portland, oregon - bennett, hartman, morris & … · portland, oregon in the circuit court of...

HARRANG LONG GARY RUDNICK PC

360 East 10th Ave. Suite 300

Eugene, OR 97401 Phone 541-485-0220 Fax 541 -6864564

BENNETT HARTMAN MORRIS &'KAPLAN, LL'P

Sw-- a* PORTLAND, OREGON

IN THE CIRCUIT COURT OF THE STATE OF OREGON

FOR THE COUNTY OF MULTNOMAH

URSULA WHITE, BRUCE N. REITER, and MARGARET RETZ,

Plaintiffs, v.

PUBLIC EMPLOYEES RETIREMENT BOARD,

Defendant, and

STATE OF OREGON, LANE COUNTY, CITY OF EUGENE, MULTNOMAH COUNTY, CITY OF PORTLAND, CITY OF ROSEBURG, CITY OF HUNTINGTON, CANBY UTILITY BOARD, and ROGUE RIVER VALLEY IRRIGATION DISTRICT,

Intervenors.

URSULA WHITE, BRUCE N. REITER, and MARGARET RETZ,

Petitioners, v.

PUBLIC EMPLOYEES RETIREMENT BOARD,

Respondent, and

STATE OF OREGON, LANE COUNTY, CITY OF EUGENE, MULTNOMAH COUNTY, CITY OF PORTLAND, CITY OF ROSEBURG, CITY OF HUNTINGTON, CANBY UTILITY BOARD, and ROGUE RIVER VALLEY IRRIGATION DISTRICT,

Intervenors.

Case No.: 0404-041 18

LOCAL GOVERNMENT INTERVENORS' MEMORANDUM IN SUPPORT OF MOTIONS FOR SUMMARY JUDGMENT

Case No.: 041 1-1 1848

26 HARRANG

LONG GARY RUDNlCK PC


Eugene. OR 97401 Phone 541-4850220

Fax 541 -686-6564

TABLE OF AUTHORITIES

Cent. States Se. and Sw. Areas Pension Fund v. Cent. Transp., 472 US 559, 105 S Ct 2833 (1985) .......................................................................................... 18

City of Eugene v. State of Oregon, 341 Or 120, 137 P3d 1288 (2006) ................................................................................... 3-4, 13

City of Eugene v. State of Oregon, 339 Or 113, 117 P3d 1001 (2005) ............................................... 3, 8-10, 13, 20, 22, 27, 34, 36

Cogdell v. Fort Worth Nut ' I Bank, 544 SW2d 825 (Tex App 1976) ............................................................................................... 24

First Commerce of America v. Nimbus Center Assoc., 329 Or 199, 986 P2d 556 (1999) ............................................................................................... 4

Hawes v. State, 203 Or App 255, 125 P3d 778 (2005) ...................................................................................... 16

In re Ludeke, 54 NYS 121, 33 AD 397 (1898) .............................................................................................. 24

In re Strome, 214 Or 158, 327 P2d 414 (1958) ....................................................................................... 2 1 37

Jones v. General Motors Corp., 325 Or 404, 939 P2d 608 (1997) ............................................................................................. 15

Jones v. Jones, 297 Mass 198, 7 NE2d 1015 (1937) ........................................................................................ 24

Masters v. Bissett, 101 Or App 163, 790 P2d 16 ( 1 990) ...... ...... .. . ... .. ........ . .... ... . . . . . . . . . . . . . . . . . . 1 9

Mendieta v. State, 148 Or App 586, 941 P2d 582 (1997) ...................................................................................... 37

Multnomah County v. Talbot, 56 Or App 235, 641 P2d 617 (1982) ........................................................................................ 32

OPEU Local 503, SIEU v. Judicial Dept., 142 Or App 169, 919 P2d 1200 (1996) ....... .... . ....... ..... ... .. . .... . . . . . . . . . , . . . . . . . . . . 1 6

I


360 East lOlh Ave. Suite 300

Eugene. OR 97401 Phone 541-485-0220

Fax 541 -686-6564

Oregonian Newspaper Pub. v. Peterson, 244 Or 1 16, 4 15 P2d 2 1 ( 1 966) ... . ... ...... ... .. .... .... .. .. .. .. ... .. . . . . . . . . . . . . . . . . . . . . 33-34

Pelege v. Chrysler, 278 Or 223, 563 P2d 701 ( 1 977) ............................................................................................. 15

PETA v. Institutional Animal Care and Use Comm. of the Univ. Of Oregon, 3 12 Or 95, 8 17 P2d 1299 (1991) ..................................................................................... 32-33

Premier Tech. v. Oregon State Lottery, 136 Or App 124, 901 P2d 883 (1995) ...................................................................................... 37

Rowe v. Rowe, 219 Or 599, 347 P2d 968 (1959) ................................................................................. 21, 24, 37

Seven G Ranching Co. v. Stewart Title & Trust, 128 Ariz 590, 627 P2d 1088 (1981) ......................................................................................... 24

Steamboaters v. Winchester Water Control Dist., 69 Or App 596, 688 P2d 92 (1984) .......................................................................................... 16

Strunk v. Pub. Employees Ret. Bd., 338 Or 145, 108 P3d 1058 (2005) ............... 3, 5-8, 10-11, 14-15, 18,20,22,25-28,30, 33,35

STATUTES

2003 Or Laws, ch 67 ...................................................................................................................... 12

Or Laws 2003, ch 67, 9 10 ........................................................................................... 11-12, 27

Or Laws 2003, ch 67, 5 14(b) .................................................................................................. 29, 36

Or Laws 2003, ch 67, § 14b(l)(b) ......... ...... . ... . . ...... ....... , . ... ...... .... . . ... ...... . .. .. , .. . .. ...... ... ... .... . , ..... . .. -29

Or Laws 2003, ch 67, 37 ..... . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .lo

Or Laws 2003, ch 68, $ 2 ............................................................................................................... 1 1

ORS 183.310(6)(b) ........................................... . ...................................................................... 16-17

ORS 183.400 .................................. . . . ................................... . ...................................... . 16-17

ORS 183.480 ................................................................................................................... . .............. 37

ORS 183.480(1) ........................................ . ............................................................. 16, 32-34, 36 1

1

1 ORS 183.484(2) ............................................................................................................................ 31

ORS 183.480(2) ............................................................................................................................. 37

2

.................................................................................................................................. I ORS 183.497 30

ORS 183.484 .......................................................................................................... 15. 17. 31. 37-38

.............................................................................................................................. I ORS 238.070 9-10

.............................................................................................................................. 1 ORS 238.200 8 19

............................................................................................................................... ORS 238.200(1) 6

.................................................................................................................... ORS 238.225 8-9. 20. 34

ORS 238.250 .......................................................................................................................... 6 8. 19

ORS 238.260 .............................................................................................................................. 8 19

........................................................................................................................... l2 1 ORS 238.260(12) 35

ORS 238.260 (14)(d) ....................................................................................................................... 6

ORS 238.300 .................................................................................................................. 8 19. 29. 35

ORS 238.300(1) ............................................................................................................................... 7

ORS 238.300(1). (2)(a). (2)(b)(A) and (2)(b)(B) ............................................................................. 7

ORS 238.300(2)(a) ..................................................................................................................... 7 35

.................................................................................................................... ORS 238.300 (2)(b)(A) 7

ORS 238.320 .............................................................................................................................. 8 19

ORS 238.390 .................................................................................................................................. 19

.............................................................................................................. 21 1 ORS 238.601 7.8. 14. 19. 21


360 East 10th Ave .

ORS 238.610 .............................................................................................................................. 8 20

ORS 238.610(1) ............................................................................................................................... 6

ORS 238.630 .................................................................................................................................... 7

ORS 238.660 ........................................................................................................................ 7. 19-20

...................................................................................................................... ORS 23 8.660(1) 8 2 1

Suite 300 Eugene . OR 97401

Phone 541-485-0220 Fax 54 1-686-6564



Eugene. OR 97401 Phone 541-485-0220 Fax 54 1-6866564

ORS 238.660(2) . .. . .. . . .. . ...... .. ... .. ... . . ... ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 22

ORS 238.661 ........................................ . . . ...................................... . .......................... 8, 19-20

ORS 238.670 ....... .. .. .... ..... .. .......... . ................. . . . . ............. . . . . . . . ........... 8, 19-20

ORS 238.670(1) ............................................................................................... 10, 18, 25-26, 35, 37

ORS 238.670(1)( c) ........................................................................................................................ 37

ORS 23 8.670(3) . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26

ORS Chapter 238 ................................................................................................................ 9, 20, 32

OTHER AUTHORITIES

4 Bogert, Law of Trusts and Trustees 5 8 11 .................................................................................. 21

76 Am Jur 2d Trusts 5 345 (2005) ................................................................................................. 18

76 Am Jur 2d Trusts 5 346 (2005) ..................................................................................... 18, 25, 34

G. Bogert & G. Bogert, Trusts and Trustees § 543 (rev 2d 1 993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . .2 1

ORCP 21 A .................................................................................................................................... 36

ORCP 21 B .................................................................................................................................... 30

ORCP 47 C . . .. . . . ....... .. .. ... .. .. . . ...... . .. .. ...... ....... .. . ..... ...... .. . .... ..... .. .. ............. ..... .. .. .. .. .. .. ........ . .. .. .... .... 15

ORCP 47 D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 1 5

Restatement (Second) of Trusts § 164 (1 959) . ..... .. ....... . .. . .. . .... .. .... ..... . .. . . . . . . . . . . . . . 1 8

Scott and W. Fratcher, The Law of Trusts 5 164 (4th ed 1987) ..................................................... 19

HARRANG LONG GARY RUDNlCK PC

360 East 10th Ave. Suite 3M)


POINTS AND AUTHORITIES

I. INTRODUCTION

Intervenors Lane County, City of Eugene, Multnomah County, City of Portland,

City of Roseburg, City of Huntington, Canby Utility Board and Rogue River Valley

Irrigation District ("local government intervenors") seek summary judgment against all

claims alleged by petitioners in their second amended and consolidated complaint. That

complaint alleges five claims for relief: (1) a claim to set aside the settlement agreement

between the Public Employees Retirement Board ("PEW") and the public employer-

petitioners in the case of City of Eugene v. State of Oregon, Public Employees Retirement

Board, Marion County Circuit Court Case No. 99C-12794 ("City of Eugene litigation");

(2) a claim to set aside the settlement agreement between PERB and the Eugene Water

and Electric Board ("EWEB") in the City of Eugene litigation; (3) a claim to set aside the

portion of PEW'S October 12,2004 action establishing revised employer contribution

rates for the years 1998 and 2000, for the public employer-petitioners in the City of

Eugene litigation; (4) a claim to set aside the portion of the October 12,2004 action

transferring money from the contingency reserve to employer accounts to reconcile the

revision to certain employer contribution rates as described above; and (5) a claim that

PERB breached its fiduciary duty by entering into the settlement agreements, reallocating

1999 earnings to employer accounts and reserves, recalculating employer contribution

rates owed by the City of Eugene petitioners for 1998 through 2002; and allocating a

portion of 2003 Fund income to reserves.

There are no disputed facts to be determined by a fact-finder in resolving these

claims. Instead, petitioners' claims fail as a matter of law for at least the following

reasons:

First, this court lacks subject matter jurisdiction to consider petitioners' challenge

Page 1 - LOCAL GOVERNMENT INTERVENORS' MEMORANDUM IN SUPPORT OF MOTIONS FOR SUMMARY JUDGMENT



Eugene, OR 97401 Phone 5414850220 Fax 541-686-5564

to the settlement agreements at issue. The Administrative Procedures Act ("APA")

entitles certain persons to judicial review of a "final order" of an agency. If the decision

is something other than a "final order," it is not subject to judicial review and this court is

without jurisdiction. As a matter of law, neither of the settlement agreements at issue in

this case are final orders as defined by the APA because both settlement agreements, by

their express terms, contemplate and require PERB to take further agency action.

Consequently, this court has no subject matter jurisdiction to adjudicate petitioners' first

two claims for relief.

Second, in addition, petitioners' second claim for relief challenging the settlement

agreement between PERB and EWEB is untimely.

Third, PERB did not breach its fiduciary duties in taking any of the actions about

which petitioners complain. Petitioners generally disagree with the decisions made by

PERB and claim that different decisions would have been better, or more to petitioners'

liking. To prevail on their claims that PERB breached its fiduciary duties, however,

petitioners must prove, based upon an objective standard, that no reasonable person in

PERB 's circumstances would have taken the actions PERB took. In each case, the

actions taken by PERB were objectively reasonable and consistent with, or required by,

its statutory mandate and the law as it existed at the time. Therefore, each of PERB's

actions was consistent with PERB's fiduciary duty.

The local government intervenors, together with the State and PERB, previously

filed motions to dismiss and for judgment on the pleadings in these consolidated cases.

This court denied the motions, because the court believed that the Oregon Supreme

Court's decision vacating the City of Eugene judgment for procedural reasons required it

to conduct an evidentiary hearing: "[Tlhe message the Supreme Court has sent is that I

should hold whatever hearings, including evidentiary, which I believe necessary to


26 HARRANG

LONG GARY RUDNICK PC

360 East loth Ave. Suite 300

Eugene. OR 97401 Phone 541-485-0220

Fax 541 686-6564

prepare a complete record before this dispute returns to the Supreme Court (as of course

it will)." Declaration of Sharon A. Rudnick in Support of Local Government

Intervenors' Motions for Summary Judgment ("Rudnick Decl.") Ex. 4 at 1. In fact, as the

local government intervenors demonstrate below, there are no factual issues for the court

to decide. Accordingly, the court has set this case for trial commencing on August 4,

2008. The issues presented by plaintiffs' claims are purely legal. There are no disputed

material facts. There is no evidentiary record that this court must create to facilitate

supreme court review. The legal issues presented have been fully resolved by the

supreme court in Strunk v. Pub. Employees Ret. Bd., 338 Or 145,169-70, 108 P3d 1058

(2005). Moreover, nothing about the Oregon Supreme Court's decision vacating the City

of Eugene judgment - a decision that by its terms did not reverse or contradict any

aspect of the judgment - creates factual issues or precludes summary judgment in this

case.

Prior to the intervenors' petition for reconsideration that led to the vacation of the

judgment, the supreme court had previously dismissed the intervenors' appeal in the City

of Eugene case as moot. City of Eugene v. State of Oregon, 339 Or 1 13, 128, 1 17 P3d

1001 (2005). .This decision was based upon the settlement agreements that plaintiffs seek

to challenge here and the enactment of sweeping PERS reform legislation in 2003. In its

decision on reconsideration, the court then determined that its prior case Iaw required

vacation of the trial court judgment. City of Eugene v. State of Oregon, 34 1 Or 120, 124,

137 P3d 1288 (2006). In so doing, the court clarified the important distinction between

reversing and vacating the judgment:

"[Tlhe better practice when a case becomes moot on appeal or on review is to vacate both the decision of the Court of Appeals and the circuit court judgment. Reversal implies that a court incorrectly decided the case on the merits. Vacation of a decision, by contrast, suggests nothing about the propriety of the decision on the merits, because it




Eugene, OR 97401 Phone 541-4850220

Fax 541 6866564

conveys the message that the decision on the merits ought not to have been rendered at all (if the controversy was moot when the case was decided) or ought not have prospective effect (if the controversy became moot after the case was decided)."

Id. at 125 (quoting First Commerce of America v. Nimbus Center Assoc., 329 Or 199,

209-09,986 P2d 556 (1999)) (emphasis added). Thus, the court expressly stated that its

action in vacating the judgment does not in any way suggest that the case was wrongly

decided, but merely that it has no prospective binding effect. The decision to vacate the

City of Eugene judgment does not change the fact that the judgment was binding when

PERB entered into the settlement agreements and took the other actions at issue here. At

the time that PERB entered into the settlement agreements, it was under a present

obligation to comply with the City of Eugene judgment and the PERS Reform Legislation

to do the very things that it agreed to do in the settlement agreements. Therefore, the fact

that the judgment has no continuing effect after 2006 does not inform the question of

whether it was a breach of fiduciary duty for PERB to obey the judgment in 2004 when it

was still binding, or to comply with the legislative directives of the 2003 PERS Reform

Legislation.

In short, the vacation of that judgment does not affect the legality of PERB's

actions in any way. The City of Eugene judgment did not authorize PERB to take the

challenged actions-the PERS statutes provided that authority. The judgment simply

affirmed what PERB's statutory mandate required all along and identified significant

illegal actions PERB had taken in the past and was statutorily bound to correct.

The existence of the City of Eugene judgment in 2004 when PERB took the

challenged actions is one of the circumstances the court must consider in determining

whether PERB's actions were objectively unreasonable and therefore a breach of its

fiduciary duty. PERB defended the City of Eugene litigation and lost. It moved to stay


26 HARRANG

LONG GARY RUDNlCK PC


Eugene. OR 97401 Phone 541 -485-0220

FeW 541JBE4564

enforcement of the judgment both in the circuit court and the court of appeals and was

denied a stay each time. Contemporaneously, the legislature adopted substantial reforms

of PERS many of which were intended to correct PERB's past mistakes as identified in

the City of Eugene judgment. At the time it took the actions that petitioners claim are a

breach of fiduciary duty, PERB was subject to an enforceable judgment. If it did not take

the actions mandated by the City of Eugene judgment (and incorporated in the settlement

agreements) it would have been in contempt of court.

Despite all of that, petitioners argue that it was nevertheless a breach of PERBYs

fiduciary duties to rectify its unlawful conduct and agree to comply with the law. Acting

in accord with the law cannot be a breach of fiduciary duty. Ultimately, even if this court

were to ignore the procedural bars to several of petitioners' claims, each claim fails as a

matter of law because there is no evidence from which a reasonable person could

conclude that PERB breached its fiduciary duties or otherwise acted unlawfully as

alleged. For these reasons, as described in greater detail below, local government

intervenors' motions for summary judgment should be granted.

11. STATEMENT OF FACTS

There are no material facts in dispute in this case.

The Public Employees Retirement System ("PERS") is a statutory scheme which

provides retirement benefits to 'Oregon's public employees. The PERS statutes include

promises between the PERS participating employers and their employees who are PERS

members. These statutory promises constitute the terms of members' PERS contracts.

Strunk v. Public Employees Retirement Board, 338 Or 145, 169-70, 108 P3d 1058 (2005).

PERS has existed in one form or another since 1945. Id. at 157. Prior to 2003,

employees were required to contribute six percent of their salary to the Public Employees

Retirement Fund ("Fund"). Id. Since 2003, PERS has been funded by employer


26 HARRANG


360 East 10Th Ave. Suite 300

Eugene, OR 97401 Phone 541-485-0220 Fax 541 -6866564

contributions and investment earnings on those contributions. Id. These assets, taken

together, comprise the Fund and are used to pay the costs of the system: service

retirement allowances and administrative expenses. Id.; ORS 238.200(1); ORS

238.610(1).

A. Member Accounts and Retirement Benefits

Every PERS member has a regular account in PERS, which consists of the

member's contributions to the system prior to 2003 and earnings that PERB has credited

to those contributions. Strunk, 338 Or at 158; ORS 238.250. Employees who became

members of PERS prior to January 1, 1996 are referred to as Tier One members.

Employees who became PERS members on or after January 1, 1996 are referred to as

Tier Two members. Tier One members are contractually entitled to have their regular

member accounts credited annually with the assumed earnings rate of the Fund, which

currently is eight percent. Strunk, 338 Or at 195,202. Tier One PERS members,

however, have no contractual right to have their regular accounts credited with any Fund

earnings in excess of the assumed earnings rate. Id. at 202. Tier Two members are

entitled to have their regular member accounts credited with whatever earnings PERB, in

its discretion, elects to allocate each year. Tier Two regular accounts, unlike Tier One

member accounts, can be credited with less than the assumed earnings rate. Id. at 159.

The value of Tier Two member accounts can decrease. See id. Prior to 2003, both Tier

One and Tier Two members could elect to invest a portion of their member account in a

variable account. Id. at 208-09. Variable accounts are credited with the actual earnings

or losses attributable each year to those accounts. ORS 238.260 (14)(d).

Petitioner White is a Tier One member of PERS. Second Am. and Consolidated

Compl. ("Compl.") 7 1. Petitioner Reiter is a Tier Two member of PERS. Compl. 7 2.

Petitioner Retz is a PERS retiree. Compl. 7 3.



3M) East 1 Mh Ave. Suite 300

Eugene. OR 97401 Phone 541-485-0220 Fax 541-686-6564

The PERS statutes provide three formulas for calculating a member's service

retirement allowance: the full formula calculation, the money match calculation, and, for

members who made contributions to the Fund prior to August 21, 198 1, the pension plus

annuity calculation. Strunk, 338 Or at 184-85; ORS 238.300(1), (2)(a), (2)(b)(A) and

(2)(b)(B). The legislature intended the full formula calculation to be the primary

retirement benefit for PERS members. Strunk, 338 Or at 188-89. However, the statutes

provide that PERS members are entitled to retire under the applicable formula that yields

the highest monthly retirement allowance. ORS 238.300(1), (2)(a), (2)(b)(A) and

(2)(b)(B).

B. PERB's Authority and Responsibilities

PERB administers PERS and acts as trustee of the Fund. Strunk, 338 Or at 157.

PERB sets employer contribution rates, adopts actuarial equivalency factors and assumed

earnings and interest rates, establishes reserve accounts and allocates (or credits) annual

Fund earnings to various accounts and reserves within the Fund. Id.; ORS 238.630; ORS

238.660. PERB has no authority, however, to set or alter any terms of the PERS statutory

contract, including benefit levels. Strunk, 338 Or at 175.

As part of the statutory scheme, the legislature has expressed its purpose in

creating PERS: "the maintenance of a solid, affordable public employees retirement plan

is essential to providing effective, efficient services to the citizens of Oregon by allowing

the state and political subdivisions of the state to hire and retain employees who are

committed to providing those services." ORS 238.601. The legislature directed PERB,

as trustee of the Fund, to "administer the system to create and maintain long-term

stability and viability in the system, and [to] act to achieve full funding for the benefits

provided by the system * * * ." Id.

In line with that overall direction, the legislature outlined a number of express



360 East 10th Ave. Suite 3W

Eugene, OR 97401 Phone 5414854220 FaX 541 -6866564

duties to be performed by PERB, which include using Fund money to carry out the

purposes of the PERS statutes, ORS 23 8.660(1), ORS 238.66 1 ; maintaining reserves,

ORS 238.670; paying the benefits provided by statute, ORS 238.300, ORS 238.320, ORS

238.260; accounting for member contributions, ORS 238.200, ORS 238.250; collecting

contributions fiom participating employers, ORS 238.225; and paying administrative

costs fiom the interest earned by the Fund, ORS 238.610.

The PERS statutes make all of the earnings of the Fund in excess of the

guaranteed return owed to Tier One member regular accounts available for PERB to use

as it sees fit to meet its obligation to sustain the Fund in a prudent manner. The statutes

also require PERB to maintain reserves that are adequate to avoid deficits in the Fund and

to maintain the ongoing stability of the Fund. ORS 238.601 ; ORS 238.670; Strunk, 338

Or at 202 (members' contractual right is limited to annual crediting of the assumed

earnings rate to their individual accounts because "the legislature has reserved for itself

the ability to redirect any excess earnings"); City of Eugene, 339 Or at 11 8 (the trial

court's judgment finds that PERB had abused its discretion by crediting Tier One

members' regular accounts in excess of the assumed earnings rate while failing to

adequately fund reserve accounts).

Local government intervenors will discuss PERB's role and authority in more

detail as part of its arguments in support of its motions for summary judgment below.

C. PERB's Challenged Actions

In April 1999, the same local governments who have intervened in this case

petitioned in Marion County Circuit Court for review of orders in other than contested

case issued by PERB. Ultimately, these petitioners challenged PERB's 1998 and 2000

employer contribution rate orders directed to them, and PERB's March 2000 order

allocating earnings of the Fund for 1 999. Id. at 1 1 7- 1 8; Rudnick Decl. 7 5. The Eugene




Eugene. OR 97401 Phone 541-48-220 Fax 541 -686-6564

Water and Electric Board ("EWEB") filed a separate lawsuit raising the same

challenges.' City of Eugene, 339 Or at 118; Rudnick Decl. 7 6. Several PERS members

also intervened to raise their own challenge to the March 2000 earnings allocation order

and to defend PERB's 1998 and 2000 employer contribution rate orders. City of Eugene,

339 Or at 1 18. The cases were consolidated for trial. Id. at 1 17-1 8.

The City of Eugene petitioners argued that PERB's 1998 and 2000 employer

contribution rate orders were unlawfblly higher than they should have been. Id. They

argued that PERB's statutory authority was limited to charging employers for the cost of

"benefits to be provided by the contributions of the employer as provided in [ORS

Chapter 23 81 ." Id.; ORS 23 8.225. The petitioners claimed that several unlawful

practices of PERB had increased actual and projected member benefits beyond what was

provided in the PERS statutes and that the cost of these unlawfully inflated benefits was

improperly included in the contribution rates being charged to employers. City of

Eugene, 339 Or at 118. They also claimed that PERB had abused its discretion in

allocating the Fund's 1999 earnings because it had allocated 20 percent earnings to Tier

One member regular accounts while failing to fund a contingency reserve as required by

ORS 238.070 and while failing to fund a gain-loss reserve at the level required by

PERB's own policy. Id.

The PERS member intervenors, in addition to defending the PERB practices

challenged by the employers, also challenged the 1999 earnings allocation because a

portion of earnings attributable to member variable accounts had been allocated by PERB

to employer accounts pursuant to the so-called "employer in variable" rule. Id. at 1 19.

After trial, the trial court set aside the 1998 and 2000 rate orders and the March

1 The trial court dismissed EWEB's challenges on procedural grounds, and EWEB eventually settled its claims with PERB. City of Eugene, 339 Or at 11 8; Rudnick Decl. TI 7.




Eugene. OR 97401 Phone 541-485-0220 Fax 541

2000 earnings allocation order for 1999. Id. The court ordered P E W to recalculate the

petitioners' 1998 and 2000 contribution rates and ordered PERB to reallocate the 1999

earnings. Id. at 11 8-19. Specifically, the court found that PERB unlawfUlly failed to

maintain a contingency reserve account as required by ORS 238.670(1); unlawfully

applied the money match calculation by requiring employers to match the earnings in

members' variable annuity accounts; unlawfully failed to adopt and implement accurate

actuarial equivalency factors (mortality tables) when calculating member retirement

benefits; and abused its discretion by crediting Tier One members' regular accounts with

20 percent in earnings for 1999 while failing adequately to fund reserves, including the

statutorily mandated contingency reserve. Id. Pursuant to the 2003 PERS Reform

Legislation, PERJ3 could not charge employers for the cost of those errors. Strunk, 338 at

154.

With respect to the intervenors' challenge to the March 2000 earnings allocation

order, the trial court ruled that PERB had erred by crediting part of the earnings on

members' variable accounts to employer accounts, because the variable account statutes

required that all earnings on member variable accounts be credited to those accounts.

City of Eugene, 339 Or at 1 19. The trial court entered judgment vacating each of the

challenged orders and remanded to PERB with instructions to issue new orders consistent

with the court's judgment. Id. PERB sought a stay of the judgment from both the trial

court and the court of appeals, and both applications for stay were denied. Id. at 1 19-20.

PERB, EWEB and intervenors appealed.2 While the appeal was pending, the

legislature enacted significant reforms to PERS, commonly known as the 2003 PERS

Reform Legislation. The reforms included several provisions that were designed to

- -- -

2 Initially, the Court of Appeals had jurisdiction over the appeal, but subsequent legislation sent the appeal directly to the Oregon Supreme Court. Or Laws 2003, ch 67, 5 3 7.




Eugene, OR 97401 Phone s41-4~~-0220 Fax 541 -6866564

address the unlawfbl PERB practices identified by the circuit court in the City of Eugene

judgment. The legislation required PERB to begin using current mortality tables in

calculating benefits. Or Laws 2003, ch 68, 5 2. It established that the appropriate

allocation to Tier One member regular accounts for 1999 was 1 1.33 percent rather than

20 percent. Or Laws 2003, ch 67, 5 10. It provided for prospective modifications to the

guaranteed rate of return for Tier One member accounts and it imposed a freeze on cost

of living adjustments for members who had retired after the March 2000 earnings

allocation and before any correction of that erroneous allocation (the window retirees).

Id. These last two provisions were intended partially to correct the 1999 earnings over

allocation. Strunk, 338 Or at 220. However, nothing in the reform legislation tied these

remedial provisions in any way to the relief that had been awarded by the circuit court in

the City of Eugene judgment.

In 2004, PERB entered into the settlement agreements with the City of Eugene

petitioners that are challenged in this proceeding. At the time, PERB was under a present

obligation to implement both the City of Eugene judgment and the 2003 PERS Reform

Legislation. Pursuant to the settlement agreements, PERB agreed to dismiss its appeal

and to abide by the rulings of the circuit court as modified by the 2003 PERS Reform

Legislation. Rudnick Decl. Ex. 1 at 2-3. PERB also agreed to pay the attorney fees of

the petitioner employers as ordered by the circuit court. Id. at 3. The petitioner

employers agreed, in turn, to accept substantially less in attorney fees than they had

incurred. See id. at 3; See Rudnick Decl. T[ 10.

As a part of the settlement agreements, the petitioner employers made a

significant concession which benefited PERS members and the window retirees. By the

terms of the City of Eugene judgment, PERB faced a present obligation to reallocate 1999

earnings credited to Tier One member accounts after funding reserve accounts required




Eugene, OR 97401 Phone 541-485-0220 FaX 541 686-6564

by statute and PERB's own policy. See Rudnick Decl. Ex. 3. Under the 2003 PERS

Reform Legislation, PERB was required to change its future allocations to Tier One

accounts and to impose a COLA freeze on window retirees. Or Laws 2003, ch 67, !j 10.

In this respect, the settlement agreements allowed PERB to comply either with the City of

Eugene judgment or the 2003 PERS Reform Legislation. It did not require PERB to do

both. Under the settlement agreements, PERB was only required to reallocate 1999

earnings credited to Tier One member accounts if the interest crediting provision or the

COLA freeze of the reform legislation were invalidated. Id. at 2-3.

On April 12,20043, PERB took action to correct its error in improperly allocating

$337,348,062 of the Fund's 1999 earnings to employer accounts by moving

$204,096,645 from employer accounts to the Fund's contingency reserve. Rudnick Decl.

fi 12, Ex. 5 at 5. In addition, on that same date, PERB took further action to reallocate

1999 Fund earnings by reducing the allocation to Tier One employee accounts from 20

percent to 11.33 percent, allocating 7.5 percent of 1999 earnings to the contingency

reserve and allocating to the gain-loss reserve a sufficient amount of Fund earnings to

credit the assumed rate to Tier One regular member accounts during a period of 30

months of zero earnings, consistent with PERB's formally adopted policy. Id. The

motion approved by PERB also stated that this reallocation would occur only if the

income allocation provisions of 2003 Or Laws, ch 67 were declared invalid. Id

Finally, on April 12,2004, PERB allocated Fund earnings for 2003. Rudnick

Decl. Ex. 5 at 4. It allocated 7.5 percent of available Fund earnings to the contingency

reserve and another 7.5 percent to the capital preservation reserve. Id. These actions also

were authorized or required by statute and PERB's policies.

3 Petitioners' Second Amended and Consolidated Complaint erroneously alleges that these actions took place On March 22,2004. Compl. fi 9-1 0,45.




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PERB and EWEB dismissed their appeals pursuant to the settlement agreements.

However, the PERS member intervenors continued to press their appeal. The Oregon

Supreme Court dismissed intervenors' appeal as moot. City of Eugene, 339 Or at 128.

Later, upon the intervenors' petition for reconsideration, the supreme court vacated the

judgment of the circuit court. City of Eugene, 34 1 Or at 124. The decision to vacate was

made to avoid the potential of conflicting orders in the future and was not based on the

substance or merits of the trial court's decision. Id. at 127.

111. ARGUMENT: PETITIONERS' CLAIMS FAIL AS A MATTER OF LAW

Petitioners' claims are all based on the single, flawed premise that the PERS

statutes guaranteed that all earnings on Tier One member accounts would be credited to

those accounts, minus only allocations to administrative expenses and properly

maintained reserves. The Oregon Supreme Court has specifically rejected this idea and

this court should as well.

According to petitioners, all of the Fund earnings on money accumulated in a

member's account-even amounts above the eight percent assumed earnings rate-

"belong" to that member. Thus, a decision to allocate earnings to a member's account in

an amount less than that earned by the Fund as a whole is necessarily a breach of PERI3's

fiduciary duty, unless the reduction was attributable to payment of appropriate

administrative expenses as required by statute, or to the funding of reserve accounts at

minimum levels.4 In other words, according to petitioners, because all of the earnings on

the money accumulated in a member's account "belongs" to that member, PERB's sole

duty is to minimize the amount of those earnings that are allocated elsewhere in the Fund.

4 For example, petitioners allege that as part of its April 12,2004 actions, "PERI3 conditionally reduced the earnings allocation [to member accounts] by using 7.5% of employee earnings to fund a Contingency Reserve and by using an additional portion of employee earnings to bring the funding of the GaidLoss Reserve up to a 30-month level." Compl. 1 10.




Eugene, OR 97401 Phone 541-485-0220 Fax 541 -686-6564

There is no legal basis for this interpretation of the PERS statutes, and petitioners can

point to no legal authority to support their position. In fact, this assertion, which is the

underlying basis for each of petitioners' claims in these cases, is entirely contrary to the

law.

The fundamental flaw in petitioners' premise is that it misconstrues the PERS

governing statutes. An objective reading of the PERS statutes offers no support for

petitioners' idea that PERB owed a fiduciary duty to funnel every possible dollar into the

individual members' accounts at the expense of funding other aspects of the PERS.

Rather, the PERS statutes clearly state PERB's duty as to maintain "a solid, affordable

public employees retirement plan * * * .." ORS 23 8.60 1.

In addition to the plain language of the PERS statutes, the Oregon Supreme Court

has expressly rejected petitioners' basic premise. In Strunk, the court held that the PERS

statutes gave Tier One members no contractual right to any Fund earnings in excess of

the guaranteed interest rate:

" [ w e conclude that Tier One members had no contractual right under the PERS statutes as they existed before the 2003 PERS Legislation to the crediting of annual earnings in excess of the assumed earnings rate to their regular accounts. Instead, we conclude that, for Tier One members, annual crediting at - but not in excess of - the assumed earnings rate is the promise that the legislature extended * * *. So long as Tier One members' regular accounts are credited annually with earnings that do not fall below the assumed earnings rate, the legislature has reserved for itself the ability to redirect any excess earnings."

Strunk, 338 Or at 202.

This and other holdings in Strunk establish as a matter of law that the legal

underpinnings of petitioners' claims are flawed. The judgment in the City of Eugene case

and the 2003 PERS Reform Legislation establish the undisputed factual context for




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PERBYs decision to enter into the settlement agreements and to take the actions pursuant

to those agreements that petitioners challenge here. Plaintiffs could only prevail on any

of their claims if the holdings of Strunk are rejected and if the court ignored the legal

obligations imposed upon PERB by a then-binding and enforceable judgment and by

legislative act. This court should do neither. Petitioners' claims fail as a matter of law.

A. Applicable Legal Standard

When the pleadings, depositions and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to a material fact, the moving

party is entitled to judgment as a matter of law. ORCP 47 C provides as follows:

"No genuine issue as to a material fact exists if, based upon the record before the court viewed in a manner most favorable to the adverse party, no objectively reasonable juror could return a verdict for the adverse party on the matter that is the subject of the motion for summary judgment."

The party moving for summary judgment has the burden of demonstrating the

absence of a genuine issue of fact. Jones v. General Motors Corp., 325 Or 404,420,939

P2d 608 (1997). Once the moving party has met its initial burden, the party opposing the

motion for summary judgment has the obligation to produce evidence sufficient to

demonstrate the existence of one or more genuine issues of fact. Pelege v. Chrysler, 278

Or 223,227 112,563 P2d 701 (1977). The non-moving party may not merely rest on the

allegations of his pleadings. ORCP 47 D.

B. Petitioner's First Claim for Relief Challenging the Settlement Agreement Between Ci@ of Eugene Petitioners and PERB Should be Dismissed for Lack of Subject Matter Jurisdiction

ORS 183.484 confers jurisdiction upon this court to review an agency's final

orders in other than a contested case. Petitioners claim that the settlement agreement

between the City of Eugene petitioners and PERB is a final order. Compl. 7 15.


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Petitioners are wrong, and, consequently, this court lacks subject matter jurisdiction to

consider petitioners' challenge.

The APA entitles certain persons to judicial review of a "final order" of an

agency. ORS 183.480(1). A final order is "final agency action expressed in writing.

'Final order' does not include any tentative or preliminary agency declaration or

statement that: (A) Precedes final agency action; or (B) Does not preclude further agency

consideration of the subject matter of the statement or declaration." ORS 183.3 10(6)(b).

An agency action that is not the "last step in the process" but instead requires or

contemplates further action by the agency is not a final order and is not subject to judicial

review. Hawes v. State, 203 Or App 255,263, 125 P3d 778 (2005) (holding agreement

between DEQ and EPA not a final order because it provided plan for further DEQ

action); OPEU Local 503, SIEU v. Judicial Dept., 142 Or App 169, 176-77,9 19 P2d

1200 (1996); see also Steamboaters v. Winchester Water Control Dist., 69 Or App 596,

600,688 P2d 92 (1984) (intermediate agency order is not a final order subject to judicial

review).

The settlement agreement between the City of Eugene petitioners and PERB is not

a final order because, by its terms, it contemplates further action by PERB on the same

subject. For example, the settlement agreement requires that: "No later than July 1,

2004, PERB will adopt a rule governing the calculation of money match benefits for

members participating in the variable account program that conforms to [the] July 2001

Court order in the City of Eugene [case]." Rudnick Decl. Ex. 1 at 2. PERB adopted such

a rule in 2004. See OAR 459-0 13-0280. Thus, the settlement agreement expressly

provides for further agency action through rulemaking. Any rule adopted by PERB

pursuant to the settlement agreement would itself be subject to challenge under the ADA.

ORS 183.400. Jurisdiction for such a challenge lies with the court of appeals rather than


HARRANG LONG GARY RUDNJCK PC


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with this court. Id.

The settlement agreement also requires PERB to issue new orders reallocating

1999 Fund earnings and recalculating certain employer contribution rates. Rudnick Decl.

Ex. 1 at 2-3. PERB issued took that action in April, 2004. Rudnick Decl. Ex. 5 at 5.

Thus, the settlement agreement also expressly contemplated M h e r agency action

through the issuance of orders.

The actions contemplated by the settlement agreement may well be "final orders,"

but the settlement agreement itself cannot be a final order because, by its terms, the

settlement agreement "precedes final agency action."

In fact, petitioners challenge not only the settlement agreement as a final order,

but also several of the subsequent actions taken by PERB as required by the terms of the

settlement agreement. Compl. 77 30-39. The settlement agreement and the orders

implementing it cannot both be final orders as defined by ORS 183.3 10(6)(b). The court

should grant local government intervenors' motion for summary judgment on petitioners'

first claim for relief challenging the settlement agreement between the City of Eugene

petitioners and PERB for lack of subject matter jurisdiction. See ORS 183.484.

C. Petitioners' First Claim for Relief Should be Dismissed Because PERB Did Not Breach Its Fiduciary Duties by Agreeing to the Settlement Between City of Eugene Petitioners and PERB

Additionally, petitioners' first claim for relief should be dismissed because

petitioners can not prove that PERB breached its fiduciary duty by agreeing to the

settlement with the City ofEugene petitioners.

Petitioners claim that the settlement agreement constitutes a breach of PERB's

fiduciary duties. More specifically, petitioners claim that PERB breached its fiduciary

duties by entering into a settlement agreement and thereby: "abandon[ing] its appeal from


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the trial court's rulings in the City of Eugene litigation, Compl. f 16(a); agreeing "to

reduce the amount of 1999 earnings allocated to petitioners' accounts, Compl. f 16(b);

agreeing to "implement the trial court's ruling in the City of Eugene litigation upholding

intervenors challenge to the 'employer-in-variable rule' by transferring the improperly-

allocated amounts from the employer accounts to the contingency reserve established by

ORS 238.670(1) rather than by reallocating the funds according to PERB's then-existing

allocation methods," Compl. 7 16(c); agreeing to "promulgate an administrative rule

governing the calculation of money match benefits for PERS members participating in

the variable account," Compl. fl16(d); agreeing "to use funds in the Contingency Reserve

to cover costs PERS incurs with respect to the petitioning employers' current and retired

employees that are not covered by recalculated rates," Compl. 7 16(e); and agreeing to

pay the employer-petitioners' attorney fees, Compl. 7 16(f). To understand petitioners'

claims and why they fail as a matter of law, it is important to first understand PERE3's

authority under its governing statutes.

1. The Authority and Function of PERB

As discussed above, PERB administers PERS and acts as the trustee of the Fund.

PERB has no authority, however, to set or alter any terms of the PERS statutory contract.

Strunk, 338 Or 1 t 157, 175. As with any trustee, PERE3's powers and duties are defined

by the terms of the trust instrument, by common law, and by statutes applicable to

trustees. 76 Am Jur 2d Trusts 9 345 (2005). See also Cent. States Se. and Sw. Areas

Pension Fund v. Cent. Transp., 472 US 559,565,568-73, 105 S Ct 2833 (1985)

(applying trust provisions, common law and statutes to determine scope of trustee's

duties). Additionally, as trustee, PERB must comply with an order of a court with

jurisdiction over the trust. 76 Am Jur 2d Trusts $346 (2005).

A trustee is obliged to follow the terms of the trust instrument. Restatement


1

3 (4th ed 1987), see also Masters v. Bissett, 10 1 Or App 163, 172,790 P2d 16 (1 990) I

(Second) of Trusts 5 164 (1959). "The terms of the trust determine the extent of [the

2 trustee's] duties and powers * * * ." 2A A. Scott & W. Fratcher, The Law of Trusts $ 164

5 The "trust instrument" in this case is the statutory scheme in which the "settlor" of the I 4 (measuring trustee's actions only against the authority granted by the trust document).

7 authority and duties, and how the system is to function. See ORS 238.660,238.661. I 6

1 As described above, the legislature expressed its purpose in creating PERS: "the

trust--the Oregon legislature--sets forth the purposes of the trust, the limits of PERB's

10 providing effective, efficient services to the citizens of Oregon by allowing the state and

9 maintenance of a solid, affordable public employees retirement plan is essential to

12 providing those services." ORS 238.601. The legislature directed PERB, as trustee of I 11 political subdivisions of the state to hire and retain employees who are committed to

14 viability in the system, and [to] act to achieve full funding for the benefits provided by I 13 the Fund, to "administer the system to create and maintain long-term stability and

16 number of express duties, which include: I 15

the duty not to divert or otherwise use assets of the fund except for "the exclusive benefit of members and their beneficiaries," ORS 238.660(2);

the system * * * ." Id. Accordingly, the legislature further directed that PERB perform a

the duty to use the moneys in the fund, which are "continuously appropriated to" PERB, to carry out the purposes of the PERS statutes, ORS 238.661;




2 1

22

Page 19 -

the duty to fund and maintain reserves within the fund for various purposes, ORS 238.670;

the duty to pay the benefits provided by statute, see, e.g., ORS 238.260, ORS 238.300, ORS 238.320, ORS 238.390;

the duty to account for member contributions, ORS 238.200, ORS 238.250;

LOCAL GOVERNMENT INTERVENORS' MEMORANDUM IN SUPPORT OF MOTIONS FOR SUMMARY JUDGMENT




the duty to collect contributions from participating employers in an amount "actuarially necessary to adequately fund the benefits to be provided" by employer contributions pursuant to ORS chapter 238, ORS 238.225; and

the duty to pay administrative costs from interest earned by the Fund, ORS 238.610.

The PERS statutes make all of the earnings of the Fund in excess of the guarantee

return owed to Tier One regular member accounts available for PERB to use as it sees fit

to meet its obligation to sustain the Fund in a prudent manner. See ORS 238.661; Strunk,

338 Or at 202 (members' contractual right is limited to annual crediting of assumed

earnings rate to their individual accounts because "the legislature has reserved for itself

the ability to redirect any excess earnings"); City of Eugene, 339 Or at 1 18 (the trial

court's judgment finds that PERB had abused its discretion by crediting Tier One

members' regular accounts in excess of the assumed earnings rate while failing to

adequately fund reserve accounts).

For accounting purposes, PERB has established certain accounts within the Fund:

member accounts, in which member contributions and earnings are accumulated;

"employer accounts" or reserves, in which employer contributions are accumulated and

an employer's obligations to the Fund are tracked; the benefits-in-force reserve, for

payments to retirees; and various reserves, to which PERB allocates Fund income to

account for future shortfalls and other contingencies. See ORS 238.670. Although PERB

accounts for the money in the Fund in various ways, all of the money in the all of the

accounts in the Fund is used exclusively to sustain the system and pay for members'

retirement benefits. In other words, all of the money is used for the exclusive benefit of

the members, regardless of how PERB accounts for it. ORS 238.660; ORS 238.661. A




Eugene, OR 97401 Phone 541485-0220 Fax 541 486-6564

decision by PERB, for example, to allocate Fund earnings to reserves rather than to

allocate those earnings to members' individual accounts is made for the exclusive benefit

of the members and their beneficiaries because it allocates Fund money in order to

"maintain long-term stability and viability in the system" and to "achieve full funding for

the benefits provided by the system." ORS 238.601; see G. Bogert & G. Bogert, Trusts

and Trustees 8 543 (rev 2d 1993). Such decisions do not diminish or divert the corpus of

the trust. Except for money used to pay administrative expenses, all of the money in the

Fund will be used to pay member benefits.

Whether a trustee has acted consistently with his fiduciary duties is measured

against an objective standard: "the reasonableness of his judgment." Rowe v. Rowe, 219

Or 599, 609,347 P2d 968 (1 959). The good faith or subjective intent of the trustee is

irrelevant. Id; In re Strome, 214 Or 158, 170,327 P2d 414 (1958). As the Supreme

Court has said: "[WJe have no right to substitute our judgment for that of the trustee

* * *. We are permitted to control the trustee only if we can say that no reasonable

person vested with the power which was conferred upon the trustee * * * could have

exercised that power in the manner in which it was exercised. Rowe, 21 9 Or at 61 0

(citation omitted) (emphasis added). In other words, the trustee acts within his discretion

if "no arbitrary decisions have been made and * * * the effect of the action of the trustee

is not to frustrate important trust objectives." In re Strome, 214 Or at 169 (quoting 4

Bogert, Law of Trusts and Trustees, 178 5 8 1 1).

2. PERB Has Not Breached Its Fiduciary Duties

Money in the Fund must be used exclusively for the purposes set out in the PERS

statutes. ORS 238.660(1). Contrary to petitioners' assertions otherwise, however,

PERB's fiduciary duty to manage the Fund for the "exclusive benefit of its members and


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beneficiaries"5 does not require that every decision PERB makes result in an increase, or

avoid a decrease, in members' projected future retirement benefits. In fact, as the Marion

County Circuit Court determined, in many instances to do so would itself violate PERB's

fiduciary duty to PERS members. Instead, PERB must act consistently with its statutory

charge to maintain the stability and viability of the Fund, to ensure that members will

receive the retirement benefits to which they are entitled by statute. As described above,

the settlement agreement implemented a lawful judgment issued by the Marion County

Circuit Court. In fact, in negotiating the agreement, PERB obtained important

concessions from the petitioners.

The circuit court judgment vacated PERB's 1999 earnings allocation order and

ordered PERB to issue a new order reallocating 1999 Fund earnings to provide for

adequate reserves. City of Eugene, 339 Or at 1 18- 19; Rudnick Decl. Ex. 2 at 25-26.

After the City of Eugene decision was issued and prior to the execution of the settlement

agreement, the legislature enacted the 2003 PERS Reform Legislation, which established

that the correct earnings allocation to Tier One regular member accounts for 1999 was

1 1.33 percent. Strunk, 338 Or at 21 6. Thus, in order to comply with the law, PERB was

obligated to reallocate 1999 Fund earnings to appropriately fund reserves and to credit

1 1.33 percent to members' regular accounts.

At the same time, the 2003 PERS Reform Legislation contained provisions

altering the manner in which Tier One member regular accounts would be credited with

the assumed interest rate in the future and suspending cost-of-living adjustments

("COLAS") for certain retirees who had benefited from the over crediting of 1999 Fund

earnings. Both provisions were intended partially to correct for PERB's unlawful over-

crediting of Tier One member accounts with 1999 earnings. Strunk, 338 Or at 220.

5 ORS 238.660(2).




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Nothing in the Reform Legislation purported to suspend or supersede the trial

court judgment requiring that the 199 Fund earnings be reallocated. Nor was there any

provision in the legislation that would have suspended the interest crediting provision and

the COLA freeze if PERB reallocated the 1999 earnings. Thus, prior to the settlement

agreement, the City of Eugene petitioners were entitled both to have PERB reallocate

1999 Fund earnings according to the City of Eugene judgment, thereby reducing the

amount of 1999 Fund earnings credited to Tier One members' regular accounts to 1 1.33

percent, and to have PERB implement the provisions of the 2003 Reform Legislation

affecting the crediting of the guaranteed interest rate to those accounts and suspending

retiree COLAS. In the settlement agreement, the petitioners agreed to accept either the

reallocation of 1999 Fund earnings required by the City of Eugene judgment, or the

implementation of the provisions of the 2003 Reform Legislation intended to correct for

the over-crediting of 1999 earnings. Rudnick Decl. 7 3; Ex. 1 at 2-3. In other words,

under the settlement agreement the petitioners agreed that PERB would not be required to

reallocate the 1999 earnings, as directed by the circuit court's judgment, unless the

interest crediting and COLA freeze provisions of the Reform Legislation were

invalidated. This provision directly benefited all Tier One members, including those who

had retired after the original 1999 earnings allocation. PERB obtained this significant

concession as part of its negotiations with the City of Eugene petitioners to settle that

litigation.

In addition, the petitioners compromised their claim for attorney fees as part of

the settlement. While the circuit court judgment awarded the petitioners their reasonable

attorney fees, costs and disbursements, the amount of that entitlement remained unsettled.

Through the date of the judgment petitioners had incurred $844,156.82 in fees and costs.

Rudnick Decl. 7 10. In the settlement agreement petitioners accepted $750,000 as full




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satisfaction of PERB's obligation. Rudnick Decl. Ex. 1 at 3.

PERB's decision to enter into the settlement agreement was reasonable as a

matter of law: No reasonable person could conclude that the challenged portions of the

settlement agreement are unlawful or inconsistent with PERB's power and authority as

trustee of the Fund. See Rowe, 219 Or at 610.

a) PERB's Decision to Not Appeal the City ofEugene Case Is Not a Breach of Fiduciary Duty

Petitioners cite certain specifics of the settlement agreement that they claim

constitute a breach of fiduciary duty. First, they challenge PERB's decision to abandon

its appeal of the circuit court judgment. Compl. 7 16(a). None of PERB's duties as

trustee of the Fund required it to continue an appeal. Seven G Ranching Co. v. Stewart

Title & Trust, 128 Ariz 590, 592,627 P2d 1088 (1981) ("absent any contrary or limiting

provisions in the trust instrument, the trustee can properly compromise, submit to

arbitration or abandon claims affecting the trust property provided that in so doing he

exercises reasonable prudencey'); Cogdell v. Fort Worth Nat 'I Bank, 544 S W2d 825,828

(Tex App 1976) (same); Jones v. Jones, 297 Mass 198,211-212,7 NE2d 101 5 (1937)

(same); In re Ludeke, 54 NYS 121, 124,33 AD 397 (1 898) (holding that trustee's

settlement of claims for breach of a property lease was valid, judicious, and proper, even

though it was not certain that the non-breaching party would seek compensation for the

breach). "The rule permitting a trustee to compromise and settle claims.. .is sound

[because] otherwise, the administration of the trust would require litigation of every

claim by or against the trust." Cogdell, 544 SW2d at 828.

At the time it entered into the settlement agreement, PERB was required to

comply with the judgment of the circuit court in the City of Eugene litigation which was

then valid and enforceable. As trustee, PERB is required to comply with an order of a




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court with jurisdiction over the trust. See 76 Am Jur 2d Trusts 5 346 (2005). Its decision

to comply with the law by entering into a settlement agreement in which it obtained a

significant concession from the City of Eugene petitioners was certainly reasonable and

can not constitute a breach of fiduciary duty. Indeed, it would seem that petitioners

would have a stronger claim for breach of fiduciary duty had PERB ignored the circuit

court's judgment or spent funds on an appeal when the case could be settled on terms

"better" than what the law provided.

b) PERB's Order Reallocating 1999 Earnings to Properly Fund Reserves Was Not a Breach of Fiduciary Duty

Petitioners claim that PERB acted unlawfully by agreeing "to reduce the amount

of 1999 earnings allocated to petitioners' accounts * * *." Compl. 7 16(b). In 1999, the

Fund earned a 24.89 percent return. Strunk, 338 Or at 214. P E W allocated 20 percent

earnings to Tier One members' regular accounts, nothing to the contingency reserve, and

an amount to the gain-loss reserve that was insufficient to meet the Board's own policy of

hnding that reserve at a level equal to 30 months of Fund earnings at the assumed

earnings rate. Id. at 214-15. As described above, in the settlement agreement, PERB

agreed conditionally to reallocate 1999 earnings in several respects: by allocating 7.5

percent of Fund earnings to the contingency reserve, by funding the gain-loss reserve

according to its previously adopted policy, and by crediting Tier One members' regular

accounts with 1 1.33 percent. Rudnick Decl. Ex. 1 at 2.

As the supreme court held, ORS 238.670(1) requires PERB to fund a contingency

reserve annually with up to 7.5 percent of Fund earnings. Strunk, 338 Or at 159 n 16.

Petitioners argue, however, that while it might be mandatory for PERB to fund the

contingency reserve at some level, 7.5 percent of 1999 Fund earnings was too much, and

thus a breach of PERB's fiduciary duty. In fact, at the time the 1999 reallocation



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Eugene, OR 97401 Phone 541 -4850220 FaX 541 6866564

decision was made, the contingency reserve had not been funded since 1979 and the Fund

was in deficit. Id. at 159 n16,162-63. As Judge Lipscomb stated in vacating the original

1999 earnings allocation order:

"* * * * m i l e the Board maintains a range of discretion in determining how much of the earnings to allocate each year to the Contingency Reserve, it has no discretion to simply ignore the legislature's specific direction that this account 'shall be maintained and used to prevent any deficit. "By ignoring its obligation to fund and maintain the Contingency Reserve in place, the Board has improperly impaired the overall resiliency and flexibility of the entire PERS system and has forced the system to rely almost exclusively on periodic increases to the employers' contribution obligations in order to keep its accounts in balance. In doing so, the Board threatens to gradually, but inevitably, kill the proverbial goose that lays the golden eggs. The Board has been declaring periodic increases in employer contributions at a rate that cannot be sustained indefinitely. While each of these employers is a publicly fhded entity, neither these employers, nor the taxpayers has access to unlimited funds.

"Petitioners are therefore entitled to an order remanding the March 2000 Earnings Allocation Order to the Board with instructions to abide strictly with the statutory mandate to fund and maintain a Contingency Reserve in accordance with ORS 238.670(1). Moreover, because, in part, of the Board's failure to allocate any f b d s at all to this account for many years, there will be a very heavy burden on the Board upon remand to justify any decision to fund this account at less than the full statutory maximum of 7.5% of the 1999 earnings."

Rudnick Decl. Ex. 2 at 2.

In reallocating 1999 earnings to comply with the law, it certainly was not

unreasonable for PERB to agree to fund the contingency reserve - for the first time in 20

years - to the statutory maximum. On these undisputed facts, PERB's decision to f b d

the contingency reserve with 7.5 percent of 1999 Fund earnings was reasonable as a

matter of law.

ORS 238.670(3) authorizes PERB to establish reserves to offset invested gains


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and losses (which at the time PERB called the "gain-loss reserve"). In the settlement

agreement, PERB agreed to reallocate a portion of 1999 earnings, consistent with its

formally adopted policy, to fund the gain-loss reserve in an amount equal to 30 months of

Fund earnings at the assumed earnings rate. Rudnick Decl. Ex. 1 at 2. The legislature

codified that policy as part of the 2003 Reform Legislation. Strunk, 338 Or at 2 16; City

of Eugene, 339 Or at 126-27. Agreeing to allocate 1999 earnings consistent with this

policy was not unreasonable.

Finally, PERB agreed to allocate 11.33 percent of the 1999 earnings to Tier One

members' regular accounts, the amount that the legislature had determined to be the

appropriate allocation of 1999 Fund earnings to those accounts. Strunk, 33 8 Or at 2 16.

This is also the amount remaining after the contingency and gainlloss reserves are funded

as allowed by statute and required PERB policy. Id.; City of Eugene, at 126-27. It is also

the amount codified by the legislature as the appropriate allocation of 1999 earnings to

Tier One member regular accounts. Or Law 2003, ch 67, 5 10. In Strunk, the Supreme

Court expressly held that Tier One members had no contractual right to have their regular

accounts credited with more than the guaranteed interest rate, which in 1999 was eight

percent. Strunk, 338 Or at 202. In the settlement agreement, PERB agreed to credit Tier

One members' regular accounts with 3.33 percent more than they were contractually

entitled to receive. As a matter of law, PERB's decision to credit more than the assumed

earnings rate to Tier One members' accounts was neither a breach of its fiduciary duty to

PERS members nor a decrease in the benefit they were contractually entitled to receive.

c) PERB's Reallocation to the Contingency Reserve of 1999 Earnings Improperly Credited to Employer Reserves Was Not a Breach of Fiduciary Duty

Petitioners challenge PERB's agreement to implement the trial court's ruling

upholding the challenge to PERB's allocation of a portion of 1999 earnings on members'


HARRANG LONG GARY RUDNlCKpc


Eugene. OR 97401 Phone 541-485-0220 Fax 541-666-6564

variable accounts to employers (the "employer in variable" rule). Petitioners allege that

PERB breached its fiduciary duty by transferring money unlawfblly allocated to

employer reserves to the contingency reserve "rather than by reallocating the funds

according to PERB's then-existing allocation methods." Compl. 7 16(c). PERB's "then-

existing allocation method" was an equal crediting policy, which credited all accounts in

the Fund, including member accounts and reserves, with earnings at the same percentage

rate. Thus, reallocating the funds improperly credited to employer reserves according to

PERB's "then-existing allocation methods" would have required PERB to credit a

portion of the reallocated earnings to members' regular accounts rather than to the

contingency reserve.

In Strunk, the supreme court held that PERB's practices in crediting Fund

earnings "do[] not alter the nature of the promises that the legislature made." Strunk, 338

Or at 202. The fact that PERB followed an equal crediting policy in the past does not

create a contractual right in PERS members to have PERB follow that practice in the

future. See id. at 20 1-02 (the legislature is not contractually bound to maintain the

system's allocation of the burden of funding reserves and paying administrative

expenses). The relevant question is whether PERB's decision to reallocate those funds

fiom employer reserves to the contingency reserve was objectively unreasonable. The

answer is patently no, for the same reasons that PERB's agreement to allocate the

statutory maximum to the contingency reserve from 1999 Fund earnings was not

unreasonable. It was certainly reasonable for PERB to put those funds into reserves,

rather than into member accounts, which would have increased the costs of a system

already in deficit.

d) PERB's Agreement to Adopt OAR-459-013-0280 Did Not Violate a Fiduciary Duty


26 HARRANG




Petitioners also claim that PERB acted unlawfully by agreeing to promulgate a

rule governing the calculation of money match benefits for PERS members participating

in the variable annuity program, "notwithstanding that such a rule will adversely affect

PERS members." Compl. 1 16(d). With regard to PERB's promulgation of OAR 459-

013-0280, the law as it stood then required PERB to change the way it had been

calculating retirement benefits under the money match calculation for members who had

participated in the variable annuity program. It cannot be a breach of fiduciary duty for a

trustee to comply with the law.

e) PERB Did Not Misspend Contingency Reserve Funds to Pay Costs Arising From Unlawful Actions by a Prior Board

Petitioners next allege that PERB acted unlawfblly by agreeing to use funds from

the contingency reserve to cover costs incurred with respect to the City of Eugene

petitioners' current and retired employees that were not covered by those employers'

recalculated employer contribution rates. Compl. 7 16(e). PERB's agreement to treat

system costs related to the correction of the prior Board's unlawful crediting of 1999

earnings as administrative expenses rather than as employer costs was required by statute.

As part of the 2003 Reform Legislation, the legislature enacted 5 14b, compiled as a note

preceding ORS 238.300, which prohibited PERB from charging to the City of Eugene

petitioners the costs resulting from the correction of the prior Board's errors, and instead

required that those costs be paid as administrative expenses of the Fund. Or Laws 2003,

ch 67, 5 14b(l)(b). PERB's compliance with the law cannot be a breach of its fiduciary

duty.

f) PERB Did Not Breach Its Fiduciary Duty by Paying Attorney Fees

Finally, petitioners claim that PERB acted unlawfully by agreeing to pay the




Eugene, OR 97401 Phone 541-485-0220

Fax 541 886-6564

petitioners' legal fees in violation of the trial court's ruling that they not be paid until

after resolution of an appeal. Compl. 7 16(f). Petitioners misread the trial court's order.

In its Opinion and Order, the court wrote:

"The petitioning employers also request that this Court assess reasonable attorney's fees and costs in accordance with ORS 1 83.497. That statute provides that petitioners who are successful in challenging an adverse administrative order 'shall' be allowed reasonable attorney's fees and costs from the funds allocated to the agency. Furthermore, in this case the actions of a relatively small group of petitioning employers will result in significant savings to all PERS employers. By reducing the risk to the system, and thereby increasing its strength and resiliency, the employee members can benefit as well. Accordingly, an award of attorney's fees and costs to the petitioning employers is not only required by law, but it is also well justified in this case as a matter of simple equity."

Rudnick Decl. Ex. 2 at 23; see also Rudnick Decl. Ex. 3 at 8. Subsequently, the parties

agreed to defer determination of the amount of attorney fees until PERB's appeal was

resolved. Nothing in the circuit court's opinion, order or judgment prohibits PERB fiom

settling the case, including the award of attorney fees, short of appeal. Moreover, as

described above, the petitioners agreed to discount their fees and costs as part of the

settlement. PERB did not breach its fiduciary duty in doing so.

In light of the Strunk and City of Eugene decisions, petitioners' challenges to the

settlement agreement raise no new issues for this court to adjudicate. As a matter of law,

PERB acted reasonably in entering into each of the challenged provisions of the

settlement agreement. Petitioners fail to state facts sufficient to allege a breach of

fiduciary duty. The court should enter judgment on the pleadings in intervenors' favor on

petitioners' first claim for relief. ORCP 21 B.

D. Petitioners' Second Claim for Relief Challenging PERB's Settlement Agreement with EWEB Should be Dismissed


26 HARRANG



Eugene. OR 97401 Phone 541-485-0220 F a 541 -6866564

In their second claim for relief, petitioners challenge the settlement agreement

between EWEB and PERB. That settlement agreement requires PERB to take the same

actions regarding reallocation of 1999 earnings and calculation of retirement benefits as

does the settlement agreement between the City of Eugene petitioners and PERB, and to

pay EWEB's attorney fees. Compl. 77 22-29. Therefore, petitioners' second claim for

relief fails for the same reasons as does their first claim.

1. Petitioners' Challenges to the Settlement Agreement Between PERB and EWEB Should be Dismissed for Lack of Subject Matter Jurisdiction

Like the settlement agreement between the City of Eugene petitioners and PERB,

this settlement agreement is not a final order of PERB, for the reasons outlined in section

111. B. of this memorandum. Therefore, petitioners' second claim for relief should be

dismissed for lack of subject matter jurisdiction. ORS 183.484.

2. Petitioners' Challenge to the Settlement Agreement Between EWEB and PERB Fails Because it is Untimely

PERB and EWEB entered into the challenged settlement agreement on or about

April 22,2004. Compl. 7 12. Petitioners filed their petition for judicial review

challenging the settlement agreement between PERB and EWEB on November 18,2004,

approximately seven months later. Rudnick Decl. 7 8. ORS 183.484(2) requires that a

petition for judicial review of an order in other than a contested case "shall be filed within

60 days" of the agency's action. There is no "discovery provision" allowing the 60 days

to be tolled until an aggrieved party "discovers" PERB's action. Petitioners' challenge to

the settlement agreement between EWEB and P E W is untimely and should be

dismissed.

3. PERF3 Did Not Breach Its Fiduciary Duties by Entering Into the Settlement Agreement with EWEB

Page 3 1 - LOCAL GOVERNMENT INTERVENORS' MEMORANDUM IN SUPPORT OF MOTIONS FOR SUMMARY JUDGMENT

26 HARRANG



Eugene, OR 97401 Phone 541485-0220 Fax 541 486-6564

Petitioners make the same claims of breach of fiduciary duty against the

settlement agreement between EWEB and PERB as they raised in response to the

settlement agreement between the City of Eugene petitioners and PEW. Compl. 77 22-

29. Intervenors' motion for summary judgment against petitioners' second claim for

relief should be granted for the same reasons discussed above.

E. Petitioners' Third Claim for Relief Challenging PERB's October 2004 Order Setting Employer Contribution Rates for the City ofEugene Petitioners Should be Dismissed

First, petitioners lack standing to challenge this aspect of PEW'S October 2004

Order. The APA entitles "any person adversely affected or aggrieved by an order or any

party to an agency proceeding" to judicial review of a final agency order. ORS

183.480(1). Petitioners claim they are aggrieved by PERB's October 2004 order setting

new employer contribution rates for the City of Eugene petitioners because the order is

"inconsistent with ORS Chapter 238 as amended by Chapters 67,68, and 625 of the

Oregon Laws 2003" and because "[ilt is in violation of PERB's fiduciary duties and

obligations." Compl. 7 32.

Standing under the APA requires "'more than * * * [an] abstract interest * * * in

the question presented * * * ."' PETA v. Institutional Animal Care and Use Comm. of the

Univ. Of Oregon, 3 12 Or 95, 101,X 17 P2d 1299 (1 99 1) (quoting Multnomah County v.

Talbot, 56 Or App 235,242,641 P2d 617 (1982)). To be an "aggrieved" person under

the ORS 183.480(1), a petitioner must show at least one of the following:

"(1) the person has suffered an injury to a substantial interest resulting directly fiom the challenged governmental action; (2) the person seeks to further an interest that the legislature expressly wished to have considered; or (3) the person has such a personal stake in the outcome of the controversy as to assure concrete adverseness to the proceeding."




Eugene. OR 97401 Phone 541485-0220

Fax 541 486-6564

PETA, 3 12 Or at 101 -02; see also Oregonian Newspaper Pub. v. Peterson, 244 Or 1 16,

121,415 P2d 2 1 (citations omitted) (1 966) ("Standing grows out of the allegation of a

substantial injury directly resulting from the challenged governmental action."). A

personal stake in the outcome means that the agency's decision will legally affect the

petitioner in some way. PETA, 312 Or at 104. "The legislature has not granted standing

under ORS 183.480(1) to those persons who merely are 'dissatisfied with the agency's

order,' or who have only an 'abstract interest * * * in the question presented * * * .'" Id.

at 1 02 (citations omitted).

Petitioners are not aggrieved by PERB's October 2004 order because how much

the City of Eugene petitioners paid in contributions during the four-year period covered

by the 1998 and 2000 contribution rate orders does not in any way affect any interest

petitioners, as members, have in the system. Petitioner White is statutorily entitled to

have her Tier One regular account credited annually with the assumed interest rate

established by PERB. All petitioners are entitled to retire with a service retirement

allowance that is calculated according to the statutory formula that provides the highest

monthly benefit. Strunk, 338 Or at 161. Petitioners' statutory rights and benefits are

unaffected by the level of any particular employer's contribution rates, unless petitioners

can prove that reducing the contribution rates of eight employers over a four-year period

would render the Fund actuarially unsound. Petitioners not only fail to allege such facts,

but allege the opposite - that PERB breached its fiduciary duties by reserving too much

out of 1999 and 2003 Fund earnings. See Compl. 77 14-29.

Although, as described below, an increase in benefits usually results in higher

employer contribution rates, the converse is not true. A decrease in the employer

contribution rates for the City of Eugene petitioners does not cause any reduction in these




Eugene, OR 97401 Phone 541485-0220 Fax 541 6866564

petitioners' statutory benefits. Because PERB's October 2004 order recalculating the

City of Eugene petitioners' employer contribution rates for 1998 and 2000 did not

"produce[] an immediate economic effect upon the [petitioners]," Oregonian Newspaper

Pub., 244 Or at 121, petitioners suffered no injury to any substantial interest in PERS as a

result of that order. Petitioners lack standing under ORS 183.480(1) to seek judicial

review of the order. Petitioners' second claim for relief should be dismissed for lack of

standing.

Moreover, PERB did not breach a fiduciary duty by recalculating the City of

Eugene petitioners' contribution rates for the period fiom 1998 through 2002. As

discussed above, PERB took action in October 2004, to recalculate the 1998 and 2000

employer contribution rates for the City of Eugene petitioners in order to comply with the

law as established by the judgment in the City of Eugene litigation - a judgment that was

wholly enforceable in October, 2004. Contrary to petitioners' assertions otherwise,

PERB has a fiduciary duty to comply with an order of a court with jurisdiction over the

trust. See 76 Am Jur 2d Trusts 9 346 (2005). Complying with the law cannot be a breach

of a trustee's fiduciary duties.

PERB had an obligation to obey the City of Eugene judgment, but even aside

from the judgment, PERB had an obligation to follow its governing statutes. For

example, ORS 238.225 allows PERB to charge employer contribution rates which are

"actuarially necessary to adequate fund the benefits to be provided by the contributions of

the employer under this chapter." It is unlawful for PERB to charge employers rates in

excess of that amount to fund benefits that exceed those provided by the PERS statutes.

However, PERB had failed to do so in several respects. But that is exactly what

happened: PERB's errors caused PERB to assess unlawfully high employer contribution

rates.




Eugene. OR 97401 Phone 5414850220

Fax 541 686-6564

For example, since 1978, PERB failed to fund the contingency reserve account

required by ORS 238.670(1). Strunk, 338 at 159 n16. This resulted in the 1998 and 2000

employer contribution rates being higher than they otherwise would have been had PERB

funded and used the contingency reserve as the law required. Additionally, since at least

1990, PERB calculated retirement benefits for PERS members using outdated mortality

factors which did not reflect then current life expectancies of PERS members, resulting in

payment of retirement benefits in amounts greater than the "actuarial equivalent of

accumulated contributions by the member and the interest thereon credited at the time of

retirement." Strunk, 338 Or at 184; see also ORS 238.300. PERB also incorrectly

calculated the variable annuity account benefits in violation of ORS 238.260(12) and

ORS 238.300(2)(a). As a result, of each of these errors, PERB paid retirement benefits in

excess of those permitted by ORS 238.300, causing the 1998 and 2000 employer

contribution rates to be unlawfully high.

PERB addressed this prior unlawful behavior through an October 2004 order

recalculating the City of Eugene petitioners' 1998 and 2000 employer contribution rates

to be consistent with the statutory imperatives. Rudnick Decl. Ex. 6 at 5. Correcting this

unlawfbl behavior can not, as a matter of law, be wrongful.

F. Petitioners' Fourth Claim for Relief Challenging PERB's October, 2004 Order Transferring Funds from the Contingency Reserve to Employer Reserves Should be Dismissed

1. Petitioners Lack Standing to Challenge This Aspect of PERB's October, 2004 Order

In the City of Eugene litigation, the petitioning employers challenged, in part,

PERB's orders issued in 1998 and 2000 that increased their employer contribution rates.

The petitioners argued that certain unlavdul and imprudent actions by PERB increased



360 East 1OthAve. Suite 300

Eugene. OR 97401 Phone 541485-0220 Fax 541 -6866564

members' retirement benefits in excess of the benefit levels provided by statute, which

caused the petitioners' employer contribution rates to rise beyond the levels necessary to

pay for statutorily-provided retirement benefits. City of Eugene, 339 Or at 117-20. As

described above, the trial court determined that PERB had acted unlawfUlly in several

respects, vacated the challenged employer contribution orders, and remanded to PERB to

recalculate the petitioners' employer contribution rates for the challenged periods as if

PERB's practices had complied with the law as determined by the trial court's opinion.

Id.; Rudnick Decl. Ex. 2 at 1 1, 14-1 5,25.

As part of its October 2004 order, PERB transferred money from the contingency

reserve to employer reserves to account for the difference between the employer

contribution rates to be paid by the City of Eugene petitioners as recalculated in

conformance with the City of Eugene judgment, and the cost of providing the excessive

benefits resulting from the Board's unlawful administration of the system as found by the

circuit court. Rudnick Decl. Ex. 6 at 5. Petitioners have no standing to challenge this

order for the same reasons they lack standing to challenge the portion of the order

recalculating the City of Eugene petitioners' contribution rates for 1998 and 2000.

Petitioners' third claim for relief should be dismissed for lack of standing. ORS

183.480(1); ORCP 2 1 A.

2. PERB Did Not Breach its Fiduciary Duty

The City of Eugene judgment specifically prohibits PERB from treating the costs

of correcting the prior Board's errors as found by the court as employer costs. See

Rudnick Decl. Ex. 2 at 1 1, 14-1 5; see also Or Laws 2003, ch 67, 5 14(b) (same). In order

to comply with the law as it existed at the time, PERB exercised its discretion to use

money from the contingency reserve to cover those excess costs. Petitioners claim that

this decision is both a violation of statute and a breach of PERB's fiduciary duties.




Eugene, OR 97401 Phone 541485-0220

Fax 541 6866564

Compl. 7 37.

ORS 238.670(1) requires PERF3 annually to fund a contingency reserve, which, in

part, "shall be maintained and used * * * [t]o provide for any other contingency that the

board may determine to be appropriate." ORS 238.670(1)( c). PERB determined that

complying with a judgment of the circuit court requiring PERB to pay for the cost of

benefits with other than employer contributions was an appropriate use of the

contingency reserves. PERB's discretion under ORS 238.670(1) is broad, and no

reasonable person could conclude that PERB's decision was an abuse of that discretion or

an unreasonable or arbitrary exercise of the power vested in PERS under ORS 238.670(1)

and the PERS statutes generally. See Rowe, 2 19 Or at 6 10; see also In re Strome, 2 14 Or

at 169.

G. Petitioners' Fifth Claim for Relief Alleging Common Law Breach of Fiduciary Duty Should be Dismissed

Petitioners' fifth claim for relief is a claim for common law breach of fiduciary

duty. This claim adds nothing new and simply realleges each of the allegations of breach

of fiduciary duties alleged in petitioner's first and second claims for relief.

1. This Court Lacks Subject Matter Jurisdiction to Consider Petitioners' Common Law Breach of Fiduciary Duty Claims

The APA is the exclusive avenue for review of the validity of final agency orders

for compliance with the law. ORS 183.480(2); Mendieta v. State, 148 Or App 586,603,

941 P2d 582 (1 997); Premier Tech. v. Oregon State Lottery, 136 Or App 124, 132,901

P2d 883 (1995). Petitioners' exclusive means for challenging the validity of the PERF3

orders referenced in petitioners' common law claim, then, was a timely petition for

review under ORS 183.480 and ORS 183.484. This court lacks jurisdiction to consider a

common law breach of fiduciary duty claim that purports to challenge the validity of


HARRANG LONG (SARY RUDNICK PC

360 East 1Mh Ave. Suite 300

Eugene. OR 97401 Phone 541485-0220 FW 541-686-6564

orders issued by PERB. The court should dismiss petitioners' fifth claim for relief for

lack of subject matter jurisdiction.

2. Petitioners' Fifth Claim for Relief is Untimely

As described above, the APA is petitioners' only available means for challenging

the validity of an agency order. ORS 183.484 requires that such a challenge to an order

in other than a contested case be filed within 60 days of the agency action. Petitioners

filed the petition for judicial review that included this claim on November 18,2004, more

than 60 days after the actions challenged in paragraphs 45 (a), (b), ( c) and (d) of the

petition were taken. Rudnick Decl. 7 8. The court should grant summary judgment in

intervenors' favor as to those allegations of breach of fiduciary duty as untimely.

3. PERB Has Not Breached Any Common Law Fiduciary Duties

With one exception, petitioners' common law breach of fiduciary duty claim

simply restates the allegations of breach of fiduciary duty made in petitioners' first and

second claims for relief. Thus, the allegations of breach of fiduciary duty made in

petitioners' fifth claim for relief fail for the same reasons petitioners' other claims fail.

In their fifth claim for relief, petitioners allege an additional breach of fiduciary

duty not addressed in their earlier claims: that PERB breached its fiduciary duty by

allocating 2003 Fund earnings to the contingency reserve and the capital preservation

reserve rather than to individual member accounts. Compl. 7 45(d). Petitioners raise the

same objections to PERB's allocation of 2003 earnings as they make with regard to the

reallocation of 1999 Fund earnings: according to petitioners, because Fund earnings on

money accumulated in members' regular accounts "belong" to the members, using those

earnings to Fund reserves in more than the most minimal amount is a breach of fiduciary

duty. As the local government intervenors have demonstrated above, petitioners' theory

of the PERS contract is wrong, and PERB did not breach its fiduciary duty by funding




Eugene, OR 97401 Phone 541-485-0220 Fax 541 ~386-6564

these reserves with 2004 earnings in the face of inadequate reserves and a Fund in deficit.

The court should dismiss each of petitioners' claims of breach of fiduciary duty

and grant intervenors' motion for summary judgment as to petitioners' fifth claim for

relief.

IV. CONCLUSION

For all the reasons stated above and because there are no disputed facts relevant to

petitioners' claims, local government intervenors' motions for summary judgment should

be granted.

DATED this 4th day of June, 2008.

H A R R A N G ~ G GARY RUDNICK P.C.

74244 William F. Gary, OSB #77032 - -

[email protected] Sharon A. Rudnick. OSB #83083 sharon.rudnick@h&ang.com Joshua P. Stump, OSB #97407 j oshua.stum~@,harrann.com Phone: (541) 485-0220 Fax: (541) 686-6564 Attorneys for Intervenors Lane County, City of Eugene, Multnomah County, City of Portland, City of Roseburg, City of Huntington, Canby Utility Board and Rogue River Valley Irrigation District

Trial Attorney: William F. Gary, OSB #77032




Eugene. OR 97401 Phone 541-485-0220 Fax 541 -6866564

CERTIFICATE OF SERVICE

I certify that on June 5,2008, I served or caused to be served a true and complete

copy of the foregoing LOCAL GOVERNMENT INTERVENORS'

MEMORANDUM IN SUPPORT OF MOTIONS FOR SUMMARY JUDGMENT

on the party or parties listed below as follows:

Via First Class Mail, Postage Prepaid Via Facsimile Via Personal Delivery

Gregory A. Hartman Aruna A. Masih BENNETT HARTMAN MORRIS & KAPLAN, LLP Suite 1650 1 1 1 S W Fifth Avenue Portland, OR 97204

Jeremy Sacks Amy Edwards STOEL RIVES LLP 900 SW Fifth Avenue Suite 2600 Portland, OR 97204

Townsend Hyatt I11 Joseph M. Malkin Sarah Marriott ORRICK, HERRINGTON & SUTCLIFFE LLP 1 120 NW Couch St., Suite 200 Portland, OR 97209

HARRANG LONG GARY RUDNICK P.C.

C 1 T - -

William F. Gary, OSB #I77032 Sharon A. Rudnick, OSB #83083 Joshua P. Stump, OSB #97407 Attorneys for Intervenors Lane County, City of Eugene, Multnomah County, City of Portland, City of Roseburg, City of Huntington, Canby Utility Board and Rogue River Valley Irrigation District

CERTIFICATE OF SERVICE P0144338.DOC;3

portland, oregon - bennett, hartman, morris & … · portland, oregon in the circuit court of...

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