." Id. at 2149; see also id.at 2137-60. But only four justices found a Takings Clause

violation. Justice Kennedy wrote separately to explain why he

found takings analysis inapposite, and why the Due Process Clause

provided the proper framework for analysis of the coal producers'

claim. See id. at 2154-60 (Kennedy, J., concurring in the judgment

and dissenting in part) (emphasizing "the importance [to Takings

Clause analysis] of identifying the property allegedly taken, lest

all governmental action be subjected to examination under [the

Takings Clause]"). The four dissenters agreed with Kennedy on this

point (while disagreeing with the content of his due process

analysis). See id. at 2161-63 (Breyer, J., dissenting, joined by

Stevens, Souter, & Ginsburg, JJ.). Thus, a majority of justices

found that the Takings Clause did not apply under the facts of

Eastern Enterprises, because they concluded that a Takings Clause

issue can arise only after a plaintiff's property right has been

independently established. See id. at 2154-58 (Kennedy, J.,

concurring in the judgment and dissenting in part); id. at 2161-63

(Breyer, J., dissenting).

It is clear that this case does not involve tangible

personal property or real property. It does not involve an effort

to reclaim benefits already paid. The only property interest

alleged is an expectancy interest claimed to derive from a contract

between the state and the plaintiffs to afford a certain level of

pension benefits. The facts here require us to consider whether

plaintiffs had the requisite property right to support a Takings

Clause claim by analyzing their claim under the Contract Clause.

See NEA, 1999 WL 152589, at *7-8 (denying a Takings Clause claim

because there was no enforceable contract right); Hoffman v. City

of Warwick, 909 F.2d 608, 616 (1st Cir. 1990) (same). Plaintiffs'

claim that the Board's refusal to pay interest on the withheld

benefits constitutes a direct Takings Clause violation must fail

under Eastern Enterprises. Only if we determine that plaintiffs

had a constitutionally protected contract right to the excess

benefits can we consider whether the state took that contract right

without just compensation.

V

The Contract Clause provides that "[n]o State shall . .

. pass any . . . Law impairing the Obligation of Contracts." U.S.

Const. art. I, 10, cl. 1. Although the original intent of this

language was to bar retroactive laws (particularly debtor relief

laws) that would impair private contractual rights, the clause has

long been interpreted to apply to public contracts as well. See,e.g., Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 137-39 (1810).

The same two-part test applies in both public and private

contexts. See Parker v. Wakelin, 123 F.3d 1, 4-5 (1st Cir. 1997);

McGrath v. Rhode Island Retirement Bd., 88 F.3d 12, 16 (1st Cir.

1996). A reviewing court must first decide whether a change in

state law has resulted in the "substantial impairment of a

contractual relationship." General Motors Co. v. Romein, 503 U.S.

181, 186 (1992) (quoting Allied Structural Steel Co. v. Spannaus,

438 U.S. 234, 244 (1978)) (internal quotation marks omitted); see

also Parker, 123 F.3d at 4-5. This question can be broken down

into "three components: whether there is a contractual

relationship, whether a change in law impairs that contractual

relationship, and whether the impairment is substantial." Romein,

503 U.S. at 196; see also Parker, 123 F.3d at 5; McGrath, 88 F.3d

at 16. If each of these three component questions is answered

affirmatively, the court must determine whether the impairment is

nonetheless justified as "reasonable and necessary to serve an

important public purpose." United States Trust Co. v. New Jersey,

431 U.S. 1, 25 (1977); see also Parker, 123 F.3d at 5; McGrath, 88

F.3d at 16.

The height of the hurdles plaintiffs must overcome under

each part of this test, however, depends on whether the context is

public or private. Where the state is alleged to have impaired

private contractual rights, the hurdle for plaintiffs under the

second part of the test will ordinarily be higher than in public

contract cases, since states have broad discretion to determine

whether an impairment of a private contract is reasonable or

necessary. See id. at 25-26; Parker, 123 F.3d at 5. But where the

state is alleged to have impaired a public contract, at least where

the impairment operates for the state's benefit, "less deference to

a legislative determination of reasonableness and necessity is

required, because 'the State's self-interest is at stake.'"

Parker, 123 F.3d at 5 (quoting United States Trust Co., 431 U.S. at

26); see also McGrath, 88 F.3d at 16 ("[W]hen a state is itself a

party to a contract, courts must scrutinize the state's asserted

purpose with an extra measure of vigilance.").

By contrast, where a public contract allegedly arises out

of statutory language, the hurdle under the first component of the

first part of the test -- proving that a contractual relationship

exists -- is necessarily higher, since "normally state statutory

enactments do not of their own force create a contract with those

whom the statute benefits." Hoffman, 909 F.2d at 614. Indeed,

"absent some clear indication that the legislature intends to bind

itself contractually, the presumption is that 'a law is not

intended to create private contractual or vested rights.'"

National R.R. Passenger Corp. v. Atchinson, Topeka & Santa Fe Ry.

Co., 470 U.S. 451, 465-66 (1985) (quoting Dodge v. Board of Educ.,

302 U.S. 74, 79 (1937)).

Finding a public contractual obligation has considerable

effect. It means that a subsequent legislature is not free to

significantly impair that obligation for merely rational reasons.

Because of this constraint on subsequent legislatures, and thus on

subsequent decisions by those who represent the public, there is,

for the purposes of the Contract Clause, a higher burden to

establish that a contractual obligation has been created. For

similar reasons, this issue is one of federal, not state law. SeeDodge v. Board of Educ., 302 U.S. 74, 79 (1937).

To overcome this presumption, plaintiffs here must show

that the legislature "clearly and unequivocally" intended to grant

them a contractual right to annual pension benefits in excess of

$10,000. National R.R., 470 U.S. at 466. Statutory language,

standing alone, may evince such an intent if it expressly

authorizes a contract or expressly states that benefits are

contractual. See, e.g., United States Trust Co., 431 U.S. at 18

(deriving clear intent to contract from the use of the phrase

"covenant and agree"); Indiana ex rel. Anderson v. Brand, 303 U.S.

95, 105 (1938) (holding that a statute's repeated use of the label

"contract" demonstrated legislative intent to create a binding and

enforceable obligation). A statutory provision can also evince an

unmistakable intent to contract if it expressly bars future

amendments that would reduce benefits already granted. See, e.g.,

Parker, 123 F.3d at 8-9 (describing anti-retroactivity provision in

Maine pension law); see also id. at 7 (noting that several state

constitutions contain similar provisions barring reductions in

accrued benefits of public employees).

In NEA, this court examined the Rhode Island retirement

system and concluded that the language of the state's retirement

statute, standing alone, fails to demonstrate such a "clear and

unequivocal" intent to contract. See NEA, 1999 WL 152589, at *5-6.

"Nowhere does the statute call the pension plan a 'contract' or

contain an anti-retroactivity clause as to future changes." Id. at

*5. The statute does state that "it is the intention of the state

to make payment of the benefits . . . provided for . . . [and] to

make the appropriations required . . . to meet its obligations to

the extent provided." R.I. Gen. Laws 36-10-7. However, while

this provision "directs state officials to fund the plan as it

exists," it "falls at least a step short of clearly expressing a

contractual commitment not to change benefit levels or other plan

variables by legislation." NEA, 1999 WL 152589, at *5. The

statute's use of the term "vesting" is similarly inconclusive, since

the concepts of a vested right and a contractual right are not

coextensive. See id. at *6. NEA's evaluation of the language of

the statute as a whole encompasses the specific language at issue

here. Nothing in 36-10-10.1(a) -- which provides that retired

legislators "shall be entitled to receive . . . an annual sum of

six hundred dollars ($600) for each year of total service . . . [up

to] twelve thousand dollars ($12,000) annually" -- rises to the

level of an express contractual promise to provide benefits, or to

provide benefits above $10,000.

But our analysis cannot end with the bare language of the

statute, since a clear and unequivocal intent to contract can also

be demonstrated by circumstances. See United States Trust Co., 431

U.S. at 18 n.14; NEA, 1999 WL 152589, at *6. Such circumstances,

by their nature, will vary from case to case. Particular

plaintiffs bringing particular Contract Clause claims based upon

the Rhode Island pension statute may find themselves in markedly

different circumstances. In NEA, for example, plaintiffs were

teachers' union officials who were first permitted to "buy in" to

the state employee pension system at attractive rates, then quickly

evicted again after the legislature determined that their inclusion

had no rational relationship to any legitimate government purpose

and would in any case threaten the system's tax-exempt status. SeeR.I. Gen. Laws 36-9.1-1 et seq. ("Eviction Act"); NEA, 1999 WL

152589, at *1-2. This court concluded from these circumstances

that the legislature did not "clearly and unequivocally" intend to

grant union officials a contractual right to future payments by the

state. See NEA, 1999 WL 152589, at *6.

In NEA, we contrasted the plaintiffs' claim with a

hypothetical claim brought by "quintessential 10 or 28-years-of-

service government employees" whose pension benefits had been

radically reduced. Id. Without deciding the question, we noted

that such circumstances presented a very different Contract Clause

claim. The hypothetical plaintiffs' status as employees of the

state, the general trend toward recognizing retirement benefits as

contractual, see Parker, 123 F.3d at 6-7; McGrath, 88 F.3d at 16-

17, and certain Rhode Island decisions rejecting the notion that

public pensions are gratuities, see, e.g., In re Almeida, 611 A.2d

1375, 1385 (R.I. 1992), could all serve as evidence that the state

intended its pension promises to be binding and enforceable.

But the circumstances here do not closely resemble these

hypothetical circumstances. On the contrary, they bear a far

greater resemblance to the circumstances at issue in NEA. Several

facts are particularly relevant. First, plaintiffs do not stand in

a classic employer-employee relationship with the state. A

legislator's relationship to the state is different in many

respects from that of a teacher, a tax collector, or other ordinary

public employees. The token salary received by Rhode Island

legislators until 1995 -- a five dollar per diem, up to a maximum

of three hundred dollars per year -- demonstrates that Rhode Island

legislators in particular were not ordinary full-time employees.

Indeed, they could hardly afford to be. Instead, they served as

part-time, "citizen" legislators. See National Ass'n of Soc.

Workers v. Harwood, 69 F.3d 622, 637 (1st Cir. 1995) (Lynch, J.,

dissenting) (describing Rhode Island's part-time legislature).

Their initial exclusion from the retirement system, their

subsequent admission as voluntary, not mandatory, members, and

their recent eviction, see R.I. Const. art. VI, 3 (barring

legislators elected after 1994 from participating in the retirement

system), all reflect their special status.

Second, the context of the enactment of the legislation

suggests that the state could not have intended to create a binding

contractual obligation to pay benefits at the levels set by the

1987 law. Throughout, the state's intention appears to have been

to maintain a qualified tax-exempt pension. The state's quick

reaction to the excess-benefits problem, once it became aware of

it, demonstrates this intention, which was also stated expressly in

the Cap Act itself. See R.I. Gen. Laws 36-10-10.1(e)(1)

(limiting benefits funded by "the retirement system" to those

"permitted by 415(b)(4) of the Internal Revenue Code"). The

state's intent to have a qualified plan is also demonstrated by the

Eviction Act considered in NEA, since an express ground for

evicting union officials from the retirement system was the fact

that the federal tax code denies qualified status to plans with

non-employee members. See id. 36-9.1-1 (tying eviction to

401(a) of the Code, which bars qualified plans from admitting

non-employees).

Finally, the 1987 law raising the maximum legislative

benefit to $12,000 was passed shortly after, and apparently in

response to, the Rhode Island voters' rejection of a constitutional

amendment that would have increased legislators' annual

compensation. The results had none of the indicia of a true

pension. The increased benefits awarded to legislators who had

already retired did not represent bargained-for consideration for

service, since these legislators' service was already concluded.

Nor could the increased benefits offered to those who had not yet

retired be considered bargained-for pension benefits, since they

destroyed the qualified status of the retirement system, thus

exposing legislators to possible tax liability for the value of

their accrued benefits.

We hold that the plaintiffs' claim fails to pass the

first component of the first part of the Contract Clause test --

proving the existence of a contractual relationship. Neither the

language of the retirement statute nor plaintiffs' particular

circumstances evince a clear and unequivocal intent on the part of

the state to grant the plaintiffs a contractual right to benefits

exceeding $10,000. The excess pension benefits eliminated by the

Cap Act were ordinary, "gratuitous" government benefits, which the

legislature was free to eliminate once it became clear that these

benefits threatened the tax-exempt status of the state's retirement

system.

Furthermore, because the plaintiffs have failed to

establish a contractual right to the withheld benefits, they cannot

show that the Board took their "property" when it withheld the

benefits pursuant to the Cap Act. Under Eastern Enterprises, this

showing is the first part of the Takings Clause test. We hold that

plaintiffs' claim fails to pass it. VI

Because the Board could withhold the excess benefits

without depriving plaintiffs of their constitutional rights, we

reverse the district court's grant of summary judgment. Our

holding strips plaintiffs of their status as prevailing parties,

see 42 U.S.C. 1988(b); see also Farrar v. Hobby, 506 U.S. 103,

111-12 (1992) (defining "prevailing party"); thus, we also vacate

the district court's award of costs and attorneys' fees under

1988.

The denial of a motion for summary judgment is ordinarily

not a final, appealable order. However, an appellate court has

jurisdiction to review an order denying a motion for summary

judgment where that order is coupled with an order granting an

opponent's motion for summary judgment. See 28 U.S.C. 1291; 10A

Wright, Miller & Kane, Federal Practice and Procedure 2715, at

268 (3d ed. 1998) ("[In this situation,] it has been held that . .

. both decisions are immediately appealable."). Because we

conclude in light of the undisputed facts that the defendants are

entitled to judgment as a matter of law, we remand to the district

court for entry of summary judgment in their favor.

So ordered. No costs are awarded.