Klumb v. Houston Municipal Employees Pension System
Docket: No. 01-12-00511-CV
Court: Court of Appeals of Texas; May 23, 2013; Texas; State Appellate Court
The court's opinion addresses an appeal regarding the trial court's jurisdiction over a lawsuit filed by John Klumb and five other plaintiffs against the Houston Municipal Employees Pension System (HMEPS) and its board of trustees. The trial court dismissed the plaintiffs' claims, ruling in favor of HMEPS and the trustees based on a plea to the jurisdiction. The plaintiffs, along with the City of Houston, argue that the trial court erred, asserting that their suit is valid due to the trustees' ultra vires actions that violate Article 6243h of the Texas Revised Civil Statutes, and that the court has jurisdiction over their constitutional claims. However, the appellate court agrees with HMEPS and the trustees, affirming that the trial court lacks subject-matter jurisdiction over the claims presented.
HMEPS operates as a defined benefit pension plan, providing retirement benefits to eligible City of Houston employees under Article 6243h, which established the pension system and outlines the powers of its eleven-member Board of Trustees. The board is granted extensive authority to manage the pension fund, including adopting rules, interpreting the governing Act, correcting defects, determining eligibility, and maintaining necessary records. The board's decisions are final and binding on all parties, which includes members and the City. Additionally, the City is obligated to make periodic payments to HMEPS based on the salaries of the pension system members. In July 2011, the City and HMEPS entered into a "meet and confer agreement" concerning the City's contribution to HMEPS, a practice established under Article 6243h.
The City implemented a strategy to decrease its budgetary obligations by outsourcing services previously handled by City employees. This involved merging the Convention and Entertainment Facilities Department with the Houston Convention Center Hotel Corporation, which subsequently rebranded as Houston First Corporation. An Interlocal Agreement and Lease Agreement were established on July 1, 2011, allowing Houston First Corporation to manage various City-owned facilities, including theaters and convention centers.
The City aimed to transfer nearly all employees from its Convention and Entertainment Facilities Department to the newly formed Houston First Foundation, leaving only 39 employees behind. This transfer was intended to mitigate the City's pension obligations by asserting that the employees shifted would no longer be considered members of the Houston Municipal Employees Pension System (HMEPS).
Article 6243h, section 1(13) defines "member" as active employees in the pension system, excluding ineligible individuals, while section 1(11) outlines "employee" as anyone eligible under the Act who holds a municipal position, is on the full-time payroll, and receives a regular salary.
On August 25, 2011, the HMEPS pension board convened, where a motion to amend the HMEPS Pension Plan Document was approved by five trustees, with two votes against and two absences. The board chair signed the amended Pension Plan Document, which reiterated the definition of "employee" consistent with Article 6243h, including elected officials eligible under the pension terms.
The Pension Plan Document defines "Employee" to include full-time employees of a Texas local government corporation (LGC) controlled by the City, contingent upon a determination by the External Affairs Committee of the Board of Trustees. On October 6, 2011, the Board adopted a resolution stating that membership requirements in the Houston Municipal Employees Pension System (HMEPS) are governed by Article 6243h and the Meet and Confer Agreement from July 2011. The resolution affirms that employees of any LGC controlled by the City are deemed Employees for HMEPS membership unless explicitly determined otherwise by the External Affairs Committee. It clarifies that this designation does not apply to individuals covered by the Houston Firefighters Relief Retirement Fund or the Houston Police Officers Pension System, or any other ineligible employee.
On October 24, 2011, Convention and Cultural Services, Inc. (CCSI) was established as a Texas nonprofit corporation, aiming to support public facilities owned by the City. An attorney for the City communicated that, starting December 1, 2011, eligible employees from the Convention and Entertainment Facilities Department would transition to CCSI, with the exception of 39 employees nearing retirement with HMEPS. CCSI would function as an employee leasing company for Houston First Corporation, which would not employ CCSI personnel. CCSI would independently manage its employee benefits, including a 401(k) plan, and would not be part of any City benefit programs. Consequently, the City announced that all but 39 employees from the Convention and Entertainment Facilities Department would cease to be City employees and instead become CCSI employees, providing services to Houston First for managing City facilities.
Employees transitioning from the City to CCSI would perform the same roles but would have different employers and pension plan memberships. Consequently, the City would not be required to contribute to HMEPS for these employees. On November 17, 2011, HMEPS’s External Affairs Committee discussed this matter, resulting in a motion that these employees would remain part of the pension plan as a control group. Prior to November 30, 2011, six employees notified the City of their termination, transitioning to CCSI on December 1, 2011. Klumb, McClelland, and Montejano applied for retirement benefits from HMEPS, claiming eligibility under Article 6243h due to their termination and meeting retirement criteria. HMEPS denied these applications, asserting that the individuals remained municipal employees based on the July 2011 Pension Plan Document. Gonzalez, Robles, and Pilgrim did not seek retirement benefits but claimed entitlement to defer their retirement status, a position supported by the City. HMEPS disagreed, insisting that all three remained City employees and required to continue contributions to HMEPS.
Klumb, McClelland, Montejano, Gonzalez, Robles, and Pilgrim (collectively, Plaintiffs) initiated legal action against HMEPS, claiming constitutional violations and breach of contract, as well as seeking a declaratory judgment. They contended that HMEPS's classification of them as City employees violated Article 6243h and a provision of the Internal Revenue Code, asking the court to declare their status as non-City employees and seeking monetary damages. In response, HMEPS filed a plea asserting that the trial court lacked subject-matter jurisdiction for the declaratory judgment, arguing that Article 6248h does not allow judicial review of board decisions, particularly regarding Article 6243h interpretations, and claimed immunity from the breach of contract and constitutional claims.
Subsequently, Plaintiffs amended their petition to include five members of HMEPS's board of trustees (the Trustees), alleging that they committed ultra vires acts by improperly amending the Pension Plan and defining the Plaintiffs as "employees," contrary to Article 6243h. Plaintiffs sought both declaratory and injunctive relief against the Trustees for their actions, which included adopting an amendment that allegedly disqualified the Pension Plan under the Internal Revenue Code. Additionally, Klumb, McClelland, and Montejano claimed violations of equal protection and due course of law under the Texas Constitution, asserting that HMEPS treated them differently from past employees regarding retirement benefits and unlawfully attempted to seize their salary contributions. All Plaintiffs claimed a violation of their due course of law rights related to vested retirement benefits.
The City intervened in a lawsuit, aligning with Plaintiffs who alleged that the Trustees acted beyond their authority in violation of Article 6243h. The City sought both injunctive and declaratory relief. HMEPS, along with the Trustees, filed an amended plea asserting that the case stemmed from the pension board's interpretation of Article 6243h regarding the definition of "employee." They contended that the trial court lacked subject-matter jurisdiction since the board's interpretation is final and not subject to judicial review. HMEPS claimed that Plaintiffs' allegations of ultra vires acts were merely an attempt to reframe statutory misinterpretation claims to establish jurisdiction and argued that sovereign immunity barred the Plaintiffs' constitutional claims.
Following a hearing, the trial court granted the plea to the jurisdiction, dismissing the claims for lack of jurisdiction. The Plaintiffs subsequently appealed, raising ten issues: the first eight challenge the trial court’s jurisdiction ruling, the ninth contests an evidentiary ruling that struck a supporting affidavit, and the tenth disputes the denial of a motion for continuance.
Key legal standards include that subject-matter jurisdiction is essential for a court's authority to adjudicate, with the burden on the plaintiff to demonstrate such jurisdiction through factual allegations. The plea to the jurisdiction may be raised to contest this jurisdiction, and its resolution is a matter of law reviewed de novo. The court must assess the pleadings and relevant evidence without weighing the merits of the claims. If evidence raises a factual dispute regarding jurisdiction, it must be resolved by the trier of fact; otherwise, the court rules on the plea as a matter of law.
Plaintiffs argue that the trial court improperly granted a plea to the jurisdiction regarding their ultra vires claims for declaratory and injunctive relief, challenging the board of trustees' compliance with Article 6243h. They assert that the court has subject-matter jurisdiction based on City of El Paso v. Heinrich, which states that ultra vires claims against state officials are not barred by sovereign immunity. The Trustees counter that their plea did not invoke sovereign immunity but claimed the trial court lacked jurisdiction because trustees possess exclusive authority to interpret Article 6243h and make benefits decisions, which are not subject to judicial review. They reference Houston Municipal Employees Pension System v. Ferrell, where the Texas Supreme Court ruled that claims for declaratory and injunctive relief challenging a board's benefits decision are not reviewable unless explicitly allowed by statute or if a constitutional right is violated. The Ferrell case emphasized that the pension board's determinations under Article 6243h are final and binding, and as such, the trial court cannot grant the relief sought by the plaintiffs, leading to a lack of jurisdiction.
Trustees interpret the ruling in Ferrell to indicate that ultra vires suits cannot be pursued against pension board members. Appellants argue that Ferrell is not relevant here, as it only involved allegations of misinterpretation of a statute, whereas they claim that the Trustees violated Article 6243h by improperly amending the statute without following legal procedures. Heinrich is cited as relevant, demonstrating that government officials can be sued for ultra vires acts that require compliance with statutory or constitutional provisions. An ultra vires act is defined as one where an official acts without legal authority or fails to perform a mandatory duty, as opposed to exercising discretion. The court agrees that agency officials are not insulated from ultra vires claims if they act beyond their authority. These claims target the individual officials, not the agency itself, and seek to reassert state control rather than exert control over it. Therefore, pension board members can face lawsuits for actions outside their statutory authority or for failing to perform required acts. This does not contradict Ferrell, which did not address explicit ultra vires claims against board members. However, if Appellants are merely recasting a challenge to a legally authorized act as an ultra vires claim, Ferrell limits judicial review of such actions unless a constitutional violation is asserted, as there is no statutory provision for judicial review of agency actions under Article 6243h.
Appellants allege that the Trustees acted without legal authority by unilaterally amending the definition of "employee" in Article 6243h without following the required meet and confer agreement under Section 3(n). They request the court to declare the Trustees' actions from the August 25, 2011 motion as illegal due to this failure. The original definition in Article 6243h, section 1(11) includes individuals eligible under the Act, specifically noting municipal employees and those on the city's payroll. The pension board subsequently added language to include full-time employees of a Texas local government corporation controlled by the City, contingent upon a determination by the External Affairs Committee.
The court finds that the pension board had the authority to amend the definition as Article 6243h, section 2(x) allows the board to interpret, correct defects, and supply omissions for effective administration of the Act. The argument that the added language constitutes an impermissible amendment, conflicting with statutory definitions, would require judicial interpretation of the statute, which courts lack jurisdiction to undertake. Furthermore, while Section 3(n) enables the pension board to enter into agreements with the City regarding pension issues, it does not mandate such agreements for actions permitted by the statute itself. Thus, the Trustees acted within their legal authority in augmenting the definition of "employee."
The statute grants the pension board the discretion to interpret and supplement the pension system statute without requiring a meet and confer agreement. Appellants argue that past meet and confer agreements, which modified statutory definitions, imply the necessity of such agreements for the pension board to amend definitions. However, the statute does not impose this requirement, allowing the board to act within its authority to clarify the definition of "employee." The appellants also claim that the board's supplementary language constitutes an "amendment" of the statute, a power reserved for the legislature. Despite the terminology used in past agreements, the board acted legitimately under Article 6243h. The board's approval of amendments to the HMEPS Pension Plan Document is linked to its authority to prepare and maintain the document as per the statute, which allows for rule adoption and interpretation of summaries. Trustee Barbara Chellette's affidavit supports that the plan document reflects the board's interpretations and is updated to align with relevant IRS guidelines and changes. Thus, the pension board has the authority to amend the pension plan document as necessary.
Appellants argue that affidavits submitted as jurisdictional evidence raise a factual dispute. Each Trustee provided an affidavit stating that during the August 25, 2011 meeting, the board sought to "interpret" the status of City employees under Article 6243h, section 1(11) concerning transfers to local government corporations, clarifying they did not vote to "amend" the statute. In contrast, Plaintiff Craig Mason, who voted against the proposed amendments, testified that the board discussed concerns regarding the definition of "employee" and the implications for former City employees transitioning to a local government corporation. Mason noted that the discussion centered on amending the definition to include these employees, not on clarifying or interpreting the existing definition. The Trustees moved to strike Mason's affidavit, arguing its irrelevance and the presence of inadmissible legal conclusions. The trial court upheld this motion, determining the affidavit contained impermissible legal conclusions and was not relevant. On appeal, Appellants claim the trial court abused its discretion by striking Mason's affidavit, arguing that the differing accounts of whether the board was "interpreting" or "amending" the definition of "employee" present a factual issue that should prevent the granting of the Trustees’ plea to the jurisdiction.
To ascertain if the Trustees acted ultra vires, the key issue is whether they exceeded their authority by expanding the definition of "employee" under Article 6243h to include local government corporation employees. It was determined that the Trustees had the authority to do so, as Article 6243h allows the pension board to interpret the statute and correct defects or inconsistencies to benefit all members. This conclusion is grounded in statutory construction, a legal question rather than a factual one. The subjective views of board members regarding whether the action constituted an "amendment" or "interpretation" do not create a factual dispute. Consequently, an affidavit by Mason regarding the Trustees' authority was deemed immaterial and its exclusion by the trial court was not erroneous, as it did not affect the legal determination, rendering any alleged error harmless.
The Trustees’ decision to supplement the employee definition was thus lawful and not an ultra vires act, contrary to the Appellants' claims. Additionally, since the legislature did not grant the trial court the authority to review the board's decision or provide the requested declaratory and injunctive relief, the court lacks jurisdiction over the claims presented by the Appellants.
Regarding the adoption of the October 6, 2011 resolution, the Plaintiffs assert that the Trustees acted without authority by allowing the External Affairs Committee to determine employee qualifications. While Article 6243h, section 3(k) does grant the pension board the power to delegate responsibilities, the Plaintiffs argue that a July 2011 Meet and Confer Agreement modifies this section, stripping the board of the authority to delegate membership decisions.
Plaintiffs cite a provision in the meet and confer agreement stating that committees can only make recommendations to the Board, except for meet and confer and personnel decisions. They also reference a clause indicating that certain writings within the agreement supersede provisions of Article 6243h, with prior agreements indicating that specific provisions of Article 6243h are "amended" by the agreement. However, Section 3(k) is not explicitly mentioned as amended in the Meet and Confer Agreement. The Trustees argue that the meet and confer agreement is a contract, referencing case law that establishes that a government official's noncompliance with a contract cannot lead to an ultra vires claim. While declaratory-judgment suits against state officials acting without authority are permissible, suits seeking to enforce a contract's validity or impose liabilities are not allowed as ultra vires claims against officials. Plaintiffs counter that the case law does not apply to Article 6243h, which they believe can be amended by agreement per Section 3(n), allowing the pension board and the City to resolve pension issues contractually. However, this section does not explicitly permit amendment of the statute itself. The characterization of provisions in the meet and confer agreements as amendments affects the contractual duties but does not amend Article 6243h. The court concludes that the alleged violation of the Meet and Confer Agreement does not support an ultra vires claim and that the claims do not provide the trial court with subject-matter jurisdiction for the requested declaratory or injunctive relief.
Plaintiffs alleged that the Trustees acted beyond their authority (ultra vires) by interpreting Article 6243h and the Pension Plan in a manner that does not comply with the qualification requirements of Section 401 of the Internal Revenue Code. They sought a court injunction against what they deemed an illegal amendment to the Pension Plan that jeopardizes its tax-qualified status. Article 6243h, section 3(m), emphasizes that the pension system should be construed to ensure the plan qualifies under Section 401(a) of the Internal Revenue Code. The statute mandates that any interpretation by the pension board must adhere to these qualification requirements.
While the pension board classified the Plaintiffs as government employees for pension purposes, Appellants contended this classification was erroneous, leading to a violation of Article 6243h’s compliance requirements. Determining whether the Trustees violated compliance necessitates a court's substantive evaluation of the pension board's discretionary authority regarding employee definitions. Article 6243h grants the Trustees this authority, making their decisions discretionary rather than ultra vires, and thus not subject to judicial review unless explicitly allowed by statute. Consequently, the trial court lacked jurisdiction to assess whether an ultra vires act occurred regarding the Trustees' interpretation of Article 6243h, leading to the dismissal of the Appellants' claims.
Plaintiffs also claimed violations of their equal protection and due course of law rights under the Texas Constitution. However, HMEPS argued it retains immunity from these claims as they were not adequately pled. The equal protection claim specifically cited the Texas Constitution's provision for equal rights and the prohibition against exclusive public privileges without consideration of public service.
HMEPS is alleged to be treating Plaintiffs Klumb, McClelland, and Montejano differently than other individuals who have left City employment for entities with business ties to the City, as those individuals continue to receive retirement benefits from HMEPS. This disparate treatment has caused damage to the plaintiffs. Equal protection claims under the Texas constitution are analyzed similarly to federal claims. The Texas equal-protection clause mandates that similarly situated individuals be treated alike, and if no suspect classification or fundamental right is involved, disparate treatment is permissible if rationally related to a legitimate government purpose.
If a plaintiff's constitutional claim is found to be facially invalid, the court must grant governmental immunity to entities like HMEPS. Equal protection does not require that a government entity articulate a rationale for its classifications; rather, the government action is valid as long as a rational basis can be conceived, even if it was not explicitly considered by the decision-maker. HMEPS claims a rational basis for treating the plaintiffs as City employees, asserting the need to preserve pension funding by ensuring the City fulfills its financial obligations to HMEPS. By classifying Klumb and his colleagues as covered employees who must continue contributing to the pension system, HMEPS aims to protect its funding for future benefit obligations.
Preservation of funding sources is deemed a valid rationale for the alleged disparate treatment in this case, as established by precedent recognizing the legitimacy of treating pensioners differently to protect pension funds. Consequently, Plaintiffs Klumb, McClelland, and Montejano have failed to establish a viable equal-protection claim, affirming HMEPS's immunity from suit and the trial court's decision to grant HMEPS’s plea to jurisdiction on this claim.
Regarding the due course of law claim, Plaintiffs argue that the Texas Constitution prohibits deprivation of rights without legal process, asserting their entitlement to payments from vested retirement accounts upon termination. HMEPS's refusal to pay these benefits is claimed to be an unlawful taking. However, HMEPS counters that the Plaintiffs lack a vested property interest necessary for a valid due-course-of-law claim, referencing case law that stipulates the absence of a vested right in statutory pension plans. The court concurs, indicating that Plaintiffs do not possess a vested property right in the retirement benefits in question, thereby negating jurisdiction over their due-course-of-law claim. Additionally, the Plaintiffs allege a property right in five percent of their salaries intended for pension contributions, which HMEPS seeks to withhold.
HMEPS clarifies that contributions to the pension system are paid by the City rather than the employees, as outlined in the Benefits Handbook presented by the Plaintiffs. The handbook indicates that HMEPS members do not make employee contributions; instead, the City funds these contributions directly from its treasury. This arrangement is supported by Article 6243h, section 8(c), which mandates that the City pays these contributions from the same funds used for employee salaries, effectively treating the contributions as public money. HMEPS references the case Devon v. City of San Antonio, stating that deductions from employees' wages remain public money and do not constitute private property of the employees. Consequently, the court agrees with HMEPS, concluding that Plaintiffs lack a property right in the pension contributions, which undermines their due-course-of-law claim and affirms HMEPS’s immunity from such claims. The trial court's decision to grant HMEPS’s plea to the jurisdiction is upheld, dismissing the Plaintiffs' related issues.
Regarding the Plaintiffs' tenth issue, they argue that the trial court abused its discretion by denying their motion for a continuance to conduct additional jurisdictional discovery. The court applies an abuse-of-discretion standard to such decisions and may only reverse if the trial court's ruling is deemed arbitrary or unreasonable. Here, the court finds no abuse of discretion, as it reasonably concluded that further discovery was unnecessary for resolving jurisdictional matters, which were based on statutory language and existing documents, including the Benefits Handbook provided by the Plaintiffs. The Plaintiffs sought to depose Trustees regarding their affidavits on the board's interpretation of employee definitions and obtain related documentation. However, the court determined that the existing evidence sufficed to address the jurisdictional issues at hand.
Subjective views of board members do not affect the legal determination of whether their actions were ultra vires under the statute. Plaintiffs sought discovery to compare their situation with employees of other legal entities, but their equal-protection claim fails under rational-basis analysis without establishing that others are similarly situated. The court found that no additional discovery was necessary to resolve the jurisdictional plea and upheld the trial court's decision to deny the Plaintiffs’ motion for continuance. The judgment affirmed the trial court's granting of HMEPS and the Trustees’ plea to the jurisdiction, dismissing the Appellants' claims. Article 6243h applies solely to cities with populations over 1.5 million, applicable only to Houston. The suit was filed as a class action but was never certified as such. Judicial review of agency actions can occur before exhausting administrative remedies if the agency acts beyond its statutory powers. Appellants argued that Trustees engaged in ultra vires conduct by not paying certain pension benefits and misclassifying employees, but the court determined that the Trustees acted within their authority, as they were permitted to supplement the definition of employee to include local government corporation employees. These pension decisions are not subject to judicial review, and the City did not argue otherwise.
