A U.S. appeals court on Wednesday reinstated — at least for now — a key part of a 2010 overhaul of the pension system for Baltimore’s police and firefighters, which a federal judge had struck down as unconstitutional.
At most, the city may have breached its contract with thousands of people covered by the plans when it changed from a variable benefit to a staggered annual cost-of-living adjustment, the 4th U.S. Circuit Court of Appeals held.
That would allow them to sue for damages, the court held, but it did not constitute a violation of the U.S. Constitution’s Contracts Clause.
Mayor Stephanie Rawlings-Blake hailed the three-judge panel’s decision Wednesday afternoon.
“I am gratified that the court decided to leave our legislation undisturbed and not set back the hard work and effort we put into a key reform that is vital to Baltimore’s fiscal future,” said Rawlings-Blake, who has maintained the pension changes will save the city about $64 million annually.
“These reforms are a key component to ensuring that we leave Baltimore in better fiscal health for future generations,” she added in the emailed statement. “I will continue to monitor further developments and expect to be in communication with the unions over the next several weeks.”
However, the decision was not a complete win for the city.
In addition to saying the plaintiffs can seek damages under a breach of contract theory, the 4th Circuit also said they can pursue a separate constitutional claim that the change amounted to an unconstitutional taking of property by the city without just compensation.
The plaintiffs’ attorney, Charles O. Monk II, said late Wednesday afternoon that no decision has been made regarding whether to appeal or return to trial court.
“We will analyze [the decision], meet with the clients and decide what the next steps are,” said Monk, who maintained that his case remains strong as a matter of both law and public policy.
The 4th Circuit’s decision is “disappointing from a procedural perspective, but on the merits, no decision was made that we don’t have a bona fide claim here,” said Monk, of Saul Ewing LLP in Baltimore.
Senior U.S. District Judge Marvin J. Garbis had ruled in September 2012 that the city’s change to a staggered COLA violated the U.S. Constitution’s Contract Clause, which prohibits states from passing any law “impairing the obligation of contracts.”
Garbis, who upheld the rest of the city’s reforms for the police and firefighters pension plans, rejected the city’s argument that this change passed constitutional muster as a “reasonable and necessary” response to a budget crunch.
Garbis, who sits in the federal courthouse in Baltimore, said the city could have achieved similar savings without discriminating on the basis of age, as the COLA did with regard to already-retired workers.
The 4th Circuit, however, said the constitution’s Contract Clause should not be used as a substitute for a state-law breach of contract claim.
“If the plaintiffs retain the right to recover damages for breach of contract, there is no impairment of contract under the Contract Clause,” Judge Barbara Milano Keenan wrote for the court.
“In the present case, the ordinance neither prevents the plaintiffs from pursuing a state law breach of contract claim nor shields the city from its obligation to pay damages should it be found in breach of contract,” Keenan added. “We hold that the plaintiffs’ allegations constitute nothing more than a mere breach of contract, not rising to the level of a constitutional impairment of obligation, and we vacate the district court’s judgment finding the city in violation of the Contract Clause.”
The 4th Circuit sent the case back to the district court to consider the unions’ argument that eliminating the variable benefit constituted an unconstitutional taking of their property interest without just compensation. Garbis had declined to consider the Takings Clause argument after striking down the pension change under the Contract Clause.
Wednesday’s opinion stopped short of expressing an opinion on the merits of either claim.
In the lawsuit, filed in 2010, the firefighter and police unions said the ordinance would “drastically impair and diminish the benefits that were promised by the City under Article 22 of its Charter in exchange for years of dedicated service by the City’s public safety workers.”
Under the plan, firefighters and police officers must now contribute to the pension fund, and retired officers and firefighters also lost a “variable benefit.”
Those who had served the city for less than 15 years were also told that they must serve 25 years instead of 20 years before being eligible for retirement.
“My clients worked for the city and they are entitled to the pension that the city promised them,” Monk said after the ruling on Wednesday. “You can’t give those people their lives back. It should be a hard test [for the city] to pass when you take away pension benefits from people who have retired.”
The case is Cherry v. Mayor and City Council of Baltimore, No. 13-1007, 4th U.S. Circuit Court of Appeals.