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BlogsPublications | October 28, 2016
3 minute read

COA doubles down, holding that Pontiac emergency manager’s order eliminating retiree benefit contributions is not retroactive

Lawmakers must be crystal-clear if they want their actions to have retroactive effect, said the Michigan of Court of Appeals in its second encounter with Board of Trustees of the City of Pontiac Police & Fire Retiree Prefunded Group Health & Insurance Trust v. City of Pontiac, No. 316418.  We analyzed the court’s original decision over 18 months ago. A remand order from the Michigan Supreme Court yielded a more focused analysis by the Court of Appeals, but the ultimate result, rejecting the retroactive effect of an order eliminating benefit contributions, was the same.

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. The City’s 2012 fiscal year contribution, in an amount just under $4 million, was due on or before June 30, 2012. On August 1, 2012, the City’s emergency manager issued Executive Order 225, which terminated the City’s obligation to make contributions to the Trust with “immediate effect.”

The Trust’s board of trustees (the “Board”) brought an action against the City alleging that its failure to make the required contribution for fiscal year 2012 violated the constitution, an ordinance, and collective bargaining agreements between the unions and the City. The trial court granted summary disposition in favor of the City. The Court of Appeals affirmed dismissal of the constitutional and ordinance violation claims, but held that Order 225 did not, by its terms, retroactively eliminate the City’s required contribution for fiscal year 2012.

After holding oral argument on the City’s application for leave to appeal, the Supreme Court reversed the Court of Appeals ruling in part and remanded it for further proceedings. The Supreme Court directed the Court of Appeals to consider whether Order 225 was a permissible retroactive modification of the Board’s accrued right to the contribution under LaFontaine Saline, Inc. v. Chrysler Group, LLC, 496 Mich. 26 (2014).

The Supreme Court in LaFontaine articulated four principles to consider when deciding whether legislation may permissibly be applied retroactively: (1) whether there is specific language providing for retroactive application; (2) a statute is not regarded as operating retroactively merely because it relates to an antecedent event; (3) retroactive laws impair vested rights acquired or create new duties with respect to transactions already past; and (4) a remedial or procedural act not affecting vested rights may be given retroactive effect where the claim is antecedent to the enactment of the statute.

First, the Court of Appeals determined that LaFontaine, which concerned legislation, applies to executive orders. Citing Michigan Supreme Court precedent, it reasoned that retroactivity is primarily a matter of interpretation and that executive orders are interpreted similarly to statutes.

Applying the four principles of LaFontaine, the court prohibited retroactive application of Order 225 to extinguish the City’s accrued but unpaid contribution to the Trust for fiscal year 2012. It reasoned that Order 225 does not contain, as required under Michigan case law, “clear, direct, and unequivocal” language providing for its retroactive application and that its retroactive application would impair or abolish the Board’s vested right to prosecute its accrued cause of action for breach of contract. (The court found that the second LaFontaine principle was inapplicable to the facts of the case.) The court therefore reversed the trial court’s dismissal of the Board’s breach of contract claim and remanded it for further proceedings.