Amicus Curiae Brief — Tracy Guerin, Petitioner v. Mickey Fowler, et al.
Supreme Court briefJul 15, 2019
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No. 18-1545
================================================================
In The
Supreme Court of the United States
-----------------------------------------------------------------TRACY GUERIN,
Petitioner,
v.
MICKEY FOWLER, et al.,
Respondents.
-----------------------------------------------------------------On Petition For Writ Of Certiorari
To The United States Court Of Appeals
For The Ninth Circuit
-----------------------------------------------------------------BRIEF OF AMICI CURIAE STATES OF ALASKA,
IDAHO, HAWAI‘I, LOUISIANA, MONTANA,
OKLAHOMA, AND SOUTH DAKOTA
IN SUPPORT OF PETITIONER
-----------------------------------------------------------------KEVIN G. CLARKSON
Attorney General
STATE OF ALASKA
LAURA WOLFF*
Assistant Attorney General
LAURA FOX
Assistant Attorney General
1031 W. Fourth Ave.
Suite 200
Anchorage, AK 99501
(907) 269-5100
laura.wolff@alaska.gov
*Counsel of Record
[Additional Counsel Listed On Signature Page]
================================================================
COCKLE LEGAL BRIEFS (800) 225-6964
WWW.COCKLELEGALBRIEFS.COM
i
TABLE OF CONTENTS
TABLE OF AUTHORITIES .................................
ii
INTEREST OF AMICI CURIAE .........................
1
SUMMARY OF ARGUMENT ..............................
2
ARGUMENT ........................................................
4
I.
II.
III.
The Ninth Circuit’s approval of a claim for
retroactive relief against a state contravenes Edelman v. Jordan and erodes state
sovereign immunity ...................................
4
The Ninth Circuit’s daily interest requirement challenges the legitimacy of public
pension programs nationwide ...................
9
The Ninth Circuit’s daily interest requirement conflicts with the axiom that states
can abrogate common-law rules ................ 18
CONCLUSION..................................................... 25
ii
TABLE OF AUTHORITIES
CASES
Alden v. Maine,
527 U.S. 706 (1999) ............................................... 5, 6
Arizona State Legislature v. Arizona
Indep. Redistricting Comm’n,
135 S. Ct. 2652 (2015) .............................................17
Bd. of Trustees of Policemen’s and Firemen’s
Retirement Fund of City of Gadsden v. Cary,
373 So.2d 841 (Ala. 1979) .......................................21
Bd. of Trustees of Pub. Emps.’ Ret. Fund v. Hill,
472 N.E.2d 204 (Ind. 1985) .....................................22
Bowles v. Wash. Dep’t of Ret. Sys.,
847 P.2d 440 (Wash. 1993) ......................................22
Brazelton v. Kansas Pub. Emps. Ret. Sys.,
607 P.2d 510 (Kan. 1980) ........................................22
Davis v. Rowe,
27 Va. 355 (6 Rand. 1828) .......................................20
Edelman v. Jordan,
415 U.S. 655 (1974) ......................................... passim
Federal Maritime Comm’n v. S.C. State Ports Auth.,
535 U.S. 743 (2002) ............................................... 4, 5
Florida Sheriffs Ass’n v. Dep’t of Admin.,
Div. of Ret.,
408 So.2d 1033 (Fla. 1981) ......................................22
Franchise Tax Bd. of Cal. v. Hyatt,
139 S. Ct. 1485 (2019) ........................................... 4, 5
iii
TABLE OF AUTHORITIES—Continued
Page
Givens v. Ala. Dep’t of Corr.,
381 F.3d 1064 (11th Cir. 2004) ................................21
Hans v. Louisiana,
134 U.S. 1 (1890) .......................................................4
Hess v. Port Auth. Trans-Hudson Corp.,
513 U.S. 30 (1994) ................................................. 5, 6
In re State Emps.’ Pension Plan,
364 A.2d 1228 (Del. 1976) .......................................22
Justus v. State,
336 P.3d 202 (Colo. 2014) ........................................22
Leider v. United States,
301 F.3d 1290 (Fed. Cir. 2002) .......................... 23, 24
MacLean v. State Bd. of Ret.,
733 N.E.2d 1053 (Mass. 2000) ................................22
Miller v. State,
557 P.2d 970 (Cal. 1977)..........................................21
Neilson v. Kilgore,
145 U.S. 487 (1892) .................................................20
Pennhurst State School & Hosp. v. Halderman,
465 U.S. 89 (1984) ..................................... 1, 4, 5, 6, 7
Phillips v. Wash. Legal Found.,
524 U.S. 156 (1998) ......................................... passim
Pyle v. Webb,
489 S.W.2d 796 (Ark. 1973) .....................................21
Schneider v. Cal. Dep’t of Corr.,
151 F.3d 1194 (9th Cir. 1998) ............................ 20, 24
iv
TABLE OF AUTHORITIES—Continued
Page
Seminole Tribe of Fla. v. Florida,
517 U.S. 44 (1996) .....................................................4
Texas State Bank v. United States,
423 F.3d 1370 (Fed. Cir. 2005) ................................23
United States v. Texas,
507 U.S. 529 (1993) .................................................18
United States Shoe Corp. v. United States,
296 F.3d 1378 (Fed. Cir. 2002) ................................23
United States Trust Co. of N.Y. v. New Jersey,
431 U.S. 1 (1977) .....................................................22
Washlefske v. Winston,
234 F.3d 179 (4th Cir. 2000) ....................................21
Webb’s Fabulous Pharmacies, Inc. v. Beckwith,
449 U.S. 155 (1980) .................................................18
Young v. Wall,
642 F.3d 49 (1st Cir. 2011) ......................................21
CONSTITUTIONS
Alaska Const. art. XII, § 7 ..........................................21
Ariz. Const. art. 29, § 1 ...............................................21
Ill. Const. art. 13, § 5 ..................................................22
U.S. Const. amend. V ..................................................18
U.S. Const. amend. XI ...................................................5
v
TABLE OF AUTHORITIES—Continued
Page
STATUTES
5 U.S.C. § 8331(8)(C) ...................................................17
5 U.S.C. § 8401(19)(D) .................................................17
Alaska Stat. § 14.25.145 .............................................13
Alaska Stat. § 39.35.100(b) ............................ 11, 13, 16
Alaska Stat. § 39.35.370(a)(1) ....................................11
Conn. Gen. Stat. § 5-162 .............................................11
Conn. Gen. Stat. § 5-166(b)(2) ....................................16
Conn. Gen. Stat. § 5-166(e) ................................... 11, 21
Idaho Code Ann. § 59-1302(36) ..................................11
Mass. Gen. Laws ch. 32, § 22 ......................................14
Mass. Gen. Laws ch. 32, § 22(6)(c)..............................15
Minn. Stat. § 353.34(1)(a) ..................................... 10, 21
Minn. Stat. § 353.34(2)(a) ..................................... 14, 15
Minn. Stat. § 353.34(2)(b) ...........................................16
Minn. Stat. § 354.49(2)(a) ...........................................16
N.C. Gen. Stat. § 135-1 ...............................................13
N.C. Gen. Stat. § 135-5(f ) ..................................... 10, 21
N.C. Gen. Stat. § 135-7(b) ...........................................13
N.M. Stat. Ann. § 22-11-15(A) ....................................16
NY Retire. & Soc. Sec. Law § 11(b)(4) ........................16
Ohio Rev. Code Ann. § 3307.142(A)(2) .......................14
R.I. Gen. Laws § 36-10-8 ............................................15
vi
TABLE OF AUTHORITIES—Continued
Page
S.D. Codified Laws § 3-12C-108 ........................... 13, 16
Va. Code Ann. § 51.1-147(C) .......................................13
Va. Code Ann. § 51.1-161 ...................................... 10, 21
Wis. Stat. § 40.04(4)(a)(2)–(3) .....................................13
REGULATIONS
Idaho Admin. Code § 59.01.07.101 .............................14
Wash. Admin. Code § 415-02-150(3) ..........................13
OTHER AUTHORITIES
Ala. Emps.’ Ret. Sys., ERS Member Handbook
(2013), available at https://www.rsa-al.gov/
uploads/files/ERS_Member_Handbook_T1_
bookmarked.pdf. ................................................ 12, 14
Alaska Div. of Ret. and Ben., Alaska Pub. Emps.
Ret. Sys. Info. Handbook (2011), available at
http://doa.alaska.gov/drb/pdf/pers/handbook/
2011/PERS_handbook_2011_web.pdf. ...................15
Alaska Div. of Ret. and Ben., Alaska Teachers’
Ret. Sys. Info. Handbook (2011), available at
http://doa.alaska.gov/drb/pdf/trs/handbook/
2011/TRS_handbook_2011_04_membership.
pdf ...................................................................... 12, 15
Black’s Law Dictionary (11th ed. 2019) .....................20
Fla. Ret. Sys., Pension Plan Member Handbook
(2019), available at https://www.rol.frs.state.
fl.us/forms/member_handbook.pdf .........................15
vii
TABLE OF AUTHORITIES—Continued
Page
Kan. Pub. Emps. Ret. Sys., Valuation Report as of
December 31, 2017, available at https://www.
kpers.org/valuationreport123117.pdf .....................12
Kan. Pub. Emps. Ret. Sys., Withdrawal Application, available at https://kpers.org/forms/k
withdrawalbooklet.pdf ................................ 12, 13, 14
Ky. Ret. Sys., Comprehensive Annual Financial
Report (2018), available at https://kyret.ky.
gov/Publications/Books/2018%20CAFR%20
(Comprehensive%20Annual%20Financial%20
Report).pdf......................................................... 13, 16
La. State Emps.’ Ret. Sys., Member’s Guide to
Retirement 11 (2019) available at https://lasers
online.org/wp-content/uploads/2016/07/Members
Guide2Retirement_Full.pdf ....................................15
Nat’l Pub. Pension Coalition, Public Pensions—
Frequently Asked Questions, https://protect
pensions.org/learn/pensions-frequently-askedquestions/ .......................................................... 10, 12
OPM.gov, CSRS Information, https://www.opm.gov/
retirement-services/csrs-information/ .............. 16, 17
OPM.gov, FERS Information, https://www.opm.gov/
retirement-services/fers-information/ .............. 16, 17
Pub. Emps. Ret. Ass’n of N.M., PERA Member
Handbook (2017), available at http://www.
nmpera.org/assets/uploads/forms-kits-handbooks/
2017MemberHandbook_10.2017.pdf .....................13
viii
TABLE OF AUTHORITIES—Continued
Page
S.D. Ret. Sys., Class A Handbook (2018), available at http://sdrs.sd.gov/docs/ClassAFoundation
MemberHandbook.pdf ............................................13
U.S. Census Bureau, 2017 Annual Survey of
Public Pensions: State & Local Tables, available at https://www.census.gov/data/tables/2017/
econ/aspp/aspp-historical-tables.html ................ 9, 10
1
INTEREST OF AMICI CURIAE1
Amici are the States of Alaska, Idaho, Hawai‘i,
Louisiana, Montana, Oklahoma, and South Dakota.
The amici States have a strong interest in safeguarding their sovereign immunity from suit, which
plays a vital role in our federal system. They thus have
an interest in maintaining this Court’s bright-line distinction between suits against state officers for prospective relief—which are allowed under a narrow
exception to sovereign immunity—and suits for retroactive relief—which are not.2 The Ninth Circuit’s ruling etches away that distinction and erodes state
sovereignty.
The amici States also have a strong interest in tailoring their public pension programs to fit their unique
actuarial and administrative needs. The amici States
provide public pensions to hire and retain qualified
public servants. Actuaries and pension administrators
work together to set rates and policies so that these
pensions will be properly funded and efficiently administered. In doing so, they consider when employees can
withdraw money in lieu of receiving normal pension
benefits, and whether, when, and how much interest
should be applied to such withdrawals. The Ninth
1
Timely notice was given to counsel of record pursuant to
Supreme Court Rule 37.
2
See Pennhurst State School & Hosp. v. Halderman, 465
U.S. 89, 106 (1984).
2
Circuit’s ruling undermines the legitimacy of the many
pension systems that are structured to provide interest less frequently than daily.
------------------------------------------------------------------
SUMMARY OF ARGUMENT
The Court should grant certiorari because the
Ninth Circuit’s ruling erodes state sovereign immunity
and undermines the legitimacy of many public pension
programs throughout the country.
Every state administers public pension programs.
Pensions are funded by employee contributions, employer contributions, and returns on the investment of
those contributions. Pension payments are based on an
employee’s years of service and average salary, not her
contributions to the pension fund, so the amount an
employee contributed to the fund is usually not relevant to her pension payments. But when state law allows an employee to withdraw or transfer her
contributions instead of receiving pension payments, it
becomes necessary to know how much she can withdraw or transfer.
Some states give employees interest on their withdrawn contributions, while others do not. The states
that do give interest calculate it at different frequencies and rates.
In this case, the Ninth Circuit concluded that because daily interest is a traditional common-law rule,
employees have a constitutionally protected property
3
right to daily interest on their withdrawn or transferred contributions, notwithstanding any statecreated pension program calculating interest less
frequently. The Ninth Circuit also allowed employees
to sue the State of Washington for interest it believed
should have been earned, but was not.
This ruling weakens state sovereign immunity
and conflicts with this Court’s decision in Edelman v.
Jordan, 415 U.S. 655 (1974), by allowing a claim for
retroactive monetary relief to proceed against a state
in federal court.
This ruling also calls into question the many state
and federal pension programs that do not provide daily
interest on contribution withdrawals. In doing so, it
conflicts with the long-standing axiom that statutes
can abrogate common law rules. Although in Phillips
v. Washington Legal Foundation, 524 U.S. 156 (1998),
this Court carved out a narrow exception from that axiom by holding that interest earned on the principal
belongs to the owner of the principal, notwithstanding
state law to the contrary, this Court has never suggested that interest must be calculated daily. Nor has
this Court ever suggested that interest is owed on the
principal even if interest is never earned. Whereas the
Ninth Circuit has unduly expanded the “interest follows principal” exception, other circuits have narrowed
it. The Court should grant certiorari to resolve this
conflict and curb an onslaught of litigation challenging
the country’s many varied public pension programs.
------------------------------------------------------------------
4
ARGUMENT
I.
The Ninth Circuit’s approval of a claim for
retroactive relief against a state contravenes Edelman v. Jordan and erodes state
sovereign immunity.
The Ninth Circuit’s dismissive treatment of state
sovereign immunity directly conflicts with Edelman v.
Jordan3 and will pave the way for other creatively reframed lawsuits for damages against states. If the
relief the plaintiffs seek in this case counts as “prospective,” the Ex parte Young exception will swallow the
state sovereign immunity rule. The Court should not
allow the Ninth Circuit to erode such a fundamental
principle of federalism.
The Court has recognized the “vital role” state sovereign immunity plays in “our federal system.”4 For
“over a century” the Court has “reaffirmed that federal
jurisdiction over suits against unconsenting States
‘was not contemplated by the Constitution when establishing the judicial power of the United States.’ ”5 “After independence, the States considered themselves
fully sovereign nations,” and “ ‘[a]n integral component’ of the States’ sovereignty was ‘their immunity
from private suits.’ ”6 This is “a fundamental aspect” of
3
415 U.S. 655 (1974).
Pennhurst, 465 U.S. at 99.
5
Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 54 (1996)
(quoting Hans v. Louisiana, 134 U.S. 1, 15 (1890)).
6
Franchise Tax Bd. of Cal. v. Hyatt, 139 S. Ct. 1485, 1493
(2019) (quoting Federal Maritime Comm’n v. S.C. State Ports
Auth., 535 U.S. 743, 751–752 (2002)).
4
5
the states’ “inviolable sovereignty” that was “well established and widely accepted at the founding.”7 “A
state’s constitutional interest in immunity encompasses not merely whether it may be sued, but where it
may be sued.”8 Thus, sovereign immunity “largely
shields States from suit in federal court without their
consent, leaving parties with claims against a State to
present them, if the State permits, in the State’s own
tribunals.”9 The Eleventh Amendment—which confirms the states’ pre-existing immunity—was enacted
“not to change but to restore the original constitutional
design.”10
State sovereign immunity serves two principal
functions in our federal system. First, its “preeminent
purpose” is “to accord States the dignity that is consistent with their status as sovereign entities.”11 Second, it protects the states’ “financial integrity.”12 “[A]t
the time of the founding, many of the States could have
been forced into insolvency but for their immunity
from private suits for money damages.”13 And the Eleventh Amendment was adopted in response to state
fears that “federal courts would force them to pay their
7
Id.
Pennhurst, 465 U.S. at 99 (emphasis in original).
9
Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 39
(1994).
10
Franchise Tax Bd., 139 S. Ct. at 1493 (quoting Alden v.
Maine, 527 U.S. 706, 722 (1999)).
11
S.C. State Ports Auth., 535 U.S. at 760.
12
Alden, 527 U.S. at 750.
13
Id.
8
6
Revolutionary War debts, leading to their financial
ruin.”14 “[T]he allocation of scarce resources among
competing needs and interests lies at the heart of the
political process,” and this delicate balance “must be
reached after deliberation by the political process established by the citizens of the State, not by judicial
decree mandated by the Federal Government and invoked by the private citizen.”15 These functions of state
sovereign immunity remain as vital today as they were
at the founding.
In this case, the Ninth Circuit bypassed state sovereign immunity by shoehorning this case into the Ex
parte Young exception, which allows suits for prospective injunctive relief against state officers to stop them
from violating federal law in the future. But the Ex
parte Young exception is narrow, and this case does not
fit it.16 Allowing federal courts to stop future violations
“has been accepted as necessary to permit the federal
courts to vindicate federal rights and hold state officials responsible to” federal law.17 But the “need to
promote the supremacy of federal law must be accommodated to the constitutional immunity of the States.
This is the significance of Edelman v. Jordan.”18
14
Hess, 513 U.S. at 39 (quoting Pennhurst, 465 U.S. at 151
(Stevens, J., dissenting)).
15
Alden, 527 U.S. at 751.
16
See Pennhurst, 465 U.S. at 102 (explaining that the Ex
parte Young exception “has not been provided an expansive interpretation”).
17
Id. at 105.
18
Id.
7
Edelman v. Jordan makes clear that the Ex parte
Young exception does not allow retroactive relief to
remedy past violations of federal law.19 In Edelman,
the plaintiffs sought both prospective relief—an injunction requiring future compliance with federal time
limits for processing and paying certain benefits—and
retroactive relief—payment of past benefits wrongly
withheld.20 But the Court barred the latter claim, declining “to extend the fiction of Young to encompass
retroactive relief, for to do so would effectively eliminate the constitutional immunity of the States.”21 The
Court rejected the theory that ordering retroactive
payment of the wrongly withheld benefits was permissible because it could be characterized as “equitable
restitution” rather than “damages.”22 The Court has
since observed that “Edelman’s distinction between
prospective and retroactive relief fulfills the underlying purpose of Ex parte Young while at the same time
preserving to an important degree the constitutional
immunity of the States.”23
The Ninth Circuit’s decision upsets this careful
balance and conflicts with Edelman. If the relief sought
here counts as “prospective,” the Ex parte Young exception will swallow the sovereign immunity rule.
The plaintiffs here, just like the plaintiffs in Edelman,
19
Id. at 102–03.
Edelman, 415 U.S. at 655.
21
Pennhurst, 465 U.S. at 105.
22
Edelman, 415 U.S. at 666.
23
Pennhurst, 465 U.S. at 106.
20
8
seek not just forward-looking relief, but also backwardlooking relief. They seek correction of an alleged wrong
that happened in the past: they argue that the State of
Washington should have, but did not, credit their retirement accounts with a certain amount of interest,
and they want the federal courts to fix this. Of course,
this requested fix would happen in the future, but if
that were enough to make relief “prospective,” then
even a run-of-the-mill damages remedy would be “prospective.”
Nor is any principled distinction to be found in the
Ninth Circuit’s observation that the relief would “involve applying a computerized formula” to “electronic
records.” Pet. App. 37a. This could be said of any modern financial transaction, but the essence is the same
either way: just like the plaintiffs in Edelman, the
plaintiffs here want to be credited with money that
they believe should have been credited to them in the
past, but was not. The Ninth Circuit also does not succeed in analogizing the requested relief to the return
of cars towed and held by the State. Pet. App. 37a.
Here, it is undisputed that the interest the plaintiffs
seek was never either in their possession or credited to
their accounts. The plaintiffs thus are not asking the
State to “return” their “towed cars”—they are asking
the State to give them new cars that they believe they
should have been given in the past but have never actually possessed. Such relief is undeniably retroactive,
is indistinguishable from classic monetary damages,
and is thus barred by state sovereign immunity under
Edelman.
9
Edelman’s limit on the scope of the Ex parte Young
exception is far more administrable and respectful of
the states’ vital sovereignty if maintained as a clear
line between prospective and retroactive relief. The
Court should grant review to reinforce this line.
II.
The Ninth Circuit’s daily interest requirement challenges the legitimacy of public
pension programs nationwide.
The states’ status as “sovereign entities” gives
them not only immunity from suit, but also the power
to govern themselves, including by creating and administering public pension systems as they see fit. The
Ninth Circuit’s rule unduly restricts that freedom and
will—as Judge Bennett’s dissent observes—“cast significant doubt on the legitimacy of retirement systems
administered by numerous states and the federal government that apportion interest less frequently than
daily.” Pet. App. 21a. The Court should settle this issue
now to curb an onslaught of litigation challenging the
country’s many varied public pension programs.
There are nearly 300 state pension systems.24
Over 20 million people are members of state
24
U.S. Census Bureau, 2017 Annual Survey of Public Pensions: State & Local Tables, available at https://www.census.gov/
data/tables/2017/econ/aspp/aspp-historical-tables.html.
10
pensions.25 In 2017, state pensions paid out $6.23 billion in withdrawals.26
Each state administers its pension programs differently, but the frameworks are the same. Employees
all contribute portions of their paychecks towards a
pension fund; employers make contributions as well;
those contributions are transmitted to the state, or an
arm of the state; the state invests those contributions
in a diversified investment fund; and that fund is used
to pay pensions to eligible retirees.27
In general, an employee cannot simply withdraw
or transfer her contributions at will—rather, states
dictate if, how, and when contributions may be withdrawn. For example, when employee contributions are
mandatory, an employee cannot withdraw her contributions until her employment ceases.28 And some pension programs do not allow an employee to withdraw
25
Id.
Id. This represents approximately two percent of total payments from state pensions that year. Id.
27
See Nat’l Pub. Pension Coalition, Public Pensions—Frequently Asked Questions, https://protectpensions.org/learn/pensionsfrequently-asked-questions/ (last visited July 9, 2019).
28
See, e.g., Minn. Stat. § 353.34(1)(a) (“Application for a refund may not be made before the date of termination of public
service.”); N.C. Gen. Stat. § 135-5(f ) (permitting return of accumulated contributions after employment ceases and upon application for a refund); Va. Code Ann. § 51.1-161 (permitting refunds
for members who are no longer employed).
26
11
her contributions at all once she becomes eligible for
retirement.29
Although the purpose of pensions is to provide a
steady stream of income for retirees, many employees
choose to withdraw their contributions instead of receiving pensions. Withdrawing contributions is often
the most prudent option for employees who did not
work enough years to become eligible to receive pensions.30 Some members who would otherwise be eligible for pensions prefer to withdraw their contributions
and invest the money themselves. Others choose lumpsum payouts in the face of financial hardships. And
others, like the Washington employees in this case,
choose to transfer their contributions from one statesponsored retirement plan to another. Pet. 9.
Although all contributions to a pension fund are
pooled and invested together, states keep track of each
employee’s individual contributions for accounting
purposes.31 Once an eligible retiree begins receiving
29
See, e.g., Conn. Gen. Stat. § 5-166(e) (“A member who is
eligible for retirement when he leaves state service may not elect
to withdraw his retirement contributions in lieu of receiving retirement income payments at such time as they are payable . . . .”).
30
See, e.g., Alaska Stat. § 39.35.370(a)(1) (requiring five
years of service before becoming eligible for pension); Idaho Code
Ann. § 59-1302(36) (defining “vested member” as member with at
least five years of service); Conn. Gen. Stat. § 5-162 (requiring ten
years of state service to retire between the ages of 55 and 65 and
receive monthly retirement income).
31
See, e.g., Alaska Stat. § 39.35.100(b) (requiring maintenance of individual account to record employee’s mandatory contributions); Kan. Pub. Emps. Ret. Sys., Valuation Report as of
December 31, 2017, 13 (describing plan that requires keeping “a
12
periodic pension payments, the amount she contributed to the fund usually becomes irrelevant because
her benefits are calculated based on her salary and
years of service, not her past contributions.32 But if an
employee withdraws or transfers her contributions,
the state needs to know how much she contributed.
Sometimes states credit interest to individual employee contribution accounts so that when an employee
withdraws or transfers her contributions, she also receives accrued interest on them—but whether, when,
and how much interest accrues varies from state to
state, and even within states. Over a dozen states
credit interest on individual accounts less frequently
than daily. Some states, like Alabama, Alaska, Kansas,
Kentucky, New Mexico, North Carolina, South Dakota,
Virginia, and Wisconsin credit interest annually.33
hypothetical account” for each member with employee contribution credits, employer pay credits, and interest credits), available
at https://www.kpers.org/valuationreport123117.pdf.
32
Nat’l Pub. Pension Coalition, Public Pensions—Frequently
Asked Questions, https://protectpensions.org/learn/pensions-frequentlyasked-questions/ (last visited July 9, 2019).
33
Ala. Emps.’ Ret. Sys., ERS Member Handbook 9 (2013)
(“[I]nterest is credited on the previous year’s average balance at
the rate of four percent per annum.”), available at https://www.
rsa-al.gov/uploads/files/ERS_Member_Handbook_T1_bookmarked.
pdf; Alaska Div. of Ret. and Ben., Alaska Teachers’ Ret. Sys. Info.
Handbook 6 (2011) (posting to employee contribution accounts 4.5
percent interest, compounded annually, on July 31), available
at http://doa.alaska.gov/drb/pdf/trs/handbook/2011/TRS_
handbook_2011_04_membership.pdf; Kan. Pub. Emps. Ret. Sys.,
Withdrawal Application 3 (“KPERS 1 & KPERS 2 members: Interest is credited annually on June 30. If you withdraw before
June 30, you will not receive your interest for the current year.”),
13
States like Alaska and Kansas, which administer multiple types of pension plans, credit interest at different
frequencies, depending on the plan.34 Other states, like
Washington, credit interest quarterly.35 Minnesota applies interest only “to the first day of the month in
available at https://kpers.org/forms/kwithdrawalbooklet.pdf;
Ky. Ret. Sys., Comprehensive Annual Financial Report 37 (2018)
(“Interest is paid each June 30 on members’ accounts at a rate
of 2.5%.”), available at https://kyret.ky.gov/Publications/
Books/2018%20CAFR%20(Comprehensive%20Annual%20Financial
%20Report).pdf; Pub. Emps. Ret. Ass’n of N.M., PERA Member
Handbook 11 (2017) (“Each year, interest on your employee contributions is credited to your account balance as of June 30.”),
available at http://www.nmpera.org/assets/uploads/forms-kitshandbooks/2017MemberHandbook_10.2017.pdf; N.C. Gen. Stat.
§§ 135-1 (defining “accumulated contribution” as compensation
deductions accredited to member’s individual account plus “regular interest”), 135-7(b) (crediting regular interest annually); S.D.
Codified Laws § 3-12C-108; S.D. Ret. Sys., Class A Handbook 7–
8 (2018) (“For administrative efficiencies, interest is credited annually on June 30.”), available at http://sdrs.sd.gov/docs/ClassA
FoundationMemberHandbook.pdf; Va. Code Ann. § 51.1-147(C)
(interest accrues annually and is credited annually to members’
contribution accounts); Wis. Stat. § 40.04(4)(a)(2)–(3) (crediting
interest on Dec. 31).
34
See, e.g., Kan. Pub. Emps. Ret. Sys., Withdrawal Application 3 (KPERS 1 & KPERS 2 credited annually; KPERS 3 credited
quarterly), available at https://kpers.org/forms/kwithdrawalbooklet.
pdf; Alaska Stat. § 39.35.100(b) (crediting interest to public employee contribution accounts semi-annually); Alaska Stat.
§ 14.25.145 (crediting interest to teacher contribution accounts
annually).
35
See, e.g., Wash. Admin. Code § 415-02-150(3).
14
which the refund is processed.”36 And Idaho and Massachusetts credit interest on a monthly basis.37
Some states limit whether and when they refund
any interest at all on contributions that an employee
withdraws or transfers. For instance, Alabama does
not refund any interest on contributions if an employee
works less than three years.38 Alabama credits interest
to individual employee contribution accounts, but
when an employee withdraws her contributions—even
if that employee worked more than three years—Alabama does not refund the full amount of interest credited.39 In Kansas, when an employee ceases service
before she has worked enough years to become eligible
for regular pension payments, interest accrues for either two or five years after the end of her employment,
depending on her pension plan, but then stops accruing.40 Ohio credits interest to teachers’ retirement accounts, but only when teacher contributions are
refunded at retirement.41 And some states, such as
36
Minn. Stat. § 353.34(2)(a).
Idaho Admin. Code § 59.01.07.101 (“Regular interest . . .
shall accrue to and be credited monthly to a member’s accumulated contributions.”); Mass. Gen. Laws ch. 32, § 22 (interest on
“completed months”).
38
Ala. Emps.’ Ret. Sys., ERS Member Handbook 7, 9 (2013),
available at https://www.rsa-al.gov/uploads/files/ERS_Member_
Handbook_T1_bookmarked.pdf.
39
Id. (correlating the percentage of credited interest that an
employee is refunded with the employee’s years of service).
40
Kan. Pub. Emps. Ret. Sys., Withdrawal Application 3,
available at https://www.kpers.org/forms/kwithdrawalbooklet.pdf.
41
Ohio Rev. Code Ann. § 3307.142(A)(2).
37
15
Florida, Louisiana, and Rhode Island, provide no interest at all when refunding contributions.42
Not only do states vary in whether and how often
they provide interest on employee contributions, but
they also vary in how often they compound interest.
Some states compound interest when they credit interest to individual accounts.43 But other states—like
Massachusetts and Minnesota, which credit interest
on a monthly basis—compound interest annually.44
42
See, e.g., Fla. Ret. Sys., Pension Plan Member Handbook
22 (2019) (“Your refund will not include contributions made by
your employer, nor will it include interest earnings.”), available
at https://www.rol.frs.state.fl.us/forms/member_handbook.pdf;
La. State Emps.’ Ret. Sys., Member’s Guide to Retirement 11
(2019), (“Accumulated contributions include all employee contributions paid by a member, excluding interest paid on the repayment of a refund.”), available at https://lasersonline.org/wpcontent/uploads/2016/07/MembersGuide2Retirement_Full.pdf;
R.I. Gen. Laws § 36-10-8 (“A member who withdraws from service
or ceases to be a member for any reason other than death or retirement shall be paid on demand a refund consisting of the accumulated contributions standing to his or her credit in his or her
individual account, without interest.”).
43
See, e.g., Alaska Div. of Ret. and Ben., Alaska Teachers’
Ret. Sys. Info. Handbook 6 (2011) (posting interest, compounded
annually, to employee contribution accounts on July 31), available at http://doa.alaska.gov/drb/pdf/trs/handbook/2011/TRS_
handbook_2011_04_membership.pdf; Alaska Div. of Ret. and
Ben., Alaska Pub. Emps. Ret. Sys. Info. Handbook 6 (2011) (posting interest, compounded semi-annually, to employee contribution account on June 30 and December 31), available at
http://doa.alaska.gov/drb/pdf/pers/handbook/2011/PERS_handbook_
2011_web.pdf.
44
See, e.g., Mass. Gen. Laws ch. 32, § 22(6)(c); Minn. Stat.
§ 353.34(2)(a).
16
States also vary the interest rates that they apply.45
And those rates can vary from year to year.46
Just as states have their own individual methods
for administering their pension systems, so too does
the federal government. The federal government administers two different pension systems: the Civil Service Retirement System and the Federal Employees
Retirement System. Retired and vested members of
both systems may receive a pension based on their
earnings and years of service.47
45
See, e.g., Alaska Stat. § 39.35.100(b) (giving Alaska Retirement Management Board discretion to determine rate of interest); Conn. Gen. Stat. § 5-166(b)(2) (crediting interest for
withdrawals at a rate of five percent per year, and for a partial
year at a rate of five-twelfths of one percent multiplied by the full
number of months completed during that year); Ky. Ret. Sys.,
Comprehensive Annual Financial Report 37 (2018) (paying interest annually at a rate of 2.5 percent), available at https://kyret.ky.
gov/Publications/Books/2018%20CAFR%20(Comprehensive%20
Annual%20Financial%20Report).pdf; N.M. Stat. Ann. § 22-1115(A) (giving Educational Retirement Board discretion in setting
interest rate for refunds).
46
See, e.g., S.D. Codified Laws § 3-12C-108 (requiring Board
each year to set rate of interest applicable to withdrawals); Minn.
Stat. §§ 353.34(2)(b), 354.49(2)(a) (providing for different annual
compound interest rates on refunds during different years); NY
Retire. & Soc. Sec. Law § 11(b)(4) (requiring comptroller to engage
an actuary to promulgate rates of interest at least every five
years).
47
OPM.gov, CSRS Information: Computation, https://www.opm.
gov/retirement-services/csrs-information/computation/ (last visited
July 9, 2019); OPM.gov, FERS Information: Computation, https://
www.opm.gov/retirement-services/fers-information/computation/
(last visited July 9, 2019).
17
Alternatively, federal employees can withdraw
their contributions in lieu of receiving a pension.48
When an employee under the Federal Employees Retirement System chooses to withdraw contributions instead of receiving a pension, the federal government
provides interest, compounded annually, but does not
include interest if an employee worked a year or less,
and no interest is included for a fractional part of a
month that an employee worked.49 When an employee
under the Civil Service Retirement System receives a
refund of contributions, the federal government includes interest only if the employee worked more than
one but less than five years.50
The variety of public pension programs in the
United States exemplifies this Court’s recognition that
states are “laboratories” of experimentation.51 The
Court should grant review because the Ninth Circuit’s
rule strips states of the power to choose how to administer their own pension systems and calls into question
many pension systems throughout the country.
48
OPM.gov, FERS Information: Former Employees, https://
www.opm.gov/retirement-services/fers-information/former-employees/
(last visited July 9, 2019); OPM.gov, CSRS Information: Former
Employees, https://www.opm.gov/retirement-services/csrs-information/
former-employees/ (last visited July 9, 2019).
49
5 U.S.C. § 8401(19)(D).
50
5 U.S.C. § 8331(8)(C); see also OPM.gov, CSRS Information: Former Employees, https://www.opm.gov/retirement-services/
csrs-information/former-employees/ (last visited July 9, 2019).
51
See Arizona State Legislature v. Arizona Indep. Redistricting Comm’n, 135 S. Ct. 2652, 2673 (2015).
18
III. The Ninth Circuit’s daily interest requirement conflicts with the axiom that states
can abrogate common-law rules.
The Court has repeatedly acknowledged that a
statute may abrogate a common-law rule.52 The Court
carved out a narrow “interest follows principal” exception to that general axiom in Phillips v. Washington Legal Foundation,53 but the Ninth Circuit’s daily interest
requirement unduly broadens this exception. The
Ninth Circuit’s decision (1) ignores the Court’s instruction in Phillips that states have discretion in determining how interest is earned, (2) disregards the broader
axiom that states may generally abrogate common-law
rules, and (3) conflicts with other circuits’ narrow interpretations of Phillips.
First, the Ninth Circuit’s mandatory daily interest
requirement conflicts with the very case it relies on—
Phillips v. Washington Legal Foundation. In that case,
the Court considered whether interest earned on client
funds held in lawyers’ trust accounts was “private
property” subject to the Takings Clause of the Fifth
Amendment.54 The Court concluded that states may
not “legislatively abrogat[e] the traditional rule that
‘earnings of a fund are incidents of ownership of the
fund itself and are property just as the fund itself is
property.’ ”55 The Court held that “the interest that does
52
See, e.g., United States v. Texas, 507 U.S. 529, 534 (1993).
524 U.S. 156 (1998).
54
Id.
55
Id. at 167 (quoting Webb’s Fabulous Pharmacies, Inc. v.
Beckwith, 449 U.S. 155, 164 (1980)).
53
19
accrue attaches as a property right incident to the ownership of the underlying principal.”56 In other words,
“interest follows principal.”57 But the Court also explicitly recognized that “the government has great latitude
in regulating the circumstances under which interest
may be earned.”58 That “great latitude” gives states
discretion in regulating when, how, and at what rate
interest accrues. The Ninth Circuit’s decision removes
this discretion.
Second, the Ninth Circuit’s expansive view of Phillips’ “interest follows principal” exception eviscerates
the general axiom that states can abrogate common
law rules by statute. This Court has not extended the
“interest follows principal” exception beyond Phillips.
And it has not articulated what other “traditional
rules,” if any, might be immune to legislative change.
The Ninth Circuit concluded that “core” property
rights that cannot be abrogated by statute include
rights that are “deeply ingrained in our common law
tradition.” Pet. App. 34a. And because daily interest
has an “impressive common law pedigree,” the Ninth
Circuit considered daily interest to be one of those
“core” property rights. Pet. App. 34a. But that a commonlaw property right is old cannot be the sole measure for
whether it can be abrogated. Legislation has abrogated
numerous ancient common-law property rights, such
as primogeniture—“the common-law right of the
56
Phillips, 524 U.S. at 168 (emphasis in original).
Id. at 165.
58
Id.
57
20
firstborn son to inherit his ancestor’s estate”59—and a
husband’s right to his wife’s estate upon marriage.60
Moreover, as the Petition points out, nearly every state
has abrogated the common-law right to daily interest
as applied to successive interests. Pet. 23.
Third, in contrast to the Ninth Circuit, other circuits have given proper attention to context, and narrowly construed Phillips’ “interest follows principal”
exception to the general axiom that states can abrogate common-law rules. This is best illustrated in cases
concerning whether the interest earned on prison inmate trust accounts belongs to prisoners. Pet. 20 n.6.
The Ninth Circuit has held that prisoners have a right
to the interest on their accounts, applying Phillips’ “interest follows principal” exception without considering
the idiosyncratic context that prison presents.61 But
the three other circuits to have considered this same
issue have paid careful attention to the context of the
59
Black’s Law Dictionary (11th ed. 2019) (non-paginated
electronic version) (defining “primogeniture” and dating the term
to the fifteenth century); see Davis v. Rowe, 27 Va. 355 (6 Rand.
1828) (recognizing that the 1785 Act of Descents abrogated the
common law course of descents).
60
Neilson v. Kilgore, 145 U.S. 487, 491 (1892) (“The relation
of husband and wife is therefore formed subject to the power of
the state to control and regulate both that relation and the property rights directly connected with it, by such legislation as does
not violate those fundamental principles which have been established for the protection of private and personal rights against illegal interference.”).
61
See Schneider v. Cal. Dep’t of Corr., 151 F.3d 1194, 1201
(9th Cir. 1998).
21
property right.62 Instead of looking at trust accounts
generally, they analyzed prisoners’ rights at common
law, and concluded that the common-law rule that “interest follows principal” does not apply to prisoners,
who have historically had lesser property rights.63
Here, as in the prisoner’s trust account case, the
Ninth Circuit has again disregarded context in applying Phillips’ “interest follows principal” exception. The
Ninth Circuit failed to consider that an employee’s
right to withdraw her contributions at all is limited by
statute—otherwise, her right is only to receive pension
benefits upon attaining eligibility.64 The right to receive interest on withdrawn contributions—much less
daily interest—derives from the limited right to withdraw contributions, and can likewise be limited by
statute.
The Ninth Circuit’s daily interest requirement
also disregards the contractual nature of pensions.65
62
See Young v. Wall, 642 F.3d 49 (1st Cir. 2011); Givens v.
Ala. Dep’t of Corr., 381 F.3d 1064 (11th Cir. 2004); Washlefske v.
Winston, 234 F.3d 179 (4th Cir. 2000).
63
Id.
64
See supra notes 28–29.
65
See, e.g., Bd. of Trustees of Policemen’s and Firemen’s Retirement Fund of City of Gadsden v. Cary, 373 So.2d 841, 842 (Ala.
1979) (per curiam) (analogizing compulsory pension system to a
unilateral contract); Ariz. Const. art. 29, § 1 (“Membership in public retirement system is a contractual relationship . . . .”); Alaska
Const. art. XII, § 7 (“Membership in employee retirement systems
of the State or its political subdivisions shall constitute a contractual relationship.”); Pyle v. Webb, 489 S.W.2d 796, 798 (Ark. 1973)
(calling teacher pension program a contract between teacher and
State); Miller v. State, 557 P.2d 970, 974 (Cal. 1977) (“[P]ension
22
When a person enters into an employment contract, he
agrees to the terms of employment. When a state offers
employment that includes a mandatory employeecontribution pension program, the state offers the
opportunity to receive a pension in exchange for contributions and fulfillment of a certain number of years
of state service.66 Although employees have a limited
right to withdraw their contributions if they do not receive a pension, any interest—and when that interest
is credited and compounded and at what rate—is a
laws . . . establish contractual rights.”); Justus v. State, 336 P.3d
202, 211 (Colo. 2014) (distinguishing parts of pension statutes
that create contractual right from parts of pension statutes that
do not); In re State Emps.’ Pension Plan, 364 A.2d 1228, 1234 (Del.
1976) (discussing that participation in pension creates contractual relationship between the State, as the employer, and the employee); Florida Sheriffs Ass’n v. Dep’t of Admin., Div. of Ret., 408
So.2d 1033, 1036 (Fla. 1981) (discussing contractual relationship
established by retirement statutes); Ill. Const. art. 13, § 5 (membership in pension system creates contractual relationship); Bd.
of Trustees of Pub. Emps.’ Ret. Fund v. Hill, 472 N.E.2d 204 (Ind.
1985) (concluding judge’s participation in retirement fund created
contract); Brazelton v. Kansas Pub. Emps. Ret. Sys., 607 P.2d 510,
514 (Kan. 1980) (recognizing that members of retirement systems
have contractual rights based on retirement statutes); MacLean
v. State Bd. of Ret., 733 N.E.2d 1053, 1058 (Mass. 2000) (recognizing a “relaxed” contract that arises in the context of pension
benefit plans); Bowles v. Wash. Dep’t of Ret. Sys., 847 P.2d 440,
446 (Wash. 1993) (“[P]ublic employee pension rights are contractual in nature.”).
66
See United States Trust Co. of N.Y. v. New Jersey, 431 U.S.
1, 17 n.14 (1977) (“In general, a statute is itself treated as a contract when the language and circumstances evince a legislative
intent to create private rights of a contractual nature enforceable
against the State.”).
23
product of contract. And contracts need not track the
common law.
The idea that there is always a property right to
interest—daily or otherwise—regardless whether interest is earned also conflicts with the Federal Circuit’s
interpretation of Phillips’ “interest follows principal”
exception. Phillips did not hold that a person always
has a right to receive interest on a principal sum that
is held by another. Rather, the Court stressed that “the
interest that does accrue attaches as a property right
incident to the ownership of the underlying principal.”67 Following Phillips, the Federal Circuit has repeatedly held that there is no property right to
“interest” on a non-interest bearing account.68 For instance, in Leider v. United States,69 the Federal Circuit
concluded that a creditor in a bankruptcy proceeding
did not have a property right to interest that “never
was generated.”70 In that case, a creditor failed to cash
his check for a distributive share, and the uncashed
check was returned to the bankruptcy court and
67
524 U.S. at 168 (emphasis in original).
See, e.g., Texas State Bank v. United States, 423 F.3d 1370,
1380 (Fed. Cir. 2005) (concluding that Texas State lacked a property interest in a share of the earnings generated by its mandated
reserves in the Federal Reserve); United States Shoe Corp. v.
United States, 296 F.3d 1378, 1384 (Fed. Cir. 2002) (concluding
that exporter had no private right to interest on tax refund, reasoning that “[f]or the accrued interest to rise to the level of private
property, the principal must be held in an identified private account”); Leider v. United States, 301 F.3d 1290 (Fed. Cir. 2002).
69
301 F.3d 1290 (Fed. Cir. 2002).
70
Id. at 1297.
68
24
deposited with the United States.71 When the creditor
petitioned the bankruptcy court for his money two
years later, he received his distributive share, but no
interest.72 He sued, arguing that the government’s failure to pay interest constituted a taking.73 The Federal
Circuit concluded that “because there existed no interest, there was nothing that could be taken.”74
By contrast, the Ninth Circuit’s ruling here suggests that interest must accrue in the first place. The
Ninth Circuit has previously espoused this idea of
“constructive interest.”75 But the fact that states track
employee contributions to pension funds and sometimes pay interest when contributions are withdrawn
does not mean that the contributions actually earn interest. Employee contributions are pooled and invested. The pooled funds grow as the investments grow.
But no interest—much less daily interest—is earned
on the contributions. Nonetheless, according to the
Ninth Circuit, and in conflict with the Federal Circuit,
employees have a property right to interest that constructively should have been earned. Reading the
Ninth Circuit’s decision in this case in any other way
would lead to an absurd result: it would permit a state
to circumvent the Ninth Circuit’s mandatory daily interest rule simply by providing no interest at all.
71
Id. at 1293.
Id.
73
Id. at 1297.
74
Id.
75
Schneider, 151 F.3d 1201.
72
25
The Ninth Circuit’s broad expansion of the “interest follows principal” exception to the general axiom
that states may abrogate common-law rules is untethered from context and diverges from other circuits’
more nuanced, contextually-based understanding of
Phillips.
------------------------------------------------------------------
CONCLUSION
For these reasons, this Court should grant the petition.
Respectfully submitted,
KEVIN G. CLARKSON
Attorney General
STATE OF ALASKA
LAURA WOLFF*
Assistant Attorney General
LAURA FOX
Assistant Attorney General
1031 W. Fourth Ave.
Suite 200
Anchorage, AK 99501
(907) 269-5100
laura.wolff@alaska.gov
*Counsel of Record
26
LAWRENCE G. WASDEN
Attorney General
STATE OF IDAHO
P.O. Box 83720
Boise, ID 83720-0010
CLARE E. CONNORS
Attorney General
STATE OF HAWAI‘I
425 Queen Street
Honolulu, HI 96813
JEFF LANDRY
Attorney General
STATE OF LOUISIANA
1885 North Third Street
Baton Rouge, LA 70802
TIMOTHY C. FOX
Attorney General
STATE OF MONTANA
215 N. Sanders
P.O. Box 201401
Helena, MT 59620
MIKE HUNTER
Attorney General
STATE OF OKLAHOMA
313 NE 21st Street
Oklahoma City, OK 73105
JASON RAVNSBORG
Attorney General
STATE OF SOUTH DAKOTA
1302 E. Hwy. 14, Suite 1
Pierre, SD 57501
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