Reply Brief — Mello v. Woodhouse

Euprema Court, U.S

e~. FILED

\

3 | Nov 3 1994

No. 94-573 ze CF WE CLESK

In The

Supreme Court of the United States

October Term, 1994

DONALD R. MELLO, and

BARBARA J. MELLO, Petitioners,

vs.

JOYCE L. WOODHOUSE,et al., Respondents.

PETITION FOR WRIT OF CERTIORARI

PETITIONERS’ REPLY BRIEF

DONALD R. MELLO and

BARBARA J. MELLO

Pro Se

6061 Rio Vista Lane

Carson City, NV. 89701

Telephone: (702) 885-8772

LIST OF PARTIES

The following persons and entities were

parties to the proceedings in the Supreme

Court of the State of Nevada. The

petitioners in this Court are italicized,

all others are respondents.

Plaintiffs-Appellants: DONALD R. MELLO

and BARBARA J. MELLO

Defendants-Appelees: Joyce L. Woodhouse,

Steve Cozine, John A. Caserta, Julius

Conigliaro, and 0.C. Lee as members of

the Public Employees Retirement Board of

the State of Nevada; Will Keating, as

Executive Officer of the Public Employees

Retirement System of the State of Nevada,

and the Legislators’ Retirement System.

TABLE OF CONTENTS

List of PartieS...-eeee-

Table of Contents.....--.

Table of Authorities....

Statutes and Regulations

Statement... cccccccevces

Apology to the Court....

Conc lus iOR « cae 06 006s eee

ii

18

o1l9

TABLE OF AUTHORITIES

Vv -Manhattan

_Inc., 451 U.S. 504, 68 L.Ed.2d

402, 101 S.Ct. 1895... cece eee sae ren evees 3

Amato v. Western Union Int'l

773 F.2d 1402, 1415

(2ndCir.1985), 474 U-S. 1113,

106 S. Ct. 1167, 89 L.Ed. 24

Eh | Pe eee te 11

Brug v. Pension Plan, 669 F.2d

570, 574-76 (9th Cir.), 459

u.8. S26, 36 6.0t. 235, 74

ee ST ) ee 10

Costantino v.TRW, Inc., 773

F.Supp. 34 (N.D. Ohio 1991),

sey GS. Par, tar, 204 S.Ct.

2709, 2717, 81 L.Ed.2d 601....... foe}

Danti v. Lewis, 312 F.2d 345,

349 (D.C. Cir 1962), 348-49.......---- 10

Denzer, 474 F.Supp. at a

Oe EE ee 10

Dower v. Richards, 151 U.S. oe 2

Egan v. Hurt, 165 U.S. 188.....+++-+---: 2

Hoefel v. Atlas Tack Corp.,.

581 F.2d 4-5 (1st Cir.1978),

Lance. Cts, 39 8.0. 1227,

59 L.Ed. 2d 462 a see eg e's « 9

Hurd v. Illinois Bell Tel .Co.,.

iii

234 F.2d.1, 942 (7th Cir.),

352 U.S. 918, 77 S.Ct. 216,

1 L.Ed.2d 124 (39S6 ) om ieanes oon ee

Nachman Corp. v. Pension Benefit

Guar. Corp... £46 U.S. 399 ..cccccaseserl

Plaxal], 541 F.Supp. at 1391........-+-10

Pratt v. Petroleum Prod. Mngmt.

Employee Sav. Plan, 920 F.2d 65

(20¢h e888 i 3 ioe seuss er, ee a Pe ae

Quimby v. Boyd, 128 U.S. 488.........-.. 2

Waters-Pierce Oil Co. v. Texas

No. 1, 212 GaGa OF RAP OOR 6 ch heh cea ees 1

Weil I, 750 Fe2d at L2.ccceccvecececees 11

Weil v. Retirement Plan Admin-

istrative Committee, 913 F.2d

1045 (2nd Cir.1990) ccc ecercccsees rey S|

STATUTES AND REGULATIONS

U.S. Const. Art I Sec. 10... eeeeee tea

Nev. Const. art 4, sec. 33. eer eerseees 4

OE SR ee a rar ee eR at ae £ @./ F2

Retirement Equity Act 1984

CP .1.98-397) . ccc ccce res civeccccevers 13

SO We BOE OE BOG < cco cv cceccccecceccecsse 12

IRS, 26 USC BESTA IAG) oe cet cceces . Fae + eee &

pe ee NN ee ee eee ee ee £5. 37

96 USC 4126) C8). cccesc. eee he Pi eae 15

Sec. 709, Rev. Stat. U.S. cee eeeeeeeeces 2

IRS, 26 CFR (4-1-94 Ed.)

ROS ED Te eee ee ee 3

IRS Regulation 1.401(a)-11(b)....------ 16

IRS Regulation 1.401(a)-12.....-..+-+-- 17

IRC Regulation 1.411(a)-8T.....-+eeeees 12

IRS Regulation 1.411(d)-4

(4-1-94 Ed.) Q 2.ceeeeeeeeees oo 26 27

IRS Regulation 1.411(d)-4

(4-1-94 Ed.) Q&A“6... cere cece erevnes 14

IRS Regulation 1.4110€4)-4(2) ccc ccccces 17

In the argument section of its op-

posing brief to case no. 94-573, Petition

for Writ of Certiorari by Donald R. and

Barbara J. Mello, the state of Nevada

claims that "it is well accepted that

this court will not review a decision of

a state court resting upon independent

and adequate state grounds.”

However, in Waters-Pierce Oil Co v.

Texas No. 1, 212 U.S. 97 (1908), this

Court stated, "The jurisdiction of this

court to review the proceeding of the

state courts, as we have had frequent oc-

casion to declare, is not that of a gen-

eral reviewing court in error, but is

limited to the specific instances of de-

nials of Federal rights, whether those

pertaining to the constitutionality of

Federal or state statutes, or to certain

rights, immunities and privileges of Fed-

eral origin, specially set up in the

state court and denied by the rulings and

judgment of that court. Sec. 709, Rev.

Stat. U. S. Nor does this court sit to

review the findings of facts made in the

state court, but accepts the findings of

the court of the State upon matters of

fact as conclusive, and is -confined to a

review of questio fe) edera aw within

the jurisdiction conferred upon this

court.” (Emphasis added.) Quimby v.

Boyd, 128 U.S. 488; Egan v. Hart, 165

U.S. 188; Dower V. Richards, 151 U.S.

658. What is more an issue for this

court to decide than a pension case that

is required to abide by federal law and

regulation, yet doesn't, thereby causing

a grievous breach of contract violating

Art. I Sec. 10 of the U. S. Constitution.

The matter before this Court is

breach of a retirement contract between

Donald R. and Barbara J. Mello and the

state of Nevada which caused the forfei-

ture and reduction of retirement pension

benefits.

This has resulted in former Senator

Mello receiving a greatly reduced bene-

fit, with penalties, for which he has

neither applied or agreed.

And these are federal issues as de-

clared by this Court in Alessi v.

Raybestos-Manhattan, Inc., 451 US 504, 68

L.Ed.2d 402, 101 S.Ct.1895; "Congress

having established pension plan regula-

tion as exclusively a federal concern

and, . . . pension terms themselves be-

coming expressions of federal law requir-

i reemptio int iv =

(Emphasis added. )

Therefore Nevada law can only dic-

tate when former Senator Mello can begin

collecting the increased benefits in

which he vested upon his retirement. And

that would be January 1, 1991, the natu-

ral expiration of his term of office,

unless this Court decrees that like other

legislators, as detailed in the Petition,

Mello's term of office ended when he re-

tired and the Washoe County Commissioners

appointed Peggy O'Neil to replace him for

the November 21,1989, special session of

the Legislature. Nothing in the Nevada

Constitution says the legislature cannot

increase their benefits, only they can't

receive them during the term of office

when they were increased. Nev. Const.

art. 4, sec. 33.

The state of Nevada in its opposing

brief again makes reference to the incor-

rect portion of ERISA and the U.S. Code

that govern state and local government

pensions. Title II of ERISA and subse-

quent federal laws amending ERISA and 26

uSC are the areas of federal law and reg-

ulation that govern the Legislative Re-

tirement System (LRS) and state of Nevada

Public Employees Retirement System

(NPERS).

These are the federal laws where

Congress continues to extend the time

allowing state and local governments to

bring their pension plans into compliance

with federal law, and the reason Congress

has authorized the Internal Revenue Ser-

vice to formulate model amendments within

the Code of Federal Regulations for state

and local government pension systems to

adopt; the Model IID amendments (see 26

CFR Ch I (4-1-94 Edition) that would pre-

vent the breach of contract normally pro-

tected by 26 USC 411(d)(6) and allow ret-

roactive amendments to these plans; yet

the Legislature of the state of Nevada

never knew of these modei amendments and

therefore never passed any of the four

—_ >

when they illegally repealed the in-

creased benefits granted to legislators.

Congress also allowed state and lo-

cal governments to adopt a "grandfather”

clause to protect the benefits of those

who had retired or earned benefits in

excess of the limits set by 26 USC 415.

Nevada adopted this grandfather clause

July 5, 1991, making it retroactive to

January 1, 1991; 15 months after the

retirement of state Senator Donald Mello,

thereby protecting the excess benefits of

his pension. At no time prior to re-

questing the legislation to adopt this

"grandfather" clause did Wilbur Keating,

Executive Officer of NPERS inform the

legislature of the need to adopt a pro-

tective clause, the existence of the

limits on pension benefits, or the provi-

sions available to protect the benefits

earned by any Nevada public employee. At

5 a

oe

+ ae

no time did Keating inform the legisla-

ture of the provision allowing the estab-

lishing of an “optional form of benefit”

plan that would avoid breaching the re-

tirement contracts of vested legislators.

In Nachman Corp. v. Pension Benefit

Guar. Corp., 446 US 359, this Court up-

held the ERISA definition of a "“nonfor-

feitable benefit" as follows: "The term

‘nonforfeitable’ when used with respect

to a pension benefit or right means a

claim obtained by a participant or his

beneficiary to that part of an immediate

or deferred benefit under a pension plan

which arises from the participants ser-

vice, which is unconditional, and which

is legally enforceable against the plan.”

(Emphasis added.)

Also in Nachman, supra, this Court

"relies on the fact that the terms

"nonforfeitable’' and ‘vested’ were often

a eee

used interchangeably in the legislative

materials. This usage is said to be sig-

nificant because in the pension field a

benefit is usually said to ‘vest' when a

pension plan participant has fulfilled

all the specified conditions for eligi-

bility, such as age and length of ser-

vice.” (Emphasis added.)

Therefore, Senator Mello's benefits

had ‘vested’ upon his retirement because

he met all the specified conditions need-

ed at that time to be eligible for his

pension.

In Pratt v. Petroleum Prod. Mngmt

Employee Sav. Plan, 920 F.2d 65 (10th

Cir. 1990) the district court determined

that the plan was liable on two indepen-

dent grounds: reduction of an accrued

benefit under ERISA and breach of con-

tract. "We [U.S. Court of Appeals 10th

Circuit] agree with the district court.”

The Appeals Court goes on to say

a "pension plan is a unilateral contract

which creates a vested right in those

employees who accept the offer it con-

tains by continuing in employment for the

requisite years.” (Emphasis added.)

Hurd v. Illinois Bell Tel. Co., 234 F.2d

1, 942 (7th Cir.) cert. denied, 3352-05

918, 77: $ Ct. 216, “fT BiB 2S TSU CIE)

accord tloefel v. Atlas Tack Corp., 58l

F.2d, 4-5 (ist Cir.1978), cert denied,

440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed. 2d

462 (1979).

In Pratt, supra, the Court contin-

ued, "The fiduciaries are required to

administer the plan “solely in the inter-

est of the participants and beneficia-

ries." This was clearly not done by ei-

ther Will Keating or the Members of the

NPERS Board as evidenced by their lack of

informing the legislature, all of whom

are required by law to be members of LRS,

of the need to comply with federal law.

As the Court continued with Pratt,

supra, "When plaintiff was terminated,

defendant was required to determine bene-

fits in accordance with the plan then in

effect." (Emphasis added.) See Brug v.

Pension Plan, 669 F.2d 570, 575-76 (9th

Cir.), cert denied, 459 US 861, 10 S.Ct.

1955 34 1. Bas. 24 146 (1962); Danti v.

Lewieé, 322: 8.240 345, 349 (D.C. Cir.

1962); Plaxall, 541 F.Supp. at 1391;

Denzer, 474 F.Supp. at 391; Denzer, 474

F.Supp. at 766. "Subsequent unilateral

adoption of an amendment which is then

used to defeat or diminish the plaintiffs

fully vested rights under the governing

plan document is not only ineffective but

also arbitrary and capricious. (Emphasis

added.) See Brug, 669 F.2d at 574-76;

Danti, 312 F.2d at 348-49; Denzer, 474

10

a ‘

\

F.Supp. at’ 766.

In Weil v. Retirement Plan Adminis~

trative Committee, 913 F.2d 1045 (2nd

Cir.1990) regarding who in the federal

government was responsible for overseeing

pension plans, the court stated, "We ac-

cord ‘great weight’ to these regulations

and rulings since the IRS [Internal Reve-

nue Service] is the agency responsible

for administrating the partial termina-

tion statute." Amato v. Western Union

Int'l Inc., 773 F.2d 1402, 1415 (2d

Cir.1985), Cert. dismissed, 474 US 1113,

106 S.Ct. 1167, 89 L.Ed. 2d 288 (1986);

Weil I, 750 F.2d sat 22.

Although the Nevada LRS was not par~

tially terminated, the retroactive amend-

ment of the 1989 Special Session of the

Legislature resulted in breach of Mello’'s

retirement contract, after he retired and

began receiving benefits, and forced him,

il

without choice, as allowed by IRC

1.411(a)-8T, to accept benefits under the

previous schedule, which resulted in his

receiving a 28.5 percent reduction in

those old benefits because of his age of

55 years at the time of retirement.

Since the passage of ERISA and the

amendments to 26 USC 401 et seq. the In-

ternal Revenue Service has promulgated

many regulations that apply to pension

plans. These include 1,411(d)-4,(2) Sec-

tion 411(d)(6) protected benefits that

may be eliminated or reduced. This reg-

1(4) Change in statutory re-

quirement. A plan may be amended to

eliminate or reduce a section

411(d)(6) protected benefit if the

following three requirements are met:

the amendment constitutes timely

compliance with a change in law af-

fecting plan qualifications; there is

an exercise of section 7805(b) relief

by the Commissioner; and the elimina-

tion or reduction is made only to the

extent necessary to enable the plan

to continue to satisfy the require-

ments for qualified plans. In gener-

12

Ce

RS

¢ the

—

quirement .

ulation became effective January 30,

1986, and the 1987 and 1989 sessions of

the Legislature were never informed.

The Retirement Equity Act of 1984

(P.L. 98-397) clarifies the scope of the

prohibition against decreases in the ac-~

crued benefit of a participant. The Act

prohibits the elimination or reduction of

an early retirement benefit by a plan

amendment that changes the basis for de-

termining actuarial equivalency with

respect to previously accrued benefits

except as to amendments approved by the

Secretary of the Treasury. However, the

elimination or reduction of a retirement

limination or reduction of a

11(d)(6) protected benefit

be treated as necessary if

sible through other modifi-

plan (e.g. by expand-

a3 14 ¢ tions}

nefit to additional employ-

itisfy the applicable quali-

? (Emphasis

Senator Mello satisfied all requirements

of the LRS, including the early retire-

ment benefit, with no penalties, prior to

his retirement and prior to the repeal of

the early retirement benefit. (Emphasis

added.)

According to IRS regulation

1.411(d)-4, "Q&A-6, a plan may not be

amended to eliminate or reduce a protect-

ed benefit that has already accrued, even

if the elimination or reduction is con-

tingent upon the employee's consent.

Senator Mello never consented to the

elimination or reduction in his benefits,

was never asked, and his legal represen-

tative was not allowed to address either

house of the legislature. In Costantino

14

v. TRW, Inc., 773 F.Supp. 34 (N.D. Ohio

1991), “It is now well established that

legislative Acts adjusting the burdens

and benefits of economic life come to

this Court with a presumption of consti-

tutionality, and that the burden is on

one complaining that the legislature has

acted in an arbitrary and irrational

way. 467 U.S. TI?, 7295 166° S.C ares,

2717, 81 L.Ed.2d 601.

Regulation 1.411(d)-4, (4-1-94 edi-

tion) Q-2: “To what extent may section

411(d)(6) protected benefits under a plan

be reduced or eliminated?" A-2: (a) “Re-

duction or elimination of section

411(d)(6) protected benefits--(1) In gen-

eral. A plan may not be amended to elim-

inate or reduce a section 411(d)(6) pro-

tected benefit that has already accrued,

except as provided in section 412(c)(8)

and 4281, and in paragraph (b) of this

15

Q&A-2. This is generally the case even

if such elimination or reduction is con-

. , ”

(Emphasis added.) See footnote 1 and

above.

IRS regulation 1.401(a)-11(b) Defi-

nitions.(4) “Qualified early retirement

age. The term “qualified early retire-

ment age” means the latest of -- (i) The

earliest date, under the plan, on which

the participant could elect (without re-

gard to any requirement that approval of

early retirement be obtained) to receive

retirement benefits (other than disabili-

ty benefits)." The LRS specified no age

requirement for early retirement, only

the completion of 30 years of service, of

which up to five years could purchased.

Senator Mello elected to purchase 3 years

3 months of service time which gave him

the required 30 years.

16

Ree et

oi

s

“a

e

4

:)

te

:

a

:

;

IRS regulation 1.411(d)-4 Section

411(d)(6) protected benefits. Q-1: “What

are ‘section 411(d)(6) protected

benefits'? A-1: "(a) In general. The

term ‘section 411(d)(6) protected

benefit’ includes any benefit that is

described in one or more of the following

categories--(2) Early retirement benefits

and retirement type subsidies described

in section 411(d)(6)(B)(i), including

qualified social security supplements ad

defined in sec. 1.401(a)-12."

Senator Mello met all the require-

ments in the LRS plan at the time of his

resignation and retirement midnight Sep-

tember 30, 1989. It was after that date,

November 21,1989, that the Legislature in

Special Session met to repeal the LRS

benefits it had increased by overriding

the Governor's veto June 23, 1989.

The Attorney General of Nevada

claims that the repeal was not done for

political reasons. Then why did her dep-

uty have entered into the court record

copies of stories from the Nevada Ga-

zette-Journal and Sparks Tribune which

demonstrated the highly political nature

of the LRS benefit increase? Why did

she, the Washo~ district court, and Neva-

da Supreme Court make such an issue of

the petition that Common Cause threatened

to circulate if the increases had not

been repealed, if this was not a politi-

cal issue?

APOLOGY

Our sincere apologies to this Honor-

able Court for including information in

our petition that was not part of the

record. We are aware Washoe District

Court judge granted the state's request

for a protective order to prevent the

Court Administrator from testifying as to

18

pensions for individual judges. But we

understood that the judge allowed our

attorney to enter into the record the

information about various judges that we

had gleaned from public record.

CONCLUSION

Petitioners respectfully request

that this Honorable Court approve the

Petition for a Writ of Certiorari as sub-

mitted.

Dated: November 2, 1994.

Respectfully submitted,

Donald R. Mello and

Barbara J. Mello

Pro Se

6061 Rio Vista Lane

Carson City, Nevada 89701

Telephone: 702-885-8772

19