Labor & Employment — State Immune from Pension Pay-In Suit

Hutto v. The South Carolina Retirement System (Lawyers Weekly No. 14-01-1152, 37 pp.) (Niemeyer, J.) No. 13-1523, Dec. 5, 2014; USDC at Florence, S.C. (Childs, J.) 4^th Cir.

Holding: State pension plan defendants in South Carolina have 11^th Amendment immunity from plaintiff public employees’ suit challenging state laws that required employees who retired, then returned to state employment after July 1, 2005, to pay into state pension plans without receiving any additional pension benefits; the 4^th Circuit affirms dismissal of plaintiffs’ suit.

Plaintiff South Carolina public employees challenged the constitutionality of the South Carolina State Retirement System Preservation and Investment Reform Act. The Act amended state retirement laws by requiring public employees who retire and then return to work to make, beginning July 1, 2005, the same contributions to state-created pension plans as pre-retirement employees but without receiving further pension benefits. Plaintiffs claimed the 2005 Act effected a taking of their private property, in violation of the Takings Clause of the Fifth Amendment and the 14^th Amendment Due Process Clause. Plaintiffs sued two state-created pension plans in which they participate: the S.C. Retirement Systems Group Trust, which holds the pension plans’ assets; and state officials serving as trustees and administrators of the pension plans. Plaintiffs sought repayment of all contributions withheld since July 1, 2005, and injunctive relief prohibiting future collection of such contributions.

The district court dismissed the complaint on the ground that all defendants have sovereign immunity.

We affirm, on slightly different reasoning. We conclude, as did the district court, that the pension plans and the Trust are arms of the state and therefore have sovereign immunity. Likewise, we conclude that the state officials sued in their official capacities for repayment of pension-plan contributions have sovereign immunity. Finally, we conclude the state officials sued in their official capacities for prospective injunctive relief have sovereign immunity because their duties bear no relation to the collection of the public employees’ contributions to the pension plans, precluding application of Ex parte Young, 209 U.S. 123 (1908). We reject plaintiffs’ argument that their claims under the Takings Clause of the Fifth Amendment are exempt from the protection of the 11^th Amendment. Every other court of appeals to have decided the question has held that the Takings Clause does not override the 11^th Amendment.

Addressing the burden of proof on immunity, we hold that because a defendant otherwise protected by the 11^th Amendment can waive its protection, it is, as a practical matter, structurally necessary to require the defendant to assert the immunity. We therefore conclude that sovereign immunity is akin to an affirmative defense, which defendant bears the burden of demonstrating. In so concluding, we join every other court of appeals that has addressed the issue.

Under U.S. ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131 (4^th Cir. 2014), a state treasury is responsible for paying a judgment where it is functionally liable, even if not legally liable. We conclude South Carolina remains functionally liable for any judgment against defendants, which is sufficient to make defendants arms of the state. In addition to the state’s potential funding obligation, we conclude that state-dignity factors weigh in favor of finding that the Retirement System and the Trust are arms of the state. Because of mixed indications as to control, we conclude that application of the control factors, if not favoring sovereign immunity, is inconclusive. The factor considering whether the entities’ concerns are local or statewide also counsels in favor of sovereign immunity. Finally, the factor assessing how South Carolina treats the entities points strongly in favor of sovereign immunity.

The relevant indicators strongly indicate that defendants are arms of the state and therefore are protected under the 11^th Amendment. This conclusion is consistent with the holdings of the overwhelming number of federal courts that have held that similar retirement systems in other states are arms of the state.

Judgment for state defendants affirmed.