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IN THE MISSOURI COURT OF APPEALS EASTERN DISTRICT No. ED100209 The Firemen’s Retirement System of St. Louis, et al., and International Association of Fire Fighters Local 73, et al., Plaintiffs/Appellants, v. The City of St. Louis, Defendant/Respondent. On Appeal from the Circuit Court of the City of St. Louis, Missouri The Honorable Robert H. Dierker, Circuit Court Judge BRIEF OF RESPONDENT CITY OF ST. LOUIS THOMPSON COBURN LLP Stephen B. Higgins, #25728 Paul G. Griesemer, #24138 Amanda J. Hettinger, #55038 One US Bank Plaza St. Louis, MO 63101 Phone: (314) 552-6000 Fax: (314) 552-7000 shiggins@thompsoncoburn.com pgriesemer@thompsoncoburn.com ahettinger@thompsoncoburn.com Michael A. Garvin, #39817 Room 314 1200 Market Street St. Louis, MO 63103 Phone: (314) 622-3361 Fax: (314) 622-4956 garvinm@stlouiscity.com

Attorneys for Respondent the City of St. Louis

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TABLE OF CONTENTS Page(s) STATEMENT OF FACTS .................................................................................1 A. Benefits Under and Operation of the Dual-Plan System ..............................3 B. Basis of the Relationship between Firefighters and the Systems ................ 11 C. Funding the Dual-Plan System .................................................................. 12 POINTS RELIED ON – RESPONDENT’S BRIEF ........................................ 14 I. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT BOARD BILLS 12, 109 AND 270 WERE LAWFUL EXERCISES OF THE CITY’S HOME RULE AUTHORITY IN THAT ARTICLE VI, § 25 OF THE MISSOURI CONSTITUTION CONFERS UPON THE CITY THE RIGHT TO ENACT THE FRP AND IF THE STATE DENIED THE CITY THIS RIGHT, ARTICLE VI, § 22 OF THE MISSOURI CONSTITUTION WOULD BE VIOLATED. (RESPONDING TO APPELLANTS’ POINTS RELIED ON I, II, AND III) ...................................................................... 14

II. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT BOARD BILLS 12, 109, AND 270 DO NOT VIOLATE THE CONTRACT CLAUSES OF THE UNITED STATES AND MISSOURI CONSTITUTIONS IN THAT THERE IS NO CONTRACT BETWEEN THE CITY AND ITS FIREFIGHTERS FOR BENEFITS ACCRUED DUE TO SERVICE NOT YET PERFORMED AND EVEN IF THERE WERE, THE BENEFIT CHANGES EFFECTED BY THE ORDINANCES DO NOT CONSTITUTE A SUBSTANTIAL IMPAIRMENT. (RESPONDING TO APPELLANTS’ POINTS RELIED ON IV AND V)........................... 15 ARGUMENT ..................................................................................................... 16 I. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT BOARD BILLS 12, 109 AND 270 WERE LAWFUL EXERCISES OF THE CITY’S HOME RULE AUTHORITY IN THAT ARTICLE VI, § 25 OF THE MISSOURI CONSTITUTION CONFERS UPON THE CITY THE RIGHT TO ENACT THE FRP AND IF THE STATE DENIED THE CITY THIS RIGHT, ARTICLE VI, § 22 OF THE MISSOURI CONSTITUTION WOULD BE VIOLATED. (RESPONDING TO APPELLANTS’ POINTS RELIED ON I, II, AND III) ...................................................................... 16 1. The Circuit Court was correct in finding that the City has the right to repeal the FRS ....................................................................................... 20 2. The City has home rule power to implement the FRP ............................ 24 ii

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a. The City has the home rule authority to enact the FRP because the General Assembly has the power to create pension systems, and the City’s charter authorizes it to do so .................................................... 25 b. The FRP is valid because it does not conflict with any State law........ 28 i. Both the plain language of the FRS Statutes and the case law interpreting them support their non-exclusive nature ...................... 30 ii. The history and purpose surrounding the enactment of the FRS Statutes supports that no conflict exists between them and the FRP ......................................................................................... 37 iii. If the FRS Statutes are exclusive, they violate Article VI, §22 of the Missouri Constitution ..................................................................... 39 iv. Public policy supports that the FRS Statutes are not the exclusive avenue for the City to create a pension system for its firefighters ... 41 II. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT BOARD BILLS 12, 109, AND 270 DO NOT VIOLATE THE CONTRACT CLAUSES OF THE UNITED STATES AND MISSOURI CONSTITUTIONS IN THAT THERE IS NO CONTRACT BETWEEN THE CITY AND ITS FIREFIGHTERS FOR BENEFITS ACCRUED DUE TO SERVICE NOT YET PERFORMED AND EVEN IF THERE WERE, THE BENEFIT CHANGES EFFECTED BY THE ORDINANCES DO NOT CONSTITUTE A SUBSTANTIAL IMPAIRMENT. (RESPONDING TO APPELLANTS’ POINTS RELIED ON IV AND V)........................... 42 1. The City’s firefighters do not accrue benefits until service is performed 44 2. No contract exists between the City and its firefighters with respect to future pension accruals or contributions................................................. 47 a. Missouri law confirms that no contract exists obligating the City to pay a certain level of retirement benefits for service not yet performed as of the Effective Date .............................................................................. 50 b. Appellants’ reliance on cases from other jurisdictions is misplaced.... 57 3. The FRP does not result in a substantial impairment .............................. 66 a. There is no substantial impairment with respect to firefighters with more than twenty years of service as of the Effective Date................. 69 b. There is no substantial impairment with respect to firefighters with less than twenty years of service as of the Effective Date.......................... 72 4. The plain language of the FRP does not support Appellants’ remaining arguments with respect to the Contract Clauses ..................................... 73 CONCLUSION.................................................................................................. 77 iii

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TABLE OF AUTHORITIES Page(s) CASES ACI Plastics, Inc. v. City of St. Louis, 724 S.W.2d 513 (Mo. banc 1987) ............. 31 Adams v. Children’s Mercy Hosp., 832 S.W.2d 898 (Mo. banc 1992) ................. 19 Alumax Foils, Inc. v. City of St. Louis, 959 S.W.2d 836 (Mo. App. 1998) ........... 32 Ayers v. City of Tacoma, 108 P.2d 348 (Wash. 1940) .......................................... 29 Bakenhus v. City of Seattle, 296 P.2d 536 (Wash. banc 1956) ................. 59, 60, 67 Bd. of Stationary Eng’rs v. City of St. Louis, 212 S.W.2d 454 (Mo. App. 1948)............................................................................................... 28 Bender v. Anglin, 60 S.E.3d 756 (Ga. 1950) ............................................ 60, 61, 67 Blaske v. Smith & Entzeroth, Inc., 821 S.W.2d 822 (Mo. banc 1991) ...... 19, 40, 73 Cape Motor Lodge, Inc. v. City of Cape Girardeau, 706 S.W.2d 208 (Mo. banc 1986)............................................................................................... 24 City of Dexter v. McClain, 345 S.W.3d 883(Mo. App. 2011) .............................. 19 City of Kansas City v. Brouse, 468 S.W.2d 15 (Mo. banc 1971) ................... passim City of Kansas City v. Carlson, 292 S.W.3d 368 (Mo. App. 2009) ............... passim Civil Serv. Comm’n of St. Louis v. Members of the Bd. of Aldermen of the City of St. Louis, 92 S.W.3d 785 (Mo. 2003) .................................................... 40 Cloutier v. New Hampshire, 42 A.3d 816 (N.H. 2012) ............................ 59, 60, 67 Firemen’s Ret. Sys. v. City of St. Louis, ED86921, 2006 WL 2403955 (Mo. App. Aug. 22, 2006) ................................................................................ 62 Flemming v. Nestor, 363 U.S. 603 (1960) ........................................................... 46 Fraternal Order of Police Lodge #2 v. City of St. Joseph, 8 S.W.3d 257 (Mo. App. 1999)............................................................................. 15, 54, 55, 56 FRS v. City of St. Louis, 789 S.W.2d 484 (Mo. App. 1990) ............... 14, 20, 30, 39 Gilley v. Monsanto Co., 490 F.3d 848 (11th Cir. 2007) ....................................... 45 Grant v. Kansas City, 431 S.W.2d 89 (Mo. banc 1968) ................................. 32, 33 Halpin v. Neb. State Patrolmen’s Ret. Sys., 320 N.W.2d 910 (Neb. 1982)..... 60, 67 Hannah ex rel. Christ v. City of St. Charles, 676 S.W.2d 508 (Mo. banc 1984)................................................................................... 24, 25, 31 Harding v. Lohman, 27 S.W.3d 820 (Mo. App. 2000) ......................................... 74 Howell v. Anne Arundel Cnt’y, 14 F. Supp. 2d 752 (D. Md. 1998) ................ 66, 67 Kemmerer v. ICI Americas, Inc., 70 F.3d 281 (3d Cir. 1995)......................... 64, 65 King-Willmann v. Webster Groves Sch. Dist., 361 S.W.3d 414 (Mo. banc 2012)............................................................................................... 75 Levinson v. City of Kansas City, 43 S.W.3d 312 (Mo. App. 2001)....................... 32 Liab. Investigative Fund Effort, Inc. v. Mass. Med. Prof. Ins. Ass’n., 636 N.E.2d 1317 (Mass. 1994) ................................................................... 67, 76 Litschko v. Mehlville Fire Prot. Dist., 271 S.W.3d 634 (Mo. App. 2008) ............ 49 iv

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Local Div. 589, Amalgamated Transit Union, AFL-CIO, CLC v. Mass., 666 F.2d 618 (1st Cir. 1981)............................................................................. 66 Lord v. Erie Cnt’y, No. 08-213, 2010 WL 56095 (W.D. Pa. Jan. 5, 2010) ........... 72 McCollum v. Dir. of Revenue, 906 S.W.2d 368 (Mo. banc 1995) ........................ 29 Md. State Teachers Ass’n, Inc. v. Hughes, 594 F. Supp. 1353 (D. Md. 1984) ...... 66 Mo. Prosecuting Attorneys v. Barton Cnty., 311 S.W.3d 737 (Mo. banc 2010).... 40 Moynihan v. City of Manchester, 265 S.W.3d 350 (Mo. App. 2008).................... 49 Nat’l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451(1985) ................................................................................... passim Neske v. City of St. Louis, 218 S.W.3d 417 (Mo. banc 2007) ............................... 75 Olson v. Cory, 636 P.2d 532 (Cal. 1980) ................................................. 59, 60, 67 Oregon State Police Officers’ Ass’n v. Oregon, P.2d 765 (Ore. 1996)........... 62, 63 Page W., Inc. v. Cmty. Fire Prot. Dist., 636 S.W.2d 65 (Mo. banc 1982) ............ 29 Parella v. Ret. Bd. of R.I. Emps.’ Ret. Sys., 173 F.3d 46 (1st Cir. 1999) .............. 48 Parker v. Wakelin, 123 F.3d 1 (1st Cir. 1997) .............................................. passim Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717 (1984) ............... 44 Police Pension & Relief Bd. v. Bills, 366 P.2d 581 (Co. banc 1961) .............. 60, 67 Robertson v. Kulongoski, 359 F. Supp. 2d 1094 (D. Or. 2004) ............................ 66 Scott v. Williams, 107 So.3d 379 (Fla. 2013) ....................................................... 51 Singer v. Topeka, 607 P.2d 467 (Kan. 1980)........................................................ 63 Snow v. Abernathy, 221 So.2d 626 (Ala. 1976) ................................................... 59 SSM Cardinal Glennon Children’s Hosp. v. State, 68 S.W.3d 412 (Mo. banc 2002)............................................................................................... 74 State ex rel. Breshears v. Mo. State Emps. Ret. Sys., 362 S.W.2d 571 (Mo. banc 1962)................................................................................... 52, 53, 54 State ex rel. Hazelwood Yellow Ribbon Committee v. Klos, 35 S.W.3d 457 (Mo. App. 2000)....................................................................................................... 31 State ex rel. Phillip v. Pub. Sch. Ret. Sys. of City of St. Louis, 262 S.W.2d 569 (Mo. banc 1953) ....................................................................................... passim Sunder v. U.S. Bancorp Pension Plan, 586 F.3d 593 (8th Circ. 2009) ................. 45 Sylvestre v. Minn., 214 N.W.2d 658 (Minn. 1973)......................................... 61, 68 Tomlinson v. Kansas City, 391 S.W.2d 850 (Mo. banc 1965) ............ 15, 51, 52, 56 Transport Workers of Am., Local 290 v. Se. Penn. Trans. Auth., 145 F.3d 619 (3d Cir. 1998) ............................................................................. 65 Trantina v. Bd. of Tr. of Firemen’s Ret. Sys. of St. Louis, 503 S.W.2d 148 (Mo. App. 1973)............................................................................. 30, 31, 41, 42 U.S. Trust Co. of N.Y. v New Jersey, 431 U.S. 1 (1977)........................... 43, 44, 66 W. Central Mo. Regional Lodge No. 50 v. Bd. of Police Comm’rs of Kansas City, 939 S.W.2d 565 (Mo. App. 1997)................................................ 56 Wagoner v. Gainer, 279 S.E.2d 636 (W.Va. 1981)............................ 59, 60, 61, 67 Watts v. Lester E. Cox Med. Ctrs., No. SC 91867, 2012 WL 3101657 (Mo. banc July 31, 2012).................................................................................. 19 v

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XO Mo., Inc. v. City of Maryland Heights, 256 F. Supp. 2d 966 (E.D. Mo. 2002) ............................................................................................... 43 STATUTES/ORDINANCES § 432.070 RSMo. ................................................................................................ 49 § 71.015 RSMo. .................................................................................................. 31 § 71.101 RSMo. .................................................................................................. 33 §§ 87.120-.370 R.S.Mo. ............................................................................... passim CITY OF ST. LOUIS CHARTER, Art. XVIII, §§ 3(r), 4(b).................................. 24, 28 CITY OF ST. LOUIS ORDINANCE 69149.......................................................... passim CITY OF ST. LOUIS ORDINANCE 69245.......................................................... passim CITY OF ST. LOUIS ORDINANCE 69353.......................................................... passim ST. LOUIS CITY CODE CHAPTER 4.18............................................................ passim OTHER AUTHORITIES Amy B. Monahan, Statutes as Contracts? The “California Rule” and Its Impact on Public Pension Reform, 97 IOWA L. REV. 1029 (2011) ............................... 50 David M. Sollors, The War on Error: The Scrivener's Error Doctrine and Textual Criticism: Confronting Errors in Statutes and Literary Texts, 49 SANTA CLARA L. REV. 459 (2009) .......................................................................................... 69 Thomas N. Sterchi, Comment, State-Local Conflicts Under the New Missouri Home Rule Amendment, 37 MO. L. REV. 677, 681 (1972).......................... 37, 38 CONSTITUTIONAL PROVISIONS MO. CONST. ARTICLE I, § 13 ............................................................................... 15 MO. CONST. ARTICLE VI, § 19(a) ................................................................. passim MO. CONST. ARTICLE VI, § 22 ................................................................ 14, 39, 40 MO. CONST. ARTICLE VI, § 25 .......................................................... 14, 25, 27, 29 MO. CONST. ARTICLE VI, § 31 ............................................................................ 24 MO. CONST. ARTICLE VI, § 32............................................................................. 24 U.S. CONST. ARTICLE I, § 10............................................................................... 15

vi

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STATEMENT OF FACTS Pursuant to Missouri Supreme Court Rule 84.04(f), Respondent offers the following facts: The City of St. Louis (the “City”) established by ordinance The Firemen’s Retirement System (the “FRS”), effective January 1, 1960, and pursuant to §§ 87.120-.370 R.S.Mo. (Appellants’ App. A284-A306). See ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273). See also § 87.125 RSMo. (Appellants’ App. A285). At various times since, through ordinances passed by the Board of Alderman and signed by the Mayor, the City amended the FRS. These ordinances are codified in Chapter 4.18 of the Revised Code of the City of St. Louis. (Appellants’ App. A250-A275). From the inception of the FRS, and through every amendment, the ordinances explicitly reserved to the City the unilateral right to amend or repeal the FRS at any time. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). See also Trial Tr. vol. 3, 111, March 19, 2013. The FRS is a pension plan that provides retirement income, disability, and survivor death benefits to firefighters employed by the City of St. Louis. See generally ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273). Between 2001 and 2011, due to the cumulative effect of increases in the total pension benefits over the past twenty years and actuarial losses exceeding $256,000,000, the City’s required annual payment to the FRS increased by 586%, from $3,365,007 to $23,072,000. Trial Tr. vol. 1, 550-57 August 24, 2012; Defs.’ 1

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Trial Ex. H. See also CITY OF ST. LOUIS ORDINANCE 69245 (referred to as Board Bill 12) (Appellants’ App. A79-A144), as amended by CITY OF ST. LOUIS ORDINANCE 69353 (referred to as Board Bill 109) (Appellants’ App. A145A169).1 By 2011, the cost of funding the FRS represented approximately 56% of the total firefighter’s payroll, compared to 10.3% in 2001. Defs.’ Trial Ex. H; see also STL ORD. 69245, Whereas Clauses (Appellants’ App. A80). To address these increases in pension costs attributable to the FRS and the resulting fiscal stress upon the City, the Board of Alderman enacted and the Mayor signed a series of ordinances establishing a dual-plan pension system for firefighters. Specifically, Ordinance 69149 (referred to as Board Bill 270) (Appellants’ App. A170-175), as amended by Ordinance 69353 (Appellants’ App. A145-A169), repealed the FRS and discontinued the accrual of pension benefits for service performed and compensation paid after February 1, 2013 (the “Effective Date”).2 Ordinance 69245, as amended, established a new pension plan
1

Hereinafter, Ordinance 69245, as amended by Ordinance 69353, will be cited as

“STL ORD. 69245.” Appellants’ Appendix contains a stipulated redline of Ordinance 69245 as amended by Ordinance 69353 at A179-A250. Respondent’s appendix cites will refer to this comparison as well as to the actual ordinances where appropriate to assist this Court.
2

Hereinafter, Ordinance 69149, as amended by Ordinance 69353, will be cited as

“STL ORD. 69149.” Appellants’ Appendix contains a stipulated redline of 2

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known as the “The Firemen’s Retirement Plan” (“FRP”) to provide retirement income, disability, and survivor death benefits for service rendered after the Effective Date. (Appellants’ App. A79-A144; A145-169; A179-250). Together, these plans constitute a dual-plan system. The net annual cost savings to the City from implementing the dual-plan system is projected to be $4.8 million in the first year, with a total estimated savings of $53 million over thirty years. Trial Tr. vol. 3, 86-87, March 19, 2013; Defs.’ Trial Ex. L. The dual plan system discontinues the accrual of pension benefits under the FRS for service performed and compensation paid after the Effective Date and establishes a new pension plan, the FRP, to provide retirement income, disability, and survivor death benefits for service rendered after the Effective Date. See generally STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176178) and STL ORD. 69245 (Appellants’ App. A79-A144; A145-A169; A179A250). A. Benefits Under and Operation of the Dual-Plan System

The FRS will pay retirement income benefits based only on service rendered and compensation paid up to the Effective Date. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See also STL ORD. Ordinance 69149 as amended by Ordinance 69353 at A176-A178. Respondent’s appendix cites will refer to this comparison as well as to the actual ordinances where appropriate to assist this Court. 3

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69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207); Trial Tr. vol. 3, 96-97, March 19, 2013. Service after the Effective Date will be recognized by the FRS only for purposes of determining eligibility to receive a retirement income benefit, such as vesting and the pension commencement date. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197A207); Trial Tr. vol. 3, 20-31, 95-97, March 19, 2013. Years of service rendered and compensation paid after the Effective Date will not increase the amount of benefits to be paid by the FRS. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See also STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). No employee contributions will be made to the FRS with respect to payroll periods beginning on or after the Effective Date. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See also STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). The FRS will continue to pay retirement income benefits to members who retired before the Effective Date; disability benefits to members who became disabled before the Effective Date; and survivor benefits to surviving spouses and beneficiaries of members who died before the Effective Date. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178); see also ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273).

4

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The FRP will provide retirement income benefits for service rendered after the Effective Date. See generally STL ORD. 69245 (Appellants’ App. A79-A144; A145-A169; A179-A250). See also Trial Tr. vol. 3, 41-42, March 19, 2013. Employee contributions for payroll periods on or after the Effective Date will be made to the FRP. STL ORD. 69245, § 4.19.030 (Appellants’ App. A90-A91; A150-A151; A191-A192). See also STL ORD. 69149 (Appellants’ App. A170A175; A145-A169; A176-178). Disability benefits for a participant who becomes disabled after the Effective Date will be paid from the FRP. STL ORD. 69245, § 4.19.070 (Appellants’ App. A104-A110; A157-A160; A207-A214); see also STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). Survivor benefits for a beneficiary of a participant who dies after the Effective Date will be paid from the FRP. STL ORD. 69245, § 4.19.080 (Appellants’ App. A110-A115; A160-A163; A214-A219). See also STL ORD. 69149 (Appellants’ App. A170A175; A145-A169; A176-178); Trial Tr. vol. 3, 28, March 19, 2013. A firefighter who was active as of the Effective Date and retires after completing at least 20 years of service can immediately receive his unreduced retirement income benefit accrued under the FRS, plus a cash refund of his employee contributions made to the FRS in full. See ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273); STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). A firefighter who terminates employment before completing 20 years of service receives only a refund of his contributions to the FRS plus interest. See ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ 5

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App. A250-A273); see also Trial Tr. vol. 1, 135, August 22, 2012. The same refund provisions apply under the FRP. STL ORD. 69245 (Appellants’ App. A79A144; A145-A169; A179-A250). No firefighter will receive a pension benefit based on the same years of service from both the FRP and the FRS. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also Trial Tr. vol. 3, 93, March 19, 2013. Retirement income benefits under the FRP are calculated in substantially the same way as under the FRS, except that after the Effective Date the FRP will calculate the benefit based on years of service credited under both plans, and then offset the benefit that is payable from the FRS. Compare ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273) with STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also Trial Tr. vol. 3, 27, March 19, 2013. In effect, the retirement income benefit paid by the FRP will be based solely on years of service rendered after the Effective Date, but the rate of accrual for each such year will be based on total years of service as a firefighter. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197A207). See also Trial Tr. vol. 3, 27, March 19, 2013. Retirement income benefits attributable to compensation paid after the Effective Date accrue only under the FRP. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207); see also STL ORD. 69149 (Appellants’ App. A170-A175; A145A169; A176-178); Trial Tr. vol. 3, 27, March 19, 2013. 6

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Specifically, the benefits the FRS will pay to a participant who retires on or after the Effective Date will never be less than the amount of the benefits accrued under the FRS as of the Effective Date. STL ORD. 69149 (Appellants’ App. A170A175; A145-A169; A176-178). See also STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). For participants with at least 20 years of service as of the Effective Date, the retirement income benefit formula under the FRP is the same as the benefit formula under the FRS. Compare ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273) with STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). The retirement income benefit payable under the FRP, when combined with the benefit payable from the FRS, is the same in all material respects as the total retirement income benefit that would have been payable to such a participant under the FRS if it had not been repealed. Compare ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273) with STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). For participants with fewer than 20 years of service as of the Effective Date, the retirement income benefit formula under the FRP is the same as the retirement income benefit formula under the FRS in all material respects, with two exceptions. Compare ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273) with STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). First, the retirement income benefit for service 7

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performed after the Effective Date will be actuarially reduced if such a participant elects to receive such benefit commencing before attaining age 55. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also Trial Tr. vol. 3, 117, March 19, 2013. Second, employee contributions from such firefighters are increased from 8% to 9% and are not refundable from the FRP upon retirement. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also Trial Tr. vol. 3, 95, March 19, 2013. This increase in contribution rate for participants with fewer than 20 years of service applies solely to retirement income benefits attributable to service rendered after the Effective Date. STL ORD. 69245, §§ 4.19.030 (Appellants’ App. A90-A91; A150-151; A191-192) and 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). The FRP provides a slightly lower rate of accrual of benefits for participants hired on or after the Effective Date. STL ORD. 69245, §§ 4.19.030.050 (Appellants’ App. A90-A95; A150-A151; A191-A197). Such participants will contribute 9% of their annual compensation, which is nonrefundable. STL ORD. 69245, § 4.19.030 (Appellants’ App. A90-A91; A150-151; A191-192). Retirement income benefits that commence before age 55 will be actuarially reduced. STL ORD. 69245, § 4.19.050 (Appellants’ App. A92-A95; A194-A197). Such participants who leave after completing at least 10 years of service will have the option of receiving a deferred vested retirement income. STL ORD. 69245, § 4.19.050 (Appellants’ App. A92-A95; A194-A197). 8

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The FRS included a deferred retirement option plan (“DROP”), which allowed a participant who was eligible for retirement to begin receiving his pension while continuing to work and at the same time receive a full salary. CITY
OF ST. LOUIS CODE 4.18.131 (Appellants’

App. A257-A258). The retirement

income benefits for a participant in DROP are credited to an account that earns interest, and are paid in cash to the participant in a lump sum upon retirement. CITY OF ST. LOUIS CODE 4.18.131 (Appellants’ App. A257-A258). Years of service completed while in DROP do not count as credited service for accrual of retirement income benefits. CITY OF ST. LOUIS CODE 4.18.131 (Appellants’ App. A257-A258). A firefighter who continues to work after the end of the DROP period accrues additional retirement income benefits based on service rendered and compensation paid after the end of the DROP period, and his retirement income benefit upon retirement reflects those increases. CITY OF ST. LOUIS CODE 4.18.131 (Appellants’ App. A257-A258). Trial Tr. vol. 3, 26-30, 69-73, March 19, 2013. The FRP continues the FRS DROP program in all material respects. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178); Trial Tr. vol. 3, 28-29, 69, March 19, 2013. The only change is that under the FRP DROP program, any participant with less than 20 years of service as of the Effective Date and who enters DROP before age 55 will have an actuarial reduction applied to his retirement income benefit attributable to service rendered 9

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after the Effective Date. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95A104; A152-A158; A197-A207). See also Trial Tr. vol. 3, 117, March 19, 2013. A member of FRS who is participating in DROP on the Effective Date will continue to have retirement income payments credited to his DROP account under the FRS so long as the participant continues in DROP. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See also Trial Tr. vol. 3, 28, March 19, 2013. Such a participant will earn no additional benefits while in DROP, because his service while in DROP is disregarded. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See also CITY OF ST. LOUIS CODE 4.18.131 (Appellants’ App. A257-A258); Trial Tr. vol. 3, 28, March 19, 2013. The benefit credited to his DROP account in FRS will be paid upon termination of employment. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). See also CITY OF ST. LOUIS CODE 4.18.131 (Appellants’ App. A257-A258). If such a participant continues in employment after the DROP period, all retirement income benefits attributable to service rendered after the DROP period will accrue under the FRP. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178); Trial Tr. vol. 3, 28-29, March 19, 2013. Under the dual-plan system, sick pay accrued before the Effective Date can be converted by a Participant who is participating in DROP into a combination of cash, additional years of service, and final average compensation for retirement 10

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income benefit purposes in the same manner as permitted by the existing FRS ordinances. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152A158; A197-A207). No firefighter will earn retirement income benefits under both the FRS and FRP simultaneously. Trial Tr. vol. 3, 79-80, 93, March 19, 2013. See also STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). The benefit earned or accrued on account of service performed before the Effective Date will be paid entirely from the FRS, and the benefit earned or accrued on account of service performed after the Effective Date will be paid entirely from the FRP. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). See also STL ORD. 69149 (Appellants’ App. A170A175; A145-A169; A176-178); Trial Tr. vol. 2, 100, March 18, 2013.3 The FRP pension plan trust fund is actuarially sound. Trial Tr. vol. 3, 19, March 19, 2013. B. Basis of the Relationship between Firefighters and the Systems

While membership in a pension plan is a condition of employment, no firefighter is compelled to accept employment with the City. Trial Tr. vol. 1, 4546, August 21, 2012; see also Trial Tr. vol. 1, 521-23, August 24, 2012. No contract exists between the City and its firefighters with respect to pension benefits, beyond the terms set forth in legislation applicable to their pension

3

The transcript in the record is mistakenly dated March 18, 2010. 11

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benefits. Trial Tr. vol. 1, 45-46, August 21, 2012; see also Trial Tr. vol. 1, 521-23, August 22, 2012. The City does not provide a firefighter with any specific description of pension benefits before he or she is hired. Trial Tr. vol. 1, 521-23, August 24, 2012. Typically within one week to ten days after the City hires a firefighter, he attends an orientation presentation by the FRS and receives a description of pension benefits from the FRS, including the provision of St. Louis City Code Chapter 4.18 that permits the City to amend or repeal the FRS at any time. Trial Tr. vol. 1, 46, August 21, 2012; see also Trial Tr. vol. 1, 251-252, 256-57, August 22, 2012 (firefighter admitting he had read the provision reserving the right to amend or repeal the FRS). C. Funding the Dual-Plan System

Under the Ordinances establishing the dual plan system, the City is obligated to ensure that all pension benefits due to a firefighter by the FRS and by the FRP will be paid. See ST. LOUIS CITY CODE Chapter 4.18 (Appellants’ App. A250-A273); STL ORD. 69245, § 4.19.120 (Appellants’ App. A85-A90; A163A164; A228-A230). The annual contribution required by the FRS and by the FRP is paid by the City in an amount as determined by each system’s actuary. ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273); STL ORD. 69245, § 4.19.120 (Appellants’ App. A85-A90; A163-A164; A228-A230). The City’s obligation to fund the FRP at an actuarially sound level may not be diminished by subsequent amendments to the Plan. See ST. LOUIS CITY CODE 12

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CHAPTER 4.18 (Appellants’ App. A250-A273); STL ORD. 69245, § 4.19.160 (Appellants’ App. A140; A164; A242-A243).

13

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POINTS RELIED ON RESPONDENT’S BRIEF I. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT

BOARD BILLS 12, 109 AND 270 WERE LAWFUL EXERCISES OF THE CITY’S HOME RULE AUTHORITY IN THAT ARTICLE VI, § 25 OF THE MISSOURI CONSTITUTION CONFERS UPON THE CITY THE RIGHT TO ENACT THE FRP AND IF THE STATE DENIED THE CITY THIS RIGHT, ARTICLE VI, § 22 OF THE MISSOURI CONSTITUTION WOULD BE VIOLATED. (RESPONDING TO APPELLANTS’ POINTS RELIED ON I, II, AND III)  City of Kansas City v. Brouse, 468 S.W.2d 15 (Mo. banc 1971)  FRS v. City of St. Louis, 789 S.W.2d 484 (Mo. App. 1990)  MO. CONST. ARTICLE VI, § 25  MO. CONST. ARTICLE VI, § 22  MO. CONST. ARTICLE VI, § 19(a)  ST. LOUIS CITY CODE CHAPTER 4.18  ST. LOUIS CITY ORDINANCE 69149  ST. LOUIS CITY ORDINANCE 69353  ST. LOUIS CITY ORDINANCE 69245

14

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II.

THE CIRCUIT COURT DID NOT ERR IN FINDING THAT

BOARD BILLS 12, 109, AND 270 DO NOT VIOLATE THE CONTRACT CLAUSES OF THE UNITED STATES AND MISSOURI CONSTITUTIONS IN THAT THERE IS NO CONTRACT BETWEEN THE CITY AND ITS FIREFIGHTERS FOR BENEFITS ACCRUED DUE TO SERVICE NOT YET PERFORMED AND EVEN IF THERE WERE, THE BENEFIT CHANGES EFFECTED BY THE ORDINANCES DO NOT CONSTITUTE A SUBSTANTIAL IMPAIRMENT. (RESPONDING TO APPELLANTS’ POINTS RELIED ON IV AND V)  Tomlinson v. Kansas City, 391 S.W.2d 850 (Mo. banc 1965)  State ex rel. Phillip v. Pub. Sch. Ret. Sys. of City of St. Louis, 262 S.W.2d 569 (Mo. banc 1953)  Fraternal Order of Police Lodge #2 v. City of St. Joseph, 8 S.W.3d 257 (Mo. App. 1999)  MO. CONST. ARTICLE I, § 13  U.S. CONST. ARTICLE I, § 10  ST. LOUIS CITY CODE CHAPTER 4.18  ST. LOUIS CITY ORDINANCE 69149  ST. LOUIS CITY ORDINANCE 69353  ST. LOUIS CITY ORDINANCE 69245

15

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ARGUMENT I. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT

BOARD BILLS 12, 109 AND 270 WERE LAWFUL EXERCISES OF THE CITY’S HOME RULE AUTHORITY IN THAT ARTICLE VI, § 25 OF THE MISSOURI CONSTITUTION CONFERS UPON THE CITY THE RIGHT TO ENACT THE FRP AND IF THE STATE DENIED THE CITY THIS RIGHT, ARTICLE VI, § 22 OF THE MISSOURI CONSTITUTION WOULD BE VIOLATED. (RESPONDING TO APPELLANTS’ POINTS RELIED ON I, II, AND III) At issue in this appeal are two pension systems for firefighters employed by the City of St. Louis. The FRS is the system under which the City’s firefighters have historically accrued their pension. However laudable the FRS concept was back when it was founded, the system has devolved into an uncontrolled drain on City resources. When FRS lacks sufficient resources to fund benefits, taxpayers are required to make up the difference. It is undisputed that FRS sustained actuarial losses of $256 million from 2001 through 2011. Trial Tr. vol. 1, 550-57, August 24, 2012; Appellants’ App. A41; A279-280. During the same period, the contributions required from City taxpayers increased from a little more than $3 million in 2001 to more than $21 million in 2011, an increase of 529 percent. Trial Tr. vol. 1, 550-57, August 24, 2012; Appellants’ App. A41; A279-280.

16

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The City has elected to repeal the FRS, a right it has explicitly reserved to itself since first implementing the system in 1960. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). See also STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). The FRS remains in effect today for the limited purpose of administering and paying all benefits accrued attributable to services rendered before February 1, 2013. Id. Once all accrued benefits are paid by the FRS, the system will terminate. Id. No firefighter may accrue any benefits under the FRS for services performed after February 1, 2013. Id. The City enacted the FRP pursuant to its home rule authority effective February 1, 2013. STL ORD. 69245 (Appellants’ App. A79-A144; A145-A169; A179-A250). The FRP will pay all benefits accrued by the City’s firefighters attributable to services performed after February 1, 2013. Id. When the statues that enabled the City to implement the FRS (“the FRS Statutes”4) were first enacted in 1957, no city in Missouri was constitutionally authorized to enact a pension plan absent explicit enabling authority from the General Assembly. Since then, the Missouri Constitution has been amended twice to provide that constitutional charter cities—such as the City of St. Louis—have powers co-extensive with the General Assembly, which includes the power to enact a pension system unless explicitly prohibited from doing so by law.
4

“The FRS Statutes” refers to § 87.120-.370 RSMo. 17

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Nothing in Missouri law prohibits the City from enacting a pension system for its firefighters. While Appellants argue that the FRP conflicts with the FRS Statutes, and is therefore invalid, this is not the case. A conflict exists only if the FRS Statutes are construed to require the City to choose between providing firefighters the pension the FRS Statutes enable or providing no pension at all. But this construction is wrong, for a number of reasons: First, because Missouri courts presume the validity of legislation, a construction that supports the validity of the ordinances establishing the FRP is the preferred one. Second, construing the FRS Statutes to require the City to choose between the pension enabled by them or no pension at all would violate the constitutional prohibition against the State’s fixing the compensation of employees of local governmental entities. Third, although enabling legislation authorizing the City to provide a pension plan may have been necessary years ago when the FRS Statutes were initially enacted, such legislation is no longer required. The FRS Statutes should be read in light of their purpose at the time they were enacted. That purpose—to provide firefighters with a pension—would be frustrated by an interpretation of the FRS Statutes that would render the FRP void. Specifically, Appellants argue that the City is without power to repeal the FRS and implement the FRP. The Circuit Court was correct in rejecting these arguments, as explained in detail in its preliminary injunction opinion. (Appellants’ App. A1-A34). With respect to the FRS, the City explicitly retained the unilateral right to repeal the FRS since it first implemented the system in 1960. 18

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ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). Nothing in Missouri law prohibits the City from exercising this right, and indeed it would be unconstitutional for the State to prohibit the City from doing so. With respect to the their arguments as to the FRP, in order to succeed Appellants must overcome two presumptions Missouri courts have established in favor of the FRP’s validity. First, a statute is presumed constitutional and will not be found unconstitutional “unless it clearly and undoubtedly contravenes the constitution.” Adams v. Children’s Mercy Hosp., 832 S.W.2d 898, 903 (Mo. banc 1992), overruled on other grounds, Watts v. Lester E. Cox Med. Ctrs., No. SC 91867, 2012 WL 3101657 (Mo. banc July 31, 2012). Second, Appellants must overcome the legal presumption that legislative bodies “have acted within their constitutional power despite the fact that, in practice, their laws result in some inequality.” Blaske v. Smith & Entzeroth, Inc., 821 S.W.2d 822, 829 (Mo. banc 1991) (quotations omitted). Importantly, “[i]t is not the Court’s province to question the wisdom, social desirability or economic policy underlying a statute as these are matters for the legislature’s determination.” Id. (quotations omitted).5

5

These rules apply with equal force to ordinances. See, e.g., City of Dexter v.

McClain, 345 S.W.3d 883, 886 (Mo. App. 2011). 19

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1.

The Circuit Court was correct in finding that the City has the right to repeal the FRS.

Since first enacting the FRS in 1960, the City has always retained the explicit and unilateral right to amend or repeal the FRS at any time. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). Indeed, the Supreme Court of Missouri has explicitly recognized that “the City retains the ability to repeal the [FRS.]” FRS v. City of St. Louis, 789 S.W.2d 484, 487 (Mo. App. 1990). Appellants obfuscate the function of Ordinance 69149, as amended by Ordinance 69353. These ordinances do not amend the FRS as Appellants contend, which the City admits might fall within the ambit of the FRS Statutes. 6 Rather, Ordinance 69353, in conjunction with Ordinance 69149, repeals the FRS but provides for payment of benefits accrued under the FRS prior to the termination
6

The statements cited by Appellants from a brief written by the City about a

hypothetical scenario posed by the Circuit Court—which was submitted prior to the Ordinances at issue being enacted—cannot constitute a judicial admission as the Circuit Court aptly noted every time Appellants presented the same language before it. See, e.g., Trial Tr. vol. 2, 8-10, March 18, 2013. Indeed, the Circuit Court sustained an objection to Appellants’ attempt to introduce the brief as evidence, and Appellants have not appealed this ruling. Id. at 9 (sustaining objection to Appellants’ attempt to introduce brief as statement against interest and finding no judicial admission). 20

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date to ensure that such benefits are paid in full by the FRS. Nothing in Missouri law prohibits the City from repealing the FRS in such a manner. When a pension plan ends, future benefit accruals cease.7 (L.F. 578-85). But, benefits already accrued under the plan must be funded and paid.8 (L.F. 57885). When the City first repealed the FRS, it did so by terminating the system effective immediately, transferring all benefit obligations as well as all of the System’s assets to the newly enacted FRP. (Appellants’ App. A5-A6; A79-A144; A170-174). The Circuit Court preliminarily held that the City was without power to transfer the assets of the FRS to the FRP because the ordinances establishing the FRS and the FRS Statutes required that all benefits accrued under the FRS be paid by that system, and provided that the assets of the FRS were the property of the FRS. (Appellants’ App. A21-A28). For that reason, the City opted to still repeal the FRS, but to do so over time, using what is commonly referred to in the world of pension law as a “wind-down” period. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). In other words, the FRS remains in place for the sole and limited purpose of paying all benefits accrued prior to February 1,
7

This is commonly referred to as a “freeze.” See, e.g., Trial Tr. vol. 3, 41, March

19, 2013.
8

Some pension plans permit a lump sum payment to be made at the time of

termination, rather than the payment of retirement income in the form of an annuity, but that is not an option available to the City. (L.F. 578-585). 21

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2013, and all assets of the FRS continue to be held and administered in accordance with its terms. The FRS will terminate with no further action required by the City after all such benefits are paid. STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). Appellants list a litany of ways they contend that the repeal of the FRS conflicts with the FRS Statutes. The purported conflicts they identify, however, all pertain to future benefit accruals under the FRS and are all based upon the presumption that the City is not permitted to repeal the FRS. Because Appellants can cite to nothing in the FRS Statutes prohibiting the City from repealing the FRS, their challenges fail. Missouri courts do not infer prohibition of home rule authority from mere statutory silence.9 City of Kansas City v. Carlson, 292 S.W.3d 368, 373-75 (Mo. App. 2009). The FRS Statutes only apply to the extent that there can be no conflict between how the City funds and pays for benefits
9

The FRS Statues apply to any city that “now has or may hereafter have seven

hundred thousand inhabitants.” § 87.125 RSMo. (Appellants’ App. A285). The City currently has less than 320,000 residents. To accept Appellants’ position, this Court would have to hold that the FRS Statutes require a taxpayer funded pension system to remain in place in perpetuity once enacted, even if the city that enacted it now has less than one half of the residents required by the enabling statute, a result nowhere compelled by the plain language of the FRS Statutes and certainly not by any prior decision of the Supreme Court of Missouri. 22

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accrued under the FRS prior to the Effective Date and the FRS Statutes. 10 Appellants do not—and cannot—contend that any such conflict exists, and therefore their arguments are wholly without merit. To accept Appellants’ argument would require this Court to hold that once a municipality chooses to act pursuant to an enabling statute, it can never opt out absent express language permitting it to do so in the enabling statute. Their contention is absurd and flies in the face of the permissive nature of the FRS Statutes, as the Circuit Court recognized. (Appellants’ App. A19-A22; A52-A58). Moreover, as will be discussed in greater detail below, if this Court were to hold that once the City chose to enact the FRS, it was bound to retain that system in perpetuity, the FRS Statutes would violate Article VI, §22 of the Missouri

10

Appellants argue that there is an inconsistency in the Circuit Court’s reasoning

because it held that the City had to comply with the FRS Statutes insofar as benefits accrued prior to the Effective Date were at issue. There is no inconsistency, however. As a legal matter, it makes sense that the Court would find that benefits accrued under the state-enabled system and assets held under that system must be administered and paid in accordance with the FRS Statutes. Once the City opted out of the state-enabled system insofar as future benefit accruals are concerned, the FRS Statutes ceased to apply, as the Circuit Court correctly found. (Appellants’ App. A19-A22; A52-58). 23

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Constitution, which prohibits the State from setting the level of compensation for the City’s employees. 2. The City has home rule power to implement the FRP.

The City is a constitutional charter city. See, e.g., MO. CONST. ART. VI, §§ 31, 32. As such it has “all powers which the general assembly of the state of Missouri has authority to confer upon any city, provided such powers are consistent with [the Constitution of Missouri] and are not limited or denied either by the charter so adopted or by statute.” MO. CONST. ART. VI, § 19(a). In addition, the City has “the powers, organization, rights and privileges permitted by [the Constitution of Missouri] or by law.” MO. CONST. ART. VI, § 31. See also CITY OF ST. LOUIS CHARTER, Art. XVIII, §§ 3(r), 4(b) (authorizing the City to enact retirement systems “if and when permissible under the Constitution and Laws of the State of Missouri”) (Resp.’s App. A62; A63). The Supreme Court of Missouri has confirmed that constitutional charter cities “clearly” have “all power which the legislature is authorized to grant” and that no enabling legislation is required for them to exercise such powers. Hannah ex rel. Christ v. City of St. Charles, 676 S.W.2d 508, 512-13 (Mo. banc 1984). See also Cape Motor Lodge, Inc. v. City of Cape Girardeau, 706 S.W.2d 208, 211 (Mo. banc 1986) (“[T]he emphasis no longer is whether a home rule city has the authority to exercise the power involved; the emphasis is whether the exercise of that power conflicts with the Missouri Constitution, state statutes or the charter itself.”); City of Kansas City v. Brouse, 468 S.W.2d 15, 17-18 (Mo. banc 1971) (recognizing that powers given 24

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to the General Assembly in the Missouri Constitution are also conferred upon charter cities). Article VI, § 19(a) of the Missouri Constitution sets forth only three potential limits on the City’s home rule authority to enact a pension system for its firefighters independent of the system enabled by the FRS Statutes. The first would be if the General Assembly lacked the authority to establish a pension system. Hannah, 676 S.W.2d at 511-12; MO. CONST. ART. VI, § 19(a). The second limitation would be if the City’s charter prohibited it from enacting a pension system. MO. CONST. ART. VI, § 19(a).11 The third would be if a specific prohibition against the City’s enacting the FRP existed, or if the FRP conflicted with state law. Id. None of these apply here. The Circuit Court therefore correctly found that the City has the inherent right to create an independent pension system for the firefighters it employs, and this Court should affirm. a. The City has the home rule authority to enact the FRP because the General Assembly has the power to create pension systems, and the City’s charter authorizes it to do so. There is no question but that the General Assembly has the power to authorize state and municipal pension systems. See, e.g., MO. CONST. ART. VI, § 25; Brouse, 468 S.W. 2d at 17-18 (recognizing the General Assembly’s authority
11

Appellants have not appealed the Circuit Court’s finding that the City’s charter

did authorize it to enact the FRP. (Appellants’ App. A57). 25

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to enable pension systems pursuant to the Missouri Constitution). Because the General Assembly is authorized to create pension systems, the first potential limitation on the City’s authority to enact the FRP is not present. In Kansas City v. Brouse, the Supreme Court of Missouri was confronted with a charter city’s establishment of a pension system for municipal judges. 468 S.W.2d at 16. Like the City of St. Louis’ Charter, the Kansas City charter authorized pensions to the extent permitted by state law. Id. After a revision to Article VI, § 25 of the Missouri Constitution in 1966, the voters of Kansas City adopted a pension plan for municipal judges, but the city’s director of finance declined to fund the plan without state enabling legislation. Id. at 16-17. The Supreme Court rejected the position taken by the director of finance, holding as follows: “[a]lthough the Kansas City charter had for many years included the power to establish retirement for its officers, it necessarily had to await the grant of such power under the state constitution, which came about by the above-mentioned constitutional amendment to Art. VI, Sec. 25, adopted January 14, 1966. The amendment provides ‘. . . the general assembly may authorize any . . . city . . . to provide for the retirement . . . of its officers . . .,’ but this does not mean an act of the legislature was required for Kansas City to proceed with the adoption of a retirement plan for its municipal judges, because the home rule charter provisions of the state 26

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constitution have delegated the legislative power over municipal affairs to a city which accepts the same by adopting a home rule charter, as Kansas City has done, so that subsequent changes in the constitution which permit the general assembly to provide for retirement plans for cities, by construction permit a home rule charter city to make the same provisions for its officers and employees. This is because the powers which the city has under its home rule charter are a direct grant from the organic law of the state. . . . The charter of Kansas City must be ‘consistent with and subject to the constitution and laws of the state,’ Art. VI, Sec. 19, 1945 Constitution, but in our opinion what Kansas City has done here is not an invasion of the province of general legislation, is not out of harmony with the policy of the state as declared by laws for the people at large, and is consistent with the constitution. Id. at 17-18. As the Circuit Court found, the Brouse case is directly on point and confirms that Article VI, § 25 confers upon the City the right to enact the FRP. (Appellants’ App. A19-A22). Appellants’ attempt to distinguish Brouse on the grounds that the pension system at issue there was grounded in Kanas City’s charter is nonsensical. If Article VI, §25 prohibited a City from enacting a pension system absent enabling state legislation—as Appellants’ contend—rather than conferring on charter cities the right to 27

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enact pensions, then it would have prohibited the pension system at issue in Brouse regardless of whether that system was enabled through the City’s charter, by vote of its citizens, or by ordinance. Nor is the second limitation present because the City’s Charter expressly grants it the authority to create a retirement system “if and when permissible under the Constitution and Laws of the State of Missouri.” CITY OF ST. LOUIS CHARTER, Art. XVIII, §§ 3(r), 4(b). (Resp.’s App. A62; A63). b. The FRP is valid because it does not conflict with any State law. Absent direct conflict with the Missouri Constitution, a charter city’s authority to legislate is constrained only if the city ordinance permits what a statute prohibits or prohibits what a statute permits. In making this analysis, courts do not infer either prohibition or permission from mere statutory silence. See Carlson, 292 S.W.3d at 373-75 (charter city could forbid smoking in bars even though state statute excluded bars from its coverage by definition); cf. Bd. of Stationary Eng’rs v. City of St. Louis, 212 S.W.2d 454, 459 (Mo. App. 1948) (city could impose additional licensing requirements beyond statutory requirements where statute did not limit requirements “to its own prescriptions”). Appellants contend that the FRP violates Article VI, § 19(a) of the Missouri Constitution because it conflicts with and/or is prohibited by the FRS Statutes and Article VI, § 25 of the Missouri Constitution. As the Circuit Court correctly found, they are wrong. 28

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As discussed above, it is settled and binding law that Article VI, § 25 grants power to charter cities like the City of St. Louis to create a pension; it does not prohibit it. Brouse, 468 S.W.2d at 17-18. Nor does any state law prohibit or conflict with the FRP. If the FRS Statutes were the exclusive means by which the City could enact a pension for its firefighters, the FRP might be invalid. But the FRS Statutes are not exclusive and there is, accordingly, no conflict. See Ayers v. City of Tacoma, 108 P.2d 348, 353-54 (Wash. 1940) (holding that a home rule city had authority to enact a pension that conflicted with a state enabling statute, because the enabling statute was permissive). Appellants’ position would require this Court to hold that the FRS Statutes mandate that the City either maintain the state-enabled plan or, because the FRS Statutes are exclusive, have no pension at all. But as the Circuit Court correctly found, neither the plain language of the FRS Statutes, case law interpreting them, the history and purposes relating to their enactment, nor public policy compel such a result. (Appellants’ App. A17-A22; A54-A57). See, e.g., McCollum v. Dir. of Revenue, 906 S.W.2d 368, 369 (Mo. banc 1995) (noting that an ordinance must be upheld “unless the ordinance is expressly inconsistent or in irreconcilable conflict with the general law of the state”) (emphasis added); Page W., Inc. v. Cmty. Fire Prot. Dist., 636 S.W.2d 65, 67 (Mo. banc 1982) (an ordinance and a state statute conflict only if the ordinance prohibits what the statute permits, or permits what the statute prohibits).

29

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i.

Both the plain language of the FRS Statutes and the case law interpreting them support their non-exclusive nature.

Appellants’ argument that the FRS Statutes are exclusive and preemptive was rejected by the Circuit Court, and this Court should do the same. By their plain terms, the FRS Statutes are permissive, not mandatory. § 87.125 RSMo. (“Any city in this state [meeting the population requirement] is hereby authorized…”). (Appellants’ App. A285). Nor do the FRS Statutes contain express language prohibiting the City from adopting a pension plan except in accordance with their terms. These points are fatal to Appellants’ position. See Carlson, 292 S.W.3d at 373-75 (statutory silence not a bar to charter city authority). Cases interpreting the FRS Statutes likewise establish that they are permissive, not mandatory, as applied to the City’s participation. See, e.g., Firemen’s Ret. Sys., at 487 (recognizing that the FRS Statutes are permissive and that the City’s participation was not required); Trantina v. Bd. of Tr. of Firemen’s Ret. Sys. of St. Louis, 503 S.W.2d 148, 150-52 (Mo. App. 1973) (same). Trantina does not hold that the City’s sole option for creating a pension system is through the FRS Statutes, contrary to Appellants’ position. Rather, Trantina stands for the unremarkable proposition that if the City chooses to enact a plan pursuant to the FRS Statutes—which it arguably had no choice but to do when it created the FRS—then the City must comply with those statutes. The City has now opted out 30

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of the state-enabled plan, and its powers after opting out are not addressed by Trantina (or any other case interpreting the FRS Statutes for that matter). The permissive nature of the FRS Statutes distinguish them from the cases upon which Appellants rely. For example, at issue in State ex rel. Hannah was whether St. Charles had unfettered annexation rights. 676 S.W.2d at 513. The applicable statute provided as follows: Should any city, town, or village, not located in any first class county which has adopted a constitutional charter for its own local government, seek to annex an area to which objection is made, the following shall be satisfied: Id. at 510; § 71.015 RSMo. (emphasis added). Because the statute in Hannah contained mandatory language, St. Charles was not permitted to exercise its annexation power in a manner inconsistent with the statute’s mandatory requirements. Hannah, 676 S.W.2d at 513. But, as Trantina recognized, the FRS Statutes are not mandatory, and thus they are very different from the statute at issue in Hannah. Similarly, in State ex rel. Hazelwood Yellow Ribbon Committee v. Klos, 35 S.W.3d 457, 467 (Mo. App. 2000), a proposed charter amendment to restrict tax increment financing was precluded by an express prohibition on referenda in the enabling statute. And, in ACI Plastics, Inc. v. City of St. Louis, 724 S.W.2d 513, 515 (Mo. banc 1987), the City Sales Tax Act was held to mandate submission of sales tax propositions in conformity with the applicable

31

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statute, so that an ordinance submitting a sales tax increase in a manner inconsistent with the statute was invalid. Appellants also argue that Levinson v. City of Kansas City, 43 S.W.3d 312 (Mo. App. 2001) and Alumax Foils, Inc. v. City of St. Louis, 959 S.W.2d 836 (Mo. App. 1998) support their tortured argument that Chapter 87’s permissive language is in fact mandatory. They do not. First, both Levinson and Alumax involved a charter city’s authority to tax, which is inapposite to a charter city’s power to create a pension system for its employees. Levinson and Alumax are distinguishable, moreover, because in both instances the cities acted in direct conflict with a state statute. In Levinson, Kansas City attempted to levy a tax at a rate higher than that permitted by statute. 43 S.W.3d at 322. In Alumax, St. Louis City attempted to impose a tax on purchasers of a good, when the authorizing state statute only permitted the city to impose a tax on sellers of a good. 959 S.W.2d at 837-38. While it is true that in both cases the cities could have elected not to impose a tax, once they did they were bound by the exclusive and mandatory manner by which the state statute prescribed the tax that could be imposed. Finally, in Grant v. Kansas City, 431 S.W.2d 89 (Mo. banc 1968)—a case Appellants have relied upon heavily in briefing before the Circuit Court—Kansas City argued that it had home rule authority pursuant to the Missouri Constitution to levy an earnings tax at a rate higher than that permitted by a state statute. Id. at 92. The Court held that the city’s home rule powers did not confer such authority on Kansas City, because “the power to tax is a governmental function inherent in 32

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the State” and as such, charter cities are limited in their power to tax independent of state constraint. Id. The Court expressly contrasted this with issues of “purely local concern,” with respect to which the constitution confers upon charter cities more latitude to act. Id. at 93. Municipal employee pensions are issues of purely local concern, Brouse, 468 S.W.2d at 17, as opposed to the issues of inherent governmental functions, such as annexation and taxation, addressed in the cases Appellants cite. It is true that the FRP may not be consistent with the FRS Statutes. But, Article VI, § 19(a) does not require that the FRP be consistent with state statutes. Rather, it only requires that there be no state statute limiting or denying the City the right to enact an independent pension system. Section 71.010 of the Missouri Revised Statutes requires the same. See Carlson, 292 S.W.3d at 371 (interpreting § 71.101 RSMo. to prohibit charter city ordinances that “conflict” with a “general law of the state”). Nowhere in the enabling legislation for the FRS is there a legislative command that if the City chooses to adopt a firefighters’ pension system, it “shall” conform to the enabling legislation. The language “subject to” in § 87.125 does not amount to a mandate that the City adopt one form of a firefighters’ pension system and no other. Rather, as the Circuit Court correctly found, that language means only that if the City chooses to adopt the system contemplated by the enabling legislation then it must do so “subject to” the statutory standards. It does not preclude action under the City’s constitutional charter authority. This 33

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conclusion is consistent with the permissive character of the enabling legislation for the FRS. Appellants base much of their argument as to why the FRS Statutes prohibit the City from establishing the FRP on § 87.130(1) RSMo., which provides that firefighter participants of the FRS “shall receive no pension or retirement allowance from any other pension or retirement system supported wholly or in part by the City or the state because of years of service for which they are entitled to benefits under this system nor shall they be required to make contributions under any other pension or retirement system of the City or the state.” (Emphasis added). (Appellants’ App. A285). The Circuit Court easily found that the clear import of this statute is to prevent double-dipping—it prohibits a firefighter from receiving pension benefits from two pension systems for the same service, and prevents a firefighter from paying into two pension systems at the same time. (Appellants’ App. A54). While Appellants seek to obfuscate this straight-forward issue by the use of demonstrative charts introduced for the first time during this appeal, the simple fact remains as the Circuit Court found: no firefighters will receive pension benefits from the FRP because of years of service for which the FRS owes them benefits. (Appellants’ App. A54). Indeed, Ordinance 69245 ensures that no firefighters will receive a double benefit for the same years of service by requiring that the benefit due under the FRP be offset by any benefit paid by the FRS for the same service. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A15234

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A158; A197-A207). And, no contributions are due to the FRP unless the FRS is frozen,12 ensuring that no firefighter will be required to contribute to both plans at the same time. STL ORD. 69245 (Appellants’ App. A79-A144; A145-A169; A179-A250); see also Appellants’ App. at A54. The FRS and the FRP will both consider total years of service for purposes of vesting—which is the point demonstrated by Appellants’ charts—but benefit payments will be paid only by the plan under which they accrued based on service recognized by that plan. Id. Vesting relates only to the forfeitability of the benefits already earned; not to the “amount” of the benefit payable. Section 87.130 RSMo. prohibits dual benefits and dual contributions, but has no application to vesting. Indeed, to take Appellants’ argument to its logical conclusion, the City would be left with the right to repeal the FRS, but in doing so, it could not make alternative provisions to provide benefits for future service, nor vest the benefits already earned under the FRS. Nothing in the FRS Statutes compels such an absurd result. Appellants also argue that a conflict between the FRP and the FRS Statutes exists because Board Bill 109 implicitly amends the FRS by freezing compensation as of February 1, 2013, meaning that that benefits accrued under the FRS will not be calculated by using the firemen’s average compensation during
12

A “frozen” system—like the FRS here—is one that exists to pay benefits

accrued to date, but no future benefits may be accrued under it. Trial Tr. vol. 2, 29, March 18, 2012. 35

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his “last two (2) years of service as a firemen” as currently required by § 87.120(3) RSMo. and Chapter 4.18 of the City Code. Appellants also contend that Board Bill 109 implicitly amends the FRS by freezing years of service for purposes of benefits due under the FRS, inconsistent with Chapter 4.18 of the City Code and Chapter 87.120 et seq. RSMo. To repeal the FRS, however, the City had to freeze compensation and years of service for purposes of calculating the benefit due under the FRS; a plan simply cannot terminate if all factors that determine the pension benefit continue to be taken into account indefinitely into the future. In any event, a firefighter’s average compensation during his last two years of service and his total years of service will still be used to calculate his total retirement benefit from both the FRS and the FRP, and thus there is no conflict. At the time of the freeze, the FRS will calculate all firefighters’ benefits as of the date of the freeze, based on their years of service and salary at the time of the freeze. STL ORD. 69245 (Appellants’ App. A79-A144; A145-A169; A179-A250). When a firefighter subsequently retires, the FRP will calculate that firefighter’s benefit based on his total years of service and his average compensation during his last two years of service, but will offset from that benefit that amount due from the FRS as of the date of the freeze. STL. ORD. 69245, § 4.19.040 (Appellants’ App. A91-A92; A151-A152; A192-A194) and STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). In other words, firefighters who retire after twenty years of service will receive a benefit payment for all their years of service calculated by using their average compensation during 36

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their “last two (2) years of service.” The only difference is that the FRP bears the liability for any future years of service and salary increases, not the FRS. As the Circuit Court found, “the dual plan system does affect how the FRS will operate in the future. But the ordinance provisions that affect the FRS are necessary and proper to secure the orderly termination of the FRS, a termination that is lawful and not forbidden by the constitution, statutes or charter.” (Appellants’ App. A22). This Court should hold the same. ii. The history and purpose surrounding the enactment of the FRS Statutes supports that no conflict exists between them and the FRP. In addition to their plain language, the FRS Statutes should be construed as permissive and not exclusive, considering the circumstances leading to their enactment. The FRS Statutes were originally enacted when, at least prior to the Brouse case, detailed enabling legislation was thought necessary to authorize the City to create a pension plan for its firefighters. See Carlson, 292 S.W.3d at 371. The intent of Article VI, § 19(a) of the Missouri Constitution, which was added in 1971, was to “insure the supremacy of the legislature while at the same time putting only minimal and necessary limitations on the power of municipalities.” Id. (quoting Thomas N. Sterchi, Comment, State-Local Conflicts Under the New Missouri Home Rule Amendment, 37 MO. L. REV. 677, 681 (1972) (hereinafter “The Home Rule Amendment”)).

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The author of The Home Rule Amendment notes that courts should be cautious in allowing statutes enacted as enabling legislation prior to 1971 to operate as limitations on the power of home rule cities: The issue now becomes: Under Missouri’s new home rule amendment will a statute which authorizes a power, and specifies how it is to be exercised, operate as a limitation on the home rule power? If this issue is answered affirmatively in all cases, the intent and purpose behind the new amendment will be defeated. The Home Rule Amendment, 37 MO. L. REV. at 691. Indeed, the specificity of the FRS Statutes should not be viewed as suggesting the General Assembly’s intent to limit the City’s authority, but rather as evidence of its desire to clarify the City’s authority under the prior scheme, which required enabling legislation.13

13

The specificity found in the FRS Statutes is not evidence of the State’s intent to

preempt the field, as Appellants suggest. Rather, the specificity is due to the subject matter of the FRS Statutes—a pension system, which is itself organically complex, and necessitated the use of experts by both Parties to explain how both the FRS and the FRP operate. See generally Tr. Transcripts, testimony of Alex Rivera (Appellants’ expert) and Kim Nicholl (Respondent’s expert). 38

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iii.

If the FRS Statutes are exclusive, they violate Article VI, §22 of the Missouri Constitution.

If the FRS Statutes are construed to force the City to choose between the pension they prescribe or no pension, the FRS Statutes would violate Article VI, § 22 of the Missouri Constitution and be void. Article VI, § 22 provides: No law shall be enacted creating or fixing the powers, duties or compensation of any municipal office or employment, for any city framing or adopting its own charter under this or any previous constitution, and all such offices or employments heretofore created shall cease at the end of the terms of any present incumbents. In Firemen’s Retirement System v. City of St. Louis, the City argued that the FRS Statutes violated Article VI, § 22. 789 S.W.2d at 487. The Court rejected the City’s argument because while “[t]he establishment of a firemen’s pension plan is permissive; the statute is directory, not mandatory.”14 Id. Construing the FRS Statutes to require the City to choose between providing the pension prescribed therein or providing no pension would impermissibly limit the authority of the City to fix the compensation of its firefighters. Limiting the FRS Statutes to the historical purpose for which they were enacted—permitting the City to enact a pension system when it may have otherwise had no authority to do so—and
14

The Court’s holding was based on the fact that the FRS Statues are permissive,

not because the firefighter’s pension was not compensation. Id. 39

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finding that today they are no longer necessary, would both be consistent with the intent of the General Assembly and avoid a construction of the FRS Statutes that would render them void. See Blaske, 821 S.W.2d at 838-39 (courts are to interpret statutes in such a way to make them constitutional, if such a construction is possible). Appellants try to avoid this fatal blow to their position by arguing that Article VI, § 22 does not apply to pensions, but the Supreme Court of Missouri’s recent opinion in Mo. Prosecuting Attorneys v. Barton Cnty., 311 S.W.3d 737 (Mo. banc 2010), indicates that the Supreme Court would interpret § 22 to include pensions. See also id. at 747 (holding that “compensation” as used in Mo. Const. Art. VI, § 11 encompassed pensions). This is particularly so because in its opinion, the Court noted that Missouri courts began applying an expanded meaning to the term “compensation” as early as 1917, and § 22 was not added to the Missouri Constitution until 1945. Id. at 744-45. Appellants’ reliance on Civil Serv. Comm’n of St. Louis v. Members of the Bd. of Aldermen of the City of St. Louis, 92 S.W.3d 785 (Mo. 2003) does not support a contrary interpretation of Article VI, § 22. There, the Court held that the phrase “compensation system” as used in Article XVIII, § 4(a) of the City’s charter did not include the firemen’s pension system. Id. at 788. The Court based its holding on the fact that § 4(b) of the City’s Charter used the term “retirement system” and would be rendered meaningless if § 4(a) also included the firemen’s pension system. Id. at 788. The Court’s reasoning was based on its construction 40

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of the City’s Charter, and has no application to the meaning of Article VI, § 22. Id. iv. Public policy supports that the FRS Statutes are not the exclusive avenue for the City to create a pension system for its firefighters. Accepting Appellants’ position would frustrate the purpose of both the FRP and the FRS Statutes—to provide firefighters with pensions. Appellants entirely overlook that the repeal of the FRS is wholly independent of the existence of the FRP. See generally STL ORD. 69149 (Appellants’ App. A170-A175; A145-A169; A176-178). In other words, even in the unlikely event that this Court concludes that the Ordinances establishing the FRP are invalid, the FRS will still be repealed unless this Court determines independently that the City is without power to do so despite having reserved this right since it created the FRS in 1959. In Trantina, the Missouri Court of Appeals went to great lengths to avoid a construction of the FRS Statutes that would have left the firefighters with no pension. 502 S.W.2d at 151-52. At issue in that case was an amendment to the FRS Statutes providing for an increase in the benefit formula, which the City did not adopt. Id. at 149-50. The Court held that because the FRS Statutes were permissive, the City was not required to implement the benefit increase. Id. at 150-153. The Court recognized that a contrary holding would have resulted in it having to find that the pension system was void because it conflicted with the FRS Statutes. Id. at 153. It refused to interpret the FRS Statutes in such a restricted 41

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manner because in doing so, “the City of St. Louis would be left without a pension plan. Such would be an unjust unrealistic and unreasonable consequence, contrary to the clear intent of the legislature which enacted a permissive rather than a mandatory statute. Such a construction is not favored by law.” Id. The Circuit Court correctly found that “the City of St. Louis as a constitutional charter city has the authority to adopt a pension system for its firefighter employees with or without enabling legislation . . . [and] the City has the authority to terminate this FRS and to replace it with the FRP.” (Appellants’ App. A52). This Court should affirm. II. THE CIRCUIT COURT DID NOT ERR IN FINDING THAT BOARD BILLS 12, 109, AND 270 DO NOT VIOLATE THE CONTRACT CLAUSES OF THE UNITED STATES AND MISSOURI CONSTITUTIONS IN THAT THERE IS NO CONTRACT BETWEEN THE CITY AND ITS FIREFIGHTERS FOR BENEFITS ACCRUED DUE TO SERVICE NOT YET PERFORMED AND EVEN IF THERE WERE, THE BENEFIT CHANGES EFFECTED BY THE ORDINANCES DO NOT CONSTITUTE A SUBSTANTIAL IMPAIRMENT. (RESPONDING TO APPELLANTS’ POINTS RELIED ON IV AND V) Appellants contend that the FRS creates a “contract” between the City and its active and retired firefighters that cannot be changed even with respect to 42

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benefits attributable to future service. Appellants also argue that because some of the terms of the firefighters’ pension benefit formula have changed that there is a substantial impairment of a “contract” in violation of the Contract Clauses of the Missouri and United States Constitutions. They cannot meet their heavy burden to prove a violation of the Contract Clauses, however. Appellants urge this Court to ignore the material distinction between past accruals, which are not at issue here, and future accruals, which are. The Circuit Court did not fall for their attempt to obviate this critical distinction; nor should this Court. Neither Ordinances 69149, 69245 nor 69353 affect past accruals for any of the firefighters, vested or not. They affect only future accruals for non-vested firefighters. No contract exists between the City and its firefighters with respect to their pension benefits attributable to future service, and even if it did, the FRP would not substantially impair this contract because it preserves nearly every aspect of existing benefits for active firefighters. Determining whether the Contract Clauses in both the United States and Missouri Constitutions have been violated requires a court to engage in a threestep analysis.15 Initially, a court must determine whether a contract exists, and, if so, the nature or terms of that contract. See U.S. Trust Co. of N.Y. v New Jersey,
15

Appellants’ Contract Clauses counts are as-applied challenges because they are

relevant only to certain firefighters. No contract can possibly have been created between the City and any firefighters hired after the Effective Date, for example. 43

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431 U.S. 1, 17-18 (1977); XO Mo., Inc. v. City of Maryland Heights, 256 F. Supp. 2d 966 (E.D. Mo. 2002) (performing analysis of both federal Contracts Clause and Missouri Contracts Clause without discussing any differences in the reach of the two clauses). If none does, the inquiry ends there because absent a contract, there can be no violation of the Contract Clauses. U.S. Trust Co., 431 U.S. at 17-18. If a contract is found to exist, the court next determines whether the government conduct has substantially impaired its terms. Nat’l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 472 (1985). Finally, even if a court finds a substantial impairment, the Contract Clauses are not violated unless the court also determines that the impairment was not a valid exercise of the government’s police powers. Id. (citing Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984)). Here, Appellants cannot demonstrate that a contract exists, much less that the City substantially impaired it.16 1. The City’s firefighters do not accrue benefits until service is performed. Appellants contend that the ordinances establishing the FRS created a contract with the City’s firefighters whereby the City agreed to never reduce benefits based on future service so long as the firefighter remained employed with
16

For that reason, Appellants do not address, and the Circuit Court did not reach,

the third requirement that the impairment was not a valid exercise of the government’s police powers. 44

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the City. Under the FRS, however, firefighters accrue retirement income benefits at a specified percentage of final average compensation for each year of service they work as a firefighter for the City. This benefit is earned, or accrued, only if service is performed. See Sunder v. U.S. Bancorp Pension Plan, 586 F.3d 593, 600 (8th Circ. 2009) (distinguishing between a benefit already earned (accrued) and one expected but not yet accrued). Firefighters participating in the FRS, moreover, are only entitled to receive this accrued benefit if they perform twenty years of service as a firefighter. ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273). In other words, their right to their accrued pension benefit does not “vest” until they work for twenty years. See Gilley v. Monsanto Co., 490 F.3d 848, 858-59 (11th Cir. 2007) (“benefit vesting refers to the point at which a participant’s pension rights become nonforfeitable by virtue of his having fulfilled” the plan’s requirements). Despite this, and as the Circuit Court found and Appellants do not credibly dispute, the ordinances repealing the FRS and creating the FRP “generously preserve benefits which were not vested as of February 1, 2013, and ensure that benefits vested as of that date are protected and will be paid by the FRS.” (Appellants’ App. A58). Neither the repeal of the FRS nor implementation of the

45

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FRP affect any benefits earned before the Effective Date. 17 STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). Any active firefighter, regardless of his years of service with the City as of the Effective Date, will obtain one hundred percent of the benefit due him under the FRS as of the Effective Date upon retirement. Id. Thus, a firefighter who had accrued a yearly $32,000 pension from the FRS as of the Effective Date would get that same $32,000 pension from the FRS if he retires after the Effective Date. Id. He would also receive all additional benefits earned pursuant to the FRP. Id.18 With this background in mind, the issues presented in this appeal with respect to the Contract Clauses are as follows: (1) Did the City and its firefighters

17

For that reason, firefighters who had retired prior to the Effective Date are not at

issue in this Appeal.

18

Appellants have in the past suggested that because the firefighters are ineligible

to receive social security benefits, a contract promising a certain level of pension benefits in perpetuity was created. There is no contractual right to receive social security, particularly benefits that might be earned in the future. Flemming v. Nestor, 363 U.S. 603, 611 (1960) (referring to Social Security benefits as “noncontractual”). It is a fallacy to suggest that the City exchanged the firefighters’ non-contractual social security benefits for a contract guaranteeing a pension that could never be amended or repealed. 46

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enter into a contract whereby the City guaranteed benefits and the firefighter’s rate of contribution that would never change; and (2) If such a contract exists, did the City substantially impair it when it repealed the FRS and established the FRP? The Circuit Court answered both of these questions in the negative, and this Court should affirm. 2. No contract exists between the City and its firefighters with respect to future pension accruals or contributions. The City concedes that with respect to services already rendered by the firefighters, a contract may exist obligating it to pay the benefits earned attributable to that service so long as a firefighter works the twenty years necessary to obtain such a benefit. Such benefits, however, are not at issue in this appeal because the ordinances repealing the FRS and establishing the FRP explicitly preserve all benefits attributable to services already rendered prior to the Effective Date. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152A158; A197-A207). Rather, what is at issue is whether or not the City entered into a contract with its firefighters guaranteeing them the same level of future pension benefit accruals in perpetuity. See Parker v. Wakelin, 123 F.3d 1, 5-8 (1st Cir. 1997) (“Specifically, in light of plaintiffs’ claims, we must ask whether Maine has bound itself not to modify or alter, at any time before the employee’s retirement, the level of pension benefits an employee would expect to receive.”) (citing Nat’l RR Passenger Corp., at 465-66). It did not.

47

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The FRP does not substantially impair any contractual rights held by the firefighters because no contract exists between them and the City based on future service or contributions. The evidence provided by Appellants’ witnesses designated on this issue was that no written contract exists between the City and the firefighters with respect to any pension benefits, beyond the terms set forth in the ordinances creating the FRS.19 Trial Tr. vol. 1, 45-46, 521-23, August 21, 2012. Accord Judgment & Order July 3, 2013 (Appellants’ App. A35-A66). Legislation, however, will not ordinarily create a contractual right; rather it “merely declares a policy to be pursued until the legislature shall ordain otherwise.” Nat’l R.R. Passenger Corp., 470 U.S. at 465-66. A party seeking to overcome the presumption that legislation does not create a contract bears “a higher burden to establish that a contractual obligation has been created” than exists under normal contract law because of the longstanding rule that existing statutes should not bind the actions available to future legislators. Parella v. Ret. Bd. of R.I. Emps.’ Ret. Sys., 173 F.3d 46, 60 (1st Cir. 1999). To meet this heightened standard of proof, Appellants must show that the
19

Plaintiff Brewer testified that new firemen attend an orientation given by the

FRS during which they receive materials, including the provision in Chapter 4.18 of the City Code that the City reserves the right to amend or repeal Chapter 4.18 at any time. Trial Tr. vol. 1, 99, 103-104, August 22, 2012.

48

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City clearly and unambiguously intended to bind itself now and in the future. See Nat’l R.R. Passenger Corp., 470 U.S. at 465-66. See also Parker, 123 F.3d at 5 (holding that under the “unmistakability doctrine,” there must be a showing that a law evinces the clear intent of the legislature to create a contractual obligation on the part of the state before a violation of the Contracts Clause can exist). The statutory language is always the primary focus of such an inquiry. Parker, 123 F.3d at 8. Appellants, moreover, must demonstrate that the contract they allege exists complies with § 432.070 RSMo., which prohibits municipalities from entering into oral contracts. Moynihan v. City of Manchester, 265 S.W.3d 350, 354-56 (Mo. App. 2008) (Section 432.070 RSMo. prohibits the creation of oral contracts with Missouri municipalities). The City concedes that once a firefighter accrues a pension benefit, the City is contractually obligated to assure payment of that benefit upon vesting and that the City cannot substantially impair this right. Such rights are not at issue in this Appeal. Appellants understandably wish to confuse this critical distinction between pension benefits already accrued and ones that may be accrued in the future, as evidenced by the cases upon which they rely. But there can be no serious dispute that if City lawmakers intended to create permanent, unalterable contract rights to future pension benefit accruals, they would have said so, and not instead have reserved the right to amend or repeal the legislation that created FRS. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). See Nat’l R.R. Passenger Corp., 470 U.S. at 470 (refusing to find that statute created a contract 49

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where the legislature explicitly reserved its right to amend or repeal the statute). See also Litschko v. Mehlville Fire Prot. Dist., 271 S.W.3d 634, 634 (Mo. App. 2008) (affirming, per curium, the circuit court’s finding that Mehlville city firefighters had no contractual right to future pension accruals in part because the terms of the plan permitted City to amend or end the firefighter’s pension plan “at any time”).20 a. Missouri law confirms that no contract exists obligating the City to pay a certain level of retirement benefits for service not yet performed as of the Effective Date. To find that a contract exists with respect to future benefit accruals and pension contributions here would be not only reading language into the ordinances establishing the FRS that does not exist, but also find a contract where no Missouri court has ever found one to exist. Doing so would mean that Missouri has adopted “the California Rule,” which is a much criticized approach in the realm of public pension law, and certainly not consistent with any prior Missouri case interpreting the Contracts Clause. Amy B. Monahan, Statutes as Contracts? The “California Rule” and Its Impact on Public Pension Reform, 97 IOWA L. REV. 1029 (2011).21
20

A copy of the lower court’s opinion and related plan documents in Litschko is

contained in Respondent’s Appendix at A116-A129.
21

The “California Rule” essentially skips the first step of the Contracts Clause

analysis, and presumes or imputes the existence of a contract without any specific 50

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Indeed, four Missouri cases have previously considered whether a contract exists in the context of a public pension plan. Contrary to Appellant’s position, these cases confirm that Missouri does not follow the California rule and that no contract exists here. Tomlinson v. Kansas City involved a Kansas City ordinance that created a pension system for its firefighters. 391 S.W.2d 850 (Mo. 1965). The ordinance required the City to contribute to the pension fund the amount an actuary deemed necessary to keep the fund actuarially sound. Id. at 851. After the actuary found that the City needed to increase its contribution rate by over four percent, the City amended its ordinance to grant it discretion over the amount it would contribute to the fund. Id. The Supreme Court of Missouri rejected a challenge to this amendment, concluding that the City’s obligation to contribute to the fund was not contractual in nature because the City’s ordinance contained “no provision prohibiting amendments altering existing rights.” Id. at 853. See also Scott v. Williams, 107 So.3d 379, 388-89 (Fla. 2013) (holding no impairment of contract when the state amended a pension plan prospectively to require a 3% employee

findings, and has caused severe financial strain in a number of states that have adopted this Rule. See generally, id. 51

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contribution and elimination of cost of living adjustments because state employees had no contractual right to benefits for future service). 22 The Tomlinson court distinguished two earlier Supreme Court of Missouri cases that had upheld challenges to amendments to statutory retirement systems, noting that in both cases the legislation establishing the system specifically provided that subsequent legislation could not impair or diminish the interest originally established. Id. at 853. The cases distinguished were State ex rel. Phillip v. Public School Retirement System of City of St. Louis, 262 S.W.2d 569 (Mo. banc 1953) and State ex rel. Breshears v. Mo. State Emps. Ret. Sys., 362 S.W.2d 571 (Mo. banc 1962). State ex rel. Phillip involved a change to the Public School Retirement System of the City of St. Louis (the “Retirement System”). 262 S.W.2d at 570-71. As originally established, the Retirement System covered full-time employees of the Board of Education, including non-teachers. Id. at 571. In 1953, the General Assembly passed a law that effectively terminated the membership of nonteachers. Id. The Supreme Court of Missouri held that this termination violated

22

Appellants repeatedly suggest that the Circuit Court found, on its own initiative,

that the Contract Clauses were not violated because only prospective benefits were affected. The City, however, made this argument, supported by numerous cases from throughout the country, including Scott, on multiple occasions in its briefing. 52

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the Contracts Clause because the State had impaired the non-teachers’ contract rights. Id. at 580. Specifically at issue was whether the State could bar non-teacher members of the System “from all future benefits to which they might otherwise have become entitled under the terms of the existing Retirement System.” Id. at 574. Resolution of this issue depended on whether the non-teachers had a contractual right to future benefit accruals. Id. The Court noted that “[a] determination of these issues requires a careful review of specific statutory provisions governing the relationship between the Retirement System and its members prior to the [termination].” Id. The Court further added “that the rights of any beneficiary, or member of any retirement system can only be determined by very careful scrutiny of the detailed provisions of the particular statute controlling the creation and operation of the particular retirement system and under the particular facts of the case.” Id. at 577 (emphasis added). The Court’s finding that the non-teacher members had a contractual right to future benefits was based on statutory language, which provided as follows: “No alteration, amendment or repeal of sections 169.410 to 169.540 shall be deemed . . . to reduce any accrued or potential benefits to those who are members at the time when such alterations, amendments, or repeal became effective or to reduce the amount of any retirement allowance then payable.” Id. at 576 (emphasis added). The Court found that the statutory reference to “potential” benefits “evidence[d] an intention to create contractual rights” that “cannot be taken away by legislative 53

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action.” Id. at 578. Nowhere in the FRS is there any language with respect to future or potential benefits, which negates any finding of a contract protecting future benefit accruals under the facts and law applicable in this Appeal. State ex rel. Breshears was similarly decided. There, the Supreme Court of Missouri invalidated an amendment to the statutes governing MOSERS, which increased retirement benefits for already-retired MOSERS members. 362 S.W.2d at 576-77. The Court found that the increase resulted in an unconstitutional impairment of the contracts of active MOSERS members because it impaired the system’s ability to pay benefits already earned by active members. Id. at 576. The Court, not surprisingly, found that a contract existed between MOSERS and its active members whereby MOSERS was obligated to pay those members their earned benefits upon retirement. Id. at 574. Because the amendment impaired MOSERS’ ability to make these contractually-obligated payments, the amendment violated the Contracts Clause. Id. at 576. The City agrees that if the FRP imperiled the City’s ability to pay benefits that have already been earned by its active or retired firefighters, the Contract Clauses may be violated, under the reasoning of Breshears. This is not the case, however. The repeal of the FRS and creation of the FRP was designed to strengthen the City’s ability to fund future benefit payments, an ability that was in peril under the FRS. Moreover, unlike the change at issue in Breshears, the FRP does not increase the amount of benefits payable to one class of employees in such

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a way as to lower the funded percentage for benefits due to another class. In fact, it does just the opposite. In Fraternal Order of Police Lodge #2 v. City of St. Joseph, the Missouri Court of Appeals held that a city’s elimination of a portion of accrued but unpaid overtime and vacation pay from the calculation of a member’s monthly retirement pension amount did not violate any contractual rights of the member. 8 S.W.3d 257 (Mo. App. 1999). The city’s ordinance left it to the general discretion of the city’s director of finance to determine the method of calculating pension amounts. The court observed: The general rule is that a pension granted by public authorities is not a contractual obligation but is a gratuitous allowance, in the continuance of which the pensioner has no vested right, and that a pension is accordingly terminable at the will of the grantor, either in whole or in part. And since there is no contract on the part of the state to continue the payment of a benefit or annuity, a change in the law affecting such benefit or annuity does not impair the obligation of a contract or deprive a pensioner of property within the constitutional meaning. Governmental employees can have no property rights in a pension fund, nor can those claiming under them have any such rights except their claims be based upon and come within the laws governing the fund. The extent of the rights which vested in 55

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employees is governed by the controlling statute in effect at the time their rights to a pension vested, which became a part of the contract of employment as much as if its provisions were written therein. Id. at 264 (citations omitted). The court reasoned that because “there is nothing in the ordinances or pension plan which creates a right to have a certain method of calculating pension amounts continued, employees have no vested right to the continuation of a certain method of calculating pension amounts.” Id. Also instructive is the Western District Court of Appeals’ analysis in W. Central Missouri Regional Lodge No. 50 v. Bd. of Police Comm’rs of Kansas City. 939 S.W.2d 565 (Mo. App. 1997). There, the plaintiff police officers alleged that there was a policy in place at the time they accepted employment that would permit them to be promoted to the rank of Sergeant without any college education. Id. at 569-70. When a city subsequently changed the policy to require college education for advancement, the plaintiffs sued, arguing promissory estoppel, based on detrimental reliance. Id. The trial court dismissed their claim, which the appellate court affirmed, on the basis that regardless of what the policy was when they were hired, the absence of an explicit promise that the policies then in place would not change in the future negated any claim of detrimental reliance. Id. Appellants here introduced no evidence supporting an inference that the City promised, at the time a firefighter was hired, that the pension benefits from the FRS then in place would remain in place until he left employment with the City.

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Indeed, the City has always retained the unilateral right to amend or repeal the FRS at any time. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). No Missouri appellate court has considered a statutory retirement system with similar language. In Tomlinson, the mere absence of any language prohibiting a change in existing rights led the Supreme Court of Missouri to conclude that the plan participants had no contractual right to the level of plan funding specified in the pension ordinance. 391 S.W.2d at 853-54. Under this reasoning, the ordinances establishing the FRS even more strongly establish that no contract was created because it explicitly permits amendment or repeal of the plan. Moreover, in Fraternal Order of Police, the Missouri Court of Appeals observed that there generally is no contractual obligation to continue to pay pension benefits to public employees absent express language in a statute or ordinance creating such an obligation. 8 S.W.3d at 266-67. In contrast to the statutes at issue in Phillip and Breshears, no such express language exists in the ordinances establishing the FRS. b. Appellants’ reliance on cases from other jurisdictions is misplaced. Appellants argue that Missouri should adopt a blanket rule that pension benefits vest upon employment such that the rate of future accruals may never be changed. The Circuit Court, in response, “emphatically rejects plaintiffs’ contentions that the City is obligated to provide benefits under the FRS as it [existed prior to repeal] to all employees who were hired prior to February 1, 57

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2013, regardless of their vested status under the FRS.” (Appellants’ App. A58) The Circuit Court further found that “there is no authority in Missouri for the proposition that a public employee, once hired, is permanently entitled to pension benefits under plans in force at the time of hire, when the plans themselves do not so specify.” (Appellants’ App. A59). This Court, in affirming the Circuit Court’s order, should follow the guidance of the United States Court of Appeals for the First Circuit and reject Appellant’s invitation for this Court to engage in dangerous “abstract contract theory” based on holdings from other states. Parker, 123 F.3d at 8. The First Circuit chose instead to perform a “close analysis of the statutory provision at issue,” noting that an analytical “approach is wise, because the unmistakability doctrine mandates that we determine whether the challenged legislative enactment evinces the clear intent of the state to be bound to particular contractual obligations.” Id. at 7. The court then observed that “the variety of approaches adopted by state supreme courts reflect, in part, differences in the structure of the various state pension programs, and of the intention of the different state legislatures that created them.” Id. The court warned that “[t]here is a danger, however, in adopting a theory of pension rights and subsequently forcing a given program to fit under it. Any given theoretical approach will make assumptions regarding the intent of legislatures to be bound, as well as the time at which vesting should occur, which may be contradicted by particular statutory provisions such as, for example, an express reservation of the right to revoke pension 58

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benefits.” Id. (emphasis added). See also State ex rel. Phillip, 262 S.W.2d at 574 (to determine whether a public pension plan creates a contract, Missouri courts must conduct “a careful review of the specific statutory provisions governing the relationship”). Even if this Court were to entertain the litany of cases Appellants cite from other jurisdictions, the cases upon which they rely either do not reflect Missouri law, or are materially distinguishable. The cases upon which they rely, moreover, generally find a contract existed for one of four reasons, none of which are present here. First, some courts find vesting upon commencement of employment on the basis of explicit language in the statute at issue. See, e.g., Cloutier v. New Hampshire, 42 A.3d 816 (N.H. 2012) (finding contract existed because the statute defined retirement benefits as “additional compensation for services rendered and to be rendered”) (emphasis added); Olson v. Cory, 636 P.2d 532 (Cal. 1980) (holding a contract existed in part based on a constitutional provision prohibiting reduction in salaries). No such explicit language is found in the ordinances establishing the FRS. Second, some courts found a contract that vested at commencement of employment because member participation in the pension system was voluntary. See, e.g., Wagoner v. Gainer, 279 S.E.2d 636 (W.Va. 1981) (holding that a contract existed based in part on fact that system was voluntary); Snow v. Abernathy, 221 So.2d 626, 631 (Ala. 1976) (“It is voluntary participation at the election of the employee that precipitates vesting of contractual rights of that 59

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employee in the pension or retirement plan”); Bakenhus v. City of Seattle, 296 P.2d 536, 542-43 (Wash. banc 1956) (Hill, dissenting) (“[I]n cases where participation in the pension plan is voluntary on the part of the employee, such payments have been held to constitute sufficient consideration to make the pension plan contractual.”). In contrast here, while no firefighter was compelled to accept employment with the City, their participation in the FRS was compulsory upon employment. STL ORD. 69245 4.18.020 (Appellants’ App. A252). Third, some courts find because participants were required to make nonrefundable contributions to the system, a vested contract was created. See, e.g., Wagoner, 279 S.E.2d at 640-41 (basing the holding that a contract existed in part on the fact that non-refundable contributions were made to the system); Bender v. Anglin, 60 S.E.3d 756 (Ga. 1950) (basing holding that a contract existed on fact that firefighters were required to make non-refundable contributions to the system); Police Pension & Relief Bd. v. Bills, 366 P.2d 581, 585 (Co. banc 1961) (holding a contract was formed in a situation where officers made non-refundable contributions to system); Bakenhus, 296 P.2d 544 (Hill, dissenting) (collecting cases basing finding of contract on the fact that non-refundable contributions were made, and distinguishing from where a refundable contribution is made, which cannot support the creation of a contract). Here, it is undisputed that the contributions made by the firefighters to the FRS are fully refundable, and therefore cannot constitute consideration sufficient to form a contract under the

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rationale of these cases. See ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273). Finally, some courts find vesting upon commencement of employment because the system at issue treated pension benefits as compensation. See, e.g., Cloutier, 42 A.3d at 824 (“the prior retirement statutes stated unequivocally that judicial retirement pay was ‘additional compensation for services rendered and to be rendered’”) (emphasis added); Olson, 636 P.2d at 538 (basing holding in part on constitutional provision prohibiting reduction in salaries); Bankenhus, 296 P.2d at 538-40 (holding that contract was formed because pension was part of compensation); Wagoner, 279 S.E.2d 640-41 (same); Halpin v. Neb. State Patrolmen’s Ret. Sys., 320 N.W.2d 910 (Neb. 1982) (same); Sylvestre v. Minn., 214 N.W.2d 658 (Minn. 1973) (holding that contract was formed because pension was part of salary, and state constitution guaranteed part of judicial salary for life). This approach is particularly inapplicable here for two reasons. First, while certainly not Respondent’s position, Appellants maintain that their retirement benefits are not compensation. See, e.g., Appellants’ Br. at 71-73. Their pension cannot be considered compensation for purposes of forming a contract, but not compensation for purposes of removing from the City the protections afforded by Article VI, § 22 of the Missouri Constitution. Second, the compensation rationale only makes sense insofar as a reduction in benefits for service already performed is concerned. It cannot be the position of Missouri courts that from day one of a public employee’s employment, his compensation is fixed in perpetuity even 61

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though he has not yet performed the service for which he is due to be compensated. See, e.g., Wagoner, 279 S.E.2d at 641 (discussing the “now generally accepted theory that pension are a part of the compensation of an employee to which, under ordinary circumstances, he is as much entitled as he is to the wages paid him for the work he has actually performed) (emphasis added); Bender, 60 S.E.2d at 759 (“where any particular payment under a pension plan has become due, the pensioner has a vested right to such due payment . . . this exception applies to payments that have accrued and to them only, and it does not purport to confer vested rights to future payments that have not accrued”). That cases from other jurisdictions cannot support Appellants’ position is illustrated even more clearly when looking closer at a few of the cases upon which they rely. For example, in Oregon State Police Officers’ Association v. Oregon, the Oregon Supreme Court recognized that courts in Oregon, “follow the rule that retirement benefits become vested at the time of acceptance of employment.” 918 P.2d 765, 773 (Ore. 1996). Missouri does not follow that rule, and Appellants have not cited any case that suggests it would.23 Moreover, the Oregon court

23

Appellants make much of the statement in Firemen’s Retirement System v. City

of St. Louis, ED86921, 2006 WL 2403955, *11 (Mo. App. Aug. 22, 2006) that “the modern trend is to view such pension rights as contractual in nature and not as gratuities.” From this they leap to the generalization that all of the firefighters attained contractual rights to prospective benefits upon commencement of 62

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based its reasoning on two additional factors that are not applicable here. First, the Oregon court held that the “statutory pension system and the relationship between the state and its employees clearly established a contractual obligation to provide an undiminished level of benefits at a fixed cost” and that certain statutory provisions “evinced a clear and unambiguous intention of the legislature for the state to become contractually obligated to plaintiffs….” Id. at 776, 789. There are no such “clear contractual obligations” implicated by the ordinances that established the FRS. Second, the Oregon court stated that once an employee “performs services in reliance on the employer’s promise to afford a particular benefit on retirement, the employer is contractually bound to honor that obligation.” Id. at 377-78. In contrast here, the pension changes at issue do not affect past accruals for any of the firefighters. Appellants also cite to Singer v. Topeka, 607 P.2d 467 (Kan. 1980), which held that prospective increases in employee pension plan contributions were unconstitutional. The Kansas Court, however—like many of the other cases upon employment. Assuming arguendo that Missouri would subscribe to the contract theory of pensions, rather than the gratuity theory, it does not automatically follow that contractual rights to prospective pension benefit accruals arise upon employment. Even states that have adopted the contract theory of pensions differ as to when, and if, contractual obligations arise under various pension plans. Parker, 123 F.3d at 6-8. 63

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which Appellants rely—based its holding partly on the fact that contributions made by the firefighters were not refundable. Id. at 474-75 (“Continued employment over a reasonable period of time during which substantial services are furnished to the employer, plan membership is maintained, and regular contributions into the fund are made, however, cause the employee to acquire a contract right in the pension plan.”). The firefighters at issue in the case had all also worked for more than eleven years for the city of Topeka, which factored into the court’s finding. Id. at 475. In contrast here, Appellants argue that even firefighters with a single day of service as of the Effective Date have entered into a contract with the City forbidding it from ever reducing pension benefits for service not yet performed. Kansas, moreover, “follow[s] a modified contract approach, which permits some unilateral legislative modifications of pension plans so long as the legislature offsets any new disadvantage with comparable new advantages, as seen from the point of view of the public employee.” Parker, 123 F.3d at 7. Missouri courts do not follow this approach. State ex rel. Phillip, 262 S.W.2d at 574 (to determine whether a public pension plan creates a contract, Missouri courts must conduct “a careful review of the specific statutory provisions governing the relationship”). Finally, in reliance on Kemmerer v. ICI Americas, Inc., 70 F.3d 281 (3d Cir. 1995), Appellants contend that “even where a plan reserves to the plan sponsor an explicit right to terminate the plan, acceptance by performance closes that door under unilateral contract principles (unless an explicit right to terminate 64

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or amend after the participants’ performance is reserved).” Appellants’ Br. at 108, citing Kemmerer, 70 F.3d at 288. Not only is Kemmerer distinguishable because it involves an ERISA plan, the court’s reasoning there actually supports the City’s position, not the Appellants’. There, the United States Court of Appeals for the Third Circuit considered whether an employer could terminate a retirement plan after the executives covered by the plan had retired. The court held that the employer had a contractual obligation to the retirees under the ERISA plan and thus could not terminate it. Id. at 287. The court based its holding, however, on the premise that the employer’s contractual obligation to the plaintiffs arose only after the employees had worked for a requisite number of years and where they had already earned their protected benefits. Id. The employer’s contractual obligation to the employees did not commence upon the employees’ acceptance of their respective jobs, and did not extend to benefits dependent upon rendering service in the future. The court stated that “when a participant leaves the employ of the company, the trustee is ‘required to determine benefits in accordance with the plan then in effect.’” Id. (internal citations omitted). Under the Third Circuit’s reasoning in Kemmerer, the City is not precluded from altering or amending the terms of the pension plan for its firefighters prior to their retirement because the City does not have a contractual obligation to provide benefits based on future service. See also Transport Workers of Am., Local 290 v. Se. Penn. Trans. Auth., 145 F.3d 619, 624 (3d Cir. 1998) (holding that it would be inconsistent with traditional principles of contract law to ignore a reservation of 65

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rights, and that given the reservation of rights in the plan at issue, plaintiffs had no reasonable expectation when they joined the plan that it would not later be modified). Appellants’ argument that a contractual right to future pension benefit accruals always arises upon commencement of employment—and that those contractual obligations cannot be modified or terminated at any point during the period of employment—is not supported by the cases upon which they rely and ignores both Missouri law and the clear intent of the FRS. Appellants introduced no evidence in “terms too plain to be mistaken” that City lawmakers intended to create a contractual obligation with respect to future benefit accruals. Nat’l R.R. Passenger Corp., 470 U.S. at 465-66, 470; see also Parker, 123 F.3d at 5. There can be no violation of the Contracts Clause in the absence of a contract. U.S. Trust Co., 431 U.S. at 17-18. The Circuit Court correctly found that no contract existed between the firefighters and the City with respect to benefit accruals and pension contributions attributable to services not yet performed by the firefighters, and this Court should affirm. 3. The FRP does not result in a substantial impairment.

Even if this Court were to find that the City entered into a contract with its firefighters with respect to future accruals and contributions, there would still be no substantial impairment sufficient to establish a violation of the Contract Clauses. First, the City has done nothing more than exercise its right to repeal the FRS. It is axiomatic that compliance with a contract cannot constitute a 66

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substantial impairment. Second, courts throughout the country have held that no substantial impairment occurs when only prospective rights are impacted, as is the case here. See, e.g., Local Div. 589, Amalgamated Transit Union, AFL-CIO, CLC v. Mass., 666 F.2d 618, 637 (1st Cir. 1981) (holding that Contract Clause only applies to laws with retroactive effect); Md. State Teachers Ass’n, Inc. v. Hughes, 594 F. Supp. 1353, 1360 (D. Md. 1984) (same); Robertson v. Kulongoski, 359 F. Supp. 2d 1094, 1101 (D. Or. 2004) (same); Howell v. Anne Arundel Cnt’y, 14 F. Supp. 2d 752, 757 (D. Md. 1998) (finding no “constitutionally cognizable impairment” because there was no retroactive diminution of benefits). In Howell, six current and former police officers challenged proposed modifications to the officers’ retirement plan, which prospectively reduced the maximum amount of annual increases in the participants’ benefits. 14 F. Supp. 2d at 753. The Maryland District Court noted that, like here, the proposed modifications would have no retroactive impact on the officers’ benefits. Id. at 754. According to the court, it was “this and only this potential harm— retroactive diminution of vested benefits—which is accorded constitutional protection by the Contract Clause.” Id. (emphasis added). As such, the court held that the county’s “prospective reduction in the rate of increase of future pension benefits” did not constitute an impairment that entitled the officers to seek relief under the Contracts Clause. Id. at 755. See also Liab. Investigative Fund Effort, Inc. v. Mass. Med. Prof. Ins. Ass’n., 636 N.E.2d 1317, 1321 (Mass. 1994) (“The contracts clause applies only to laws with retrospective, not prospective, effect.”). 67

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The cases from other jurisdictions upon which Appellants rely—even if they accurately reflected Missouri law as to contract formation, which as discussed above they do not—also do not support a substantial impairment here. At issue in the majority of these cases were reductions in benefits accrued for services already performed, which are not at issue in this Appeal. See, e.g., Olson, 636 P.2d 532 (considering a reduction of benefits paid to employees who had already retired); Wagoner, 279 S.E.2d 636 (same); Bender, 60 S.E.2d 756 (considering a reduction in benefits accrued due to service already performed, as well as service to be performed in the future); Police Pension & Relief Bd., 366 P.2d 581 (same); Halpin, 320 N.W.2d 910 (considering reduction in benefits accrued for service already rendered); Bakenhus, 296 P.2d 536 (same). In Cloutier v. New Hampshire, the Court found a substantial impairment when benefits not yet accrued were reduced, but the statute at issue defined retirement benefits as “additional compensation for services rendered and to be rendered,” and therefore facially prohibited reduction of benefits for future service. 42 A.3d at 820 (emphasis added). And finally, in Sylvestre v. Minnesota, the court was faced with a potential separation of powers issue if a reduction of future benefits was permitted, clearly not implicated in this Appeal. 214 N.W.2d at 666-67. The impact of the FRP on the benefits of active firefighters is minimal, and does not amount to a substantial impairment. Compare ST. LOUIS CITY CODE CHAPTER 4.18 (Appellants’ App. A250-A273) with STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). 68

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a.

There is no substantial impairment with respect to firefighters with more than twenty years of service as of the Effective Date.

There are no changes to benefits based on future service with respect to firefighters with more than twenty years of service as of the Effective Date, except that such benefits are to be paid from the FRP rather than the FRS. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). Appellants, however, offer two arguments with respect to those firefighters who will have earned twenty years of service as of the Effective Date. First, they contend that firefighters with over twenty years of service will not receive a refund of member contributions made to the FRP upon retirement. Appellants’ Br. 88-89. They are wrong. The FRP only prohibits return of contributions for members with less than twenty years of service as the Effective Date. STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). Furthermore, contributions by FRP members with more than twenty years of service at the effective date are treated as after tax contributions, reinforcing the City’s intent that such contributions be refunded. STL ORD. 69245, § 4.19.030 (Appellants’ App. A90-A91; A150-A151; A191-A192). Second, Appellants argue that firefighters with more than twenty years of service as of the effective date will suffer a contractual impairment because Board Bill 109 requires any member who stops participating in DROP to make contributions at a rate of 9%. Under the correct reasoning of the Circuit Court, 69

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this cannot constitute an impairment because it impacts benefits not yet accrued, to which no firefighter, including those with more than twenty years of service, has any contractual rights. (Appellants’ App. A60-61). Regardless, the City admits that this a scrivener’s error. Participants with more than twenty years of service will never be required to pay more than 8% into the FRP. STL ORD. 69245, § 4.19.030 (Appellants’ App. A90-A91; A150-A151; A191-A192). This Court may reform Board Bill 109 to correct the City’s error if it believes that this ambiguity arises to the level of a constitutional impairment and that the FRP’s Trustees, who have discretion to interpret the Plan, will be unable to properly resolve the ambiguity currently presented by Board Bill 109. See David M. Sollors, The War on Error: The Scrivener's Error Doctrine and Textual Criticism: Confronting Errors in Statutes and Literary Texts, 49 SANTA CLARA L. REV. 459, 462 (2009) (discussing Justice Scalia’s long-standing support of allowing judges to reform statutes containing scrivener’s errors). Cf. STL. ORD. 69245, § 4.19.160 (severability clause) (Appellants’ App. A168). Appellants likewise focus on areas of purported silence in the Ordinances establishing the FRP in an attempt to prove a (hypothetical) impairment where none exists. For example, they argue that the FRP does not explicitly state that firefighters with more than 20 years of service as the Effective Date are not subject to an actuarial reduction. Initially, their attempt is premature in that it is based on mere assumption, not actual application. Cf. Appellants’ App. A63 (Circuit Court refusing to consider arguments raised by Appellants that were not yet ripe). 70

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Moreover, Appellants ignore the considerable discretion afforded to the Trustees of the FRP to implement the City’s intent that firefighters with more than 20 years of service as of the Effective Date receive the same level of retirement benefits from the FRP as they would have from the FRS. Moreover, if silence were a reason to invalidate a pension scheme that is otherwise presumed lawful, then Chapter 4.18 is itself unlawful because nowhere in the Ordinances establishing the FRS, or in the statutory enabling legislation, is it explicit that firefighters with twenty years of service are entitled to full retirement benefits. Indeed, comparing St. Louis City Code Chapter 4.18 in its entirety with Chapter §§ 87.120-.370 RSMo. would suggest that firefighters must work twenty-five years to be eligible to receive full pension benefits. Compare, e.g., § 87.175.1 RSMo. (Appellants’ App. A289) and ST. LOUIS CITY CODE CHAPTER 4.18.130 (suggesting twenty-five years of service for vesting) (Appellants’ App. A257) with ST. LOUIS CITY CODE 4.18.135 (granting a firefighter with twenty years of service a pension upon reaching “normal retirement age” but nowhere defining that phrase) (Appellants’ App. A258). Because firefighters with more than twenty years of service as of the Effective Date will receive the same level of benefits from the FRP as they would from the FRS, there is no substantial impairment, and this Court should affirm the Circuit Court’s ruling.

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b.

There is no substantial impairment with respect to firefighters withless than twenty years of service as of the Effective Date.

There are only two changes with respect to firefighters with less than twenty years of service as of the Effective Date, both of which affect only benefits for service not yet performed. First, their pension contribution due to the FRP increases by one percent and is not refundable. STL ORD. 69245, § 4.19.030 (Appellants’ App. A90-A91; A150-A151; A191-A192); STL ORD. 69245, § 4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). Any pension contributions paid to the FRS continue to be refundable, however. Id. Second, if a firefighter who had less than twenty years of service at the Effective Date retires before attaining the age of 55, an actuarial reduction—similar to that applied to a person who receives social security retirement benefits prior to age 67—is applied to benefits earned after the Effective Date to reflect the fact that the firefighter did not wait to turn 55 before he began receiving benefits.24 STL ORD. 69245, §

24

This further supports that the challenges based on the Contract Clauses are as-

applied challenges, rather than on-their-face challenges. See Lord v. Erie Cnt’y, No. 08-213, 2010 WL 56095, at *5 (W.D. Pa. Jan. 5, 2010) (“It has long been recognized that facial challenges and ‘as-applied’ challenges are separate and distinct . . . If a statute is unconstitutional as applied, the government may continue to enforce the statute in different circumstances under which it is not 72

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4.19.060 (Appellants’ App. A95-A104; A152-A158; A197-A207). No actuarial reduction will be applied to any benefits accrued as a result of service performed prior to the Effective Date, however. Id. Because these changes only affect benefits pertaining to service not yet performed, and are relatively minor, they do not arise to the level of a substantial impairment necessary to find a violation of the Contract Clauses. 4. The plain language of the FRP does not support Appellants’ remaining arguments with respect to the Contract Clauses. While Appellants construe the FRP to raise potential and additional infirmities under the Contract Clauses, their interpretations are strained and should not be applied by this Court. Blaske, 821 S.W.2d at 838-39 (“It is a well-accepted canon of statutory construction that if one interpretation of a statute results in the statute being constitutional while another interpretation would cause it to be unconstitutional, the constitutional interpretation is presumed to have been intended.”).

unconstitutional. If a statute is unconstitutional on its face, the government may not enforce the statute under any circumstances . . . . In an as-applied challenge, the challenger contends that application of the statute in the particular context in which he has acted, or in which he proposes to act, would be unconstitutional.”) (citations omitted). 73

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Appellants, for example, seize upon a sentence in § 4.19.170 (B) of the ordinances establishing the FRP—which states that benefits are to be paid solely out of the Trust Fund—to argue that the City no longer guarantees pension payments to its firefighters. This provision, however, is nothing more than boilerplate language common to almost all tax-qualified pension plans, intended to make clear that individual plan participants’ claims are against the trust assets. This argument, moreover, is a red herring, designed to create confusion. No express “guarantee” language exists in the ordinances establishing the FRS. The provision characterized as such merely provides that payment of benefits is also an obligation of the City. STL ORD. 69245, § 4.19.120 (Appellants’ App. A85-A90; A163-A164; A228-A230). This same “guarantee” exists in the FRP: “[t]he payment of all benefits accrued under this Plan [the FRP] is hereby made an obligation of the City.” Id. There can be no doubt that the City is obligated to ensure that all benefits accrued under the FRP are paid; the amendments made by Ordinance 69353 prove so.25 See Harding v. Lohman, 27 S.W.3d 820, 824 (Mo.

25

The City admits that it made a scrivener’s error because it meant to strike the

phrase “, and the City assumes no liability or responsibility therefor” from § 4.19.170(B) but failed to do so. If this Court finds that this phrase creates an ambiguity arising to the level of a constitutional impairment, it may invoke the severability clause contained in § 4.19.160 to strike this phrase. See SSM Cardinal Glennon Children’s Hosp. v. State, 68 S.W.3d 412, 417 (Mo. banc 2002) (severing 74

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App. 2000) (courts presume that the legislature intended to effect some change in the existing law when it amends a statute). Appellants’ arguments, moreover, reflect yet again their misreading of the FRP because the same result is accomplished with different terms in the ordinances creating the FRP. By its express and unambiguous language, these ordinances obligate the City to make annual contributions in an amount necessary to fund the FRP as determined by an actuary, using a universally accepted actuarial method that assures funding for all benefits and utilizing assumptions that are approved by the FRP’s Trustees. STL ORD. 69245, § 4.19.120 (Appellants’ App. A85-A90; A163-A164; A228-A230). Thus the FRP effectively “guarantees” the benefit payments by requiring the City to provide funding for the FRP in an amount established by the FRP’s actuary and sufficient to fund all benefit obligations. Appellants attempt to counter this conclusion with an emotional argument that the City might amend the FRP in the future so as to eliminate its funding obligation, thus avoiding its so-called “guarantee.” The ordinances creating the FRP, however, specifically provide: The City reserves the right at any time, and from time to time, to modify or amend the Plan in whole or in part by duly adopting any invalid portion of a statute and finding that courts have “an obligation to sever unconstitutional provisions of a statute” unless certain factors—not present here— are met). 75

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ordinance, provided that the obligation of the City to make contributions to the Plan, as provided in subsection 4.19.120(A), and the provisions relating to enforcement of that obligation, may not be diminished. StL Ord. 69245, § 4.19.160 (Appellants’ App. A140, A164, A242-A243). In other words, while the City retains the right to amend the FRP, it is prohibited from taking actions that would diminish its obligation to fund the FRP. That is exactly the obligation of the City that the Supreme Court of Missouri established in Neske. Neske v. City of St. Louis, 218 S.W.3d 417, 426 (Mo. banc 2007), overruled on other grounds, King-Willmann v. Webster Groves Sch. Dist., 361 S.W.3d 414 (Mo. banc 2012). In contrast, under the ordinances establishing the FRS, the City had an unrestricted right to repeal the system. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). Thus, the FRP actually strengthens, rather than weakens, the City’s obligation to fund the firefighters’ pensions. Appellants also argue that the FRP unconstitutionally impairs the rights of firefighters because it provides that none shall be contractually entitled to future benefit accruals. This argument is equally unavailing. In light of the City’s reservation of the right to repeal the FRS at any time, no active City firefighter has ever had a contractual right to future benefit accruals. ST. LOUIS CITY CODE CHAPTER 4.18.345 (Appellants’ App. A271). Moreover, because the FRP is a brand new plan, no firefighter can be deemed to have entered into a contract for 76

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benefits accrued under the FRP when the City has offered no such contract. Finally, this provision merely codifies the existing rule of law that no public pension plan participant has a contractual right to earn benefits for services rendered in the future. See, e.g., Liab. Investigative Fund Effort, Inc., 636 N.E.2d at 1321 (“The contracts clause applies only to laws with retrospective, not prospective, effect.”). The Contract Clauses of the Missouri and United States Constitutions should not be applied to force a governmental entity to enter into a contract against its will, which would be the end-result if this Court accepted Appellants’ arguments. This Court should affirm the Circuit Court’s July 3, 2013 Order and Judgment finding that the City has not “impair[ed] the vested or contract rights of members of the Firemen’s Retirement System as the same existed on February 1, 2013.” (Appellants’ App. A65). CONCLUSION The financial realities currently faced by the City are forcing it to make a choice—establish a fiscally responsible pension system independent of the FRS Statutes, continue with the fiscally irresponsible FRS, or terminate the firefighter’s pension system in its entirety. Nothing in Missouri law prohibits it from making the first choice, which is the best choice for the City, its taxpayers, and the firefighters in the long-term. This Court should not read limitations into the law forcing the City to make the second or third choices, which is what Appellants would have it do. 77

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The Circuit Court, after considering over 600 pages of legal argument and hearing nearly 7 days of testimony, correctly found that the Missouri Constitution and case law construing it fully support the conclusion that the City has the power to repeal the FRS and enact the FRP, and that it did not impair any contractual rights held by the City’s firefighters when so doing. This Court should affirm the Circuit Court’s Final Order and Judgment entered on July 3, 2013, in its entirety. Respectfully submitted, THOMPSON COBURN LLP By /s/Amanda J. Hettinger Stephen B. Higgins, #25728 Paul G. Griesemer, #24138 Amanda J. Hettinger, #55038 One US Bank Plaza St. Louis, Missouri 63101 Phone: (314) 552-6000 Fax: (314) 552-7000 shiggins@thompsoncoburn.com pgriesemer@thompsoncoburn.com ahettinger@thompsoncoburn.com and Michael A. Garvin, #39817 1200 Market, Room 314 Saint Louis, MO 63103 (314) 622-3361 (phone) (314) 622-4956 (fax) garvinm@stlouiscity.com Attorneys for Respondent The City of St. Louis

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CERTIFICATE OF COMPLIANCE I certify that this brief complies with Missouri Rules of Civil Procedure 55.03 and 84.06, and Missouri Court of Appeals – Eastern District Local Rule 360, is proportionately double-spaced, using Times New Roman, 13 point type, and contains 20,788 words. /s/Amanda J. Hettinger

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CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing has been sent through the Court’s electronic filing system (where applicable) and via first-class mail, postage prepaid on this 27th day of January, 2014 to: Daniel G. Tobben David R. Bohm Kara D. Helmuth DANNA McKITRICK, P.C. 7701 Forsyth Blvd., Suite 800 St. Louis, MO 63105-3907 E-mail: dtobben@dmfirm.com dbohm@dmfirm.com khelmuth@dmfirm.com Richard A. Barry 1750 S. Brentwood Blvd. Suite 295 St. Louis, MO 63144 E-mail: rickbarry@rickbarrypc.com Honorable Chris Koster, Attorney General c/o Karen Bagby, Legislative Director Missouri Attorney General’s Office Consumer Protection Division 815 Olive Street, Suite 200 St. Louis, MO 63101 E-mail: karen.bagby@ago.mo.gov (Via e-mail and first-class mail only) Dave Ricksecker WOODLY & McGILLIVARY 1101 Vermont Ave., NW Suite 1000 Washington, DC 20005 E-mail: dr@wmlaborlaw.com /s/ Amanda J. Hettinger

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