reynolds reply brief

8/11/2019 Reynolds Reply Brief

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IN THE SUPREME COURT OF THE STATE OF OREGON

EVERICE MORO, TERRI DOMENIGONI, CHARLES CUSTER

`

A OF~pRp

HAW KINS, MICHAEL .ARKEN, EUGENE D ITTER JOHN O'KIEF, MICHAEL--- ;zt&Z,,P

SMITH, LANE JOHNSON, GREG CLOUSER, BRANDON SILENCE, ALISON

VICKERY, and JIN VOEK

Petitioners,

V

STATE OF OREGO N, STATE OF OREGO N by and through the Department of

Corrections, LINN COUNTY , CITY OF PORTLAN D, CITY OF SAL EM,

TUALATIN VALL EY FIRE & RESCUE, ESTACADA SCHOOL DISTRICT,

OREGO N CITY SCHOOL DISTRICT, ONTARIO SCHOOL D ISTRICT,

BEAVERTON SCHOOL DISTRICT, .WEST LINN SCHOO L DISTRICT, BEND

SCHOOL D ISTRICT, and PUBLIC EMPLO YEES RETIREMENT BOARD ,

Respondents,

And

LEAGUE OF OREGON CITIES; OREGON SCHOOL BOARDS A SSOCIATION;

CENTRAL O REGON IRRIGATION D ISTRICT; and ASSOCIATION OF

OREGON COUNTIES,

Intervenors.

S061452 (Control)

W AYNE STANLEY JONES,

Petitioner,

V

PUBLIC EMPLOYEES RETIREMENT BOARD, ELLEN ROSENBLUM, Attorney

General and JOH N A . KITZ HABER, G overnor,

Respondents.

S061431

NIICHAEL D. REYNOL DS,

Petitioner,

V


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PUBLIC EM PLOYEES R ETIREMENT BOAR D, State of Oregon; and JOHN A.

KITZ HABE R, Governor, State of Oregon,

Respondents

S061454

GEORGE A. RIEMER,

Petitioner,

V.

STATE OF OREGON, OREGON GOVERNOR JOHN KITZH ABER, OREGON

ATTORNEY GENERAL ELLEN ROSENBLUM, OREGON PUBLIC

EMPLOYEES RETIREMENT BOARD, and OREGON PUBLIC EMPLOYEES

RETIREMENT SYSTEM,

Respondents.

S061475

GEORGE A. RIEMER,

Petitioner,

V.

STATE OF OREGON, OREGON GOVERNOR JOHN KITZH ABER, OREGON

ATTORNEY GENERAL ELLEN ROSENBLUM, OREGON PUBLIC

EMPLOYEES RETIREMENT BOARD, and OREGON PUBLIC EMPLOYEES

RETIREMENT SYSTEM,

Respondents.

S061860

PETITIONER REYNOLDS' REPLY BRIEF

Judicial Review (Original Proceeding)

Oregon Laws 2013, Chapter 53 (Senate Bi118220

Oregon Laws 2013, Chapter 2(special session) (Senate Bi11861)


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Alba.ny, OR 97321

Telephone: 541 967-3 840

Of Attorneys for Respondent Linn

County

LISA M. FRIELEY #912763

Oregon School Boards Association

PO Box 1068

Salem, OR 97308

Telephone: 503 588-2800

Of A ttorneys for Respondents Estacada,

Oregon C ity, Ontario, and

W est Linn School D istricts and

Intervenor Oregon School Boards

Association

ROB BOVETT #910267

Association of Oregon Counties

1201 Court St. NE Ste 300

Salem, OR 97301

Telephone: 971-218-0945


County

EDWARD F. TROMPKE #843653

Jordan Ramis PC

Two Centerpointe Drive, 6th Floor

Lake Oswego, OR 97035

Telephone: 503 598-5532

Attorney for Respondent Tualatin Valley

Fire & Rescue

W. MICHAEL GILLETTE #660458

LEORA CO LEMAN-FIRE # 113 5 81

SARA KOBAK #023495

WILLIAM B. CROW #610180

SCHWABE WILLIAMSON & WYATT

PC

1211 SW 5th Ave Suite 1900

Portland, OR 97 204

Telephone: 503-222-9981

Of Attorneys for Intervenor League of

Oregon Cities

SARAH K . DRESCHER #042762

Tedesco Law Group

3021 NE Broadway

Portland, OR 972 32

Telephone: (866) 697-6015

Of Attorneys for Am icus Curiae

IAFF

THOMAS A. W OODLEY

Douglas L. Steele

W OODLEY & McGILLIVARY

1101 Vermont Ave, N.W.

Suite 1000

Washington, D.C. 20005

Phone: (202) 833-8855

[email protected]

[email protected]

Of Attorneys for

Amicus Curiae IAFF

CRAIG A . CRISPIN #82485

Crispin Em ployment Law yers

1834 S W 5 8th Avenue, Suite 200

Portland, OR 97221

Telephone: (503) 293-5759

Attorney for

A micus Curiae

AARP

September, 2014


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ndex i

INDEX OF CONTENTS

ARGUMENT ....................................................1

I.

SB 822 violates 4 USC 114(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

II.

Increased benefits are not a windfall for non-resident PERS

Retirees..................................................... 4

III. SB 822 violates non-residents PER S retirees' contractual rights. ......, 6

A. Introduction .............................................6

B. Circumstances ........................................... 8

1.

Hughes

and its effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.

Chess/Stovall and HB 3349 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.

Chess/Stovall and HB 2034 (1997) . . . . . . . . . . . . . . . . . . . . . . 10

4.

Chess/Stovall

settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

C. Questions .............................................. 12

D. Argument .............................................. 13

1.

Employing ordinary statutory construction/contract

standards is appropriate in this case . . . . . . . . . . . . . . . . . . . . . . 13

2.

Properly construed, the remedial statutes substitute

increased benefits as a new term and obligation for the

tax exemption term and obligation of the PERS contract ...... 15

3. ORS 238.362(3) should not be construed to defeat

the legislature's and the parties' obvious intent . . . . . . . . . . . . . . 19


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ndex i i

4.

The nature of the obligation under the substitute term

is to pay increased benefits to

all PERS retirees .......... . .21

5.

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

CONCLUSION .................................................25

INDEX O F AUTHORITIES

Cases Cited

Eck les v. State of O regon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

306 Or 380, 397, 760 P2d 846 (1998)

H ughes v. State of O regon

314 Or 1, 838 P2d 1018 (1992) . . . . . . . . . . . . . . . . . . . 6, 8, 9, 13, 15, 19

Ragsdale v. Dep t. of Revenue,

321 Or 216, 895 P2d 1348 (1995), cert den

516 US 1011,

116 S Ct 569, 133 L 3d 2d 493 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Strunk v. PERB,

338 Or 145, 160, 108 P3d 1058 (2005) . . . . . . . . . . . . . . . . . . . . . . . .7, 20

Yogl v. D ept. of Revenue

327 Or 193, 960 P2d 373 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4, 23

Statutory Provisions

ORS 238.445(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9, 16, 17

ORS 316.127 9) ...............................................23,24

ORS 316.68

0(1)(d)

(1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . . . .9

ORS 238.362 3) ................................................ 11


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nde x i i i

ORS 238 364 25

ORS 238 366 25

O R S 23 8.3 75 (3) (2 00 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

O regon Law s 20 13 , chapter 65 3 ( SB 82 2 ) . . . . . . . . . . . . . . . . . . . . . 1,

p ssim

Oregon Law s 1997 , chap te r 175

( H B 2 03 4 ) . . . . . . . . . . . . . . . . . . . .7, 1.0, 11, 12 , 16, 18, 19 , 20, 21 , 23, 24 , 25

O r La ws 19 91, c h 8 23, 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 19

H B 33 49 ( 199 5 ) . .. .. .. .. .. .. . 4 , 5 , 6 , 7 , 10 , 11 , 12 , 16 , 18 , 19 , 20 , 22 , 23 , 24

SB' 6 56 (19 91 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 5 , 6, 7, 1 0, 17 , 18, 2 2

4 U SC 1 14 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 3 , 4

O the r Au tho r i tie s

Re s ta tem en t S econ d La w o f C on t r ac ts , 89 , com me n t b ., and 2 79 . .. .. .. .. 19

W il liston o n C ontracts, F our th Ed, 7 .37, pp 69 5-96 . . . . . . . . . . . . . . . . . . . . 19


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PETITIONER REYNOLDS' REPLY BRIEF

ARGUMENT

I. SB 822 violates 4 USC 114(a).

Respondents, including intervenors, make light of and give short shrift to

petitioner Reynolds' argument that (Oregon Law s 2013, chapter 653 ( SB 822 )

imposes an income tax within the meaning and prohibition of 4 USC 114(a), a

relatively recently adopted federal statute aimed specifically at safeguarding the

financial interests of non-resident retirees. Perhaps respondents' strategy rests on

the hope that if they do not take petitioner's argum ent seriously, this court won't

either. But whether the legislature can do indirectly what federal law prohibits it

from do ing directly is a serious issue and deserves to be treated as such.

Respondents take issue with virtually none of the propositions petitioner

advances in his opening brief. Thus, respondents do not dispute that the

federal

analysis of a tax question considers the practical impact the substance of the

reduction or exaction, not the state's label. Petitioner's Opening Brief ( POBr ) 23-

25. Nor do they dispute that analysis includes,

inter alia,

consideration of the

nature and purpose of the exaction and whether the income derived is used for

general governmental purposes. POBr 25-30. Respondents also do not

acknowledge or address petitioner's argument that

Vogl v. D epartment of Revenue,


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327 Or 193, 960 P2d 373 (1998), involved analysis of a similar federal tax

question and supports, if not drives, the analysis of the tax question at issue here.

POBr 37-43.

The state, for its part, implicitly suggests that form counts bu t substance

does not, and that state

law is what counts in asserting that SB 822's reduction does

not raise

revenue and therefore does not possess the characteristic feature of a bill

for raising revenue. State's Ans Brief ('SABr ) 80. That bare assertion, however,

ignores petitioner's explanation for why SB 822's reduction in the retirement

incomes of non-resident PERS retirees is the substantial equivalent of an income

tax on those incomes, both in terms of what the reduction achieves for government

($5.3 billion more dollars available to spend on general government services) and

the effect on non-resident retirees (reduced incomes). And the state's claim that

petitioner's argum ent would mean a benefit reduction in any public assistance

wou ld qualify as a tax disregards all parts of the federal analysis, particularly the

part that inquires as to the reason for the reduction. Here, the unquestioned and

unchallenged reason that the legislature chose to reduce non-resident retirees'

incomes is because federal law prevents the legislature from taxing those incomes.

Clearly SB 822's benefit reduction for non-resident retirees would never have

happened if the state could impose a straightforward income tax on their retirement

incomes.


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Respondent-intervenor League of Oregon Cities (LOC) contends that

petitioner's argument is flawed because SB 822 merely takes away benefit

increases that were not owed to begin with, and which the legislature recognized

needed to be discontinued. LOC answering brief ( LABr ) 84. But surely the

claim that an exaction is needed could be made for any legislatively-imposed

exaction that has been deemed to satisfy the definition of tax for federal law

purposes. And LOC's statement that the reduction merely takes away benefits that

were not owed similarly adds nothing to the analysis. If, underlying this claim,

is the suggestion that the taxing of gratuitous retirement income of non-resident

retirees does not violate 4 USC 114(a), LOC cites no authority for that

proposition. And if 4 USC 114(a) prohibits the taxation of gratuitous retirement

incomes, then it stands to reason that an exaction from those retirement incomes

that satisfy the other indicia of a tax similarly would be forbidden.

Respondent school districts and respondent-intervenors School Board's

Association and Association of Oregon Counties (the school districts ) maintain

that the fatal flaw in petitioner's tax argument is that SB 822 affects only the

calculation of the amount of [petitioner's] retirement income ***[by] removing

from the calculation the windfall benefits he has been receiving for the period he

has resided outside Oregon. School Districts' answering brief ( SDABr ) 102.

Aside from the windfall descriptor (addressed below), the school districts'

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Second, the assertion is wrong because what non-resident retirees received

in SB 65 6/HB3349 benefits was not unintended, unexpected or unforeseen by

those retirees as well. For PERS members actively employed in 1991 and 1995,

and who subsequently retired knowing full well that, if they moved out of state

after retirement their benefits would not be taxed by Oregon,

receipt of the increase

was fully expected and foreseen and likely factored into their decisions as to when

to retire as well as where to live after retiring.

Finally, the decision to extend the increases to all retirees could well have

been viewed by the legislature as simply good business. The legislature

considering HB 3349 had information that showed the state agency cost of

increased benefits to all PERS retirees would be $27.3 and $$36.4 million for the

1995-97 and 1997-99 biennia, respectively. Ex 54, p 73. Only 34% of that cost,

however ($9.3 m illion and $12.4 m illion) would com e from the state general fund,

Ibid.

Legislative staff also predicted that if the full exemption from taxation

were chosen as the policy choice, the General Fund would forego $57.8 million in

tax revenue in 1995-97, $211 million in 1997-99 and $244.5 million in 1999-01.

Ex 54, p 87. That the General Fund would benefit tremendously from taxing

retirement benefits including those of federal retirees over the alternative of

exempting all benefits from taxation, and that it could well afford to extend the

increase to all PERS retirees, are obvious.


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In summary, the SB 656/HB 3349 increases are not a windfall under any

understanding of that term . Any suggestion that they are is spurious and only m ade

to try to m ake the legislature's decision to take them away look more appealing.

III. SB

822 violates non-residents PERS retirees' contractual rights.

A. Introduction

In his opening brief, petitioner asserts that SB 822's reduction in the

retirement benefits of non-resident PER S retirees violates their contractual rights

by taking away benefits that the legislature had promised in SB 656 and H B 3349.

The legislature had used mandatory shall language with respect to the paym ent

of the increased benefits and had placed the increased benefits prov isions in the

PERS statutes, both of which under

H ughes v. State of O regon,

314 Or 1, 838 P2d

1018 (1992), signified promissory intent. POBr 46-47. As a second argument,

petitioner asserts that even assuming PERS retirees had no contractual right to the

increase, by targeting and limiting the take-aw ay to non-resident retirees, the

legislature violated the principle of residence neutrality in the paym ent of gross

retirement benefits that inheres in the PERS contract. POBr 51-53.

Respondents offer no response to petitioner's residence neutrality

argument. The state offers the following in response to petitioner's contractual

entitlement argument: 1) no consideration could support the allowance increases

because they were offered to existing retirees; and 2) HB 3349 on its face and its

6


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legislative history demonstrate that it created no contractual rights. SBr 40-44.

LOC says simply in response to an argument by petitioner Jones that the legislative

history upon which he relies does not satisfy the requisite clear and unambiguous

test. LABr 80-81

fn 40. The school districts argue SB 656 did not contain an

unambiguous promise of benefit increases and was not intended to have those

benefits be paid to persons who paid no state incom e tax (i. e. non-residents).

SD ABr 101-02. They echo the state's argument that HB 3349 made clear that it

conferred no contract rights to increased benefits.

After reviewing respondents' arguments, as well as petitioner's own

arguments, one thing is clear: those arguments do not fully account for the unique

circumstances that surrounded the legislature's enactment of SB 656 and HB 3349,

including the critical amendments enacted in Oregon Law s 1997, chapter 175 ( HB

2034 ) (collectively the remedial statutes ). Without taking those circumstances

into account, a proper analysis of wha t the legislature intended to accomplish --

and what it actually accomplished -- in enacting those statutes cannot occur. The

ultimate search, after all, is to discern the legislature's intent.

Strunk v. PER B,

338

Or 145, 175, 108 P3d 1058 (2005).

Petitioner w ill attempt in this portion of the reply brief to set out those

7

circumstances, which, petitioner submits, demonstrate that the legislature intended


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8

to and did make the increased benefits provided in the remedial statutes part of the

PERS contract. Specifically, those circumstances demonstrate the following:

first, the legislature intended that the rem edial statutes be offered

as a package

and

accepted by the

Stovall

plaintiffs as a final and complete remedy for the

impairment/breach of the tax exemption term and obligation of the PE RS contract

recognized in

Hughes;

second, the remedy that w as offered and accepted did not

take the form of damages for breach of the tax exemption obligation, but was,

rather, in the form of a substitute for or replacement of the tax exem ption term and

obligation; third, the effect of that substitution or replacemen t was twofold, in that

it 1) eliminated the tax exemption as a term and obligation of the PERS contract,

and 2) avoided further breaching of that contract; and fourth, the nature of the

obligation that the substituted term imposed was to pay increased benefits to all

PERS retirees, regardless of their individual personal income tax obligations to the

State of Oregon.

B. Circumstances

1 Hughes

and its effect

In 1991 the legislature repealed the tax exemption for PER S .retirement

benefits by leaving in place language exem pting PER S benefits from taxation but

adding an amendment stating that the exemption did not apply to personal income

taxation of PERS benefits. Or Laws 1991, ch 823, 1.

See Hughes

314 Or 10


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10

breach of the PE RS contract because it had the effect of subjecting PERS benefits

to taxation.

2

Chess/Stovall and HB 3349

The 1993 legislature took no action to provide

a Hughes remedy beyond

what the 1991 legislature had provided in SB 656 in the way of a partial offset for

the taxation of PERS benefits. As a result, litigation was begun

Chess/Stovall --

to force PERB , the state and public employers to provide an adequate remedy.

In 1995, while the

Chess/Stovall

litigation was pending, and in the hopes

that the legislation would lead to a settlemen t of that litigation, the legislature

passed HB 3349 which provided a further increase in retirement benefits. That

statute provided that it was in compensation for damages PERS mem bers

suffered or would suffer as a result of taxation of their benefits. HB 3349, 2(1).

The statute required that PERB report separately the increased benefits provided to

the IRS, reflecting that they were being made as a result of the taxation of those

benefits. 2(5). To ensure, however, that the legislation by itself would not

establish any contract rights or claim to those rights, the legislature included a

provision specifying that the bill was not creating any such rights. 2(3). Finally,

the bill provided that benefits provided under the bill would not be paid if the tax

exemption were ever reinstated. 2(2).

3 Chess/Stovall

and HB 2034 1997)


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Following passage of HB 3349, the

Chess/Stovall

litigation still did not

settle. In the 1997 legislative session, Elizabeth Harchenko from the Attorney

General's office testified in support of proposed amendments to HB 2034. By way

of background, she explained that legislation had been passed and directed a

benefit increase be paid to retirees

in lieu of the tax exemption

that had been

included as a term of their retirement benefit. Ex 55, p 15 (emphasis added). She

informed the legislature that amendments to that legislation were needed to

effectuate the settlement of the

Chess/Stovall

litigation.

Ibid.

Summ arizing that

litigation, she further explained that she

represented the state * * * and now we are at the place where we are trying

to end the litigation by getting a judgment in place that adopts the

legislation, HB 3349, as amended by these amendments - that is the

condition of the settlementapproved and accepted by the plaintiff class as

adequate compensation for taxation of their retirement benefits. It is a

package deal. These amendments are part of the condition for the

settlement.

Ibid.

One such amendm ent was repeal of the compensation for damages

reference in HB 3349, then codified at ORS 238.375(3) (now ORS 238.362(3).

HB 2034, 4. Another was repeal of the provision requiring separate reporting of

the increases to the IRS.

Ibid.

A third amendm ent modified a provision of HB

3349 to preclude a new class action from being maintairied based on a claim for

' She testified that without the amendments, she does not have a settlement and

will go back to court. Ex 55, p 15.

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12

damages arising out of the subjecting of benefits paid under this chapter to Oregon

personal income taxation by act of the Legislative Assembly. HB 2034, 4(4)(a).

The legislature passed these and other amendments.

4 Chess/Stovall

settlement

Finally, in Novem ber, 1997, and after enactment of H B 20 34, the

Chess/Stovall litigation settled. The settlement agreement expressly provided that

the plaintiffs were accepting the remedies offered in SB 656, HB 3349 and HB

2034 as full and complete satisfaction of their claims. POBr app 23.

C. Questions

Two facts should be undisputed given the foregoing circumstances: 1)

culminating with the adoption of HB 2034, the legislature intended that the

remedial statutes provide a complete remedy for the problems created by the 1991

legislature's attempt to repeal the tax exemption

in toto

and subjecting PERS

benefits to personal income tax; and 2) the

Chess/Stovall

plaintiff class accepted

the remed ies provided in those statutes in satisfaction of their claims in the

litigation.

With that as a starting point, the following questions still must be addressed:

1. In light of plaintiffs' acceptance of the remedies in the remedial

statutes, did those statutes :


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a. offer to remedy the on-going

breach of contract by providing

damages, also on an on-going basis;

b.

offer to cure the impairment

of the obligation to provide a tax

exemption, by offering to substitute for the tax exemption term of the contract a

term

providing for increased benefits, and in doing so, rem edy once and fo r all the

necessity to provide damages for an on-going breach; or

c.

Something else?

2. What standard should the court use in deciding what the legislature and

the parties actually achieved?

D. Argument

1. Employing ordinary statutory construction/contract standards

is appropriate in this case.

To quote

Hughes,

appropriately in this context, the court does not begin with

a blank slate in answering the question of the appropriate standard to be applied

in this case. 314 Or 17. This court in

Hughes

already has applied the clearly and

unambiguously expressed intent standard in determining that the tax exemption

was a term of the PERS contract. The question here is not whether the legislature

conferred a benefit that imposed on itself and future legislatures an

additional

obligation. Rather, the question is whether in conferring a different benefit it has

imposed

a substitute

obligation.

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Thus, in determining whether the state has offered a substitute benefit for a

term of the PERS contract, or something else, the court need not again apply a

clearly and unambiguously expressed intent standard. First, no question is posed

of binding future legislatures. Future legislatures already were bound to provide

the tax exemption for benefits based on work performed prior to 1991. The benefit

increase legislation imposed no additional burden. In fact, as explained earlier in

section II, from a fiscal standpoint, the state's decision to replace the tax ex emp tion

with taxation of benefits (including taxation of federal retirees' incomes) and a

benefit increase greatly

lessened

the burden that the tax exem ption had imposed.

Second, the unique context of the remedial statutes -- the

Hughes

decision

and the subsequent

Chess/Stovall

litigation that the benefit increase legislation was

attempting to resolve requires an exam ination and determination of what the

parties the legislature and the

Chess/Stovall

plaintiffs were attempting to

achieve and actually achieved by the passage of those statutes. While employing

the unam biguous intent standard is suitable in the typical unilateral contract

setting, here the setting is more in the nature of, if not in fact, a bi-lateral one. It is

undisputed here and unambiguous that the parties intended and were attempting

to finally settle the dispute over what the appropriate, complete remedy should be

in light of Hughes.

Applying an unambiguous intent standard to the details of

14


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16

with a substitute term and obligation, the tax exem ption term and obligation remain

part of the PERS contract.

And the necessary corollary to this is that the

legislature's act of subjecting those PERS benefits to personal income taxation

would constitute an on-going breach of the PERS contract, necessitating damages

or at least some form of on-going rem edy.

The 19971egislature, at a minimum, cast considerable doubt that it intended

the remedial statutes to constitute damages or the state to be in continual breach of

the PERS contract. HB 2034's amendments deleted any reference to damages in

HB 3349, thus strongly indicating that the legislative offer submitted to the

Chess/S tovall

plaintiffs was not

an offer of damages. In addition, the 1997

legislature foreclosed any new action for dam ages for breach of contract arising

from the tax ation of those benefits, again strongly indicating that it did not intend

the remedial statutes to result in an on-going breach of the. PERS contract.

Constru ing the remed ial statutes as resulting in the substitution of increased

benefits as a term and obligation for the tax exemption term and obligation of the

PERS contract, on the other hand, is consistent with the legislature's intent to

prevent an on-going breach necessitating providing damages as an on-going

remedy. Construing the remedial statutes as a substitute term means that the tax

Z

Although declared void and of no effect as to PERS retirement benefits earned for

work performed prior to 1991, the tax exemption

repeal

remains codified in ORS

238.445(2).


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exemption term would cease to be a part of the PERS contract. ORS 238.445(2),

which eliminates the tax exemption, would no longer be void as to benefits earned

prior to 1991 but would be given full effect. Subjecting PERS retiree benefits

based on work performed before 1991 to the state's personal income tax would

cease being an on-going breach. No need would exist for the legislature to pay on-

going damages.

Moreover, that construction best furthers the legislature's and the

Chess/Stovall

parties' intent that the remedial statutes afford a complete rem edy.

Construing that remedy as a substitution of one obligation (to pay increased

benefits) for another (to provide a tax exemption) provides a complete

Hughes

remedy in this case.

That construction a lso is consistent with the text of the remedial statutes as

well as the legislative history. As mentioned above and discussed in petitiorler's

opening brief, the legislature used mandatory shall language as to paym ent of the

increased benefits and included the benefit provisions in the PERS statutes, all of

which, as held in

Hughes

signify promissory intent. The increased benefits

provisions textually, therefore, stand on eq ual footing with the exem ption term,

and a substitution of the former for the latter, is simply the substitution of a

promise for a promise. And the legislative testimony from the Attorney General's

office quoted earlier that the remedial statutes were offered as a package in lieu

17


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18

of' the tax exemption exemplifies the legislative and parties' understanding that

the increased benefits provided in the remedial statutes were, in fact, a substitute

for the tax exem ption.

That the legislature actually intended to and did substitute benefit increases

for the tax obligation is supported by its inclusion of the proviso, as amended by

HB 20 34 4, that the increased benefits payable under section 3 of this 1995 Act

* * * shall not be paid in any tax year in w hich [PERS] retirement benefits * * * are

exempt in whole or in part from Oregon personal income taxation, and shall be

reduced proportionately for any tax year in which those benefits are partially

exempt. The legislature thus made it clear that payment of increased benefits is a

substitute for the tax exemption because they both cannot occur simultaneously

Construing the remedial statutes as providing a substitute term and

obligation renders moot the state's argument that SB 656 and H B 3349 could not

be contractual in nature because the offer, if there was one, was extended to

PERS mem bers already retired and, hence, there was no consideration for the offer.

See, e.g.,

SABr 23. If what the legislature did was offer to substitute one

obligation for another, this court need not decide whether the state's argument has

any horsepower on its own.3

As

Hughes

made clear, the state owed the tax

3

Petitioner agrees with the arguments in Moro petitioners' reply brief that the

state's argument has none.


26/40

19

exemption obligation to both retirees as well as still-working PERS mem bers who

performed work prior to 1991. Both classes of PERS members were represented in

the Chess/Stovall

litigation. Both classes were fully capable of accepting and did

accept the state's offer to substitute the tax exemption obligation for an increased

benefits obligation. Unilateral contract theories regarding offer and acceptance

have no application. That parties to a contract are able to substitute one agreement

for another is well settled.

See e.g.

W illiston on Contracts, Fourth Ed, 7.37, pp

695-96; Restatement Second Law of Contracts, 89, comm ent b., and 279.

3. ORS 238.362(3) should not be construed to defeat the

legislature's and the parties' obvious intent.

As m entioned earlier, the state argues that because the remedial statutes at

least, HB 3349 2(3) initially and as left unamended by H B 2034 included the

express proviso that HB 3349 w as not creating any contractual rights (OR S

238.362(3)), none could possibly have been created. Petitioner submits, however,

that, as discussed below and in his opening brief, this provision had a lim ited

purpose and shelf-life which expired when the

Chess/Stovall

litigation settled.

The legislature inserted 2(3) in HB 3349 to serve a specific purpose: to

ensure that the legislature did not contractually bind itself to the increased benefits

provided by HB 3349 in the event the

Chess/Stovall

litigation did not settle. That

purpose was fully served when the litigation did finally settle following enactment

of HB 2034 in 1997. To give this provision on-going effect means, in effect, that


27/40

the legislature

never intended

ever

to have its Hughes-recognized obligation to

provide a tax exemption replaced with one that would stop the on-going bleeding.

To give this provision on-going effect also would be inconsistent with the Attorney

General's representation to the legislature that the increased benefits were in lieu

of' the tax exemption, which was

a contractual promise.

Accordingly, in light of

other language the legislature used in H B 3349, in light of all of the legislative

history, and in light of the context of the legislative proceedings, including the

Chess/Stovall

litigation, petitioner submits that ORS 238.362(3) should, in effect,

be deemed moot.

4

Appropriately, petitioner submits, respondents do not argue that

Strunk

addressed

and settled the non-contractual nature of the remedial statutes. Petitioners in

Strunk

did not argue that the remedial statutes created contractual rights that the

2003 legislation had impaired or breached. Rather, they assumed that ORS

238.375(3) (2009) foreclosed that argument, and argued instead that the 2003

legislation breached their rights under the

Chess

settlement agreement.

Strunk

petitioners' opening brief, pp 50-51. Respondents countered that because the

settlement agreement only contained rights conferred in the remedial statutes, and

because ORS 238.375(3) expressly disavowed the existence of any such rights, the

2003 legislation could not have breached the settlement agreement.

Strunk

state

defendants' answering brief, pp 73-74. The

Strunk

court agreed that ORS

238.375(3) could not be clearer that the legislature had disavowed the creation of

any contractual rights, and with that, determined that petitioners had failed to

demonstrate that the remedial statutes created any contractual rights that the 2003

legislation could breach. Because petitioners did not assert that they had any

contractual rights under the remedial statutes, and, accordingly, did not point to

legislative context or history to try to support that argument, the court's statement

should be limited to its determination that petitioners had failed to demonstrate

that the remedial statutes conferred contractual rights, not as a holding that the

remedial statutes did not,

as a matter of law

confer those rights.

20


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21

Petitioner submits there if this court opines that it must give ORS 238.362(3 )

some on-going effect, there is one limited construction that does not undo entirely

what the legislature and the

Chess/Stovall

class were attempting to achieve. If the

statute has some effect, it should be limited to recognizing that the legislature

retained the right to re-substitute the tax exemption ob ligation for the increased

benefits obligation, a right implicitly recognized in HB 2034 4(1),

5

without

raising an impairment/breach of contract claim. Under this limited construction,

the future legislatures could adjust the respective tax exemption and benefit

increase terms as circumstances warranted, and the

Chess/Stovall

class would have

obtained the state's promise to do one or the other, but not both. That is, petitioner

submits, the only construction that arguably is consistent with the remaining text,

context and legislative history surrounding the passage of the package of statutes

designed to be a com plete remedy for the tax exem ption repeal.

4. The nature of the obligation under the substitute term is to pay

increased benefits to

all

PERS retirees.

Petitioner submits that the foregoing discussion dem onstrates that the

remedial statutes (SB 656 and HB 3349, as amended by HB 2034) were offered

and accepted as a substitute for the tax exemption term and obligation of the PERS

5

HB 2034 4(1) prevents or reduces payment of the increased benefits in any year

in which PERS retirement benefits are wholly or partially exempt from Oregon

personal income taxation.


29/40

22

contract. The only question left is the nature of the obligation.the remedial statutes

imposed. Specifically here, that question reduces to whether the remedial statutes

intended to offer the benefit increases for work perform ed prior to 1991 to all

PERS members who performed such work, including those who might, because

they moved out of state after retirement, not pay Oregon income taxes on those

benefits.

Befo re addressing this question, it should be noted that, as stated in

Eckles

v.State of

Oregon

306 Or 380, 397, 760 P2d 846 (1988), the unambiguous intent

test or rule is concerned with the existence of a contractual agreement, rather than

with the extent of the obligation created by an agreement ***. Presum ably, then,

an ordinary statutory intent analysis is to be employed in resolving the extent or

nature of the obligation question.

Exam ining the language of the remed ial statutes reveals no indication that

the legislature intended the increased benefits obligation to be limited to PERS

retirees who actually paid state income taxes. And, as discussed earlier and in

petitioner's opening brief, (POBr 9), the legislative history of HB 3349 reveals

clearly that the legislature understood the benefit increases would be paid to

retirees who paid no state income tax because they lived out of state.

6

6

That retirees who resided out of state and/or paid no state income taxes would be

receiving benefits under the remedial statutes was noted by this court in both

Ragsdale v. Department ofRevenue

321 Or 216, 230, 895 P2d 1348 (1995),

ert


30/40

As m entioned previously, school districts rely on HB 3349, as amended by

HB 2034 4(1), discussed above, that prevents or reduces payment of the increased

benefits in any year in wh ich PER S retirement benefits are who lly or partially

exempt from Oregon personal income taxation. They rely on this provision to

show the legislature never intended to pay increased benefits to non-residents in

the first place, because those residents' retirement benefits are not subject to

Oregon income tax. SDABr 70-71. School districts misconstrue HB 2034 4(1).

Petitioner submits that although it may be possible in some circumstances at

least to equate exempt from taxation with not subject to taxation, that is not

even the relevant question in this case. The question here is whether the legislature

intended exempt from taxation to include benefits that the legislature in OR S

316.127(9) has determined not to constitute income derived from sources within

this state and, for that reason, not to be included in the adjusted gross incomes for

non-residents for purposes of calculating Oregon taxes. Several indicia point to the

conclusion that the legislature did not intend them to have equiva lent meaning .

First, HB 2034 4(1) is substantively identical to HB 3349 2(2).

Legislators considering HB 3349 would not have been told by their staff that the

increased benefits under that bill would be paid to non-resident retirees who pay no

den

516 US 1011

116 S Ct 569

133 Led2d 493 1995) SB 656), and

Yogl 327

Or 193, 206, 960 P2d 373 1998) HB 3349).

23


31/40

income tax if the exem pt from taxation provision had been intended to apply to

non-residents. See POBr 9.

Second, reference in HB 2034 4(1) to benefits that are exempt from

Oregon personal income taxation is in obvious reference to the tax exem ption

for all PER S retiree benefits that the legislature eliminated in 1991.

Third, if the legislature had intended that increased benefits not be paid to

retirees who paid no incom e tax on their retirement benefits because they lived out

of state, it knew how to say so. The same year that the legislature finalized the

language in this statute it enacted the amendments to ORS 316.127(9), providing

that all retirement income received by a non-resident does not constitute income

derived from sources within this state. Had the legislature intended HB 2034

4(1) to require non-paymen t of benefits because the legislature has deemed those

benefits not to constitute Oregon source incom e for tax purposes, it could have

said, and knew how to say, so in that subsection.

Fourth, it is undisputed that, since the increased benefits authorized by the

remedial statutes started being paid, PERB has paid them to retirees living out of

state as well as to in-state retirees. If school districts are correct, then PERB all

these years has been violating the statute and paying out millions of dollars

erroneously: PERB obviously has not construed benefits exempt from taxation

to include benefits that the legislature has declared are not Oregon source income

24


32/40

for income tax purposes. That interpretation and consistent administrative

application of that interpretation certainly are illuminating here as to what the

legislature intended.

Finally, if school districts were correct, the 2011 and 2013 legislatures

would not have needed to enact Oregon Laws 2011, chapter 653 (requiring non-

paym ent of benefit increases to non-resident retirees on a prospective only basis)

or SB 822. The

requirement

not to pay increased benefits to non-residents already

would have been codified in HB 2034.

5. Summary

W hen the legislature enacted Senate Bill 822, OR S 238.364 and 238.366

contractually obligated PERB to pay increased benefits to all PERS retirees who

had retired prior to January 1, 2012, and who had earned retirement benefits based

on work performed prior to 1991. Senate Bi11822, sections 11-16 direct PERB

not to pay these increased benefits to non-resident PER S retirees, and thus either

direct PERB to breach its contractual obligation to those retirees or they remove

the obligation itself thereby impairing an obligation of the PERS contract.

CONCLUSION

For the reasons set forth above and in petitioner's opening brief, petitioner

submits that sections 11-17 conflict with federal law and are invalid. Petitioner

25

further submits that Senate Bill 822 and Senate Bill 861 impair the obligations of


33/40


34/40

CERTIFICATE OF CO MPLIANCE W ITH BRIEF

LENGTH AND TYPE SIZE REQUIREMENTS

I certify that (1) this brief complies with the word-count limitation in ORAP

5.05(2)(b) and (2) the word count of this brief (as described in ORAP 5.05(2)(a)) is

5,998 words.

I further certify that the size of the type in this brief is not smaller than 14

point for both the text of the brief and footnotes as required by ORAP 5.05(4)(f).

~ .

Michael D. Reynolds

Petitioner

pro se


35/40

CERTIFICATE OF FILING AND PRO OF OF SERVICE

I certify that I filed the original Petitioner Reynolds' Reply Brief with the State

Court A dministrator, Records Section, at 1163 S tate Street, Salem, Oregon, on Sep tember

19, 2014, by priority mail, postage prepaid.

I further certify that on S eptember 1 9, 2014 , I served true copies of P etitioner

Reyno lds' Opening B rief upon the party or parties listed below, by first class or priority

mail, postage prepaid, and addressed as follows:

GREGORY A . HARTMAN #741283

ARUNA A. MASIH #973241

210 SW Morrison St.

Suite 500

Portla.nd, OR 9720 4-3149

Telephone: 503-227-4600

Attorneys for Petitioners Moro,

Dom enigoni, Custer, Hawkins, Arken,

Ditter, O'Kief, Smith, Johnson, Clouser,

Silence, Vickery and Voek

GEORGE A. RIEMER

23206 N .Pedregosa Drive

Sun City West, AZ 85375

Telephone: 623-23 8-5039

Petitioner

pro se

WAYNE S. JONES

18 North Foachill Road

North Salt Lake, UT 84054

Telephone: 801-296-1552

Petitioner pro se

ELLEN ROSENBLUM #753239

Attorney General

ANNA M. JOYCE #013112

Solicitor General

KEITH L. KUTLER #852626

Assistant Attorney General

MATTHEW J.IVIERRITT #122206


MICHA EL A. CASPER # 062000


400 Justice Building

Salem, Oregon 97310

Telephone: 503-378-4402

Attorneys for State Respondents

HARRY A UERBACH #821830

Office of the City Attorney

1221 SW 4th Avenue, Ste 430

Portland, OR 97 204

Telephone: 503-823-4047

Attorney for Respondent City of

Portland

WILLIAM F. GARY #770325

SHARO N A. RUDNICK #830835

HARRANG LONG GARY RUDN ICK

PC

360 E. lOth Ave., Suite 300

Eugene, OR 97401

Telephone: 503-242-0000

Of Attorneys for Respondents Linn

County, Estacada, Oregon City, Ontario,

W est Linn School D istricts and


36/40

Beaverton School Districts, and

Intervenors Oregon School Boards

Association and Association of Oregon

Counties

DANIEL B. ATCHISON #040424

Office of City Attorney

555 Liberty Street SE Rm 2 05

Salem, OR 97301

Telephone: 503 588-6003

Attorney for Respondent City of Salem

EUGENE J. KARANDY II #972987

Office

of the County A ttorney

Linn County Courthouse

104 SW Fourth Avenue, Room 123

Albany, OR 97321

Telephone: 541 967-3 840

Of A ttorneys for Respondent Linn

County

LISA M. FRIELEY #912763

Oregon S chool Boards A ssociation

PO Box 1068

Salem, OR 97308

Telephone: 503 588-2800

Of Attorneys for Respondents Estacada,

Oregon City, Ontario, and

West Linn School Districts and

Intervenor Oregon School Boards

Association

ROB BOVETT #910267

Association of Oregon Counties

1201 Court St. NE Ste 300

Salem, OR 97301

Telephone: 971-218-0945


County

EDW ARD F. TROMPKE #843653

Jordan Ramis PC

Two Centerpointe Drive, 6th Floor

Lake Oswego, OR 97035

Telephone: 503 598-5532

Attorney for Respondent Tualatin Valley

Fire & Rescue

W. MICHA EL GILLETTE #660458

LEORA CO LEMAN -FIRE 9113581

SARA KOB AK #023495

WILLIAM B. CROW #610180

SCHWABE W ILLIAMSON & WYATT

PC

1211 SW 5th Ave Suite 1900

Portland, OR 97204

Telephone: 503-222-9981

Of A ttorneys for Intervenor League of -

Oregon Cities

SARAH K. DRESCHER #042762

Tedesco Law Group

3021 NE Broadway

Portland, OR 97232

Telephone: (866) 697-6015

Of Attorneys for

Amicus Cu riae IAFF

THOMA S A. WOODLEY

Douglas L. Steele

WOODLEY & McGILLIVARY

1101 Vermont Ave, N. W.

Suite 1000

Washington, D.C. 20005

Phone: (202) 833-8855

[email protected]

[email protected]

Of Attorneys for

Amicus Cu riae

IAFF

CRAIG A. CRISPIN #82485


37/40

Crispin Employment Lawyers

1834 SW 58th Avenue, Suite 200

Portland, OR 97221

Telephone: (503) 293-5759

Attorney for

Amicus Curiae AARP

'

~

Michael D. Reynolds

Petitioner

pro se


38/40

SEP 2 2 2014

MICHAEL D. REYNOLDS

Attorney at Law

8012 Sunnyside Ave N.

Seattle, Washington 98103

206-910-6568

EMAIL [email protected]

September 19, 2014

Appellate Court Administrator

Appellate Court Records Section

1163 State Street

Salem, OR 97301-2563

Re:

Reynolds v. Public Employees Retirement Board State of Oregon; and John

Kitzhaber Governor State of Oregon.

Supreme Cou rt Nos. S061454, S061452 (Control)

Dear Adm inistrator:

Enclosed fo r filing please find the original of petitioner Reynolds' Re ply Brief for filing

in the above captioned matter.

Enclosed for filing please also fmd petitioner Reynolds' Motion for Leave to Present Oral

Argument pursuant to ORAP 6.10(4)

Thank you for your attention to this matter.

Very truly yours,

Z

~~~~

1Vhchael D. Reynolds

Petitioner

pro se

MDR:mr

Encl

Cc: Gregory A. Harhnan

Aruna A. Masih

George A. Riemer

Wayne S. Jones

Ellen Rosenblum

Anna M. Joyce


39/40

State Court Administrator

September 19, 2014]

Page 2

Keith L. K utler

Matthew J. Merritt

Michael A. Casper

Harry Auerbach

William F. Gary

Sharon A. Rudnick

Daniel B. Atchison

Eugene J. Karandy

Lisa M. Friely

Rob Bovett

W. Michael Gillette

Leora Coleman-Fire

Sara Kobak

William B. Crow

Sarah K. D rescher

Thomas A. W oodley

Craig A. C rispin


40/40

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eatt(e, Washington 98103

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TO: State Court Administrator

Records Section

Supreme Court Building

1163 S tate Street

Salem, OR 97301 -2563

reynolds reply brief

Documents