Opinion
Docket Nos. 98098, 99196.
Decided February 27, 1989.
Fraser, Trebilcock, Davis Foster, P.C. (by Michael E. Cavanaugh, Gary C. Rogers and Mark A. Bush), for plaintiffs.
MacLean, Seaman, Laing Guilford (by Kenneth Laing and Kathleen R. Opperwall), for defendant.
Defendant Michigan Civil Service Commission appeals from various orders and judgments of the Court of Claims and the Ingham Circuit Court holding that the commission violated the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., by implementing certain changes in a life insurance plan for state employees. Plaintiff, Michigan State Employees Association, cross appeals from a Court of Claims judgment on damages. In a consolidated companion case, defendant commission also appeals from a Court of Claims order granting the association's motion to amend the judgment and to grant attorney fees. We affirm in part and reverse in part.
This case arose out of changes made in 1973 in the life insurance coverage available to state employees over sixty years of age. Prior to the changes, retired state employees could purchase life insurance with a maximum benefit of $2,500. Active state employees could participate in a group insurance plan that provided a life insurance benefit equal to an employee's salary, rounded up to the next thousand dollars, with a minimum benefit of $10,000. The premium rate was thirty-two cents biweekly for each $1,000 of coverage. The state paid seventy-five percent of the premium, i.e., twenty-four cents; the employee paid twenty-five percent of the premium, i.e., eight cents. All employees, regardless of age, paid the same amount.
In 1973, the Group Insurance Advisory Committee, made up of both management and employee representatives, recommended that at age sixty-one an employee's benefits be reduced fifteen percent each year until at age sixty-five an employee has twenty-five percent of the benefit he or she had at age sixty. Retirees would be affected in the same manner. Prefaced by other various committees' recommending this modification, defendant commission adopted this modification plan in December, 1973. After obtaining the necessary approvals, the modification became effective July 1, 1974.
On April 8, 1974, Congress amended the ADEA so as to make it applicable to the states as employers, effective May 1, 1974. 29 U.S.C. § 630(b). The commission's modification, having already been approved, took effect as scheduled on July 1, 1974, two months after the effective date of the pertinent amendment to the ADEA. Soon after, in the fall of 1974, the modification in the group insurance plan drew complaints. It was suggested that Michigan was not in compliance with the ADEA. The State Compensation Advisory Board recommended that the plan be rescinded. However, the plan remained viable until December, 1975, when, incidentally, one month after this lawsuit was filed, defendant commission rescinded the modification. Defendant commission ordered that, effective October 1, 1976, each active state employee, regardless of age, receive a life insurance benefit equal to his or her salary rounded up to the next thousand dollars.
In November, 1975, the employees association and one Russ Wright filed suit in Ingham Circuit Court on behalf of all other state employees age sixty-one or older who were similarly situated, alleging, among other things, that the modified insurance plan violated the ADEA. Defendant Civil Service Commission counterclaimed that, if it was liable to the employees association, the employees association, in turn, should be liable to it because members of the association participated in developing the modified plan. The circuit court thereafter confirmed the class. Approximately 1,100 potential class members responded to the notice. The following years saw the wheat separated from the chaff until the list of class members ultimately was winnowed down to a mere 146.
On April 2, 1985, the Ingham Circuit Court ruled that it did not have subject-matter jurisdiction to hear the case, but transferred the case to the Court of Claims under MCR 2.227 to be heard by the same judge who had been hearing it as a circuit judge.
On September 25, 1985, following a bench trial on the liability issue, the court found that the insurance modification plan violated the ADEA and dismissed the Civil Service Commission's counterclaim. In its order of October 23, 1985, the court provided that members of the class could collect both compensatory and liquidated damages if they could prove them.
Trial as to damages continued. By order dated October 22, 1986, the court held that the proper measure of damages for employees who had purchased replacement insurance would be the premiums paid for such insurance. Damages for the beneficiaries of employees who had died without purchasing replacement insurance would be the premiums not paid by defendant commission as a result of the modification. On January 7, 1987, the court awarded $2,227.66 in compensatory and liquidated damages to nineteen class members, but entered a judgment against the remaining 127 members.
On January 27, 1987, the commission appealed the judgments entered January 7, 1987, and October 23, 1985, and orders confirming the class and transferring the case to the Court of Claims.
On January 29, 1987, the employees association moved to amend the judgment, for partial relief from the judgment, and for costs. On February 6, 1987, the association asked for attorney fees. By order dated March 6, 1987, the court granted the motions to amend judgment and for attorney fees, but denied the motions for costs and for partial relief from the judgment. The commission also appeals from this order. The association cross-appeals from the order of January 7, 1987, and the order of March 6, 1987, denying its motion for partial relief from judgment, challenging the measure of damages.
On appeal, the parties raise several issues. First, did the circuit court err in holding that the Court of Claims had subject-matter jurisdiction? We hold that it did not.
MCL 600.6419; MSA 27A.6419 sets forth the jurisdiction of the Court of Claims, and provides in pertinent part:
Except as provided in sections 6419a and 6440, the jurisdiction of the court of claims, as conferred upon it by this chapter, shall be exclusive. The state administrative board is hereby vested with discretionary authority upon the advice of the attorney general, to hear, consider, determine, and allow any claim against the state in an amount less than $1,000.00. Any claim so allowed by the state administrative board shall be paid in the same manner as judgments are paid under section 6458 upon certification of the allowed claim by the secretary of the state administrative board to the clerk of the court of claims. The court has power and jurisdiction:
(a) To hear and determine all claims and demands, liquidated and unliquidated, ex contractu and ex delicto, against the state and any of its departments, commissions, boards, institutions, arms, or agencies.
However, this jurisdiction does not extend to claims for which an adequate remedy exists in federal court. See MCL 600.6440; MSA 27A.6440.
Here, a remedy did not exist in federal court. Although Congress can abrogate a state's Eleventh Amendment right to immunity from suit in federal court, it can do so only by making its intention "unmistakably clear" in the language of the statute. See Welch v State Dep't of Highways Public Transportation, 483 US ___; 107 S Ct 2941; 97 L Ed 2d 389, 397-398 (1987), and Atascadero State Hospital v Scanlon, 473 U.S. 234, 242; 105 S Ct 3142; 87 L Ed 2d 171 (1985), reh den 473 U.S. 926; 106 S Ct 18; 87 L Ed 2d 696 (1985). The ADEA contains no such language. See 29 U.S.C. § 626(c). Hence, the circuit court's ruling that the Court of Claims had jurisdiction is affirmed.
The commission also claims that the trial court erred when it transferred the case to the Court of Claims without requiring the association to pay the commission's expenses and reasonable attorney fees for having been in the wrong court. See MCR 2.227. We disagree.
The transfer was one in which the trial judge in circuit court assigned himself to hear the case as trial judge in the Court of Claims. The parties, issues and judge all remained the same. Although the commission asked for $75,000 in attorney fees, it had no additional expenses and the case, in fact, continued uninterrupted. The request of the commission was unreasonable. We affirm.
The next issue we address is whether the commission's modification of the group insurance plan violated the ADEA. We hold that it did.
The court found that the modification was neither economically justified nor cost motivated, and that it was a subterfuge to discriminate against employees over age sixty. After reviewing the record, we conclude that the trial court's findings of fact are not clearly erroneous, i.e., we are not left with a definite and firm conviction that a mistake has been made. Northwest Acceptance Corp v Almont Gravel, Inc, 162 Mich. App. 294, 304; 412 N.W.2d 719 (1987). As Isak Dinesen wrote in Seven Gothic Tales (New York: Smith Haas, Inc, 1934): "As we grow old we slowly come to believe that everything will turn out badly for us." And here, indeed, was an aim to bring this about.
The ADEA makes it unlawful for an employer to discriminate against any individual with regard to the terms, conditions or privileges of employment on the basis of the individual's age. 29 U.S.C. § 623(a)(1). However, the act also contained the following defense during the relevant time period:
It shall not be unlawful for an employer, employment agency, or labor organization —
* * *
(2) to observe the terms of a bona fide seniority system or any bona fide employee benefit plan such as a retirement, pension, or insurance plan, which is not a subterfuge to evade the purposes of this chapter. [ 29 U.S.C. § 623(f).]
To prevail under this defense, defendant commission had to satisfy three criteria: It must have been (1) observing the terms (2) of a bona fide insurance plan (3) that is not a subterfuge to avoid compliance with the ADEA. See, e.g., Germann v Levy, 553 F. Supp. 700, 703 (ND Ill, 1982).
The commission argues that a plan which took effect before the ADEA applied to the states cannot be a subterfuge to evade the ADEA. We disagree.
We recognize that a plan which antedated the ADEA's enactment in 1967 cannot be a subterfuge to evade that act. See, e.g., Equal Employment Opportunity Comm v Maine, 644 F. Supp. 223, 227 (D Me, 1986), aff'd 823 F.2d 542 (CA 1, 1987); Equal Employment Opportunity Comm v Orange Co, 837 F.2d 420, 423 (CA 9, 1988). The modification here, however, was adopted several years after the ADEA was enacted. Even though at the time the modification was adopted the ADEA did not explicitly apply to the states, the modification nevertheless could have been a subterfuge to evade the act because the act was in existence. Moreover, the modification did not become effective until two months after the ADEA's application to the states became effective.
The following facts support the lower court's finding that the modification was a subterfuge. Defendant commission's witness, William Holt, testified that, although the insurance coverage was reduced fifteen percent each year for an employee over age sixty, the cost of insuring that employee rose only eight to nine percent. Moreover, the surplus reserve account for this group plan grew from about $1.5 million in 1968 to $8.3 million in 1983, which showed that the program was over-financed. Finally, because the commission still contributed twenty-four cents per $1,000 of coverage after the modification, it incurred less cost in insuring employees ages sixty-one and over. Hence, we conclude that the lower court's findings are not clearly erroneous.
We also conclude that the lower court correctly awarded liquidated damages for a wilful violation of the ADEA. See 29 U.S.C. § 626(b). In the fall of 1974, just after the modification became effective, an advisory board requested that the commission rescind the modification. Moreover, by both a letter dated October 1, 1974, and an oral request, John Doyle, executive director of the employees association, requested the commission to consider whether the modification was discriminatory and violated federal law. Presumably, the commission did not seek an opinion as to the modification's legality. The commission then did not rescind the plan until December, 1975. The commission acted in reckless disregard as to whether the modification violated the ADEA. See Trans World Airlines, Inc v Thurston, 469 U.S. 111, 127-129; 105 S Ct 613; 83 L Ed 2d 523 (1985).
We now address the proper measure of damages for the beneficiaries of employees between the ages of sixty-one and sixty-five who died between July 1, 1974, when the modification took effect, and October 1, 1976, when the modification effectively was rescinded. The employees association contends that the proper measure of damages includes the insurance proceeds the beneficiaries would have received but for the discrimination. We agree. However, the trial court disagreed, relying on Fariss v Lynchburg Foundry, 769 F.2d 958 (CA 4, 1985), and awarded plaintiff's the premiums defendant would have paid if not for the modification.
The Fariss court, in addressing the damages recoverable in an ADEA case for loss of a life insurance policy provided by the employer as a fringe benefit, rejected the contention that the employer was liable for the proceeds of the life insurance policy. Instead, the court held that that employer was liable for the amount it would have paid in insurance premiums had the discrimination not occurred. The Fariss court, however, recognized the existence of contrary authority:
The question, of course, concerns the proper measure of value. We reject plaintiff's contention that the proceeds of the insurance are the appropriate measure of value here. Typically, as in this case, the insurance proceeds are paid not by the employer but by a third party insurer with whom the employer contracts. By electing this method of protecting its employees, the employer manifests an intent to limit its own expenditures to definite and regular premiums, which ordinarily provide the basis for a damages calculation. See [ Combes v Griffin Television, Inc, 421 F. Supp. 841, 844 (WD Okla, 1976)]. But see Merkel v Scoville, Inc, 570 F. Supp. 141, 146 (SD Ohio, 1983) (refusing recovery of premiums paid by employer but allowing insured medical expenses.)
* * *
We decline to follow those decisions plaintiff cites favoring recovery of insurance proceeds or covered expenses. See Merkel, 570 F. Supp at 146; Spagnuolo v Whirlpool Corp, 550 F. Supp. 432, 433 (WD N C, 1982), aff'd in part, rev'd in part on other grounds, 717 F.2d 114 (CA 4, 1983); Willett v Emory Henry College, 427 F. Supp. 631, 633 (WD Va, 1977), aff'd 569 F.2d 212 (CA 4, 1978). (Title VII). Those courts prepared to place on the employer the risk that an employee will have an insured loss after termination misconstrue the "make whole" function of the ADEA. As this court has stated, the ADEA demands "`the most complete relief possible' toward putting the victim of age discrimination back into the position he would have been in but for the unlawful discrimination." Spagnuolo v Whirlpool Corp, 717 F.2d 114, 118 (CA 4, 1983), quoting Franks v Bowman Transportation Co, 424 U.S. 747, 764; 96 S Ct 1251, 1264; 47 L Ed 2d 444 (1976). Had Mr. Fariss not been terminated, he would have been covered by a life insurance policy with a $42,000 face value for the two years before his death. This insurance coverage, not the proceeds, is the benefit for which the employer must be held liable. Here the employer would in no event have been liable to the employee for the $42,000, but only for the continuing payment of premiums. The value of being insured for a given period is precisely the amount of the premiums paid. To require the employer to pay the face value of the policy would be to compel assumption of a risk not undertaken on behalf of any other employee. [769 F.2d 965.]Merkel v Scovill, Inc, 570 F. Supp. 141 (SD Ohio, 1983), aff'd in part and rev'd in part on other grounds 787 F.2d 174 (CA 6, 1986), cert den 479 U.S. 990; 107 S Ct 585; 93 L Ed 2d 587 (1986), involved health insurance benefits. In that ADEA case, the federal district court declined to award as damages the amount defendant would have paid for insurance premiums on behalf of the employee. Because the goal is to put the employee in the position he would have been in had there been no discrimination, the district court ruled that the plaintiffs could recover medical expenses incurred since their discharge and which would have been covered. Merkel is the better-reasoned opinion.
Here, the Civil Service Commission was specifically advised by the same advisory committee which initially advocated the modification at issue that changes in federal law made the policy unlawful under the ADEA. Nonetheless, the commission continued to discriminate against employees ages sixty-one and over. The discrimination arose from a deliberate plan by which older employees were to be discouraged from continuing their employment with the classified civil service of the State of Michigan.
Requiring the commission to pay affected beneficiaries the actual difference between the insurance in effect on the date of their insureds' deaths and that which should have been in effect is far more consonant with Michigan jurisprudential principles, which recognize that compensatory damages in situations involving intentionally tortious conduct may well be higher than those arising from simple negligence, See, e.g., Veselenak v Smith, 414 Mich. 567, 574-575; 327 N.W.2d 261 (1982). Therefore, we conclude that the trial court erred in its ruling on the proper measure of damages.
The next issue concerns the trial court's grant of the association's motion to amend the judgment after the commission filed a claim of appeal from the judgment. On January 7, 1987, the trial court entered judgment on the issue of damages. The commission filed a claim of appeal from that judgment and from previous orders on January 27, 1987. On January 29, 1987, the employees association moved to amend the judgment and for partial relief from the judgment under MCR 2.612(C)(1)(a) and (f). In addition, on February 6, 1987, the association filed a motion for attorney fees and costs. On February 25, 1987, the trial court heard oral arguments on all the association's motions. By order dated March 6, 1987, the trial court granted the motion to amend the judgment and for an award of attorney fees, but denied the motion for partial relief from the judgment. The motion to amend the judgment was based on an error in calculating insurance benefits due under the modification plan to four plaintiffs.
MCR 2.611(B), which addresses amendment of judgments, states that a motion to amend must be filed within twenty-one days after entry of the judgment. The association's motion was not filed within that time limit. The trial court should have dismissed the motion as untimely. Moreover, MCR 2.612 was not the proper rule under which the association could proceed under the circumstances.
Even if the trial court could have considered the motion as timely filed, it was without jurisdiction to rule because jurisdiction had already vested with this Court. The commission filed a timely claim of appeal on January 27. The filing of that claim of appeal vested jurisdiction with this Court. MCR 7.204(B). Thereafter, the trial court was without jurisdiction to amend the judgment. MCR 7.208(A).
Finally, the trial court awarded the association attorney fees of $78,436.34. See 29 U.S.C. § 626 and 29 U.S.C. § 216(b). When an award of attorney fees is proper, it is within the discretion of the trial judge. Hensley v Eckerhart, 461 U.S. 424; 103 S Ct 1933; 76 L Ed 2d 40 (1983).
Although only 146 claims went to trial, and only nineteen members proved damages, the association prevailed on the primary issue of liability. Therefore, an award of fees was proper. The court made its award based solely on documented time spent on the case, and did so only after extensive discussion. The trial court did not abuse its discretion in setting attorney fees as it did.
Affirmed in part and reversed in part.