Davis v. Mayor and Alderman of City of Annapolis

⁷⁰⁹ CATHELL, Judge. On May 24, 1989, and December 5, 1990, William A. Davis, appellant, an Annapolis City police officer, injured and then reinjured his right thumb. Ultimately, he applied to the Public Safety Disability Retirement Board (Board) to determine his ability to function as a police officer and for disability benefits. Several additional petitions and petitions for reconsideration were filed.

For our purposes, all were essentially denied. After the denials, petitions for mandamus or amended petitions for mandamus were filed in the Circuit Court for Anne Arundel County. The court ultimately denied the petition for mandamus filed subsequent to the Board’s last determination. The Board concluded: After due consideration of the record of this hearing, the Public Safety Disability Retirement Board finds as follows: 1.

It is the law of the City of Annapolis as presently codified at Section 3.36.080 that this Board is legally empowered to grant disability retirement benefits only to those applicants who are “wholly and permanently prevented as a result of bodily injury or disease from performing any job in the police department”. The Board decided by vote of 3-2 that this is the legal standard governing the actions of the Board. Those voting in the majority on this issue were Board Members Rodowsky, Watson and Avery. Those Board Members voting against this decision were Lord and Fellowes. 2.

Officer William A. Davis is not presently capable of performing the duties of a certified police officer of the City of Annapolis but he is not wholly and permanently prevented as a result of his injury from performing any job in the Annapolis Police Department. 3. The injury to the Applicant’s hand, which forms the basis of his application for disability retirement benefits, is service related. ⁷¹⁰ The application of Officer Davis for disability retirement is denied. Appellant presents us with two issues: I. Whether the Board’s retroactive application of section 3.36.080 impairs the appellant’s contract rights in violation of the charter and code of the City of Annapolis and the collective bargaining agreement.

II

Whether the Board abused its discretion in denying appellant’s application for occupational disability retirement. Facts Appellant was examined by several doctors to determine the cause and extent of his injuries. Dr. Settle found that appellant was disabled “from the general duties of a police officer.” Dr. Goldstein stated: “Although he has been back to light duty and clerical work, even this is difficult” and found that appellant will “likely never be able to return to the full duties of his occupation.” Dr. Dennis opined: “I do not think that this gentleman is able to fulfill his full duties.... ” Dr. Steele stated that appellant “has not regained the strength and full function required to use a firearm---- [H]e may need training for an alternative position which does not require him to use a firearm.” Dr. Steele and Dr. Dennis opined that appellant had a 37% permanent disability. There was also some expert testimony that some of the disability was caused by pain and that the pain might be reduced by additional surgery.

Appellant remained employed with the Annapolis Police Department throughout all the proceedings, capably performing the functions assigned to him. Other facts will be addressed as necessary. II We shall address appellant’s second issue first, because a legal matter pertinent to that issue is determinative of this case’s outcome. ⁷¹¹ On June 23, 1986, the applicable ordinance, 0-26-86 AMENDED, defined occupational disability retirement. The ordinance then stated that when a member was “INCAPACITATED PERMANENTLY FROM ACTIVE SERVICE ...

THE MEMBER’S DISABILITY RETIREMENT PENSION SHALL BE 66| PER CENT OF THAT MEMBER’S ANNUAL EARNINGS AT THE DATE OF RETIREMENT.” A further amendment to the disability Ordinance was passed in October of the same year (0-39-86 AMENDED) providing for a Public Safety Disability Retirement Board. The later ordinance made no substantive changes in the standard of review in respect to occupational disability retirement stated in the former ordinance. It merely created an agency (the Board) to apply the existing standards and provided for certain procedures relating to hearings, reviews, determinations, continuances, rehearings, etc. It was not until Ordinance 0-33-91 AMENDED was finally adopted, effective August 12, 1991, that the actual applicable standard was changed. 1 It stated, in relevant part, that a member would be permanently incapacitated for disability pension benefit purposes if “WHOLLY AND PERMANENTLY PREVENTED FROM ENGAGING IN ANY OCCUPATION ... OR (II) WHOLLY AND PERMANENTLY PREVENTED ...

FROM PERFORMING ANY JOB IN THE FIRE OR POLICE DEPARTMENT....” Thus, the 1991 ordinance changed the standard created by the 1986 ordinance from INCAPACITATED PERMANENTLY FROM ACTIVE SERVICE to WHOLLY AND PERMANENTLY PREVENTED FROM ENGAGING IN ANY OCCUPATION ... OR ... WHOLLY AND PERMANENTLY PREVENTED ... FROM ⁷¹² PERFORMING ANY JOB IN THE FIRE OR POLICE DEPARTMENT....

As we have noted in the instant case, the Board applied the standards set out in the 1991 ordinance. We next note that the status of the Union negotiations in 1990 or 1991, or whether the Union was appellant’s agent and spoke for him in respect to those negotiations and agreements, or even whether the ultimate agreement interfered with the contractual rights of appellant, makes no difference in our decision. As we hold that the 1986 statute should be applied in this case, the effect of the 1991 statute is not directly implicated — though some of what we shall discuss may well affect its prospective application in other cases. Impairment of Contractual Rights In pension matters, the laws of “vesting” and of “rights” and of “impairment” of contracts have been discussed primarily in foreign pension cases, but, to some extent, in Maryland as well.

The Supreme Court of Nebraska in Halpin v. Nebraska State Patrolmen’s Retirement System, 211 Neb. 892 , 320 N.W.2d 910 (1982), after holding that a patrolman’s pension rights were contractual in nature, was faced with resolving the effect of the State’s unilateral modification of the benefits. Prior to January 4, 1976, the Nebraska Board had included in the final average monthly salary for retirement computation purposes the payment received for unused vacation and sick leave. Beginning on that date, based upon an Attorney General’s opinion to the Board, unused vacation and sick leave were excluded from the computation. Id. 320 N.W.2d at 912.

There was evidence that over the years patrolmen had continually been advised that the leave and vacation credits would be included and that it factored into the patrolman’s decision to join and remain in the State Police. Some patrolmen who were eligible to retire before the change but remained also complained that the change had reduced their annuity. Id. ⁷¹³ The Court first limited its decisions to patrolmen who were members before the change, then noted the constitutional issue. “Where ... it is claimed that the contract clause prohibits a state’s statutory modification of its own obligations, the court must determine whether contractual obligations within the purview of the contract clause exist; if so, whether the state legislation ... impaired those obligations; and if there is an impairment of contract, whether it is forbidden by the Constitution.” Pineman v. Oechslin, 494 F.Supp. 525, 538 (D.Conn.1980). Id. 320 N.W.2d at 913.

In determining that pension rights were contractual in nature (overruling one of its prior cases in the process), the court acknowledged that not every modification of a contract impairs the obligation of contract under federal constitutional law. It was then determined that the change had diminished the benefits theretofore applied “without an offsetting increase in benefits.” Id. at 914. The Court also accepted that impairments are not necessarily unconstitutional and “may yet pass constitutional muster if they are ‘both reasonable and necessary’ ” to serve an important public purpose. Id. at 915 (quoting Pineman, 494 F.Supp. at 548 (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 29 , 97 S.Ct. 1505, 1521 , 52 L.Ed.2d 92 (1977))).

However ... the application of the tests of necessity and reasonableness requires a much greater degree of judicial scrutiny in cases ... involving [state action] which purports to abrogate a state’s own financial obligation than in cases involving an impairment by the state of purely private contracts. [Brackets in original.] Id. The Halpin court framed the rule: “ ‘To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.’ ” ⁷¹⁴ Id. (quoting Singer v. City of Topeka, 227 Kan. 356 , 607 P.2d 467, 475 (1980)). The court noted that various courts had held that a heavy burden on a governmental unit was not, by itself» a permitted justification for scaling down contractual benefits.

Id. The court concluded that: [T]he change would result in disadvantages to them without “comparable new advantages.” We find that the defendants’ change in calculating ... annuities resulted in an unconstitutional impairment of plaintiffs’ contractual rights____ Id. 320 N.W.2d at 916 (citation omitted). In Singer v. City of Topeka, 227 Kan. 356 , 607 P.2d 467 (1980), an officer who had been an employee for some years contended that a statute mandating increased contributions to the pension plan was an unconstitutional impairment of the officer’s pre-existing contractual pension right. The Supreme Court of Kansas held: [Ijnsofar as the rights of active employees in and to pension plans are concerned, the reasonableness of legislative changes is to be measured by the advantage or disadvantage to the affected employees as a group or groups; validity of change is not dependent upon the effect upon each employee. ... [A] municipality may make reasonable changes ... but changes which result in disadvantages ... must be accompanied by offsetting or counterbalancing advantages.

Id. 607 P.2d at 475-76 . The Nebraska and Kansas cases fairly identify the majority view of pension plans as contractual in nature though subject to modification under appropriate circumstances. There are two other views. The first is a strict contract (not unilaterally modifiable) approach as represented by Yeazell v. Copins, 98 Ariz. 109, 114-17 , 402 P.2d 541, 545-46 (1965).

Under this approach, a pension is contractual and cannot be unilaterally modified by the government under any circumstance. The second view considers pension benefits to be mere gratuities ⁷¹⁵ from the government to the employee, alterable by the government at any time. Maryland has clearly placed itself in the majority view — pension benefits are contractual, but under certain circumstances the government may unilaterally modify them so long as the changes do not adversely alter the benefits, or if the benefits are adversely altered, they are replaced with comparable benefits. In City of Frederick v. Quinn, 35 Md.App. 626, 627 , 371 A.2d 724 (1977), the primary issue presented was: [Wjhether The City of Frederick could unilaterally repeal a noncontributory police pension plan, retroactively divesting the interest of the employees who chose not to participate in a substituted contributory plan offered by the City.

We noted that the circuit court had found the employee’s pension rights were contractual in nature and had found that the employees by virtue of their service ... prior to the repeal of Article XVI, section 196 ... had vested pension