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Cypen & Cypen
NEWSLETTER
for
AUGUST 18, 2011

Stephen H. Cypen, Esq., Editor

1.      OBAMA CARE INDIVDUAL MANDATE DECLARED UNCONSTITUTIONAL, BUT SEVERABLE: Soon after Congress passed the Patient Protection and Affordable Care Act, amended by Health Care and Education Reconciliation Act of 2010, 26 states, private individuals and National Federation of Independent Business brought suit challenging the Act’s constitutionality. The district court granted summary judgment (1) to the government on the state plaintiffs’ claim that the Act’s expansion of Medicaid is unconstitutional and (2) to the plaintiffs on their claim that the Act’s individual mandate – that individuals purchase and continuously maintain health insurance from private companies -- is unconstitutional.  The district court concluded that the individual mandate exceeded congressional authority under Article I of the Constitution, because it was not enacted pursuant to Congress’s tax power and it exceeded Congress’s power under the Commerce Clause and the Necessary and Proper Clause. The district court also concluded that the individual mandate provision was not severable from the rest of the Act, and declared the entire Act invalid. The government appealed the district court’s ruling that the individual mandate is unconstitutional and its severability holding.  The state plaintiffs cross-appealed the district court’s ruling on their Medicaid expansion claim. The Court of Appeals affirmed in part and reversed in part. First, the court concluded that the Act’s Medicaid expansion is constitutional.  Existing Supreme Court precedent does not establish that Congress’s inducements are unconstitutionally coercive, especially when the federal government will bear nearly all costs of the program’s amplified enrollments. Second, the individual mandate was enacted as a regulatory penalty, not a revenue-raising tax, and cannot be sustained as an exercise of Congress’s power under the Taxing and Spending Clause.  The mandate is denominated as a penalty in the Act itself, and the legislative history and relevant case law confirm this reading of its function. Further, the individual mandate exceeds Congress’s enumerated commerce power and is unconstitutional.  This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority:  the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them re-purchase that insurance product every month for their entire lives.  The court could not find any generally applicable, judicially enforceable limiting principle that would permit it to uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers.  “Uniqueness” is not a constitutional principle in any antecedent Supreme Court decision. The individual mandate also finds no refuge in the aggregation doctrine, for decisions to abstain from purchase of a product or service, whatever their cumulative effect, lack a sufficient nexus to commerce. The individual mandate, however, can be severed from the remainder of the Act’s myriad reforms.  The presumption of severability is rooted in notions of judicial restraint and respect for separation of powers in the constitutional system.  The Act’s other provisions remain legally operative after the mandate’s excision, and the high burden needed under Supreme Court precedent to rebut the presumption of severability has not been met. The two-judge 207-page majority declined to respond to the one-judge 87-page dissenting opinion, other than summarizing it as follows: 

Our respected dissenting colleague says that the majority: (1) “has ignored the broad power of Congress;” (2) “has ignored the Supreme Court’s expansive reading of the Commerce Clause;” (3) “presume[s[ to sit as a superlegislature;” (4) “misapprehends the role of a reviewing court;” and (5) ignores that “as nonelected judicial officers, we are not afforded the opportunity to rewrite statutes we don’t like.” 

We reported the lower court decision (see C&C Newsletter for February 3, 2011, Item 1). State of Florida v. United States Department of Health and Human Services, Case Nos. 11-11021 and 11-11067 (U.S. 11th Cir., August 12, 2011). 

2.      FLORIDA SUES BANK OF NEW YORK MELLON ON OVERCHARGED FOREIGN EXCHANGE FEES: Florida’s Attorney General has sued Bank of New York Mellon, accusing it of breaching its fiduciary duty by overcharging the Florida Retirement System’s $130 Billion defined benefit plan millions of dollars for foreign exchange fees. Florida State Board of Administration, according to a pionline.com report, filed the suit in Leon County Circuit Court in Tallahassee, but did not quantify the alleged overcharges. The suit does allege BNY Mellon used false prices for foreign exchange, adding hidden spreads, including markups and markdowns, to foreign exchange trades rather than pricing trades at the exchange rates at which the transactions were actually executed. As a result, FRS paid far more than it should have for buys and received much less than it should have for sells. Understandably, SBA is searching for a new custodian (although BNY Mellon was recently named a finalist!) 

3.      TEAMSTERS LOCAL CHALLENGES FLORIDA PENSION LAW: Teamsters Local 79 has filed a lawsuit against the State of Florida over changes to the Florida Retirement System requiring employees to contribute 3 percent of their salaries into the state pension fund, effective July 1, 2011. The Teamsters’ legal action contends such contribution is unconstitutional, because requiring a 3 percent contribution from employees impairs collective bargaining agreement between the Citrus County School Board and Tampa-based Teamsters Local 79. Plaintiffs asked the court permanently to enjoin the school board from taking 3 percent from Teamster members’ paychecks.  According to the CBA, Florida Retirement System participation will not cost school board employees anything. The new laws contradicts this provision, requiring contributions that costs employees 3 percent of their pay, thus impairing contracts in violation of the Florida Constitution. (See C&C Special Supplement for May 12, 2011.)

4.      ILLINOIS PENSION CRISIS OVERSTATED: Responding to an rrstar.com editorial that suggests a doomsday looms for Illinois’s public pension systems, Dick Ingram, executive director of the Teachers’ Retirement System of Illinois, says nothing could be further from the truth. Unfortunately, the editorial was based on an outdated Northwestern University academic study that used assumptions applied to 2009 data to predict that the state’s pension funds will run dry in 2018.  That study created a scenario about what would happen if the funds were deprived of all income after 2009. In 2011, Barclay’s Capital, a respected international investment bank, issued a report that reaches a much different conclusion, using actual data from the Illinois pension systems.  Using current financial information, Barclay’s found the state’s pension systems will be in business for decades beyond 2018. Teachers’ Retirement System, the state’s largest public pension plan with 372,000 members, has $37 Billion in assets.  TRS is meeting its long-term investment targets, and receives regular contributions from its members. In recent years, state government has demonstrated a commitment to pay the full statutory contributions designed to ensure the system’s long-term viability. The article failed to mention that the pension funds’ unfunded liability is the long-term total of what is owed current retirees and active public employees for the next several decades. Because active employees cannot collect a pension, the total unfunded liability never comes due at one point in time. TRS has carried an unfunded liability on its books since at least 1953, and has never once missed a pension check to retirees. Studies have shown that converting Illinois’s pension system to a 401(k)-style plan would come with significant upfront costs, and that these plans are less cost-effective on an annual basis than the current pension plan. As many readers no doubt know, 401(k) plans were never intended to be a primary source of retirement income, and do not guarantee a safe retirement for seniors. 

5.      MERRY WIDOWS DUKE IT OUT OVER SURVIVOR’S BENEFITS: Shortly after a young inmate killed her prison guard husband, Julia Ann Hesson filed for survivor’s benefits.  But, tampabay.com reports, the woman did not expect the response from the Public Safety Officers’ Benefits Office, an office that dispenses death benefits to families of law enforcement officers killed in the line of duty. The agency denied Hesson’s claim, saying another woman deserved the benefit award of more than $150,000. The other woman’s name is Julie Keady Hesson, who married William Hesson in 1995.  After the couple split up four years later, Julie filed for divorce, but never served William with papers and, thus, they were never divorced. Now comes Julia Ann Bernhardt, whom William married in 2004, subsequently fathering two children. Both women made their case to the Public Safety Officers’ Benefits Office, which determined Julie was a surviving spouse. Now, in a rather unique move, Julia has filed a pure bill of discovery in Florida state court, attempting to obtain evidence that would show that Julie behaved as if she were divorced. We assume that Julia has also preserved her rights by seeking direct review of the PSOB ruling. Prediction: regardless of whether Julie held herself out as being divorced, she wins because Julia’s purported marriage was bigamous. Julie and Julia? Sounds like the title of a film. 

6.      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.):  When tempted to fight fire with fire, remember that the Fire Department usually uses water. 

7.      QUOTE OF THE WEEK: “Anyone who has never made a mistake has never tried anything new.” Albert Einstein 

8.      ON THIS DAY IN HISTORY: In 1930, Eastern Airlines begins passenger service. 

9.      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. 

10.    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.

Copyright, 1996-2011, all rights reserved.

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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