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October 05, 2015

MSC to hear MOA on meaning of order that eliminated retiree benefit contributions

The Michigan Supreme Court granted oral argument on the application for leave to appeal in Board of Trustees of the City of Pontiac Police & Retiree Prefunded Group Health & Insurance Trust v. City of Pontiac, No. 151717, to address the meaning of language contained in the City of Pontiac’s Emergency Manager’s Executive Order No. 225.  That order amended the City of Pontiac’s contributions to the Retiree Prefunded Group Health and Insurance Trust.  The Trust sued to force the continuation of contributions for the fiscal year ending on June 30, 2012, lost on summary disposition in the circuit court, and won in the Court of Appeals. The Michigan Supreme Court will resolve whether the Emergency Manager’s order had retroactive effect to excuse contributions in the 2012 fiscal year.
 
In 1996, the City of Pontiac Police & Fire Retiree Prefunded Group Health & Insurance Plan (the “Trust”) was formed to hold and invest City contributions to pay for retirees’ health and life insurance.  Under the Trust agreement, the City was obligated to contribute annually to the Trust, in an amount determined by an actuary, to allow the Trust to pay the expenses for all eligible retirees.  For the City’s 2012 and 2013 fiscal year projections, that amount was just under $4 million per year.  On August 1, 2012, the City’s emergency manager issued Executive Order 225, terminating the City’s obligation to make contributions to the Trust.
 
The Trust’s Board of Trustees (the “Board”) brought an action against the City alleging that Executive Order 225 violated the Michigan Constitution, a city ordinance, and collective bargaining agreements between unions and the City.  The trial court granted summary disposition in favor of the City.  The Board appealed.
 
The Court of Appeals first dealt sua sponte with the suspension—and subsequent repeal—of the emergency manager law under which Order 225 was issued.  That law, Public Act 4, was suspended one week after Order 225 was issued.  Voters then repealed Public Act 4 in the 2012 general election.  But MCL 8.4a provides that the repeal of a statute does not release or relinquish any penalty, forfeiture, or liability incurred under the statute, unless the repealing act expressly says so.  The Court of Appeals, therefore, held that the emergency manager’s order survived the repeal of Public Act 4.
 
The Board argued that the City breached a contract when it failed to make its fiscal year 2012 contribution to the Trust by June 30, 2012.  The uncontroverted facts showed that the City had not made any contribution for fiscal year 2012.  Therefore, it breached the Trust agreement.  But the City argued that Order 225 had retroactive effect, relieving the City’s obligation to make a contribution for 2012.  The City’s problem: the plain language of Order 225 was not retroactive.  While the emergency manager was empowered to amend the Trust agreement, the order stated that the Trust was “amended to remove . . . obligations of the City to continue to make contributions to the Trust.” The Court of Appeals held that Order 225 was validly issued, but that it did not retroactively eliminate the City’s required contribution for fiscal year 2012.
 
The Michigan Supreme Court ordered the parties to address the meaning of “to continue to make contributions,” contained in Order 225.

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