Opposition Brief — Boyles v. Almond
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No. 86-1084 | gOSEPH F. SPAMHOL, JR.
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1986
HARLAN E. BOYLES, et al.,
Petitioners,
ROBERT P. ALMOND, et al.,
Respondents.
On Petition for Writ of Certiorari To the United
States Court of Appeals For The Fourth Circuit
RESPONDENTS’ BRIEF IN OPPOSITION
TO PETITION FOR WRIT OF CERTIORARI
ROBERT W. SPEARMAN*
STEVEN J. LEVITAS
ApAMS, McCuLLouGH & BEARD
Post Office Box 389
One Exchange Plaza
Raleigh, North Carolina 27602
(919) 828-0564
CHARLES R. HASSELL, JR.
700 Commerce Building
19 West Hargett Street
Raleigh, North Carolina 27602
(919) 828-8746
Counsel for Respondents
*(Counsel of Record )
PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203
QUESTIONS PRESENTED
Whether the trial court and the Court of Appeals
correctly determined that the Eleventh Amendment
does not prevent blind concessionaires from recover-
ing that portion of their earnings diverted from them,
in violation of federal law, to petitioners.
Whether the trial court properly exercised its eq-
uitable discretion in awarding the relief requested.
ii
TABLE OF CONTENTS
QUESTIONS PRESENTED ............cccceeeeesseenneeeeees
TABLE OF AUTHORITIES. .............c:cccccsessenreeeees
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED. ..........ccccesesseceeeeeeenseenees
STATEMENT OF THE CASE. ........::cccccsessseeeenees
REASONS FOR DENYING THE WRIT ...............
I. THE LOWER COURTS CORRECTLY DE-
CIDED THAT PETITIONERS CANNOT
CLOAK THEMSELVES IN THE STATE’S
ELEVENTH AMENDMENT IMMUNITY
AND THAT DECISION NEITHER CON-
FLICTS WITH DECISIONS OF THIS
COURT NOR CREATES A CONFLICT
AMONG THE CIRCUITS. ........ceessceeseeeeeeees
II. THE DISTRICT COURT PROPERLY EX-
ERCISED ITS EQUITABLE DISCRETION
AND THIS COURT SHOULD NOT GRANT
THE PETITION TO REVIEW THE EX-
ERCISE OF SUCH POWER .............:e:ee00ee
CONCISUSION oncccssccsenesssasssnconssncionasacnavsnssaspacanatenes
APPENDIX
A. CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED .........:::cccceeeeeeeees
B. STIPULATIONS. .............ccccccscccesssssenseeerenoess
la
7a
iii
TABLE OF AUTHORITIES
CASES: Page
Atascadero State Hospital v. Scanlon, 473 U.S. 234,
105 S. Ct. 3142, 87 L. Ed. 2d 171 (1985) .. 16,18
Blake v. Kline, 612 F.2d 718 (3d Cir. 1979), cert.
denied, 447 U.S. 921, 100 S. Ct. 3011, 65 L.
Bs GN I Cis ciccitcdccnincncsocconasiose 9,10,11,12,13
Brown v. Porcher, 660 F.2d 1001 (4th Cir. 1981),
cert. denied, 459 U.S. 1150, 103 S. Ct. 796, 74
DUCE I EE, oc, sc cecessenennsocnncccencose 10,13
Cory v. White, 457 U.S. 85, 102 S. Ct. 2325, 72
SAREE RS IID ss css pncuncccsesnbcasenccneneie 16,17,18
Dillon v. Wentz, 227 N.C. 117, 41 S.E.2d 202
SED Sa ee CO 14
Ex parte Young, 209 U.S. 128, 28 S. Ct. 441, 52
a dmscalebiiane 17,18
Florida Department of Health and Rehabilitative
Services v. Florida Nursing Home Association,
450 U.S. 147, 101 S. Ct. 1032, 67 L. Ed. 2d
chit iain cttiandadneestsumiepeinenen 12,16,18
Florida Department of State v. Treasure Salvors,
Inc., 458 U.S. 670, 102 S. Ct. 3304, 73 L. Ed.
Cee ease 17
Green v. Mansour, _— U.S. __, 106 S. Ct. 423, 88
I I ioc cccatcasensenannsoenes 16,17
Hall v. Medical College of Ohio at Toledo, 742 F.2d
299 (6th Cir. 1984), cert. denied, 469 U.S. 1113,
105 S. Ct. 796, 83 L. Ed. 2d 789 (1985) .... 10,12
Hopkins v. Clemson Agricultural College of South
Carolina, 221 U.S. 636, 31 S. Ct. 654, 55 L.
Ed. 890 (1911) inidaelidheaeiilegiiteniiaeabnsadgdanbheteennien 10,12
Jacintoport Corp. v. Greater Baton Rouge Port
Commission, 762 F.2d 435 (5th Cir. 1985), cert.
denied, ___ U.S. __, 106 S. Ct. 797, 88 L. Ed.
i Re ec 10,13
iV
Table of Authorities Continued
Page
Mt. Healthy City School District Board of Education
v. Doyle, 429 U.S. 274, 97 S. Ct. 568, 50 L.
Ed. 24 GTR GET E) sacecccceccessccnssccsnsansennonnsosasocs 13
Pennhurst State School and Hospital v. Halderman,
465 U.S. 89, 104 S. Ct. 900, 79 L. Ed. 2d 67
COED cscacinnidacdibddnen Deibscacakiihsnctadbiabenhiibsiiatuamsnines 16,17,18
Swann v. Charlotte-Mecklenburg Board of Educa-
tion, 402 U.S. 1, 91 S. Ct. 1267, 28 L. Ed. 2d
BD CUE | encsinedcthganesccensoclincstostnasthasaniaestsannence 19
CONSTITUTIONAL AND STATUTORY PROVISIONS:
UF. Coemee, GUGIE, ThE nccccccccescesessesasnsccccocssavancnces passim
BD UE Bilis Be haksiitetectnscnssncnesitnnnionianions 4
BO USE. Ge Be CII ccctnteccnsccascstnteceneinnses passim
Act of Dec. 7, 1974, Pub. L. 93-516, Title II, § 204
88 Stat. 1625 (amending 20 U.S.C. § 107b) 4
WE, Go. Ca: I se htc daeennceiciecsectesneenticssennts 6,14
BE, ©. Gi: a Be © Siicidnteteieebenccccendaestntions 14
N. C. Gen. Stat. § 135-1(11) (1981), amended by
1983 N. C. Sess. Laws, Chapter 412, § 2... 6
eC; GS Se Oe —_ sseespidonaccomnccetinntneneivtane 5,12
ee ee 7,14
DE. C. Glamk BRE, 0 ecccccrccnsncnsncstncascnsesccsisnnee 5,12
BY. C. Glam. GRReR. BET cnccecccccsnccscncccccesesonseses 14,15
ae RS renee 13
N. C. Gen. Stat. § 135-16.1 _................. icssntinignaaien 20
DE i, ei Fa I veteerinteiinicctnenateinnnncciscens 6
1971 N. C. Sess. Laws, Chapter 1025 _................ 5
1983 N. C. Sess. Laws, Chapter 867 _ ...............0 8
Table of Authorities Continued
Page
MISCELLANEOUS:
Annotation, Vested Right of Pensioner to Pension,
52 A.L.R.2d 437 (1957 and Later Case
SUaD . | ausidiniavacibeiietonetidsnasamienee arta eee 15
D. Dobbs, Handbook on the Law of Remedies § 4.1
SIN? ndikeinsbdeminsbriiicenatainn ikea sis Uae es ca SOS U- 19
13 C. Wright, A. Miller & E. Cooper, Federal Prac-
tice and Procedure § 3524 (1984) oo... 9,10
IN THE
Supreme Court of the Gnited States
OCTOBER TERM, 1986
No. 86-1084
HARLAN E. Boy Les, et ai.,
Petitioners,
Vv.
RoBERT P. ALMOND, et al.,
Respondents.
On Petition For Writ of Certiorari To the United
States Court of Appeals For the Fourth Circuit
RESPONDENTS’ BRIEF IN OPPOSITION
TO PETITION FOR WRIT OF CERTIORARI
The respondents, Robert P. Almond et. al., are vis-
ually handicapped North Carolina residents licensed
as vending stand operators under the federal Ran-
dolph-Sheppard Aci, 20 U.S.C. §§ 107-107f (1982).
They respectfully request that this Court deny the
petition for writ of certiorari seeking review of the
Fourth Circuit Court of Appeals’ judgment in the case
entered on June 6, 1986.
CONSTITUTIONAL AND STATUTORY PROVISIONS
INVOLVED
In addition to the Eleventh Amendment to the
United States Constitution, which is set out in the
2
petition for writ of certiorari (‘‘Petition’’) at 2, and
the North Carolina constitutional and statutory pro-
visions reproduced in Appendix F to the Petition, this
case involves the Randolph-Sheppard Act, 20 U.S.C.
§§ 107-107f (1982), and, in particular, 20 U.S.C.
§ 107b, which is reproduced in Appendix A to this
brief. Appendix A also contains relevant provisions
of the North Carolina General Statutes not repro-
duced in the Petition.
STATEMENT OF THE CASE
The district court’s accurate and succinct account
of the background giving rise to this dispute can be
found at pages A-19 through A-23 of the Petition.
Respondents offer the following Statement of the Case
to provide some additional detail as well as citations
to the stipulations of undisputed fact filed by all par-
ties in the district court. The stipulations themselves
are reproduced in Appendix B infra and the exhibits
thereto are contained in the Joint Appendix in the
Court of Appeals (‘JA’), a copy of which has been
lodged with this Court.
A. The Randolph-Sheppard Vending Program
In 1936, Congress enacted the Randolph-Sheppard
Act to provide business opportunities for the visually
handicapped. Act of June 20, 1936, Ch. 638, §§ 1-10,
49 Stat. 1559-1560 (codified as amended at 20 U.S.C.
§§ 107-107f (1982)). Under the Act as amended, the
federal Rehabilitation Services Administration
(“RSA”) is authorized to designate a state agency to
license visually handicapped persons to operate vend-
ing facilities on federal and other property within the
State. 20 U.S.C. §§ 107a and 107b. The licensing
agency also administers the vending stand program
3
(the “‘program’’) within the State. 20 U.S.C. § 107b
(Appendix A at la). Since 1955, the North Carolina
Department of Human Resources, Division of Services
for the Blind, and its predecessor agencies (‘“‘DHR’’)
have been designated as the Randolph-Sheppard li-
censing agency in North Carolina and have admin-
istered the Randolph-Sheppard program in North
Carolina. Stipulations 2-4 (Appendix B at 7a-8a).
North Carolina has never appropriated any funds
for the administration or operation of the vending
stand program. Stipulation 19 (Appendix B at 14a).
The costs of administering the program have always
been paid primarily with federal funds. Stipulation 6
(Appendix B at 8a); see also JA at 80. Specifically,
the State has used a portion of its federal Vocational
Rehabilitation grant to fund the program. The non-
federal share of the program budget has come pri-
marily from monies generated through the vendors’
stand sales. Stipulation 6 (Appendix B at 8a).
In applying for designation as Randolph-Sheppard
licensing agency, and in exchange for the federal
grants it has received to operate the program, State
officials and agencies have agreed to administer the
program in accordance with the Randolph-Sheppard
Act and regulations promulgated thereunder. Stipu-
lation 7 (Appendix B at Qa).
Prior to 1974, the Randolph-Sheppard Act provided
that deductions from the “proceeds” of vending fa-
cilities could be “set aside” for only four specific pur-
poses:
1. Maintenance and replacement of equipment;
2. The purchase of new equipment;
3. Management services; and
4. Assuring a fair minimum return to operators
of vending stands.
20 U.S.C. § 107b(3) (1970); see Petition at A-20. The
Act further provided that “in no event shall the
amount of such funds to be set aside from the pro-
ceeds of a vending stand exceed a reasonable amount
which shall be determined by the Secretary.”’ Id. In
1974, Congress amended the Act to provide that
vending stand proceeds could be set aside for an ad-
ditional purpose: the purchase of retirement benefits
and other fringe benefits for the vendors, but only if
a majority of blind vendors in the state vote for such
benefits to be purchased after full disclosure by the
licensing agency of all information relevant to any
proposed benefit program. Act of Dec. 7, 1974, Pub.
L. 93-516, Title II, § 204, 88 Stat. 1625 (amending
20 U.S.C. § 107b); see Appendix A at 2a.
B. The Vendors and the Retirement System
Although the Randolph-Sheppard Act and regula-
tions have always provided that the profits of vending
stands (less any money properly set aside for an au-
thorized purpose) belong to the vendors, prior to July,
1971 vendors in North Carolina were paid a flat
weekly salary. Stipulation 11 (Appendix B at 10a).
The profits generated by the stands were retained by
DHR’s predecessor, the Bureau of Employment for
the Blind, which used some of these unlawfully re-
tained profits to establish an inadequate retirement
program for the vendors. Petition at A-21; see also
JA at 109-116, 120-164. In 1969, $300,000.00 of the
undistributed vending stand profits were transferred
into the General Fund of the state. Stipulation 14
(Appendix B at 11a); JA at 117. Finally, in July, 1971,
the method of compensating North Carolina vendors
EEE
was modified in an apparent attempt to bring the
State’s program into compliance with the Randolph-
Sheppard Act. At the same time, the General Assem-
bly, without regard for the Randolph-Sheppard Act,
declared the vendors to be State employees, enrolled
them involuntarily in the North Carolina Teachers’
and State Employees’ Retirement System (‘‘Retire-
ment System’’), and transferred to the Retirement
System the assets (amounting to $163,490.09) of the
private retirement plan created by the Bureau with
the vendors’ funds from their stand proceeds. 1971
N. C. Sess. Laws, Chapter 1025; Stipulation 17 (Ap-
- pendix B at 12a); JA at 165-167.
No vote was ever held to determine whether a ma-
jority of the blind vendors wished to participate, or
to continue participating, in the Retirement System
and to have contributions to the System deducted from
their earnings. Stipulation 9 (Appendix B at 9a-10a);
JA at 220, 221 (| 4).
* * *
As the district court found, the Retirement System
is vested with the “‘power and privileges” of a cor-
poration, and is administered by a board of trustees
which has the right to sue and be sued. Opinion and
Order of the District Court, Petition at A-25; N. C.
Gen. Stat. §§ 135-2 (Appendix A at 3a), 135-6 (Petition
at A-38).! It may acquire and dispose of real and
personal property and hold such property in its cor-
porate name. Jd. During the years that respondents
were forced to participate in the Retirement System,
its members included employees of state agencies, as
1 Except where otherwise indicated, all citations to the North
Carolina General Statutes are to the 1986 code.
well as the employees of various non-state and private
entities, such as county and city school boards, the
North Carolina Symphony Society, Inc., the North
Carolina Art Society, Inc., the North Carolina Edu-
cation Association, the North Carolina State Employ-
ees’ Association, the North Carolina Firemen’s
Association, the North Carolina Highway Employees
Association, the North Carolina Teachers’ Associa-
tion, the State Employees’ Credit Union, alumni as-
sociations of state-supported universities and colleges,
local professional associations of teachers and state
employees, and the North Carolina School Boards As-
sociation. See N. C. Gen. Stat. §§ 135-1(11) (1981)
(Appendix A at 3a); N. C. Gen. Stat. § 135-27 (Ap-
pendix A at 4a-6a). Under state law, contributions to
the Retirement System are divided into two parts,
the ‘“‘employer’’ contribution and the ‘‘employee”’ con-
tribution. The System’s assets include these contri-
butions made by state and non-state employers and
employees, as well as very substantial investment in-
come. Petition at A-25. Funds in the Retirement Sys-
tem, by state law, may not be used for general state
purposes. N. C. Const. art. V, § 6.
In the case of any other participant in the Retire-
ment System, an employer entity makes the ‘‘em-
ployer’”’ contribution to the System on that person’s
behalf. However, neither the State nor any other ent-
ity ever appropriated or spent any funds for ‘“em-
ployer’”’ contributions to the Retirement System on
behalf of the blind vendors. Stipulation 19 (Appendix
B at 14a). Rather, DHR deducted (or set aside) the
“employer” contribution from each vendor’s stand
proceeds and then deducted the “employee” contri-
bution from the gross pay distributed to the vendor.
Stipulation 18 (Appendix B at 14a); JA 220-221 ( 2-
‘3). In short, DHR took from the visually handicapped
vendors monies amounting to both the ‘‘employer”’
and the ‘“‘employee”’ share of retirement contributions
and transferred those monies to the Retirement Sys-
tem.
Despite this fact, on those occasions when vendors
left the program over the years and were allowed to
withdraw from the Retirement System, the System
refunded to them only that portion of their contri-
butions comprising the ‘‘employee’’ share, plus sta-
tutory interest. JA at 180-181, 184-199. The vendors
were not allowed to withdraw the so-called ‘‘em-
ployer” share, although it had been taken from them
rather than paid by the State or by anyone else.
Pursuant to N. C. Gen. Stat. § 135-5(f) (Petition at
- A-36-37), other Retirement System members who
withdraw from the System receive a full refund of
all contributions they have made to the System.
In March 1982, the federal government (RSA) in-
formed DHR that “‘North Carolina’s Randolph-Shep-
pard program [was in] an awkward, possibly illegal,
administrative posture.’”’ Stipulation 23 (Appendix B
at 14a); JA at 182-183. Among other things, RSA
complained about the program’s classification of ven-
dors as State employees and its use of the vendors’
earnings to make the “‘employer”’ contributions to the
Retirement System. Jd. In an effort to bring the North
Carolina vending stand program into compliance with
the governing Randolph-Sheppard Act, the 1983 Ses-
sion of the North Carolina General Assembly enacted
Senate Bill 247, which provided that after September
30, 1983, the vending stand operators would be class-
ified not as state employees but as independent con-
tractors, and that individuals licensed in the future
as vendors would not be required (or permitted) to
participate in the Retirement System. 1983 N.C. Sess.
Laws, Chapter 867; Stipulation 25, (Appendix B at
15a); JA at 200-201.
Pursuant to this recent Act, licensed vendors who
had been participating in the Retirement System were
required to make an irrevocable election by Septem-
. ber 30, 1983, (1) to continue contributing both the
“employer” and ‘‘employee’’ shares to the Retirement
System; or (2) to cease contributing to the System
and (a) receive a refund of only ‘‘employee’’ contri-
butions, plus statutory interest; (b) apply for and com-
mence receiving a monthly retirement allowance; or
(c) leave accumulated contributions in the System and
retain the right to receive an actuarially reduced pen-
sion at some future date. Stipulation 26 (Appendix B
at 15a); JA at 202-211.
Although both the “employer’”’ and the “employee”’
contributions to the System on the vendors’ behalf were
always paid with money taken from the vendors—and
not with State funds—they were not given the option
to withdraw both their “employer” and ‘‘employee”’
contributions from the System. Id.; JA at 220-221
({ 3).
After attempting unsuccessfully to resolve this mat-
ter through administrative channels, respondents
brought this action on behalf of themselves and all
others similarly situated to recover all monies con-
tributed by them to the Retirement System, including
so-called “‘employer’’ contributions, which were un-
lawfully and unconstitutionally withheld from them
and retained by the petitioners. The district court
granted respondents’ motion for summary judgment
and the Court of Appeals affirmed.
The petitioners do not seek review of the district
court and Court of Appeals decisions that the blind
vendors’ earnings were wrongfully diverted from them
to the Retirement System in violation of the Ran-
dolph-Sheppard Act. Petitioners do assert that
certiorari should be granted to consider (1) whether
the Eleventh Amendment insulates the Retirement
System trustees against a directive to return to the
blind vendors their earnings wrongfully taken; and (2)
whether such a directive is equitable.’
REASONS FOR DENYING THE WRIT
I. THE LOWER COURTS CORRECTLY DECIDED
THAT PETITIONERS CANNOT CLOAK THEM-
SELVES IN THE STATE’S ELEVENTH AMEND-
MENT IMMUNITY AND THAT DECISION
NEITHER CONFLICTS WITH DECISIONS OF THIS
COURT NOR CREATES A CONFLICT AMONG THE
CIRCUITS. —
This case concerns the status, for Eleventh Amend-
ment immunity purposes, of the North Carolina
Teachers’ and State Employees’ Retirement System.°
2 Phillip J. Kirk, Secretary of the North Carolina Department
of Human Resources (““DHR’”); Herman Gruber, Director of
DHR’s Division of Services for the Blind (‘‘the Division’’); and
Mary Ann Van Name, Chief of Business Enterprises within the
Division, are also defendants in this action but have not
petitioned this court for a writ of certiorari.
3 As the lower courts specifically and correctly held, this ques-
tion is one of federal law. See, e.g., Blake v. Kline, 612 F.2d
718, 722 (8rd Cir. 1979), cert. denied, 447 U.S. 921, 100 S. Ct.
3011, 65 L. Ed.2d 1112 (1980). See generally 13 C. Wright, A.
Miller and E. Cooper, Federal Practice and Procedure § 3524
at 1388 & n.32 (1984).
10
Contrary to petitioners’ contention, Petition at 16-20,
the analytical approach employed by the courts below
is entirely consistent with that used by other Courts
of Appeals, and by this Court, in determining whether
a particular entity is entitled to assert a state’s Elev-
enth Amendment immunity. Specifically, in this type
of case courts consider and weigh factors such as the
-autonomy of the entity, whether under state law it
may hold and dispose of property in its own name,
whether it is authorized to sue and be sued, its fund-
ing sources, and whether a judgment against it would
impinge upon the state treasury. See, e.g., Hopkins
v. Clemson Agricultural College of South Carolina,
221 U.S. 636, 31 S. Ct. 654, 55 L. Ed. 890 (1911\state
agricultural college not entitled to assert State’s Elev-
enth Amendment immunity); Blake v. Kline, 612 F.2d
718 (8d Cir. 1979), cert. denied, 447 U.S. 921,
100 S. Ct. 3011, 65 L. Ed. 2d 1112 (1980); Hall v.
Medical College of Ohio at Toledo, 742 F.2d 299 (6th
Cir. 1984), cert. denied, 469 U.S. 1113, 105 S. Ct.
796, 83L. Ed. 2d 789 (1985). See generally 13 C.
Wright, A. Miller and E. Cooper, Federal Practice
and Procedure § 3524 at 135-36 (1984).
The courts of appeals have applied this type of
analysis to a wide variety of entities and have con-
cluded that certain ones may share in a state’s Elev-
enth Amendment immunity while others may not.
Compare Hall v. Medical College with Jacintoport
- Corp. v. Greater Baton Rouge Port Commission,
762 F.2d 435 (5th Cir. 1985), cert. denied, __U.S.
__., 106 S. Ct. 797, 88 L. Ed. 2d 774 (1986); Brown
v. Porcher, 660 F.2d 1001 (4th Cir. 1981), cert. denied,
459 U.S. 1150, 103 S. Ct. 796, 74 L. Ed. 2d 1000
(1983). Each case necessarily involves a detailed anal-
‘
" yey ae
“ly 11
ysis of the organization and operation of the partic-
ular entity in question and is thus sui generis.
No other circuit court has passed on the Eleventh
Amendment status of the Retirement System. Nor do
any of the cases relied on by petitioners involve an
analysis of some other retirement system. The sole
retirement system case cited by petitioners, Blake v.
Kline, 612 F.2d 718 (8d Cir. 1979), cert. denied,
447 U.S. 921, 100 S. Ct. 3011, 65 L. Ed. 2d 1112
(1980), held that the district court had erred in dis-
missing an action against the Public School Employ-
ees’ Retirement Board of Pennsylvania on Eleventh
Amendment grounds. (The Third Circuit’s Eleventh
Amendment analysis in Blake was specifically ap-
proved and utilized by the district court in this case.
Petition at A-26.) Retirement benefits are provided
to public employees in different places through an
immense variety of means, with varying systems of
public and private, employer and employee partici-
pation, contribution, and funding. The result in this
case does not mean that the Fourth Circuit would
reach a similar result regarding another retirement
system in another state within its jurisdiction. And
the specific holding of this case has little precedential
value with respect to other agencies affiliated with
governments.
In the final analysis, petitioners’ quarrel with the
decision below involves the particular facts found as
a result of the court’s interpretation and analysis of
a complicated, unique set of circumstances. Not only
is this issue particularly inappropriate for review on
certiorari, but the district court reached the correct
result.
12
Having carefully reviewed the complex relationship
of the Retirement System to the State of North Car-
olina, Judge Britt concluded that “(tlhe ‘autonomy’
factor does not weigh heavily in favor of either party
in this case.’’ Petition at A-25. Although the State
exercises some control over the Retirement System,
the System is vested with ‘‘the power and privileges
of a corporation,’’ N. C. Gen. Stat. § 135-2 (Appendix
A at 3a), and is administered by a Board of Trustees,
which is “‘a body politic and corporate”’ with the right
to sue and be sued and to acquire and dispose of real
and personal property, N. C. Gen. Stat. § 135-6
(Petition at A-38), and which holds all property ac-
quired in the corporate name. Jd.; N. C. Gen. Stat.
§ 135-2 (Appendix A at 3a).‘
* As petitioners point out, this Court has held that the des-
ignation under state law of a department of state government
as a “body corporate’ with the capacity to “sue and be sued”
does not constitute a waiver of Eleventh Amendment immunity.
Petition at 12 (citing Florida Department of Health and Reha-
bilitative Services v. Florida Nursing Home Ass’n, 450 U.S. 147,
101 S. Ct. 1032, 67 L. Ed. 2d 132 (1981)). In Florida Department
of Health there was no question whether the Department of
Health was an arm of the state entitled to assert its immunity;
rather, the issue was whether the state had waived its immunity
with respect to that department. Here, by contrast, the issue is
not one of waiver but of whether the entity in question has any
claim at all to the state’s immunity. Whether an entity is a body
corporate, with the power to hold property and to sue and be
sued has been considered relevant to that issue. See, e.g., Hop-
kins 221 U.S. at 646; Hall, 742 F.2d at 305-06; Blake, 612 F.2d
at 725. Moreover, although the district court found that the
factors discussed in the text weigh against the Retirement Sys-
tem’s claim to be an alter-ego of the State, those factors were
by no means dispositive.
a
13
Given the inconclusiveness of the ‘autonomy’ anal-
ysis, the district court correctly placed great emphasis
on the fact that the monies respondents seek to re-
cover would not come from the general revenues of
the State. Petition at A-25-27. Courts of Appeals have
repeatedly recognized the particular importance for
Eleventh Amendment analysis of whether a judgment
will have to be paid from the state treasury. Jacin-
toport, 762 F.2d at 441; Brown v. Porcher, 660 F.2d
at 1006-1007; Blake v. Kline, 612 F.2d at 723.
Petitioners cannot dispute that the relief awarded
by the court below—a refund of contributions
respondents were wrongfully required to make to the
Retirement System—would not be paid from the State
treasury or from the general revenues of North Car-
olina. Rather, it would be paid from separate and
independent pension funds maintained by the trustees
of the Retirement System. See N. C. Gen. Stat. § 135-
8 (Petition at A-44-52).
Although some of the monies held by the Retire-
ment System defendants were originally appropriated
by the North Carolina General Assembly, a much more
substantial portion of those monies have come from
other sources, including State employees, non-State
employers (such as county and city school boards, the
North Carolina Association of Educators, the North
Carolina Symphony Society, Inc., and the other pri-
vate entities identified supra at 6), the employees of
these non-State and private entities, and investment
income. Cf. Mt. Healthy City School District Board
of Education v. Doyle, 429 U.S. 274, 97 S. Ct. 568,
50 L. Ed. 2d 471 (1977) (11th Amendment does not
bar suit against school board despite fact that board
received ‘“‘a significant amount of money from the
14
State’). Indeed, this diversity of membership, with
funding and participation by various private employ-
ers and private employees, is one obvious factor dis-
this retirement system from others, as
well as from departments of state government.
In addition, participants in the Retirement System
who withdraw from it are entitled to a refund of their
accumulated contributions plus only 4% interest, see
N. C. Gen. Stat. §§ 135-5(f), 135-1(1), 135-7(b) (Petition
at A-35-44), despite the fact that their accumulated
contributions have earned far more than 4% in in-
vestment income. See JA at 253, 272 (average annual
yield of approximately 7.5%). The balance of invest-
ment income on employee contributions (as well as all
the income on employer contributions) remains with
the Retirement System. This “‘excess’’ investment in-
come to the Retirement System on employee contri-
butions from a single year is many times greater than
the monetary relief sought in this action. (Of course,
what respondents seek is a refund of monies taken
from themselves alone.)
Moreover, unlike the funds in the State Treasury—
or even those funds in certain segregated State ac-
counts—the State is not free to dispose of Retirement
System funds at its pleasure. See N.C. Const. art. V,
§ 6 (Petition at A-35). Beneficiaries of the System
have a clearly defined equitable interest in the monies
held in the Annuity Savings Fund and, with respect
to vested beneficiaries, in the Pension Accumulation
Fund as well. Cf Dillon v. Wentz, 227 N.C. 117,
41 S.E.2d 202 (1947) (members of public employee
retirement system funded wholly or in part by con-
tributions of members have a vested interest in the
assets of the furd upon becoming eligible for retire-
15
ment). See generally Annotation, Vested Right of Pen-
stoner to Pension, 52 A.L.R.2d 437 (1957 and Later
Case Serv.).
Petitioners suggest that even though a judgment
against them will not be paid out of the general rev-
enues of North Carolina, such a judgment would in-
directly result in increased appropriations from the
general revenues to the Retirement System. Petition
at 13. However, the district court carefully considered
this argument and rejected it. Petition at A-27. It
correctly concluded that “‘the relief requested by the
plaintiffs would [not] inevitably lead to an additional
appropriation of state fund[s, ... because it] may be
satisfied by investment income or a slight decrease
in the amount of benefits paid to other beneficiaries
of the Retirement System.’’ Jd. (emphasis added). Al-
though petitioners themselves acknowledged below
that the relief ordered could be offset by a decrease
in benefits to members of the Retirement System,
Brief of Appellants at 12, they now claim, without
citation, that they cannot “decrease benefits without
either violating state Taw or obtaining a legislative
change ....”’ Petition at 13-14. Be that as it may,
they have never disputed respondents’ contention
made below that they could offset the entire judgment
at once by exercising their discretion under N. C.
Gen. Stat. § 135-7(b) to set the “regular interest”
credited to the Annuity Savings Fund at a rate
slightly lower than 4% for a single year.* The lower
* “Regular interest” is that amount credited annually by the
Retirement System defendants from the Pension Accumulation
Fund to the Annuity Savings Fund. See N. C. Gen. Stat. § 135-
7(b) (Petition at A-43-44). As petitioners explain in their petition
at 5-6, the resources of the Retirement System are held in two
16
courts, then, correctly concluded that the relief sought
will not inevitably impinge upon the general revenues
of North Carolina maintained in the State Treasury.
Although the courts below thus employed the proper
analytical approach and reached the correct result on
the unique facts of this case, petitioners insist,
wrongly, that “the decision below is wholly incon-
sistent with language of this Court in recent cases.”’
Petition at 10 (citing Green v. Mansour, __ U.S. __,
106 S. Ct. 423,-88-L. Ed. 2d 371 (1985); Atascadero
State Hospital v. Scanlon, 473 U.S. 234, 105 S. Ct.
3142, 87 L. Ed. 2d 171 (1985); Pennhurst State School
and Hospital v. Halderman, 465 U.S. 89, 104 S. Ct.
900, 79 L. Ed. 2d 67 (1984); Cory v. White, 457 U.S.
85, 102 S. Ct. 2325, 72 L. Ed. 2d 694 (1982); Florida
Department of Health and Rehabilitative Services v.
funds: (1) the Annuity Savings Fund, which consists of “‘em-
ployee’’ contributions to the System plus interest paid into that
Fund on an annual basis from the Pension Accumulation Fund;
and (2) the Pension Accumulation Fund, which consists of (a)
monies paid to the System as “employer”’ contributions, (b) the
“employee” contributions of retired members which are trans-
ferred to the Pension Accumulation Fund upon the member's
retirement, and (c) all investment earnings of the Retirement
System except the interest paid annually on individual “em-
ployee’’ contribution accounts. The investment earnings on mon-
ies held in the Annuity Savings Fund remain in the Pension
Accumulation Fund except for the “regular interest” credited
annually. N. C. Gen. Stat. § 135-7(b) vests in the Retirement
System defendants the discretion to set “regular interest” any-
where between 3% and 4%. By reducing “regular interest’’ from
its present level of 4% to 3.9% for a single year, the Retirement
System defendants could offset the relief awarded without re-
quiring an increase in appropriations from the general revenues
of North Carolina.
17
Florida Nursing Home Association. 450 U.S. 147,
101 S. Ct. 1032, 67 L. Ed. 2d 132 (1981)).
None of these cases in any way involved the ques-
tion whether a particular entity was entitled to assert
a state’s Eleventh Amendment immunity. Green, Pen-
nhurst, and Cory v. White all involved the scope of
the doctrine of Ex parte Young, 209 U.S. 123,
28S. Ct. 441, 52 L. Ed. 714 (1908).* Specifically,
Green held that the Ex parte Young doctrine does
not permit “notice’’ or declaratory relief against state
officials except where ancillary to appropriate injunc-
tive relief. Pennhurst held that Ex parte Young does
* Ex parte Young and its progeny “‘make clear that the Elev-
enth Amendment does not bar an action against a state official
that is based on a theory that the officer acted beyond the scope
of his statutory authority or, if within that authority, that such
authority is unconstitutional.”’ Florida Department of State v.
Treasure Salvors, Inc., 458 U.S. 670, 689, 102 S. Ct. 3304, 3317,
73 L. Ed. 2d 1057 (1982). Although such actions may have an
obvious impact on the state itself, “the Young doctrine has been
accepted as necessary to permit the federal courts to vindicate
federal rights and hold state officials responsible to ‘the supreme
authority of the United States.’ "’ Pennhurst, 465 U.S. at 102,
104 S. Ct. at 909 (quoting Young, 209 U.S. at 160).
The lower courts’ holding—that the Retirement System is not
an arm of the State entitled to assert its Eleventh Amendment
immunity—does not rely on the Ex parte Young doctrine.
Respondents did, however, argue in the alternative below that
if the Retirement System were, as a general matter, entitled to
assert the State’s Eleventh Amendment immunity, the relief
requested could nonetheless be awarded because petitioners have
expropriated respondents’ property in violation of the Four-
teenth Amendment and respondents do not seek a damages
award from the State treasury. Brief of Plaintiffs-Appellees at
17-20, 26-30. In light of their decision on “alter-ego” grounds,
the lower courts did not reach this argument.
18
not authorize a federal court to award relief against
state officials on the basis of state law because to do
so is not necessary to vindicate the supreme authority
of federal law.’ Similarly, Cory v. White held that Ex
parte Young does not authorize federal courts to en-
tertain federal interpleader actions against state of-
ficials because such suits do not involve a violation
of federal (or state) law. Atascadero and Florida De-
partment of Health involved the question whether a
state has waived its Eleventh Amendment immunity.
(Atascadero also involved a question of Fourteenth
Amendment abrogation of Eleventh Amendment im-
munity.)
Although petitioners would like to make much of
plaintiffs’ lack of success in this Court’s recent Elev-
enth Amendment cases, none of these cases in any
way casts doubt on the lower courts’ framework of
analysis or result. The petition should therefore be
denied.
II. THE DISTRICT COURT PROPERLY EXERCISED
ITS EQUITABLE DISCRETION AND THIS COURT
SHOULD NOT GRANT THE PETITION TO RE-
VIEW THE EXERCISE OF SUCH POWER.
Finally, petitioners ask this Court to consider
whether the trial court properly exercised its equi-
table power in granting the relief sought by
respondents. The exercise of such equitable power is
committed to the discretion of trial courts and should
7If, as the lower courts held, petitioners are not entitled to
assert the State’s Eleventh Amendment immunity at all, Ex
parte Young, and the limits piaced on it in Pennhurst, do not
come into play. Thus, petitioners’ invocation of Pennhurst in
their second question presented and in their petition at 20 is
misplaced.
19
be disturbed by an appellate court only for a clear
showing of an abuse of discretion. The scope of a
district court’s equitable power to remedy past wrongs
is broad. Swann v. Charlotte-Mecklenburg Board of
Education, 402 U.S. 1, 15, 91 S. Ct. 1267, 1276,
28 L. Ed. 2d 554 (1971). Given these well-established
principles, based as they are on a trial court’s peculiar
advantage in fashioning relief appropriate to the facts
before it, this final issue presented by petitioners is
particularly inappropriate for review on writ of
certiorart.
The district court ordered petitioners to return
earnings wrongfully taken from respondents. In rul-
ing that equity so requires, the district court specif-
ically and correctly rejected the petitioners’ arguments
that they would not be unjustly enriched if allowed
to keep respondents’ funds. As the court observed:
[t]he principle of equitable restitution is to
‘deprive the defendant of benefits that in eq-
uity and good conscience he ought not to
keep, even though he may have received
those benefits quite honestly in the first in-
stance....’ D. Dobbs, Handbook on the Law
of Remedies, § 4.1 at 224 (1978).
Petition at A-24.
It is inequitable for petitioners to keep respondents’
monies because those monies have been a windfall
and unjust enrichment to the System and its mem-
bers. Unlike other ‘‘employer’’ contributions to the
Retirement System, the so-called ‘employer’ contri-
butions made on behalf of respondents came not from
State revenues, but from the blind vendors’ earnings.
Petitioners have not disbursed, and respondents have
20
not received, anything of value in exchange for those
wrongfully taken earnings. Moreover, the relief
awarded below can be funded by a miniscule decrease
in the level of interest paid to other Retirement Sys-
tem members, which reduction respondents are au-
thorized to make. See supra p. 15 & n.5. In addition,
the district court’s award allows petitioners to retain
a substantial portion of:the investment earnings they
have realized on respondents’ funds since 1971. (The
district court awarded pre-judgment interest of 4%,
whereas Retirement System investment earnings have
averaged 7.5%. See JA at 253, 272).
Finally, petitioners appear to argue that the result
below is inequitable because blind vendors who will
benefit by withdrawing from the Retirement System
may do so, while those who might profit by remaining
in the System may do that. Petition at 21. But this
result is not inappropriate because under State law
any blind vendor who now might choose to remain
in the System would have to continue to pay both
“employer” and ‘‘employee”’ contributions. N.C. Gen.
Stat. § 185-1621 (Petition at A-52-53); Stipulation 26
(Appendix B at 15a).
The district court’s carefully crafted equitable rem-
edy presents no issue appropriate for review on
certiorart.
21
CONCLUSION
For the foregoing reasons, respondents respectfully
submit that the petition for a writ of certiorari should
be denied.
This the 30th day of January, 1987.
ROBERT W. SPEARMAN*
STEVEN J. LEVITAS
ADAMS, MCCULLOUGH & BEARD
Post Office Box 389
One Exchange Plaza
Raleigh, North Carolina 27602
(919) 828-0564
CHARLES R. HASSELL, JR.
700 Commerce Building
19 West Hargett Street
‘Raleigh, North Carolina 27602
(919) 828-8746
*(Counsel of Record)
APPENDIX
la
Appendix A
CONSTITUTIONAL AND STATUTORY PROVISIONS
INVOLVED
20 USC § 107b (1982)
§ 107b. Application for Designation as State Licensing
Agency—Cooperation with Secretary—Stock and Equip-
ment.
A State agency for the blind or other State agency
desiring to be designated as the licensing agency shall,
with the approval of the chief executive of the State, make
application to the Secretary and agree—
(1) to cooperate with the Secretary in carrying out
the purpose of this Act [20 U.S.C. §§ 107 et. seq.];
(2) to provide for each licensed blind person such
vending facility equipment, and adequate initial
stock of suitable articles to be vended therefrom,
as may be necessary: Provided, however, That such
equipment and stock may be owned by the licen-
sing agency for the use of the blind, or by the
blind individual to whom the license is issued: And
provided further, That if the ownership of such
equipment is vested in the blind licensee, (A) the
State licensing agency shall retain a first option
to repurchase such equipment and (B) in the event
such individual dies or for any other reason ceases
to be a licensee or transfers to another vending
facility, ownership of such equipment shall become
vested in the State licensing agency (for transfer
to a successor licensee) subject to an obligation on
the part of the State licensing agency to pay to
such individual (or to his estate) the fair value of
his interest therein as later determined in accord-
ance with regulations of the State licensing agency
and after opportunity for a fair hearing.
(3)
(4)
(5)
(6)
2a
that if any funds are set aside, or caused to be
set aside, from the net proceeds of the operation
of the vending facilities such funds shall be set
aside, or caused to be set aside, only to the extent
necessary for and may be used only for the pur-
poses of (A) maintenance and replacement of
equipment; (B) the purchase of new equipment; (C)
manzgement services; (D) assuring a fair minimum
return to operators of vending facilities: Provided,
however, That in no event shall the amount of
such funds to be set aside from the net proceeds
of any vending facility exceed a reasonable amount
which shall be determined by the Secretary; and
(E) retirement or pension funds, health insurance
contributions, and provision for paid sick leave and
vacation time, if it is determined by a majority
vote of blind licensees licensed by such State
agency, after such agency provides to each such
licensee full information on all matters relevant to
such proposed program, that funds under this par-
agraph shall be set aside from such purposes;
to make such reports in such form and containing
such information as the Secretary may from time
to time require and to comply with such provisions
as he may from time to time find necessary to
assure the correctness and verification of such re-
ports,
to issue such regulations, consistent with the pro-
visions of this Act [20 U.S.C. §§ 107 et seq.], as
may be necessary for the operation of this pro-
gram,
to provide to any blind licensee dissatisfied with
any action arising from the operation or admin-
istration of the vending facility program an op-
portunity for a fair hearing, and to agree to submit
the grievances of any blind licensee not otherwise
3a
resolved by such hearing to arbitration as provided
in section 5 of this Act [29 U.S.C. § 107d].
North Carolina General Statutes
N. C. Gen. Stat. § 185-1 (1981). Definitions.
~ * *
(11) ‘““Employer’”’ shall mean the State of North Car-
olina, the county board of education, the city
board of education, the State Board of Education,
the board of trustees of the University of North
Carolina, the board of trustees of other institu-
tions and agencies supported and under the con-
trol of the State, or any other agency of and
within the State by which a teacher or other
employee is paid. “Employer” shall also mean the
North Carolina Symphony Society, Inc., and the
North Carolina Art Society, Inc.
« = *
N. C. Gen. Stat. § 135-2. Name and date of establish-
ment.
A Retirement System is hereby established and placed
under the management of the Board of Trustees for the
purpose of providing retirement allowances and other ben-
efits under the provisions of this Chapter for teachers and
State employees of the State of North Carolina. The Re-
tirement System so created shall be established as of the
first day of July, 1941.
It shall have the power and privileges of a corporation
and shall be known as the “Teachers’ and State Employ-
ees’ Retirement System of North Carolina,” and by such
name all of its business shall be transacted, all of its funds
invested, and all of its cash and securities and other prop-
erty held.
4a
N. C. Gen. Stat. § 185.27. Transfers from State to certain
association service.
(a) Any member whose service as a teacher or State
employee is terminated because of acceptance of a position
prior to July 1, 1983, with the North Carolina Education
Association, the North Carolina State Employees’ Asso-
ciation, North Carolina State Firemen’s Association, the
North Carolina State Highway Employees Association,
North Carolina Teachers’ Association and the State Em-
ployees’ Credit Union, alumni associations of state-sup-
ported universities and colleges, local professional
associations of teachers and State employees as defined
by the Board of Trustees, and North Carolina State School
Boards Association may elect to leave his total accumu-
lated contributions in this Retirement System during the
period he is in such association employment, by filing with
the Board of Trustees at the time of such termination the
form provided by it for that purpose.
(b) Any member who files such an election shall remain
a member of the Retirement System during the time he
is in such association employment and does not withdraw
his contributions. Such a member shall be entitled to all
the rights and benefits of the Retirement System as though
remaining in State service on the basis of the funds ac-
cumulated for his credit at the time of such transfer plus
any additional accruals on account of future contributions
made as hereinafter provided. Such former State employee
may restore any such account and pay into the annuity
savings fund before July 1, 1960, such amounts as would
have been paid after transfer to such service, provided
that the association makes contributions to the Retirement
System on behalf of such former members in accordance
with subsection (c) of this section.
(c) Under such rules as the Board of Trustees shall
adopt, the association to which the member has been trans-
ferred may agree to contribute to the Retirement System
5a
on behalf of such member such current service contribu-
tions as would have been made by his employer had he
remained in State service with actual compensation equal
to the remuneration received from such association; pro-
vided the member continues to contribute to the Retire-
ment System. Any period of such association employment
yn account of which contributions are made by both the
association and the member as herein provided shall be
credited as membership service under the Retirement Sys-
tem.
(d) The governing board of any association or organi-
zation listed in subsection (a), in its discretion, may elect -
on or before July 1, 1983, by an appropriate resolution of
said board, to cause the employees of such association or
organization so employed prior to July 1, 1983, to become
members of the Teachers’ and State Employees’ Retire-
ment System. Such Retirement System coverage shall be
conditioned on such association’s or organization’s paying
all of the employer’s contributions or matching funds from
funds of the association or organization and on such board’s
of such funds to be paid to the Retirement System and
placed in the appropriate funds. Retroactive coverage of
the employees of any such association or organization may
also be effected to the extent that such board requests;
provided, the association or organization shall pay all of
the employer’s contributions or matching funds necessary
for such purposes; and, provided further, such association
or organization shall collect from its employees all em-
ployees’ contributions necessary for such purpose, com-
puted at such rates and in such amount as the Board of
Trustees of the Retirement System shall determine, all of
6a
fully applicable to the North Carolina Symphony Society,
Inc. and the North Carolina Art Society, Inc.
(e) Notwithstanding the foregoing, employees of the
State Employees’ Credit Union who are in service and
members of the Retirement System on June 30, 1983,
shall, on or before October 1, 1983, make an irrevocable
election to do one of the following:
(1) Continue contributing membership service under
the same conditions and requirements as are otherwise
provided, and have the rights of a member to all benefits
and a retirement allowance; or
(2) Receive a return of accumulated contributions
with cessation of contributing membership service, under
G.S. 135-5(f) and in any event with regular interest re-
gardless of membership service; or
(3) Terminate contributing membership service and
be entitled alternatively to the benefits and allowances
provided under G.S. 135-3(8) or G.S. 135-5(a).
(f) Notwithstanding the foregoing, employees of the State
Employees Association of North Carolina, the employees
of the North Carolina Association of Educators, and the
employees of the North Carolina School Boards Association
who are in service and members of the Retirement System
on June 30, 1985, shall, on or before October 1, 1985,
make an irrevocable election to exercise one of the three
options provided in G.S. 135-27(e).
<
7a
Appendix B
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH
CAROLINA
RALEIGH DIVISION
CIVIL ACTION NO. 84-138-CIV-5
ROBERT P. ALMOND, et al.
Plaintiffs,
Vv.
HARLAN E. Boy es, et al.
Defendants.
STIPULATIONS
The parties to this action, by and through counsel, her-
eby stipulate to the following facts and to the authenticity
of the attached Exhibits, but make no stipulation as to
the relevancy or admissibility thereof:
1. The North Carolina State Commission for the Blind
(the Commission”) was created by legislative act in 1935.
Around 1945, pursuant to N.C.G.S. §§111-27 and 111-27.1,
the Commission began administering a vending stand pro-
gram (the ‘“‘program’’) designed to provide business op-
portunities for visually handicapped residents of North
Carolina.
2. In 1955, the
ission was designated by the United
States Department Health, Education and Welfare
(“HEW”’) as the age dieense blind persons for the
operation of vending stands in North Carolina under the
Randolph-Sheppard Act, 20 U.S.C. §107 et seg. See Exhibit
1 (this and subsequently cited Exhibits are attached hereto).
3. The program was administered by the Bureau of Em-
ployment for the Blind, an arm of the Commission, until
1974, when, pursuant to the Executive Reorganization Act
8a
of 1973, the North Carolina Department of Human Re-
sources (““DHR’”) succeeded the Commission and assumed
its duties as licensing agency. Since then, the program has
been administered by DHR through its Division of Services
for the Blind (the “‘Division’’). The Division operates solely
under authority delegated to it by the Secretary of the
Department of Human Resources.
4. In 1979, HEW’s Rehabilitation Services Administra-
tion, the federal agency charged with supervision of the
Randolph-Sheppard program, redesignated the North Car-
olina Department of Human Resources, Division of Ser-
vices for the Blind as the North Carolina Randolph-
Sheppard licensing agency. See Exhibit 2.
5. The Teachers’ and State Employees’ Retirement Sys-
tem, and its officials, agents, and employees, have never
been designated agencies for licensing blind persons under
the Randolph-Sheppard Act, and have never participated
in contract or funding negotiations with the United States
Government in relation to this Act nor had any adminis-
trative responsibility or authority under this Act.
6. At all times relevant herein, the costs of adminis-
tering the vending stand program in North Carolina have
been paid primarily with federal funds provided under the
Vocational Rehabilitation Act, 29 U.S.C. §§701 et seg. The
Vocational Rehabilitation Act establishes a joint Federal-
State program under which the federal government will,
up to a designated amount, match 4 to 1 (formerly 3 to
1) non-federal funding for purposes of vocational rehabil-
itation. In North Carolina, the non-federal share of the
vending stand program budget has come from monies set
aside from the vending stand proceeds, pursuant to the
Randolph-Sheppard Act and regulations, as well as from
vending machine profits. The amount of federal funds al-
located to the program for fiscal years 1974 through 1983
is set out in Exhibit 3.
9a
7. As a condition of using this federal funding for the
vending stand program and receiving the designation as
licensing agency, the Commission and the Division of Ser-
vices for the Blind have agreed to administer the program
in accordance with the Randolph-Sheppard Act and reg-
ulations promulgated thereunder.
8. The Randolph-Sheppard Act requires the state licen-
sing to agree
that if any funds are set aside, or caused to be
set aside, from the net proceeds of the operation
of the vending facilities such funds shall be set
aside, or caused to be set aside, only to the ex-
tent necessary for and may be used only for the
purposes of (A) maintenance and replacement of
equipment; (B) the purchase of new equipment;
(C) management services; (D) assuring a fair min-
imum return to operators of vending facilities;
and (E) retirement or pension funds, health in-
surance contributions, and provision for paid sick
leave and vacation time, if it is determined by a
majority vote of blind licensees licensed by such
state agency, after such agency provides to each
such licensee full information on all matters rel-
evant to such proposed program, as funds under
this paragraph shall be set aside for such pur-
poses: Provided, however, that in no event shall
the amount of such funds to be set aside from
the net proceeds of any vending facility exceed
a reasonable amount which shall be determined
by the Secretary.
20 U.S.C. §107b(3). Provision (E) of this section, relating
to retirement or pension funds, was added to the Ran-
dolph-Sheppard Act by amendment in 1974.
9. Prior to October 1, 1978, the State rules and regu-
lations governing the administration of the North Carolina
vending stand program provided that the licensing agency
10a
could set aside funds from the proceeds of the stands,
pursuant to 20 U.S.C. §107b, only for the purposes of (1)
maintenance and replacement of equipment; (2) the pur-
chase of new equipment; (3) management services; and (4)
assuring a fair minimum return to operators. Effective
October 1, 1978, these rules and regulations were amended
to provide that stand proceeds could also be set aside for
(5) the establishment and maintenance of retire-
ment or pension funds, health insurance con-
tributions, and provision for paid sick leave
and vacation time, if it is so determined by
a majority vote of blind operators licensed by
the division, after the division provides to each
such operator information on all matters rel-
evant to such proposed purposes.
No vote has ever been held to determine whether a ma-
jority of the vendors wished to have funds set aside from
stand proceeds for the purposes of providing pension or
retirement benefits.
10. From July, 1971 through early 1978, the agency set
aside 10% of the gross sales of each stand for purposes
(1) through (4) identified in the preceding paragraph. From
1978 through June, 1980, the agency set aside 15% of
stand net proceeds (total revenues minus cost of goods
sold and operating expenses) for these purposes; since that
time, it has set aside 20% of the net proceeds for these
purposes. See Exhibit 4. The Agency has refunded to the
vendors, on a pro rata basis, the unused portion of funds
set aside, as reflected in Exhibit 5.
11. Prior to July, 1971, operators were paid a weekly
salary (and bonuses). Since July, 1971, the State licensing
agency has regularly collected the gross receipts of the
vending stands, made deductions therefrom for various
purposes, and distributed the balance to the vendors. At
least since October 1, 1978, the licensing agency has pro-
vided to the vendors a monthly Statement of Revenue and
lla
Expense showing all these deductions. See Exhibit 6. A
portion of the funds set aside by the licensing agency from
the net proceeds of the stands has been used to subsidize
those vendors whose income otherwise would not equal or
exceed a guaranteed minimum return established by the
program.
12. The State regulations governing the program have
always provided that title to all equipment, merchandise
and other assets of the vending stands is vested in the
licensing agency.
13. On June 21, 1968, the North Carolina Attorney Gen-
eral’s Office issued an opinion letter stating that the Bu-
reau and Bureau funds were subject to control by the
Commission. (Exhibit A to the Answer of Defendants Mor-
row, Gruber, and Van Name.) On December 27, 1968, the
Attorney General’s Office wrote to the State Auditor con-
cerning the vending stand program. (Exhibit B to the An-
swer of Defendants Morrow, Gruber and Van Name.) True
copies of these letters are attached hereto as Exhibits 7
and 8.
14. Pursuant to Section 15 of the 1969-1971 North Car-
olina Appropriations Bill, Three Hundred Thousand Dollars
($300,000.00) of unobligated Bureau Reserve Funds, which
the Bureau had placed in a special reserve account with
the State Treasurer, were transferred into the State’s Gen-
eral Fund, Operating Code 16041 (Commission for the
Blind). A true copy of this legislation is attached hereto
as Exhibit 9.
15. In 1969, the North Carolina General Assembly re-
quested the Commission to review and make recommen-
dations as to the personnel status of the vending stand
operators and the manner in which best to provide them
adequate retirement benefits. 1969 General Assembly Ses-
sion Laws, Chapter 1255. A true copy of this legislation
is attached hereto as Exhibit 10.
12a
16. Pursuant to this directive, the firm of H. Gray
Hutchinson and Associates performed an actuarial study
on behalf of the Commission. In addition, George B. Buck
Consulting Actuaries, Inc., recommended to the Retire-
ment System that, should the vendors be brought under
the Retirement System, an additional sum, over and above
the assets of the private retirement trust fund, would be
required to fund the prior service liability the Retirement
System would thereby incur. True copies of the afore-
mentioned study and recommendation, along with other
documents relating to the the private retirement plan and
trust are attached hereto as Exhibit 11.
17. In 1971, the General Assembly passed House Bill
No. 407 entitled “An Act Relating to the State Commis-
sion for the Blind, to Clarify the Employee’s Status of
Blind and Visually Handicapped Employees of the Com-
mission, to Enroll Such Employees in the Teachers and
State Employees’ Retirement System, and to Make an Ap-
propriation Therefor.” 1971 General Assembly Session
Laws, Chapter 1025. This Act:
(1) Amended N.C.G.S. §111-27.1 by adding a new
sentence at the end thereof, which reads as follows: ‘Blind
or visually handicapped employees or vending stand op-
erators employed by the North Carolina State Commission
for the Blind, Bureau of Employment for the Blind Di-
vision, are hereby declared to be State employees.”
(2) Amended N.C.G.S. §126-5(b) to exempt the vend-
ing stand operators from Chapter 126 of the General Stat-
utes known as the State Personnel Act.
(3) Amended Chapter 135 of the General Statutes
by inserting a new §135-16.1, which reads as follows:
Blind or visually handicapped employees.—On
July i, 1971, all blind or visually handicapped
employees employed by the State Commission for
the Blind, Bureau of Employment for the Blind
13a
bp
Division, shall be enrolled as members of the
Teachers’ and State Employees’ Retirement Sys-
tem. All such employees shall be given full credit
for all service theretofore as employees of the
State Commission for the Blind, Bureau of Em-
ployment for the Blind Division. All retired em-
ployees drawing or receiving benefits from and
under the private retirement plan purportedly
created on December 6, 1966, by the Bureau of
Employment for the Blind Division pursuant to
a trust agreement purportedly entered into with
a private banking institution as trustee shall con-
tinue to be paid by the Teachers’ and State Em-
ployees* Retirement System benefits in the same
amount which they purportedly were entitled to
under the private retirement plan and trust
agreement, except that such retired persons shall
be eligible for such annual cost-of-living increases
as may be provided for retirement members of
the Teachers’ and State Employees’ Retirement
System under the provisions of this Article.
Upon the enrollment of the employees in the
Teachers’ and State Employees’ Retirement Sys-
tem, the purported private retirement plan and
trust agreement hereinabove referred to shall be
dissolved and terminated.
(4) Provided for the transfer of the assets of the
private retirement plan and _ trust agreement, which
amounted to $163,490.09, to the Board of Trustees of the
Teachers and State Employees’ Retirement System.
(5) Provided for a one-time appropriation to the
Teachers and State Employees’ Retirement System out of
the general fund of the State in the amount of $145,000
to fund the projected liability incurred by the System as
a result of the other provisions of the Act.
l4a
A true copy of this legislation is attached as Exhibit
12. Pursuant to this legislation, the vendors were enrolled
in the Retirement System.
18. At all times relevant herein, the “employer” con-
tribution to the Retirement System (and to Social Security)
for each vendor has been paid with funds deducted from
the proceeds of the stand operated by that vendor.
19. Since 1971, no State funds have been appropriated
for the vending stand program or for compensation or
fringe benefits of the vendors, including the “employer”
contributions to the Retirement System and Social Secu-
_ rity.
20. On March 31 and June 1, 1977, HEW and the Di-
vision exchanged correspondence. True copies of that cor-
respondence are attached hereto as Exhibit 13.
21. At least by November 15, 1978, the Division had
entered into a written licensing agreement with each op-
erator of the form attached to these Stipulations as Exhibit
14. The Division entered into identical agreements with
all operators licensed subsequent to November 15, 1978,
until a revised form agreement was adopted in April of
1984. See Exhibit 14a.
22. In connection with the 1981 Session of the North
Carolina General Assembly, the Division proposed an ex-
pansion budget request seeking State funding of the ven-
dors’ employer contribution to the Retirement System. A
true copy of this Expansion Budget Request is attached
hereto as Exhibit 15.
23. In early 1982, representatives of the Division met
with Merv Darter of the Rehabilitation Services Admin-
istration (“RSA”). Among the topics discussed at that
meeting was the vendors’ participation in the Retirement
System. Following that meeting, Dr. Steven J. Cornett,
the Regional RSA Commissioner and Mr. Darter’s super-
visor, wrote a letter dated March 26, 1982, to the Division,
15a
a true copy of which is attached hereto as Exhibit 16.
(Exhibit 1 to the Complaint.)
24. Following the receipt of that letter, on May 10, 1982,
L. Earl Jennings, Jr., then Director of the Division, wrote
to Dr. Sarah T. Morrow, Secretary of the North Carolina
Department of Human Resources, concerning, among other
things, the vendors’ participation in the Retirement Sys-
tem. A true copy of that letter, and the attachments in-
cluded therewith, are attached hereto as Exhibit 17.
25. In 1983, the General Assembly enacted Senate Bill
247. 1983 General Assembly Session Laws, Chapter 867.
A true copy of the Bill is attached hereto as Exhibit 18.
26. Pursuant to this Act, licensed vendors who had been
participating in the Retirement System were required to
elect by September 30, 1983, (1) to continue contributing
both the “employer” and “employee” shares to the Re-
tirement System; or (2) to cease contributing to the System
and (a) receive a refund of employee contributions plus
Statutory interest; (b) apply for and commence receiving
a monthly retirement allowance; or (c) leave accumulated
contributions in the System and retain the right to receive
an actuarily reduced pension at some future date. See Ex-
hibit 19. Exhibit 20 indicates the number of vendors ex-
ercising these various options as of October, 1983.
27. All documents attached as Exhibits to the Deposition
of Stephen A. Johnson, former Chief of the Business En-
tesprises Section of the Division of Services for the Blind
(with the exception of Exhibits 1 and 60-64 thereto), were
produced to plaintiffs from the regularly maintained files
of the Division. © .
This 29th day of November, 1984.
16a
Rurus L. EDMISTEN
Attorney General
/s/ WILLIAM F. BRILEY
Assistant Attorney General
North Carolina Department
of Justice
P. O. Box 27602
Raleigh, North Carolina 27602
Counsel for Defendants Morrow,
Gruber, and Van Name
/s/ NORMA S. HARRELL
Assistant Attorney General
North Carolina Department
of Justice
P. O. Box 27602
Raleigh, North Carolina 27602
Counsel for Defendants Boyles,
Ballard, Bridges, Byrd, Cov-
ington, Davis, Jakes, Jernigan,
Jones, Morton, Osborne, Phil-
lips, Pitt, Rader, Board of
Trustees of the North Carolina
Teachers’ and State Employees
aieage System, and E. T.
Barnes
SANFORD, ADAMS, MCCULLOUGH
& BEARD
/s/ STEVEN J. LEVITAS
P. O. Box 389
414 Fayetteville Street Mall
Raleigh, North Carolina 27602
(919) 828-0564
Counsel for Plaintiffs
Charles R. Hassell, Jr.
500 Capital Club Building
16 West Martin Street.
Raleigh, North Carolina 27602
(919) 828-8746
Counsel for Plaintiffs
i
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