Sharply Divided Illinois Supreme Court Narrows Circuit Court Jurisdiction Over Pension Board Decisions

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In its second significant decision on public employee pensions of the morning, the Illinois Supreme Court has reversed the Appellate Court in The People ex rel. Madigan v. BurgeIn an opinion by Justice Anne M. Burke, joined by Justices Thomas, Karmeier and Theis, the Court holds that the Circuit Courts lack jurisdiction to hear most independent lawsuits by the Attorney General challenging decisions of the Retirement Board awarding benefits – such decisions can only be reviewed, if at all, through the traditional channels of the Administrative Review Act.

The retiree in question in Burge was a Chicago police officer from 1970 to 1993. When he retired, he was awarded retirement benefits by the Board. Several years later, a federal civil rights suit was filed alleging that plaintiff had been tortured and abused by officers under the retiree’s command, and that the retiree had known about and participated in those practices. In response to interrogatories in that lawsuit, the retiree denied any knowledge of, or participation in, the torture or abuse of any persons in the custody of the Chicago Police Department.

The retiree was indicted in 2008, charged with perjury and obstruction of justice for allegedly lying in his responses to those interrogatories (keep in mind that all this is happening long after retirement – both the interrogatory answers and the indictment). In 2010, he was convicted on all three counts and sentenced to four and a half years imprisonment. That prosecution was the only criminal activity of which the retiree has ever been convicted.

Section 5-227 of the Pension Code provides that pension benefits may not be paid to anyone “convicted of any felony relating to or arising out of or in connection with his service as a policeman.” In 2011, the Retirement Board held a hearing to determine whether the retiree’s conviction disqualified him from continuing to receive benefits from the system. The four Trustees appointed by the mayor of Chicago all voted yes, that the retiree was now disqualified. The four Trustees appointed by the police officer participants in the Pension Fund all voted no. Because terminating benefits requires a majority vote of the Board, the motion to terminate benefits was declared defeated.

A week later, the Attorney General filed suit in the Circuit Court, naming the retiree, the Board and all its individual Trustees as defendants, seeking an injunction to prohibit further pension payments to the retiree and requiring that all payments made since his conviction be refunded. The defendants filed motions to dismiss, alleging that the Circuit Court lacked subject matter jurisdiction over what amounted to a collateral attack on a routine benefits decision of the Board. The Circuit Court agreed and dismissed. The Appellate Court reversed, holding that the Circuit Court had concurrent jurisdiction over the Attorney General’s claims pursuant to Section 1-115 of the Pension Code, which authorizes the Attorney General to sue to “enjoin any act or practice which violates any provision of this Code.” 40 ILCS 5/1-115.

The Supreme Court reversed the Appellate Court. The majority notes that Section 5-189 of the Pension Code expressly confers “exclusive original jurisdiction” on the Retirement Board “in all matters relating to of affecting the fund, including . . . all claims for annuities, pensions, benefits or refunds.” That grant of authority includes deciding proposals to “increase, reduce, or suspend” any pension. 

The Attorney General argued that Section 1-115 was a sweeping grant of concurrent jurisdiction over any decision to award benefits, so long as the award violated some clause of the Pension Code. The majority disagreed, finding that the Attorney General’s construction would potentially create two tracks of Circuit Court proceedings, one via administrative review, with the Circuit Court required to give deference to the Board’s findings, and one an independent suit under Section 1-115. Such a system would inject “tremendous instability . . . into the Fund.” The majority acknowledged that “[p]reventing significant violations of the Pension Code” were “important goals,” but found that authorizing collateral attacks against any Board decision wasn’t necessary to achieve that goal, since acts in excess of jurisdiction and breaches of the Trustees’ fidicuciary duties could be challenged in separate suits. In addition, the Department of Insurance has general responsibility for examining and investigating pension funds created under the Code. But no such issue was involved in the case, the majority found. The Attorney General’s challenge to the Board’s action was merely an allegation that the Board had erred in failing to terminate benefits on the particular facts involved here – an “individualized error.”

Chief Justice Garman dissented at length, joined by Justice Thomas Kilbride. There were several problems with the majority analysis, the Chief Justice argued. First of all, read literally, Section 5-189 would give the Board exclusive original jurisdiction over its own breaches of fiduciary duty. Second, the majority ignored the breadth of the Trustees’ fiduciary duties. In addition to loyalty, the Trustees have duties to diversify (with limited exceptions), to exercise “care, skill, prudence and diligence,” and to administer in accordance with the Code.  So if the retiree’s felony conviction related to, arose out of, or was in connection with his service as a policeman, continuing to pay him benefits was a breach of the Trustees’ fiduciary duty to administer the Fund pursuant to the Code.

Even more disturbing, the Chief Justice argues, the majority’s sweeping construction of the Board’s original and exclusive jurisdiction would seem to place decisions awarding retirement benefits beyond any court review. There was no basis for believing that another system participant could intervene in a retiree’s benefit proceeding. Appeal under the Administrative Review Act was limited to parties of record aggrieved by the decision. Therefore, “[n]o party would have both incentive and ability to challenge the Board’ s error. So long as the Board awards benefits, its errors will now go unchallenged” – even if the Board chose to openly defy a decision of the Supreme Court itself.

The Chief Justice concludes that the apparent conflict between the Board’s jurisdiction and the grant of standing to the Attorney General in Section 1-115 should be resolved by looking to Federal caselaw interpreting the similar provisions of ERISA. Thus, the Attorney General would have standing to challenge benefits determinations which amount to a breach of fiduciary duty. Ordinary benefits decisions would not be subject to collateral attack.   A collateral attack on a benefits award would face a “high bar to survive a motion for dismissal or summary judgment,” but given that the Attorney General’s allegations, if proven, would amount to a breach of the Trustees’ fiduciary duty, the Attorney General had successfully surmounted that bar.

Justice Charles E. Freeman filed a separate dissent, agreeing with the Attorney General’s position that Section 1-115 grants the circuit courts concurrent jurisdiction over all benefits decisions by the Retirement Board. Like the Chief Justice and Justice Kilbride, Justice Freeman concluded that without such jurisdiction, Board decisions awarding retirement benefits would be entirely immune from any form of judicial review.

Burge will likely be overshadowed by Kanerva in reporting and commentary about today’s pension clause decisions. Nevertheless, with further legislative action on pensions quite possible, it will be interesting to see whether the Legislature returns to Section 1-115 to plug the gap identified by three members of the Court, where controversial benefits awards might entirely escape judicial review.

Image courtesy of Flickr by Anne Hornyak.

 

 

Topics:  Administrative Review Board, Jurisdiction, Pensions, Public Employees

Published In: Administrative Agency Updates, Business Torts Updates, Civil Procedure Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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