Petition of the Month, February 2016: Christopher Burgos et al. v. New Jersey

The Supreme Court Press “Petition of the Month”TM for February 2016 is Christopher Burgos et al. v. New Jersey, Supreme Court Dkt. No. 15-293, an appeal coming out of the Supreme Court of New Jersey. The petition was filed by attorneys Richard Loccke, Lauren Sandy, Michael Bukosky, and Leon Savetsky of the firm Loccke, Correia & Bukosky.

Question Presented:

In 2011, as a cure for a severely underfunded pension system, the New Jersey Legislature enacted amendments to N.J.S.A. 43:3C-9.5 which increased both State and employee contributions for a period of seven years in order to restore the pension system to a fiscally sound level. The language of the amendments clearly states that these pension contributions were contractual obligations of the State and contains a waiver of the State’s ability to claim sovereign immunity. The amortized payments were funded for the first two years, but then suspended for two years by the Governor for alleged budget shortfalls. The Petitioners filed suit to restore the contractually mandated funding, and were granted summary judgment at the New Jersey Superior Court in Mercer County, only to be reversed by the New Jersey Supreme Court which granted summary judgment to the Respondents. The Petitioners present the following questions:

1. Whether the failure of the New Jersey Supreme Court to perform a federal contracts analysis was in error, and in conflict with this Court’s opinion in United States Trust Co. v New Jersey, 431 U.S. 1 (1977) and several other State Supreme Court decisions.

2. Whether the New Jersey Supreme Court erred when it held that a Legislature could not enact contractual legislation that exceeds the term of its representatives, in conflict with this court’s opinion in Indiana ex rel Anderson v Brand, 303 U.S. 95 (1938).

The Governor exercised his line item veto to withhold the majority of the State’s required payment by directing that none of the unfunded liability contribution be paid.  As a result, the Governor struck $1.57 billion from fiscal year 2015 Appropriations that would have funded the pension system as required by the applicable statute.                                                                                                                                                                                       - Lauren Sandy
tiny lion

Thank you for discussing the Burgos et al. v. New Jersey case with us. Mr. Burgos is one of the lead plaintiffs in this case, representing one of the New Jersey public safety unions. Can you tell us about the Petitioners in this case, who are also the Plaintiffs in the original proceedings?

tiny lion

Christopher Burgos, the lead Plaintiff in the case, is the President of the New Jersey State Troopers Fraternal Association, a union representing the New Jersey State Troopers employed by the New Jersey State Police.  Also Plaintiffs to the action are two other State Trooper unions, the State Troopers Non-Commissioned Officers Association and the State Troopers Superior Officers Association which represent the Superior Officers within the New Jersey State Police. Collectively, the above referenced Unions represent approximately 3,500 State Troopers in the State of New Jersey.

tiny lion

Like many civil cases, this case involves a deal gone bad.  However, in this case the stakes are higher than usual. We are not talking about thousands or millions, there are billions at stake here.  Tell us about the conflict in this case.

tiny lion

For decades State Troopers and other public employees made the pension contributions.  However, since at least 1997 the state failed to make its contributions.  This resulted in a huge deficit in the pension system’s funds. Therefore, under this new legislation the State Troopers contributed more to the pensions and the State also agreed to contribute more, to make up for the years and years which no contributions or very little contributions were made by the State.

During fiscal year 2012 and fiscal year 2013, the contributions under the statutory formula and contractual obligation were made.  In fiscal year 2014, the State failed to make its contributions, citing a shortfall in revenue.  Under the emergency powers of the executive, the Court upheld the governor’s decision not to make the full payment in fiscal year 2014. 

At the end of June 2014, the Legislature passed and sent to the Governor a balanced budget for fiscal year 2015 that included full payment under the statute.  The Governor exercised his line item veto to withhold the majority of the State’s required payment by directing that none of the unfunded liability contribution be paid.  As a result, the Governor struck $1.57 billion from fiscal year 2015 Appropriations that would have funded the pension system as required by the applicable statute.

tiny lion

What specifically in the legislature’s enactment of this retirement plan makes it contractual in nature?

tiny lion

The legislative amendments explicitly created a contract between the State and its employees and set forth a formula scheduling payments over a period of seven years to bring the pension systems up to full funding.  The amendments also established a dedicated line item for these payments in the annual appropriations acts.  These amendments stated that the failure to make the required payments would be an impairment of the contractual right established by statute and gave employees the right to bring an action in the Superior Court of New Jersey in the event the State failed to make its required payments in accordance with the statutory formula and schedule, while precluding the State from asserting sovereign immunity in any such action. The Governor of New Jersey approved and signed the said legislation, with great fanfare to the effect that the pension funding problem had finally been resolved.  The amendments increased the required contributions for the affected employees.    

The legislature’s enactment contained specific and plain language intending to establish a contractual right to these increased pension payments.  Chapter 78 contains language expressing the Legislature’s clear intent to create a binding and enforceable contract, stating that “[e]ach member... shall have a contractual right to the annual required contribution,” the failure of which “shall be deemed an impairment of the contractual right.”  N.J.S.A. 43:3C-9.5c.

tiny lion

When this case was brought to the superior court in Mercer County, what was the outcome?

tiny lion

The State Troopers Fraternal Association, the State Troopers Non-Commissioned Officers Association, and the State Troopers Superior Officers Association, representing the New Jersey State Troopers, filed a lawsuit and Order to Show Cause seeking declaratory and mandamus relief to compel the State to make its payments.  The State filed a Motion to Dismiss. The New Jersey Superior Court in Mercer County denied the State’s motion to dismiss and granted Plaintiffs’ motion for summary judgment. 

The Superior Court entered an Order declaring that the State’s failure to remit the entirety of the fiscal year 2015 pension payment that Chapter 78 requires impaired Plaintiffs’ rights under the Contracts Clause of the State Constitution. The Superior Court also directed the State Executive Defendants “to work with the Legislature to satisfy this constitutional obligation” for fiscal year 2015.  Finally, the Court awarded attorney’s fees to Plaintiffs under Chapter 78 and set a schedule for the submission of fee applications.

The New Jersey Supreme Court evaded review under the Federal Constitution by reasoning that since the contract was unfunded it was therefore unenforceable.  Merely because a contract is unfunded does not render it immune from a Contract Clause analysis or its constitutional protections.                                                                                                                                    - Lauren Sandy
tiny lion

When the case was appealed to the New Jersey Supreme Court, there was a reversal of fortune.  What happened?

tiny lion

The New Jersey Supreme Court overturned the decision of Mercer County Superior Court, holding that while a contract was intended to be created by statute, the contract was unenforceable against the State.  The New Jersey Supreme Court also failed to consider any claims under the Federal Constitution’s Contract Clause. The Majority opinion held that the Legislature and Governor were without authority to enact an enforceable and legally binding long-term financial agreement through this statute.  However, the dissent noted that state law cannot be reconfigured and then used as an instrument to undermine the Federal Constitution, which protects against state-legislative impairment of contractual rights. 

tiny lion

So, to be clear, at present only one half of the contract is being enforced – the unions are being garnished of retirement contributions, but the state is not providing its share.  How much in excess contributions are the unions being forced to contribute?

tiny lion

Currently, the State Troopers are being required to contribute at a higher rate than prior to the passage of these amendments under this “unenforceable contract” while the State is not required to contribute anything to the unfunded liability.   The statute specifies that there are two types of payments to be made annually by the State, the annual normal contribution and the annual unfunded accrued liability contribution.  The annual unfunded accrued liability contribution is the contribution which the State refuses to make.  This number signifies the billions of dollars of unfunded pension payments which the State has not made since 1997.  Chapter 78 requires that a percentage of this unfunded liability be paid yearly, which the State failed to make at all in 2014 and 2015. In 2015, the State’s contributions to the unfunded liability were by statute supposed to be $1.57 billion, and instead it contributed $0.  Meanwhile, the New Jersey State Troopers and other public employees are making higher contributions to pay down this unfunded liability which was caused solely by the State’s failure to make contributions for decades. A responsibility the State continues to evade.

tiny lion

How do you link this case to constitutional questions or have it rise to an issue the Supreme Court would review?

tiny lion

There is a clear constitutional question with regard to the Federal Contract Clause. The New Jersey Supreme Court evaded review under the Federal Constitution by reasoning that since the contract was unfunded it was therefore unenforceable.  Merely because a contract is unfunded does not render it immune from a Contract Clause analysis or its constitutional protections. Many of the highest Courts of final resort in the Country have recognized that a mere failure to fund is not a justification to avoid a Federal Contract Clause analysis and centuries of precedent have held similarly. A contract cannot be nullified due to lack of funding and then be considered exempt from Contract Clause protection.

Additionally, the decision of the New Jersey Supreme Court conflicts with U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977) and related precedents. U.S. Trust held that a State is obligated to honor contracts created by statute even if the State has determined to withhold the funding underlying the agreement. The New Jersey Supreme Court ignored this precedent and instead substituted a determination that contracts with a State can be avoided for lack of funding and that the protections of the Federal Contract Clause do not apply to such unfunded contracts.

tiny lion

What do you make of the State’s argument that, because the New Jersey constitution contains a Debt Limitation and Appropriation Clause which would prohibit such a contract, the New Jersey legislature lacked the authority to enter into such a contract?  It seems a bit convenient doesn’t it?

tiny lion

It is most certainly convenient. The State of New Jersey has failed to make the proper pension contributions since at least 1997. The State has basically said that because they don’t have the money to make the payment to the unfunded accrued liability, the contract is unenforceable. 

The State clearly wants to bind State Troopers and other public employees to these increased contributions while evading its statutory and contractual obligation to contribute any money to the unfunded liability. The State drafted this legislation.  The Governor paraded around the State championing himself on fixing the fiscal integrity of the pension systems and then line item vetoes a $1.57 billion contribution.  

The Debt Limitations Clause and the Appropriations Act do not apply to the pension contributions.  This cost is not a “debt” subject to those provisions. Debt is borrowed money.  Pension payments are not borrowed money.  Pension payments are monetary obligations of the State, they are current expenses of the state government for services rendered by State Troopers and other public employees.  Pensions are a form of deferred compensation and should not be subject to the Debt Limitations Clause or the Appropriations Act.
tiny lion

Would it be a satisfactory outcome that the increased employee contributions are eliminated?

tiny lion

The only satisfactory outcome would be to require the payment guaranteed by statute. I don’t believe that eliminating the increased employee contributions would achieve the desired outcome. However, if the New Jersey Supreme Court’s decision was to stand, the contract should be deemed unenforceable to both parties, which should in turn require that all State Troopers and other public employees be refunded the excess contribution under the law.  Which was certainly why the New Jersey Supreme Court was careful not to determine the law unconstitutional.  They, again, conveniently only determined that the statutory contract was unenforceable against the State.

tiny lion

What do you think are bigger picture implications if the New Jersey Supreme Court’s decision is allowed to stand? How has this affected labor relations in the state?

tiny lion

Labor relations in the State of New Jersey have reached deplorable levels. Over the past several years, labor relations have dramatically declined.  The Governor has created statutory caps on raises, while requiring employees to contribute astronomically to their health insurance benefits, and then also failing to make contributions into their pension systems.  Public employees in the State of New Jersey are making far less than they were five years ago.  

Without the intervention by the U.S. Supreme Court, I fear that public employees will have no recourse for contractual and statutory violations which have effectively abrogated all of their rights.

tiny lion

In closing, is there anything you'd like to add about the case or your experience working with the Supreme Court Press.

tiny lion

I felt the editor process was amazing and I wish I could hire Supreme Court Press for all of my briefs.  The feedback on my case was very specific and very helpful, as was the draft markup. With regard to the initial brief I felt that the help I received was way more than I expected.  I expected formatting issues to arise but as far as the editing for content, and the suggestions that were made, I found them all to be extremely insightful and very helpful.

Customer service and quality are extremely high.  The other unions in this matter collaborated and filed a joint petition, their petition did not have the same level of professionalism and it did not look as polished as the one we submitted on behalf of the New Jersey State Troopers. 

I felt the editor process was amazing and I wish I could hire Supreme Court Press for all of my briefs . . .  With regard to the initial brief I felt that the help I received was way more than I expected.  I expected formatting issues to arise but as far as the editing for content, and the suggestions that were made, I found them all to be extremely insightful and very helpful . . . The other unions in this matter collaborated and filed a joint petition, their petition did not have the same level of professionalism and it did not look as polished as the one we submitted on behalf of the New Jersey State Troopers.                                                                                                                                                                               - Lauren Sandy

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