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Cypen & Cypen
NEWSLETTER
for
JUNE 23, 2011

Stephen H. Cypen, Esq., Editor

1.      SUPREME COURT OF WISCONSIN UPHOLDS LABOR LAW:  Barely a week after oral argument, the Supreme Court of Wisconsin has decided a case involving the Budget Repair Bill (see C&C Newsletter for June 2, 2011, Item 4). The court granted the petition for an original action because one of the courts it supervises had usurped the legislative power which the Wisconsin Constitution grants exclusively to the legislature. The court summarily ordered that all orders and judgments of the circuit court be vacated and declared to be void ab initio. The court’s decision was grounded in separation of powers principles. It was not affected by the wisdom or lack thereof evidenced in the Act. Choices about what laws represent wise public policy for the State of Wisconsin are not within the constitutional purview of the courts. The court’s task in an action for original jurisdiction is limited to determining whether the legislature employed a constitutionally violative process in enactment of the Act. The court concluded that the legislature did not violate the Wisconsin Constitution by the process it used. (Three justices dissented in part.) State of Wisconsin ex rel. Ozanne v. Fitzgerald, Case Nos.  2011AP613 and 2011AP765 (Wis., June 14, 2011). (Separately, the Associated Press reported that one day after the above ruling a coalition of unions filed a new action in federal court, arguing that the law violated the U.S. Constitution by taking away union rights to bargain, organize and associate, and illegally discriminates among classes of public employees.  The suit seeks to block portions of the new law taking away collective bargaining rights.) 

2.      FLORIDA SBA STAYS INVESTMENT COURSE: Despite forecasts of looming trouble in government employee pensions and a sluggish national economy, managers of the state’s investments got an encouraging report on the Florida Retirement System’s investments. Floridacapitalnews.com reports that the fund’s assets have a net value of almost $127 Billion.  That figure is up by about $17 Billion for the fiscal year and about $1 Billion ahead of State Board of Administration benchmark earnings projections. Governor Rick Scott, Attorney General Pam Bondi and Chief Financial Officer Jeff Atwater, SBA’s governing board, heard presentations from several consultants and outside advisers on the state’s investments. They recommended a stay-the-course posture on investment strategies and diversification of investments. The 3-percent employee contribution for all FRS members imposed on and after July 1, 2011, does not affect health of the investment fund. (See C&C Special Supplement for June 20, 2011.) The Legislature did not reduce overall contribution rates, but just shifted 3 percent of the charge to employees. Notably, growth in the FRS defined benefit fund was in addition to a payout of roughly $300 Million a month in benefits to retirees.  Without that payout, the fund would be back to its past $132 Billion peak. 

3.      PENSION BOARDS DID NOT VIOLATE STATUTE BY FAILING TO OBTAIN CITY RATIFICATION OF BENEFIT INCREASES: The Minnesota Police and Firefighters’ Relief Association Guidelines Act requires covered police and firefighter pension boards (called relief associations) to obtain city ratification of bylaw amendments that increase or otherwise affect retirement coverage provided by or service pensions or retirement benefits payable from the pension boards. However, the statute does not govern when such bylaw amendments must be made. The legislature established the pension boards to create, maintain and administer pension funds for their members and beneficiaries. The pension boards calculate retiree benefits by first determining the number of units to which an individual is entitled based on his years of service.  The pension boards next calculate the value of a unit, which is tied to salaries of current workers. The city sued the pension boards, challenging their unit-value calculations, alleging that the pension boards improperly included shift differential, sick leave pay, certain overtime pay and a selection premium. The parties settled that litigation in September 1995. The settlement agreement required the pension boards to amend their bylaws to define the term “salary” for purposes of calculating unit value, subject to approval by the city. The agreement expressly stated that the purpose of defining the term by amendment to the bylaws was to prevent future differences of opinion on elements of compensation to be included in salary. Both pension boards amended their bylaws to incorporate substantially similar language, and the city ratified the amendments. In 2006, the city commenced the instant lawsuit, seeking a declaration that the pension boards’ determinations of salary for pension calculations were not in accordance with law. The trial court declared the pension boards’ inclusion of shift differential, calculation of sick-leave payout and computation of certain overtime, without amending the bylaws and obtaining city ratification, violated relevant statutes and bylaws.  On the pension boards’ appeal, the appellate court reversed. The statute requires city ratification of any amendment to the bylaws or articles of incorporation of a pension board that increases or otherwise affects retirement coverage provided by or service pension or retirement benefits payable from the pension board. But the statute does not, by its terms, establish under what circumstances the pension boards are required to amend their bylaws. The pension boards amended their bylaws in connection with the 1995 settlement agreement, and the city ratified those amendments.  The amended bylaws expressly permitted the pension boards to include within the unit-value calculation new items of compensation obtained through collective bargaining, without reference to additional bylaw amendments or city ratification.  In other words, the postsettlement bylaws expressly authorize the pension boards to do the very thing the city argues -- and the district court concluded -- that the pension boards cannot do without amending the bylaws.  Accordingly, the appellate court concluded that the district court erred by determining that the pension boards violated the statute by failing to amend their bylaws to include additional items of compensation. In our view, this decision is probably limited to its unique facts. City of Minneapolis v. Minneapolis Police Relief Association, Case Nos. A10-1244 and A10-1331 (Minn. App., May 31, 2011). 

4.      A CHILD’S AGE PROPERLY INFORMS MIRANDA’S CUSTODY ANALYSIS: Police stopped and questioned J.D.B., a 13 year old, upon seeing him near the site of two home break-ins.  Five days later, after a digital camera matching one of the stolen items was found at J.D.B.’s school and seen in his possession, an investigator went to the school.  A uniformed police officer on detail to the school took J.D.B. from his classroom to a closed-door conference room, where police and school administrators questioned him for at least 30 minutes.  Before beginning they did not give him Miranda warnings or the opportunity to call his grandmother, his legal guardian, nor tell him he was free to leave the room.  He first denied involvement, but later confessed after officials urged him to tell the truth and told him about the prospect of juvenile detention.  The investigator only then told him that he could refuse to answer questions and was free to leave.  Asked whether he understood, J.D.B. nodded and provided further detail, including location of the stolen items.  He also wrote a statement, at the investigator‘s request. When the school day ended, he was permitted to leave to catch the bus home.  Two juvenile petitions were filed against J.D.B., charging him with breaking and entering and with larceny.  His public defender moved to suppress his statements and the evidence derived therefrom, arguing that J.D.B. had been interrogated in a custodial setting without being afforded Miranda warnings, and that his statements were involuntary.  The trial court denied the motion.  J.D.B. entered an admission to the charges, but renewed his objection to denial of his motion to suppress.  The court adjudicated him delinquent, and the North Carolina Court of Appeals and State Supreme Court affirmed.  The latter court declined to find J.D.B.’s age relevant to a determination whether he was in police custody. On certiorari review to the Supreme Court of North Carolina, the United States Supreme Court reversed: a child’s age properly informs Miranda’s custody analysis.  Custodial police interrogation entails inherently compelling pressures that can induce a frighteningly high percentage of people to confess to crimes they never committed. Recent studies suggest that risk is more acute when the subject of custodial interrogation is a juvenile.  Whether a suspect is “in custody” for Miranda purposes is an objective determination involving two discrete inquires: first, what were the circumstances surrounding the interrogation and second, given those circumstances would a reasonable person have felt he was at liberty to terminate the interrogation and leave. However, the test involves no consideration of a particular suspect’s actual mindset. By limiting analysis to objective circumstances, the test avoids burdening police with the task of anticipating each suspect’s idiosyncrasies and divining how those particular traits affect that suspect’s subjective state of mind.  J.D.B. v. North Carolina, Case No. 09-11121 (U.S., June 16, 2011).  

5.      THIRD UNION JOINS IN LAWSUIT AGAINST FLORIDA GOVERNOR: According to a press release issued by SEIU Florida Public Services Union, nearly 9,000 SEIU FPSU members will be affected by the new legislation passed by the Florida Legislature. FPSU feels it is necessary to join the lawsuit filed by the Florida Education Association and the Police Benevolent Association against Governor Rick Scott for imposing a 3 percent pay cut in order to protect the hard earned paychecks of thousands of public workers across Florida (see C&C Special Supplement for June 20, 2011). The union. which represents school and hospital workers in eight counties, joined the lawsuit to protect its members from yet another disrespectful attack on working families. This legislation was not about protecting the Florida Retirement System; it was about taking three percent out of the paychecks of public workers to fund $37 million in corporate tax breaks for big corporations and political donors. The pending lawsuit alleges that the Florida Legislature has infringed on the contractual rights of public employees by asking them to contribute three percent of their salaries to their pension plans.  The FRS has been a non-contributory system since 1974.  By now requiring Florida’s 655,000 public workers to contribute to their pension plans, FPSU is claiming that Governor Scott and the Florida Legislature are breaking the contractual obligation to these workers. SEIU Florida Public Services Union represents 19,000 public sector workers in eight counties, 16 cities, three Head Start agencies and four school districts across Florida.

6.      GOVERNMENT EMPLOYER’S RETALIATION ACTIONS DO NOT GIVE RISE TO LIABILITY UNDER PETITION CLAUSE UNLESS EMPLOYEE’S PETITION RELATES TO MATTER OF PUBLIC CONCERN: After Borough of Duryea, Pennsylvania, fired respondent Guarnieri as its police chief, he filed a union grievance that led to his reinstatement.  When the borough council later issued directives instructing Guarnieri how to perform his duties, he filed a second grievance, and an arbitrator ordered that some of the directives be modified or withdrawn.  Guarnieri then filed a suit under 42 U.S.C. § 1983, alleging that directives were issued in retaliation for the filing of his first grievance, thereby violating his First Amendment right to petition the government for a redress of grievances; he later amended his complaint to allege that the council also violated the Petition Clause by denying his request for overtime pay in retaliation for his having filed the § 1983 suit.  The District Court instructed the jury that the suit and the grievances were constitutionally protected activity, and the jury found for Guarnieri.  Affirming the compensatory damages award, the Third Circuit Court of Appeals held that a public employee who has petitioned the government through a formal mechanism such as filing of a lawsuit or grievance is protected under the Petition Clause from retaliation for that activity, even if the petition relates to a matter of solely private concern.  In so ruling, the court rejected the view of every other circuit to have considered the issue that, to be protected, the petition must address a matter of public concern. On certiorari review, the United States Supreme Court held that a government employer’s allegedly retaliatory actions against an employee do not give rise to liability under the Petition Clause unless the employee’s petition relates to a matter of public concern.  The Third Circuit’s conclusion that the public concern test does not limit public employees’ Petition Clause claims was incorrect.  A public employee suing his employer under the First Amendment’s Speech Clause must show that he spoke as a citizen on a matter of public concern.  Even where the employee makes that showing, however, courts balance his right to engage in speech against the government’s interest in promoting the efficiency and effectiveness of the public services it performs through its employees.  The substantial government interests that justify a cautious and restrained approach to protecting public employees’ speech are just as relevant in Petition Clause cases.  Guarnieri’s claim that applying the public concern test to the Petition Clause would be inappropriate in light of the private nature of many petitions for redress lacks merit. Although the Clause undoubtedly has force and application in the context of a personal grievance addressed to the government, petitions to the government assume an added dimension when they seek to advance political, social or other ideas of interest to the community as a whole. The framework used to govern public employees’ Speech Clause claims, when applied to the Petition Clause, will protect both the government’s interests and the employee’s First Amendment right.  Borough of Duryea, Pennsylvania v. Guarnieri, 22 Fla. L. Weekly Fed. S1176 (U.S., June 20, 2011). 

7.      U.S. SUPREME COURT DECIMATES WAL-MART CLASS ACTION: Current or former employees of Wal-Mart sought judgment against the company for injunctive and declaratory relief, punitive damages and backpay on behalf of themselves and a nationwide class of some 1.5 million female employees, because of Wal-Mart’s alleged discrimination against women in violation of Title VII of the Civil Rights Act of 1964.  They claimed that local managers exercised their discretion over pay and promotions disproportionately in favor of men, which had an unlawful disparate impact on female employees; and that Wal-Mart’s refusal to control its managers’ authority amounted to disparate treatment.  The District Court certified the class, finding that the employees satisfied Federal Rule of Civil Procedure 23(a) and Rule 23(b)(2)’s requirement of showing that the party opposing the class had acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief would be appropriate respecting the class as a whole.  The Ninth Circuit Court of Appeals substantially affirmed, concluding that the employees met Rule 23(a)’s commonality requirement, and that their backpay claims could be certified as part of a Rule 23(b)(2) class action because those claims did not predominate over the declaratory and injunctive relief requests.  The court of appeals also ruled that the class action could be manageably tried without depriving Wal-Mart of its right to present its statutory defenses if the District Court selected a random set of claims for valuation and then extrapolated validity and value of the untested claims from the sample set. On certiorari review, the U.S. Supreme Court reversed, holding that certification of the class was not consistent with Rule 23(a), which requires a party seeking class certification to prove that the class has common questions of law or fact.  Their claims must depend upon a common contention of such a nature that it is capable of classwide resolution -- which means that determination of its truth or falsity will resolve an issue that is central to validity of each one of the claims in one stroke.  Here, proof of commonality necessarily overlaps with the employees’ merits contention that Wal-Mart engages in a pattern or practice of discrimination. The conceptual gap between an individual’s discrimination claim and existence of a class of persons who have suffered the same injury must be bridged by significant proof that an employer operated under a general policy of discrimination. Such proof was absent here.  The only corporate policy that the employees’ evidence convincingly established is Wal-Mart’s policy of giving local supervisors discretion over employment matters.  The court also held that the employees’ backpay claims were improperly certified under Rule 23(b)(2), because claims for monetary relief may not be certified under that Rule, at least where monetary relief is not incidental to the requested injunctive or declaratory relief.  Wal-Mart Stores, Inc. v. Dukes, 22 Fla. L. Weekly Fed. S1167 (U.S., June 20, 2011). 

8.      LETS GET RADICAL, RAISE SOCIAL SECURITY: New York Times Op-Ed contributor Thomas Geoghegan, as a labor lawyer, cringes when Democrats talk of “saving” Social Security.  We should not “save” it, but raise it.  Right now Social Security pays only 39 percent of the average worker’s preretirement earnings.  While jaws may drop inside the Beltway, we could raise that to 50 percent.  We would still be near the bottom of the league of the world’s richest countries -- but at least it would be a basement with some food and air.  We have elderly people living on less than $10,000 a year.  Is that what Democrats want to “save?” Maybe we cannot afford it.  Oh, please:  we have a federal tax rate equal to nearly 15 percent of our Gross Domestic Product, far below the take in most wealthy countries.  The biggest crisis we face is that most of us have nothing meaningful saved for retirement.  A recent Harris poll found that 34 percent of Americans have nothing saved for retirement -- not even a hundred bucks.  In this lost decade, that percentage is sure to go up. At retirement, the lucky few with a 401(k) typically have $98,000.  As an annuity that is about $600 a month, not exactly an upper-middle-class lifestyle.  It is too late for Congress to come up with some new savings plan; there is no time.  We have to improve the one public pension program in place.  To “save” Social Security, most of us do not need to pay.  We could lift the cap on high earners, the 6 percent of workers who make over $106,800 a year.  If earnings above the cap were subject to the payroll tax with no increase in benefits to high earners, there would be no deficit in Social Security trust fund in 2037, as projected.  If people are willing to pay more just to “save” Social Security, they should be glad to pay more to raise it.  What does it take to get Social Security up to half the average worker’s earnings?  According to the National Academy of Social Insurance, to close the deficit and raise benefits to nearly half of average worker earnings, we would need to find an additional 5 percent of taxable payroll, or find the money elsewhere.  If we lift the cap on the payroll tax without paying more benefits to those above it, that gets us 2.32 percent.  Dedicating revenues from the estate tax at its 2009 levels to Social Security gets another half percent.  A few other tweaks, like covering new public employees, add another 0.42 percent.  The remainder can be found by raising the payroll tax by roughly 1 percent for both employees and employers.  Instead, Democrats are proposing to cut payroll taxes, supposedly to create jobs.  But the last cut in the payroll tax, a few months ago, led to little or no hiring.  And just wait until the Democrats accept some “reasonable” version of the Paul Ryan plan! A bigger pension -- a raise in Social Security benefits -- is the stimulus this demoralized country needs.  Come on, Democrats:  think of F.D.R., Robert Wagner, or heck, even Lyndon B. Johnson.  Let’s ask ourselves:  Who are we for?  Wow. 

9.      INDIGENT NONCUSTODIAL PARENT SUBJECT TO CHILD SUPPORT ORDER NOT AUTOMATICALLY ENTITLED TO COUNSEL AT CIVIL CONTEMPT PROCEEDINGS EVEN IF FACING INCARCERATION: After a South Carolina family court ordered Turner to pay $51.73 per week to Rogers to help support their child, Turner repeatedly failed to pay the amount due, and was held in contempt five times.  For the first four, he was sentenced to 90 days’ imprisonment, but he ultimately paid what he owed (twice without being jailed, twice after spending a few days in custody). The fifth time he did not pay but completed a 6-month sentence.  After his release, the family court clerk issued a new “show cause” order against Turner because he was $5,728.76 in arrears.  Both he and Rogers were unrepresented by counsel at his brief civil contempt hearing.  The judge found Turner in willful contempt, and sentenced him to 12 months in prison without making any findings as to his ability to pay or indicating on the contempt order form whether he was able to make support payments.  After Turner completed his sentence, the South Carolina Supreme Court rejected his claim that the U.S. Constitution entitled him to counsel at his contempt hearing, declaring that civil contempt does not require all constitutional safeguards applicable in criminal contempt proceedings. On review, the U.S. Supreme Court vacated and remanded. The Fourteenth Amendment’s Due Process Clause does not automatically require the State to provide counsel at civil contempt proceedings to an indigent noncustodial parent who is subject to a child support order, even if that individual faces incarceration.  In particular, that Clause does not require that counsel be provided where the opposing parent or other custodian is not represented by counsel and the State provides alternative procedural safeguards equivalent to adequate notice of the importance of the ability to pay, a fair opportunity to present, and to dispute, relevant information, and express court findings as to supporting parent’s ability to comply with the support order. In the circumstances, Turner’s incarceration violated due process because he received neither counsel nor benefit of alternative procedures.  He did not have clear notice that his ability to pay would constitute the critical question in his civil contempt proceeding.  Nobody provided him with a form (or the equivalent) designed to elicit information about his financial circumstances. And the trial court did not find that he was able to pay his arrearage, but nonetheless found him in civil contempt and ordered him incarcerated.  (Even though Turner had completed his 12-month sentence, and there were not alleged to be collateral consequences of the contempt determination that might keep the dispute alive, the case was not moot, because it was capable of repetition while evading review.) Turner v. Rogers, 22 Fla. L. Weekly Fed. S1188 (U.S., June 20, 2011). 

10.    NCUA SUES MORTGAGE-BACKED SECURITIES UNDERWRITERS: National Credit Union Administration Board, in its capacity as Liquidating Agent of several Federal Credit Unions, has sued J.P. Morgan Securities, as underwriter and seller, and several other financial institutions, as issuers, of certain residential mortgage-backed securities purchased by the credit unions. The action arose out of the sale of RMBS where J.P. Morgan acted as underwriter and/or seller of the RMBS. Virtually all of the RMBS sold to the credit unions were rated as triple-A (the same rating as U.S. Treasury bonds) at time of issuance. The issuer defendants issued and J.P. Morgan underwrote and sold the RMBS pursuant to offering documents that contained untrue statements of material fact or omitted to state material facts in violation of the Securities Act of 1933 and the Blue Sky laws of several states. NCUA expressly disclaimed and disavowed any allegation in the Complaint that could be construed as alleging fraud. The offering documents described the mortgage underwriting standards of the originators that made the mortgages that were pooled and served as collateral for the RMBS purchased by the credit unions. The offering documents represented that the originators adhered to the underwriting guidelines set out in the offering documents for mortgages in the pools collateralizing the RMBS. In fact, the originators had systematically abandoned the stated underwriting guidelines in the offering documents. Because mortgages in the pools collateralizing the RMBS were largely underwritten without adherence to the underwriting standards in the offering documents, the RMBS were significantly riskier than represented in the offering documents. Indeed, a material percentage of the borrowers whose mortgages made-up the RMBS were all but certain to become delinquent or default shortly after origination.  As a result, the RMBS were destined from inception to perform poorly. These untrue statements and omissions were material because the value of the RMBS was largely a function of the cash flow from the principal and interest payments on the mortgage loans collateralizing the RMBS. Thus, performance of the RMBS is tied to the borrower’s ability to repay the loan. The credit unions purchased the RMBS directly from J.P. Morgan by means of prospectuses or oral communications, thus making J.P. Morgan liable for material untrue statements and omissions of fact under the Securities Act of 1933 and the Blue Sky laws of several states. The credit unions purchased each RMBS pursuant to and traceable to registration statements containing untrue statements of material fact or that omitted to state material facts required to be stated therein or necessary to make the statements therein not misleading. J.P. Morgan was an underwriter for each of the securities, and is therefore liable under the Securities Act of 1933. The RMBS the credit unions purchased suffered a significant drop in market value, and the credit unions have suffered significant losses from those RMBS purchased despite NCUA’s mitigation efforts. NCUA requests the court to enter judgment in its favor against J.P. Morgan and the other defendants, jointly and severally, awarding all damages, in an amount to be proved at trial, costs and such other relief as the court deems appropriate and just. A jury trial has been demanded in the 15-count Complaint. (For the information of readers, National Credit Union Administration is an independent agency of the Executive Branch of the United States Government that, among other things, charters and regulates Federal Credit Unions, and operates and manages the National Credit Union Share Insurance Fund, which insures deposits of account holders in all Federal Credit Unions and the majority of state-chartered credit unions.) National Credit Union Administration Board v. J.P. Morgan Securities LLC, Case No. 11-cv-2341 (D. Kan.). 

11.    DIRECTORY OF IRS FSLG SPECIALISTS: Internal Revenue Service Office of Federal, State and Local Governments (http://www.irs.gov/gov/fslg), has specialists throughout the country. In Florida these specialists are 

Sheree Cunningham                       727.568.2505

Fernando Echevarria                       954.423.7406

Michael Moore                                 561.616.2092

Please let us know if you happen to utilize the services of an FSLG specialist, and if so, the results. 

12.    RAMBLINGS: Miscellaneous News: There is a new video on line of twin toddlers having a conversation with each other, even though they are speaking gibberish. Not a problem for us, though.  We can understand them perfectly, thanks to our latest purchase:  “Rosetta Stone: Charlie Sheen Edition.” 

13.    PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.):  The voices in my head may not be real, but they have some good ideas! 

14.    QUOTE OF THE WEEK:  “There ain’t no rules around here! We’re trying to accomplish something.” Thomas Edison

15.    ON THIS DAY IN HISTORY: In 1926, the College Board administers the first SAT exam. 

16.    KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items. Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources. 

17.    PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to the number of people who choose to enter a free subscription. Many pension board administrators provide hard copies in their meeting agenda. Other administrators forward the newsletter electronically to trustees. In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm. Thank you. 

 

 

 

 

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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